Comstock Holding Companies, Inc. Annual Report 2012

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2012or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission file number 001-32375 Comstock Holding Companies, Inc.(Exact name of registrant as specified in its charter) Delaware 20-1164345(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)1886 Metro Center Drive, 4th Floor, Reston, Virginia 20190(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code (703) 883-1700Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredClass A Common Stock, par value $0.01 per share The Nasdaq Stock Market LLCPreferred Stock Purchase Rights Nasdaq Capital MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files. x Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of 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. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one) Large Accelerated filer ¨ Accelerated filer ¨Non-accelerated filer ¨ Smaller reporting company xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant (10,247,394 shares) based on the lastreported sale price of the registrant’s common equity on the Nasdaq Global Market (“NASDAQ”) on June 30, 2012, which was the last business day of theregistrant’s most recently completed second fiscal quarter, was $13,424,086. For purposes of this computation, all officers, directors, and 10% beneficialowners of the registrant are deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.As of March 27, 2013, there were outstanding 18,243,052 shares of the registrant’s Class A common stock, par value $0.01 per share, and 2,733,500shares of the registrant’s Class B common stock, par value $0.01 per share. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days after the registrant’sfiscal year ended December 31, 2012, are incorporated by reference into Part III of this Form 10-K. Table of ContentsCOMSTOCK HOLDING COMPANIES, INC.ANNUAL REPORT ON FORM 10-KFor the Fiscal Year Ended December 31, 2012TABLE OF CONTENTS PART I 1 Item 1. Business 1 Item 1A. Risk Factors 6 Item 1B. Unresolved Staff Comments 13 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Mine Safety Disclosures 13 PART II 16 Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Selected Financial Data 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23 Item 8. Financial Statements and Supplementary Data 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23 Item 9A. Controls and Procedures 23 Item 9B. Other Information 23 PART III 24 Item 10. Directors, Executive Officers and Corporate Governance 24 Item 11. Executive Compensation 24 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 24 Item 13. Certain Relationships and Related Transactions, and Director Independence 24 Item 14. Principal Accountant Fees and Services 24 PART IV 25 Item 15. Exhibits and Financial Statement Schedules 25 SIGNATURES 29 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1 Table of ContentsPART ICAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTSSome of the statements contained in this report include forward-looking statements. These forward-looking statements can be identified by the use ofwords such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” “will,” “should,” “seeks” or other similar expressions. Forward-lookingstatements are based largely on our expectations and involve inherent risks and uncertainties including certain risks described in this report. Whenconsidering those forward-looking statements, you should keep in mind the risks, uncertainties and other cautionary statements made in this report. Youshould not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of theforward-looking statements apply generally to the real estate industry, while other factors apply directly to us. Any number of important factors which couldcause actual results to differ materially from those in the forward-looking statements include: general economic and market conditions, including interest ratelevels; our ability to service our debt; inherent risks in investment in real estate; our ability to compete in the markets in which we operate; regulatoryactions; fluctuations in operating results; our anticipated growth strategies; shortages and increased costs of labor or building materials; the availability andcost of land in desirable areas; natural disasters; our ability to raise debt and equity capital and grow our operations on a profitable basis and our continuingrelationships with affiliates.Many of these factors are beyond our control. For a discussion of factors that could cause actual results to differ, please see the discussion in this reportunder the heading “Risk Factors” in Item 1A. Item 1.BusinessThe following business description should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere inthis Annual Report on Form 10-K.OverviewComstock Holding Companies, Inc. is a multi-faceted real estate development and services company focused on the Washington, D.C. metropolitanarea. We have substantial experience with building a diverse range of products including apartments, single-family homes, townhouses, mid-risecondominiums, high-rise multi-family condominiums and mixed-use (residential and commercial) developments. Since our founding in 1985, and as ofDecember 31, 2012, we have built and delivered more than 5,500 units generating total revenue in excess of $1.4 billion. References in this Form 10-K to“Comstock,” “Company”, “we,” “our” and “us” refer to Comstock Holding Companies, Inc. together in each case with our subsidiaries and any predecessorentities unless the context suggests otherwise. Dollars in thousands unless otherwise indicated.Our Operating MarketWe are exclusively focused on the Washington, D.C. market, which is the eighth largest metropolitan statistical area in the United States. Our expertisein developing traditional and non-traditional housing products enables us to focus on a wide range of opportunities within our core market. We build homesand apartment buildings in suburban communities, where we focus on low density products such as single family detached homes, townhomes and mid-risemulti-family buildings, and in urban areas, where we focus on high density multi-family and mixed use products. For our homebuilding operations, wedevelop properties with the intent that they be sold either as fee-simple properties or condominiums to individual unit buyers or as investment properties soldto private or institutional investors. Our homebuilding products are designed to attract first-time, early move-up and secondary move-up buyers. We focus onproducts that we are able to offer for sale in the middle price points within the markets where we operate, avoiding the very low-end and high-end products.We believe our middle market strategy positions our products such that they are affordable to a significant segment of potential home buyers in our market.Our apartment buildings are developed as rental properties to be held and operated for our own purposes, converted at some point to for-salecondominium units or sold on a merchant build basis. When developing rental communities, we design our products to be affordable for tenants that fit oneof two groups; (i) young first time tenants; or (ii) renters by choice.We believe that our significant experience over the past 27 years, combined with our ability to navigate through two major housing downturns (early1990s and late 2000s) have provided us the experience necessary to capitalize on attractive opportunities in our core market of Washington, D.C. and tobuild shareholder value. We believe that our focus on the Washington, D.C. market, which has historically been characterized by economic conditions lessvolatile than many other major homebuilding markets, should provide an opportunity to generate attractive returns on investment and for growth. 1Table of ContentsOur Business StrategyOur business strategy is designed to leverage our extensive capabilities and market knowledge to maximize returns on invested capital on our variousreal estate related activities. We execute our strategy through three related business segments: • Homebuilding – We target new home building opportunities where our building experience and ability to manage highly complex entitlement,development and related issues provides us with a competitive advantage. • Apartments – We seek opportunities in the multi-family rental market where our experience and core capabilities can be leveraged. We willeither position the assets for sale to institutional buyers when completed or operate the asset within our own portfolio. Operating the asset for ourown account affords us the flexibility of converting the units to condominiums in the future. • Real Estate Services – Our management team has significant experience in all aspects of real estate management, including strategic planning,land development, entitlement, property management, sales and marketing, workout and turnaround strategies, financing and generalconstruction. We are able to provide a wide range of construction management, general contracting and real estate related services to otherproperty owners. This business line not only allows us to generate positive fee income from our highly qualified personnel but also serves as apotential catalyst for joint venture and acquisition opportunities.These business units work in concert to leverage the collective skill sets of our organization. The talent and experience of our personnel allowsworkflow flexibility and a multitasking approach to managing various projects. In a capital constrained environment, we use creative problem solving andfinancing approaches by working closely with banks, borrowers and other parties in an effort to generate value for all constituents. We believe that ourbusiness network within the Washington, D.C. real estate market provides us a competitive advantage in sourcing and executing investment opportunities.With respect to our homebuilding operations, we seek to minimize risk associated with fluctuating market conditions by primarily building pre-soldunits and limiting the number of “spec units” (units that are not pre-sold) held in inventory. In each new community that we develop we build model homesto demonstrate our products and to house our on-site sales operations. We limit the building of spec units to locations where there is a demonstrated demandfor immediate delivery homes or where the majority of the units within a multi-family building (such as townhouses or condominiums) have been pre-sold.We believe that by limiting the number of spec units held in inventory we reduce our exposure to cyclical fluctuations in market values and minimize costsassociated with holding inventory, such as debt service.Our OperationsWe believe that we are properly staffed for current market conditions and that we have the ability to manage growth as market conditions warrant. Ouroperations are focused on the Washington, D.C. market, where we believe our 27 years of market experience provides us the best opportunity to enhanceshareholder value.Our CommunitiesWe are currently operating, or developing in the following counties in Virginia: Loudoun, Prince William, Arlington, and Fairfax. We also havecommunities in the Maryland counties of Frederick and Montgomery and the District of Columbia. The following table summarizes certain informationregarding our communities as of December 31, 2012: As of December 31, 2012 (dollars in thousands) Project State ProductType (2) EstimatedUnits atCompletion UnitsSettled Backlog (3) Lots OwnedUnsold Average NewOrderRevenue toDate Eclipse on Center Park (1) VA Condo 465 446 3 — $413 Penderbrook Square (1) VA Condo 424 422 1 — $240 Emerald Farm (4) MD SF 84 78 — 6 $452 The Hampshires (5) DC SF/TH 111 — 5 — $— Villas at Eastgate (5) VA Condo 66 — — — $— Falls Grove (5) VA Condo 129 — — — $— Residences at Shady Grove/BLVD Shady Grove (5) MD SF/TH/APT 156 — — — $— BLVD Newell (5) MD Apartment 187 — — — $— Total (1)For sale communities.(2)“SF” means single family home, “TH” means town home and “Condo” means condominium.(3)“Backlog” means we have an executed order with a buyer, but the settlement has not yet taken place.(4)Developed and available for sale.(5)Community under our control currently in development. 2Table of ContentsNorthern Virginia MarketThe Eclipse on Center Park is a 465-unit, high-rise condominium complex in Arlington, Virginia. The project is just minutes from downtownWashington D.C., the Pentagon and Reagan National Airport. The project is an upscale, urban-style, mixed-use complex with residential condominiumsabove an 83,000 square foot retail center, which includes a Harris Teeter grocery store and other convenience-oriented retailers. Condominium sales began inthe second quarter of 2004 and settlements began in November 2006. At December 31, 2012, 19 units remain in our inventory.Penderbrook Square is a 424-unit rental apartment complex in the Fair Oaks area of Fairfax County, Virginia that we purchased as a condominiumconversion project. We acquired the property in 2005 and made significant improvements to common areas, building exteriors, and heating and air-conditioning systems within units and have completed the conversion and sale of a majority of the units to condominiums. Sales and settlements began in2005. At December 31, 2012, two units remained in our inventory. The Company exited this project in January 2013 with the settlement of the two remainingunits.Falls Grove is a new community located in northern Prince William County near Centreville, Virginia. The property will be developed as 19 singlefamily homes and 110 townhouses with prices expected to be starting from $200’s for the townhomes and $400’s for the single-family homes. The Companyanticipates development to commence in the first half of 2013, and unit sales to commence in the second half of 2013.Villas at Eastgate is a new community located in Loudoun County near Chantilly, Virginia. The project consists of 66 single-level condominiums in acluster of two-level buildings, situated within the 400-unit Eastgate master-planned community. The construction of the first building, containing six units,two of which are model homes, commenced in December 2012, with sales commencing in the first quarter of 2013. Initial unit pricing is expected to start inthe $300’s.MarylandEmerald Farm is an 84-unit development of single-family homes in Frederick, Maryland conveniently located near major transportation routes. It isour intention to pursue construction financing for homes on the six remaining finished building lots in the near future and as market conditions warrant.BLVD Newell is a newly planned 187-unit apartment community located proximate to the metro rail station in downtown Silver Spring, MD. TheCompany has initiated the process of securing rezoning and land development permits. Securing the rezoning and land development permits requires localgovernment approval from the County within which the property resides. There can be no assurances made regarding the Company’s ability to secure therezoning and land development permits necessary for its intended use of the property.Residences at Shady Grove/BLVD Shady Grove is a new residential project in Rockville, Maryland, immediately adjacent to the Shady Grove metrostation, the terminus of DC’s Red Line. The project will be developed as 3 single family homes, 36 upscale townhomes and 117 luxury apartments. TheCompany acquired the subject land on December 27, 2012, and land development is expected to start in spring 2013. Sale of homes will begin in mid-2013with first delivery expected late 2013. Leasing of the apartments will commence in 2014.District of ColumbiaThe Hampshires is a new community located within the Lamond-Riggs neighborhood in the Northeast quadrant of Washington, D.C. The property willbe developed as 111 residential units, consisting of 38 single-family homes and 73 townhomes. The Hampshires is located proximate to two metro railstations just inside the Washington, D.C. – Maryland border. The first, of two, single-family model home sales offices was completed and opened in August2012, with the second opening in December 2012. Sales began in August 2012, and there are five single-family units in backlog at December 31, 2012. TheCompany anticipates settlements to commence in the first quarter of 2013.ConstructionOur home designs are selected or prepared in each of our communities to appeal to the tastes and preferences of local homebuyers. We also offeroptional interior and exterior features to allow homebuyers to enhance the basic home design and to allow us to generate additional revenues from each homesold.Substantially all of our construction work is performed by subcontractors. Subcontractors typically are selected after a competitive bidding process andretained for a specific subdivision pursuant to a contract that obligates the subcontractor to complete construction at an agreed-upon price. Agreements withthe subcontractors and suppliers generally are negotiated for each subdivision. We compete with other homebuilders for qualified subcontractors, rawmaterials and lots in the markets where we operate. We employ construction superintendents to monitor homes under construction, participate in majordesign and building decisions, coordinate the activities of subcontractors and suppliers, review the work of subcontractors for quality and cost control andmonitor compliance with zoning and building codes. In addition, our construction superintendents play a significant role in working with our homebuyersby assisting with option selection and home modification decisions, educating buyers on the construction process and instructing buyers on post-closinghome maintenance.Construction time for our homes depends on the weather, availability of labor, materials and supplies, size of the home, and other factors. We typicallycomplete the construction of a home within three to six months. 3Table of ContentsWe typically do not maintain significant inventories of construction materials, except for work in progress materials for homes under construction.Generally, the construction materials used in our operations are readily available from numerous sources. In recent years, we have not experienced delays inconstruction due to shortages of materials or labor that have materially affected our consolidated operating results.WarrantyWe provide our single-family and townhouse home buyers with a one-year limited warranty covering workmanship and materials. The limited warrantyis transferable to subsequent buyers not under direct contract with us and requires that all home buyers agree to the definitions and procedures set forth in thewarranty. Typically, we provide our condominium home buyers with a two-year limited warranty, or as required by statute. In addition, we periodicallyprovide structural warranty of longer durations pursuant to applicable statutory requirements. From time to time, we assess the appropriateness of ourwarranty reserves and adjust accruals as necessary. When deemed appropriate by us, we will accrue additional warranty reserves. We require our generalcontractors and sub-contractors to warrant the work they perform and they are contractually obligated to correct defects in their work that arise during theapplicable warranty period. We seek to minimize our risk associated with warranty repairs through our quality assurance program and by selecting contractorswith good reputations, sufficient resources and adequate insurance. It is typical that there is a gap in the warranty coverage provided by contractors and byhome builders, which we have self-insured in the past. It is our experience that the warranty claims which we self insured have not been significant in naturebut we periodically obtain additional insurance to protect against this unquantifiable risk.CompetitionThe real estate development industry is highly competitive. We compete primarily on the basis of price, location, design, quality, service andreputation. We compete with small private builders and large regional or national builders. In addition to competing for home buyers and renters, builderscompete for construction financing, raw materials and skilled labor. Additionally, under normal market conditions competition exists within the industry forprime development sites, especially those where developed building lots are available under option lot contracts. We compete with other local, regional andnational builders in all of these areas. Many of our competitors have significantly greater financial, marketing, sales and other resources than we have. Someof the national builders against which we compete include Pulte Homes, DR Horton, Toll Brothers, Ryland Homes, NVR, K. Hovnanian and Lennar.Competition among home builders and apartment developers is often specific to product types being offered in a particular area. Often we do not findourselves competing with the large national developers in the urban communities where we develop high-rise and mixed use products. This is primarilybecause most national builders tend to focus on a narrower range of products than what we offer. We believe this provides us a distinct advantage in terms ofattracting potential home buyers and renters in certain areas. We believe the factors that home buyers consider in deciding whether to purchase or rent from usinclude the product type, location, value quality, and reputation of the developer. We believe that our projects and product offerings compare favorably onthese factors and we continually strive to maintain our reputation of building quality products.Additionally, we compete with the resale market of existing homes including foreclosures and short-sales. The dramatic increase of inventory ofexisting homes available for sale beginning in 2006 created significant competition among builders and home sellers for a shrinking number of prospectivehome buyers. This led to downward pressure on home prices in many areas that still persist in many markets. However, for the twelve months endedDecember 31, 2012, modest improvement in the economy and moderate change in buyer’s perceptions appear to be stabilizing home prices and accordinglyreducing sales incentives.RegulationWe are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction andsimilar matters, including local regulation, which imposes restrictive zoning and density requirements in order to limit the number of residential units thatcan ultimately be built within the boundaries of a particular project. We and our competitors may also be subject to periodic delays or may be precludedentirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in thefuture in the states in which we operate. Local and state governments also have broad discretion regarding the imposition of development fees for projects intheir jurisdiction.At December 31, 2012, the Company has initiated the process of securing rezoning and land development permits related to the BLVD Newell project.Securing the rezoning and land development permits requires local government approval from the County within which the property resides. There can be noassurances made regarding the Company’s ability to secure the rezoning and land development permits necessary for its intended use of the property.We and our competitors are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of theenvironment. Some of the laws to which we and our properties are subject may impose requirements concerning development in waters of the United States,including wetlands, the closure of water supply wells, management of asbestos-containing materials, exposure to radon and similar issues. The particularenvironmental laws that apply to any given community vary based on several factors including but not limited to the environmental conditions related to aparticular property and the present and former uses of the property. These environmental laws may result in delays, may cause us and our competitors to incursubstantial compliance related costs, and may prohibit or severely restrict development in certain environmentally sensitive areas. To date, environmentallaws have not had a material adverse impact on our operations. 4Table of ContentsTechnology and Intellectual PropertyWe are committed to the use of Internet-based technology for managing our business, communicating with our customers, and marketing our projects.For customer relationship management, we use Builder’s Co-Pilot™, a management information system that was custom developed in accordance with ourneeds and requirements. This system allows for online and collaborative efforts between our sales and marketing functions and integrates our sales,production and divisional office operations in tracking the progress of construction on each of our projects. We believe that real-time access to ourconstruction progress information and our sales and marketing data and documents through our systems increases the effectiveness of our sales and marketingefforts as well as management’s ability to monitor our business.We utilize our technology infrastructure to facilitate marketing of our projects as well. Through our web site, www.comstockhomebuilding.com, ourcustomers and prospective customers receive automatic electronic communications from us on a regular basis. Our corporate marketing directors work within-house marketing and technology specialists to develop advertising and public relations programs for each project that leverage our technologycapabilities. During 2012, we continued to increase our utilization of internet based marketing platforms in lieu of print advertisements. We believe that thehome buying population will continue to increase its reliance on information available on the internet to help guide their home buying decision.Accordingly, our marketing efforts will continue to seek to leverage this trend in an effort to lower per sale marketing costs while maximizing potential sales.For accounting and purchasing management purposes we use the JD Edwards Enterprise One software system.Our Chief Executive Officer and Chairman of the Board, Christopher Clemente, has licensed his ownership interest in the “Comstock” brand andtrademark to us in perpetuity and free of charge. We do not own the brand or the trademark and are not in a position to be able to adequately protect it againstinfringement from third parties. Additionally, Mr. Clemente has retained the right to continue using the “Comstock” brand and trademark individually andthrough his affiliates, including real estate development projects in our current or future markets that are unrelated to the Company.EmployeesAt December 31, 2012, we had 37 full-time and 1 part time employees. Our employees are not represented by any collective bargaining agreement andwe have never experienced a work stoppage. We believe we have good relations with our employees.Executive Officers of the RegistrantOur executive officers and other management employees and their respective ages and positions as of December 31, 2012 are as follows: Name Age Current PositionChristopher Clemente 53 Chairman and Chief Executive OfficerGregory V. Benson 58 President, Chief Operating OfficerJoseph M. Squeri 47 Chief Financial OfficerJubal R. Thompson 43 General Counsel and SecretaryChristopher Clemente founded Comstock in 1985 and has been a director since May 2004. Since 1992, Mr. Clemente has served as our Chairman andChief Executive Officer. Mr. Clemente has over 25 years of experience in all aspects of real estate development and home building, and more than 30 years ofexperience as an entrepreneur.Gregory V. Benson joined us in 1991 as President and Chief Operating Officer and has been a director since May 2004. Mr. Benson is also a member ofour board of directors. Mr. Benson has over 30 years of home building experience including over 14 years at national home builders, including NVHomes,Ryan Homes and Centex Homes.Joseph M. Squeri has served as our Chief Financial Officer since August 2010. Mr. Squeri has more than a decade of public company leadershipexperience in corporate finance, strategic planning, accounting and operations. From October 2008 to August 2010, Mr. Squeri served as an independentfinancial and business consultant to privately held companies. From January 2008 to September 2008, Mr. Squeri served as the Executive Vice President-Chief Financial Officer and Treasurer of the Federal Realty Investment Trust (NYSE: FRT) with responsibility for capital markets, financial reporting andinvestor relations functions. From 1997 through 2007, Mr. Squeri served in a variety of positions at Choice Hotels International (NYSE: CHH), includingchief financial officer starting in 1999, and then more significant operating roles culminating his position as president and chief operating officer. Mr. Squeriis a certified public accountant.Jubal R. Thompson has served as our General Counsel since October 1998 and our Secretary since December 2004. Mr. Thompson has significantexperience in areas of real estate acquisitions and dispositions, real estate and corporate finance, corporate governance, mergers and acquisition and riskmanagement. 5Table of ContentsItem 1A.Risk FactorsRisks Relating to Our BusinessWe engage in construction and real estate activities, which involve a high degree of risk. Our business, financial condition, operating results andcash flows may be impacted by a number of factors. A discussion of the risks associated with these factors is included below.Our operations require significant capital and our continuing operations and future growth depends on the availability of construction, acquisition anddevelopment loans, which may not to be available at the time it is needed or at favorable terms.The real estate development industry is capital intensive and requires significant expenditures for operations, land purchases, land development andconstruction as well as potential acquisitions of other homebuilders or developers. In order to maintain our operations, we will need to obtain additionalfinancing. These funds can be generated through public or private debt or equity financings, operating cash flow, additional bank borrowings or fromstrategic alliances or joint ventures. In light of the current economic climate we may not be successful in obtaining additional funds in a timely manner, onfavorable terms or at all. Moreover, certain of our bank financing agreements contain provisions that limit the type and amount of debt we may incur in thefuture without our lenders’ consent. In addition, to finance projects, we have historically utilized construction, acquisition and development loans. Thesecredit facilities tend to be project-oriented and generally have variable rates and require significant management time to administer. Further, this type offinancing is typically characterized by short-term loans, which are subject to call. The availability of borrowed funds, especially for land acquisition andconstruction financing, has been greatly reduced, and lenders may require us to invest increased amounts of equity in a project in connection with both newloans and the extension of existing loans. Furthermore, if financial institutions discontinue providing these facilities to us, we would lose our primary sourceof financing our operations or the cost of retaining or replacing these credit facilities could increase dramatically. If we do not have access to additionalcapital or funds to continue or operations or grow our business, we may be required to delay, scale back or abandon some or all of our operating strategies orreduce capital expenditures and the size of our operations. As a result, such an inability to access additional capital would likely cause us to experience amaterial adverse effect on our business, results of operations and financial condition.Our ability to sell homes and, accordingly, our results of operations, will be affected by the availability of mortgage financing to potential home buyers.Most home buyers finance their purchase of a new home through third-party mortgage financing. As a result, residential real estate demand is adverselyaffected by increases in interest rates and decreases in the availability of consumer mortgage financing. Increased monthly mortgage costs and theunavailability of financing to potential home buyers have depressed the market for new homes. For instance, recent initiatives to tighten underwritingstandards have made mortgage financing more difficult to obtain for some of our entry-level home buyers, which has led to decreased demand from thesebuyers. Even if potential home buyers do not experience difficulty securing mortgage financing for their purchase of a new home, increases in interest ratesand decreased mortgage availability or significant alterations to mortgage product types could make it harder for them to sell their existing homes. Thiscould continue to adversely affect our operating results and financial condition.Fluctuations in market conditions may affect our ability to sell our land and home inventories at expected prices, if at all, which could adversely affect ourrevenues, earnings and cash flows.We are subject to the potential for significant fluctuations in the market value of our land and home inventories. We must constantly locate and acquirenew tracts of undeveloped and developed land if we are to support growth in our home building operations. There is a lag between the time we acquirecontrol of undeveloped land or developed home sites and the time that we can bring communities built on that land to market. This lag time varies from siteto site as it is impossible to predict with any certainty the length of time it will take to obtain governmental approvals and building permits. The risk ofowning undeveloped land, developed land and homes can be substantial. The market value of undeveloped land, buildable lots and housing inventories canfluctuate significantly as a result of changing economic and market conditions. Inventory carrying costs can be significant and can result in losses in a poorlyperforming development or market. Material write-downs of the estimated value of our land and home inventories could occur if market conditionsdeteriorate or if we purchase land or build home inventories at higher prices during stronger economic periods and the value of those land or homeinventories subsequently declines during weaker economic periods. We could also be forced to sell homes, land or lots for prices that generate lower profitthan we anticipated, or at a loss, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary.Furthermore, a continued decline in the market value of our land or home inventories may give rise to additional impairments of our inventory and write-offsof contract deposits and feasibility cost, which may result in a breach of financial covenants contained in one or more of our credit facilities, which couldcause a default under those credit facilities. Defaults in these credit facilities are often times the responsibility of Comstock, as Comstock is the guarantor ofmost of its subsidiary’s debts.We evaluated all of our projects to determine if recorded carrying amounts were recoverable by evaluating discount rates, sales prices, absorption andour analysis of the best approach to marketing our projects for sale. This evaluation resulted in an aggregate 2012 impairment charge of $2.4 million.Impairment charges are recorded as a reduction in our capitalized costs. The impairment charge was calculated based on the estimated fair value less costs tosell under the Company’s revised disposition strategy. See real estate held for development and sale Note 4 within the Notes to the Consolidated FinancialStatements. 6Table of ContentsOur ability to use our Net Operating Losses (“NOLs”) and, in certain circumstances, future built-in losses and depreciation deductions can be negativelyaffected if there is an “ownership change” as defined under Section 382 of the Internal Revenue Code.We currently have approximately $116 million in federal and state NOLs with a potential value of up to approximately $45 million in tax savings.These deferred tax assets are currently fully reserved. If unused, these NOLs will begin expiring in 2028. Under Internal Revenue Code Section 382 rules, if achange of ownership is triggered, our NOL asset and possibly certain other deferred tax assets may be impaired. We estimate that as of December 31, 2012, thecumulative shift in the Company’s stock would not cause an inability to utilize any of our NOL asset.The Company’s ability to use its NOLs (and in certain circumstances, future built-in losses and depreciation deductions) can be negatively affected ifthere is an “ownership change” as defined under Section 382. In general, an ownership change occurs whenever there is a shift in ownership by more than 50percentage points by one or more 5% shareholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownershipchange could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control. In aneffort to preserve the availability of these NOLs, Comstock adopted a Section 382 stockholder rights plan (the “Rights Plan”). The Rights Plan was adoptedto reduce the likelihood of such an unintended “ownership change” and thus assist in preserving the value of these tax benefits. Similar plans have beenadopted by a number of companies holding similar significant tax assets over the past several years. This plan was submitted to a vote of the Company’sshareholders on June 17, 2011, and the plan was approved at that meeting.Home prices and sales activities in the Washington, D.C. geographic market have a large impact on our results of operations because we conductsubstantially all of our business in this market.We currently develop and sell homes exclusively in the Washington, D.C. market; consequently home prices and sales activities in the Washington,D.C. geographic market have a large impact on our results of operations. Although demand in this area historically has been strong, the historical slowdownin residential real estate demand and reduced availability of consumer mortgage financing have reduced the likelihood of consumers seeking to purchasenew homes, which has had and will likely continue to have a negative impact on the pace at which we receive orders for our new homes. As a result of theforegoing and general economic conditions, potential customers may be less willing or able to buy our homes, or we may take longer or incur more costs tobuild them. We may not be able to recapture increased costs by raising prices in many cases because of market conditions or because we fix our prices inadvance of delivery by signing home sales contracts. We may be unable to change the mix of our homes or our offerings or the affordability of our homes tomaintain our margins or satisfactorily address changing market conditions in other ways. Our limited geographic diversity means that adverse generaleconomic, weather or other conditions in this market could adversely affect our results of operations and cash flows or our ability to grow our business.Because our business depends on the acquisition of new land, the potential limitations on the supply of land could reduce our revenues or negativelyimpact our results of operations and financial condition.We experience competition for available land and developed home sites in the Washington, D.C. market. We have experienced competition for homesites from other, better capitalized, home builders. Our ability to continue our home building activities over the long term depends upon our ability to locateand acquire suitable parcels of land or developed home sites to support our home building operations. If competition for land increases, the cost of acquiringit may rise, and the availability of suitable parcels at acceptable prices may decline. Any need for increased pricing could increase the rate at which consumerdemand for our homes declines and, consequently, reduce the number of homes we sell and lead to a decrease in our revenues, earnings and cash flows.Our business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict our development and home buildingprojects and reduce our revenues and cash flows.We are subject to extensive and complex laws and regulations that affect the land development and home building process, including laws andregulations related to zoning, permitted land uses, levels of density (number of dwelling units per acre), building design, access to water and other utilities,water and waste disposal and use of open spaces. In addition, we and our subcontractors are subject to laws and regulations relating to worker health andsafety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of ourmarkets, we are required to pay environmental impact fees, use energy saving construction materials and give commitments to provide certain infrastructuresuch as roads and sewage systems. We are also subject to real estate taxes and other local government fees on real estate purchases. We must also obtainpermits and approvals from local authorities to complete residential development or home construction. The laws and regulations under which we and oursubcontractors operate, and our and their obligations to comply with them, may result in delays in construction and development, cause us to incursubstantial compliance and other increased costs, and prohibit or severely restrict development and home building activity in certain areas in which weoperate. If we are unable to continue to develop communities and build and deliver homes as a result of these restrictions or if our compliance costs increasesubstantially, our revenues, earnings and cash flows may be reduced. 7Table of ContentsCities and counties in which we operate have adopted, or may adopt, slow or no-growth initiatives that would reduce our ability to build and sell homes inthese areas and could adversely affect our revenues, earnings and cash flows.From time to time, certain cities and counties in which we operate have approved, and others in which we operate may approve, various “slow-growth”or “no-growth” initiatives and other similar ballot measures. Such initiatives restrict development within localities by, for example, limiting the number ofbuilding permits available in a given year. Approval of slow- or no-growth measures could reduce our ability to acquire land, obtain building permits andbuild and sell homes in the affected markets and could create additional costs and administration requirements, which in turn could have an adverse effect onour revenues, earnings and cash flows.Increased regulation in the housing industry increases the time required to obtain the necessary approvals to begin construction and has prolonged thetime between the initial acquisition of land or land options and the commencement and completion of construction. These delays increase our costs, decreaseour profitability and increase the risks associated with the land inventories we maintain.Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate takeactions like these, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to build in thosemunicipalities. This, in turn, could reduce the number of homes we sell and decrease our revenues, earnings and cash flows.The competitive conditions in the home building industry could increase our costs, reduce our revenues and earnings and otherwise adversely affect ourresults of operations and cash flows.The home building industry is highly competitive and fragmented. We compete with a number of national, regional and local builders for customers,undeveloped land and home sites, raw materials and labor. For example, in the Washington, D.C. market, we compete against multiple publicly-tradednational home builders, and many privately-owned regional and local home builders. We do not compete against all of the builders in all of our producttypes or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition withour projects.We compete primarily on the basis of price, location, design, quality, service and reputation. Some of our competitors have greater financial resources,more established market positions and better opportunities for land and home site acquisitions than we do and have greater amounts of unrestricted cashresources on hand, lower costs of capital, labor and material than us. The competitive conditions in the home building industry could, among other things: • make it difficult for us to acquire suitable land or home sites in desirable locations at acceptable prices and terms, which could adversely affectour ability to build homes; • require us to increase selling commissions and other incentives, which could reduce our profit margins; • result in delays in construction if we experience delays in procuring materials or hiring trades people or laborers; • result in lower sales volume and revenues; and • increase our costs and reduce our earnings.We also compete with sales of existing homes and condominiums, foreclosure sales of existing homes and condominiums and available rental housing.A continued oversupply of competitively priced resale, foreclosure or rental homes in our markets could adversely affect our ability to sell homes profitably.We are dependent on the services of certain key employees, and the loss of their services could harm our business.Our success largely depends on the continuing services of certain key employees, including Christopher Clemente, our Chairman and Chief ExecutiveOfficer; Gregory Benson, our Chief Operating Officer; Jubal Thompson, our General Counsel and Secretary; and Joseph Squeri, our Chief Financial Officer.Our continued success also depends on our ability to attract and retain qualified personnel. We believe that Messrs. Clemente, Benson, Thompson and Squerieach possess valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate. The loss of these or otherkey employees could harm our operations, business plans and cash flows.A significant portion of our business plan involves and may continue to involve mixed-use developments and high-rise projects with which we have lessexperience.We are actively involved in the construction and development of mixed-use and high-rise residential projects. Our experience is largely based onsmaller wood-framed structures that are less complex than high-rise construction or the development of mixed-use projects. A mixed-use project is one thatintegrates residential and non-residential uses in the same structure or in close proximity to each other, on the same land. As we continue to expand into thesenew product types, we expect to encounter operating, marketing, customer service, warranty and management challenges with which we have less familiarity.We had previously expanded our management team to include individuals with significant experience in this type of real estate development but then wereforced to furlough some of them as we downsized our operation. If we are unable to successfully manage the challenges of this portion of our business, wemay incur additional costs and our results of operations and cash flows could be adversely affected. 8Table of ContentsIf we experience shortages of labor or supplies or other circumstances beyond our control, there could be delays or increased costs in developing ourprojects, which would adversely affect our operating results and cash flows.We, from time to time, may be affected by circumstances beyond our control, including: • work stoppages, labor disputes and shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers; • lack of availability of adequate utility infrastructure and services; • Increases in transportation cost for delivery of materials; • our need to rely on local subcontractors who may not be adequately capitalized or insured; and • shortages or fluctuations in prices of building materials.These difficulties have caused and likely will cause unexpected construction delays and short-term increases in construction costs. In an attempt toprotect the margins on our projects, we often purchase certain building materials with commitments that lock in the prices of these materials for 90 to 120days or more. However, once the supply of building materials subject to these commitments is exhausted, we are again subject to market fluctuations andshortages. We may not be able to recover unexpected increases in construction or materials costs by raising our home prices because, typically, the price ofeach home is established at the time a customer executes a home sale contract. Furthermore, sustained increases in construction costs may, over time, erodeour profit margins and may adversely affect our results of operations and cash flows.We depend on the availability and skill of subcontractors and their willingness to work with us.Substantially all of our construction work is done by subcontractors with us acting as the general contractor or by subcontractors working for a generalcontractor we select for a particular project. Accordingly, the timing and quality of our construction depends on the availability and skill of thosesubcontractors. We do not have long-term contractual commitments with subcontractors or suppliers. Although we believe that our relationships with oursuppliers and subcontractors are good, we cannot assure that skilled subcontractors will continue to be available at reasonable rates and in the areas in whichwe conduct our operations. The inability to contract with skilled subcontractors or general contractors at reasonable costs on a timely basis could limit ourability to build and deliver homes and could erode our profit margins and adversely affect our results of operations and cash flows. Recent cash flow andcredit facility limitations have forced us to negotiate settlements with our vendors at less than the entire amounts owed. This may result in vendor hesitationto work with us on future projects.Construction defect and product liability litigation and claims that arise in the ordinary course of business may be costly or negatively impact sales, whichcould adversely affect our results of operations and cash flows.Our home building business is subject to construction defect and product liability claims arising in the ordinary course of business. These claims arecommon in the home building industry and can be costly. Among the claims for which developers and builders have financial exposure are property damage,environmental claims and bodily injury claims and latent defects that may not materialize for an extended period of time. Damages awarded under these suitsmay include the costs of remediation, loss of property and health-related bodily injury. In response to increased litigation, insurance underwriters haveattempted to limit their risk by excluding coverage for certain claims associated with environmental conditions, pollution and product and workmanshipdefects. As a developer and a home builder, we may be at risk of loss for mold-related property, bodily injury and other claims in amounts that exceedavailable limits on our comprehensive general liability policies and those of our subcontractors. In addition, the costs of insuring against construction defectand product liability claims are high and the amount of coverage offered by insurance companies is limited. Uninsured construction defect, product liabilityand similar claims, claims in excess of the limits under our insurance policies, defense costs and the costs of obtaining insurance to cover such claims couldhave a material adverse effect on our revenues, earnings and cash flows.Increased insurance risk could negatively affect our business, results of operations and cash flows.Insurance and surety companies have reassessed many aspects of their business and, as a result, may take actions that could negatively affect ourbusiness. These actions could include increasing insurance premiums, requiring higher self-insured retentions and deductibles, requiring additional collateralon surety bonds, reducing limits, restricting coverage’s, imposing exclusions, and refusing to underwrite certain risks and classes of business. Any of theseactions may adversely affect our ability to obtain appropriate insurance coverage at reasonable costs, which could have a material adverse effect on ourbusiness. Additionally, coverage for certain types of claims, such as claims relating to mold, is generally unavailable. Further, we rely on surety bonds,typically provided by insurance companies, as a means of limiting the amount of capital utilized in connection with the public improvement sureties that weare required to post with governmental authorities in connection with land development and construction activities. The cost of obtaining these surety bondsis, from time to time, unpredictable and these surety bonds may be unavailable to us for new projects. These factors can delay or prohibit commencement ofdevelopment projects and adversely affect revenue, earnings and cash flows. 9Table of ContentsWe are subject to warranty claims arising in the ordinary course of business that could be costly.We provide service warranties on our homes for a period of one year or more post closing and provide warranties on occasion as required by applicablestatutory requirements for extended periods. We self-insure our warranties from time to time and reserve an amount we believe will be sufficient to satisfy anywarranty claims on homes we sell and periodically purchase insurance related coverage to cover the costs associated with potential claims. Additionally, wealso attempt to pass much of the risk associated with potential defects in materials and workmanship on to the subcontractors performing the work and thesuppliers and manufacturers of the materials and their insurance carriers. In such cases, we still may incur unanticipated costs if a subcontractor, supplier,manufacturer or its insurance carrier fails to honor its obligations regarding the work or materials it supplies to our projects. If the amount of actual claimsmaterially exceeds our aggregate warranty reserves, any available insurance coverage and/or the amounts we can recover from our subcontractors andsuppliers, our operating results and cash flows would be adversely affected.Our business, results of operations and financial condition may be affected by adverse weather conditions or natural disasters.Adverse weather conditions, such as extended periods of rain, snow or cold temperatures, and natural disasters, such as hurricanes, tornadoes, floodsand fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and/or decrease the demand for homesor increase the cost of building homes. To the extent that natural disasters or adverse weather events occur, our business and results may be adverselyaffected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our results of operationsand financial conditions may be adversely affected.We are subject to certain environmental laws and the cost of compliance could adversely affect our business, results of operations and cash flows.As a current or previous owner or operator of real property, we may be liable under federal, state, and local environmental laws, ordinances andregulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the properties or in the proximity of the properties wedevelop. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost ofinvestigating, remediating or removing such hazardous or toxic substances may be substantial. The presence of any such substance, or the failure promptly toremediate any such substance, may adversely affect our ability to sell the property, to use the property for our intended purpose, or to borrow funds using theproperty as collateral. In addition, the construction process involves the use of hazardous and toxic materials. We could be held liable under environmentallaws for the costs of removal or remediation of such materials. In addition, our existing credit facilities also restrict our access to the loan proceeds if theproperties that are used to collateralize the loans are contaminated by hazardous substances and require us to indemnify the bank against losses resultingfrom such occurrence for significant periods of time, even after the loan is fully repaid.Our Eclipse project is part of a larger development located at Potomac Yard in Northern Virginia. Potomac Yard was formerly part of a railroadswitching yard contaminated as a result of rail-related activities. Remediation of the property was conducted under supervision of the U.S. EnvironmentalProtection Agency, or EPA, in coordination with state and local authorities. In 1998, federal, state and local government agencies authorized redevelopmentof the property. Our development at the project was consistent with those authorizations. Although concentrations of contaminants remain on the propertyunder the EPA-approved remediation work plan, the EPA has determined that they do not present an unacceptable risk to human health or the environment.However, the EPA’s determination does not preclude private lawsuits and it is possible that we could incur costs to defend against any claims that may bebrought in the future relating to any such contaminants.If we are not able to develop our communities successfully, results of operations and financial condition could be adversely impacted.Before a community generates any revenues, material expenditures are required to acquire land, to obtain development approvals and to constructsignificant portions of project infrastructure, amenities, model homes and sales facilities. It can take a year or more for a community development to achievecumulative positive cash flow. Our inability to develop and market our communities successfully and to generate positive cash flows from these operations ina timely manner would have a material adverse effect on our ability to service our debt and to meet our working capital requirements.Our operating results, including revenue and net income, have varied over time due to a number of conditions. If we are unable to successfully managethese conditions or factors, our operating results may continue to vary and may also suffer.The homebuilding industry is cyclical and we expect to experience variability in our revenues and net income. The volume of sales contracts andclosings typically varies from month to month and from quarter to quarter depending on several factors, including the stages of development of our projects,the uncertain timing and cost of real estate closings, weather and other factors beyond our control. The homebuilding industry is cyclical. In the early stagesof a project’s development, we incur significant start-up costs associated with, among other things, project design, land acquisition and development,construction and marketing expenses. Since revenues from sales of properties are generally recognized only upon the transfer of title at the closing of a sale,no revenue is recognized during the early stages of a project unless land parcels or residential home sites are sold to other developers. Periodic sales ofproperties may be insufficient to fund operating expenses. Further, if sales and other revenues are not adequate to cover operating expenses, we will berequired to seek sources of additional operating funds. Accordingly, our financial results will vary from community to community and from time to time. 10Table of ContentsActs of war or terrorism may seriously harm our business.Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism, may cause disruption to theU.S. economy, or the Washington, D.C. metro area, cause shortages of building materials, increase costs associated with obtaining building materials, result inbuilding code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that we cannotanticipate, all of which could reduce demand for our homes and adversely impact our revenues, earnings and cash flows.We do not own the Comstock brand or trademark, but use the brand and trademark pursuant to the terms of a perpetual license granted by ChristopherClemente, our Chief Executive Officer and Chairman of the Board.Our Chief Executive Officer and Chairman of the Board, Christopher Clemente, has licensed his ownership interest in the “Comstock” brand andtrademark to us in perpetuity and free of charge. We do not own the brand or the trademark and are not in a position to be able to adequately protect it againstinfringement from third parties. Additionally, Mr. Clemente has retained the right to continue using the “Comstock” brand and trademark individually andthrough his affiliates, including real estate development projects in our current or future markets that are unrelated to the Company. We will be unable tocontrol the quality of projects undertaken by Mr. Clemente or others using the “Comstock” brand and trademark and therefore will be unable to prevent anydamage to its goodwill that may occur. We will further be unable to preclude Mr. Clemente from licensing or transferring the ownership of the “Comstock”trademark to third parties, some of whom may compete against us. Consequently, we are at risk that our brand could be damaged which could have a materialadverse effect on our business, operations and cash flows.Risks Related to our Common Stock and Level of IndebtednessOur level of indebtedness may harm our financial condition and results of operations.Our level of indebtedness will have several important effects on our future operations, including, without limitation: • A portion of our cash flows from operations will be dedicated to the payment of any interest or amortization required with respect to outstandingindebtedness; • Increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industryconditions, as well as to competitive pressure; and • Depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, acquisitions, capitalexpenditures, general corporate and other purposes may be limited.At the scheduled maturity of our credit facilities or in the event of an acceleration of a debt facility following an event of default, the entireoutstanding principal amount of the indebtedness under the facility, together with all other amounts payable thereunder from time to time, will become dueand payable. It is possible that we may not have sufficient funds to pay such obligations in full at maturity or upon such acceleration. If we default and arenot able to pay any such obligations due, our lenders have liens on substantially all of our assets and could foreclose on our assets in order to satisfy ourobligations.Our stock has been volatile and we expect that it will continue to be volatile.Our stock price has been volatile, and we expect it will continue to be volatile. For example during the year ended December 31, 2012, the closingprice of our common stock ranged from a high of $1.94 to a low of $1.10. The volatility of our stock price can be due to factors such as: • quarterly variations in our operating results; • general conditions in the home building industry; • interest rate changes; • changes in the market’s expectations about our operating results; • our operating results failing to meet the expectation of securities analysts or investors in a particular period; • changes in financial estimates and recommendations by securities analysts concerning our Company or of the home building industry in general; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends in our markets; • changes in laws and regulations affecting our business; • material announcements by us or our competitors; • material announcements by our construction lenders or the manufacturers and suppliers we use; 11Table of Contents • sales of substantial amounts of Class A common stock by our directors, executive officers or significant stockholders or the perception that suchsales could occur; and • general economic and political conditions such as recessions and acts of war or terrorism.Investors may not be able to resell their shares of our Class A common stock following periods of volatility because of the market’s adverse reaction tothat volatility. Our Class A common stock may not trade at the same levels as the stock of other homebuilders, and the market in general may not sustain itscurrent prices.Investors in our Class A common stock may experience dilution with the future exercise of stock options and warrants, the grant of restricted stock andissuance of stock in connection with our acquisitions of other companies.From time to time, we have issued and we will continue to issue stock options or restricted stock grants to employees and non-employee directorspursuant to our equity incentive plan. We expect that these options or restricted stock grants will generally vest commencing one year from the date of grantand continue vesting over a four-year period. Investors may experience dilution as the options vest and are exercised by their holders and the restrictionslapse on the restricted stock grants. In addition, we may issue stock in connection with acquisitions of other companies, or warrants in connection with thesettlement of obligations and or indebtedness with vendors and suppliers, which may result in investors experiencing dilution.Substantial sales of our Class A common stock, or the perception that such sales might occur, could depress the market price of our Class A common stock.A substantial amount of the shares of our Class A common stock are eligible for immediate resale in the public market. Any sales of substantialamounts of our Class A common stock in the public market, or the perception that such sales might occur, could depress the market price of our Class Acommon stock.The holders of our Class B common stocks exert control over us and thus limit the ability of other stockholders to influence corporate matters.Messrs. Clemente and Benson own 100% of our outstanding Class B common stock, which, together with their shares of Class A common stock,represent approximately 78% of the combined voting power of all classes of our voting stock as of March 27, 2013. As a result, Messrs. Clemente andBenson, acting together, have control over us, the election of our board of directors and our management and policies. Messrs. Clemente and Benson, actingtogether, also have control over all matters requiring stockholder approval, including the amendment of certain provisions of our certificate of incorporationand bylaws, the approval of any equity-based employee compensation plans and the approval of fundamental corporate transactions, including mergers. Inlight of this control, other companies could be discouraged from initiating a potential merger, takeover or any other transaction resulting in a change ofcontrol. Such a transaction potentially could be beneficial to our business or to our stockholders. This may in turn reduce the price that investors are willingto pay in the future for shares of our Class A common stock.The limited voting rights of our Class A common stock could impact its attractiveness to investors and its liquidity and, as a result, its market value.The holders of our Class A and Class B common stock generally have identical rights, except that holders of our Class A common stock are entitled toone vote per share and holders of our Class B common stock are entitled to 15 votes per share on all matters to be voted on by stockholders. The difference inthe voting rights of the Class A and Class B common stock could diminish the value of the Class A common stock to the extent that investors or anypotential future purchasers of our Class A common stock ascribe value to the superior voting rights of the Class B common stock.It may be difficult for a third party to acquire us, which could inhibit stockholders from realizing a premium on their stock price.We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations fromengaging in business combinations with any stockholder, including all affiliates and employees of a stockholder, who owns 15% or more of the corporation’soutstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s voting stock unless specifiedconditions are met.Our amended and restated certificate of incorporation and bylaws contain provisions that have the effect of delaying, deferring or preventing a changein control that stockholders could consider favorable or beneficial. These provisions could discourage proxy contests and make it more difficult forstockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the futurefor shares of our common stock. These provisions include: • a staggered board of directors, so that it would take three successive annual meetings to replace all directors; • a prohibition of stockholder action by written consent; and • advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing mattersthat can be acted upon by stockholders at a meeting. 12Table of ContentsOur issuance of shares of preferred stock could delay or prevent a change of control of us.Our Board of Directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 20,000,000 shares ofpreferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences,privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidationpreferences of such series. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of us withoutfurther action by the stockholders, even where stockholders are offered a premium for their shares. The issuance of shares of preferred stock with voting andconversion rights may adversely affect the voting power of the holders of Class A common stock, including the loss of voting control. We have no presentplans to issue any shares of preferred stock. Item 1B.Unresolved Staff CommentsNot applicable. Item 2.PropertiesOn December 31, 2009, the Company, through an affiliate, Comstock Property Management, L.C., entered into a three-year lease for approximately7,620 square feet of office space for its corporate headquarters at 1886 Metro Center Drive, Reston, Virginia from Comstock Asset Management, L.C., anaffiliate wholly-owned by our Chief Executive Officer. On September 19, 2012, the Company amended the lease for an additional 2,436 square feet of officespace, or a total 10,056 square feet, for its corporate headquarters, with an effective date of July 1, 2012. Refer to related party transactions Note 12 within theNotes to the Consolidated Financial Statements.For information regarding the properties at our communities, please see Item 1 “Business – Our Communities.” Item 3.Legal ProceedingsCurrently, we are not subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising fromour normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actionspending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results or cash flows. Webelieve that we have obtained adequate insurance coverage, rights to indemnification, or where appropriate, have established reserves in connection withthese legal proceedings. Item 4.Mine Safety DisclosuresNot applicable. Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket for Common StockOur Class A common stock is traded on NASDAQ under the symbol “CHCI”. The following table sets forth the high and low sale prices of our Class Acommon stock, as reported on NASDAQ, for the periods indicated: High Low Fiscal Year Ended 2011 First quarter $2.07 $1.09 Second quarter $1.43 $0.90 Third quarter $1.59 $0.86 Fourth quarter $1.22 $0.91 Fiscal Year Ended 2012 First quarter $2.03 $1.08 Second quarter $1.82 $1.13 Third quarter $1.53 $1.10 Fourth quarter $1.59 $1.15 DividendsWe have never paid any cash dividends on our common stock and do not anticipate doing so in the foreseeable future.Unregistered Sales of Equity Securities and Use of ProceedsNone. 13Table of ContentsIssuer Purchases of Equity SecuritiesOur board of directors has previously authorized the repurchase of up to 1.0 million shares of our Class A common stock in one or more open market orprivately negotiated transactions. During the twelve months ended December 31, 2012, we did not repurchase any of our outstanding Class A common stock.As of December 31, 2012, 0.6 million shares of Class A common stock authorized for repurchase remain available for repurchase; however, we have noimmediate plans to repurchase stock under this authorization. On December 31, 2012, there were approximately 37 record holders of our Class A commonstock. On December 31, 2012 there were two holders of our Class B common stock. Item 6.Selected Financial DataNot Applicable. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risksand uncertainties. Please see “Cautionary Notes Regarding Forward-looking Statements” for more information. Our actual results could differ materially fromthose anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed below and elsewhere in thisreport, particularly under the headings “Risk Factors” and “Cautionary Notes Regarding Forward-looking Statements.”OverviewWe are a multi-faceted real estate development and services company. We have substantial experience with building a diverse range of productsincluding apartments, single-family homes, townhouses, mid-rise condominiums, high-rise multi-family condominiums and mixed-use (residential andcommercial) developments. We operate our business through three segments: Homebuilding, Apartment Buildings and Real Estate Services as furtherdiscussed in Note 2 of our consolidated financial statements. We are currently focused on the Washington, D.C. market, which is the eighth largestmetropolitan statistical area in the United States.HomebuildingOur expertise in developing traditional and non-traditional housing products enables us to focus on a wide range of opportunities within our coremarket. For our homebuilding operations, we develop properties with the intent that they be sold either as fee-simple properties or condominiums toindividual unit buyers or as investment properties sold to private or institutional investors. Our for-sale products are designed to attract first-time, early move-up, and secondary move-up buyers. We focus on products that we are able to offer for sale in the middle price points within the markets where we operate,avoiding the very low-end and high-end products. We believe our middle market strategy positions our products such that they are affordable to a significantsegment of potential home buyers in our market.Apartment BuildingsFor Comstock’s apartment sector, we develop projects ranging from approximately 75 to 200 units in locations that are supply constrained withdemonstrated demand for stabilized assets. We seek opportunities in the multi-family rental market where our experience and core capabilities can beleveraged. We will either position the assets for sale when completed or operate the assets within our own portfolio. Operating the assets for our own accountaffords us the flexibility of converting the units to condominiums in the future. When developing rental communities, we design our products to beaffordable for tenants that fit one of two groups: (i) young first-time renters or (ii) renters by choice.Real Estate ServicesOur management team has significant experience in all aspects of real estate management including strategic planning, land development, entitlement,property management, sales and marketing, workout and turnaround strategies, financing and general construction. We are able to provide a wide range ofconstruction management, general contracting and other real estate related services to other property owners. This business line not only allows us togenerate fee income from our highly qualified personnel but also serves as a potential catalyst for joint venture and acquisition opportunities.We believe that our significant experience over the past 27 years, combined with our ability to navigate through two major housing downturns (early1990s and late 2000s), have provided us the experience necessary to capitalize on attractive opportunities in our core market of Washington, D.C. and torebuild shareholder value. We believe that our focus on the Washington, D.C. market, which has historically been characterized by economic conditions lessvolatile than many other major homebuilding markets, should provide an opportunity to generate attractive returns on investment and for growth. 14Table of ContentsRecent DevelopmentsNew Hampshire Ave. Ventures, LLCOn August 23, 2012, the Company formed New Hampshire Ave. Ventures, LLC, a consolidated joint venture of its subsidiary ComstockVentures XVI, L.C. and 6000 New Hampshire Avenue, LLC, to acquire, develop and construct 111 residential units, consisting of 38 single-family homes and73 townhomes, in Washington, D.C. (the “NHA Project”). The Company, through New Hampshire Ave. Ventures, LLC, entered into a $3.0 million mezzanineloan (the “NHA Mezzanine Loan”) in connection with the NHA Project with the Rosalie K. Stahl Trust, utilized to acquire the fully entitled land. Concurrentwith the formation of the joint venture, the Company entered into a three-year loan agreement with Eagle Bank pursuant to which the Company secured a$6.0 million revolving development loan and a $4.0 million revolving construction loan (collectively, the “Eagle NHA Revolver”) to finance thedevelopment and construction of the NHA Project. Refer to Note 9 within the Notes to the Consolidated Financial Statements for further discussion of theterms of these financing arrangements.Comstock Eastgate, L.C.On September 27, 2012, the Company formed Comstock Eastgate, L.C., a consolidated joint venture of Comstock Holding Companies, Inc. andBridgeCom Development II, LLC, to acquire, develop and construct 66 residential condominium units in Loudoun County, VA (the “Eastgate Project”).Concurrent with the formation of the joint venture, the Company entered into a loan agreement with Cardinal Bank to which the Company secured a $2.5million revolving construction loan to finance the construction of the units. Refer to Note 9 within the Notes to the Consolidated Financial Statements forfurther discussion of the terms of the financing arrangement.Comstock Redland Road, L.C.On December 27, 2012, the Company formed Comstock Redland Road, L.C., a wholly owned subsidiary, to acquire, develop and construct 3single-family moderately priced dwelling units, 36 townhome units and a 117-unit multi-family residential building. Concurrent with formation of the entity,the Company completed the acquisition through securing a $2.5 million acquisition bridge loan with Eagle Bank and a $5.75 million Deferred PurchaseMoney Promissory Note with TSR-Shady Grove, LLC, a Maryland limited liability Company. Refer to Note 9 within the Notes to the Consolidated FinancialStatements for further discussion of the terms of these financing arrangements. Further, these financing arrangements were repaid in full on March 25, 2013through new arrangements with Eagle Bank. Refer to Note 20 within the Notes to the Consolidated Financial Statement for further discussion of the terms ofthe new arrangement with Eagle Bank.Comstock Investors VII, L.C.On March 14, 2013, Comstock Investors VII, L.C. (“Investors VII”), a subsidiary of the Company entered into subscription agreements(each a “Subscription Agreement”) with certain accredited investors (the “Purchasers,” and each a “Purchaser”), pursuant to which the Purchasers purchasedmembership interests (“Interests”) in Investors VII for an initial aggregate principal amount of $6,925 of an up to $7,000 capital raise (the “PrivatePlacement”). Purchasers included unrelated third-party accredited investors along with members of the Company’s Board of Directors and the ChiefOperating Officer, Chief Financial Officer and General Counsel of the Company. The Subscription Agreement provides that the Purchasers are entitled to acumulative, compounded, preferred return of 20% per annum, compounded annually on their capital account balances. After six months, the Company hasthe right to repurchase the Interests of the Purchasers, provided that (i) all of the Purchasers’ Interests are acquired, (ii) the purchase is made in cash and(iii) the purchase price equals the Purchasers’ capital account plus an amount necessary to cause the preferred return to equal a cumulative cash on cash returnequal to 20% per annum. The Private Placement provides capital related to the current and planned construction of the Company’s following projects: TheResidences at Shady Grove in Rockville, Maryland consisting of 36 townhomes, The Hampshires project in Washington, D.C. consisting of 38 single familyresidences and 73 townhomes, and the Falls Grove project in Prince William County, Virginia consisting of 110 townhomes and 19 single family homes(collectively, the “Projects”). Proceeds of the Private Placement are to be utilized (i) to provide capital needed to complete the Projects in conjunction withproject financing for the Projects, (ii) to reimburse the Company for prior expenditures incurred on behalf of the Projects, and (iii) for general corporatepurposes of the Company.As part of the Private Placement, the Company also issued warrants to purchase shares of the Company’s Class A Common Stock (“ClassA Common stock”) (“Warrants,” and each a “Warrant”) to Purchasers who are not officers, directors or affiliates of the Company that purchased Interests thatequaled or exceeded an initial investment amount of $250. The Warrants represent the right to purchase up to 224 shares of Class A Common Stock, themaximum aggregate amount of warrants approved for issuance under the Private Placement. The Warrants have an initial exercise price which is equal to theaverage of the closing price of the Class A Common Stock of the 20 trading days preceding the issuance of the Warrant. The Warrants contain a cashlessexercise provision. In the event the Purchasers exercise the Warrants on a cashless basis, the Company will not receive any proceeds. Warrants may beexercised at any time prior to March 14, 2023.Recent Accounting PronouncementsIn May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement andDisclosure Requirements in U.S. GAAP and International Financial Reporting Standard (“IFRS”),” which provides a consistent definition of fair value andensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. The guidance changes certain fair valuemeasurement principles and expands the disclosure requirements, particularly for Level 3 fair value measurements. The guidance was effective for theCompany beginning February 1, 2012 and is applied prospectively. The adoption of this guidance, which relates primarily to disclosure, did not have amaterial impact on our Consolidated Financial Statements. 15Table of ContentsIn June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU2011-05”), whichrequires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive,statements of net income and other comprehensive income. The guidance was effective for the Company beginning January 1, 2012 and is appliedprospectively. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with U.S. GAAP, which require us to make certain estimates and judgments that affectthe reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to the consolidationof variable interest entities, revenue recognition, impairment of real estate held for development and sale, warranty reserve and our environmental liabilityexposure. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actualresults may differ materially from these estimates.A summary of significant accounting policies is provided in Note 2 to our audited consolidated financial statements. The following section is asummary of certain aspects of those accounting policies that require our most difficult, subjective or complex judgments and estimates.Real estate held for development and saleReal estate held for development and sale includes land, land development costs, construction and other costs. Real estate held for development anduse is stated at cost, or when circumstances or events indicate that the real estate is impaired, at estimated fair value. Real estate held for sale is carried at thelower of cost or fair value less estimated costs to sell. Land, land development and indirect land development costs are accumulated by specific project andallocated to various units within that project using specific identification and allocation based upon the relative sales value, unit or area methods. Directconstruction costs are assigned to units based on specific identification. Construction costs primarily include direct construction costs and capitalized fieldoverhead. Other costs are comprised of fees, capitalized interest and real estate taxes. Costs incurred to sell real estate are capitalized to the extent they arereasonably expected to be recovered from the sale of the project and are tangible assets or services performed to obtain regulatory approval of sales. Otherselling costs are expensed as incurred.If the project is considered held for sale, it is valued at the lower of cost or fair value less estimated selling costs. For assets held for development anduse, estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. Theevaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances thatmay affect fair value including management’s plans for the property. A write-down to estimated fair value is recorded when the net carrying value of theproperty exceeds its estimated undiscounted future cash flows. These evaluations are made on a property-by-property basis whenever events or changes incircumstances indicate that the net book value may not be recoverable.The Company has classified its Eclipse and Penderbrook projects as held for sale and accordingly, carries the projects at fair value less costs to sell asdetermined by discounted cash flow models, by reference to comparable market transactions, or relevant purchase offers. Discounted cash flow models aredependent upon several subjective factors, including estimated average sales prices, estimated sales pace, and the selection of an appropriate discount rate.The estimates of sales prices, sales pace and discount rates used by the Company are based on the best information available at the time the estimates aremade.In the third quarter of 2012, management evaluated its strategic alternatives with respect to its real estate projects classified as held for sale with theobjective of creating additional near term liquidity. As a result, a decision was made to market the Potomac Yard project in a bulk sale transaction, rather thanby selling directly to prospective home buyers, significantly accelerating absorption. The impairment charge of $2,358 for the year ended December 31,2012, reflects the write down to estimated fair value less costs to sell under the revised disposition strategy, however, there can be no assurance that theCompany will be successful in the sale of the Potomac Yard project in a bulk sale and in the absence thereof, the Company will continue selling toprospective home buyers. There were no impairment charges recorded during the year ended December 31, 2011.After impairments and write-offs, real estate held for development and sale consists of the following: December 31,2012 December 31,2011 Land and land development costs $19,378 $4,693 Cost of construction (including capitalized interest and real estate taxes) 8,403 16,519 $27,781 $21,212 16Table of ContentsWarranty reserveWarranty reserves for units settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to ariseduring the typical one-year warranty period provided by the Company or within the two-year statutorily mandated structural warranty period forcondominiums. Since the Company typically subcontracts its homebuilding work, subcontractors are required to provide the Company with an indemnityand a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primaryresponsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based uponhistorical warranty cost experience and current business factors. This reserve is an estimate and actual warranty costs could vary from these estimates.Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on aperiodic basis. Warranty claims are directly charged to the reserve as they arise. The following table is a summary of warranty reserve activity which isincluded in accounts payable and accrued liabilities: Years ended December 31, 2012 2011 Balance at beginning period $1,009 $1,110 Additions 52 110 Releases and/or charges incurred (98) (211) Balance at end of period $963 $1,009 Revenue recognitionWe recognize revenues and related profits or losses from the sale of residential properties, including multiple units to the same buyer, finished lots andland sales when closing has occurred, full payment has been received, title and possession of the property has transferred to the buyer and we have nosignificant continuing involvement in the property. Other revenues include revenue from land sales, rental revenue from leased apartments, which isrecognized over the terms of the respective leases, and revenue earned from management and administrative support services provided to related parties,which is recognized as the services are provided.Income taxesThe effective tax rate for the years ended December 31, 2012 and 2011 was 0% and 3%, respectively. This resulted in zero and $33 in tax expense forthe twelve month periods ended December 31, 2012 and 2011, respectively.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. The Company previously recorded valuation allowances for certain tax attributes and other deferredtax assets. At this time, sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. In the future, ifthe Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reversed. With a fullvaluation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance.The Company currently has approximately $116 million in federal and state NOLs, which based on current statutory tax rates, has a potential fair valueof approximately $45 million in tax savings. If unused, these NOLs will begin expiring in 2028. Under Section 382 rules, if a change of ownership istriggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired. We estimate that as of December 31, 2012, thecumulative shift in ownership of the Company’s stock would not cause an impairment of our NOL asset. However, if an ownership change were to occur, theSection 382 limitation would not be expected to materially impact the Company’s financial position or results of operations as of December 31, 2012,because of the Company’s full valuation allowance on its net deferred tax assets.The Company’s ability to use its NOLs (and in certain circumstances, future built-in losses and depreciation deductions) can be negatively affected ifthere is an “ownership change” as defined under Section 382. In general, an ownership change occurs whenever there is a shift in ownership by more than 50percentage points by one or more 5% shareholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownershipchange could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control. In aneffort to preserve the availability of these NOLs, Comstock adopted a Section 382 stockholder rights plan (the “Rights Plan”). The Rights Plan was adoptedto reduce the likelihood of such an unintended “ownership change” and thus assist in preserving the value of these tax benefits. Similar plans have beenadopted by a number of companies holding similar significant tax assets over the past several years. This plan was submitted to a vote of the Company’sshareholders on June 17, 2011, and the plan was approved at that meeting.The Company has not recorded any accruals for tax uncertainties as of December 31, 2012 and 2011, respectively. We file U.S. and state income taxreturns in jurisdictions with varying statutes of limitations. The 2009 through 2011 tax years remain subject to examination by federal and most state taxauthorities. 17Table of ContentsUse of estimatesThe preparation of the financial statements, in conformity with accounting principles generally accepted in the United States of America, requiresmanagement to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results coulddiffer from those estimates. Material estimates are utilized in the valuation of real estate held for development and sale, valuation of deferred tax assets,capitalization of costs, consolidation of variable interest entities and warranty reserves.Results of OperationsYear ended December 31, 2012 compared to year ended December 31, 2011Orders, backlog and cancellationsGross new order revenue, revenue from all units sold, for the year ended December 31, 2012 increased $4.4 million to $18.9 million on 57 units,including condominium units, single-family units and townhome units, as compared to $14.5 million on 50 units for the year ended December 31, 2011. Netnew order revenue, revenue for all units sold less revenue from cancellations, for the year ended December 31, 2012 increased $2.3 million to $16.4 millionon 51 units as compared to $14.1 million on 48 units for the year ended December 31, 2011. The average gross new order revenue per unit for the year endedDecember 31, 2012 increased by $42 to $332, as compared to $290 for the year ended December 31, 2011. Our backlog at December 31, 2012 increased $4.8million to $5.4 million on 9 units as compared to our backlog at December 31, 2011 of $0.6 million on 3 units.We have four Washington, D.C. projects where we have units available for sale: Penderbrook Square in Fairfax, VA, the Eclipse at Potomac Yard inArlington, VA, The Hampshires in Northeast, Washington D.C. and Eastgate in Chantilly, VA. As of December 31, 2012, there were 4 units in backlog for atotal of $1.8 million related to the Penderbrook and Eclipse projects. Because unit sales at these projects are generated from completed inventory, we do notneed to construct units after a sales contract is executed with a unit purchaser. As a result, we are able to quickly execute on a sales contract and deliver theunit to the purchaser with deliveries typically made within thirty days of contract execution. The Hampshires project opened its first model home and begansales in August 2012 and at December 31, 2012, there were 5 units in backlog for a total of $3.6 million. The first model is expected at Eastgate in the 1quarter of 2013, with sales anticipated to begin concurrently with the opening. Unit sales at The Hampshires and Eastgate projects are generated frominventory that must be developed and constructed, thus the delivery of the units to the purchaser typically is made in 90 - 120 days from execution of thesales contract with the purchaser.Revenue – homebuildingThe number of units delivered for the year ended December 31, 2012 decreased by 3 to 45 as compared to 48 units for the year ended December 31,2011. Average revenue per unit delivered decreased by approximately $34 to $259 for the year ended December 31, 2012 as compared to $293 for the yearended December 31, 2011. Revenue from homebuilding decreased by $2.5 million to $11.6 million for the year ended December 31, 2012 as compared to$14.1 million for the year ended December 31, 2011. For the year ended December 31, 2012, 37 units were settled at Penderbrook and 8 units at Eclipse, ascompared to 29 units at Penderbrook and 17 units at Eclipse for the year ended December 31, 2011. The decrease in settlements and decrease in average salesprice is largely a function of the available product mix at condominium projects. As of December 31, 2012, there are 19 units remaining in our Eclipse projectand 2 units remaining in our Penderbrook project. This compares to 27 units and 39 units, respectively, for Eclipse and Penderbrook at December 31, 2011.Revenue – otherRevenue – other decreased approximately $5.2 million to $2.7 million during the year ended December 31, 2012, as compared to $7.9 million for theyear ended December 31, 2011. These decreases are directly attributable to the completion of several general contracting projects in the latter quarters of2011 and through 2012, as well as from the reduction in rental operations at the Penderbrook and Eclipse developments due to absorption of the units. TheCompany has encountered a slowdown in general contracting services, but it continues to pursue opportunities within the Real Estate Services segment asthey become available.Revenue – other includes $0.4 million and $1.2 million of revenue generated by our rental communities during the twelve months ended December 31,2012 and 2011, respectively. For the year ended December 31, 2012 and 2011, other revenue includes $1.9 million and $4.9 million, respectively, of relatedparty real estate service revenue as further discussed in Note 12 to the consolidated financial statements.We consider revenue to be from homebuilding when there is a structure built or being built on the lot when delivered. Sales of lots occur, and areincluded in other revenues, when we sell raw land or finished home sites in advance of any home construction.Cost of sales – homebuildingCost of sales – homebuilding for the year ended December 31, 2012 decreased by $2.5 million, to $9.7 million as compared to $12.2 million for theyear ended December 31, 2011. The unit mix of homes settled during the year ended December 31, 2012 accounted for the decrease in the aggregate cost ofsales figures. For the year ended December 31, 2012, gross margins increased to 16.4% on units settled as compared to 13.5% for the year endedDecember 31, 2011. The increase in margins is attributable to an increase in traffic and absorption at the two condominium projects resulting in a slightincrease in pricing across those units. Further, this is a reflection of impairment charges recorded on the Eclipse project during the 3 quarter of 2012. 18strdTable of ContentsCost of sales – otherCost of sales – other decreased approximately $3.9 million to $3.5 million during the year ended December 31, 2012 as compared to $7.4 million forthe year ended December 31, 2011. Included in cost of sales – other for the year ended December 31, 2012, costs and gross profits (losses) totaled $1.6million and $(1.2) million, respectively, related to rental operations at Penderbrook and Eclipse. Included in cost of sales – other for the year endedDecember 31, 2011, costs and gross profits (losses) totaled $1.5 million and $(0.3) million, respectively, related to the same rental operations. As a result ofthe continued absorption of the condominium units at Penderbrook and Eclipse, rental revenues have declined and the impact of fixed costs on gross profithas been more significant. The Company expects this trend to continue as the final units within the two condominium projects are absorbed.Included in cost of sales – other for the year ended December 31, 2012, were costs and gross profits that totaled $1.9 million and $0.4 million,respectively, related to our aforementioned general contracting projects. Included in cost of sales – other for the year ended December 31, 2011, costs andgross profits that totaled $5.9 million and $0.7 million, respectively, related to the same general contracting business. These decreases in the year endedDecember 31, 2012 are directly related to the decrease in the number of ongoing general contracting projects. Consequently, the decline in revenuesgenerated within the Real Estate Services segment and the impact relative to the fixed costs on gross profit has been more significant. The Company has oneongoing project and continues to pursue opportunities to expand the Real Estate Services segment.Impairments and write-offsWe recorded an impairment charge of $2.4 million during the year ended December 31, 2012, to properly record our for sale project at fair market valueless costs to sell consistent with the provisions of ASC 360. No impairment charges were recorded during the twelve months ended December 31, 2011. Seereal estate held for development and sale Note 4 within the Notes to the Consolidated Financial Statements for discussion and analysis.We evaluated all of our projects to determine if recorded carrying amounts were recoverable by evaluating discount rates, sales prices, absorption andour analysis of the best approach to marketing our projects for sale. This evaluation resulted in an aggregate 2012 impairment charge of $2.4 million. Theimpairment charge was realized related to the Company’s revised disposition strategy. See real estate held for development and sale Note 4 within the Notesto the Consolidated Financial Statements.Selling, general and administrative expensesSelling, general and administrative expenses for the year ended December 31, 2012 increased $1.3 million to $8.7 million, as compared to $7.4 millionfor the year ended December 31, 2011. The increase in expenses for the twelve month periods ended in December 31, 2012, is primarily attributable toincreases in audit and taxes fees of $134, consulting expenses of $385 and stock compensation of $530.Interest, real estate taxes and indirect costs related to inactive projectsInterest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate held for development and sale duringthe active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties aresubstantially complete or the property becomes inactive which means that development and construction activities have been suspended indefinitely.Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings duringthe period. Interest and real estate taxes capitalized to real estate held for development and sale are expensed as a component of cost of sales as related unitsare sold. Approximately, $351 and $320 of interest was capitalized to projects during the years ended December 31, 2012 and 2011, respectively.When a project becomes inactive, its interest, real estate taxes and indirect overhead costs are no longer capitalized but rather expensed in the period inwhich they are incurred. During the year ended December 31, 2012 and 2011, several of our historical projects were determined to be inactive for accountingpurposes. Refer to Note 2 to the Consolidated Financial Statements for the breakdown of the interest, real estate taxes and indirect costs related to inactiveprojects reported on the consolidated statement of operations.Discontinued operationsAs described in Note 16 to the Consolidated Financial Statements, on March 7, 2012, the Company’s subsidiary sold the Cascades Apartments for$19.35 million. Because the sale of the Cascades Apartments represents a component of the Company, U.S. GAAP requires the results of operations associatedwith the Cascades Apartments to be included in Discontinued Operations. Accordingly, the net gain from the sale of the project of $6.5 million is reflectedwithin Discontinued Operations in the accompanying financial statements. Although the sale of the Cascades project is presented in the accompanyingfinancial statements under Discontinued Operations, developing apartments for the purpose of selling is a component of the Company’s ongoing strategy andoperating activities. The Company continues to pursue such projects within its Apartment Buildings segment and anticipates that sales of similar operatingprojects will be reflected in this manner.Income taxesThe effective tax rate for the years ended December 31, 2012 and 2011 was 0% and 3%, respectively. This resulted in zero and $33 in tax expense forthe twelve month periods ended December 31, 2012 and 2011, respectively. 19Table of ContentsLiquidity and Capital ResourcesWe require capital to operate, to post deposits on new deals, to purchase and develop land, to construct homes, to fund related carrying costs andoverhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering,entitlement, architecture, advertising, utilities and interest as well as the construction costs of our homes. Our sources of capital include, and will continue toinclude, funds derived from various secured and unsecured borrowings to finance construction on acquired land, cash flow from operations, which includesthe sale and delivery of constructed homes, rental apartment projects, finished and raw building lots and the sale of equity and debt securities.The Company is involved in ongoing discussions with lenders in an effort to provide additional growth capital to fund various new businessopportunities. In addition, on March 14, 2013, the Company, through its wholly-owned subsidiary Comstock Investors VII, L.C., entered into subscriptionagreements with certain accredited investors (“Comstock VII Investors”), pursuant to which the Comstock VII Investors purchased membership interests inthe subsidiary for an initial aggregate principal amount of $6,925, of an up to $7,000 capital raise. Further, we have executed extensions and obtained newfacilities to significantly reduce the debt obligations maturing in 2013. As of December 31, 2012, the maturities and curtailment obligations for 2013 was$14,027, of which, the new facilities and extensions resulted in $13,291 of the obligations with revised maturities beginning in 2015 and beyond. Refer toNote 20 for more details on the capital raise and changes to our credit facilities. We are anticipating that through a combination of the capital raised throughthe aforementioned private placement, current available cash on hand and additional cash from settlement proceeds at existing and under developmentcommunities, the Company will have sufficient financial resources to sustain our operations through the next 12 months, though no assurances can be madethat we will be successful in our efforts.Credit FacilitiesWe have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition, development andconstruction of real estate property.As of December 31, 2012, maturities and/or curtailment obligations of all of our borrowings are as follows: 2013 $14,027 2014 4,084 2015 6,422 2016 — 2017 and thereafter 3,096 Total $27,629 As a result of debt extensions, repayments, and new facilities secured after December 31, 2012, as disclosed in Note 20 to the consolidated financialstatements, we have significantly reduced the maturities and curtailment obligations for 2013. As of December 31, 2012, the maturities and curtailmentobligations for 2013 was $14,027, of which, the new facilities and extensions resulted in $13,291 of the obligations with revised maturities beginning in2015 and beyond.The Company has generally financed its development and construction activities on a single or multiple project basis so it is not uncommon for eachproject or collection of projects the Company develops and builds to have a separate credit facility. Accordingly, the Company typically has had numerouscredit facilities and lenders. As described in more detail below, at December 31, 2012 and 2011 our outstanding debt by lender was as follows: Bank Balance asof12/31/12 Balance asof12/31/11 Recourse SunBridge, net of $0.0 million and $0.6 million discount, respectively $— $10,178 Secured Cardinal Bank 636 9,957 Secured Bank of America 3,096 3,751 Unsecured Cornerstone (Haven Trust) — 400 Unsecured Branch Banking & Trust 263 263 Secured Wachovia — 133 Unsecured Seller – Emerald Farm 100 100 Secured Fifth Third — 25 Unsecured Eagle Bank – Potomac Yard / Penderbrook 4,084 — Secured Eagle Bank – New Hampshire Ave. 3,159 — Secured Eagle Bank – Redland Road 2,500 — Secured Rosalie K. Stahl Trust 3,000 — Secured TSR-Shady Grove, LLC. 5,750 — Secured 22,588 24,807 Due to affiliates – Stonehenge Funding 5,041 5,008 Unsecured Total $27,629 $29,815 20Table of ContentsSignificant 2012 BorrowingsEagle BankOn May 29, 2012, the Company, through its Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C. subsidiaries, entered into a loanagreement with Eagle Bank pursuant to which the Company secured a $9.96 million loan with a twenty-seven month term (the “Eagle Bank Loan”) torefinance the Company’s Eclipse condominium project and Penderbrook Square condominium project. Proceeds from the Eagle Bank Loan were primarilyutilized (i) to pay off existing indebtedness of approximately $7.97 million, (ii) set up an interest reserve escrow pursuant to the term of agreement in theamount $0.5 million, (iii) pay approximately $0.1 million in settlement charges and closing costs, and (iv) for general corporate purpose. The interest reserveescrow is held in the name of the bank, and if the borrower defaults under the loan agreement, the bank has sole discretion to apply the funds or portion of thefunds to pay off the indebtedness. Commencing thirty days after closing, the Company is required to make monthly payments of interest only on outstandingprincipal balance, principal curtailment payments upon settlements at the two subsidiaries and a minimum principal curtailment payment of $4.98 million nolater than 12 months following the closing of the Eagle Bank Loan. There is no prepayment penalty associated with the Eagle Bank Loan. The balanceoutstanding at December 31, 2012 was $4.08 million.On August 23, 2012, the Company, through New Hampshire Ave. Ventures, LLC, a consolidated joint venture of its subsidiary ComstockVentures XVI, L.C. and 6000 New Hampshire Avenue, LLC, entered into a three-year loan agreement and related documents with Eagle Bank securing a $6.0million revolving development loan and a $4.0 million revolving construction loan (collectively, the “Eagle NHA Revolver”) to finance The Hampshires,the Company’s 111-unit project located in Washington, D.C. Proceeds from the Eagle NHA Revolver will primarily be utilized to (i) pay for expensesassociated with the Eagle NHA Revolver; (ii) reimburse the Company for development costs previously expended and (iii) to pay for the future developmentand construction related expenses. Under the terms of the Loan Agreement, the Eagle NHA Revolver provides for an initial floating interest rate of LIBORplus 3% with an interest rate floor of 5.75%. The New Hampshire Ave. Ventures, LLC is required to make monthly interest payments on the Eagle NHARevolver to the extent not offset by a $400 interest reserve initially set aside for the benefit of the Borrower and is required to make a minimum principalcurtailment under the development portion of the Eagle NHA Revolver of $3.22 million by December 31, 2013 and additional curtailments on a quarterlybasis thereafter. There is no prepayment penalty associated with the Eagle NHA Revolver, which is secured by a first deed of trust and is fully guaranteed bythe Company. The balance outstanding at December 31, 2012 was $3.16 million.On December 27, 2012, the Company, through Comstock Redland Road, L.C. subsidiary (the “Borrower”) entered into an acquisition bridgeloan (the “Bridge Loan”) with Eagle Bank (“Lender”), pursuant to which the Company secured $2.5 million to finance the Company’s acquisition of theproperty directly adjacent to the Shady Grove Metro in Rockville, Montgomery County, Maryland. The Company utilized the proceeds from the Eagle BankLoan (the “Bridge Loan”) to (i) pay for the acquisition of land planned for development of 36 townhomes, 3 single family, and a 117-unit multi-familyapartments and (ii) to pay for expenses associated with settlement charges and closing costs. Under the terms of the loan agreement, the Bridge Loan providesfor an interest rate of 5% per annum. The Company is expected to make monthly interest payments commencing thirty days after closing, with entireprincipal balance due March 28, 2013. The loan is secured by a promissory note, second deed of trust and security agreement on the property, second deed oftrust and security agreement on the Potomac Yard project, a guaranty of Comstock Holding Companies, Inc., Comstock Potomac Yard, L.C. and ChristopherClemente, the Chief Executive Officer of Comstock Holding Companies, Inc., and other ancillary documents (collectively, the “Bridge Loan Documents”) .There is no prepayment penalty associated with the Bridge Loan. The amount outstanding at December 31, 2012 was $2.5 million. The Bridge Loan wasrepaid in full on March 25, 2012 as further described in Note 20 to the consolidated financial statements.Rosalie K. Stahl TrustOn August 23, 2012, the Company, through New Hampshire Ave. Ventures, LLC, a consolidated joint venture of its subsidiary ComstockVentures XVI, L.C. and 6000 New Hampshire Avenue, LLC, also entered into a $3.0 million mezzanine loan (the “NHA Mezzanine Loan”) in connectionwith the The Hampshires project with the Rosalie K. Stahl Trust. Proceeds from the NHA Mezzanine Loan, which has a three-year maturity date, were utilizedto acquire the land for development of the project. The NHA Mezzanine Loan provides for an interest rate of 13.5% per annum, interest to be paid current ona monthly basis, with the full principal balance being due at maturity. The NHA Mezzanine Loan is secured by a second deed of trust, which is fullysubordinate to the Eagle NHA Revolver and is non-recourse to the Company. There is no prepayment penalty associated with the NHA Mezzanine Loan. 21Table of ContentsCardinal BankOn September 27, 2012, the Company, through Comstock Eastgate, L.C. (“Eastgate”), a consolidated joint venture of Comstock Holding Companies,Inc. and BridgeCom Development I, LLC, entered into a loan agreement with Cardinal Bank to which the Company secured a $2.5 million revolvingconstruction loan (the “Cardinal Bank Revolver”) to finance The Villas at Eastgate, the Company’s 66-unit project located in Loudoun County, VA. Theloan maturity is twelve months from origination, with an automatic extension of twelve months subject to the Company meeting sales conditions, whichinclude (i) entering into binding contracts for the sale of eighteen units and (ii) settling twelve units, each by the one year anniversary of the loan. Theproceeds of Cardinal Bank Revolver will be primarily utilized to pay expenses associated with the loan and future construction expenses of the project. TheCardinal Bank Revolver provides for a variable interest rate of Prime plus 0.5%, with an interest rate floor of 4.75%. Commencing thirty days after loan close,the Company is required to make monthly payments of interest only and upon the closing of the sale of a unit, make principal curtailment payments of 100%of unit costs borrowed. There is no prepayment penalty associated with the Cardinal Bank Revolver.TSR-Shady Grove, LLCOn December 27, 2012, the Company, through the Comstock Redland Road, L.C. subsidiary, entered into a Deferred Purchase MoneyPromissory Note with TSR-Shady Grove, LLC, a Maryland Limited liability company, pursuant to which the Company secured $5.75 million for theacquisition of land planned for development of 36 town houses, 3 single family moderately priced dwelling units and a 117-unit multi-family apartments.The TSR-Shady Grove Loan provides for an interest rate of 6% per annum, interest is payable commencing thirty days after closing, with entire principalbalance due March 28, 2013. However, pursuant to the Purchase and Sale Agreement, no interest shall accrue until the property is vacated. Subsequent toDecember 31, 2012, the tenant vacated the property. The TSR-Shady Grove Loan is secured by a deferred purchase money first deed of trust. There is noprepayment penalty associated with Redland Road Loan. The balance outstanding at December 31, 2012 was $5.75 million. The Deferred Purchase MoneyPromissory Note was repaid in full on March 25, 2012 as further described in Note 20 to the consolidated financial statements.StonehengeOn March 14, 2013, Stonehenge Funding, LC (“Stonehenge”), an entity wholly-owned by the Chief Executive Officer of the Company, entered into anExtension Agreement of the Amended and Restated Senior Note with the Company to extend the maturity date of the financing arrangement to January 1,2016. Under the terms of the Extension Agreement, the Company is required to pay $50 monthly to Stonehenge, to be allocated first to accrued and unpaidinterest and then to unpaid principal outstanding, beginning on April 1, 2013. The Extension Agreement was subject to the approval by the Company’sboard of directors and approval was obtained on March 21, 2013.Cash FlowNet cash used in operating activities was $16.0 million for the year ended December 31, 2012. This represents a decline from the net cash provided byoperating activities of $12.7 million for the year ended December 31, 2011. However, the 2012 cash flows do not reflect the net cash flows from the sale ofthe Cascades Apartments of approximately $4.7 million. Although the construction, development and sale of this and potentially other future merchant buildprojects are an ongoing component of the Company’s operations, the sale of the project is required to be presented as Discontinued Operations. Accordingly,the net cash flows are presented within the investing and financing section of the accompanying consolidated statement of cash flows. Additionally, for2012, other significant outflows relate to a $1.2 million reduction in accrued interest payable for debt service payments made to lenders, a $19.3 milliondollar change in cash flows related to real estate held for development and sale arising from land acquisitions and expenditures for development activitiesand a $0.5 million reduction in payables related to payments made to vendors and compensation paid to employees, reflective of the improved cash positionof the Company.Net cash provided by investing activities was $18.9 million for the year ended December 31, 2012, primarily attributable to the sale of the CascadesApartments. Net cash used in investing activities was $9.8 million for the year ended December 31, 2011, primarily attributable to the development of theCascades Apartments.Net cash used in financing activities was $5.0 million for the year ended December 31, 2012, primarily attributable to the payoff of long outstandingdeficiency notes, debt curtailments on settlements and refinancing and retirement of the non-controlling interests, including preferred returns, in full relatedto the Cascades Apartments. Net cash provided by financing activities was $2.3 million for the year ended December 31, 2011, primarily attributable to thePrivate Placement for the Cascades Apartments.Seasonality and WeatherOur business is affected by seasonality with respect to orders and deliveries. In the market in which we operate, the primary selling season is fromJanuary through May as well as September and October. Orders in other months typically are lower. In addition, the markets in which we operate are four-season markets that experience significant periods of rain and snow. Construction cycles and efforts are often adversely affected by severe weather. 22Table of ContentsInflationInflation can have a significant impact on our business performance and the home building industry in general. Rising costs of land, transportationcosts, utility costs, materials, labor, overhead, administrative costs and interest rates on floating credit facilities can adversely affect our business performance.In addition, rising costs of certain items, such as lumber, can adversely affect the expected profitability of our backlog. Generally, we have been able torecover any increases in costs through increased selling prices. However, there is no assurance we will be able to increase selling prices in the future to coverthe effects of inflation and other cost increases. Item 7A.Quantitative and Qualitative Disclosures About Market RiskNot applicable. Item 8.Financial Statements and Supplementary DataReference is made to the financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financialstatements, notes, and report are incorporated herein by reference. Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable. Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe have evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2012. Based on this evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded, as of December 31, 2012, that our disclosure controls and procedures were effective, and designed toensure that (a) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within thetime periods specified in the SEC’s rules and instructions, and (b) information is accumulated and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.Limitations on the Effectiveness of ControlsWe do not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceivedand operated, can provide only assurance, at the reasonable assurance level, that the objectives of the control system are met. Further, the design of a controlsystem must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of its inherentlimitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurancethat any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because ofchanges in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and may not be detected.Management’s Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f)/15d-15(f) of the Exchange Act.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, based on criteria set forth in theframework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Thisevaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness ofcontrols and a conclusion on this evaluation. Our management determined that, as of December 31, 2012, our internal control over financial reporting iseffective.Changes in Internal ControlNo change has occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during ourlast fiscal quarter ended December 31, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financialreporting. Item 9B.Other InformationNone. 23Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A ofthe Exchange Act for our 2013 Annual Meeting of Stockholders, except that the information relating to our executive officers is included in Item 1,“Business – Executive Officers” of this report. Item 11.Executive CompensationThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A ofthe Exchange Act for our 2013 Annual Meeting of Stockholders. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A ofthe Exchange Act for our 2013 Annual Meeting of Stockholders. Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A ofthe Exchange Act for our 2013 Annual Meeting of Stockholders. Item 14.Principal Accountant Fees and ServicesThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A ofthe Exchange Act for our 2013 Annual Meeting of Stockholders. 24Table of ContentsPART IV Item 15.Exhibits and Financial Statement Schedules(a) The following documents are filed as part of this report:(1) Financial Statements are listed in the Index to Financial Statements on page F-1 of this report.(2) Schedules have been omitted because they are not applicable or because the information required to be set forth therein is included in theconsolidated and combined financial statements or notes thereto.(3) Exhibits ExhibitNumber Exhibit 3.1(2) Amended and Restated Certificate of Incorporation 3.2(2) Amended and Restated Bylaws 4.1(1) Specimen Stock Certificate10.1(1) Lease Agreement, dated as of January 31, 2004, with Comstock Partners, L.C.10.2(1) Agreement of Sublease, dated as of October 1, 2004, with Comstock Asset Management, L.C.10.3(1) Form of Indemnification Agreement10.4(1) Form of Promissory Note to be issued to each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub by each ofComstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.10.5(1) Form of Tax Indemnification Agreement to be entered into by each of Christopher Clemente, Gregory Benson, James Keena and LawrenceGolub with each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp.,Inc.10.6(1) 2004 Long-Term Incentive Compensation Plan+10.7(1) Form Of Stock Option Agreement under the 2004 Long-Term Incentive Compensation Plan+10.8(2) Form Of Restricted Stock Grant Agreement under the 2004 Long-Term Incentive Compensation Plan+10.9(1) Employee Stock Purchase Plan+10.10(2) Purchase and Sale Agreement, dated as of November 9, 2004, as amended, with Fair Oaks Penderbrook Apartments L.L.C.10.11(2) Services Agreement, dated March 4, 2005, with Comstock Asset Management, L.C.10.12(1) Employment Agreement with Christopher Clemente+10.13(1) Employment Agreement with Gregory Benson+10.14(1) Confidentiality and Non-Competition Agreement with Christopher Clemente+10.15(1) Confidentiality and Non-Competition Agreement with Gregory Benson+10.16(1) Trademark License Agreement10.17(2) Purchase Agreement, dated as of November 12, 2004 with Comstock Asset Management, L.C.10.18(4) Description of Reimbursement and Indemnification Arrangement with Christopher Clemente and Gregory Benson10.19(5) Stock Purchase Agreement with Parker-Chandler Homes, Inc. and the Selling Stockholders identified therein, dated as of January 19, 200610.20(6) Form of purchase agreement, dated as of May 5, 2006, as amended as of May 9, 2006, by and between the Company and the purchasersidentified therein10.21(6) Form of warrant10.22(7) Note Purchase Agreement with Kodiak Warehouse LLC, dated as of May 4, 200610.23(7) Junior Subordinated Indenture with Wells Fargo Bank, N.A., dated as of May 4, 200610.24(7) Credit Agreement with Wachovia Bank, N.A., dated as of May 26, 200610.25(7) Stock Purchase Agreement with Capitol Homes, Inc. and the Selling Shareholders identified therein, dated as of May 1, 2006 25Table of Contents10.26(9) Loan and Security Agreement, dated as of February 2008, by and between the Registrant and Stonehenge Funding, LC.10.27(9) Guaranty Agreement, dated as of February 2008, by Comstock Potomac Yard, L.C. in favor of Stonehenge Funding, LC.10.28(9) Supplement to Indenture, dated as of January 7, 2008, by and between the Registrant and Wells Fargo Bank, N.A.10.29(9) Amended and Restated Indenture, dated as of March 14, 2008, by and between the Registrant and Wells Fargo Bank, N.A.10.30(10) Forbearance and Conditional Release Agreement, dated as of November 25, 2008, by and among Highland Avenue Properties, LLC,Comstock Homes of Atlanta, LLC, the Registrant and Bank of American, N.A.10.31(10) Sixth Loan Modification Agreement, dated as of November 26, 2008, by and among the Registrant and Bank of America, N.A.10.32(10) Amended and Restated Promissory Note (Tribble Road Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank,National Association.10.33(10) Loan Modification and Forbearance Agreement, dated as of December 10, 2008, by and among the Registrant, various wholly ownedsubsidiaries as guarantors and Wachovia Bank, National Association.10.34(10) Amended and Restated Promissory Note (Revolving Line of Credit), dated as of December 10, 2008, by the Registrant in favor of WachoviaBank, National Association.10.35(10) Amended and Restated Promissory Note (Term Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank,National Association.10.36(11) Consensual Foreclosure and Settlement Agreement, dated August 17, 2009, by and among the Registrant, et.al. and Wachovia Bank,National Association10.37(11) Third Amendment of Loan Agreement, dated September 16, 2009, by and among Comstock Penderbrook, L.C., the Registrant andGuggenheim Corporate Funding, LLC10.38(11) Settlement Agreement and Mutual Release, dated September 21, 2009, by and among Registrant, Mathis Partners, LLC and CornerstoneBank10.39(11) Forbearance Agreement, dated September 28, 2009, by and among Comstock Cascades, L.C., the Registrant and Manufacturers and TradersTrust Company10.40(11) Forbearance and Conditional Release Agreement, dated September 28, 2009, by and among Comstock Belmont Bay 89, L.C., the Registrantand Manufacturers and Traders Trust Company10.41(11) First Amendment to Loan Agreement, dated October 30, 2009, by and among Comstock Station View, L.C., Comstock Potomac Yard, L.C.,the Registrant and Key Bank National Association10.42(11) Forbearance and Conditional Release Agreement, dated November 10, 2009, by and among Comstock Homes of Raleigh, L.L.C., theRegistrant and Fifth Third Bank, N.A.10.43(12) Forbearance Agreement and Second Amendment to Loan Agreement, dated January 27, 2009, by and among Comstock Penderbrook, L.C.,the Registrant and Guggenheim Corporate Funding, LLC10.44(12) Fourth Amendment to Sublease Agreement and Services Agreement, dated February 26, 2009, with Comstock Asset Management10.45(12) Subordinated Deficiency Note, dated as of September 21, 2009, by the Registrant in favor of Cornerstone Bank., successor-in-interest toHaventrust Bank.10.46(12) Amended and Restated Subordinated Deficiency Note, dated as of November 5, 2009, by the Registrant in favor of Wachovia Bank,National Association.10.47(12) Bankruptcy filing for Buckhead Overlook, LLC, filed November 2009 in the U.S. Bankruptcy Court, Northern District of Georgia, AtlantaDivision10.48(12) Bankruptcy filing for Post Preserve, LLC filed November 2009 in the U.S. Bankruptcy Court, Northern District of Georgia, Atlanta Division10.49(12) Bankruptcy filing for Parker Chandler Homes, LLC f/k/a Comstock Homes of Atlanta, LLC filed November 2009 in the U.S. BankruptcyCourt, Northern District of Georgia, Atlanta Division10.50(12) Lease Agreement, dated on or about December 31, 2009, with Comstock Asset Management, L.C. by Comstock Property Management, L.C.,a subsidiary of Registrant10.51(12) License Agreement, effective January 1, 2010, with I-Connect 26Table of Contents10.52(12) Letter of Intent, effective February 12, 2010, by and between Registrant and Stonehenge Funding, L.C. and Subordination and StandstillAgreements between Registrant and Guggenheim Corporate Funding, LLC and between Registrant and Key Bank, National Association10.53(12) Seventh Loan Modification Agreement, dated as of February 25, 2010, by and among the Registrant and Bank of America, N.A.10.54(12) Memorandum Opinion, filed February 23, 2010, by the US District Court in favor of Comstock Potomac Yard, L.C., a subsidiary ofRegistrant, against Balfour Beatty Construction, LLC10.55(12) Purchase Agreement, dated October 30, 2009, by and between Comstock Station View, L.C. and M/I Homes of DC, LLC10.56(13) Second Amended and Restated Indenture, dated as of February 12, 2010, by and among the Registrant and Comstock Asset Management,L.C.10.57(13) Amended and Restated Senior Note, effective February 12, 2010, by and among, Stonehenge Funding, LC, the Registrant and ComstockAsset Management, L.C.10.58(13) Employment Agreement with Joseph M. Squeri+10.59(13) Confidentiality and Non-Competition Agreement with Joseph M. Squeri+10.60(14) Loan Agreement, dated as of January 27, 2011, by and among Comstock Potomac Yard, L.C. and Eagle Bank10.61(14) Loan Agreement, dated as of February 11, 2011, by and among Comstock Cascades II, L.C. and Cardinal Bank10.62(15) Credit Enhancement and Indemnification Agreement, dated February 17, 2011, by and between Registrant and Christopher D. Clemente andGregory V. Benson.10.63(16) Loan Agreement, dated as of July 12, 2011, by and among Comstock Potomac Eclipse, L.C. and BCL Eclipse, LLC.10.64(16) Guaranty, Pledge and Security Agreement, dated as of July 12, 2011, by Comstock Homebuilding Companies, Inc. and Comstock EmeraldFarm, L.C. to and for the benefit of BCL Eclipse, LLC.10.65(16) Warrant, dated as of July 12, 2011, in the name of BridgeCom Development I, LLC.10.66(16) Registration Rights Agreement, dated as of July 12, 2011, between Comstock Homebuilding Companies, Inc. and BridgeCom DevelopmentI, LLC.10.67(16) Right of First Refusal and First Offer Agreement, dated as of July 12, 2011, between Comstock Homebuilding Companies, Inc. andBridgeCom Development I, LLC.10.68(17) Loan Agreement, dated as of October 5, 2011, by and among Comstock Penderbrook, L.C. and BCL Penderbrook, LLC.10.69(17) Contract of Sale Agreement, dated as of October 31, 2011, by and among Comstock Cascades II, L.C. and CAPREIT AcquisitionCorporation.10.70(17) Loan Agreement, dated as of May 29, 2012, by and among Eagle Bank and Comstock Potomac Yard, L.C and Comstock Penderbrook, L.C.10.71(17) Loan agreement, dated as of August 23, 2012, by and between Eagle Bank and New Hampshire Ave. Ventures, LLC.10.72(17) Loan agreement, dated as of September 27, 2012, by and between Cardinal Bank and Comstock Eastgate, L.C.10.73(18) Loan agreement, dated as of August 23, 2012, by and between Rosalie K. Stahl Trust and New Hampshire Ave. Ventures, LLC.10.74(19) Loan agreement, dated as of December 27, 2012, by and between Eagle Bank and Comstock Redland Road, L.C.10.75(19) Loan agreement, dated as of December 27, 2012, by and between TSR-Shady Grove, LLC and Comstock Redland Road, L.C.10.76* Loan agreement, dated as of March 25, 2013, by and between Eagle Commercial Ventures, LLC and Comstock Redland Road, L.C.10.77* Loan agreement, dated as of March 25, 2013, by and between Eagle Commercial Ventures, LLC and Comstock Redland Road, L.C.10.78* Loan agreement, dated as of March 25, 2013, by and between Eagle Bank and Comstock Redland Road, L.C.10.79* Loan agreement, dated as of March 25, 2013, by and between Eagle Bank and Comstock Redland Road, L.C.11 Statement of computation of per share earnings14.1(2) Code of Ethics21.1* List of subsidiaries23.1* Consent of PricewaterhouseCoopers LLP31.1* Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2* Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 200232.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 27Table of Contents*Filed herewith.+Management contracts or compensatory plans, contracts or arrangements(1)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2005.(2)Incorporated by reference to an exhibit to the Registrant’s Registration Statement on Form S-1, as amended, initially filed with the Commission onAugust 13, 2004 (No. 333-118193).(3)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2005.(4)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2005.(5)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006.(6)Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Registrant filed with the Commission on May 10, 2005.(7)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2006.(8)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2007.(9)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 24, 2008.(10)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2009.(11)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 13, 2009.(12)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2010.(13)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 12, 2010.(14)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2011.(15)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 13, 2011.(16)Incorporated by reference to an exhibit to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2011.(17)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2012.(18)Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2012.(19)Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2013. 28Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. COMSTOCK HOLDING COMPANIES, INC.Date: March 27, 2013 By: / S / CHRISTOPHER CLEMENTE Christopher Clemente Chairman and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated. Signature Capacity Date/s/ CHRISTOPHER CLEMENTE Chairman of the Board of Directors and Chief Executive Officer(Principal Executive Officer) March 27, 2013Christopher Clemente /s/ GREGORY V. BENSON President and Chief Operating Officer March 27, 2013Gregory V. Benson /s/ JOSEPH M. SQUERI Chief Financial Officer(Principal Financial Officer) March 27, 2013Joseph M. Squeri /s/ A. CLAYTON PERFALL Director March 27, 2013A. Clayton Perfall /s/ DAVID M. GUERNSEY Director March 27, 2013David M. Guernsey /s/ JAMES A. MACCUTCHEON Director March 27, 2013James A. MacCutcheon /s/ NORMAN D. CHIRITE Director March 27, 2013Norman D. Chirite /s/ ROBERT P. PINCUS Director March 27, 2013Robert P. Pincus /s/ SOCRATES VERSES Director March 27, 2013Socrates Verses 29Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page COMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2012 and 2011 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011 F-4 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2012 and 2011 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011 F-6 Notes to Consolidated Financial Statements F-8 F-1Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Comstock Holding Companies, Inc.:In our opinion, the consolidated financial statements listed on page F-1 present fairly, in all material respects, the financial position of Comstock HoldingCompanies, Inc. and subsidiaries (the “Company”) at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the twoyears in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. These financialstatements 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards 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, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPMcLean, VirginiaMarch 27, 2013 F-2Table of ContentsCOMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Amounts in thousands, except per share data) December 31,2012 December 31,2011 ASSETS Cash and cash equivalents $3,539 $5,639 Restricted cash 3,203 3,082 Trade receivables 1,611 2,228 Real estate held for development and sale 27,781 21,212 Operating real estate, net — 12,095 Property, plant and equipment, net 222 105 Other assets 2,343 2,018 TOTAL ASSETS $38,699 $46,379 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Accounts payable and accrued liabilities $4,691 $3,987 Notes payable – secured by real estate held for development and sale, net of discount 19,492 10,541 Notes payable – secured by operating real estate — 9,957 Notes payable – due to affiliates, unsecured 5,041 5,008 Notes payable – unsecured 3,096 4,309 Income taxes payable — 33 TOTAL LIABILITIES 32,320 33,835 Commitments and contingencies (Note 15) — — SHAREHOLDERS’ EQUITY Class A common stock, $0.01 par value, 77,266,500 shares authorized, 17,627,826 and 17,944,503 issued andoutstanding, respectively 176 179 Class B common stock, $0.01 par value, 2,733,500 shares authorized, 2,733,500 issued and outstanding 27 27 Additional paid-in capital 170,070 168,620 Treasury stock, at cost (391,400 shares Class A common stock) (2,480) (2,439) Accumulated deficit (162,349) (156,684) TOTAL COMSTOCK HOLDING COMPANIES, INC. EQUITY 5,444 9,703 Non-controlling interests 935 2,841 TOTAL EQUITY 6,379 12,544 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $38,699 $46,379 The accompanying notes are an integral part of these consolidated financial statements F-3Table of ContentsCOMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in thousands, except per share data) Twelve Months Ended December 31, 2012 2011 Revenues Revenue – homebuilding $11,633 $14,062 Revenue – other 2,669 7,871 Total revenue 14,302 21,933 Expenses Cost of sales – homebuilding 9,692 12,160 Cost of sales – other 3,484 7,434 Impairments and write-offs 2,358 — Selling, general and administrative 8,658 7,399 Interest, real estate taxes and indirect costs related to inactive projects 2,135 2,739 Operating loss (12,025) (7,799)Gain on troubled debt restructuring — (219)Gain on legal settlement, net — (9,434 )Other income, net (18) (304)(Loss) income before income tax benefit (expense) (12,007) 2,158 Income taxes benefit (expense) 2,484 (33)Net (loss) income from continuing operations (9,523) 2,125 Discontinued operations: Loss from discontinued operations (98) (527) Gain on sale of the real estate from discontinued operations 6,466 — Income tax expense from discontinued operations (2,484) — Net income (loss) from discontinued operations 3,884 (527) Net (loss) income (5,639) 1,598 Less: Net loss from continuing operations attributable to non-controlling interests (77) — Less: Net income from discontinued operations attributable to non-controlling interests 103 491 Net (loss) income attributable to Comstock Holding Companies, Inc. $(5,665) $1,107 Basic (loss) income per share: Continuing operations $(0.47) $0.10 Discontinued operations 0.19 (0.05) Net (loss) income per share $(0.28) $0.05 Diluted (loss) income per share: Continuing operations $(0.47) $0.10 Discontinued operations 0.19 (0.05) Net (loss) income per share $(0.28) $0.05 Basic weighted average shares outstanding 19,970 20,287 Diluted weighted average shares outstanding 19,970 20,720 Net (loss) income attributable to Comstock Holding Companies, Inc.: (Loss) income from continuing operations $(9,446) $2,125 Income (loss) from discontinuing operations 3,781 (1,018) Net (loss) income $(5,665) $1,107 The accompanying notes are an integral part of these consolidated financial statements. F-4Table of ContentsCOMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES INSHAREHOLDERS’ EQUITY(Amounts in thousands, except per share data) Class A Class B Additionalpaid-incapital Treasurystock Retainedearnings(deficit) Non-controllinginterest Total Shares Amount Shares Amount Balance at December 31, 2010 17,121 $171 2,733 $27 $166,700 $(2,439) $(157,791) $— $6,668 Stock compensation and issuances 824 8 924 932 Warrants 996 996 Cascades Private Placement 2,350 2,350 Net income 1,107 491 1,598 Balance at December 31, 2011 17,945 $179 2,733 $27 $168,620 $(2,439) $(156,684) $2,841 $12,544 Stock compensation and issuances (Note 2) (317) (3) 1,450 1,447 Net-settlement repurchases of stockcompensation (41) (41) Non-controlling interest contributions 1,012 1,012 Non-controlling interest distributions (2,944) (2,944) Net income (5,665) 26 (5,639) Balance at December 31, 2012 17,628 $176 2,733 $27 $170,070 $(2,480) $(162,349) $935 $6,379 The accompanying notes are an integral part of these consolidated financial statements. F-5Table of ContentsCOMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands, except per share data) Twelve Months Ended December 31, 2012 2011 Cash flows from operating activities: Net (loss) income $(5,639) $1,598 Adjustment to reconcile net (loss) income to net cash (used in) provided by operating activities Amortization of loan discount and deferred financing fees 1,283 1,444 Depreciation expense 122 196 Provision for bad debt 60 1 Impairments and write-offs 2,358 — Amortization of stock compensation 1,447 932 Loss (gain) on extinguishment of notes payable 73 (219) Gain on trade payable settlements — (161) Gain on sale of operating real estate, net (6,466) — Loss on disposal of property, plant and equipment 1 — Changes in operating assets and liabilities: Restricted cash (121) 19 Trade receivables 569 (1,837) Real estate held for development and sale (8,984) 10,292 Other assets (433) (678) Accrued interest (495) 752 Accounts payable and accrued liabilities 217 364 Income taxes payable (33) 33 Net cash (used in) provided by operating activities (16,041) 12,736 Cash flows from investing activities: Investment in Cascades Apartments – operating real estate, net — (9,764) Purchase of property, plant and equipment (158) (78) Proceeds from sale of Cascades Apartments – operating real estate, net 19,075 — Net cash provided by (used in) investing activities 18,917 (9,842) Cash flows from financing activities: Proceeds from notes payable 24,986 38,908 Payments on notes payable (27,512) (38,436) Loan financing costs (518) (1,548) Proceeds from SunBridge warrant issuance — 996 Distribution to non-controlling interest holders (2,944) — Contribution from non-controlling interest holders 1,012 2,350 Net cash (used in) provided by financing activities (4,976) 2,270 Net (decrease) increase in cash and cash equivalents (2,100) 5,164 Cash and cash equivalents, beginning of period 5,639 475 Cash and cash equivalents, end of period $3,539 $5,639 Supplemental disclosures: Interest paid, net of interest capitalized $1,226 $522 Reduction in proceeds from sale of Cascades Apartments and increase in other assets related to amount placedin escrow upon settlement of Cascades Apartments sale $275 $— Increase in class A common stock par value in connection with issuance of stock compensation $— $8 Increase in additional paid in capital in connection with SunBridge warrant $— $996 Increase in treasury stock and accrued liabilities for net-settlement of stock compensation $41 $— The accompanying notes are an integral part of these consolidated financial statements. F-6Table of ContentsCOMSTOCK HOLDING COMPANIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in thousands, except per share data) 1.ORGANIZATIONComstock Holding Companies, Inc. is a multi-faceted real estate development and construction services company focused on the Washington, D.C.metropolitan area. The Company has substantial experience with building a diverse range of products including single-family homes, townhouses, mid-risecondominiums, high-rise multi-family condominiums, apartments and mixed-use (residential and commercial) developments. Since our founding in 1985,and as of December 31, 2012, we have built and delivered more than 5,500 homes generating total revenue in excess of $1.4 billion. References in this Form10-K to “Comstock,” “Company”, “we,” “our” and “us” refer to Comstock Holding Companies, Inc. together in each case with our subsidiaries and anypredecessor entities unless the context suggests otherwise.Our business was founded in 1985 as a residential land developer and home builder focused on the Northern Virginia suburbs of the Washington, D.Carea.Comstock Companies, Inc. was incorporated on May 24, 2004 as a Delaware corporation. On June 30, 2004, the Company changed its name toComstock Homebuilding Companies, Inc. On December 17, 2004, the Company completed an initial public offering (“IPO”) of its Class A common stock. OnJune 22, 2012, the Company changed its name to Comstock Holding Companies, Inc. which better reflects the Company’s multi-faceted strategy andcapabilities.The Company’s Class A common stock is traded on the Nasdaq Capital Market (“NASDAQ”) under the symbol “CHCI” and has no public tradinghistory prior to December 17, 2004. The Company continues to be in compliance with all NASDAQ continued listing requirements.Liquidity DevelopmentsWe require capital to operate, to post deposits on new deals, to purchase and develop land, to construct homes, to fund related carrying costs andoverhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering,entitlement, architecture, advertising, utilities and interest as well as the construction costs of our homes. Our sources of capital include, and will continue toinclude, funds derived from private placement equity raises, various secured and unsecured borrowings to finance construction on acquired land, cash flowfrom operations, which includes the sale and delivery of constructed homes, rental apartment projects, finished and raw building lots and the sale of equityand debt securities.The Company is involved in ongoing discussions with lenders in an effort to provide additional growth capital to fund various new businessopportunities. In addition, on March 14, 2013, the Company, through its wholly-owned subsidiary Comstock Investors VII, L.C., entered into subscriptionagreements with certain accredited investors (“Comstock VII Investors”), pursuant to which the Comstock VII Investors purchased membership interests inthe subsidiary for an initial aggregate principal amount of $6,925, of an up to $7,000 capital raise. Further, we have executed extensions and obtained newfacilities to significantly reduce the debt obligations maturing in 2013. As of December 31, 2012, the maturities and curtailment obligations for 2013 was$14,027, of which, the new facilities and extensions resulted in $13,291 of the obligations with revised maturities beginning in 2015 and beyond. Refer toNote 20 for more details on the capital raise and changes to our credit facilities. We are anticipating that through a combination of the capital raised throughthe aforementioned private placement, current available cash on hand and additional cash from settlement proceeds at existing and under developmentcommunities, the Company will have sufficient financial resources to sustain our operations through the next 12 months, though no assurances can be madethat we will be successful in our efforts. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA summary of the significant accounting policies and practices used in the preparation of the consolidated financial statements is as follows:Basis of presentationThe accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)and include the accounts of Comstock Holding Companies, Inc., a Delaware corporation, and all of its majority-owned and controlled subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted forusing the equity method unless it is determined that the Company has control of the entity, in which case the entity would be consolidated. The Companyhad no investments accounted for using the equity method as of December 31, 2012 and 2011. F-7Table of ContentsCash and cash equivalents and restricted cashCash and cash equivalents are comprised of cash and short-term investments with maturities of three months or less when purchased. At times, theCompany may have deposits with institutions in excess of federally insured limits. Banking institutions with which the Company does business areconsidered credit worthy; therefore, credit risk associated with cash and cash equivalents is considered low. At December 31, 2012 and 2011, the Companyhad restricted cash of $3.2 million and $3.1 million, respectively, which includes a $3.0 million deposit with an insurance provider, to which we have noaccess currently, as security for future claims.Real estate held for development and saleReal estate held for development and sale includes land, land development costs, construction and other costs. Real estate held for development anduse is stated at cost, or when circumstances or events indicate that the real estate is impaired, at estimated fair value. Real estate held for sale is carried at thelower of cost or fair value less estimated costs to sell. Land, land development and indirect land development costs are accumulated by specific project andallocated to various units within that project using specific identification and allocation based upon the relative sales value, unit or area methods. Directconstruction costs are assigned to units based on specific identification. Construction costs primarily include direct construction costs and capitalized fieldoverhead. Other costs are comprised of fees, capitalized interest and real estate taxes. Costs incurred to sell real estate are capitalized to the extent they arereasonably expected to be recovered from the sale of the project and are tangible assets or services performed to obtain regulatory approval of sales. Otherselling costs are expensed as incurred.If the project is considered held for sale, it is valued at the lower of cost or fair value less estimated selling costs. For assets held for development anduse, estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. Theevaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances thatmay affect fair value including management’s plans for the property. A write-down to estimated fair value is recorded when the net carrying value of theproperty exceeds its estimated undiscounted future cash flows. These evaluations are made on a property-by-property basis whenever events or changes incircumstances indicate that the net book value may not be recoverable.Capitalized interest and real estate taxesInterest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate held for development and sale duringthe active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties aresubstantially complete or the property becomes inactive. A project becomes inactive when development and construction activities have been suspendedindefinitely. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to otherborrowings during the period. Interest and real estate taxes capitalized to real estate held for development and sale are expensed as a component of cost ofsales as related units are sold. The following table is a summary of interest and real estate taxes incurred and capitalized and interest and real estate taxesexpensed for units settled: Years ended December 31, 2012 2011 Total interest incurred and capitalized $351 $320 Total real estate taxes incurred and capitalized 150 13 Total interest and real estate taxes incurred and capitalized $501 $333 Interest expensed as a component of cost of sales $2,065 $2,329 Real estate taxes expensed as a component of cost of sales 189 198 Interest and real estate taxes expensed as a component of cost of sales $2,254 $2,527 When a project becomes inactive, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed inthe period in which they are incurred. Following is a breakdown of the interest, real estate taxes and indirect costs related to inactive projects reported in realestate held for development and sale: Years ended December 31, 2012 2011 Total interest incurred and expensed for inactive projects $1,940 $2,507 Total real estate taxes incurred and expensed for inactive projects 170 381 Total production overhead incurred and expensed for inactive projects 179 214 2,289 3,102 Amounts reclassified to discontinued operations (154) (363) $2,135 $2,739 F-8Table of ContentsProperty, plant and equipmentProperty, plant and equipment are carried at cost less accumulated depreciation and are depreciated on the straight-line method over their estimateduseful lives as follows: Furniture and fixtures 7 years Office equipment 5 years Computer equipment and capitalized software 3 years Leasehold improvements Life of related lease When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from their separate accounts and any gain or losson sale is reflected in operations. Expenditures for maintenance and repairs are charged to expense as incurred.Warranty reserveWarranty reserves for units settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to ariseduring the typical one-year warranty period provided by the Company or within the two-year statutorily mandated structural warranty period forcondominiums. Since the Company typically subcontracts its homebuilding work, subcontractors are required to provide the Company with an indemnityand a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primaryresponsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based uponhistorical warranty cost experience and current business factors. This reserve is an estimate and actual warranty costs could vary from these estimates.Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on aperiodic basis. Warranty claims are directly charged to the reserve as they arise. The following table is a summary of warranty reserve activity which isincluded in accounts payable and accrued liabilities: Years ended December 31, 2012 2011 Balance at beginning period $1,009 $1,110 Additions 52 110 Releases and/or charges incurred (98) (211) Balance at end of period $963 $1,009 Revenue recognitionThe Company recognizes revenues and related profits or losses from the sale of residential properties, including multiple units to the same buyer,finished lots and land sales when closing has occurred, full payment has been received, title and possession of the property has transferred to the buyer andthe Company has no significant continuing involvement in the property. Other revenues include revenue from land sales, rental revenue from leasedapartments – which is recognized over the terms of the respective leases, revenue from construction services – which is recognized under the percentage-of-completion method, and revenue earned from management and administrative support services provided to related parties – which is recognized as theservices are provided.Advertising costsThe total amount of advertising costs charged to selling, general and administrative expense was $168 and $64 for the years ended December 31, 2012and 2011, respectively.Stock compensationAs discussed in Note 14, the Company sponsors stock option plans and restricted stock award plans. The Company accounts for its share-based awardspursuant to Accounting Standards Codification (“ASC”) 718, Share Based Payments. ASC 718 requires all share-based payments to employees, includinggrants of employee stock options, to be recognized in the financial statements over the vesting period based on their fair values at the date of grant. For theyear ended December 31, 2012 and 2011, total stock-based compensation cost was $1,447 and $932, respectively. Of this amount, $1,447 and $925 wascharged to selling, general and administration expenses for the years ended December 31, 2012 and 2011, respectively.Out-of-period adjustmentDuring the fourth quarter of 2012, we identified an error in the consolidated financial statements for the year ended December 31, 2011 and the firstthree quarters of 2012. This error related to accounting for non-cash stock compensation expense. We concluded that this adjustment was not material to anyprior periods’ consolidated financial statements. We also concluded that the out-of-period correction of this error in 2012 was not material to theconsolidated financial statements for the year ended December 31, 2012. As such, the cumulative effect of the error was recorded in the 2012 ConsolidatedStatement of Operations and the 2012 Consolidated Statement of Changes in Shareholders’ Equity as an out-of-period adjustment. The effect of thisadjustment was to increase the Company’s net loss by $176 for the year ended December 31, 2012 and to reduce the Class A Common Stock sharesoutstanding by $3, or 317 shares. F-9Table of ContentsIncome taxesIncome taxes are accounted for under the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”).Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the deferredtax assets and liabilities is recognized in income in the period that includes the enactment date.Income (Loss) per shareThe weighted average shares and share equivalents used to calculate basic and diluted (loss) income per share for the year ended December 31, 2012and 2011, are presented on the consolidated statement of operations. Stock options and warrants for the year ended December 31, 2012 and 2011 areincluded in the diluted earnings per share calculation using the treasury stock method and average market prices during the period, unless the stock optionand warrants would be anti-dilutive. As a result of net losses from continuing operations for the year ended December 31, 2012, approximately 388 restrictedstock awards, 196 stock options and 428 warrants were excluded from the computation of diluted earnings per share because their inclusion would have beenanti-dilutive. For the year ended December 31, 2011, approximately 170 and 263 of stock options and warrants, respectively, were included in thecomputation of diluted earnings per share. The computation of basic and diluted shares outstanding is as follows: Year Ended December 31, 2012 2011 Computation of weighted-average basic shares outstanding: Weighted average basic shares outstanding 19,970 20,287 Computation of weighted average diluted shares outstanding: Weighted-average basic shares outstanding 19,970 20,287 Dilutive effect of stock options — 170 Dilutive effect of restricted stocks — — Dilutive effect of warrants — 263 Weighted average common shares outstanding – diluted 19,970 20,720 Comprehensive incomeFor the years ended December 31, 2012 and 2011, comprehensive income equaled net income; therefore, a separate statement of comprehensiveincome is not included in the accompanying consolidated financial statements.Segment reportingWe operate our business through three segments: Homebuilding, Apartment Buildings and Real Estate Services. We are currently focused on theWashington, D.C. market.For our Homebuilding operations, we develop properties with the intent that they be sold either as fee-simple properties or condominiums toindividual unit buyers or as investment properties sold to private or institutional investors. Our for-sale products are designed to attract first-time, early move-up, and secondary move-up buyers. We focus on products that we are able to offer for sale in the middle price points within the markets where we operate,avoiding the very low-end and high-end products.For our Apartment Buildings segment we focus on projects ranging from approximately 75 to 200 units in locations that are supply constrained withdemonstrated demand for stabilized assets. We seek opportunities in the multi-family rental market where our experience and core capabilities can beleveraged. We will either position the assets for sale when completed or operate the asset within our own portfolio. Operating the asset for our own accountaffords us the flexibility of converting the units to condominiums in the future.Our Real Estate Services segment pursues projects in all aspects of real estate management including strategic planning, land development,entitlement, property management, sales and marketing, workout and turnaround strategies, financing and general construction. We are able to provide awide range of construction management and general contracting services to other property owners. F-10Table of ContentsThe following disclosure includes the Company’s three reportable segments of Homebuilding, Apartment Buildings and Real Estate Services. Each ofthese segments operates within the Company’s single Washington, D.C. reportable geographic segment. The information for 2011 has been reclassified toconform to current year business segment presentation and to reflect the reclassification of operations derived from the Cascades II sale as discontinuedoperations. Refer to Note 16 for further discussion. (in thousands) Homebuilding ApartmentBuildings RealEstateServices Total Twelve Months Ended December 31, 2012 Gross revenue (1) $12,043 $— $2,259 $14,302 Gross income 724 — 402 1,126 Net (loss) income from continuing operations (12,285) — 278 (12,007 )Net income from discontinued operations — 6,368 — 6,368 Net (loss) income (12,285) 6,368 278 (5,639) Total assets 36,378 278 2,043 38,699 Depreciation and amortization 1,487 — — 1,487 Interest expense 1,775 — — 1,775 Capital expenditures 158 — — 158 Twelve Months Ended December 31, 2011 Gross revenue (1) $15,354 $— $6,579 $21,933 Gross income 1,686 — 653 2,339 Net income from continuing operations 1,729 — 429 2,158 Net loss from discontinued operations — (527) — (527) Net income (loss) 1,696 (527) 429 1,598 Total assets 31,964 12,695 1,720 46,379 Depreciation and amortization 955 173 — 1,128 Interest expense 2,180 327 — 2,507 Capital expenditures 55 9,764 23 9,842 (1)Gross revenue includes ‘Revenue – homebuilding’ and ‘Revenue – other’ as described in the consolidated income statement for assets included in eachsegment.The Company allocates selling general and administrative expenses to the individual segments based upon specifically allocable costs and, in the absence ofdirect allocations, based upon its estimate of time allocable to the segment or based upon overall pro rata revenue generation.The table below reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations: Twelve Months EndedDecember 31, 2012 2011 Segment operating (loss) income from continuing operations $(12,007) $2,158 Income tax benefit (expense) 2,484 (33) Income (loss) from continuing operations $(9,523) $2,125 Segment operating income (loss) from discontinued operations $6,368 $(527)Income tax expense (2,484) — Income (loss) from discontinued operations $3,884 $(527) F-11Table of ContentsUse of estimatesThe preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results coulddiffer from those estimates. Material estimates are utilized in the valuation of real estate held for development and sale, valuation of deferred tax assets,capitalization of costs, consolidation of variable interest entities and warranty reserves.Recent accounting pronouncementsIn May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement andDisclosure Requirements in U.S. GAAP and International Financial Reporting Standard (“IFRS”),” which provides a consistent definition of fair value andensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. The guidance changes certain fair valuemeasurement principles and expands the disclosure requirements, particularly for Level 3 fair value measurements. The guidance was effective for theCompany beginning February 1, 2012 and is applied prospectively. The adoption of this guidance, which relates primarily to disclosure, did not have amaterial impact on our Consolidated Financial Statements.In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU2011-05”), which requiresentities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of netincome and other comprehensive income. The guidance was effective for the Company beginning January 1, 2012 and is applied prospectively. Theadoption of this guidance did not have a material impact on our Consolidated Financial Statements. 3.CONSOLIDATION OF VARIABLE INTEREST ENTITIESGAAP requires a variable interest entity (“VIE”) to be consolidated by the company that is the primary beneficiary. The primary beneficiary of a VIE isthe entity that has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economicperformance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIEthat could potentially be significant to the VIE. Entities determined to be VIEs, for which we are not the primary beneficiary, are accounted for under theequity method. Comstock’s variable interests in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets and/or (3) loans providedand or guaranteed to a VIE. We examine specific criteria and use judgment when determining if Comstock is the primary beneficiary of a VIE. Factorsconsidered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s),voting rights, involvement in day-to-day capital and operating decisions and contracts to purchase assets from VIEs.Consolidated Real Estate Held for Development and SaleIncluded within the Company’s real estate held for development and sale at December 31, 2012 are four wholly-owned entities that are VIEs and forwhich the Company is the primary beneficiary; Penderbrook, Potomac Yard, Yorkshire and Redland Road. These entities have been established to own andoperate real estate property and were deemed VIEs primarily based on the fact that the equity investment at risk is not sufficient to permit the entities tofinance their activities without additional financial support. The Company determined that it was the primary beneficiary of these VIEs as a result of itsmajority voting and complete operational control of the entities.On August 23, 2012, the Company formed New Hampshire Ave. Ventures, LLC, a joint venture of its subsidiary, Comstock Ventures XVI, L.C, and6000 New Hampshire Avenue, LLC, for the purpose of acquiring, developing and constructing a 111-unit project (the “NHA Project”) in Washington, D.C.The Company evaluated the joint venture and determined that it was a VIE concluding that the equity investment at risk is not sufficient to permit the entityto finance its activities without additional financial support. The Company determined that it was the primary beneficiary of the VIE as a result of its sharedvoting interests, complete operational control of the activities that most significantly impact the VIE’s economic performance and its obligation to absorblosses, or receive benefits, from the VIE that could be significant to the VIE.On September 27, 2012, the Company formed Comstock Eastgate, L.C., a joint venture of Comstock Holding Companies, Inc. and BridgeComDevelopment II, LLC, for the purpose of acquiring, developing and constructing 66 condominium units (the “Eastgate Project”) in Loudoun County,Virginia. The Company evaluated the joint venture and determined that it was a VIE concluding that the equity investment at risk is not sufficient to permitthe entity to finance its activities without additional financial support. The Company determined that it was the primary beneficiary of the VIE as a result ofits complete operational control of the activities that most significantly impact the VIE’s economic performance and its obligation to absorb losses, or receivebenefits, from the VIE that could be significant to the VIE.At December 31, 2012 and December 31, 2011, total assets of these VIEs were approximately $29.4 million and $22.0 million, respectively, and totalliabilities were approximately $17.4 million and $11.1 million, respectively. The classification of these assets is primarily within real estate held fordevelopment and sale and the classification of liabilities are primarily within notes payable – secured by real estate held for development and sale in theCompany’s consolidated balance sheets. F-12Table of ContentsConsolidated Operating Real Estate, NetOn January 31, 2011, Comstock Cascades II, L.C., a subsidiary of the Company (“Cascades II”), entered into a private placement for the sale ofmembership interests in Cascades II whereby Cascades II raised working capital in the amount of $2.35 million (the “Private Placement”) related to theplanned construction of a 103 unit apartment project located in the Cascades master planned community in Loudoun County, Virginia (the “CascadesApartments”). Proceeds of the Private Placement were utilized (i) to provide sufficient capital needed to secure project financing for the Cascades Apartments,(ii) to retire a portion of the existing indebtedness, and (iii) to reimburse the Company for prior expenditures incurred on behalf of the project. Participants inthe Private Placement included unrelated third party investors along with several members of the Company’s Board of Directors, as well as the ChiefOperating Officer, Chief Financial Officer and General Counsel of the Company.On February 11, 2011, Comstock closed its loan agreement with Cardinal Bank (see Note 9) which provided the necessary construction financing forthe development of the Cascades Apartments and concurrent with that closing, the Company utilized the proceeds of the Private Placement offering asdescribed above. The Company fully guaranteed the loan and accordingly, Comstock concluded that Cascades II was a VIE. As part of the Cascades IIoperating agreement, the Company had majority voting and complete operational control of the subsidiary. The Company concluded that it was the primarybeneficiary of the VIE and therefore the financial condition, results of operations and cash flows of Cascades II were consolidated in the accompanyingfinancial statements.The investors in the Private Placement (the “Priority Members”) were entitled to a cumulative, compounded, preferred return, subject to theperformance of Cascades II, of 20% per annum, compounded annually on their capital account balances. Comstock had the right to repurchase the interest ofthe Priority Members provided that i) all of the Priority Members interests were acquired, ii) the purchase was made in cash and iii) the purchase price shallequal the Priority Members capital account plus an amount necessary to cause the preferred return to equal a cumulative cash on cash return equal to 20% perannum. The equity contribution related to the Private Placement is reflected as a Non-Controlling Interest as a component of consolidated shareholders’equity. The Company’s investment was subordinate to the Priority Members investment and gains from the operating activity and distributions of cash flow(if any) of Cascades II would allocate to the Priority Members (in advance of Comstock) up to their capital account plus the required preferred return of 20%as outlined above. For the year ended December 31, 2012 and 2011, the priority returns were approximately $103 and $491, respectively. The priority returnsare reflected in the accompanying consolidated statement of operations as net income from discontinued operations attributable to non-controlling intereststo properly account for the preferred return due the Priority Members upon liquidation of their interest in Cascades II.On March 7, 2012, the Company completed the sale of the Cascades Apartments (the “Project”) to an affiliate of CAPREIT Acquisition Corporation(“Purchaser”), a Maryland corporation, pursuant to a Contract of Sale Agreement, as amended, dated October 31, 2011. The Project was sold for $19.35million. In connection with the closing of the transaction, Cascades II placed in escrow $300 (the “Warranty Escrow”) to secure performance of certain post-closing warranty work and $650 (the “Claims Escrow”) to secure Cascades II’s indemnification and other obligations set forth in the Agreement. TheWarranty Escrow was agreed to be released to Cascades upon completion of the post-closing warranty work and the Claims Escrow was agreed to be releasedto Cascades in three equal installments at six, eight and twelve months from the date of settlement provided that no claims have been made against Cascadesby the Purchaser. On September 6, 2012, the Purchaser released the $300 Warranty escrow, net of $2 in settlement costs, and one-third of the Claims Escrow,$217, net of $35 of post-closing warranty claims. On November 26, 2012, the Purchaser released the second installment, one-third of the remaining ClaimsEscrow, $143. As detailed in Note 9, the historical operations of Cascades Apartments are included within discontinued operations.Concurrent with the execution of the sale transaction, Cascades II settled the secured financing of $10.1 million with Cardinal Bank, including allprincipal and interest due at the time of settlement, and retired the non-controlling equity investment, including all preferred returns due. The Companyrealized a loss on the extinguishment of the secured financing with Cardinal Bank of $0.3 million, including the prepayment penalty fees of $0.2 million. Atsettlement, the Company received net proceeds of approximately $4.7 million from the transaction after repayment of the existing loan from Cardinal Banksecured by the Project and the retirement of the non-controlling equity investment related to the Project.Concurrent with the settlement of the secured financing, retirement of non-controlling equity investment holders and the release of the Company’scorporate guaranty, the Company determined a reconsideration event under ASC 810 had occurred and concluded the entity no longer met the definition of aVIE as defined by the standard. The Company further noted that the Company has retained the controlling financial interest in Cascades II and has continuedto consolidate the subsidiary.Land purchase optionsThe Company typically acquires land for development at market prices under fixed price purchase agreements. The purchase agreements requiredeposits that may be forfeited if the Company fails to perform under the agreements. The deposits required under the purchase agreements are in the form ofcash or letters of credit in varying amounts. The Company may, at its option, choose for any reason and at any time not to perform under these purchaseagreements by delivering notice of its intent not to acquire the land under contract. The Company’s sole legal obligation and economic loss for failure toperform under these purchase agreements is typically limited to the amount of the deposit pursuant to the liquidated damages provision contained within thepurchase agreement. As a result, none of the creditors of any of the entities with which the Company enters into forward fixed price purchase agreements haverecourse to the general credit of the Company. F-13Table of ContentsThe Company does not share in an allocation of either the profit earned or loss incurred by any of these entities with which the Company has fixedprice purchase agreements. The Company has concluded that whenever it options land or lots from an entity and pays a significant non-refundable deposit asdescribed above, a variable interest entity is created under the provisions of ASC 810-10, Consolidation. This is because the Company has been deemed tohave provided subordinated financial support, which creates a variable interest which limits the equity holder’s returns and may absorb some or all of anentity’s expected theoretical losses if they occur. The Company, therefore, examines the entities with which it has fixed price purchase agreements forpossible consolidation by the Company under the provision of ASC 810-10. The Company does not have any contractual or ownership interests in theentities with which it contracts to buy the land. The Company concluded that it does not have the power to direct the activities that most significantly impactthe economic performance of the VIEs, including the power to site plan and engineer the developments, finance the parcels under option contract, anddevelop the raw parcels under option contract into finished lots. The third party retains these rights under the fixed purchase price agreements until title istransferred to the Company upon settlement of the transaction, or a portion of the transactions as defined. Therefore, the Company has not consolidated theseVIEs in the consolidated balance sheet. 4.REAL ESTATE HELD FOR DEVELOPMENT AND SALEReal estate held for development and sale includes land, land development costs, construction and other costs. Real estate held for development anduse is stated at cost, or when circumstances or events indicate that the real estate is impaired, at estimated fair value. Real estate held for sale is carried at thelower of cost or fair value less estimated costs to sell. Land, land development and indirect land development costs are accumulated by specific project andallocated to various units within that project using specific identification and allocation based upon the relative sales value, unit or area methods. Directconstruction costs are assigned to units based on specific identification. Construction costs primarily include direct construction costs and capitalized fieldoverhead. Other costs are comprised of fees, capitalized interest and real estate taxes. Costs incurred to sell real estate are capitalized to the extent they arereasonably expected to be recovered from the sale of the project and are tangible assets or services performed to obtain regulatory approval of sales. Otherselling costs are expensed as incurred.If the project is considered held for sale, it is valued at the lower of cost or fair value less estimated selling costs. For assets held for development anduse, estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. Theevaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances thatmay affect fair value including management’s plans for the property. A write-down to estimated fair value is recorded when the net carrying value of theproperty exceeds its estimated undiscounted future cash flows. These evaluations are made on a property-by-property basis whenever events or changes incircumstances indicate that the net book value may not be recoverable.The Company has classified its Eclipse and Penderbrook projects as held for sale and accordingly, carries the projects at fair value less costs to sell asdetermined by discounted cash flow models, by reference to comparable market transactions, or relevant purchase offers. Discounted cash flow models aredependent upon several subjective factors, including estimated average sales prices, estimated sales pace, and the selection of an appropriate discount rate.The estimates of sales prices, sales pace and discount rates used by the Company are based on the best information available at the time the estimates aremade.In 2012, management evaluated its strategic alternatives with respect to its real estate projects classified as held for sale with the objective of creatingadditional near term liquidity. As a result, a decision was made to market the Potomac Yard project in a bulk sale transaction, rather than by selling directly toprospective home buyers, significantly accelerating absorption. The impairment charge of $2,358 for the year ended December 31, 2012, reflects the writedown to estimated fair value less costs to sell under the revised disposition strategy, however, there can be no assurance that the Company will be successfulin the sale of the Potomac Yard project in a bulk sale and in the absence thereof, the Company will continue selling to prospective home buyers. TheCompany recorded an impairment charge of $2,358 during the year ended December 31, 2012, to properly record it’s for sale projects at fair market value lesscosts to sell, consistent with the provisions of ASC 360. There were no impairment charges recorded during the year ended December 31, 2011.After impairments and write-offs, real estate held for development and sale consists of the following: December 31, 2012 2011 Land and land development costs $19,378 $4,693 Cost of construction (including capitalized interest and real estate taxes) 8,403 16,519 $27,781 $21,212 F-14Table of Contents5.OPERATING REAL ESTATE, NETIn February 2011, the Company began construction on a 103-unit apartment rental project located in the Cascades master planned community inLoudoun County, Virginia (the “Cascades Apartments”). Accordingly, upon the initiation of construction, the value of the existing land upon which theproject was constructed (approximately $2.5 million) was reclassified from real estate held for development and sale to operating real estate, net. The totalconstruction costs capitalized in addition to the land and land development costs were approximately $9.8 million. The apartment project consisted of twobuildings, the first of which was placed into service in July 2011 and the second of which was placed in service in September 2011. As further discussed inNote 9, the Cascades Apartments were sold on March 7, 2012 and accordingly, the results of operations are included in ‘Net income (loss) on discontinuedoperations’ in 2012 and 2011.Depreciation was calculated on buildings and improvements at the Cascades Apartments using the straight-line method over estimated useful lives,which ranged from seven to thirty years. Furniture, fixtures and equipment were depreciated using the straight-line method over estimated useful lives, whichrange from three years (primarily computer-related equipment) to seven years. Depreciation of $82 was recorded for the year ended December 31, 2012 anddepreciation of $173 was recorded for the year ended December 31, 2011 and is reflected in segment reporting Note 2 and in discontinued operations on theConsolidated Statement of Operations. Operating real estate consisted of the following: December 31, 2012 2011 Land $— $2,815 Building and improvements — 9,453 — 12,268 Less: accumulated depreciation — (173) $— $12,095 6.PROPERTY, PLANT AND EQUIPMENT, NETProperty, plant and equipment consist of the following: December 31, 2012 2011 Computer equipment and capitalized software $199 $1,840 Furniture and fixtures 106 82 Office equipment 58 84 Leasehold improvements — 15 363 2,021 Less: accumulated depreciation (141) (1,916) $222 $105 Depreciation and amortization expense, included in ‘selling, general, and administrative’ in the consolidated financial statements of operations,amounted to $41 and $23 for the years ended December 31, 2012 and 2011, respectively. 7.OTHER ASSETSOther assets consist of the following: December 31, 2012 2011 Restricted escrow deposits $570 $483 Deferred financing costs 1,148 1,679 Deposits on land purchase options 820 420 Other 106 48 2,644 2,630 Less: accumulated amortization (301) (612) $2,343 $2,018 F-15Table of Contents8.ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable and accrued liabilities consist of the following: December 31, 2012 2011 Trade payables $3,511 $2,910 Warranty 963 1,009 Customer deposits 206 63 Other 6 5 $4,686 $3,987 9.MORTGAGES AND CREDIT FACILITIESThe Company generally finances its development and construction activities on a single or multiple project basis so it is not uncommon for eachproject or collection of projects the Company develops and builds to have a separate credit facility. Accordingly, the Company typically has had numerouscredit facilities and lenders. As described in more detail below, our outstanding debt by lender was as follows: Bank Balance asof12/31/12 Balance asof12/31/11 Recourse SunBridge, net of $0.0 million and $0.6 million discount, respectively $— $10,178 Secured Cardinal Bank 636 9,957 Secured Bank of America 3,096 3,751 Unsecured Cornerstone (Haven Trust) — 400 Unsecured Branch Banking & Trust 263 263 Secured Wachovia — 133 Unsecured Seller – Emerald Farm 100 100 Secured Fifth Third — 25 Unsecured Eagle Bank – Potomac Yard / Penderbrook 4,084 — Secured Eagle Bank – New Hampshire Ave. 3,159 — Secured Eagle Bank – Redland Road 2,500 — Secured Rosalie K. Stahl Trust 3,000 — Secured TSR-Shady Grove, LLC. 5,750 — Secured 22,588 24,807 Due to affiliates – Stonehenge Funding 5,041 5,008 Unsecured Total $27,629 $29,815 The material loan agreements are discussed below.Eagle BankOn May 29, 2012, the Company, through its Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C. subsidiaries, entered into a loanagreement with Eagle Bank pursuant to which the Company secured a $9.96 million loan with a twenty-seven months term (the “Eagle Bank Loan”) torefinance the Company’s Eclipse condominium project and Penderbrook Square condominium project. Proceeds from the Eagle Bank Loan were primarilyutilized (i) to pay off existing indebtedness of approximately $7.97 million, (ii) set up an interest reserve escrow pursuant to the term of agreement in theamount $0.5 million, (iii) pay approximately $0.1 million in settlement charges and closing costs, and (iv) for general corporate purpose. The interest reserveescrow is held in the name of the bank and if the borrower defaults under the loan agreement, the bank has sole discretion to apply the funds or portion of thefunds to pay off the indebtedness. Commencing thirty days after closing, the Company is required to make monthly payments of interest only on outstandingprincipal balance, principal curtailment payments upon settlements at the two subsidiaries and a minimum principal curtailment payment of $4.98 million nolater than 12 months following the closing of the Eagle Bank Loan. There is no prepayment penalty associated with the Eagle Bank Loan. The balanceoutstanding at December 31, 2012 was $4.08 million. F-16Table of ContentsOn August 23, 2012, the Company, through New Hampshire Ave. Ventures, LLC, a consolidated joint venture of its subsidiary Comstock VenturesXVI, L.C. and 6000 New Hampshire Avenue, LLC, entered into a three-year loan agreement and related documents with Eagle Bank securing a $6.0 millionrevolving development loan and a $4.0 million revolving construction loan (collectively, the “Eagle NHA Revolver”) to finance The Hampshires, theCompany’s 111-unit project located in Washington, D.C. Proceeds from the Eagle NHA Revolver will primarily be utilized to (i) pay for expenses associatedwith the Eagle NHA Revolver; (ii) reimburse the Company for development costs previously expended and (iii) to pay for the future development andconstruction related expenses. Under the terms of the Loan Agreement, the Eagle NHA Revolver provides for an initial floating interest rate of LIBOR plus3% with an interest rate floor of 5.75%. The New Hampshire Ave. Ventures, LLC is required to make monthly interest payments on the Eagle NHA Revolverto the extent not offset by a $400 interest reserve initially set aside for the benefit of the Borrower and is required to make a minimum principal curtailmentunder the development portion of the Eagle NHA Revolver of $3.22 million by December 31, 2013 and additional curtailments on a quarterly basisthereafter. There is no prepayment penalty associated with the Eagle NHA Revolver, which is secured by a first deed of trust and is fully guaranteed by theCompany. The balance outstanding at December 31, 2012 was $3.16 million.On December 27, 2012, the Company, through Comstock Redland Road, L.C. subsidiary, entered into acquisition bridge loan (the “Bridge Loan”)with Eagle Bank, pursuant to which the Company secured $2.5 million to finance the Company’s acquisition of the property directly adjacent to the ShadyGrove Metro in Rockville, Montgomery County, Maryland. The Company utilized the proceeds from the Eagle Bank Loan (the “Bridge Loan”) to (i) pay forthe acquisition of land planned for development of 36 townhomes, 3 single family, and a 117-unit multi-family apartments and (ii) to pay for expensesassociated with settlement charges and closing costs. Under the terms of the loan agreement, the Bridge Loan provides for an interest rate of 5% per annum.The Company is expected to make monthly interest payments commencing thirty days after closing, with entire principal balance due March 27, 2013. Theloan is secured by a promissory note, second deed of trust and security agreement on the property, second deed of trust and security agreement on thePotomac Yard project, a guaranty of Comstock Holding Companies, Inc., Comstock Potomac Yard, L.C. and Christopher Clemente, the Chief ExecutiveOfficer of Comstock Holding Companies, Inc. and other ancillary documents (collectively, the “Bridge Loan Documents”). There is no prepayment penaltyassociated with the Bridge Loan. The amount outstanding at December 31, 2012 was $2.5 million. The Bridge Loan was repaid in full on March 25, 2012 asfurther described in Note 20 to the consolidated financial statements.SunBridgeOn July 12, 2011, the Company, through its Comstock Potomac Yard, L.C. subsidiary, entered into a loan agreement with BCL Eclipse, LLC, anaffiliate of SunBridge Capital Management, LLC (“SunBridge”), pursuant to which the Company secured a $13.8 million loan with a three year term (the“SunBridge Eclipse Loan”) to refinance the Company’s Eclipse condominium project. Proceeds from the SunBridge Eclipse Loan were primarily utilized to(i) pay off existing indebtedness of approximately $9.0 million, (ii) pay approximately $0.8 million for expenses associated with the SunBridge Eclipse Loan(which were classified in Other assets in the accompanying balance sheet), and (iii) for general corporate purposes. The SunBridge Eclipse Loan provided fora 1% origination fee and an interest rate of 12.5%. There was no prepayment penalty associated with the SunBridge Eclipse Loan, which was secured by afirst deed of trust on the Eclipse property. The loan was subject to minimum sales and release requirements.On July 12, 2011, SunBridge also issued a binding commitment letter to the Company, through its Comstock Penderbrook, L.C. subsidiary, for a cashout refinance of the Company’s Penderbrook Square condominium projected in an amount of up to $7.0 million with a three-year term (the “SunBridgePenderbrook Loan”). This commitment was drawn upon on October 5, 2011 and the loan was funded for approximately $5.4 million. Proceeds from this loanwere primarily utilized to (i) pay off existing indebtedness of approximately $3.9 million, (ii) pay for expenses associated with the loan of approximately$0.7 million, and (iii) for general corporate purposes.As a condition of the loan agreement, the Company also entered into a cross-collateralization agreement whereby the Penderbrook project and theEclipse project each secured payment and performance of the covenants and agreements of the October 5, 2011 SunBridge Penderbrook Loan and the loanfunded on July 12, 2011 with respect to the Eclipse project as described above. The SunBridge Penderbrook Loan provided for a 1% origination fee and aninterest rate of 12.5%. There was no prepayment penalty associated with the SunBridge Penderbrook Loan, which was secured by a first deed of trust on theproperty. The loan was subject to minimum sales and release requirements.On October 5, 2011, the Company and a subsidiary of the Company, Comstock Emerald Farm, L.C., as guarantors, also entered into a guarantyagreement for the benefit of SunBridge. Pursuant to the guaranty agreement, (i) the guarantors jointly and severally guaranteed the payment of principal andinterest and any other amounts due under the SunBridge Penderbrook Loan Agreement, (ii) the Company pledged its equity interest in ComstockPenderbrook, L.C., and (iii) each guarantor granted SunBridge a security interest in all of its unencumbered assets, all as additional security for the SunBridgePenderbrook Loan.On May 29, 2012, the Company repaid the SunBridge loans in full. All cash paid to satisfy the extinguishment of the SunBridge Loans is classified asa financing activity in the consolidated statement of cash flows. F-17Table of ContentsCardinal BankOn February 11, 2011, the Company, through Cascades II entered into a loan agreement with Cardinal Bank pursuant to which the Company obtainedan $11.0 million multi-family construction loan and mortgage with a five-year term (the “Cardinal Bank Loan”). Proceeds from the Cardinal Bank Loan(i) funded the construction of the Company’s Cascades apartment project and (ii) retired existing indebtedness of the Company owed to M&T Bank having amaturity date of February 14, 2011 and which was secured by a first deed of trust on the real property upon which the Cascades project was constructed. TheCardinal Bank Loan, secured by a new first deed of trust on the property, had an initial interest rate of Prime plus two percent (2%), with an interest rate floorof 6.5%. The Cardinal Bank Loan was amortized in accordance with a 5.5%, 25-year schedule, with amortization to begin 18 months after the loan closingand had a 2% prepayment penalty if paid within the first or second year and a 1% prepayment penalty if retired in the third or fourth year. The Company hadfully guaranteed the Cardinal Bank Loan. The Chief Executive Officer of the Company and the Chief Operating Officer of the Company also provided alimited guaranty in connection with the Cardinal Bank Loan of up to $6.8 million, subject to further reduction upon the satisfaction of certain enumeratedconditions set forth in the loan agreement (see Note 12). On March 7, 2012, the Company sold the Cascades Apartments and the Cardinal Bank Loan wasrepaid in full. A prepayment penalty of $0.2 million was incurred in connection with the early repayment and is included in discontinued operations – gainon sale of real estate in the consolidated statement of operations. All cash paid to satisfy the extinguishment of the Cardinal Bank Loan is classified as afinancing activity in the statement of cash flows.On September 27, 2012, the Company, through Comstock Eastgate, L.C. (“Eastgate”), a consolidated joint venture of Comstock Holding Companies,Inc. and BridgeCom Development I, LLC, entered into a loan agreement with Cardinal Bank to which the Company secured a $2.5 million revolvingconstruction loan (the “Cardinal Bank Revolver”) to finance The Villas at Eastgate, the Company’s 66-unit project located in Loudoun County, VA. Theloan maturity is twelve months from origination, with an automatic extension of twelve months subject to the Company meeting sales conditions, whichinclude (i) entering into binding contracts for the sale of eighteen units and (ii) settling twelve units, each by the one year anniversary of the loan. Theproceeds of Cardinal Bank Revolver will be primarily utilized to pay expenses associated with the loan and future construction expenses of the project. TheCardinal Bank Revolver provides for a variable interest rate of Prime plus 0.5%, with an interest rate floor of 4.75%. Commencing thirty days after loan close,the Company is required to make monthly payments of interest only and upon the closing of the sale of a unit, make principal curtailment payments of 100%of unit costs borrowed. There is no prepayment penalty associated with the Cardinal Bank Revolver.Bank of AmericaAt December 31, 2012, the Company had $3.10 million outstanding to Bank of America under a 10-year unsecured note. On February 25, 2010 theCompany entered into a Seventh Loan Modification Agreement with Bank of America regarding the modification of the terms of this loan. In connectiontherewith the Company agreed to pay an extension fee of $100 and Bank of America agreed to delay until January 2011 the commencement of repayments ofall previously unpaid interest accruing since the date of the Company’s previously reported modification of the line of credit in November 2008. OnFebruary 1, 2011, the Company entered into the Eighth Loan Modification Agreement with Bank of America. The modification required payments of pastinterest and modification fees of approximately $175 on February 1, 2011, which were paid in accordance with the agreement. The maturity date remainsDecember 28, 2018. Comstock is required to make monthly interest payments beginning on February 28, 2011 through loan maturity. CommencingJanuary 28, 2012 and continuing on each and every month through November 28, 2018, Comstock is also required to make monthly principal payments ofapproximately $37.Rosalie K. Stahl TrustOn August 23, 2012, the Company, through New Hampshire Ave. Ventures, LLC, a consolidated joint venture of its subsidiary Comstock VenturesXVI, L.C. and 6000 New Hampshire Avenue, LLC, also entered into a $3.0 million mezzanine loan (the “NHA Mezzanine Loan”) in connection with the TheHampshires project with the Rosalie K. Stahl Trust. Proceeds from the NHA Mezzanine Loan, which has a three-year maturity date, were utilized to acquirethe land for development of the project. The NHA Mezzanine Loan provides for an interest rate of 13.5% per annum, interest to be paid current on a monthlybasis, with the full principal balance being due at maturity. The NHA Mezzanine Loan is secured by a second deed of trust which is fully subordinate to theEagle NHA Revolver and is non-recourse to the Company. There is no prepayment penalty associated with the NHA Mezzanine Loan.TSR-Shady Grove, LLCOn December 27, 2012, the Company, through the Comstock Redland Road, L.C. subsidiary, entered into a Deferred Purchase Money Promissory Notewith TSR-Shady Grove, LLC, a Maryland Limited liability company, pursuant to which the Company secured $5.75 million for the acquisition of landplanned for development of 36 town houses, 3 single family and a 117-unit multi-family apartments. The TSR-Shady Grove Loan provides for an interest rateof 6% per annum, interest is payable commencing thirty days after closing, with entire principal balance due March 28, 2013. However, pursuant to thePurchase and Sale Agreement (the ‘Purchase Agreement”), no interest shall accrue until the property is vacated. The TSR-Shady Grove Loan is secured by adeferred purchase money first deed of trust. There is no prepayment penalty associated with Redland Grove Loan. The balance outstanding at December 31,2012 was $5.75 million. The Deferred Purchase Money Promissory Note was repaid in full on March 25, 2012 as further described in Note 20 to theconsolidated financial statements. F-18Table of ContentsStonehengeOn December 23, 2009, Stonehenge Funding, LC (“Stonehenge”), an entity wholly-owned by the Chief Executive Officer of the Company, completedthe purchase of a senior unsecured note (the “JP Morgan Debt”) from JP Morgan Ventures (“JPMV”) in the then outstanding amount of approximately $9.0million, plus accrued and unpaid interest. The purchase of the JP Morgan Debt resulted in the transfer to Stonehenge of a warrant previously issued to JPMVfor the purchase of 1.5 million shares of the Company’s Class A Common Stock with a strike price of $0.07 per share (the “JP Morgan Warrant”). TheCompany’s Chief Operating Officer subsequently purchased a participation interest in the JP Morgan Debt and the JP Morgan Warrant from Stonehenge. OnFebruary 12, 2010 the Company entered into a modification agreement to modify the terms of the Company’s senior unsecured note with Stonehenge (the“Modification Agreement”). Under the terms of the Modification Agreement, Stonehenge agreed to forgive $4.5 million of the principal balance due from theCompany under the JP Morgan Debt, reducing the principal balance by 50% to $4.5 million. Stonehenge also agreed to forgive an additional amount duefrom the Company of approximately $875, representing all past due interest, late fees and penalties accruing through December 31, 2009 under the JPMorgan Debt. Stonehenge further agreed to reduce the interest rate, effective January 1, 2010, by 50% to 300 basis points above the one year LIBOR on afloating basis. In addition, to ensure the Company’s ability to comply with certain restrictions placed upon the Company by KeyBank and Guggenheim inconnection with previously announced loan modifications enhancing cash flow to the Company, Stonehenge agreed to allow all future interest payments duefrom the Company under the JP Morgan Debt to accrue until at least 90 days after KeyBank and Guggenheim have been fully repaid. In connectiontherewith, Stonehenge may, on a quarterly basis, elect to accept stock of the Company (or warrants for the purchase thereof) with a cumulative value equal tothe value of the scheduled interest payment in lieu of accruing a future quarterly interest payment. For the year ended December 31, 2011, no elections weremade and no warrants were issued under the agreement. The KeyBank debt was fully repaid on February 2, 2011. The Guggenheim debt was fully repaidupon funding of the SunBridge Penderbrook Loan on October 5, 2011.Further, the Modification Agreement provided for the elimination or forbearance upon the enforcement of all financial covenants contained in the JPMorgan Debt and all previously reported covenant violations by the Company. Stonehenge, as a condition of the new financing arrangement withSunBridge, agreed to subordinate its loan and delay principal and interest payments until the SunBridge loans on both Eclipse and Penderbrook are fullyrepaid. Concurrent with the repayment of the Sunbridge loans on May 29, 2012, the subordination agreement expired. On July 24, 2012, the Company andStonehenge entered into an agreement extending the maturity of the debt to July 20, 2013.On March 14, 2013, Stonehenge entered into an extension agreement of the Amended and Restated Senior Note with the Company to extend thematurity date of the financing arrangement to January 1, 2016. Under the terms of the extension agreement, the Company is required to pay $50 monthly toStonehenge, to be allocated first to accrued and unpaid interest and then to unpaid principal outstanding, beginning on April 1, 2013. The extensionagreement was subject to the approval by the Company’s board of directors and approval was obtained on March 21, 2013.WachoviaOn August 17, 2009, the Company entered into a foreclosure agreement (“Agreement”) with Wachovia Bank with respect to approximately $17.8million of secured debt, accrued interest and fees. Under the terms of the Agreement, the Company agreed to cooperate with Wachovia with respect to itsforeclosure on certain of the Company’s real estate assets. In return, Wachovia agreed to release the Company from their obligations and guarantees relatingto the $17.8 million of indebtedness contemporaneous with the execution by the Company of a non-interest bearing, unsecured deficiency note payable toWachovia in the amount of approximately $1.8 million. The deficiency note was reduced by the principal payments related to certain homes sold by theCompany. As of December 31, 2011, the deficiency note balance was $132. On September 27, 2012, the Company repaid the outstanding balance of thedeficiency note in full.CornerstoneOn September 21, 2009 the Company entered into a settlement and mutual release agreement with Cornerstone Bank (“Cornerstone”) with respect toapproximately $5.1 million debt secured by its Gates of Luberon project in Atlanta, Georgia. Under the terms of the agreement, Cornerstone released theCompany, and its subsidiary Mathis Partners, LLC, from their respective obligations and guarantees relating to $5.1 million of debt owed by the Company toCornerstone in exchange for a non-interest bearing unsecured subordinate note in the amount of $0.4 million with a three year term. On October 15, 2012, theCompany repaid the outstanding balance of the deficiency note in full.As of December 31, 2012, maturities and/or curtailment obligations of all of our borrowings are as follows: 2013 $14,027 2014 4,084 2015 6,422 2016 — 2017 and thereafter 3,096 Total $27,629 As of December 31, 2012, the maturities and curtailment obligations for 2013 was $14,027, of which, the new facilities and extensions resulted in$13,291 of the obligations with revised maturities beginning in 2015 and beyond. Refer to Note 20 for more details on changes to our credit facilities. F-19Table of Contents10.SUNBRIDGE WARRANT AND STRATEGIC AGREEMENTIn connection with entering into the SunBridge Loans, on July 12, 2011, the Company agreed to issue BridgeCom Development I, LLC, an affiliate ofSunBridge (“BridgeCom”), an immediately exercisable warrant to purchase 1.0 million shares of the Company’s Class A common stock at an exercise priceequal to the average closing price of the stock for the preceding twenty days ($1.03) (the “SunBridge Warrant”). The exercise period is ten years from July 12,2011. The Company calculated the fair value of the SunBridge Warrant and the SunBridge Loans and allocated the proceeds of the SunBridge Loans on arelative fair value basis. The fair value of the SunBridge Warrant was calculated using a Black Scholes option pricing model and the fair value of theSunBridge Loans was calculated using a discounted cash flow model. The Black Scholes option pricing model considered risk-free interest rates, volatilityfactors and current market and contractual prices. The fair value of the SunBridge Loans was estimated based on interest rates available to the Company fordebt with similar terms. The amount allocated to the SunBridge Warrant was approximately $1.0 million and is reflected as an addition to additional paid-incapital and a corresponding discount on the SunBridge Loans. The Company is amortizing this discount over the term of the SunBridge Loans using theeffective interest method. The remaining discount at December 31, 2011 was approximately $0.6 million. On May 29, 2012, the Company repaid theSunBridge loans in full and the SunBridge warrants remain unexercised as of December 31, 2012.In addition, the Company agreed to enter into a right of first offer and refusal (“Strategic Agreement”) with SunBridge to jointly pursue certainhomebuilding and multi-family projects in the Washington, D.C. metropolitan area. Under the general terms of the Strategic Agreement, the Company willoffer material future investment opportunities to SunBridge and if mutually agreed upon, the Company and SunBridge will enter into specific joint venturearrangements for each identified opportunity. The Strategic Agreement terminates at the earlier of three years from the date of the agreement or until eachparty funds a minimum of $25.0 million in identified investment opportunities. 11.COMMON STOCK AND WARRANTSOn May 12, 2006, the Company completed a private placement (the “PIPE”) to institutional and other accredited investors of 2,121 shares of Class Acommon stock and warrants exercisable into 636 shares of Class A common stock. The Company sold the securities for $9.43 per share for total proceeds ofapproximately $20.0 million and net proceeds of approximately $18.7 million. The per share price of $9.43 represented a premium of approximately 14.6%to the closing price of the Company’s common stock on the date the purchase was completed. The net proceeds were used for general corporate purposes. Thewarrants issued in connection with the PIPE were five-year warrants exercisable at any time after November 10, 2006 with an exercise price of $11.32 pershare. The fair value of the warrants issued under the PIPE have been reported as equity instruments because the liquidated damages, which are capped at10%, reasonably represent the difference between the value of a registered share and an unregistered share of the Company’s common stock. All unexercisedwarrants were forfeited as of November 10, 2011.As part of the Private Placement referred to in Note 20, the Company also issued warrants to purchase shares of the Company’s Class A Common Stock(“Class A Common stock”) (“Warrants,” and each a “Warrant”) to Purchasers who are not officers, directors or affiliates of the Company that purchasedInterests that equaled or exceeded an initial investment amount of $250. The Warrants represent the right to purchase an aggregate amount of up to 224shares of Class A Common Stock. The Warrants have an initial exercise price which is equal to the average of the closing price of the Class A Common Stockof the 20 trading days preceding the issuance of the Warrant. The Warrants contain a cashless exercise provision. In the event the Purchasers exercise theWarrants on a cashless basis, the Company will not receive any proceeds. Warrants may be exercised at any time prior to March 14, 2023. 12.RELATED PARTY TRANSACTIONSOn December 31, 2009, the Company, through an affiliate, Comstock Property Management, L.C., entered into a three-year lease for approximately7,620 square feet of office space for its corporate headquarters at 1886 Metro Center Drive, Reston, Virginia from Comstock Asset Management, L.C., anaffiliate wholly-owned by our Chief Executive Officer. On September 19, 2012, the Company amended the lease for an additional 2,436 square feet of officespace, or a total 10,056 square feet, for its corporate headquarters, with an effective date of July 1, 2012. Concurrent with the amendment, the Companyagreed to extend the lease for five-years from the effective date and future minimum annual lease payments are as follows: 2013 $301 2014 310 2015 320 2016 329 2017 167 Total $1,427 For the year ended December 31, 2012 and 2011, total payments made under this lease agreement were $246 and $203, respectively. As ofDecember 31, 2012, the Company recorded a straight–line rent payable of $9, which is included in ‘Accounts payable and accrued liabilities’. F-20Table of ContentsDuring the second quarter of 2009, the Company began deferring a portion of the base salary payments to our Chief Executive Officer and our ChiefOperating Officer. These deferrals ended on May 1, 2011 and the deferred balance of $842 was paid during the third quarter of 2011.On February 11, 2011, Comstock Contracting, L.C., a subsidiary of the Company, entered into an Owner-Contractor Agreement with CRS ConstructionServices, L.C., an entity wholly-owned by the Chief Executive Officer of the Company, to perform paving and certain site improvement work to property inReston, Virginia which is owned by Fairfax County, Virginia. The contract sum was for approximately $1.0 million and the work was completed in April2011.Comstock Contracting, L.C., a subsidiary of the Company, entered into a Subcontract Agreement with Davis Construction, LLC to perform site workand land development for a project known as Loudoun Station in Loudoun County, Virginia. Comstock Partners, L.C., an entity wholly-owned by the ChiefExecutive Officer of the Company, is the owner of the Loudoun Station project. The total contract value is estimated to be approximately $5 million and theproject was completed in October 2012. The revenue associated with this project is included in ‘Revenue – other’ in the consolidated statement ofoperations. For the year ended December 31, 2012 and 2011, the Company recognized $1.4 million and $3.8 million of revenue, respectively, under thiscontract. The Company was owed $1.3 million and $1.0 million at December 31, 2012 and 2011, respectively, under this contract, which is included in‘Trade receivables’ in the consolidated balance sheet.On January 31, 2011, Comstock Cascades II, L.C., a subsidiary of the Company (“Cascades II”) entered into a private placement for the sale ofmembership interests in Cascades II whereby Cascades II raised working capital in the amount of $2.35 million (the “Private Placement”) related to theplanned construction of the Cascades Apartments. Proceeds of the Private Placement were utilized (i) to provide sufficient capital needed to secure projectfinancing for the Cascades Apartments, (ii) to retire a portion of the existing indebtedness, and (iii) to reimburse the Company for prior expenditures incurredon behalf of the project. Participants in the Private Placement included unrelated third party investors along with several members of the Company’s Board ofDirectors, as well as the Chief Operating Officer, Chief Financial Officer and General Counsel of the Company. In March 2012, upon completion of the sale ofthe Cascades Apartments, the Company repaid the participants in the Private Placement $2.94 million, including the preferred returns, in full.Pursuant to a Credit Enhancement Agreement by and between Comstock and the Chief Operating Officer and Chief Executive Officer of the Company(each, a “Guarantor”), the Guarantors agreed to provide credit enhancement and the personal guarantee of loans with Cardinal Bank and Eagle Bank inexchange for payment by the Company of a credit enhancement fee. As a result of this credit enhancement the Guarantors on an aggregate basis were entitledto a credit enhancement fee calculated at a rate of four percent (4%) per annum based on an agreed upon formula more fully discussed in Note 9. During theyear ended December 31, 2012 and 2011, the Company made guarantee payments under this agreement of approximately $130 and $254. The financing withSunBridge Capital Management, LLC, as discussed fully in Note 9, eliminated the need for personal guarantees on the applicable projects and accordinglythis agreement was terminated on July 12, 2011 with respect to the fees paid on the Eagle Bank loan. On March 7, 2012, the Cardinal Bank loan was repaidand, accordingly, the agreement was terminated with respect to the fees paid on the Cardinal Bank loan and the accrued fees were paid in full.On February 23, 2009, Comstock Homes of Washington, L.C., a wholly-owned subsidiary of the Company, entered into a Services Agreement withComstock Asset Management, L.C., an entity wholly-owned by the Chief Executive Officer, to provide services related to real estate development andimprovements, legal, accounting, marketing, information technology and additional support services. Pursuant to the Services Agreement, the Company shallnot be responsible for any out-of-pocket or third party costs associated with the services provided. For the years ended December 31, 2012 and 2011, theCompany billed Comstock Asset Management, L.C. $525 and $92, respectively, for services and out-of-pocket expenses incurred. Revenues from thisarrangement are included within ‘Revenue – other’ within the statement of operations. 13.EMPLOYEE BENEFIT PLANSThe Company maintains a defined contribution retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code (the “Code”).Eligible participants may contribute a portion of their compensation to their respective retirement accounts in an amount not to exceed the maximumallowed under the Code. In January 2006, the Company began matching employee contributions. The total amount matched for the twelve months 2012 and2011 was $37 and $28 respectively. 14.RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANSOn December 14, 2004 the Company adopted the 2004 Long-Term Compensation Plan (“The Plan”). The Plan provides for the issuance of stockoptions, stock appreciation rights, or SARs, restricted stock, deferred stock, dividend equivalents, bonus stock and awards in lieu of cash compensation, otherstock-based awards and performance awards. Any shares issued under the Plan typically vest over service periods that range from one to five years. Stockoptions issued under the plan expire 10 years from the date they are granted.The Plan provided an initial authorization of 2,550 shares of Class A common stock for issuance and allows an automatic annual increase equal to thelesser of (i) 3% of the Class A common stock outstanding (ii) 750 shares or (iii) such lesser amount as may be determined by the Company’s Board ofDirectors. On April 27, 2012, the Company authorized an increase in the number of shares of our class A common stock reserve to 7.1 million. On June 22,2012, the Company’s shareholders approved the Amended and Restated 2004 Long-Term Incentive Compensation Plan, including an increase in the reserve,with an automatic annual increase on January 1 of each successive year of the lesser of (i) 3% of the Class A Common Stock outstanding, or (ii) 750 shares. Asof December 31, 2012, there were 7.1 million shares available for issuance under the Plan. F-21Table of ContentsThe fair value of each option award is calculated on the date of grant using the Black-Scholes option pricing model and certain subjectiveassumptions. Because the Company does not have sufficient trading history, expected volatilities are based on historical volatilities of comparablecompanies within our industry. We estimate forfeitures using a weighted average historical forfeiture rate. Our estimates of forfeitures will be adjusted overthe requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from their estimate. The risk-free rate for the periodsis based on the U.S. Treasury rates in effect at the time of grant. The expected term of options is based on the simplified method which assumes that the optionwill be exercised midway between the vesting date and the contractual term of the option. The Company is able to use the simplified method as the optionsqualify as “plain vanilla” options as defined by ASC 718 – Stock Compensation. The following table summarizes the assumptions used to calculate the fairvalue of options during 2012 and 2011. 2012 2011 Weighted average fair value of options granted $1.26 $0.99 Dividend yields — — Expected volatility 106.3%-165.6% 107.3%-164.5% Weighted average expected volatility 137.0% 137.00% Risk free interest rates 0.78% 0.96% Weighted average expected term (in years) 6.25 6.25 The following table summarizes information about stock option activity: Shares Weightedaverageexerciseprice Outstanding at December 31, 2010 664 $0.94 Granted 100 1.08 Exercised — — Forfeited or expired — — Outstanding at December 31, 2011 764 $0.96 Granted 140 1.81 Exercised — — Forfeited or expired (1) 1.00 Outstanding at December 31, 2012 903 1.09 Exercisable at December 31, 2012 688 $0.95 As of December 31, 2012 and 2011, the weighted-average remaining contractual term of unexercised stock options was 7.3 years and 7.8 years,respectively.A summary of the Company’s restricted share activity is presented below: Shares Weightedaverage fairvalue at dateof grant Restricted shares outstanding at December 31, 2010 94 $1.24 Granted 1,471 1.31 Vested (602) 1.27 Forfeited — — Restricted shares outstanding at December 31, 2011 963 $1.31 Granted 706 1.73 Vested (615) 1.36 Forfeited (4) 1.31 Restricted shares outstanding at December 31, 2012 1,050 $1.56 F-22Table of ContentsAs of December 31, 2012 and 2011, $1.0 million and $0.9 million, respectively, of unrecognized compensation cost related to stock options andrestricted stock issuances granted under the Plan. The Company intends to issue new shares of its common stock upon vesting of restricted stock grants or theexercise of stock options. 15.COMMITMENTS AND CONTINGENCIESLitigationOn July 29, 2008, Balfour Beatty Construction, LLC, successor in interest to Centex Construction (“Balfour”), the general contractor for a subsidiary ofthe Company, filed liens totaling approximately $552 at The Eclipse on Center Park Condominium project (“Project”) in connection with its claim foramounts allegedly owed under the Project contract documents. In September 2008, the Company’s subsidiary filed suit against Balfour to invalidate the liensand for its actual and liquidated damages in the approximate amount of $17.1 million due to construction delays and additional costs incurred by theCompany’s subsidiary with respect to the Project. In October 2008, Balfour filed counterclaims in the approximate amount of $2.8 million. Subsequent to anexpedited hearing filed by the Company’s subsidiary to determine the validity of the liens that was ultimately heard in February 2009, the Company receivedan order of the court in April 2009 invalidating the liens. On March 19, 2010, the Company’s subsidiary received a judgment against Balfour in an amount of$11.96 million. On March 25, 2010, the Company’s subsidiary received notice of Balfour’s intention to appeal the judgment and post a supersedeas bond inthe amount of $12.5 million. On July 21, 2011, the Company and Balfour reached a settlement for all claims related to this matter for approximately $9.4million, net of closing costs of approximately $900. The Company received the proceeds of the settlement on August 4, 2011.Currently, we are not subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising fromour normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actionspending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results and cash flows. Webelieve that we have obtained adequate insurance coverage, rights to indemnification, or where appropriate, have established reserves in connection withthese legal proceedings.Letters of credit and performance bondsThe Company has commitments as a result of contracts entered into with certain third parties, primarily local governmental authorities, to meet certainperformance criteria as outlined in such contracts. The Company is required to issue letters of credit and performance bonds to these third parties as a way ofensuring that such commitments entered into are met by the Company. The letters of credit and performance bonds issued in favor of the Company and/or itssubsidiaries mature on a revolving basis, and if called into default, would be deemed material if assessed against the Company and/or its subsidiaries for thefull amounts claimed. In some circumstances we have negotiated with our lenders in connection with foreclosure agreements for the lender to assume certainliabilities with respect to the letters of credit and performance bonds. We cannot accurately predict the amount of any liability that could be imposed uponthe Company with respect to maturing or defaulted letters of credit or performance bonds and it is anticipated that any such liability would likely have amaterial adverse effect on our financial position, operating results or cash flows. At December 31, 2012 and 2011, the Company had issued $66 and $528 inletters of credit, respectively, and $1,610 and $2,133 in performance and payment bonds, respectively, to these third parties. No amounts have been drawnagainst these letters of credit or performance bonds. 16.DISCONTINUED OPERATIONSAs described in Note 3, on March 7, 2012, the Company’s subsidiary sold the Cascades Apartments. As the Cascades Apartments represented acomponent of the Company’s business, the consolidated financial statements have been reclassified for all periods presented to appropriately reflect thediscontinued operations of the Cascades Apartments and the continuing operations of the Company. Revenues, costs and expenses directly associated withthe Cascades Apartments have been reclassified as discontinued operations in the consolidated statements of operations. Corporate expenses, such as generalcorporate overhead, have not been allocated to discontinued operations. The guidance in ASC 740-20-45-7 requires that the income recorded indiscontinued operations be considered when determining the amount of benefit allocable to continuing operations in circumstances when continuingoperations result in a net loss position for the period presented. Accordingly, the Company has allocated a tax benefit of $2,484 to continuing operations anda tax expense of $2,484 to discontinued operations for the year ended December 31, 2012. F-23Table of ContentsSummarized financial information for the Cascades Apartments, is set forth below: Years ended December 31, 2012 2011 Revenue $171 $276 Cost of sales 128 391 Selling, general and administrative 9 44 Interest, real estate taxes and indirect costs related to inactive projects 154 363 Other (income) expenses, net (22) 5 Loss from discontinued operations before gain on sale of real estate and income taxexpense (98) (527) Net gain on sale of real estate 6,466 — Net (loss) income from discontinued operations before income tax expense 6,368 (527) Income tax expense (2,484) — Net (loss) income from discontinued operations $3,884 $(527) Discontinued operations have not been segregated in the consolidated statement of cash flows. Therefore, amounts for certain captions will not agreewith the respective data in the consolidated statement of operations. 17.FAIR VALUE OF FINANCIAL INSTRUMENTSThere are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilizequoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilizeinputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quotedprices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest ratesand yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situationswhere there is little, if any, market activity for the asset or liability. An asset’s or liability’s level within the fair value hierarchy is based on the lowest level ofinput that is significant to the fair value measurement.The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accruedliabilities are reasonable estimates of their fair values based on their short maturities.The fair value of fixed and floating rate debt is based on observable market rates (Level 2 inputs) for similar instruments, which ranged from 4.75% -13.5% as of December 31, 2012 and 6.5% - 12.5% as of December 31, 2011. The following table summarizes the fair value of fixed and floating rate debt andthe corresponding carrying value as of: December 31,2012 December 31,2011 Carrying amount $27,629 $30,378 Fair value $24,881 $26,927 Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates aresubjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes inassumptions could significantly affect the estimates.The Company may also value its real estate held for development and sale at fair value on a nonrecurring basis if it is determined that an impairmenthas occurred. Such fair value measurements use significant unobservable inputs and are classified as Level 3. See Note 2 for a further discussion of thevaluation techniques and the inputs used. 18.INCOME TAXESThe effective tax rate for the years ended December 31, 2012 and 2011 was 0% and 3%, respectively. This resulted in zero and $33 in tax expense forthe twelve month periods ended December 31, 2012 and 2011, respectively.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. The Company recorded valuation allowances for certain tax attributes and other deferred tax assets.At this time, sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, theCompany believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reversed. With a fullvaluation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. F-24Table of ContentsThe Company currently has approximately $116 million in federal and state NOLs, which based on current statutory tax rates, has a potential fair valueof approximately $45 million in tax savings. If unused, these NOLs will begin expiring in 2028. Under Internal Revenue Code Section 382 (“Section 382”)rules, if a change of ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired. We estimate that as ofDecember 31, 2012, the cumulative shift in ownership of the Company’s stock would not cause an impairment of our NOL asset. However, if an ownershipchange were to occur, the Section 382 limitation would not be expected to materially impact the Company’s financial position or results of operations as ofDecember 31, 2012, because of the Company’s full valuation allowance on its net deferred tax assets.The Company’s ability to use its NOLs (and in certain circumstances, future built-in losses and depreciation deductions) can be negatively affected ifthere is an “ownership change” as defined under Section 382. In general, an ownership change occurs whenever there is a shift in ownership by more than 50percentage points by one or more 5% shareholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownershipchange could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control. In aneffort to preserve the availability of these NOLs, Comstock adopted a Section 382 stockholder rights plan (the “Rights Plan”). The Rights Plan was adoptedto reduce the likelihood of such an unintended “ownership change” and thus assist in preserving the value of these tax benefits. Similar plans have beenadopted by a number of companies holding similar significant tax assets over the past several years. This plan was submitted to a vote of the Company’sshareholders on June 17, 2011 and the plan was approved at that meeting.The Company has not recorded any accruals for tax uncertainties as of December 31, 2012 and 2011, respectively. We file U.S. and state income taxreturns in jurisdictions with varying statutes of limitations. The 2009 through 2011 tax years generally remain subject to examination by federal and moststate tax authorities.Income tax provision consists of the following as of December 31: 2012 2011 Current: Federal $— $33 State — — — 33 Deferred: Federal (1,013) 731 State (185) 136 (1,198) 867 Valuation allowance 1,198 (867) Total income tax expense (benefit) $— $33 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets and liabilities at December 31 are as follows: 2012 2011 Deferred tax assets: Inventory $1,051 $3,480 Warranty 282 320 Net operating loss and tax credit carryforwards 45,330 41,562 Cancellation of debt gain 1 760 Accrued expenses 112 (63) Stock based compensation 397 303 47,173 46,362 Less - valuation allowance (47,013) (45,815) Net deferred tax assets 160 547 Deferred tax liabilities: Investments in affiliates (136) — Depreciation and amortization (24) (547) Net deferred tax liabilities (160) (547) Net deferred tax assets (liabilities) $— $— F-25Table of ContentsWe file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2009 through 2011 tax years generally remainsubject to examination by federal and most state tax authorities.A reconciliation of the statutory rate and the effective tax rate follows: 2012 2011 Federal statutory rate (35.00)% (35.00)%State income taxes - net of federal benefit (3.90)% (3.97)%Permanent differences — % — % Return to provision adjustments 3.24% (14.19)%Change in valuation allowance 21.23% 53.16% Other, net 14.43% — % Tax benefit — % — % 19.QUARTERLY RESULTS (unaudited)Quarterly results for the years ended December 31, 2012 and 2011 follow (in thousands, except per share amounts): Three months ended March 31,2012 June 30,2012 September 30,2012 December 31,2012 Revenues $3,935 $4,244 $3,483 $2,640 Operating loss (2,369) (3,089) (4,485) (2,082)Net loss from continuing operations (1,428) (1,879) (4,166) (2,050)Net income (loss) from discontinued operations 5,482 (1,236) (370) 8 Pretax income (loss) 4,054 (3,115) (4,536) (2,042)Net income (loss) 4,054 (3,115) (4,536) (2,042)Net income (loss) attributable to Comstock Holding Companies, Inc. 3,951 (3,115) (4,496) (2,005) Basic earnings (loss) per share 0.19 (0.15) (0.22) (0.10) Diluted earnings (loss) per share 0.19 (0.15) (0.22) (0.10) Three months ended March 31,2011 June 30,2011 September 30,2011 December 31,2011 Revenues $4,586 $5,903 $5,308 $6,136 Operating loss (1,119) (1,793) (2,256) (2,631)Net (loss) income from continuing operations (843) (1,506) 6,895 (2,421) Net loss from discontinued operations (50) (52) (234) (191) Pretax (loss) income (893) (1,558) 6,661 (2,612)Net (loss) income (893) (1,558) 6,661 (2,612)Net (loss) income attributable to Comstock Holding Companies, Inc. (1,025) (1,676) 6,541 (2,733)Basic (loss) earnings per share (0.05) (0.09) 0.33 (0.14)Diluted (loss) earnings per share (0.05) (0.09) 0.33 (0.14)Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters maynot agree with per share amounts for the year due to rounding. F-26Table of Contents20.SUBSEQUENT EVENTSOn March 14, 2013, Comstock Investors VII, L.C. (“Investors VII”), a subsidiary of the Company entered into subscription agreements (each a“Subscription Agreement”) with certain accredited investors (the “Purchasers,” and each a “Purchaser”), pursuant to which the Purchasers purchasedmembership interests (“Interests”) in Investors VII for an initial aggregate principal amount of $6,925 of an up to $7,000 capital raise (the “PrivatePlacement”). Purchasers included unrelated third-party accredited investors along with members of the Company’s Board of Directors and the ChiefOperating Officer, Chief Financial Officer and General Counsel of the Company. The Subscription Agreement provides that the Purchasers are entitled to acumulative, compounded, preferred return of 20% per annum, compounded annually on their capital account balances. After six months, the Company hasthe right to repurchase the Interests of the Purchasers, provided that (i) all of the Purchasers’ Interests are acquired, (ii) the purchase is made in cash and(iii) the purchase price equals the Purchasers’ capital account plus an amount necessary to cause the preferred return to equal a cumulative cash on cash returnequal to 20% per annum. The Private Placement provides capital related to the current and planned construction of the Company’s following projects: TheResidences at Shady Grove in Rockville, Maryland consisting of 36 townhomes, The Hampshires project in Washington, D.C. consisting of 38 single familyresidences and 73 townhomes, and the Falls Grove project in Prince William County, Virginia consisting of 110 townhomes and 19 single family homes(collectively, the “Projects”). Proceeds of the Private Placement are to be utilized (i) to provide capital needed to complete the Projects in conjunction withproject financing for the Projects, (ii) to reimburse the Company for prior expenditures incurred on behalf of the Projects, and (iii) for general corporatepurposes of the Company.As part of the Private Placement, the Company also issued warrants to purchase shares of the Company’s Class A Common Stock (“Class A Commonstock”) (“Warrants,” and each a “Warrant”) to Purchasers who are not officers, directors or affiliates of the Company that purchased Interests that equaled orexceeded an initial investment amount of $250. The Warrants represent the right to purchase up to 224 shares of Class A Common Stock, the maximumaggregate amount of warrants approved for issuance under the Private Placement. The Warrants have an initial exercise price which is equal to the average ofthe closing price of the Class A Common Stock of the 20 trading days preceding the issuance of the Warrant. The Warrants contain a cashless exerciseprovision. In the event the Purchasers exercise the Warrants on a cashless basis, the Company will not receive any proceeds. Warrants may be exercised at anytime prior to March 14, 2023.On March 25, 2013, Comstock Redland Road, L.C., a subsidiary of the Company (“Redland”), entered into a Revolving Credit Line Deed of Trust,Security Agreement, and Fixture Filing, Loan Agreement, Revolving Construction Loan Promissory Note, Development Loan Promissory Note, and relateddocuments (the “TH Loan Documents”) with EagleBank (“Primary Lender”) pursuant to which Redland secured a Twelve Million Eight Hundred ThirtyThousand Dollar ($12,830,000) acquisition, development and construction loan and letter of credit facility (“TH Loan”) for a mix of 39 townhomes andsingle family homes at the Residences at Shady Grove project in Rockville, Montgomery County, Maryland (the “TH Project”) and a Two Million FourHundred Thousand Dollar ($2,400,000) acquisition and development loan (“Apt Loan”) for a 117-unit multi-family residential building known as BLVDShady Grove, in Rockville, Montgomery County, Maryland (the “Apt Project”). Under the terms of the TH Loan Documents, there is a twenty-four monthmaturity date, and an interest rate at LIBOR plus three percent (3%). Under the Apt Loan Documents, there is a twelve month maturity date and an interestrate at LIBOR plus three percent (3%). The TH Loan and Apt Loan are secured by the TH Project, Apt Project, and fully guaranteed by the Company.In addition, on March 25, 2013, the Company, through Redland, entered into a Loan Agreement, Deed of Trust, Security Agreement and Fixture Filing,and Promissory Note, and related documents (the “Secondary Loan Documents”) with Eagle Commercial Ventures, LLC (“Secondary Lender”) for acquisitionand development of the TH Project and the Apt. Project totaling Three Million One Hundred and Ninety Thousand Dollars ($3,190,000). Under the terms ofthe Secondary Loan Documents, there is a twenty-four month maturity date for the TH Loan, and a one year maturity date for the Apt Loan, and both loanprovides for an interest rate at twelve percent (12%), with payment of interest only at six percent (6%) and accrual of the remaining six percent until maturity.The Secondary Loan is secured by a second trust on the TH Project, Apt Project, and fully guaranteed by the Company and the Company’s Chief ExecutiveOfficer.On March 14, 2013, Stonehenge Funding, LC (“Stonehenge”), an entity wholly-owned by the Chief Executive Officer of the Company, entered into anExtension Agreement of the Amended and Restated Senior Note with the Company to extend the maturity date of the financing arrangement to January 1,2016. Under the terms of the Extension Agreement, the Company is required to pay $50 monthly to Stonehenge, to be allocated first to accrued and unpaidinterest and then to unpaid principal outstanding, beginning on April 1, 2013. The Extension Agreement was subject to the approval by the Company’sboard of directors and approval was obtained on March 21, 2013.On March 22, 2013, the Company, through Comstock Eastgate, L.C., a consolidated joint venture of Comstock Holding Companies, Inc. andBridgeCom Development I, LLC, executed the third lot takedown, of eleven total, under the Building and Purchase Agreement with M/I Homes of DC, LLC,for the purchase price of $554. F-27Exhibit 10.76LOAN AGREEMENTTHIS LOAN AGREEMENT (as amended, modified or supplemented from time to time, “Agreement”), dated as of the day of March, 2013, by andbetween (i) EAGLE COMMERCIAL VENTURES, LLC (the “Lender”), and (ii) COMSTOCK REDLAND ROAD, L.C., a Virginia limited liability company(the “Borrower”), recites and provides:RECITALS:R-1. The Borrower has acquired a certain development site comprised of 39 lots located at Redland Road and Yellowstone Way, Montgomery County,Maryland, as more particularly described on Exhibit A attached hereto (the “Property”), on which the Borrower intends to develop three (3) single familydetached housing units (singularly, a “Single Family Lot” or, as improved, “Single Family Unit” and if referring to more than one, “Single Family Lots” or, asimproved, “Single Family Units”) and thirty-six (36) townhouse units (singularly, a “Townhouse Lot” or, as improved, “Townhouse Unit” and if referring tomore than one, “Townhouse Lots” or, as improved, “Townhouse Units”).R-2. Subject to the terms of this Agreement, the Lender agrees to make a loan (the “Loan”) to the Borrower, as more particularly described in SectionOne below, for the purpose of providing mezzanine and second trust financing for the Property.R-3. The Lender and the Borrower agree that the Loan will be made and advanced upon and subject to the terms, covenants and conditions set forth inthis Agreement.R-4. Simultaneously herewith the Lender is making a loan to the Borrower as hereinafter described (the “Apartment Loan”) with respect to certainproperty adjacent to the Property that has been approved for construction of a 117-unit multi-family apartment building (the “Apartment Parcel”), which wasto have been subdivided pursuant to a record plat (the “Record Plat”) to create the Property and the Apartment Parcel each as a separate subdivided recordlot; however, the Record Plat has not been recorded and the Property and the Apartment Parcel are part of one single subdivided record lot known as P-146 inMontgomery County, Maryland. The legal description of the Property and the Apartment Parcel is more particularly set forth in Exhibit A attached heretoand made a part hereof.R-5. The Borrower has requested that the Lender waive the condition to closing the Loan that the Record Plat be recorded, and the Lender is amenableto such request provided the Borrower performs its duties and obligations strictly in accordance with the terms and conditions of this Agreement.AGREEMENTACCORDINGLY, for and in consideration of the foregoing Recitals which are a material part of this Agreement and not mere prefatory language, andof the mutual covenants and conditions set forth in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which arehereby acknowledged, the Lender and the Borrower agree as follows: 1SECTION ONETHE LOAN1.1 Amount. The maximum principal amount that may be advanced under the Loan shall not exceed the lesser of (i) Two Million Eighty Thousand andNo/100 Dollars ($2,080,000.00), or (ii) seventy-eight percent (78%) of the “as complete” value of the Property (inclusive of senior trust financing beingprovided by EagleBank for the Property, as hereinafter described) pursuant to the Appraisal (hereinafter defined) and any appraisals which may be engagedby the Lender from time to time subsequent to the date hereof, or (iii) ninety percent (90%) of the cost of acquisition and development of the Property inaccordance with a budget approved by the Lender. The Loan will be evidenced by a Promissory Note made by the Borrower payable to the order of theLender (as the same may be amended, renewed, restated, supplemented or substituted from time to time, the “Note”) which shall be governed by Marylandlaw.1.2 Simultaneous Closing Condition. In addition to all other conditions to closing set forth herein, the Lender’s obligation to close the Loan andadvance Loan proceeds to the Borrower is subject to the condition that the following credit facilities shall be simultaneously closed with the Loan closing:(i) the Apartment Loan; (ii) an acquisition and development loan to the Borrower from EagleBank in the amount of Five Million Three Hundred Thousandand No/100 Dollars ($5,300,000.00) (the “EagleBank A&D Townhouse Loan”) to be secured by a first lien deed of trust encumbering the Property and theApartment Parcel (the “Senior Deed of Trust”); (iii) a construction loan to the Borrower from EagleBank in the maximum principal amount outstanding fromtime to time of Two Million Eight Hundred Seventy Thousand and No/100 Dollars ($2,870,000.00) (the “EagleBank Construction Loan”) also to be securedby the Senior Deed of Trust, (iv) a letter of credit facility being made available to the Borrower from EagleBank in the amount of Two Million Two HundredSixty Thousand and No/100 Dollars ($2,260,000.00) (the “EagleBank LC Facility” and together with the EagleBank A&D Townhouse Loan and theEagleBank Construction Loan, the “EagleBank Credit Facility”) also to be secured by the Senior Deed of Trust; and (v) an acquisition and development loanto the Borrower from EagleBank in the amount of Two Million Four Hundred Thousand and No/100 Dollars ($2,400,000.00) (the “EagleBank ApartmentLoan”) also to be secured by the Senior Deed of Trust.1.3 Purpose. The Borrower will use the Loan proceeds to finance development of the Property and construction of the Townhouse Units in accordancewith a budget approved by the Lender.1.4 Record Plat. The Borrower shall use commercially reasonable efforts with the highest due diligence to cause the Record Plat to be approved byapplicable governmental authorities and recorded. The terms and conditions with respect to the Record Plat are as follows: (a)If the Record Plat, in form as shall have been approved by the Lender, has not been recorded within ninety (90) days from the closing of theLoan, an Event of Default shall have occurred on the ninety-first (91) day following the closing. 2st (b)The Deed of Trust (hereinafter defined) shall initially encumber the Property and the Apartment Parcel as security for the Loan and the ApartmentLoan. Upon recordation of the Record Plat, the Deed of Trust shall be amended to reflect the new legal description and the Lender’s loan policyof title insurance shall be appropriately endorsed in form satisfactory to the Lender in all respects. (c)Provided there has then occurred no Event of Default hereunder, following recordation of the Record Plat, if (i) the Borrower sells the ApartmentParcel and upon closing of such sale pays the Apartment Loan and the EagleBank Apartment Loan in full, the Lender shall release the ApartmentParcel from the lien of the Deed of Trust, or (ii) the Borrower determines to develop the Apartment Parcel and transfer the Apartment Parcel to anaffiliate, provided that EagleBank releases the Apartment Parcel from the Senior Deed of Trust, the Lender shall release the Apartment Parcelfrom the lien of the Deed of Trust and simultaneously therewith the Apartment Parcel shall be encumbered by a new deed of trust (the“Apartment Parcel Deed of Trust”) as security for the Apartment Loan as well as cross-collateral security for the Loan. (d)If applicable under Subparagraph 1.4(c) above, the Apartment Parcel Deed of Trust shall be in the form as attached to this Agreement as ExhibitB and shall constitute a second lien on the Apartment Parcel subject only to a new senior lien deed of trust securing EagleBank for theEagleBank Apartment Loan in an amount not to exceed Two Million Four Hundred Thousand and No/100 Dollars ($2,400,000.00), to berecorded immediately prior to recordation of the Apartment Parcel Deed of Trust securing the Lender. (e)The Leases Assignment (hereinafter defined) shall encumber all leases, rents and profits with respect to the Property and the Apartment Parcel.The Apartment Parcel may be released from the Leases Assignment in the event of (i) sale and payment in full of the Apartment Loan and theEagleBank Apartment Loan as contemplated in Subparagraph 1.4(c) above or (ii) transfer of the Apartment Parcel to an affiliate, in which event anew assignment of leases and rents in form substantively identical to the Leases Assignment shall be recorded against the Apartment Parcelsimultaneously with such release. (f)UCC-1 Financing Statements that constitute a fixture filing shall be recorded against the Property and the Apartment Parcel. Such UCC-1Financing Statements may be terminated as to the Apartment Parcel in the event of (i) sale and payment in full of the Apartment Loan and theEagleBank Apartment Loan as contemplated in Subparagraph 1.4(c) above or (ii) transfer of the Apartment Parcel to an affiliate, in which event anew UCC-1 Financing Statement in form substantively identical to the initial instrument shall be filed against the Apartment Parcelsimultaneously with such termination. 31.5 Guarantors. Comstock Holding Companies, Inc. (the “Entity Guarantor”) and Christopher Clemente (the “Individual Guarantor”), jointly andseverally (jointly and severally, collectively the “Guarantor”) shall guarantee the payment and performance of the Borrower’s obligations, covenants andagreements under the Loan, as evidenced by the Loan Documents, and shall also guarantee the Carve Out Obligations (defined on Exhibit C attached hereto),which guaranty shall be evidenced by an instrument of unlimited and unconditional guaranty of payment and performance from the Guarantor for the benefitof the Lender, in form and substance satisfactory to the Lender (the “Guaranty”).1.6 Term. The Note shall mature twenty-four (24) months after the date of closing on the Loan (the “Maturity”). It is acknowledged and agreed thatnotwithstanding any provisions herein, the Borrower has not applied for, nor has the Lender made any commitment with respect to, any extension of suchMaturity. Upon any application for an extension, any approval of an extension on any terms would be contingent upon the usual and customary underwritingprocedures of the Lender, including without limitation, full credit and collateral evaluation and review, the approval of the loan committee of the Lender, andpayment to the Lender of extension fees as determined by the Lender.1.8 Contract Interest Rate; Pay Rate. Commencing on the closing of the Loan, the unpaid balance of the Note outstanding from time to time shall bearinterest at the fixed rate of twelve percent (12%) per annum (the “Contract Rate”). Interest shall be calculated using a 360-day year, based upon the actualnumber of days for which the calculation is being made. Monthly payments of interest only at the rate of six percent (6%) per annum (the “Pay Rate”) shall bedue and payable and shall be paid to the Lender. The difference between the amount calculated at the Contract Rate and the amount calculated at the PayRate shall accrue and payment thereof shall be deferred to Maturity; and the amount of such difference shall be added to the principal balance outstandingunder the Note on each anniversary of the closing of the Loan.1.9 Loan Fee. The Borrower shall pay to the Lender a fee for the Loan in the amount of Forty-One Thousand Six Hundred and No/100 Dollars($41,600.00) (the “Loan Fee”), which has been received by the Lender and which is fully earned by the Lender and non-refundable.1.10 Exit Fee. In addition to the Loan Fee, the Borrower shall pay to the Lender a fee (the “Exit Fee”) in the amount of Forty-One Thousand SixHundred and No/100 Dollars ($41,600.00) on the Maturity date of the Loan or at such earlier time as all of the following shall have occurred: (i) theEagleBank A&D Townhouse Loan and the EagleBank Construction Loan shall have been paid in full, and (ii) all letters of credit issued by EagleBank underthe EagleBank LC Facility either shall have been returned to EagleBank or shall be secured by cash on deposit at EagleBank as security for any thenoutstanding letters of credit, or (ii) the Loan is prepaid in full prior to Maturity.1.11 Increase in Exit Fee on Prepayment Within One Year. The Borrower and the Lender agree that the Lender is guaranteed payment of the amount ofinterest on the full Loan amount for one (1) full year at the annual rate of twelve percent (12%). If the Loan is prepaid in whole or in part within twelve(12) months following closing of the Loan, the Exit Fee shall be increased by an amount equal calculated as follows: Two Hundred Forty-Nine Thousand SixHundred and No/100 Dollars 4($249,600.00) minus any monthly payments of interest at the Pay Rate that have been paid by the Borrower prior to the time of prepayment. The calculationof the increase in the Exit Fee shall be determined by the Lender and shall be paid in full at Maturity.1.12 Collateral. The Loan shall be secured by, among other things, the following: (i)A second lien deed of trust, security agreement and fixture filing (as the same may be amended, restated, supplemented or substituted, the“Deed of Trust”) on the Property and the Apartment Parcel, subject only to the lien of the Senior Deed of Trust; (ii)An assignment of Leases and Rents on the Property and the Apartment Parcel (as the same may be amended, restated, supplemented orsubstituted, the “Leases Assignment”); (iii)A pledge and security agreement from Comstock Investors VII, L.C. (“Investors VII”) covering all of Investors VII’s right, title andinterest in connection with its 100% ownership interest in the Borrower (the “Pledge”); (iv)An assignment of sales contracts and deposits with respect to the Property (the “Contracts Assignment”); (v)Assignments of all development and construction documents including, without limitation, plans and specifications, permits, architect’scontracts, engineering contracts, development contracts, and construction contracts (the “Documents Assignment”); (vi)Consents to Assignment executed by each of the general contractor, architect and project engineer for each of the development and theconstruction (the “Consents”); (vii)An Environmental Indemnity Agreement made by the Borrower and the Guarantor for the benefit of the Lender (as the same may beamended, restated, supplemented or substituted, the “Environmental Indemnity”); (viii)Such UCC-1 Financing Statements as the Lender may determine to be necessary or desirable.1.13 Cross Defaulted Loan. An event of default under the Apartment Loan (sometimes herein called the “Cross-Defaulted Loan”) shall constitute anEvent of Default under the Loan Documents. From and after recordation of the Record Plat, release of the Apartment Parcel from the lien of the Deed of Trust,and recordation of the Apartment Parcel Deed of Trust, (i) the Property shall secure, in addition to the Loan, the Apartment Loan, and (ii) the Apartment Parcelshall secure, in addition to the Apartment Loan, the Loan.1.14 Release Provisions. Provided all conditions to release pursuant to the Senior Deed of Trust have been satisfied, the Lender will release Lots and/orUnits from the lien of the Deed of Trust upon payment to the Lender of all “Net Settlement Proceeds” (hereinafter defined) remaining after the required releaseprice has been paid to EagleBank pursuant to the terms of the Senior Deed of Trust. Each such release shall be conditioned upon full release by EagleBank ofthe applicable Lot and/or Unit 5from the lien of the Senior Deed of Trust. “Net Settlement Proceeds” means the greater of (x) ninety-four percent (94%) of the gross sales price of the Lotand/or Unit, or (y) the gross sales price of the Lot and/or Unit less customary and usual settlement charges and real estate commissions approved by theLender, without payment of any sums to the Borrower or any person or entity affiliated with the Borrower.Notwithstanding the foregoing, no release price shall be payable for the release of streets or roadways, or storm water maintenance or other public facilities,that are to be dedicated to Montgomery County, Maryland or other governmental entities for public maintenance, provided the same are in accordance with asite plan that shall have been approved by EagleBank and the Lender.1.15 Intercreditor Agreement. As a condition of closing the Loan, EagleBank shall enter into a Subordination and Standstill Agreement with theLender (the “Intercreditor Agreement”), in form and substance satisfactory to the Lender in all respects, pursuant to which the Lender shall subordinate all ofits rights in and to the Subordinate Loan to EagleBank’s rights, remedies and security under the documents evidencing and/or securing the EagleBank CreditFacility.SECTION TWOPAYMENTS, COMPUTATIONS, FEES, CHARGES AND PROTECTIVE ADVANCES2.1 Payments. All payments due with respect to this Agreement or the Loan shall be made in immediately available funds to the Lender at such place asdesignated by the Lender from time to time. The Lender is authorized, but shall be under no obligation, to charge any deposit account maintained by theBorrower with the Lender or any affiliate of the Lender for any payments due to the Lender with respect to this Agreement or the Loan. Payments shall beapplied, at Lender’s sole discretion: (i) first, to payment of accrued and unpaid interest, if any; (ii) second, to payment of any principal then due, if any;(iii) third, to late charges, if any; (iv) fourth, to reasonable attorneys’ fees and costs of collection; and (v) fifth, to reduce the outstanding principal balance ofthe Note until such principal shall have been fully repaid. All payments hereunder shall be made without offset, demand counterclaim, deduction, abatement,defense, or recoupment, each of which the Borrower hereby waives.2.2 Late Charges. If any payment due the Note is not made within ten (10) days of its due date, the Borrower shall pay to the Lender upon demand(which may be in the form of the usual monthly billing or invoice) a late charge equal to five percent (5%) of the amount of such payment.2.3. Default Rate. After an Event of Default (hereinafter defined), the interest which accrues on the Note shall be increased to the Default Rate (asdefined in the Note).2.4 Computations. Interest and fees on the Loan shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed.2.5 Prepayment. The Borrower may prepay the Note in whole or in part without premium or penalty at any time upon ten (10) days prior written noticeto the Lender, subject to increase in the Exit Fee if such prepayment is made within the first year following closing of the Loan as set forth above. Amountsprepaid may not be re-borrowed. 62.6 Indebtedness. As used in this Agreement, the term “Indebtedness” means all present and future indebtedness of the Borrower to the Lender arisingout of or in connection with the Note or any of the other Loan Documents.SECTION THREECONDITIONS3.1 Conditions Precedent to Closing. In addition to any other conditions stated in this Agreement, the following conditions must be satisfied prior toLender closing on the Loan.(a) Loan Documents. Receipt by Lender of appropriately completed and duly executed originals of this Agreement, the Note, the Guaranty, theDeed of Trust, the Leases Assignment, the Pledge, the Contracts Assignment, the Documents Assignment, the Consents, the Environmental Indemnity, UCC-1Financing Statements and Intercreditor Agreement, all as Lender may require (collectively, together with any other documents executed and delivered inconnection with the Indebtedness, the “Loan Documents”).(b) Organizational Documents. The Borrower and each entity comprising the Borrower shall supply to the Lender, to the extent it has notpreviously done so in any prior transaction with EagleBank or the Lender: (i) a currently certified copy of its Articles of Organization and all amendmentsthereto; (ii) evidence satisfactory to the Lender and its counsel that it is in good standing in the jurisdiction where organized and qualified to do business inevery jurisdiction in which the nature of its businesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due executionand delivery of the Loan Documents to which it is a party; and (iv) certified copies of its Operating Agreement and all amendments thereto. The Articles ofOrganization and the Operating Agreement of Borrower and each entity comprising the Borrower shall not be amended, changed or modified in any respectwithout prior written consent of the Lender. In addition, the Entity Guarantor shall supply, to the extent it has not previously done so in any prior transactionwith EagleBank or the Lender: (i) a currently certified copy of its Articles of Incorporation and all amendments thereto; (ii) evidence satisfactory to Lenderand its counsel that it is in good standing in the jurisdiction where organized and qualified to do business in every jurisdiction in which the nature of itsbusinesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due execution and delivery of the Loan Documents to whichit is a party and a certificate of incumbency; and (iv) certified copies of its By-Laws and all amendments thereto. The Articles of Incorporation and the Bylawsof the Entity Guarantor shall not be amended, changed or modified in any respect without the prior written consent of the Lender; provided, however, that onthe condition that the Lender is given thirty (30) days advance written notice, the Lender hereby consents to the Entity Guarantor’s change in corporatedomicile from Delaware to Virginia and all amendments to its organizational documents as are reasonably required to effect such change in domicilesubsequent to the closing of the Loan; provided further that UCC-1 financing statements shall be filed in the changed domicile at the cost and expense of theBorrower. 7(c) Opinion. Receipt by the Lender of the opinion(s) of the counsel for Borrower and the Guarantor, in form and content satisfactory to theLender, in its sole, but reasonable, discretion.(d) Insurance. Receipt by the Lender of certificate(s) of insurance to evidence a fully paid policy or policies of comprehensive public liabilityinsurance naming Lender as an additional insured thereunder in an amount not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregatewith not less than One Million and No/100 Dollars ($1,000.000.00) per occurrence; in any event, the amount of all insurance shall be sufficient to preventany co-insurance contribution on any loss, with each policy providing for a thirty (30) day prior written notice of cancellation, amendment or alteration.(e) Financing Statements. The financing statements necessary to perfect the Lender’s security interest in the personal property subject to theDeed of Trust, and the membership interests in the Borrower pursuant to the Pledge, and in any other collateral requiring the filing of a financing statementfor perfection of a lien thereon, shall be duly filed in all appropriate offices and jurisdictions, all other financing statements covering any of such personalproperty shall be terminated or the Lender shall be reasonably satisfied that such terminations are forthcoming, and filing and recording receipts evidencingsuch filings and terminations shall be delivered to Lender, all in form and substance satisfactory to the Lender.(f) Property Documents. The Lender shall have received and approved in its sole discretion, the following:(1) Appraisals. An appraisal of the Property, prepared by an appraiser acceptable to the Lender, in form and content acceptable to theLender, conforming to all regulatory and internal appraisal guidelines applicable to or established by the Lender, in its sole, absolute, nonreviewablediscretion, reflecting an “as complete” value satisfactory to the Lender (the “Appraisal”);(2) Title Insurance. A commitment for title insurance (the “Title Commitment”) insuring the first priority lien of the Deed of Trust in theaggregate amount of the Note and the Apartment Loan, containing no exceptions unacceptable to the Lender, issued in the name of the Lender by atitle company acceptable to the Lender and in an amount equal to the aggregate principal amount of the Note and the Apartment Loan. The TitleCommitment and the title policy issued pursuant thereto (the “Title Policy”) shall reflect that all requirements for issuance of the Title Policy havebeen satisfied, and shall contain such other endorsements or coverages as the Lender may require.(3) UCC Insurance. A commitment for UCC insurance insuring the Lender’s first priority lien in the membership interests of the Borrowerpursuant to the Pledge. 8(4) Survey. A current survey and legal description of the Property and the Apartment Parcel satisfactory to the Lender from a registeredland surveyor of the State of Maryland, which survey shall show all easements, rights of way and other matters of record, shall locate all existingimprovements on the Property and the Apartment Parcel, shall contain metes and bounds descriptions of each applicable constituent portion of theProperty acceptable to the Lender and its counsel, shall generally show a state of facts acceptable to the Lender, and shall contain a surveyor’scertificate satisfactory to the Lender.(5) Subdivision Plat. Approval by the Lender and its construction consultant of the form of Record Plat to be recorded.(6) Flood Hazard. Evidence that no part of the Property or the Apartment Parcel is located in a special flood hazard area.(7) Public Utilities. Evidence to the effect that sanitary sewer, water, electric, gas, telephone and other public utilities are available andadequate to serve the Property and the Apartment Parcel.(8) Licenses and Permits. Copies of all licenses and permits in connection with the Property and the Apartment Parcel, including withoutlimitation licenses, permits, proffers and other conditions to final subdivision and site plan approval for the Property and the Apartment Parcel.(9) Zoning. Receipt by the Lender of a zoning endorsement to the Title Policy acceptable to the Lender or such other written evidence asis acceptable to the Lender that the Property and the Apartment Parcel are zoned consistent with the uses contemplated beyond any possibility ofappeal and can be developed as proposed as a matter of right, and to the effect, further, that there are no pending proceedings, either administrative,legislative or judicial, which would in any manner adversely affect the status of the zoning with respect to the Property and the Apartment Parcel or anypart thereof.(g) No Default. No event shall have occurred and be continuing that constitutes an Event of Default (as defined below).(h) Representations. All representations and warranties contained in this Agreement shall be true and correct in every material respect as of thedate of closing of the Loan. 9(i) Satisfactory Documents. All documents delivered pursuant to this Agreement must be in form and substance satisfactory to the Lender and itscounsel and all legal matters incident to this Agreement must be satisfactory to Lender’s counsel.(j) Identification. As required by federal regulation, closing the Loan is contingent upon satisfactory verification of identity of the signatoriesand verification that none of the Borrower or the Guarantor or any signers is restricted from conducting business in the United States.SECTION FOURREPRESENTATIONS AND WARRANTIESIn order to induce the Lender to extend credit to the Borrower, the Borrower and the Guarantor each make the following representations and warrantiesas to itself:4.1 Organization. The Borrower and each entity comprising the Borrower is a limited liability company duly organized, validly existing and in goodstanding under the laws of the Commonwealth of Virginia and is duly qualified as a foreign limited liability company and in good standing under the laws ofeach other jurisdiction in which such qualification is required. The Entity Guarantor represents and warrants that it is a corporation duly organized, validlyexisting and in good standing under the laws of the State of Delaware and is duly qualified as a foreign corporation and in good standing under the laws ofeach other jurisdiction in which such qualification is required.4.2 Execution and Delivery. The Borrower and each entity comprising the Borrower has the power, and has taken all of the necessary actions, toexecute and deliver and perform its obligations under the Loan Documents, and the Loan Documents, when executed and delivered, will be bindingobligations of each such entity enforceable in accordance with their respective terms.4.3 Power. Each of the Borrower and each entity comprising the Borrower has the power and authority to own its properties and to carry on its businessas now being conducted.4.4 Financial Statements. Al financial statements and information delivered to the Lender are correct and complete in all material respects and presentfairly the financial conditions, and reflect all known liabilities, contingent and otherwise, of the Borrower and the Guarantor as of the dates of such statementsand information, and since such dates no material adverse change in the assets, liabilities, financial condition, business or operations of the Borrower or theGuarantor has occurred.4.5 Taxes. All tax returns and reports of the Borrower and the Guarantor required by law to be filed have been duly filed, and all taxes, assessments,other governmental charges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith inappropriate proceedings) upon the Borrower and/or the Guarantor and upon any of their respective properties, assets, income or franchises, that are due andpayable have been paid. 104.6 Litigation. There is no action, suit or proceeding pending or, to the knowledge of the Borrower or the Guarantor, threatened against or affecting theBorrower or the Guarantor that, either in any case or in the aggregate, may result in any material adverse change in the business, properties or assets or in thecondition, financial or otherwise, of the Borrower or the Guarantor, or that may result in any material liability on the part of the Borrower or the Guarantorthat would materially and adversely affect the ability of the Borrower or the Guarantor to perform its and/or their obligations under the Loan Documents, orthat questions the validity of any of the Loan Documents or any action taken or to be taken in connection with the Loan Documents.4.7 No Breach. The execution and delivery of the Loan Documents, and compliance with the provisions of the Loan Documents, will not conflict withor violate any provisions of law or conflict with, result in a breach of, or constitute a default under, the organizational documents of the Borrower, or anyjudgment, order or decree binding on the Borrower, or any other agreements to which the Borrower is a party.4.8 No Defaults. To the best of the Borrower’s knowledge, the Borrower is not in default with respect to any debt, direct or indirect, upon or as to whichthe Borrower has any liability or obligation.4.9 Compliance. The Borrower is in compliance in all material respects with all applicable laws and regulations, including, without limitation, theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”).4.10 Approvals. No authorizations, approvals or consents of, and no filings and registrations with, any governmental or regulatory authority or agency,are necessary for the execution, delivery or performance of the Loan Documents by the Borrower.4.11 Title to Assets. The Borrower has good and marketable title to all of its assets, subject only to the liens and security interests permitted by thisAgreement and the liens and security interests securing EagleBank.4.12 Use of Proceeds. The proceeds of the Loan shall be used only for the purposes described in this Agreement. The proceeds of the Loan shall not beused to purchase or carry any margin stock, as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System.SECTION FIVECOVENANTS OF BORROWER AND GUARANTORIn consideration of credit extended or to be extended by the Lender, the Borrower covenants and agrees as follows:5.1 Financial Information. The Borrower and the Guarantor shall each deliver to the Lender: (i) with respect to the Borrower, each year within ninety(90) days after the close of its fiscal year, 11financial statements prepared in accordance with standard accounting principles consistently applied, certified as true and correct by an officer of each suchentity; (ii) with respect to the Entity Guarantor, each year within ninety (90) days after the close of its fiscal year, audited financial statements; (iii) each yearwithin thirty (30) days after filing, a copy of each such entity’s federal income tax return and all schedules thereto, provided that in the event of suchextension such entity shall provide the Lender with a copy of the federal income tax return and all schedules thereto within thirty (30) days of the filing ofsame with the Internal Revenue Services, (iv) with respect to the Individual Guarantor, each year within thirty (30) days after filing, a copy of his federalincome tax return and all schedules thereto; and (v) promptly upon the Lender’s request, such financial and other information as the Lender reasonably mayrequire from time to time. All financial statements shall be in such reasonable detail and shall be accompanied by such certificates of the Borrower or theGuarantor, as applicable, as may reasonably be required by the Lender.5.2 Taxes. All tax returns and reports of the Borrower required by law to be filed have been duly filed, and all taxes, assessments, other governmentalcharges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith in appropriate proceedings)upon the Borrower and upon the Borrower’s properties, assets, income or franchises, that are due and payable, have been paid.5.3 Compliance with Laws. The Borrower shall comply with all applicable laws and regulations including, without limitation, ERISA.5.4 Maintain Existence. The Borrower and the Entity Guarantor shall each maintain its existence in good standing, maintain and keep its properties ingood condition (ordinary wear and tear excepted), maintain adequate insurance for all of its properties with financially sound and reputable insurers. TheBorrower shall remain in the same line of business as it is on the date of this Agreement and shall not enter into any new lines of business without the priorwritten consent of the Lender.5.5 Notices. As soon as it has actual knowledge, the Borrower shall notify the Lender of the institution or threat of any material litigation orcondemnation or administrative proceeding of any nature involving the Borrower.5.6 Books and Records. The Borrower shall maintain complete and accurate books of account and records. The principal books of account and recordsshall be kept and maintained at 1886 Metro Center Drive, 4 Floor, Reston, VA 10190. The Borrower shall not remove such books of account and recordswithout giving the Lender at least thirty (30) days prior written notice. The Borrower, upon reasonable notice from the Lender, shall permit the Lender, or anyofficer, employee or agent designated by the Lender, to examine the books of account and records maintained by the Borrower, and agree that the Lender orsuch officer, employee or agent may audit and verify the books and records. The Borrower shall reimburse the Lender for any reasonable expenses incurred bythe Lender in connection with any such audits. All accounting records and financial reports furnished to the Lender by the Borrower and the Guarantorpursuant to this Agreement shall be maintained and prepared in accordance with GAAP. 12th5.7 Liens. The Borrower shall not create, incur, assume or permit to exist any mortgage, deed of trust, assignment, pledge, lien, security interest, chargeor encumbrance, including, without limitation, the right of a vendor or under a conditional sale contract or the lessor under a capitalized lease (collectively,(“Liens”) of any kind or nature in or upon any of the asset of the Borrower except: (a)Liens created or deposits made that are incidental to the conduct of the business of the Borrower, that are not incurred in connection withany borrowing or the obtaining of any credit and that do not and will not interfere with the use by the Borrower of any of its assets in thenormal course of its business or materially impair the value of such assets for the purpose of such business; (b)Liens securing EagleBank pursuant to the Senior Deed of Trust and related loan documents; and (c)Liens securing the Indebtedness.5.8 Debt. Except as provided above in Section 5.7, without the prior written consent of the Lender, the Borrower shall not incur or permit to exist anydebt for borrowed funds, the deferred purchase price of goods or services or capitalized lease obligations, except for (a) trade debt incurred in the ordinarycourse of business, and (b) the Indebtedness.5.9 Contingent Liabilities. Without the prior written consent of the Lender, neither the Borrower nor the Guarantor shall guarantee, endorse, becomecontingently liable upon or assume the obligation of any person, or permit any such contingent liability to exist, except by the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinary course of business.5.10 Sale of Assets. Without the prior written consent of the Lender, the Borrower shall not sell, lease, assign or otherwise dispose of any of its assetsexcept for (a) sales in the ordinary course of business including sales of Lots and Units as approved by the Lender from time to time, (b) the disposition ofassets that are no longer needed or useful in its business, (c) assets which have been removed and replaced and (d) sale and conveyance of the ApartmentParcel following recordation of the Record Plat and payment in full of all principal, accrued interest and other charges due under the Apartment Loan and theEagleBank Apartment Loan.5.11 Mergers and Acquisitions. Without the prior written consent of the Lender, the Borrower shall not merge or consolidate with, or acquire all orsubstantially all of the assets, stock, partnership interests or other ownership interests of, any other person.5.12 Loans and Advances. Without the prior written consent of the Lender, the Borrower shall not make any loan or advance to any affiliate, director,member, manager, officer or employee of the Borrower, or any other person, except for the creation of accounts receivable in the ordinary course of businesson terms that are no less favorable than would apply in an arms-length transaction. 135.13 Subsidiaries and Joint Ventures. Without the prior written consent of the Lender, the Borrower shall not form any subsidiary, become a general orlimited partner in any partnership or become a party to a joint venture. If the Lender grants its consent to the formation or acquisition of a subsidiaryBorrower, such entity shall cause each subsidiary to perform and observe all of the covenants contained in this Agreement and the other Loan Documents.5.14 Affiliates. Without the prior written consent of the Lender, the Borrower shall not engage in business with any of its affiliates except in theordinary course of business and on terms that are no less favorable to the Borrower than would apply in an arm’s length transaction.5.15 Organization; Control and Management; Transfers. Until such time as the Loan is fully repaid, there shall be no Transfer (hereinafter defined) ofany interest in the Borrower, nor any change in the Control (hereinafter defined) or management of either the Borrower or the Entity Guarantor, nor anyTransfer of the Property except for sales of Lots and Units in accordance with the terms of the Loan Documents, without the Lender’s prior written consent.“Transfer” means any assignment, pledge, conveyance, sale, transfer, mortgage, encumbrance, grant of a security interest or other disposition, either directlyor indirectly, in the aggregate of fifty percent (50%) or more of the beneficial ownership interests of an entity and the possession, directly or indirectly, of thepower to direct or cause the direction of the management and policies of an entity, whether through the ability to exercise voting power, by contract orotherwise. “Controlled by” and “controlling” shall have the respective correlative meanings thereto.SECTION SIXDEFAULT AND REMEDIES6.1 Default. Each of the following shall constitute an “Event of Default” under this Agreement:(a) Failure to Pay. If: (i) the Borrower shall fail to pay any monthly payment required under the Note (“Monthly Payments”) when due thereunderor (ii) the Borrower shall fail to pay any amount (other than the Monthly Payments) as and when due under the Note or any of the other Loan Documents;(b) Failure to Give Notices. If the Borrower fails to give the Lender any notice required by Section 5.5 of this Agreement within thirty (30) daysafter it has actual knowledge of the event giving rise to the obligation to give such notice.(c) Failure to Permit Inspections. If the Borrower refuses to permit the Lender to inspect its books and records in accordance with the provisionsof Section 5.6 or failure to permit the Lender to inspect the Property upon reasonable advance notice.(d) Failure to Record Record Plat. If the Record Plat is not recorded within ninety (90) days following closing the Loan. 14(e) Failure to Observe Covenants. If the Borrower fails to perform or observe any non-monetary term, covenant, warranty or agreement containedin this Agreement or in the other Loan Documents for which no cure period or another cure period is provided, and such failure shall continue for a period ofthirty (30) days after written notice of such failure has been given to the Borrower by the Lender; provided, however, if such default is not in the payment ofany sum due to the Lender hereunder, or was not the subject of an Event of Default for which notice was previously provided, and provided the Borrower isdiligently pursuing the cure of such default, then the Borrower shall have an additional sixty (60) days within which to cure such default prior to the Lenderexercising any right or remedy available hereunder, or at law or in equity.(f) Defaults Under Loan Documents. If an Event of Default shall occur under the Note or any other Loan Document and shall not be cured withinany applicable grace period.(g) Breach of Representation. Discovery by the Lender that any representation or warranty made or deemed made by the Borrower in thisAgreement or in any other Loan Document or in any statement or representation made in any certificate, report or opinion delivered pursuant to thisAgreement or other Loan Document or in connection with any borrowing under this Agreement by the Borrower or the Guarantor or any member, manager,officer, agent, employee or director of the Borrower or the Guarantor, was materially untrue when made or deemed to be made.(h) Voluntary Bankruptcy. If the Borrower or the Guarantor makes an assignment for the benefit of creditors, files a petition in bankruptcy,petitions or applies to any tribunal for any receiver or any trustee of the Borrower or the Guarantor or any substantial part of the property of the Borrower orthe Guarantor, or commences any proceeding relating to the Borrower or the Guarantor under any reorganization, arrangement, composition, readjustment,liquidation or dissolution law or statute of any jurisdiction, whether in effect now or after this Agreement is executed.(i) Involuntary Bankruptcy. If, within sixty (60) days after the filing of a bankruptcy petition or the commencement of any proceeding againstthe Borrower or the Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under anypresent or future statue, law or regulation, the proceeding shall not have been dismissed, or, if within sixty (60) days, after the appointment, without theconsent or acquiescence of the Borrower or the Guarantor, of any trustee, receiver or liquidator of any Borrower or all or any substantial part of the propertiesof the Borrower or the Guarantor, the appointment shall not have been vacated.(j) Cross Default. If, as a result of default, any present or future obligations of the Borrower or the Guarantor or any affiliate of the Borrower or theGuarantor to the Lender or any other creditor, whether due to acceleration provisions or otherwise therein, are declared to be due and payable prior to theexpressed maturity of such obligations. 15(k) Cross Default to Particular Instruments: If an Event of Default by the applicable borrower shall occur under any of the following, as any of thefollowing may be amended, substituted or replaced from time to time: (i) the Apartment Loan, (ii) any loan documents evidencing and/or securing thatcertain loan from EagleBank to New Hampshire Ave. Ventures, LLC (“NHA”) in the amount of $6,000,000.00, which is evidenced, among other things, by aRevolving Development Loan Promissory Note dated August 13, 2012 made by NHA to the order of EagleBank; (iii) any loan documents evidencing and/orsecuring that certain loan from EagleBank to NHA in the amount of $4,000,000.00, which is evidenced, among other things, by a Revolving ConstructionLoan Promissory Note dated August 13, 2012 made by NHA to the order of EagleBank; (iv) any loan documents evidencing and/or securing that certain loanfrom EagleBank to Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C., jointly and severally, in the amount of $9,960,000.00, which isevidenced, among other things, by a Deed of Trust Note dated May 30, 2012 made by those obligors to the order of EagleBank; and (v) the documentsevidencing and/or securing the EagleBank Credit Facility and/or the EagleBank Apartment Loan.(l) Material Adverse Change. A material adverse change occurs in the financial or business condition of the Borrower or the Guarantor.(m) Judgment. If a judgment, attachment, garnishment or other process is entered against the Borrower and is not vacated or bonded within sixty(60) days after entry (or such shorter period of time as necessary in order to avoid attachment or foreclosure), or if a judgment, attachment, garnishment orother process is entered against the Guarantor that would materially affect the Guarantor’s ability to perform its obligations under the Loan Documents, andsuch judgment, attachment, garnishment or other process is not vacated or bonded with in sixty (60) day after entry (or such shorter period of time asnecessary in order to avoid attachment or foreclosure).(n) Dissolution. The dissolution, liquidation or termination of existence of the Borrower or any Entity Guarantor or the death of any IndividualGuarantor unless a substitute guarantor, satisfactory to the Lender in its sole and absolute discretion, assumes all liability under the Guaranty andEnvironmental Indemnity and executes any documents which the Lender may reasonably require to implement such substitution, within sixty (60) days afterevent of dissolution, liquidation or termination of existence of an Entity Guarantor or death of any Individual Guarantor.(o) Change in Management/Control. A change in the management of or controlling interest in the Borrower or any Entity Guarantor without theprior written consent of the Lender.6.2 Remedies. Upon the occurrence of an Event of Default (a) the Lender, at its option, by written notice to the Borrower, may declare all Indebtednessto the Lender to be immediately due and payable, whether such Indebtedness was incurred prior to, contemporaneous with or subsequent to the date of thisAgreement and whether represented in writing or otherwise, without presentment, demand, protest or further notice of any kind, and (b) the Lender mayexercise all rights and remedies available to 16it under the Loan Documents and applicable law. The Borrower agrees to pay all costs and expenses incurred by the Lender in enforcing any obligation underthis Agreement or the other Loan Documents, including, without limitation, attorneys’ fees. No failure or delay by the Lender in exercising any power or rightwill operate as a waiver of such power or right, nor will any single or partial exercise of any power or right preclude any other future exercise of such power orright, or the exercise of any other power or right.6.3 Borrower to Pay Fees and Charges. The Borrower shall pay all fees and charges incurred in the procuring, making and enforcement of the Loan,including without limitation the reasonable fees and disbursements of Lender’s attorneys, charges for appraisals, the fee of Lender’s inspector andconstruction consultant, fees and expenses relating to examination of title, title insurance premiums, surveys, and mortgage recording, documentary, transferor other similar taxes and revenue stamps, loan extension fees, if any, and the Lender’s fees for the Loan.SECTION SEVENGENERAL PROVISIONS7.1 Defined Terms. Each accounting term used in this Agreement, not otherwise defined, shall have the meaning given to it under GAAP applied on aconsistent basis. The term “person” shall mean any individual partnership, corporation, trust, joint venture, unincorporated association, governmentalsubdivision or agency or any entity of any nature. The term “subsidiary” means, with respect to any person, a corporation or other person of which shares ofstock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other managers of such corporation or personare at the time owned, or the management of which it otherwise controlled, directly or indirectly, through one or more intermediaries, by such person. Theterm “affiliate” means, with respect to any specified person, any other person that, directly or indirectly, controls or is controlled by, or is under commoncontrol with, such specified person. All meanings assigned to defined terms in this Agreement shall be applicable to the singular and plural forms of the termsdefined.7.2 Notices. All notices, requests, demands and other communication with respect hereto shall be in writing and shall be delivered by hand, prepaid byFederal Express (or a comparable overnight delivery service), or sent by the United States first-class mail, certified, postage prepaid, return receipt requested,to the parties at their respective addresses set forth as follows:If to the Lender, to:EAGLE COMMERCIAL VENTURES, LLC7815 Woodmont AvenueBethesda, MD 20814Attn: Laurence E. Bensignor, President 17With a copy to:Friedlander Misler, PLLC5335 Wisconsin Avenue, N.W., Suite 600Washington, D.C. 20015Attn: Leonard A. Sloan, Esq.If to the Borrower or any Guarantor, to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Christopher ClementeWith a copy to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Jubal Thompson, Esq.Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be)upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, (c) on the business day after theday on which it is properly delivered by Federal Express (or a comparable overnight delivery service), or (d) on the third (3) business day after the day onwhich it is deposited in the United States mail. Any party may change such party’s address by notifying the other parties of the new address in any mannerpermitted by this Section.7.3 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Lender and the Borrower and their respectivesuccessors, assigns, personal representatives, executors and administrators, provided that the Borrower may not assign or transfer its rights under thisAgreement.7.4 Entire Agreement. Except for the other Loan Documents expressly referred to in this Agreement, this Agreement represents the entire agreementbetween the Lender and the Borrower, supersedes all prior commitments and may be modified only by an agreement in writing.7.5 Survival. All agreements, covenants, representations and warranties made in this Agreement and all other provisions of this Agreement will survivethe delivery of this Agreement and the other Loan Documents and the making of the advances under this Agreement and will remain in full force and effectuntil the obligations of the Borrower under this Agreement and the other Loan Documents are indefeasibly satisfied. 18ththrd7.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, without reference toconflict of laws principles.7.7 Headings. Section headings are for convenience of reference only and shall not affect the interpretation of this Agreement.7.8 Participations. The Lender shall have the right to sell all or any part of its rights under the Loan Documents, and the Borrower authorizes the Lenderto disclose to any prospective participant in any of the Loan any and all financial and other information in the Lender’s possession concerning the Borroweror the collateral for the Loan.7.9 No Third Party Beneficiary. The parties do not intend the benefits of this Agreement or any other Loan Document to inure to any third party.7.10 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE LENDER AND THE BORROWER KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY BASED ON, ARISING OUT OF OR UNDER, ORIN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.7.11 Waiver. The rights of the Lender under this Agreement and the other Loan Documents shall be in addition to all other rights provided by law. Nowaiver of any provision of this Agreement, or any other Loan Document, shall be effective unless in writing, and no waiver shall extend beyond the particularpurpose involved. No waiver in any one case shall require the Lender to give any subsequent waivers.7.12 Severability. If any provision of this Agreement or any other Loan Document is held to be void, invalid, illegal or unenforceable in any respect,such provision shall be fully severable and this Agreement or the applicable Loan Document shall be construed as if the void, invalid, illegal orunenforceable provision were not included in this Agreement or in such Loan Document.7.13 No Setoffs. With respect to a monetary default claimed by the Lender under the Loan Documents, no setoff, claim, counterclaim, reduction ordiminution of any obligation or defense of any kind or nature that the Borrower has or may have against the Lender (other than the defenses of payment, theLender’s gross negligence or willful misconduct) shall be available against the Lender in any action, suit or proceeding brought by the Lender to enforce thisAgreement or any other Loan Document. The foregoing shall not be construed as a waiver by the Borrower of any such rights or claims against the Lender,but any recovery upon any such rights or claims shall be had from the Lender separately, it being the intent of this Agreement and the other Loan Documentsthat the Borrower shall be obligated to pay, absolutely and unconditionally, all amounts due under this Agreement and the other Loan Documents.7.14 No Merger. The Borrower and the Lender expressly agree that the Borrower’s agreement and obligation to pay the Lender’s reasonable attorneys’fees and costs, and all other litigation expenses, 19shall not be merged into any judgment obtained by the Lender, but shall survive the same and shall not be extinguished by any monetary judgment. It is theexpress intent of the parties hereto that all post-judgment collection fees and expenses (including reasonable attorneys’ fees and costs) shall survive entry of afinal judgment and shall be collectible by the Lender against the Borrower from time to time following entry of any final judgment obtained by the Lenderagainst the Borrower.7.15. Counterparts. This Agreement may be executed for the convenience of the parties in several counterparts, which are in all respects similar andeach of which is to be deemed to be complete in and of itself, and any one of which may be introduced in evidence or used for any other purpose with theproduction of the other counterparts thereof.7.16 Consent to Jurisdiction. The Borrower irrevocably submits to jurisdiction of any state or federal court sitting in the Commonwealth of Virginia orthe State of Maryland over any suit, action or proceeding arising out of or relating to this Agreement, the Note or any other Loan Documents. Theundersigned irrevocably waives, to the fullest extent permitted by law, any objection that the undersigned may now or hereafter have to the venue of anysuch suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been broughtin an inconvenient forum. Final judgment in any such court shall be conclusive and binding and may be enforced in any court in which the undersigned issubject to jurisdiction by a suit upon such judgment provided that service of process is effected as provided herein or as otherwise permitted by applicablelaw.7.17 Service of Process. The Borrower hereby consents to process being served in any suit, action or proceeding instituted in the Commonwealth ofVirginia or the State of Maryland in connection with the Loan by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested,to the Borrower at the address set forth in the Notices section of this Agreement and (ii) serving a copy thereof upon the Borrower’s registered agent forservice of process. The undersigned irrevocably agrees that such service shall be deemed to be service of process upon the undersigned in any such suit,action or proceeding. Nothing in this Agreement shall affect the right of the Lender otherwise to bring proceedings against the undersigned in the courts ofany jurisdiction or jurisdictions.7.18 Exhibits. All exhibits referred to herein as attached hereto are incorporated in full by reference as though fully set forth in this Agreement. TheExhibits are: Exhibit A: Legal Description of the Property and the Apartment ParcelExhibit B: Form of Apartment Parcel Deed of TrustExhibit C: Carve Out Obligations[SIGNATURES ON FOLLOWING PAGES] 20IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to be executed in their respective names by duly authorizedrepresentatives as of the day and year first above written. The Guarantor joins herein to consent and agree to the terms, conditions, provisions and covenantsof those sections of this Agreement that address a covenant or obligation of the Guarantor. WITNESS: BORROWER: COMSTOCK REDLAND ROAD, L.C., a Virginia limitedliability company By: Comstock Holding Companies, Inc., a Delawarecorporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of Comstock RedlandRoad, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Redland Road, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 21 GUARANTOR:Witness: COMSTOCK HOLDING COMPANIES, INC., a Delaware corporation Print Name: By: Christopher D. Clemente Chief Executive OfficerCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., a Delaware corporation, party to theforegoing instrument, and that the same is his act and deed and the act and deed of said Comstock Holding Companies, Inc..IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 22GUARANTOR: Christopher ClementeCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he signed the foregoing instrument as his own free act and deed.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 23PLEDGOR:COMSTOCK INVESTORS VII, L.C., a Virginia limitedliability companyBy: Comstock Holding Companies, Inc., a Delawarecorporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of ComstockInvestors VII, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Investors VII, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: _____________. Notary Registration No. ______________. 24LENDER:Witness: EAGLE COMMERCIAL VENTURES, LLC Print Name: By: Laurence E. Bensignor President[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Laurence E. Bensignor personally appeared before me in saidjurisdiction and acknowledged that he is President of Eagle Commercial Ventures, LLC; that he has been duly authorized to execute and deliver theforegoing instrument for the purposes therein contained and that the same is his act and deed; that the seal affixed to said instrument is such corporate sealand that it was so affixed by order of the Board of Directors of said Bank; and that he signed his name thereon by like order.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 25EXHIBIT ALegal Description of the Property and the Apartment ParcelParcel P-146 in Montgomery County, Maryland, being that tract of land comprising 4.24307 acres, more or less, said tract of land being bisected byYellowstone Way.Tax ID No. 04-001-00776834.For metes and bounds description, see Exhibit “A” to Commitment for Title Insurance issued by Stewart Title Guaranty Company on February 13, 2013, FileNo. 01242 – 1549a. 26EXHIBIT BFORM OF APARTMENT PARCEL DEED OF TRUST[ATTACHED] 27EXHIBIT CCARVE OUT OBLIGATIONSThe Guarantor shall also guaranty the full and timely payment of any and all actual loss, damage, cost, expense, liability, claim or other obligation incurredby the Lender (including reasonable attorneys’ fees and out-of-pocket costs actually incurred) arising out of or in connection with any one or more of thefollowing (the “Carve Out Obligations”):(i) Fraud, material misrepresentation or willful misconduct by Borrower or Guarantor or any of their respective members, managers, officers, principals,or any other person properly authorized to make statements or representations, or act, on behalf of Borrower or Guarantor in connection with the Loan or theProperty;(ii) physical waste committed on the Property; damage to the Property as a result of the intentional misconduct, recklessness or gross negligence ofBorrower or Guarantor, or any agent or employee of any such persons; or the removal of any portion of the Property by or at the direction of Borrower orGuarantor or any direct or indirect member or manager thereof, in violation of the terms of the Loan Documents (as defined in the Loan Agreement) followinga default under the Loan which is not cured within any applicable grace or cure period (an “Event of Default”);(iii) subject to any right to contest or bond off such matters, as provided in the Deed of Trust or Loan Agreement, failure to pay any valid taxes,assessments, mechanics’ liens, materialmen’s liens or other liens which could create liens on any portion of the Property which would be superior to the lienor security title of the Deed of Trust or the other Loan Documents, to the full extent of the amount claimed by any such lien claimant;(iv) the breach of any representation, warranty or covenant in, and any liability under any provision in, that certain Environmental IndemnityAgreement of even date herewith given by Borrower and Guarantor to Lender or the breach of any representation, warranty or covenant relating solely to, andany liability under any provision concerning, environmental laws, hazardous substances or asbestos in the Deed of Trust;(v) the misapplication or conversion of (A) any insurance proceeds paid to Borrower by reason of any loss, damage or destruction to the Property,(B) any awards or other amounts received by Borrower in connection with the condemnation of all or a portion of the Property, or (C) any rents from theProperty following an Event of Default or collected in advance; and(vi) failure to maintain any insurance policies required under the Loan Documents, or timely to pay or provide the amount of any insurance deductible,to the extent of the applicable deductible, following a casualty or other insured event. 28Exhibit 10.77LOAN AGREEMENTTHIS LOAN AGREEMENT (as amended, modified or supplemented from time to time, “Agreement”), dated as of the day of March, 2013, by andbetween (i) EAGLE COMMERCIAL VENTURES, LLC (the “Lender”), and (ii) COMSTOCK REDLAND ROAD, L.C., a Virginia limited liability company(the “Borrower”), recites and provides:RECITALS:R-1. The Borrower has acquired a certain development site approved for a 117-unit multifamily apartment building located at Redland Road andYellowstone Way, Montgomery County, Maryland, as more particularly described on Exhibit A attached hereto (the “Property”).R-2. Subject to the terms of this Agreement, the Lender agrees to make a loan (the “Loan”) to the Borrower, as more particularly described in SectionOne below, for the purpose of providing mezzanine and second trust financing for the Property.R-3. The Lender and the Borrower agree that the Loan will be made and advanced upon and subject to the terms, covenants and conditions set forth inthis Agreement.R-4. Simultaneously herewith the Lender is making a loan to the Borrower as hereinafter described (the “Townhouse Loan”) with respect to certainproperty adjacent to the Property that has been approved for 39 lots for construction of single family units and townhouses (the “Townhouse Parcel”), whichwas to have been subdivided pursuant to a record plat (the “Record Plat”) to create the Property and the Townhouse Parcel each as a separate subdividedrecord lot; however, the Record Plat has not been recorded and the Property and the Townhouse Parcel are part of one single subdivided record lot known asP-146 in Montgomery County, Maryland. The legal description of the Property and the Townhouse Parcel is more particularly set forth in Exhibit A attachedhereto and made a part hereof.R-5. The Borrower has requested that the Lender waive the condition to closing the Loan that the Record Plat be recorded, and the Lender is amenableto such request provided the Borrower performs its duties and obligations strictly in accordance with the terms and conditions of this Agreement.AGREEMENTACCORDINGLY, for and in consideration of the foregoing Recitals which are a material part of this Agreement and not mere prefatory language, andof the mutual covenants and conditions set forth in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which arehereby acknowledged, the Lender and the Borrower agree as follows: 1SECTION ONETHE LOAN1.1 Amount. The maximum principal amount that may be advanced under the Loan shall not exceed the lesser of (i) One Million One Hundred TenThousand and No/100 Dollars ($1,110,000.00), or (ii) seventy-nine percent (79%) of the “as complete” value of the Property (inclusive of senior trustfinancing being provided by EagleBank for the Property, as hereinafter described) pursuant to the Appraisal (hereinafter defined) and any appraisals whichmay be engaged by the Lender from time to time subsequent to the date hereof, or (iii) ninety percent (90%) of the cost of acquisition and development of theProperty in accordance with a budget approved by the Lender. The Loan will be evidenced by a Promissory Note made by the Borrower payable to the orderof the Lender (as the same may be amended, renewed, restated, supplemented or substituted from time to time, the “Note”) which shall be governed byMaryland law.1.2 Simultaneous Closing Condition. In addition to all other conditions to closing set forth herein, the Lender’s obligation to close the Loan andadvance Loan proceeds to the Borrower is subject to the condition that the following credit facilities shall be simultaneously closed with the Loan closing:(i) the Townhouse Loan; (ii) an acquisition and development loan to the Borrower from EagleBank in the amount of Five Million Three Hundred Thousandand No/100 Dollars ($5,300,000.00) (the “EagleBank A&D Townhouse Loan”) to be secured by a first lien deed of trust encumbering the Property and theApartment Parcel (the “Senior Deed of Trust”); (iii) a construction loan to the Borrower from EagleBank in the maximum principal amount outstanding fromtime to time of Two Million Eight Hundred Seventy Thousand and No/100 Dollars ($2,870,000.00) (the “EagleBank Construction Loan”) also to be securedby the Senior Deed of Trust, (iv) a letter of credit facility being made available to the Borrower from EagleBank in the amount of Two Million Two HundredSixty Thousand and No/100 Dollars ($2,260,000.00) (the “EagleBank LC Facility” and together with the EagleBank A&D Townhouse Loan and theEagleBank Construction Loan, the “EagleBank Credit Facility”) also to be secured by the Senior Deed of Trust; and (v) an acquisition and development loanto the Borrower from EagleBank in the amount of Two Million Four Hundred Thousand and No/100 Dollars ($2,400,000.00) (the “EagleBank ApartmentLoan”) also to be secured by the Senior Deed of Trust.1.3 Purpose. The Borrower will use the Loan proceeds to finance development of the Property in accordance with a budget approved by the Lender.1.4 Record Plat. The Borrower shall use commercially reasonable efforts with the highest due diligence to cause the Record Plat to be approved byapplicable governmental authorities and recorded. The terms and conditions with respect to the Record Plat are as follows: (a)If the Record Plat, in form as shall have been approved by the Lender, has not been recorded within ninety (90) days from the closing of theLoan, an Event of Default shall have occurred on the ninety-first (91) day following the closing. 2st (b)The Deed of Trust (hereinafter defined) shall initially encumber the Property and the Townhouse Parcel as security for the Loan and theTownhouse Loan. Upon recordation of the Record Plat, the Deed of Trust shall be amended to reflect the new legal description and the Lender’sloan policy of title insurance shall be appropriately endorsed in form satisfactory to the Lender in all respects. (c)Provided there has then occurred no Event of Default hereunder, following recordation of the Record Plat, if (i) the Borrower sells the Propertyand upon closing of such sale pays the Loan and the EagleBank Apartment Loan in full, the Lender shall release the Property from the lien of theDeed of Trust, or (ii) the Borrower determines to develop the Property and transfer the Property to an affiliate, provided that EagleBank releasesthe Property from the Senior Deed of Trust, the Lender shall release the Property from the lien of the Deed of Trust and simultaneously therewiththe Property shall be encumbered by a new deed of trust (the “Apartment Parcel Deed of Trust”) as security for the Townhouse Loan as well ascross-collateral security for the Loan. (d)If applicable under Subparagraph 1.4(c) above, the Apartment Parcel Deed of Trust shall be in the form as attached to this Agreement as ExhibitB and shall constitute a second lien on the Property subject only to a new senior lien deed of trust securing EagleBank for the EagleBankApartment Loan in an amount not to exceed Two Million Four Hundred Thousand and No/100 Dollars ($2,400,000.00), to be recordedimmediately prior to recordation of the Apartment Parcel Deed of Trust securing the Lender. (e)The Leases Assignment (hereinafter defined) shall encumber all leases, rents and profits with respect to the Property and the Townhouse Parcel.The Property may be released from the Leases Assignment in the event of (i) sale and payment in full of the Loan and the EagleBank ApartmentLoan as contemplated in Subparagraph 1.4(c) above or (ii) transfer of the Property to an affiliate, in which event a new assignment of leases andrents in form substantively identical to the Leases Assignment shall be recorded against the Property simultaneously with such release. (f)UCC-1 Financing Statements that constitute a fixture filing shall be recorded against the Property and the Townhouse Parcel. Such UCC-1Financing Statements may be terminated as to the Property in the event of (i) sale and payment in full of the Loan and the EagleBank ApartmentLoan as contemplated in Subparagraph 1.4(c) above or (ii) transfer of the Property to an affiliate, in which event a new UCC-1 FinancingStatement in form substantively identical to the initial instrument shall be filed against the Property simultaneously with such termination. 31.5 Guarantors. Comstock Holding Companies, Inc. (the “Entity Guarantor”) and Christopher Clemente (the “Individual Guarantor”), jointly andseverally (jointly and severally, collectively the “Guarantor”) shall guarantee the payment and performance of the Borrower’s obligations, covenants andagreements under the Loan, as evidenced by the Loan Documents, and shall also guarantee the Carve Out Obligations (defined on Exhibit C attached hereto),which guaranty shall be evidenced by an instrument of unlimited and unconditional guaranty of payment and performance from the Guarantor for the benefitof the Lender, in form and substance satisfactory to the Lender (the “Guaranty”).1.6 Term. The Note shall mature twelve (12) months after the date of closing on the Loan (the “Maturity”). It is acknowledged and agreed thatnotwithstanding any provisions herein, the Borrower has not applied for, nor has the Lender made any commitment with respect to, any extension of suchMaturity. Upon any application for an extension, any approval of an extension on any terms would be contingent upon the usual and customary underwritingprocedures of the Lender, including without limitation, full credit and collateral evaluation and review, the approval of the loan committee of the Lender, andpayment to the Lender of extension fees as determined by the Lender.1.8 Contract Interest Rate; Pay Rate. Commencing on the closing of the Loan, the unpaid balance of the Note outstanding from time to time shall bearinterest at the fixed rate of twelve percent (12%) per annum (the “Contract Rate”). Interest shall be calculated using a 360-day year, based upon the actualnumber of days for which the calculation is being made. Monthly payments of interest only at the rate of six percent (6%) per annum (the “Pay Rate”) shall bedue and payable and shall be paid to the Lender. The difference between the amount calculated at the Contract Rate and the amount calculated at the PayRate shall accrue and payment thereof shall be deferred to Maturity.1.9 Loan Fee. The Borrower shall pay to the Lender a fee for the Loan in the amount of Twenty-Two Thousand and No/100 Dollars ($22,200.00) (the“Loan Fee”), which has been received by the Lender and which is fully earned by the Lender and non-refundable.1.10 Exit Fee. In addition to the Loan Fee, the Borrower shall pay to the Lender a fee (the “Exit Fee”) in the amount of Twenty-Two Thousand andNo/100 Dollars ($22,200.00) on the Maturity date of the Loan or at such earlier time as all of the following shall have occurred: (i) the EagleBank ApartmentLoan shall have been paid in full, or (ii) the Loan is paid in full prior to Maturity.1.11 Increase in Exit Fee on Prepayment Within One Year. The Borrower and the Lender agree that the Lender is guaranteed payment of the amount ofinterest on the full Loan amount for one (1) full year at the annual rate of twelve percent (12%). If the Loan is prepaid in whole or in part within twelve(12) months following closing of the Loan, the Exit Fee shall be increased by an amount calculated as follows: One Hundred Thirty-Two Thousand andNo/100 Dollars ($132,200.00) minus any monthly payments of interest at the Pay Rate that have been paid by the Borrower prior to the time of prepayment.The calculation of the increase in the Exit Fee shall be determined by the Lender and shall be paid in full at Maturity. 41.12 Collateral. The Loan shall be secured by, among other things, the following: (i)A second lien deed of trust, security agreement and fixture filing (as the same may be amended, restated, supplemented or substituted, the“Deed of Trust”) on the Property and the Townhouse Parcel, subject only to the lien of the Senior Deed of Trust; (ii)An assignment of Leases and Rents on the Property and the Townhouse Parcel (as the same may be amended, restated, supplemented orsubstituted, the “Leases Assignment”); (iii)A pledge and security agreement from Comstock Investors VII, L.C. (“Investors VII”) covering all of Investors VII’s right, title andinterest in connection with its 100% ownership interest in the Borrower (the “Pledge”); (iv)Assignments of all development and construction documents including, without limitation, plans and specifications, permits, architect’scontracts, engineering contracts, development contracts, and construction contracts (the “Documents Assignment”); (v)Consents to Assignment executed by each of the general contractor, architect and project engineer for each of the development and theconstruction (the “Consents”); (vi)An Environmental Indemnity Agreement made by the Borrower and the Guarantor for the benefit of the Lender (as the same may beamended, restated, supplemented or substituted, the “Environmental Indemnity”); (vii)Such UCC-1 Financing Statements as the Lender may determine to be necessary or desirable.1.13 Cross Defaulted Loan. An event of default under the Townhouse Loan (sometimes herein called the “Cross-Defaulted Loan”) shall constitute anEvent of Default under the Loan Documents. From and after recordation of the Record Plat, release of the Property from the lien of the Deed of Trust, andrecordation of the Apartment Parcel Deed of Trust, (i) the Property shall secure, in addition to the Loan, the Loan, and (ii) the Townhouse Parcel shall secure,in addition to the Townhouse Loan, the Loan.1.14 Release Provisions. No partial releases of portions of the Property shall be permitted.1.15 Intercreditor Agreement. As a condition of closing the Loan, EagleBank shall enter into a Subordination and Standstill Agreement with theLender (the “Intercreditor Agreement”), in form and substance satisfactory to the Lender in all respects, pursuant to which the Lender shall subordinate all ofits rights in and to the Subordinate Loan to EagleBank’s rights, remedies and security under the documents evidencing and/or securing the EagleBank CreditFacility and the EagleBank Apartment Loan. 5SECTION TWOPAYMENTS, COMPUTATIONS, FEES, CHARGES AND PROTECTIVE ADVANCES2.1 Payments. All payments due with respect to this Agreement or the Loan shall be made in immediately available funds to the Lender at such place asdesignated by the Lender from time to time. The Lender is authorized, but shall be under no obligation, to charge any deposit account maintained by theBorrower with the Lender or any affiliate of the Lender for any payments due to the Lender with respect to this Agreement or the Loan. Payments shall beapplied, at Lender’s sole discretion: (i) first, to payment of accrued and unpaid interest, if any; (ii) second, to payment of any principal then due, if any;(iii) third, to late charges, if any; (iv) fourth, to reasonable attorneys’ fees and costs of collection; and (v) fifth, to reduce the outstanding principal balance ofthe Note until such principal shall have been fully repaid. All payments hereunder shall be made without offset, demand counterclaim, deduction, abatement,defense, or recoupment, each of which the Borrower hereby waives.2.2 Late Charges. If any payment due the Note is not made within ten (10) days of its due date, the Borrower shall pay to the Lender upon demand(which may be in the form of the usual monthly billing or invoice) a late charge equal to five percent (5%) of the amount of such payment.2.3 Default Rate. After an Event of Default (hereinafter defined), the interest which accrues on the Note shall be increased to the Default Rate (asdefined in the Note).2.4 Computations. Interest and fees on the Loan shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed.2.5 Prepayment. The Borrower may prepay the Note in whole or in part without premium or penalty at any time upon ten (10) days prior written noticeto the Lender, subject to increase in the Exit Fee if such prepayment is made within the first year following closing of the Loan as set forth above. Amountsprepaid may not be re-borrowed.2.6 Indebtedness. As used in this Agreement, the term “Indebtedness” means all present and future indebtedness of the Borrower to the Lender arisingout of or in connection with the Note or any of the other Loan Documents.SECTION THREECONDITIONS3.1 Conditions Precedent to Closing. In addition to any other conditions stated in this Agreement, the following conditions must be satisfied prior toLender closing on the Loan.(a) Loan Documents. Receipt by Lender of appropriately completed and duly executed originals of this Agreement, the Note, the Guaranty, theDeed of Trust, the Leases Assignment, the Pledge, the Documents Assignment, the Consents, the Environmental Indemnity, UCC-1 Financing Statements andIntercreditor Agreement, all as Lender may require (collectively, together with any other documents executed and delivered in connection with theIndebtedness, the “Loan Documents”). 6(b) Organizational Documents. The Borrower and each entity comprising the Borrower shall supply to the Lender, to the extent it has notpreviously done so in any prior transaction with EagleBank or the Lender: (i) a currently certified copy of its Articles of Organization and all amendmentsthereto; (ii) evidence satisfactory to the Lender and its counsel that it is in good standing in the jurisdiction where organized and qualified to do business inevery jurisdiction in which the nature of its businesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due executionand delivery of the Loan Documents to which it is a party; and (iv) certified copies of its Operating Agreement and all amendments thereto. The Articles ofOrganization and the Operating Agreement of Borrower and each entity comprising the Borrower shall not be amended, changed or modified in any respectwithout prior written consent of the Lender. In addition, the Entity Guarantor shall supply, to the extent it has not previously done so in any prior transactionwith EagleBank or the Lender: (i) a currently certified copy of its Articles of Incorporation and all amendments thereto; (ii) evidence satisfactory to Lenderand its counsel that it is in good standing in the jurisdiction where organized and qualified to do business in every jurisdiction in which the nature of itsbusinesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due execution and delivery of the Loan Documents to whichit is a party and a certificate of incumbency; and (iv) certified copies of its By-Laws and all amendments thereto. The Articles of Incorporation and the Bylawsof the Entity Guarantor shall not be amended, changed or modified in any respect without the prior written consent of the Lender; provided, however, that onthe condition that the Lender is given thirty (30) days advance written notice, the Lender hereby consents to the Entity Guarantor’s change in corporatedomicile from Delaware to Virginia and all amendments to its organizational documents as are reasonably required to effect such change in domicilesubsequent to the closing of the Loan; provided further that UCC-1 financing statements shall be filed in the changed domicile at the cost and expense of theBorrower.(c) Opinion. Receipt by the Lender of the opinion(s) of the counsel for Borrower and the Guarantor, in form and content satisfactory to theLender, in its sole, but reasonable, discretion.(d) Insurance. Receipt by the Lender of certificate(s) of insurance to evidence a fully paid policy or policies of comprehensive public liabilityinsurance naming Lender as an additional insured thereunder in an amount not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregatewith not less than One Million and No/100 Dollars ($1,000.000.00) per occurrence; in any event, the amount of all insurance shall be sufficient to preventany co-insurance contribution on any loss, with each policy providing for a thirty (30) day prior written notice of cancellation, amendment or alteration.(e) Financing Statements. The financing statements necessary to perfect the Lender’s security interest in the personal property subject to theDeed of Trust, and the membership interests in the Borrower pursuant to the Pledge, and in any other collateral requiring the filing of a financing statementfor perfection of a lien thereon, shall be duly filed in all appropriate offices and jurisdictions, all other financing statements covering any of such personalproperty shall be terminated or 7the Lender shall be reasonably satisfied that such terminations are forthcoming, and filing and recording receipts evidencing such filings and terminationsshall be delivered to Lender, all in form and substance satisfactory to the Lender.(f) Property Documents. The Lender shall have received and approved in its sole discretion, the following:(1) Appraisals. An appraisal of the Property, prepared by an appraiser acceptable to the Lender, in form and content acceptable to theLender, conforming to all regulatory and internal appraisal guidelines applicable to or established by the Lender, in its sole, absolute, nonreviewablediscretion, reflecting an “as complete” value satisfactory to the Lender (the “Appraisal”);(2) Title Insurance. A commitment for title insurance (the “Title Commitment”) insuring the first priority lien of the Deed of Trust in theaggregate amount of the Note and the Townhouse Loan, containing no exceptions unacceptable to the Lender, issued in the name of the Lender by atitle company acceptable to the Lender and in an amount equal to the aggregate principal amount of the Note and the Townhouse Loan. The TitleCommitment and the title policy issued pursuant thereto (the “Title Policy”) shall reflect that all requirements for issuance of the Title Policy havebeen satisfied, and shall contain such other endorsements or coverages as the Lender may require.(3) UCC Insurance. A commitment for UCC insurance insuring the Lender’s first priority lien in the membership interests of the Borrowerpursuant to the Pledge.(4) Survey. A current survey and legal description of the Property and the Townhouse Parcel satisfactory to the Lender from a registeredland surveyor of the State of Maryland, which survey shall show all easements, rights of way and other matters of record, shall locate all existingimprovements on the Property and the Townhouse Parcel, shall contain metes and bounds descriptions of each applicable constituent portion of theProperty acceptable to the Lender and its counsel, shall generally show a state of facts acceptable to the Lender, and shall contain a surveyor’scertificate satisfactory to the Lender.(5) Subdivision Plat. Approval by the Lender and its construction consultant of the form of Record Plat to be recorded.(6) Flood Hazard. Evidence that no part of the Property or the Townhouse Parcel is located in a special flood hazard area. 8(7) Public Utilities. Evidence to the effect that sanitary sewer, water, electric, gas, telephone and other public utilities are available andadequate to serve the Property and the Townhouse Parcel.(8) Licenses and Permits. Copies of all licenses and permits in connection with the Property and the Townhouse Parcel, including withoutlimitation licenses, permits, proffers and other conditions to final subdivision and site plan approval for the Property and the Townhouse Parcel.(9) Zoning. Receipt by the Lender of a zoning endorsement to the Title Policy acceptable to the Lender or such other written evidence asis acceptable to the Lender that the Property and the Townhouse Parcel are zoned consistent with the uses contemplated beyond any possibility ofappeal and can be developed as proposed as a matter of right, and to the effect, further, that there are no pending proceedings, either administrative,legislative or judicial, which would in any manner adversely affect the status of the zoning with respect to the Property and the Townhouse Parcel orany part thereof.(g) No Default. No event shall have occurred and be continuing that constitutes an Event of Default (as defined below).(h) Representations. All representations and warranties contained in this Agreement shall be true and correct in every material respect as of thedate of closing of the Loan.(i) Satisfactory Documents. All documents delivered pursuant to this Agreement must be in form and substance satisfactory to the Lender and itscounsel and all legal matters incident to this Agreement must be satisfactory to Lender’s counsel.(j) Identification. As required by federal regulation, closing the Loan is contingent upon satisfactory verification of identity of the signatoriesand verification that none of the Borrower or the Guarantor or any signers is restricted from conducting business in the United States.SECTION FOURREPRESENTATIONS AND WARRANTIESIn order to induce the Lender to extend credit to the Borrower, the Borrower and the Guarantor each make the following representations and warrantiesas to itself:4.1 Organization. The Borrower and each entity comprising the Borrower is a limited liability company duly organized, validly existing and in goodstanding under the laws of the Commonwealth of Virginia and is duly qualified as a foreign limited liability company and in good 9standing under the laws of each other jurisdiction in which such qualification is required. The Entity Guarantor represents and warrants that it is a corporationduly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified as a foreign corporation and in goodstanding under the laws of each other jurisdiction in which such qualification is required.4.2 Execution and Delivery. The Borrower and each entity comprising the Borrower has the power, and has taken all of the necessary actions, toexecute and deliver and perform its obligations under the Loan Documents, and the Loan Documents, when executed and delivered, will be bindingobligations of each such entity enforceable in accordance with their respective terms.4.3 Power. Each of the Borrower and each entity comprising the Borrower has the power and authority to own its properties and to carry on its businessas now being conducted.4.4 Financial Statements. Al financial statements and information delivered to the Lender are correct and complete in all material respects and presentfairly the financial conditions, and reflect all known liabilities, contingent and otherwise, of the Borrower and the Guarantor as of the dates of such statementsand information, and since such dates no material adverse change in the assets, liabilities, financial condition, business or operations of the Borrower or theGuarantor has occurred.4.5 Taxes. All tax returns and reports of the Borrower and the Guarantor required by law to be filed have been duly filed, and all taxes, assessments,other governmental charges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith inappropriate proceedings) upon the Borrower and/or the Guarantor and upon any of their respective properties, assets, income or franchises, that are due andpayable have been paid.4.6 Litigation. There is no action, suit or proceeding pending or, to the knowledge of the Borrower or the Guarantor, threatened against or affecting theBorrower or the Guarantor that, either in any case or in the aggregate, may result in any material adverse change in the business, properties or assets or in thecondition, financial or otherwise, of the Borrower or the Guarantor, or that may result in any material liability on the part of the Borrower or the Guarantorthat would materially and adversely affect the ability of the Borrower or the Guarantor to perform its and/or their obligations under the Loan Documents, orthat questions the validity of any of the Loan Documents or any action taken or to be taken in connection with the Loan Documents.4.7 No Breach. The execution and delivery of the Loan Documents, and compliance with the provisions of the Loan Documents, will not conflict withor violate any provisions of law or conflict with, result in a breach of, or constitute a default under, the organizational documents of the Borrower, or anyjudgment, order or decree binding on the Borrower, or any other agreements to which the Borrower is a party.4.8 No Defaults. To the best of the Borrower’s knowledge, the Borrower is not in default with respect to any debt, direct or indirect, upon or as to whichthe Borrower has any liability or obligation. 104.9 Compliance. The Borrower is in compliance in all material respects with all applicable laws and regulations, including, without limitation, theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”).4.10 Approvals. No authorizations, approvals or consents of, and no filings and registrations with, any governmental or regulatory authority or agency,are necessary for the execution, delivery or performance of the Loan Documents by the Borrower.4.11 Title to Assets. The Borrower has good and marketable title to all of its assets, subject only to the liens and security interests permitted by thisAgreement and the liens and security interests securing EagleBank.4.12 Use of Proceeds. The proceeds of the Loan shall be used only for the purposes described in this Agreement. The proceeds of the Loan shall not beused to purchase or carry any margin stock, as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System.SECTION FIVECOVENANTS OF BORROWER AND GUARANTORIn consideration of credit extended or to be extended by the Lender, the Borrower covenants and agrees as follows:5.1 Financial Information. The Borrower and the Guarantor shall each deliver to the Lender: (i) with respect to the Borrower, each year within ninety(90) days after the close of its fiscal year, financial statements prepared in accordance with standard accounting principles consistently applied, certified astrue and correct by an officer of each such entity; (ii) with respect to the Entity Guarantor, each year within ninety (90) days after the close of its fiscal year,audited financial statements; (iii) each year within thirty (30) days after filing, a copy of each such entity’s federal income tax return and all schedulesthereto, provided that in the event of such extension such entity shall provide the Lender with a copy of the federal income tax return and all schedulesthereto within thirty (30) days of the filing of same with the Internal Revenue Services, (iv) with respect to the Individual Guarantor, each year within thirty(30) days after filing, a copy of his federal income tax return and all schedules thereto; and (v) promptly upon the Lender’s request, such financial and otherinformation as the Lender reasonably may require from time to time. All financial statements shall be in such reasonable detail and shall be accompanied bysuch certificates of the Borrower or the Guarantor, as applicable, as may reasonably be required by the Lender.5.2 Taxes. All tax returns and reports of the Borrower required by law to be filed have been duly filed, and all taxes, assessments, other governmentalcharges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith in appropriate proceedings)upon the Borrower and upon the Borrower’s properties, assets, income or franchises, that are due and payable, have been paid. 115.3 Compliance with Laws. The Borrower shall comply with all applicable laws and regulations including, without limitation, ERISA.5.4 Maintain Existence. The Borrower and the Entity Guarantor shall each maintain its existence in good standing, maintain and keep its properties ingood condition (ordinary wear and tear excepted), maintain adequate insurance for all of its properties with financially sound and reputable insurers. TheBorrower shall remain in the same line of business as it is on the date of this Agreement and shall not enter into any new lines of business without the priorwritten consent of the Lender.5.5 Notices. As soon as it has actual knowledge, the Borrower shall notify the Lender of the institution or threat of any material litigation orcondemnation or administrative proceeding of any nature involving the Borrower.5.6 Books and Records. The Borrower shall maintain complete and accurate books of account and records. The principal books of account and recordsshall be kept and maintained at 1886 Metro Center Drive, 4 Floor, Reston, VA 10190. The Borrower shall not remove such books of account and recordswithout giving the Lender at least thirty (30) days prior written notice. The Borrower, upon reasonable notice from the Lender, shall permit the Lender, or anyofficer, employee or agent designated by the Lender, to examine the books of account and records maintained by the Borrower, and agree that the Lender orsuch officer, employee or agent may audit and verify the books and records. The Borrower shall reimburse the Lender for any reasonable expenses incurred bythe Lender in connection with any such audits. All accounting records and financial reports furnished to the Lender by the Borrower and the Guarantorpursuant to this Agreement shall be maintained and prepared in accordance with GAAP.5.7 Liens. The Borrower shall not create, incur, assume or permit to exist any mortgage, deed of trust, assignment, pledge, lien, security interest, chargeor encumbrance, including, without limitation, the right of a vendor or under a conditional sale contract or the lessor under a capitalized lease (collectively,(“Liens”) of any kind or nature in or upon any of the asset of the Borrower except: (a)Liens created or deposits made that are incidental to the conduct of the business of the Borrower, that are not incurred in connection withany borrowing or the obtaining of any credit and that do not and will not interfere with the use by the Borrower of any of its assets in thenormal course of its business or materially impair the value of such assets for the purpose of such business; (b)Liens securing EagleBank pursuant to the Senior Deed of Trust and related loan documents; and (c)Liens securing the Indebtedness.5.8 Debt. Except as provided above in Section 5.7, without the prior written consent of the Lender, the Borrower shall not incur or permit to exist anydebt for borrowed funds, the deferred purchase price of goods or services or capitalized lease obligations, except for (a) trade debt incurred in the ordinarycourse of business, and (b) the Indebtedness. 12th5.9 Contingent Liabilities. Without the prior written consent of the Lender, neither the Borrower nor the Guarantor shall guarantee, endorse, becomecontingently liable upon or assume the obligation of any person, or permit any such contingent liability to exist, except by the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinary course of business.5.10 Sale of Assets. Without the prior written consent of the Lender, the Borrower shall not sell, lease, assign or otherwise dispose of any of its assetsexcept for (a) the disposition of assets that are no longer needed or useful in its business, (b) assets which have been removed and replaced and (d) sale andconveyance of the Property following recordation of the Record Plat and payment in full of all principal, accrued interest and other charges due under theLoan and the EagleBank Apartment Loan.5.11 Mergers and Acquisitions. Without the prior written consent of the Lender, the Borrower shall not merge or consolidate with, or acquire all orsubstantially all of the assets, stock, partnership interests or other ownership interests of, any other person.5.12 Loans and Advances. Without the prior written consent of the Lender, the Borrower shall not make any loan or advance to any affiliate, director,member, manager, officer or employee of the Borrower, or any other person, except for the creation of accounts receivable in the ordinary course of businesson terms that are no less favorable than would apply in an arms-length transaction.5.13 Subsidiaries and Joint Ventures. Without the prior written consent of the Lender, the Borrower shall not form any subsidiary, become a general orlimited partner in any partnership or become a party to a joint venture. If the Lender grants its consent to the formation or acquisition of a subsidiaryBorrower, such entity shall cause each subsidiary to perform and observe all of the covenants contained in this Agreement and the other Loan Documents.5.14 Affiliates. Without the prior written consent of the Lender, the Borrower shall not engage in business with any of its affiliates except in theordinary course of business and on terms that are no less favorable to the Borrower than would apply in an arm’s length transaction.5.15 Organization; Control and Management; Transfers. Until such time as the Loan is fully repaid, there shall be no Transfer (hereinafter defined) ofany interest in the Borrower, nor any change in the Control (hereinafter defined) or management of either the Borrower or the Entity Guarantor, nor anyTransfer of the Property except for sales of Lots and Units in accordance with the terms of the Loan Documents, without the Lender’s prior written consent.“Transfer” means any assignment, pledge, conveyance, sale, transfer, mortgage, encumbrance, grant of a security interest or other disposition, either directlyor indirectly, in the aggregate of fifty percent (50%) or more of the beneficial ownership interests of an entity and the possession, directly or indirectly, of thepower to direct or cause the direction of the management and policies of an entity, whether through the ability to exercise voting power, by contract orotherwise. “Controlled by” and “controlling” shall have the respective correlative meanings thereto. 13SECTION SIXDEFAULT AND REMEDIES6.1 Default. Each of the following shall constitute an “Event of Default” under this Agreement:(a) Failure to Pay. If: (i) the Borrower shall fail to pay any monthly payment required under the Note (“Monthly Payments”) when due thereunderor (ii) the Borrower shall fail to pay any amount (other than the Monthly Payments) as and when due under the Note or any of the other Loan Documents;(b) Failure to Give Notices. If the Borrower fails to give the Lender any notice required by Section 5.5 of this Agreement within thirty (30) daysafter it has actual knowledge of the event giving rise to the obligation to give such notice.(c) Failure to Permit Inspections. If the Borrower refuses to permit the Lender to inspect its books and records in accordance with the provisionsof Section 5.6 or failure to permit the Lender to inspect the Property upon reasonable advance notice.(d) Failure to Record Record Plat. If the Record Plat is not recorded within ninety (90) days following closing the Loan.(e) Failure to Observe Covenants. If the Borrower fails to perform or observe any non-monetary term, covenant, warranty or agreement containedin this Agreement or in the other Loan Documents for which no cure period or another cure period is provided, and such failure shall continue for a period ofthirty (30) days after written notice of such failure has been given to the Borrower by the Lender; provided, however, if such default is not in the payment ofany sum due to the Lender hereunder, or was not the subject of an Event of Default for which notice was previously provided, and provided the Borrower isdiligently pursuing the cure of such default, then the Borrower shall have an additional sixty (60) days within which to cure such default prior to the Lenderexercising any right or remedy available hereunder, or at law or in equity.(f) Defaults Under Loan Documents. If an Event of Default shall occur under the Note or any other Loan Document and shall not be cured withinany applicable grace period.(g) Breach of Representation. Discovery by the Lender that any representation or warranty made or deemed made by the Borrower in thisAgreement or in any other Loan Document or in any statement or representation made in any certificate, report or opinion delivered pursuant to thisAgreement or other Loan Document or in connection with any borrowing under this Agreement by the Borrower or the Guarantor or any member, manager,officer, agent, employee or director of the Borrower or the Guarantor, was materially untrue when made or deemed to be made. 14(h) Voluntary Bankruptcy. If the Borrower or the Guarantor makes an assignment for the benefit of creditors, files a petition in bankruptcy,petitions or applies to any tribunal for any receiver or any trustee of the Borrower or the Guarantor or any substantial part of the property of the Borrower orthe Guarantor, or commences any proceeding relating to the Borrower or the Guarantor under any reorganization, arrangement, composition, readjustment,liquidation or dissolution law or statute of any jurisdiction, whether in effect now or after this Agreement is executed.(i) Involuntary Bankruptcy. If, within sixty (60) days after the filing of a bankruptcy petition or the commencement of any proceeding againstthe Borrower or the Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under anypresent or future statue, law or regulation, the proceeding shall not have been dismissed, or, if within sixty (60) days, after the appointment, without theconsent or acquiescence of the Borrower or the Guarantor, of any trustee, receiver or liquidator of any Borrower or all or any substantial part of the propertiesof the Borrower or the Guarantor, the appointment shall not have been vacated.(j) Cross Default. If, as a result of default, any present or future obligations of the Borrower or the Guarantor or any affiliate of the Borrower or theGuarantor to the Lender or any other creditor, whether due to acceleration provisions or otherwise therein, are declared to be due and payable prior to theexpressed maturity of such obligations.(k) Cross Default to Particular Instruments: If an Event of Default by the applicable borrower shall occur under any of the following, as any of thefollowing may be amended, substituted or replaced from time to time: (i) the Townhouse Loan, (ii) any loan documents evidencing and/or securing thatcertain loan from EagleBank to New Hampshire Ave. Ventures, LLC (“NHA”) in the amount of $6,000,000.00, which is evidenced, among other things, by aRevolving Development Loan Promissory Note dated August 13, 2012 made by NHA to the order of EagleBank; (iii) any loan documents evidencing and/orsecuring that certain loan from EagleBank to NHA in the amount of $4,000,000.00, which is evidenced, among other things, by a Revolving ConstructionLoan Promissory Note dated August 13, 2012 made by NHA to the order of EagleBank; (iv) any loan documents evidencing and/or securing that certain loanfrom EagleBank to Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C., jointly and severally, in the amount of $9,960,000.00, which isevidenced, among other things, by a Deed of Trust Note dated May 30, 2012 made by those obligors to the order of EagleBank; and (v) the documentsevidencing and/or securing the EagleBank Credit Facility and/or the EagleBank Apartment Loan.(l) Material Adverse Change. A material adverse change occurs in the financial or business condition of the Borrower or the Guarantor. 15(m) Judgment. If a judgment, attachment, garnishment or other process is entered against the Borrower and is not vacated or bonded within sixty(60) days after entry (or such shorter period of time as necessary in order to avoid attachment or foreclosure), or if a judgment, attachment, garnishment orother process is entered against the Guarantor that would materially affect the Guarantor’s ability to perform its obligations under the Loan Documents, andsuch judgment, attachment, garnishment or other process is not vacated or bonded with in sixty (60) day after entry (or such shorter period of time asnecessary in order to avoid attachment or foreclosure).(n) Dissolution. The dissolution, liquidation or termination of existence of the Borrower or any Entity Guarantor or the death of any IndividualGuarantor unless a substitute guarantor, satisfactory to the Lender in its sole and absolute discretion, assumes all liability under the Guaranty andEnvironmental Indemnity and executes any documents which the Lender may reasonably require to implement such substitution, within sixty (60) days afterevent of dissolution, liquidation or termination of existence of an Entity Guarantor or death of any Individual Guarantor.(o) Change in Management/Control. A change in the management of or controlling interest in the Borrower or any Entity Guarantor without theprior written consent of the Lender.6.2 Remedies. Upon the occurrence of an Event of Default (a) the Lender, at its option, by written notice to the Borrower, may declare all Indebtednessto the Lender to be immediately due and payable, whether such Indebtedness was incurred prior to, contemporaneous with or subsequent to the date of thisAgreement and whether represented in writing or otherwise, without presentment, demand, protest or further notice of any kind, and (b) the Lender mayexercise all rights and remedies available to it under the Loan Documents and applicable law. The Borrower agrees to pay all costs and expenses incurred bythe Lender in enforcing any obligation under this Agreement or the other Loan Documents, including, without limitation, attorneys’ fees. No failure or delayby the Lender in exercising any power or right will operate as a waiver of such power or right, nor will any single or partial exercise of any power or rightpreclude any other future exercise of such power or right, or the exercise of any other power or right.6.3 Borrower to Pay Fees and Charges. The Borrower shall pay all fees and charges incurred in the procuring, making and enforcement of the Loan,including without limitation the reasonable fees and disbursements of Lender’s attorneys, charges for appraisals, the fee of Lender’s inspector andconstruction consultant, fees and expenses relating to examination of title, title insurance premiums, surveys, and mortgage recording, documentary, transferor other similar taxes and revenue stamps, loan extension fees, if any, and the Lender’s fees for the Loan.SECTION SEVENGENERAL PROVISIONS7.1 Defined Terms. Each accounting term used in this Agreement, not otherwise defined, shall have the meaning given to it under GAAP applied on aconsistent basis. The term “person” shall 16mean any individual partnership, corporation, trust, joint venture, unincorporated association, governmental subdivision or agency or any entity of anynature. The term “subsidiary” means, with respect to any person, a corporation or other person of which shares of stock or other ownership interest havingordinary voting power to elect a majority of the board of directors or other managers of such corporation or person are at the time owned, or the managementof which it otherwise controlled, directly or indirectly, through one or more intermediaries, by such person. The term “affiliate” means, with respect to anyspecified person, any other person that, directly or indirectly, controls or is controlled by, or is under common control with, such specified person. Allmeanings assigned to defined terms in this Agreement shall be applicable to the singular and plural forms of the terms defined.7.2 Notices. All notices, requests, demands and other communication with respect hereto shall be in writing and shall be delivered by hand, prepaid byFederal Express (or a comparable overnight delivery service), or sent by the United States first-class mail, certified, postage prepaid, return receipt requested,to the parties at their respective addresses set forth as follows:If to the Lender, to:EAGLE COMMERCIAL VENTURES, LLC7815 Woodmont AvenueBethesda, MD 20814Attn: Laurence E. Bensignor, PresidentWith a copy to:Friedlander Misler, PLLC5335 Wisconsin Avenue, N.W., Suite 600Washington, D.C. 20015Attn: Leonard A. Sloan, Esq.If to the Borrower or any Guarantor, to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Christopher ClementeWith a copy to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Jubal Thompson, Esq. 17ththAny notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be)upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, (c) on the business day after theday on which it is properly delivered by Federal Express (or a comparable overnight delivery service), or (d) on the third (3) business day after the day onwhich it is deposited in the United States mail. Any party may change such party’s address by notifying the other parties of the new address in any mannerpermitted by this Section.7.3 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Lender and the Borrower and their respectivesuccessors, assigns, personal representatives, executors and administrators, provided that the Borrower may not assign or transfer its rights under thisAgreement.7.4 Entire Agreement. Except for the other Loan Documents expressly referred to in this Agreement, this Agreement represents the entire agreementbetween the Lender and the Borrower, supersedes all prior commitments and may be modified only by an agreement in writing.7.5 Survival. All agreements, covenants, representations and warranties made in this Agreement and all other provisions of this Agreement will survivethe delivery of this Agreement and the other Loan Documents and the making of the advances under this Agreement and will remain in full force and effectuntil the obligations of the Borrower under this Agreement and the other Loan Documents are indefeasibly satisfied.7.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, without reference toconflict of laws principles.7.7 Headings. Section headings are for convenience of reference only and shall not affect the interpretation of this Agreement.7.8 Participations. The Lender shall have the right to sell all or any part of its rights under the Loan Documents, and the Borrower authorizes the Lenderto disclose to any prospective participant in any of the Loan any and all financial and other information in the Lender’s possession concerning the Borroweror the collateral for the Loan.7.9 No Third Party Beneficiary. The parties do not intend the benefits of this Agreement or any other Loan Document to inure to any third party.7.10 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE LENDER AND THE BORROWER KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY BASED ON, ARISING OUT OF OR UNDER, ORIN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. 18rd7.11 Waiver. The rights of the Lender under this Agreement and the other Loan Documents shall be in addition to all other rights provided by law. Nowaiver of any provision of this Agreement, or any other Loan Document, shall be effective unless in writing, and no waiver shall extend beyond the particularpurpose involved. No waiver in any one case shall require the Lender to give any subsequent waivers.7.12 Severability. If any provision of this Agreement or any other Loan Document is held to be void, invalid, illegal or unenforceable in any respect,such provision shall be fully severable and this Agreement or the applicable Loan Document shall be construed as if the void, invalid, illegal orunenforceable provision were not included in this Agreement or in such Loan Document.7.13 No Setoffs. With respect to a monetary default claimed by the Lender under the Loan Documents, no setoff, claim, counterclaim, reduction ordiminution of any obligation or defense of any kind or nature that the Borrower has or may have against the Lender (other than the defenses of payment, theLender’s gross negligence or willful misconduct) shall be available against the Lender in any action, suit or proceeding brought by the Lender to enforce thisAgreement or any other Loan Document. The foregoing shall not be construed as a waiver by the Borrower of any such rights or claims against the Lender,but any recovery upon any such rights or claims shall be had from the Lender separately, it being the intent of this Agreement and the other Loan Documentsthat the Borrower shall be obligated to pay, absolutely and unconditionally, all amounts due under this Agreement and the other Loan Documents.7.14 No Merger. The Borrower and the Lender expressly agree that the Borrower’s agreement and obligation to pay the Lender’s reasonable attorneys’fees and costs, and all other litigation expenses, shall not be merged into any judgment obtained by the Lender, but shall survive the same and shall not beextinguished by any monetary judgment. It is the express intent of the parties hereto that all post-judgment collection fees and expenses (includingreasonable attorneys’ fees and costs) shall survive entry of a final judgment and shall be collectible by the Lender against the Borrower from time to timefollowing entry of any final judgment obtained by the Lender against the Borrower.7.15 Counterparts. This Agreement may be executed for the convenience of the parties in several counterparts, which are in all respects similar andeach of which is to be deemed to be complete in and of itself, and any one of which may be introduced in evidence or used for any other purpose with theproduction of the other counterparts thereof.7.16 Consent to Jurisdiction. The Borrower irrevocably submits to jurisdiction of any state or federal court sitting in the Commonwealth of Virginia orthe State of Maryland over any suit, action or proceeding arising out of or relating to this Agreement, the Note or any other Loan Documents. Theundersigned irrevocably waives, to the fullest extent permitted by law, any objection that the undersigned may now or hereafter have to the venue of anysuch suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been broughtin an inconvenient forum. Final judgment in any such court shall be conclusive and binding and may be enforced in any court in which the undersigned issubject to jurisdiction by a suit upon such judgment provided that service of process is effected as provided herein or as otherwise permitted by applicablelaw. 197.17 Service of Process. The Borrower hereby consents to process being served in any suit, action or proceeding instituted in the Commonwealth ofVirginia or the State of Maryland in connection with the Loan by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested,to the Borrower at the address set forth in the Notices section of this Agreement and (ii) serving a copy thereof upon the Borrower’s registered agent forservice of process. The undersigned irrevocably agrees that such service shall be deemed to be service of process upon the undersigned in any such suit,action or proceeding. Nothing in this Agreement shall affect the right of the Lender otherwise to bring proceedings against the undersigned in the courts ofany jurisdiction or jurisdictions.7.18 Exhibits. All exhibits referred to herein as attached hereto are incorporated in full by reference as though fully set forth in this Agreement. TheExhibits are: Exhibit A: Legal Description of the Property and the Townhouse ParcelExhibit B: Form of Apartment Parcel Deed of TrustExhibit C: Carve Out Obligations[SIGNATURES ON FOLLOWING PAGES] 20IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to be executed in their respective names by duly authorizedrepresentatives as of the day and year first above written. The Guarantor joins herein to consent and agree to the terms, conditions, provisions and covenantsof those sections of this Agreement that address a covenant or obligation of the Guarantor. WITNESS: BORROWER: COMSTOCK REDLAND ROAD, L.C., a Virginia limitedliability company By: Comstock Holding Companies, Inc., a Delawarecorporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of Comstock RedlandRoad, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Redland Road, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 21 GUARANTOR:Witness: COMSTOCK HOLDING COMPANIES, INC., a Delaware corporation Print Name: By: Christopher D. Clemente Chief Executive OfficerCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., a Delaware corporation, party to theforegoing instrument, and that the same is his act and deed and the act and deed of said Comstock Holding Companies, Inc..IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 22GUARANTOR: Christopher ClementeCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he signed the foregoing instrument as his own free act and deed.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 23PLEDGOR:COMSTOCK INVESTORS VII, L.C., a Virginia limitedliability companyBy: Comstock Holding Companies, Inc., a Delawarecorporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of ComstockInvestors VII, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Investors VII, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 24LENDER: Witness: EAGLE COMMERCIAL VENTURES, LLC Print Name: By: Laurence E. Bensignor President[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Laurence E. Bensignor personally appeared before me in saidjurisdiction and acknowledged that he is President of Eagle Commercial Ventures, LLC; that he has been duly authorized to execute and deliver theforegoing instrument for the purposes therein contained and that the same is his act and deed; that the seal affixed to said instrument is such corporate sealand that it was so affixed by order of the Board of Directors of said Bank; and that he signed his name thereon by like order.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 25EXHIBIT ALegal Description of the Property and the Townhouse ParcelParcel P-146 in Montgomery County, Maryland, being that tract of land comprising 4.24307 acres, more or less, said tract of land being bisected byYellowstone Way.Tax ID No. 04-001-00776834.For metes and bounds description, see Exhibit “A” to Commitment for Title Insurance issued by Stewart Title Guaranty Company on February 13, 2013, FileNo. 01242 – 1549a. 26EXHIBIT BFORM OF APARTMENT PARCEL DEED OF TRUST[ATTACHED] 27EXHIBIT CCARVE OUT OBLIGATIONSThe Guarantor shall also guaranty the full and timely payment of any and all actual loss, damage, cost, expense, liability, claim or other obligation incurredby the Lender (including reasonable attorneys’ fees and out-of-pocket costs actually incurred) arising out of or in connection with any one or more of thefollowing (the “Carve Out Obligations”):(i) Fraud, material misrepresentation or willful misconduct by Borrower or Guarantor or any of their respective members, managers, officers, principals,or any other person properly authorized to make statements or representations, or act, on behalf of Borrower or Guarantor in connection with the Loan or theProperty;(ii) physical waste committed on the Property; damage to the Property as a result of the intentional misconduct, recklessness or gross negligence ofBorrower or Guarantor, or any agent or employee of any such persons; or the removal of any portion of the Property by or at the direction of Borrower orGuarantor or any direct or indirect member or manager thereof, in violation of the terms of the Loan Documents (as defined in the Loan Agreement) followinga default under the Loan which is not cured within any applicable grace or cure period (an “Event of Default”);(iii) subject to any right to contest or bond off such matters, as provided in the Deed of Trust or Loan Agreement, failure to pay any valid taxes,assessments, mechanics’ liens, materialmen’s liens or other liens which could create liens on any portion of the Property which would be superior to the lienor security title of the Deed of Trust or the other Loan Documents, to the full extent of the amount claimed by any such lien claimant;(iv) the breach of any representation, warranty or covenant in, and any liability under any provision in, that certain Environmental IndemnityAgreement of even date herewith given by Borrower and Guarantor to Lender or the breach of any representation, warranty or covenant relating solely to, andany liability under any provision concerning, environmental laws, hazardous substances or asbestos in the Deed of Trust;(v) the misapplication or conversion of (A) any insurance proceeds paid to Borrower by reason of any loss, damage or destruction to the Property,(B) any awards or other amounts received by Borrower in connection with the condemnation of all or a portion of the Property, or (C) any rents from theProperty following an Event of Default or collected in advance; and(vi) failure to maintain any insurance policies required under the Loan Documents, or timely to pay or provide the amount of any insurance deductible,to the extent of the applicable deductible, following a casualty or other insured event. 28Exhibit 10.78LOAN AGREEMENTTHIS LOAN AGREEMENT (as amended, modified or supplemented from time to time, “Agreement”), dated as of the day of March, 2013, by andbetween (i) EAGLEBANK (the “Lender”), and (ii) COMSTOCK REDLAND ROAD, L.C., a Virginia limited liability company (the “Borrower”), recites andprovides:RECITALS:R-1. The Borrower has acquired a certain development site comprised of 39 lots located at Redland Road and Yellowstone Way, Montgomery County,Maryland, as more particularly described on Exhibit A attached hereto (the “Property”), on which the Borrower intends to develop three (3) single familydetached housing units (singularly, a “Single Family Lot” or, as improved, “Single Family Unit” and if referring to more than one, “Single Family Lots” or, asimproved, “Single Family Units”) and thirty-six (36) townhouse units (singularly, a “Townhouse Lot” or, as improved, “Townhouse Unit” and if referring tomore than one, “Townhouse Lots” or, as improved, “Townhouse Units”).R-2. Subject to the terms of this Agreement, the Lender agrees to make an acquisition and development loan (the “Development Loan”) to theBorrower, as more particularly described in Section One below, for the purpose of financing the acquisition and the Development (as hereinafter defined) ofthe Property.R-3. Subject to the terms of this Agreement, the Lender also agrees to make a revolving construction loan (the “Construction Loan”) to the Borrower, asmore particularly described in Section Two below, for the purpose of financing the construction of the Single Family Units and the Townhouse Units(collectively, “Units” or if referred to individually, a “Unit”).R-4. The Lender and the Borrower agree that the Development Loan and the Construction Loan (together, the “Loans”) will be made and advancedupon and subject to the terms, covenants and conditions set forth in this Agreement.R-5. Subject to the terms of this Agreement, the Lender also agrees to make a facility (the “LC Facility”) available to the Borrower under which theLender agrees to issue letters of credit (singularly, a “Letter of Credit” and if referring to more than one, “Letters of Credit”) for the account of the Borrower(any draw on any Letter of Credit shall be referred to as an “LC Advance”), as more particularly described in Section Three below, for the purpose of securingthe performance by the Borrower of public improvement requirements pursuant to agreements with Montgomery County, Maryland or other governmentalentities.R-6. The Lender and the Borrower agree that the LC Facility shall be made upon and subject to the terms, covenants and conditions set forth in thisAgreement.R-7. Simultaneously herewith the Lender is making an acquisition and development loan to the Borrower as hereinafter described (the “ApartmentLoan”) with respect to certain property adjacent to 1the Property that has been approved for construction of a 117-unit multi-family apartment building (the “Apartment Parcel”), which was to have beensubdivided pursuant to a record plat (the “Record Plat”) to create the Property and the Apartment Parcel each as a separate subdivided record lot; however,the Record Plat has not been recorded and the Property and the Apartment Parcel are part of one single subdivided record lot known as P-146 in MontgomeryCounty, Maryland.R-8. The Borrower has requested that the Lender waive the condition to closing the Loans and the LC Facility that the Record Plat be recorded, and theLender is amenable to such request provided the Borrower performs its duties and obligations strictly in accordance with the terms and conditions of thisAgreement.AGREEMENTACCORDINGLY, for and in consideration of the foregoing Recitals which are a material part of this Agreement and not mere prefatory language, andof the mutual covenants and conditions set forth in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which arehereby acknowledged, the Lender and the Borrower agree as follows:SECTION ONETHE DEVELOPMENT LOAN1.1 Amount. The maximum principal amount that may be advanced under the Development Loan shall not exceed the lesser of (i) Five Million ThreeHundred Thousand and No/100 Dollars ($5,300,000.00), or (ii) sixty-five percent (65%) of the cost of acquisition of the Property and the Developmentthereof in accordance with a budget approved by the Lender, or (iii) sixty percent (60%) of the discounted (“When Developed”) (finished lots) value of theProperty pursuant to the Appraisal (hereinafter defined) and any appraisals which may be engaged by the Lender from time to time subsequent to the datehereof. The Development Loan will be evidenced by a Development Loan Promissory Note made by the Borrower payable to the order of the Lender (as thesame may be amended, renewed, restated, supplemented or substituted from time to time, the “Development Loan Note”) which shall be governed byMaryland law.1.2 Purpose. The Borrower will use the Development Loan proceeds as follows: (i) up to Two Million and No/100 Dollars ($2,000,000.00) (the“Acquisition Advance”) shall be applied to costs (including closing costs) of acquisition of the Property; and (ii) up to Three Million Three HundredThousand and No/100 Dollars ($3,300,000.00) (the “Development Advance” or if more than one “Development Advances”) shall be used for theDevelopment of the Property in accordance with a Development Budget that shall have been approved by the Lender in advance and in accordance withplans and specifications to be submitted to and approved by the Lender, and with advances to be made as the work progresses, all as set forth in thisAgreement. For purposes of this Agreement, the term “Development” shall mean, generally, (a) lot clearing and rough grading; (b) provision of stormdrainage structures and facilities, sediment control devices, base paving of streets, curbs and gutters; (c) providing sewer and water distribution systems anderecting temporary street signs; (d) provision of underground electric and gas utility lines, cable television easements and easements for private utilitycompanies to 2install telephone lines, pedestals and vaults adjacent to Lot lines; and (e) other subdivision improvements as required by governmental authorities in orderfor use and occupancy permits to issue, all in accordance with final site plan review by Montgomery County, Maryland and the Record Plat. TheDevelopment Budget for purposes of the Development Advance and portions thereof shall include the foregoing Development costs together with real estatetaxes, an interest reserve to be withheld from loan proceeds and applied monthly to payment of accrued interest as hereinafter set forth, and other expensesapproved by the Lender. Certain other costs normally considered part of development costs shall be deferred and paid for by the Borrower out of its ownfunds, including by way of example and not limitation, final paving of streets, site amenities, landscaping and erosion control.1.3 Development Advance for Preliminary Soft Costs. It is understood that the Development Budget has been approved in form but not finallyapproved by the Lender, due in part to the Record Plat not having been recorded. It is also understood that the Borrower has incurred certain architectural andengineering soft costs in obtaining various approvals related to the Record Plat and the Development (the “Preliminary Soft Costs”). The Borrower hasrequested that the Lender make a Development Advance to cover the Preliminary Soft Costs and the Lender has agreed to make such an advance providedthat (i) the Preliminary Soft Costs are consistent with the Development Budget as ultimately approved by the Lender, (ii) the advance for the Preliminary SoftCosts shall not exceed Three Hundred Eighty-Two Thousand and No/100 Dollars ($382,000.00), (iii) the Preliminary Soft Costs shall be supported byinvoices acceptable to the Lender, (iv) no further Development Advances shall be made unless and until the Development Budget is finally approved and theRecord Plat has been recorded; and (v) if any additional soft costs are incurred by the Borrower prior to the Record Plat having been recorded and approval ofthe Development Budget, the Borrower shall pay for the same out of its own funds. In addition, notwithstanding the provisions for the Interest Reserve ashereinafter set forth in Section 1.6, interest funded from the Development Loan shall be limited to interest accrued for the first ninety (90) days followingclosing of the Loans unless the Record Plat has been recorded and the Development Budget has been finally approved by the Lender before the end of suchninety (90) day period.1.4 Record Plat. The Borrower shall use commercially reasonable efforts with the highest due diligence to cause the Record Plat to be approved byapplicable governmental authorities and recorded. The terms and conditions with respect to the Record Plat are as follows: (a)If the Record Plat, in form as shall have been approved by the Lender, has not been recorded within ninety (90) days from the closing of theLoans and the LC Facility, an Event of Default shall have occurred on the ninety-first (91) day following the closing. (b)The Deed of Trust (hereinafter defined) shall initially encumber the Property and the Apartment Parcel as security for the Loans, the LC Facilityand the Apartment Loan. Upon recordation of the Record Plat, the Deed of Trust shall be amended to reflect the new legal description and theLender’s loan policy of title insurance shall be appropriately endorsed in form satisfactory to the Lender in all respects. 3st (c)Provided there has then occurred no Event of Default hereunder or under the Apartment Loan, following recordation of the Record Plat, if (i) theBorrower sells the Apartment Parcel and upon closing of such sale pays the Apartment Loan in full, the Lender shall release the Apartment Parcelfrom the lien of the Deed of Trust or (ii) the Borrower determines to develop the Apartment Parcel and transfer the Apartment Parcel to anaffiliate, the Lender shall release the Apartment Parcel from the lien of the Deed of Trust and simultaneously therewith the Apartment Parcel shallbe encumbered by a new deed of trust (the “Apartment Parcel Deed of Trust”) as security for the Apartment Loan as well as cross-collateral assecurity for the Loans and the LC Facility. (d)If applicable under Subparagraph 1.4(c) above, the Apartment Parcel Deed of Trust shall be in the form as attached to this Agreement as ExhibitE and shall constitute a first lien on the Apartment Parcel. (e)The Leases Assignment (hereinafter defined) shall encumber all leases, rents and profits with respect to the Property and the Apartment Parcel.The Apartment Parcel may be released from the Leases Assignment in the event of (i) sale and payment in full of the Apartment Loan ascontemplated in Subparagraph 1.4(c) above or (ii) transfer of the Apartment Parcel to an affiliate, in which event a new assignment of leases andrents in form substantively identical to the Leases Assignment shall be recorded against the Apartment Parcel simultaneously with such release. (f)UCC-1 Financing Statements that constitute a fixture filing shall be recorded against the Property and the Apartment Parcel. Such UCC-1Financing Statements may be terminated as to the Apartment Parcel in the event of (i) sale and payment in full of the Apartmetn Loan ascontemplated in Subparagraph 1.4(c) above or (ii) transfer of the Apartment Parcel to an affiliate, in which event a new UCC-1 FinancingStatement in form substantively identical to the initial instrument shall be filed against the Apartment Parcel simultaneously with suchtermination.1.5 Development. All of the Townhouse Lots and the Single Family Lots (collectively, “Lots” or if referred to individually, a “Lot”) shall be developedsimultaneously, and the Development Loan shall be allocated for costs among the Townhouse Lots only. The Single Family Lots shall be considered to haveno land cost. It understood that the Single Family Lots may constitute MPDU Units eligible for inclusion in the Montgomery County, Maryland ModeratelyPriced Dwelling Unit Program.1.6 Development Loan Interest Reserve. From the proceeds of the Development Loan, One Hundred Ninety-Two Thousand and No/100 Dollars($192,000.00) shall not be disbursed but shall be reserved by the Lender for the payment of interest on the Development Loan (the “Interest Reserve”) untilsuch reserve is exhausted. Notwithstanding the foregoing or any provision of the Loan Documents to the contrary, the Lender shall not be obligated to makeany disbursements from the Interest Reserve if any 4Event of Default shall have occurred (including without limitation any failure to meet the Sales and Curtailment Schedule set forth below which failure is notcured by payment of the amount necessary to satisfy the curtailment component thereof), and further, notwithstanding the foregoing or any provision of anyof the Loan Documents to the contrary, nothing contained herein shall be deemed to release or in any way to relieve the Borrower from its obligation underthe Development Loan Note to pay interest as provided in the Development Loan Note. Each disbursement from the Interest Reserve shall constitute adisbursement of principal of the Development Loan and shall be added to the then outstanding principal balance of the Development Loan.1.7 Development Loan Real Estate Tax Reserve. From the proceeds of the Development Loan, One Hundred Forty-Four Thousand and No/100 Dollars($144,000.00) shall not be disbursed but shall be reserved by the Lender (the “Taxes Reserve”) for the payment of real estate taxes and other governmentalimpositions against the Property (collectively, “Taxes”) until such reserve is exhausted. Notwithstanding the foregoing or any provision of the LoanDocuments to the contrary, the Lender shall not be obligated to make any disbursements from the Taxes Reserve if any Event of Default shall have occurred(including without limitation any failure to meet the Sales and Curtailment Schedule set forth below which failure is not cured by payment of the amountnecessary to satisfy the curtailment component thereof), and further, notwithstanding the foregoing or any provision of any of the Loan Documents to thecontrary, nothing contained herein shall be deemed to release or in any way to relieve the Borrower from its obligation under the Loan Documents to payTaxes as they become due. Each disbursement from the Taxes Reserve shall constitute a disbursement of principal of the Development Loan and shall beadded to the then outstanding principal balance of the Development Loan.1.8 Fees. The Borrower shall pay to the Lender a fee for the Development Loan in the amount of Fifty-Three Thousand and No/100 Dollars($53,000.00), one-half of which has been received by the Lender and the balance of which shall be paid upon closing of the Loans. The Lender acknowledgesreceipt from the Borrower of Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00), for application to the Lender’s third-party costs and towardsthe Lender’s underwriting in connection with the Loans (including without limitation fees of appraisers, consultants and legal counsel), any unused balanceof which may be applied to the foregoing Development Loan fee.SECTION TWOTHE CONSTRUCTION LOAN2.1 Amount. The maximum principal amount that may be advanced and re-advanced under the Construction Loan shall not exceed Ten Million ThreeHundred Twenty-Five Thousand and No/100 Dollars ($10,325,000.00) (the “Aggregate Advances Limit”), subject to the further limitations set forth in thisSection. The maximum amount outstanding at any one time under the Construction Loan shall not exceed Two Million Eight Hundred Seventy and No/100Dollars ($2,870,000.00) (the “Maximum Outstanding Amount”).2.2 Townhouse Unit Advances. Advances for each Townhouse Unit shall be limited to the lesser of (i) seventy-five percent (75%) of the “as complete”appraised value of each model type, which value shall include the pro rata portion of the Development Loan allocated by the Lender to the Unit in 5the amount of One Hundred Forty Six Thousand Seven Hundred Fifty and No/100 Dollars ($146,750.00) (the “Per Unit Development Component”), or (ii) thesum of the Per Unit Development Component plus one hundred percent (100%) of the hard and soft costs per model type (such hard and soft costs on averagenot to exceed $286,850.00 per Unit based on a budget approved by the Lender), or (iii) a maximum of Four Hundred Thirty Three Thousand Six Hundred andNo/100 Dollars ($433,600.00) per Townhouse Unit for Development costs plus the hard and soft costs of construction; provided, however, that if and to theextent that all advances under the Construction Loan have totaled less than the Aggregate Advances Limit and the maximum outstanding at the time of anyrequest for advance is less than the Maximum Outstanding Amount, the Lender will advance up to an additional Twenty Thousand and No/100 Dollars($20,000.00) for a unit at either end of a stick (“End Unit”) up to a maximum of four (4) End Units at any one time; if all advances under the ConstructionLoan have totaled the Aggregate Advances Limit and/or if the maximum outstanding at the time of any such request is at the Maximum OutstandingAmount, the Borrower shall pay for any additional End Unit costs out of its own funds. The Construction Loan will be evidenced by a RevolvingConstruction Loan Promissory Note made by the Borrower payable to the order of the Lender (as the same may be amended, renewed, restated, supplementedor substituted from time to time, the “Construction Loan Note”) which shall be governed by Maryland law.2.3 Further Limitations on Townhouse Advances. The Lender shall not be required to advance at any one time for Construction of Townhouse Unitsmore than the lesser of (A) the costs of construction of more than ten (10) Townhouse Units and not more than four (4) “sticks” (hereinafter defined) (i.e., notmore than ten (10) Townhouse Units and four (4) sticks may be under construction at any one time) or (B) Two Hundred Eighty Six Thousand Eight HundredFifty and No/100 Dollars ($286,850.00) per Townhouse Unit, on average, subject to the provisions set forth above in Section 2.2 for additional End Unitcosts. For purposes of this Agreement and the Loan Documents, a “stick” means a building containing contiguous Townhouse Units constructed on a singleshared foundation.2.4 Advances for Single Family Units. Advances for Construction of Single Family Units shall be subject to such conditions and requirements as theLender may approve prior to the first advance for Construction of one or more Single Family Units.2.5 Purpose. The Borrower will use the Construction Loan proceeds for the purpose of building (the “Construction”) Single Family Units andTownhouse Units in accordance with budgets therefor, construction start limits, sales schedule and loan curtailment requirements, all of which shall havebeen approved by the Lender in advance and in accordance with plans and specifications to be submitted to and approved by the Lender, and with advancesto be made as the work progresses, all as set forth in this Agreement. The overall Construction budget shall include and be consistent with the total costs pertype of Unit that are to be set forth on Exhibit B (the “Unit Costs Budget”), which shall be agreed by the parties and attached hereto prior to and as acondition of the first advance of Construction Loan proceeds.2.6 Construction Limitation. At no time shall the Borrower be permitted to have under Construction more than ten (10) Townhouse Units and morethan four (4) sticks. Upon completion and sale of Townhouse Units from time to time, and payment of the Release Payment set forth in Section 4.9 6below, funds repaid pursuant to Section 4.9 below may be readvanced under the Construction Loan subject to the foregoing limitation on the number ofUnits and sticks that may be under Construction at any one time, which shall again apply.2.7 No Interest Reserve. The Borrower shall be obligated to pay interest as provided in the Construction Loan Note.2.8 Fees. The Borrower shall pay to the Lender a fee for the Construction Loan in the amount of Fifty-One Thousand Six Hundred Twenty-Five andNo/100 Dollars ($51,625.00). The Construction Loan fee will be paid in installments each in the amount of One Thousand Four Hundred Thirty-Four andNo/100 Dollars ($1,434.00), each such installment to be paid at the time of the first draw of Construction Loan proceeds for each Townhouse Unit and eachSingle Family Unit.SECTION THREETHE LC FACILITY3.1 Facility; Amount. The maximum amount of the LC Facility shall be Two Million Two Hundred Sixty Thousand and No/100 Dollars($2,260,000.00). The Lender agrees to issue one or more letters of credit (singularly, a “Letter of Credit” and if referring to more than one, “Letters of Credit”)to Montgomery County, Maryland or other governmental entities for the purpose of guaranteeing the satisfactory construction of public improvementspursuant to agreements and plans and specifications which shall have been approved by such governmental entity and by the Lender.3.2 Letters of Credit. Subject to the terms and conditions of this Agreement and all terms and conditions as the Lender may require in an Applicationfor Irrevocable Standby Letter of Credit (“LC Application”) to be executed by the Borrower in connection with each Letter of Credit, the Lender agrees toissue one or more Letters of Credit for the account of the Borrower in form as attached hereto as Exhibit F (the “Montgomery County Form”) or such otherform as may be approved by the Lender. Each Letter of Credit issued pursuant to the LC Facility shall be evidenced by a Non-Revolving Promissory Note inform as attached hereto as Exhibit C (each, a “LC Note”). The following particular terms and conditions shall apply:(a) Any draw under a Letter of Credit shall constitute an LC Advance under the applicable LC Note, shall bear interest at the rate set forth in theLC Note, and shall be due on demand. No principal shall be deemed to be advanced or bear interest under an LC Note solely as the result of the issuance ofthe Letter of Credit.(b) Each Letter of Credit shall have an initial expiry date, and each LC Note shall have an initial maturity date, of one (1) year from the date ofissuance of the applicable Letter of Credit, subject to annual renewal unless, with respect to any Letter of Credit issued on the Montgomery County Form, theLender shall have given the sixty (60) day notice of non-renewal as contemplated therein. The Lender agrees that it will not give the first sixty (60) daynotice of non-renewal of any such Montgomery County Letter of Credit provided that (i) a renewal fee in the amount of one percent (1%) of the amount of theLetter of Credit is paid to the Lender on or before three hundred (300) days following issuance of 7the Letter of Credit, and (ii) no Event of Default shall have occurred and remain uncured within any applicable notice and/or cure period. Following the firstyear of the term of any Montgomery County Letter of Credit, the Lender shall have the right at any time to give the sixty (60) day notice of non-renewal.Upon the Lender giving a sixty (60) day notice of non-renewal of any Montgomery County Letter of Credit, the original Letter of Credit must be returned tothe Bank on or before the end of the sixty (60) day notice period and the Borrower’s failure to do so by the expiration of the sixty (60) day notice period shallconstitute an Event of Default hereunder and under the Loan Documents without further notice. Each LC Note for a Montgomery County Letter of Creditshall have a maturity date of two (2) years after the date of issuance of the Letter of Credit. All other Letters of Credit shall have an outside expiry date, andeach other LC Note shall have an outside maturity date, on the same date of Maturity (as hereinafter defined) of the Development Loan Note and theConstruction Loan Note.(c) If any Letter of Credit remains outstanding for a period later than the date which is two (2) years following closing of the Loans (the “TwoYear Anniversary”), the Borrower’s and the Guarantor’s obligations hereunder and under the Guaranty and under all of the other Loan Documents shallremain in full force and effect with respect to any such Letter(s) of Credit and the applicable LC Note(s), and the Lender shall not be required to release anysecurity under the Deed of Trust or any other Loan Document until the originals of all Letters of Credit have been returned to the Lender, notwithstandingthat the Development Loan and the Construction Loan have been repaid; provided, however, if at the Two Year Anniversary there is cash collateral in the LCEscrow pursuant to Section 4.9(c) hereof in an amount at least equal to all outstanding Letters of Credit, provided that all other obligations hereunder andunder the Cross-Defaulted Loan have been fully paid and performed, the Guarantor’s obligations shall continue in full force and effect with respect to the LCNote(s) related to the outstanding Letter(s) of Credit and any interest that may accrue thereon, and all other Loan Documents shall be released.(d) The Borrower’s failure to pay to the Lender the amount of any draw made on any Letter of Credit, together with accrued interest thereon,within five (5) days after the draw is made, shall constitute an Event of Default hereunder and under the Loan Documents.(e) The Lender shall not be responsible for, and the indebtedness, obligation and liability of the Borrower under each LC Note and the LCFacility (the “LC Obligations”) shall not be affected by (i) the use which may be made of any Letter of Credit or for any acts or omissions of the user(s) of anyLetter of Credit; (ii) the validity, accuracy, sufficiency or genuineness of drafts, required statements of documents, even if such drafts, statements ordocuments should in fact prove to be in any or all respects invalid, inaccurate, insufficient, fraudulent or forged; (iii) failure of any draft to bear any referenceor adequate reference to the applicable Letter of Credit, or the failure of documents to accompany any instrument of negotiation, or to forward documents asrequired by the terms of the Letter of Credit, each of which provisions, if contained in the Letter of Credit, it is agreed may be waived by the Lender;(iv) errors, omissions, interruptions or delays in transmission or delivery of any message, by mail, cable, telegraph, telex or otherwise; (v) failure of thebeneficiary under any Letter of Credit to present the original of the Letter of Credit and any other documents required by the Lender in connection with anattempted draw; or (vi) any consequences arising from causes beyond the control of the Lender. 8(f) In the event of the imposition or implementation of, or increase in, subsequent to the issuance of any Letter of Credit, any reserve, specialdeposit or similar requirement on or applicable to the applicable Letter of Credit, the Borrower shall, at the Lender’s request, reimburse the Lender for allincreased costs of the Lender of maintaining the Letter of Credit.(g) The Borrower agrees that the Lender may pay, as complying with the terms of any Letter of Credit, any drafts, required statements or otherdocuments otherwise in order which may be signed or issued by the administrator, trustee in bankruptcy, debtor in possession, assignee for the benefit ofcreditors, liquidator, receiver or other legal representative of the party who is authorized under the Letter of Credit to draw or issue any drafts, requiredstatements or other documents.(h) If the Lender consents to any overdrafts under any Letter of Credit or authorizes payment or acceptance of drafts drawn thereunder withirregular accompanying documents or authorizes or consents to any departure from the terms of any Letter of Credit, this Agreement shall be fully bindingupon the Borrower with respect to such overdrafts, irregularities or both and the Lender’s rights shall be, in every respect, the same as if this Agreement andthe applicable Letter of Credit expressly provided for such overdraft or irregularity or both. Such consent may be given orally, in writing, by telex or in suchother manner as the Lender may require.(i) If the Lender consents to any extension of time for presentation of drafts or documents under any Letter of Credit or in the event the Lenderconsents to any other modification of the terms of any Letter of Credit or of any transaction under the applicable Letter of Credit, at the request of theBorrower, this Agreement shall be binding upon the Borrower with regard to any action taken under such modified terms and to drafts and documentspresented within such extended time. Such consent may be given orally, in writing, by telex or in such other manner as the Lender may require.(j) The Lender shall not be obligated to issue any Letter of Credit after the date which is one hundred twenty (120) days following closing of theLoans.(k) Except as otherwise expressly stated in any Letter of Credit, each Letter of Credit will be subject to and governed by the laws of the State ofMaryland and the 2007 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 600)and, in the event of any conflict, the laws of the State of Maryland will control.Section 3.3 Fees. The Borrower shall pay to the Lender a fee for each Letter of Credit in the amount of one percent (1%) of the amount of each Letter ofCredit, which shall be paid at the time the Borrower submits an LC Application to the Lender. In addition, a fee in the amount of one percent (1%) 9of the amount of each Letter of Credit that remains open for more than twelve (12) months shall be paid to the Lender upon each anniversary of each Letter ofCredit, except for Montgomery County Letters of Credit, as to which such fee shall be paid not later than the three hundredth (300) day following issuanceof the applicable Letter of credit. Such fees shall be deemed earned in full on each payment date and shall be non-refundable in all circumstances.SECTION FOURPARTICULAR TERMS OF BOTH LOANS AND THE LC FACILITY4.1 Guarantor. Comstock Holding Companies, Inc. (the “Guarantor”) shall guarantee the payment and performance of the Borrower’s obligations,covenants and agreements under the Loans and the LC Facility, as evidenced by the Loan Documents, including completion of Construction, and shall alsoguarantee the Carve Out Obligations (defined on Exhibit D attached hereto), which guaranty shall be evidenced by an instrument of unlimited andunconditional guaranty of payment, performance and completion from the Guarantor for the benefit of the Lender, in form and substance satisfactory to theLender (the “Guaranty”).4.2 Term. The Development Loan Note, the Construction Loan Note and each LC Note are for convenience collectively called the “Notes”. TheDevelopment Loan Note and the Construction Loan Note shall mature twenty-four (24) months after the date of closing on the Loans and the LC Facility (the“Development and Construction Loan Maturity”). Each LC Note shall have an initial maturity date of one (1) year from the issuance of the Letter of Credit towhich it relates, and if the applicable Letter of Credit is thereafter extended the applicable LC Note shall have an outside maturity date on the same date thatthe Letter of Credit would expire (the “LC Maturity”). It is acknowledged and agreed that notwithstanding any provisions herein, the Borrower has notapplied for, nor has the Lender made any commitment with respect to, any extension of the Development and Construction Loan Maturity or the LCMaturity. Upon any application for an extension, any approval of an extension on any terms would be contingent upon the usual and customary underwritingprocedures of EagleBank, including without limitation, full credit and collateral evaluation and review, the approval of the loan committee of EagleBank,and payment to the Lender of extension fees as determined by the Lender.4.3 Interest Rate. Commencing on the closing of the Loans and the LC Facility, the unpaid balance of each of the Notes outstanding from time to timeshall bear interest and be payable at the floating rate per annum equal to three percent (3%) above the thirty (30) day LIBOR Rate (hereinafter defined),rounded upwards, if necessary, to the nearest one-eighth of one percent (0.125%). The LIBOR rate means, for each calendar month, the annualized weightedaverage of the 30-day London Interbank Offered Rates (at approximately 11:00 a.m. London time) for U.S. Dollar transactions on the day that is two(2) business days prior to the first day of that calendar month, as reported by Bloomberg Business News; if Bloomberg Business News is not available, theLender shall select a similar source for the LIBOR index and shall notify the Borrower of such selection. If no LIBOR index is available, or if the Lenderdetermines in its sole discretion that any reported LIBOR rate is unreliable, the Lender may select an alternative index upon notice to the Borrower of suchselection. Interest shall be calculated using a 10th360-day year, based upon the actual number of days for which the calculation is being made. Notwithstanding the above, in no event shall any of the Notesbear interest at a rate below the floor interest rate of five percent (5%) per annum at any time (the “Interest Rate Floor”).4.4 Collateral. The Loans and the LC Facility shall be secured by, among other things, the following: (i)A first lien revolving credit line deed of trust, security agreement and fixture filing (as the same may be amended, restated, supplementedor substituted, the “Deed of Trust”) on the Property and the Apartment Parcel; (ii)An assignment of Leases and Rents on the Property and the Apartment Parcel (as the same may be amended, restated, supplemented orsubstituted, the “Leases Assignment”); (iii)An assignment of sales contracts and deposits with respect to the Property (the “Contracts Assignment”); (iv)Assignments of all Development and Construction documents including, without limitation, plans and specifications, permits, architect’scontracts, engineering contracts, Development contracts, and Construction contracts (the “Documents Assignment”); (v)Consents to Assignment executed by each of the general contractor, architect and project engineer for each of the Development and theConstruction (the “Consents”); (vi)An Environmental Indemnity Agreement made by the Borrower and the Guarantor for the benefit of the Lender (as the same may beamended, restated, supplemented or substituted, the “Environmental Indemnity”); (vii)Such UCC-1 Financing Statements as the Lender may determine to be necessary or desirable.4.5 Equity Requirement. As a condition of the Loans and the LC Facility, as of the closing of the Loans and the LC Facility the Borrower shall havemade an equity investment in the Property in an amount not less than Two Million Nine Hundred Thousand and No/100 Dollars ($2,900,000.00), and shallhave provided reasonable evidence of such investment to the Lender in the form of cash investment or mezzanine financing acceptable to the Lender in itssole discretion.4.6 Cross Defaulted Loan. An event of default under the Apartment Loan (sometimes herein called the “Cross-Defaulted Loan”) shall constitute anEvent of Default under the Loan Documents. From and after recordation of the Record Plat, release of the Apartment Parcel from the lien of the Deed of Trust,and recordation of the Apartment Parcel Deed of Trust, (i) the Property shall secure, in addition to the Loans and the LC Facility, the Apartment Loan, and(ii) the Apartment Parcel shall secure, in addition to the Apartment Loan, the Loans and the LC Facility. In addition, simultaneous closing on the ApartmentLoan shall be a condition to closing on the Loans and the LC Facility.4.7 Deposit Relationship. As a condition of the Loans and the LC Facility, the Borrower shall establish its primary operating account and all escrowaccounts hereunder with the Lender and shall 11maintain such accounts with the Lender throughout the term of the Loans and the LC Facility. In addition, the Borrower and/or Guarantor and/or any relatedentities shall maintain an aggregate minimum monthly average aggregate deposit balance with the Lender of ten percent (10%) of the combined outstandingprincipal balances of the Loans and the Cross-Defaulted Loan, tested quarterly, with the first quarterly test period commencing on April 1, 2013 and tested atJune 30, 2013. Such deposits shall be held in demand deposits or money market accounts. If at any time under any of the Loan Documents the Lender iscollecting deposits for the payment of insurance premiums and/or real estate taxes, the amount(s) on deposit, to the extent unapplied as of the date of anysuch semi-annual test, shall be counted toward the foregoing deposit balance requirements. The foregoing deposit balance requirement is in addition to anydeposit balance requirement under the terms of the loan documents for any other loan or loans by the Lender to the Borrower, the Guarantor or any affiliate(s)of the Borrower or the Guarantor. The failure to comply with the foregoing deposit balance requirements shall not constitute a default under the Loans or theLC Facility; however, interest shall accrue on all amounts outstanding under the Loans and the LC Facility at one-quarter of one percent (0.25%) plus the rateof interest then payable under the Notes (and the Interest Rate Floor shall also increase by one-quarter of one percent (0.25%)) from the date of such failureuntil such time as the deposit balance requirement is satisfied at the next quarterly test.4.8. Lot Sales Requirement. (a) As a condition of the Loans and the LC Facility, the Borrower shall diligently pursue Development of the TownhouseLots and Construction and sale of the Townhouse Units thereon. In addition, the Borrower (i) shall enter into and close under sales contracts to third partieson the following number of Townhouse Lots with completed Townhouse Units thereon, (ii) resulting in the cumulative curtailments of the DevelopmentLoan set forth below, (iii) by each Milestone Date set forth below (the “Sales and Curtailment Requirement”): Number of Lots(Cumulative) CumulativeCurtailments ofDevelopment Loan RemainingDevelopmentLoan Balance Lots Remaining asCollateral Milestone Date5 $950,000 $4,350,000 31 December 31, 201311 $2,090,000 $3,210,000 25 March 31, 201418 $3,420,000 $1,880,000 18 June 30, 201428 $5,320,000 ($20,000.00) 8 September 30, 2014(b) Such sales contracts shall be acceptable to the Lender in all respects, provided that the Lender shall not unreasonably withhold its approval of anysales contract for a Townhouse Lot with a completed Townhouse Unit that will result in a payment against principal under the Development Loan from salesproceeds of at least One Hundred Ninety Thousand and No/100 Dollars ($190,000.00) per Townhouse Unit. 12(c) Failure of the Borrower to comply with the Sales and Curtailment Requirement shall, at the Lender’s option, constitute an Event of Default underthe Loan Documents; provided, however, that the Lender agrees that it will not elect to call an Event of Default if the Borrower pays to the Lender, by theapplicable Milestone Date, the amount necessary for the required Cumulative Curtailment of the Development Loan, as set forth in the foregoing chart on thesame line as for that Milestone Date, to be satisfied as of that Milestone Date (the “Substitute Curtailment Payment”). Payment of the Substitute CurtailmentPayment shall not, however, entitle the Borrower to the release of any Lots from the lien of the Deed of Trust. No Lots or Units shall be released exceptpursuant to settlement on a bona fide sale to a third party pursuant to Section 4.9 below.(d) The Borrower shall provide to the Lender marketing and sales reports on a monthly basis setting forth the status of marketing, sales contracts andclosings or settlements in such detail as the Lender may reasonably require.4.9 Release Provisions. The Deed of Trust shall contain the following provision for release of Lots and/or Units from the lien thereof:“Provided that the Grantor requests the release of one of the Lots and/or Units from the lien of this Deed of Trust prior to the repayment in full of theSecured Indebtedness, and provided that the sales contract with respect to such Lot and/or Unit is in the form approved by the Beneficiary and at a minimumprice set forth in the Loan Agreement, or if not set forth therein then otherwise satisfactory to the Beneficiary in its sole discretion, then the Beneficiary agreesto release the lien of this Deed of Trust with respect to any one of the Lots and/or Units, upon Grantor’s written request, upon the following terms andconditions: (a)With respect to a Lot for which advances have been made only from the Development Loan, payment of a Release Payment for a Townhouse Lotequal to One Hundred Ninety Thousand and No/100 Dollars ($190,000.00) for each of the first twenty-eight (28) Townhouse Lots released.Single Family Lots shall not be released if advances have been made with respect thereto only from the Development Loan. (b)With respect to a Lot upon which improvements have been constructed, payment of a Release Payment equal to (i) in the case of a TownhouseLot, for each of the first twenty-eight (28) Townhouse Lots and Units released, the sum of One Hundred Ninety Thousand and No/100 Dollars($190,000.00) plus one hundred percent (100%) of the funds advanced under the Construction Loan for the Townhouse Unit constructedthereon, and (ii) in the case of a Single Family Lot and Unit, one hundred percent (100%) of the funds advanced under the Construction Loan forthe Single Family Unit constructed thereon.The Release Payment paid under this Section (b) will be applied by the Lender first to the costs advanced from the Construction Loan forConstruction of the Unit and the remainder will be applied to the outstanding principal balance of the Development Loan. 13 (c)Following the release of the twenty-eighth (28) Townhouse Lot, the Release Payment for each Townhouse Lot and Townhouse Unit remainingencumbered by this Deed of Trust shall be the greater of one hundred percent (100%) of the Net Settlement Proceeds (hereinafter defined) or anamount calculated as follows: (i) $190,000.00 per Townhouse Unit plus (ii) 100% of the funds advanced under the Construction Loan for theTownhouse Unit constructed thereon. The $190,000.00 per Townhouse Unit shall be escrowed with the Beneficiary as cash collateral for theSecured Indebtedness until the escrow account (the “LC Escrow”) equals 100% of the total amount of any Letters of Credit issued by theBeneficiary pursuant to the LC Facility set forth in the Loan Agreement. Amounts in the LC Escrow shall be returned to the Grantor from time totime to the extent that the amount in the LC Escrow exceeds the aggregate amount of all Letters of Credits that remain outstanding. The portionof the Release Payment representing the funds advanced under the Construction Loan for the applicable Townhouse Unit shall be applied toreduce the Construction Loan balance; any balance remaining may, at the election of the Beneficiary in its sole discretion, be applied to the LCEscrow or delivered to the Grantor. “Net Settlement Proceeds” means the greater of (x) ninety-four percent (94%) of the gross sales price of theLot and/or Unit, or (y) the gross sales price of the Lot and/or Unit less customary and usual settlement charges and real estate commissionsapproved by the Beneficiary, without payment of any sums to the Grantor or any person or entity affiliated with the Grantor. (d)No Event of Default shall then exist and be continuing; (e)The Grantor pays all fees, costs, charges and expenses (including without limitation reasonable attorneys’ fees) relating to the preparation,execution and recordation of any document required in connection with any such partial release; and (f)The Grantor pays a fee in the amount of One Hundred and No/100 Dollars ($100.00) for processing the request for release (“Processing Fee”);provided, however, that the Processing Fee will be waived in the event the purchaser under the sales contract acquires the Lot and/or Unit usingEagleBank as its mortgage lender for the purchase money of the Lot and/or Unit.Notwithstanding the foregoing, no release price shall be payable for the release of streets or roadways, or storm water maintenance or other public facilities,that are to be dedicated to Montgomery County, Maryland or other governmental entities for public maintenance, provided the same are in accordance with asite plan that shall have been approved by the Beneficiary.”4.10 Intercreditor Agreement. It is understood that, contemporaneously herewith, the Borrower has borrowed Two Million Eighty Thousand andNo/100 Dollars ($2,080,000.00) (the “Subordinate Loan”) from Eagle Commercial Ventures, LLC (“Subordinated Lender”). As a condition of closing theLoan, Subordinated Lender shall enter into a Subordination and Standstill Agreement with the Lender (the “Intercreditor Agreement”), in form and substancesatisfactory to the Lender in all respects, pursuant to which Subordinated Lender shall subordinate all of its rights in and to the Subordinate Loan to theLender’s rights, remedies and security under the Loan Documents. 14th4.11 Home Owners Association. In the event the Borrower intends to establish a home owners association for the Property, the organizational andgoverning documents, and all rules and regulations related thereto, shall be subject to the Lender’s prior written approval.SECTION FIVEPAYMENTS, COMPUTATIONS, FEES, CHARGES AND PROTECTIVE ADVANCES5.1 Payments. All payments due with respect to this Agreement or the Loans or the LC Facility shall be made in immediately available funds to theLender at such place as designated by the Lender from time to time. The Lender is authorized, but shall be under no obligation, to charge any deposit accountmaintained by the Borrower with the Lender or any affiliate of the Lender for any payments due to the Lender with respect to this Agreement or the Loans orthe LC Facility. Payments shall be applied, at Lender’s sole discretion: (i) first, to payment of accrued and unpaid interest, if any; (ii) second, to payment ofany principal then due, if any; (iii) third, to late charges, if any; (iv) fourth, to reasonable attorneys’ fees and costs of collection; and (v) fifth, to reduce theoutstanding principal balance of the Notes until such principal shall have been fully repaid. All payments hereunder shall be made without offset, demandcounterclaim, deduction, abatement, defense, or recoupment, each of which the Borrower hereby waives.5.2 Late Charges. If any payment due under any of the Notes is not made within ten (10) days of its due date, the Borrower shall pay to the Lender upondemand (which may be in the form of the usual monthly billing or invoice) a late charge equal to five percent (5%) of the amount of such payment.5.3. Default Rate. After an Event of Default (hereinafter defined), the interest which accrues on the Notes shall be increased to the Default Rate (asdefined in the Notes).5.4 Computations. Interest and fees on the Loans shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed.5.5 Prepayment. The Borrower may prepay any of the Notes in whole or in part without premium or penalty at any time upon ten (10) days prior writtennotice to the Lender. Partial prepayments shall be applied to installments of principal in their inverse order of maturity, if applicable. Amounts prepaid underthe Development Loan Note and the LC Note may not be re-borrowed; amounts prepaid under the Construction Loan Note may be re-borrowed in accordancewith the terms and conditions of this Agreement.5.6 Indebtedness. As used in this Agreement, the term “Indebtedness” means all present and future indebtedness of the Borrower to the Lender arisingout of or in connection with the Notes or any of the other Loan Documents. 15SECTION SIXCONDITIONS6.1 Conditions Precedent to Closing. In addition to any other conditions stated in this Agreement, the following conditions must be satisfied prior toLender closing on the Loans and the LC Facility.(a) Loan Documents. Receipt by Lender of appropriately completed and duly executed originals of this Agreement, the Notes, the Guaranty, theDeed of Trust, the Leases Assignment, the Account Assignment, the Contracts Assignment, the Documents Assignment, the Consents, the EnvironmentalIndemnity, UCC-1 Financing Statements and Intercreditor Agreement, all as Lender may require (collectively, together with any other documents executedand delivered in connection with the Indebtedness, the “Loan Documents”).(b) Organizational Documents. The Borrower and each entity comprising the Borrower shall supply to the Lender, to the extent it has notpreviously done so in any prior transaction with the Lender: (i) a currently certified copy of its Articles of Organization and all amendments thereto;(ii) evidence satisfactory to the Lender and its counsel that it is in good standing in the jurisdiction where organized and qualified to do business in everyjurisdiction in which the nature of its businesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due execution anddelivery of the Loan Documents to which it is a party; and (iv) certified copies of its Operating Agreement and all amendments thereto. The Articles ofOrganization and the Operating Agreement of Borrower and each entity comprising the Borrower shall not be amended, changed or modified in any respectwithout prior written consent of the Lender. In addition, the Guarantor shall supply, to the extent it has not previously done so in any prior transaction withthe Lender: (i) a currently certified copy of its Articles of Incorporation and all amendments thereto; (ii) evidence satisfactory to Lender and its counsel that itis in good standing in the jurisdiction where organized and qualified to do business in every jurisdiction in which the nature of its businesses or its propertiesmakes such qualification necessary; (iii) resolutions authorizing the due execution and delivery of the Loan Documents to which it is a party and a certificateof incumbency; and (iv) certified copies of its By-Laws and all amendments thereto. The Articles of Incorporation and the Bylaws of the Guarantor shall notbe amended, changed or modified in any respect without the prior written consent of the Lender; provided, however, that on the condition that the Lender isgiven thirty (30) days advance written notice, the Lender hereby consents to the Guarantor’s change in corporate domicile from Delaware to Virginia and allamendments to its organizational documents as are reasonably required to effect such change in domicile subsequent to the closing of the Loan; providedfurther that UCC-1 financing statements shall be filed in the changed domicile at the cost and expense of the Borrower.(c) Opinion. Receipt by the Lender of the opinion(s) of the counsel for Borrower and the Guarantor, in form and content satisfactory to theLender, in its sole, but reasonable, discretion. 16(d) Insurance. Receipt by the Lender of certificate(s) of insurance to evidence a fully paid policy or policies of comprehensive public liabilityinsurance naming Lender as an additional insured thereunder in an amount not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregatewith not less than One Million and No/100 Dollars ($1,000.000.00) per occurrence; in any event, the amount of all insurance shall be sufficient to preventany co-insurance contribution on any loss, with each policy providing for a thirty (30) day prior written notice of cancellation, amendment or alteration.(e) Operating Account. The Borrower shall have established its primary operating account with the Lender.(f) Financing Statements. The financing statements necessary to perfect the Lender’s security interest in the personal property subject to the Deedof Trust, and in any other collateral requiring the filing of a financing statement for perfection of a lien thereon, shall be duly filed in all appropriate officesand jurisdictions, all other financing statements covering any of such personal property shall be terminated or the Lender shall be reasonably satisfied thatsuch terminations are forthcoming, and filing and recording receipts evidencing such filings and terminations shall be delivered to Lender, all in form andsubstance satisfactory to the Lender.(g) Property Documents. The Lender shall have received and approved in its sole discretion, the following:(1) Appraisals. An appraisal of the Property, prepared by an appraiser acceptable to the Lender, in form and content acceptable to theLender, conforming to all regulatory and internal appraisal guidelines applicable to or established by the Lender, in its sole, absolute, nonreviewablediscretion, reflecting a “when developed” discounted value satisfactory to the Lender (the “Appraisal”);(2) Title Insurance. A commitment for title insurance (the “Title Commitment”) insuring the first priority lien of the Deed of Trust in theaggregate amount of the Notes and the Apartment Loan, containing no exceptions unacceptable to the Lender, issued in the name of the Lender by atitle company acceptable to the Lender and in an amount equal to the aggregate principal amount of the Notes. The Title Commitment and the titlepolicy issued pursuant thereto (the “Title Policy”) shall reflect that all requirements for issuance of the Title Policy have been satisfied, and shallcontain such other endorsements or coverages as the Lender may require.(3) Survey. A current survey and legal description of the Property and the Apartment Parcel satisfactory to the Lender from a registeredland surveyor of the State of Maryland, which survey shall show all easements, rights of way and other matters of record, shall locate all existingimprovements on the Property and the Apartment Parcel, shall contain metes 17and bounds descriptions of each applicable constituent portion of the Property acceptable to the Lender and its counsel, shall generally show a state offacts acceptable to the Lender, and shall contain a surveyor’s certificate satisfactory to the Lender.(4) Subdivision Plat. Approval by the Lender and its construction consultant of the form of Record Plat to be recorded.(5) Development Approvals. Copies of the certified site plan for the Property showing, without limitation, evidence satisfactory to theLender that (i) the Property can be subdivided into the individual Lots for construction of the Units thereon subject only to normal ministerialgovernmental processes, and (ii) the Property can be developed and all Units can be constructed without any requirement for development of theApartment Parcel.(6) Development and Construction Budgets. Except with respect to the Preliminary Soft Costs, final budget for the Development and finalConstruction budget for the Property which shall have been reviewed and approved by the Lender in its sole discretion and by the Lender’sDevelopment and construction consultant (the “Lender’s Inspector”). It is understood that the Development budget may be a combined budget fordevelopment work on the Apartment Parcel, in which event the Lender will allocate funding under the Development Loan and the Apartment Loanbased upon percentage of work completed as determined by the Lender’s Inspector.(7) Development Documents. The Plans and Specifications, Development Schedule and any and all other Development documentsrequested by the Lender and/or the Lender’s Inspector, which shall have been reviewed and approved by the Lender in its sole discretion and by theLender’s Inspector, except with respect to the Preliminary Soft Costs.(8) Flood Hazard. Evidence that no part of the Property or the Apartment Parcel is located in a special flood hazard area.(9) Public Utilities. Evidence to the effect that sanitary sewer, water, electric, gas, telephone and other public utilities are available andadequate to serve the Property and the Apartment Parcel.(10) Licenses and Permits. Copies of all licenses and permits in connection with the Property and the Apartment Parcel, including withoutlimitation licenses, permits, proffers and other conditions to final subdivision and site plan approval for the Property and the Apartment Parcel. 18(11) Consultant’s Review. Satisfactory review and analysis by the Lender’s construction consultant of the Development and Constructionplans, documents and budgets.(12) Zoning. Receipt by the Lender of a zoning endorsement to the Title Policy acceptable to the Lender or such other written evidence asis acceptable to the Lender that the Property and the Apartment Parcel are zoned consistent with the uses contemplated beyond any possibility ofappeal and can be developed as proposed as a matter of right, and to the effect, further, that there are no pending proceedings, either administrative,legislative or judicial, which would in any manner adversely affect the status of the zoning with respect to the Property and the Apartment Parcel or anypart thereof.(13) Marketing Report. Receipt and satisfactory review and analysis by the Lender of a marketing report.(h) No Default. No event shall have occurred and be continuing that constitutes an Event of Default (as defined below).(i) Representations. All representations and warranties contained in this Agreement shall be true and correct in every material respect as of thedate of closing of the Loans.(j) Satisfactory Documents. All documents delivered pursuant to this Agreement must be in form and substance satisfactory to the Lender and itscounsel and all legal matters incident to this Agreement must be satisfactory to Lender’s counsel.(k) Identification. As required by federal regulation, closing the Loans is contingent upon satisfactory verification of identity of the signatoriesand verification that none of the Borrower or the Guarantor or any signers is restricted from conducting business in the United States.6.2 Conditions Precedent to Advances of Development Loan. In addition to any other conditions stated in this Agreement, the following conditionsrelated to the Development must be satisfied prior to any disbursements under the Development Loan except for the Preliminary Soft Costs and all of thefollowing matters shall have been approved by the Lender.(a) Permits. Copies of any and all building and similar permits required in connection with the Development, or such portion thereof for whichadvances are requested, together with such evidence as the Lender may require to the effect that all fees for such permits have been paid. Satisfactoryevidence shall be submitted to the Lender that all governmental approvals necessary for the Development, or such portion thereof for which advances arerequested, have been obtained. The Lender shall also receive satisfactory evidence that all applicable safety, ecological and environmental laws and anyother codes or regulations affecting the Development and/or proposed use of the Property have been complied with. 19(b) Plans and Specifications. Two (2) sets of complete copies of the final Plans and Specifications of the Development, which Plans andSpecifications shall be satisfactory to the Lender in all respects. The Lender’s review of the Plans and Specifications is solely for the benefit of the Lender,and the Lender’s approval thereof shall not be deemed in any respect to be a representation or warranty, expressed or implied, that the Development will besound, have a value of any particular magnitude or otherwise satisfy a particular standard. Prior to any advances for hard costs, the Borrower shall furnish theLender with copies of the Montgomery County-approved stamped Plans, together with such evidence as the Lender may require to the effect that such Plansand Specifications have been approved by all governmental and quasi-governmental authorities having or claiming jurisdiction, and together with a finalDevelopment Budget which must be satisfactory to the Lender in its discretion.(c) Trade Payment Breakdown. A breakdown of total development costs, which shall include a draw schedule (the “Development Budget”)containing reasonable details of amounts anticipated to be payable for each category of work to be performed and materials to be supplied in connection withthe Development, and a projected schedule for the progress of the Development, all in such form and containing such details as the Lender shall require. Anychange orders shall be subject to the Lender’s prior approval. No hard costs shall be advanced under the Development Loan until such time as theDevelopment Budget has been approved by the Lender in its sole discretion. The Borrower may, from time to time, request reallocation of amounts in theDevelopment Budget based upon such reasonable supporting documentation justifying such reallocation as may be approved by the Lender; any suchreallocation shall be subject to the Lender’s approval in its sole discretion.(d) Development Schedule. A projected Schedule (“Development Schedule”) for the progress of the Development of the Property and aprojection of cash flow, each in such form and containing such details as the Lender shall require. The Borrower shall be required to diligently pursue andproceed with the Development in accordance with the Development Schedule to completion. The record plat creating each of the Lots as a separatesubdivided lot (the “Record Plat for Lots”) must be recorded among the Land Records of Montgomery County, Maryland by July 1, 2013. Development ofthe Property must be complete by December 31, 2013. The Development Schedule shall support completion of Development in accordance with theforegoing. Failure of the Borrower to meet the requirements of the Development Schedule for completion of Development shall constitute an Event of Defaultunder this Agreement.(e) General Contractor. All contracts for Development shall be subject to the Lender’s approval. Each Development contract shall be assigned tothe Lender effective on a default under any of the Loan Documents. Each Development contractor shall consent to such assignment and agree, in the event ofany such default, to continue performance of the contract for the Lender, if the Lender so requests. Comstock Homes of Washington, L.C., an affiliate of theGuarantor, is hereby approved as the general contractor for Development. Prior to any advances for Development costs, the Borrower shall furnish the Lenderwith a copy of the contractor’s license for that portion of the Development. The Borrower shall also furnish the Lender with copies of licenses for all majorsubcontractors. 20(f) Architect’s and Engineer’s Certificate. The architect and the engineer for the Development shall be subject to the Lender’s approval. Inaddition, the contracts with the architect and the engineer shall be subject to the Lender’s approval. A certificate from the architect and/or project engineerwill be required to the effect that the Development, if completed in accordance with the Plans and Specifications, will comply with all federal, state, Countyand local laws, statutes, ordinances, codes, regulations, rules or other laws applicable to the Development (“Applicable Laws”). Prior to any advances forDevelopment costs, the Borrower shall furnish the Lender with a copy of the engineer’s license and the architect’s license.(g) Lender’s Development Consultant. All draw requests shall be submitted to the Lender and the Lender’s Inspector for review and approval.The Borrower shall be responsible for payment of all of the Lender’s Inspector’s fees.6.3 Provisions Governing Disbursements of Development Loan. Disbursements of the Development Loan shall be governed by the followingprovisions:(a) The Development shall be performed by the Borrower in strict accordance with all applicable (whether present or future) laws, ordinances,codes, rules, regulations, requirements and orders of any governmental or regulatory authority having or claiming jurisdiction. The Development shall be instrict accordance with all applicable use or other restrictions and the provisions of any prior declarations, covenants, conditions, restrictions and zoningordinances and regulations.(b) The Borrower shall have submitted to the Lender and the Lender’s Inspector such information as may be requested by the Lender or theLender’s Inspector to verify the Development costs which are to be incurred in connection with the Development. The Lender shall not be obligated toauthorize disbursement of Development Loan proceeds with respect to the Development for an amount in excess of the Development costs to be incurred inconnection therewith as verified by the Lender or the Lender’s Inspector pursuant to the provisions of the preceding sentence. The funding of each drawrequest is subject to an inspection and approval by the Lender’s Inspector.(c) The Development Loan proceeds will be advanced in installments as the Development progresses in accordance with the terms of thisAgreement to finance the Development in accordance with the Plans and Specifications, but no more often than once monthly, provided that the Lender issatisfied that the amounts available under the Development Loan will be sufficient to complete the work and pay or provide for all reasonably anticipatedDevelopment costs through the required Development completion date under the Development Schedule. The Borrower may submit requests fordisbursement for clearing and grading prior to recordation of the Record Plat for Lots, but the Lender 21shall not be obligated to fund Development Loan proceeds for any other work until the Record Plat for Lots is recorded. In the event the Lender determinesthat the amounts available under the Development Loan, together with any additional cash provided by the Borrower to the Lender, if any, is insufficient tocomplete the Development in such manner as the Lender may require, the Borrower shall provide such funds necessary to complete the Development. Exceptfor advances for materials and supplies to be delivered to the Property, as to which no retainage will be required, advances of the Development Loan shall besubject to withholding of retainage in the amount of ten percent (10%) of direct Development costs approved by the Lender or the Lender’s Inspector, and atthe Lender’s discretion of labor and materials brought into the Development and eligible for payment on a trade payable basis.(d) Advances of the Development Loan shall be conditioned upon the Lender’s receipt of (i) written certification by parties approved by theLender that the work which is the basis of the requested advance was completed in accordance with the approved Plans and Specifications and within the costestimates approved by the Lender (or such adjustments of cost estimates of line items as shall be required and approved by the Lender, provided thatsufficient funds to complete the Development will be available under such adjusted estimates), to the satisfaction of the Lender, and (ii) evidence that at thattime all necessary certificates required to be obtained from any board, agency or department (government or otherwise) have been obtained. All documentsrequired to be submitted to the Lender as a condition of each disbursement shall be on standard AIA forms and shall be furnished to the Lender at theLender’s address set forth in this Agreement. The Lender shall have at least ten (10) business days after receipt of the foregoing documentation prior tofunding an approved advance.(e) The Lender shall have received a notice of title continuation or an endorsement to the title insurance policy with respect to the Propertytheretofore delivered to the Lender, showing that since the last preceding advance, there has been no change in the status of title and no other exception nottheretofore approved by the Lender, which endorsement shall have the effect of advancing the effective date of the policy to the date of the advance thenbeing made and increasing the coverage of the policy by an amount equal to the advance then being made, if the policy does not by its terms provideautomatically for such an increase.(f) Before making the first advance of Development Loan Proceeds, the Borrower shall have provided to the Lender satisfactory documentaryevidence that the general contractor has obtained a Basic Business License from the State of Maryland and such license is in effect.(g) Before making any advance of Development Loan proceeds, the Lender may require the Borrower to obtain from any contractor ormaterialmen it may engage in connection with the Development, acknowledgements of payment and releases of liens and rights to claim liens, if applicable,down to the date of the last preceding advance and concurrently with the final advance. All such acknowledgements and releases shall be in form andsubstance satisfactory to the Lender. 22(h) The Lender shall not be obligated to make the final advance of Development Loan proceeds hereunder, which shall include the retainagedescribed above, unless (i) the Lender’s Inspector has certified to the Lender on standard AIA forms that the work is complete; (ii) the Lender has receivedevidence satisfactory to it that all work requiring inspection by governmental or regulatory authorities having or claiming jurisdiction has been dulyinspected and approved by such authorities and by any rating or inspection organization, bureau, association, or office having or claiming jurisdiction;(iii) that completion of the Development has occurred free and clear of all mechanics’ or materialmen’s liens and any bills or claims for labor, materials andservices in connection with the completion of the Development; and (iv) certificates from the Borrower’s architect, engineer and/or contractor, and, ifrequired, from the Lender’s Inspector, certifying that the Development has been completed in accordance with, and as completed comply with, the Plans andSpecifications and all laws and governmental requirements. All fees and costs of the Lender’s Inspector shall be paid by the Borrower.(i) The Lender shall not be obligated to make any advances of Development Loan proceeds hereunder unless, in the reasonable judgment of theLender, all work completed at the time of the application for advance has been performed in a good and workmanlike manner, and all materials and fixturesusually furnished and installed at that stage of the development have been furnished and installed, and no default which has not been cured has occurredunder this Agreement or any of the documents evidencing, securing or guaranteeing the Development Loan.6.4 Conditions Precedent to Advances of Construction Loan. In addition to any other conditions stated in this Agreement, the following conditionsrelated to Construction of Units must be satisfied prior to any disbursements under the Construction Loan and all of the following matters shall have beenapproved by the Lender.(a) Permits. Copies of any and all building and similar permits required in connection with the Construction for each Single Family Lot orTownhouse Lot upon which a Unit is to be constructed, together with such evidence as the Lender may require to the effect that all fees for such permits havebeen paid. Satisfactory evidence shall be submitted to the Lender that all governmental approvals necessary for the Construction have been obtained. TheLender shall also receive satisfactory evidence that all applicable safety, ecological and environmental laws and any other codes or regulations affecting theConstruction and/or proposed use of the Property have been complied with.(b) Division of Lots. Each Lot shall have been separately subdivided into a record lot that may lawfully be separately conveyed pursuant to therecorded Record Plat for the Lots, which shall be recorded following the recorded Record Plat to separate the Property and the Apartment Parcel intoindividual subdivided lots of record.(c) Plans and Specifications. Two (2) sets of complete copies of the final Plans and Specifications for the Construction, which Plans andSpecifications shall be satisfactory to the Lender in all respects. The Lender’s review of the Plans and Specifications is solely for the benefit of the Lender,and the Lender’s approval thereof shall not be deemed in any respect to be a representation or warranty, expressed or implied, that the Construction will besound, have a value of any particular magnitude or otherwise satisfy a particular standard. Prior to any advances for hard costs, the Borrower shall furnish 23the Lender with copies of the County-approved stamped Plans, together with such evidence as the Lender may require to the effect that such Plans andSpecifications have been approved by all governmental and quasi-governmental authorities having or claiming jurisdiction, and together with a finalConstruction Budget which must be satisfactory to the Lender in its discretion.(d) Trade Payment Breakdown. A breakdown of total development costs, which shall include a draw schedule (the “Construction Budget”)containing reasonable details of amounts anticipated to be payable for each category of work to be performed and materials to be supplied in connection withthe Construction, and a projected schedule for the progress of the Construction, all in such form and containing such details as the Lender shall require. Theparties shall have agreed on the Unit Costs Budget and have attached the approved Unit Costs Budget to this Agreement as Exhibit B. Any change ordersshall be subject to the Lender’s prior approval. No hard costs shall be advanced under the Construction Loan until such time as the Construction Budget hasbeen approved by the Lender in its sole discretion. The Borrower may, from time to time, request reallocation of amounts in the Construction Budget basedupon such reasonable supporting documentation justifying such reallocation as may be approved by the Lender; any such reallocation shall be subject to theLender’s approval in its sole discretion.(e) Construction Schedule. A projected Schedule (“Construction Schedule”) for the progress of Construction of Units and a projection of cashflow, each in such form and containing such details as the Lender shall require. The Borrower shall be required to diligently pursue and proceed withConstruction of Units in accordance with the Construction Schedule to completion. No more than ten (10) Townhouse Units and not more than four (4) Sticks(hereinafter defined) may be under Construction at any one time. Any Unit as to which Construction has commenced within the Loan term must be completedprior to Maturity, and commence of construction of any Units within four (4) months prior to Maturity shall be prohibited. The Construction Schedule shallbe consistent with the foregoing. Failure of the Borrower to meet the requirements of the Construction Schedule shall constitute an Event of Default underthis Agreement.(f) General Contractor. All contracts for Construction of Units shall be subject to the Lender’s approval. The Construction contract shall beassigned to the Lender effective on a default under any of the Loan Documents. The general contractor shall consent to such assignment and agree, in theevent of any such default, to continue performance of the contract for the Lender, if the Lender so requests. Comstock Homes of Washington, L.C., an affiliateof the Guarantor, is hereby approved as the general contractor for Construction of Units. Prior to any advances for Construction costs for any Unit, theBorrower shall furnish the Lender with a copy of the contractor’s license for that portion of the Construction. The Borrower shall also furnish the Lender withcopies of licenses for all major subcontractors.(g) Architect’s and Engineer’s Certificate. The architect and the engineer for the Construction shall be subject to the Lender’s approval. Inaddition, the contracts with the architect and 24the engineer shall be subject to the Lender’s approval. A certificate from the architect and/or project engineer will be required to the effect that theConstruction of the Units being built, if completed in accordance with the Plans and Specifications, will comply with all federal, state, county, and local laws,statutes, ordinances, codes, regulations, rules or other laws applicable to the Construction of the applicable Unit (“Applicable Laws”). Prior to any advancesfor Construction costs, the Borrower shall furnish the Lender with a copy of the engineer’s license and the architect’s license.(h) Lender’s Construction Consultant. The Plans and Specifications, Construction Budget, Construction Schedule and any and all otherConstruction documents requested by the Lender and/or its Construction consultant (the “Lender’s Inspector”), shall be subject to approval by the Lenderand the Lender’s Inspector. All draw requests shall be submitted to the Lender and the Lender’s Inspector for review and approval. The Borrower shall beresponsible for payment of all of the Lender’s Inspector’s fees.6.5 Provisions Governing Disbursements of Construction Loan. Disbursements of the Construction Loan shall be governed by the followingprovisions:(a) The Construction of all Units shall be performed by the Borrower in strict accordance with all applicable (whether present or future) laws,ordinances, codes, rules, regulations, requirements and orders of any governmental or regulatory authority having or claiming jurisdiction. Construction ofUnits shall be completed in a manner so as not to encroach upon any easement or right-of-way, or upon the land of others. Construction of each Unit shall bewholly within all applicable building restriction lines and set-backs, however established, and shall be in strict accordance with all applicable use or otherrestrictions and the provisions of any prior declarations, covenants, conditions, restrictions and zoning ordinances and regulations.(b) The Borrower shall have submitted to the Lender and the Lender’s Inspector such information as may be requested by the Lender or theLender’s Inspector to verify the Construction costs which are to be incurred in connection with Construction. The Lender shall not be obligated to authorizedisbursement of Construction Loan proceeds with respect to Construction of any Unit for an amount in excess of the Construction costs to be incurred inconnection therewith as verified by the Lender or the Lender’s Inspector pursuant to the provisions of the preceding sentence. The funding of each drawrequest is subject to an inspection and approval by the Lender’s Inspector.(c) The Construction Loan proceeds will be advanced in installments as the Construction progresses in accordance with the terms of thisAgreement to finance the Construction of Units in accordance with the Plans and Specifications, but no more often than once monthly, provided that theLender is satisfied that the amounts available under the Construction Loan will be sufficient to complete the work and pay or provide for all reasonablyanticipated Construction costs through the required Construction completion date under the Construction Schedule. In the event the Lender determines thatthe amounts available under the Construction Loan, together with any additional cash provided by the Borrower to the Lender, if any, is insufficient tocomplete the Construction in such 25manner as the Lender may require, the Borrower shall provide such funds necessary to complete Construction. Advances shall be subject to withholding ofretainage in the amount of ten percent (10%) of direct Construction costs approved by the Lender or the Lender’s Inspector, and at the Lender’s discretion oflabor and materials brought into the Construction site and eligible for payment on a trade payable basis.(d) Each advance shall be conditioned upon the Lender’s receipt of (i) written certification by parties approved by the Lender that the workwhich is the basis of the requested advance was completed in accordance with the approved Plans and Specifications and within the cost estimates approvedby the Lender (or such adjustments of cost estimates of line items as shall be required and approved by the Lender, provided that sufficient funds to completethe Construction will be available under such adjusted estimates), to the satisfaction of the Lender, and (ii) that at that time all necessary certificates requiredto be obtained from any board, agency or department (government or otherwise) have been obtained. All documents required to be submitted to the Lender asa condition of each disbursement shall be on standard AIA forms and shall be furnished to the Lender at the Lender’s address set forth in this Agreement. TheLender shall have at least ten (10) business days after receipt of the foregoing documentation prior to funding an approved advance.(e) With respect to Townhouse Lots, at such time as the footings for the foundation of each “Stick” (hereinafter defined) have been installed, theLender shall have received a “wall check” or “foundation” survey of that stick that meets the Lender’s survey requirements and that shows that (i) all newconstruction is within the boundary lines of the applicable Townhouse Lot and is in compliance with all applicable setback, location and area requirementsof all applicable governmental approvals, and (ii) there is no change in condition which could adversely affect the applicable Unit. For purposes of thisAgreement, a “Stick” means a building containing contiguous Townhouse Units constructed on a single, shared foundation.(f) With respect to Single Family Lots, at such time as the footings for the foundation of the Unit have been installed, the Lender shall havereceived a “wall check” or “foundation” survey of that Unit that meets the Lender’s survey requirements and that shows that (i) all new construction is withinthe boundary lines of the applicable Single Family Lot and is in compliance with all applicable setback, location and area requirements of all applicablegovernmental approvals, and (ii) there is no change in condition which could adversely affect the applicable Unit.(g) The Lender shall have received a notice of title continuation or an endorsement to the title insurance policy with respect to the Propertytheretofore delivered to the Lender, showing that since the last preceding advance, there has been no change in the status of title and no other exception nottheretofore approved by the Lender, which endorsement shall have the effect of advancing the effective date of the policy to the date of the advance thenbeing made and increasing the coverage of the policy by an amount equal to the advance then being made, if the policy does not by its terms provideautomatically for such an increase. 26(h) Before making any advance of Construction Loan proceeds, the Lender may require the Borrower to obtain from any contractor ormaterialmen it may engage in connection with the Construction of any Unit, acknowledgements of payment and releases of liens and rights to claim liens, ifapplicable, down to the date of the last preceding advance and concurrently with the final advance. All such acknowledgements and releases shall be in formand substance satisfactory to the Lender.(i) No advances will be made for building materials or furnishings that have not yet been incorporated into the Unit(s) (“Stored Materials”)unless (a) the Borrower has good title to the Stored Materials and has furnished satisfactory evidence of such title to the Lender, (b) the Stored Materials arecomponents in a form ready for incorporation into the applicable Unit(s) and will be so incorporated within a period of forty-five (45) days from the date ofthe advance for the Stored Materials, (c) the Stored Materials are in the Borrower’s possession and are satisfactorily stored on the Property or at such otherlocation as the Lender may approve, in each case with adequate safeguards to prevent commingling with materials for other projects, (d) the Stored Materialsare protected and insured against loss, theft and damage in a manner and amount satisfactory to the Lender and the Lender has received Certificates ofInsurance reflecting Borrower as an additional insured and owner of the Stored Materials, (e) the Stored Materials have been paid for in full or will be paid forin full from the funds to be advanced, (f) the lender has or will have upon the payment for the Stored Materials from the advanced funds a perfected, firstpriority security interest in the Stored Materials, (g) all lien rights and claims of the supplier have been released or will be released upon payment with theadvanced funds, and (h) following the advance for the Stored Materials, the aggregate amount of advances for Stored Materials that have not yet beenincorporated into the Construction will not exceed Ten Thousand Dollars ($10,000.00) per Unit that is then under Construction.(j) The Lender shall not be obligated to make the final advance of Construction Loan proceeds hereunder with respect to any Unit, which shallinclude the retainage described above, unless (i) the Lender’s Inspector has certified to the Lender on standard AIA forms that the work is complete (exceptfor punch list items which the Lender may approve and for which Lender may retain 150% of the cost of correction) in accordance with the Plans andSpecifications; (ii) the Lender has received evidence satisfactory to it that all work requiring inspection by governmental or regulatory authorities having orclaiming jurisdiction has been duly inspected and approved by such authorities and by any rating or inspection organization, bureau, association, or officehaving or claiming jurisdiction; (iii) that completion of Construction of the Unit has occurred free and clear of all mechanics’ or materialmen’s liens and anybills or claims for labor, materials and services; (iv) certificates from the Borrower’s architect, engineer and/or contractor, and, if required, from the Lender’sInspector, certifying that Construction of the Unit has been completed in accordance with, and as completed comply with, the Plans and Specifications andall laws and governmental requirements; and (v) a certificate of occupancy or residential use permit shall have been validly issued by Montgomery County,Maryland to allow lawful residential occupancy of the completed Unit. All fees and costs of the Lender’s Inspector shall be paid by the Borrower. 27(k) The Lender shall not be obligated to make any advances of Construction Loan proceeds hereunder unless, in the reasonable judgment of theLender, all work completed at the time of the application for advance has been performed in a good and workmanlike manner, and all materials and fixturesusually furnished and installed at that stage of the development have been furnished and installed, and no default which has not been cured has occurredunder this Agreement or any of the documents evidencing, securing or guaranteeing the Construction Loan.(l) During default after expiration of any applicable cure period hereunder, the Lender, at its option, may make any and all advances, or any partthereof, directly to the general contractor or subcontractors against requisitions for payment under the general contractor’s contract or the respective contractsor subcontracts, as the case may be; the execution of this Agreement by the Borrower shall and does constitute an irrevocable direction and authorization toso advance funds, and such funds shall be added to the principal balance of the Construction Loan, shall bear interest as set forth in the Construction LoanNote and shall be secured by the Deed of Trust. All payments made pursuant to the foregoing shall be made within the scope of the respective contracts.SECTION SEVENREPRESENTATIONS AND WARRANTIESIn order to induce the Lender to extend credit to the Borrower, the Borrower and the Guarantor each make the following representations and warrantiesas to itself:7.1 Organization. The Borrower and each entity comprising the Borrower is a limited liability company duly organized, validly existing and in goodstanding under the laws of the Commonwealth of Virginia and is duly qualified as a foreign limited liability company and in good standing under the laws ofeach other jurisdiction in which such qualification is required. The Guarantor represents and warrants that it is a corporation duly organized, validly existingand in good standing under the laws of the State of Delaware and is duly qualified as a foreign corporation and in good standing under the laws of each otherjurisdiction in which such qualification is required.7.2 Execution and Delivery. The Borrower and each entity comprising the Borrower has the power, and has taken all of the necessary actions, toexecute and deliver and perform its obligations under the Loan Documents, and the Loan Documents, when executed and delivered, will be bindingobligations of each such entity enforceable in accordance with their respective terms.7.3 Power. Each of the Borrower and each entity comprising the Borrower has the power and authority to own its properties and to carry on its businessas now being conducted.7.4 Financial Statements. Al financial statements and information delivered to the Lender are correct and complete in all material respects and presentfairly the financial conditions, and reflect all known liabilities, contingent and otherwise, of the Borrower and the Guarantor as of the dates of such statementsand information, and since such dates no material adverse change in the assets, liabilities, financial condition, business or operations of the Borrower or theGuarantor has occurred. 287.5 Taxes. All tax returns and reports of the Borrower and the Guarantor required by law to be filed have been duly filed, and all taxes, assessments,other governmental charges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith inappropriate proceedings) upon the Borrower and/or the Guarantor and upon any of their respective properties, assets, income or franchises, that are due andpayable have been paid.7.6 Litigation. There is no action, suit or proceeding pending or, to the knowledge of the Borrower or the Guarantor, threatened against or affecting theBorrower or the Guarantor that, either in any case or in the aggregate, may result in any material adverse change in the business, properties or assets or in thecondition, financial or otherwise, of the Borrower or the Guarantor, or that may result in any material liability on the part of the Borrower or the Guarantorthat would materially and adversely affect the ability of the Borrower or the Guarantor to perform its and/or their obligations under the Loan Documents, orthat questions the validity of any of the Loan Documents or any action taken or to be taken in connection with the Loan Documents.7.7 No Breach. The execution and delivery of the Loan Documents, and compliance with the provisions of the Loan Documents, will not conflict withor violate any provisions of law or conflict with, result in a breach of, or constitute a default under, the organizational documents of the Borrower, or anyjudgment, order or decree binding on the Borrower, or any other agreements to which the Borrower is a party.7.8 No Defaults. To the best of the Borrower’s knowledge, the Borrower is not in default with respect to any debt, direct or indirect, upon or as to whichthe Borrower has any liability or obligation.7.9 Compliance. The Borrower is in compliance in all material respects with all applicable laws and regulations, including, without limitation, theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”).7.10 Approvals. No authorizations, approvals or consents of, and no filings and registrations with, any governmental or regulatory authority or agency,are necessary for the execution, delivery or performance of the Loan Documents by the Borrower.7.11 Title to Assets. The Borrower has good and marketable title to all of its assets, subject only to the liens and security interests permitted by thisAgreement.7.12 Use of Proceeds. The proceeds of the Loans and the LC Facility shall be used only for the purposes described in this Agreement. The proceeds ofthe Loans and the LC Facility shall not be used to purchase or carry any margin stock, as such term is define din Regulation U of the Board of Governors ofthe Federal Reserve System. 297.13 Vacant Status of Property and Apartment Parcel. Seneca Concrete, Inc., former tenant of a portion of the Property and/or the Apartment Parcel, hasvacated its leased premises, and the Property and the Apartment Parcel are vacant and free of any tenancy that would or might impair development thereof.SECTION EIGHTCOVENANTS OF BORROWER AND GUARANTORIn consideration of credit extended or to be extended by the Lender, the Borrower covenants and agrees as follows:8.1 Financial Information. The Borrower and the Guarantor shall each deliver to the Lender: (i) with respect to the Borrower, each year within ninety(90) days after the close of its fiscal year, financial statements prepared in accordance with standard accounting principles consistently applied, certified astrue and correct by an officer of each such entity; (ii) with respect to the Guarantor, each year within ninety (90) days after the close of its fiscal year, auditedfinancial statements; (iii) each year within thirty (30) days after filing, a copy of each such entity’s federal income tax return and all schedules thereto,provided that in the event of such extension such entity shall provide the Lender with a copy of the federal income tax return and all schedules thereto withinthirty (30) days of the filing of same with the Internal Revenue Services, and (iv) promptly upon the Lender’s request, such financial and other information asthe Lender reasonably may require from time to time. All financial statements shall be in such reasonable detail and shall be accompanied by such certificatesof the Borrower or the Guarantor, as applicable, as may reasonably be required by the Lender.8.2 Taxes. All tax returns and reports of the Borrower required by law to be filed have been duly filed, and all taxes, assessments, other governmentalcharges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith in appropriate proceedings)upon the Borrower and upon the Borrower’s properties, assets, income or franchises, that are due and payable, have been paid.8.3 Compliance with Laws. The Borrower shall comply with all applicable laws and regulations including, without limitation, ERISA.8.4 Maintain Existence. The Borrower and the Guarantor each shall maintain its existence in good standing, maintain and keep its properties in goodcondition (ordinary wear and tear excepted), maintain adequate insurance for all of its properties with financially sound and reputable insurers. The Borrowershall remain in the same line of business as it is on the date of this Agreement and shall not enter into any new lines of business without the prior writtenconsent of the Lender.8.5 Notices. As soon as it has actual knowledge, the Borrower shall notify the Lender of the institution or threat of any material litigation orcondemnation or administrative proceeding of any nature involving the Borrower. 308.6 Books and Records. The Borrower shall maintain complete and accurate books of account and records. The principal books of account and recordsshall be kept and maintained at 1886 Metro Center Drive, 4 Floor, Reston, VA 10190. The Borrower shall not remove such books of account and recordswithout giving the Lender at least thirty (30) days prior written notice. The Borrower, upon reasonable notice from the Lender, shall permit the Lender, or anyofficer, employee or agent designated by the Lender, to examine the books of account and records maintained by the Borrower, and agree that the Lender orsuch officer, employee or agent may audit and verify the books and records. The Borrower shall reimburse the Lender for any reasonable expenses incurred bythe Lender in connection with any such audits. All accounting records and financial reports furnished to the Lender by the Borrower and the Guarantorpursuant to this Agreement shall be maintained and prepared in accordance with GAAP.8.7 Liens. The Borrower shall not create, incur, assume or permit to exist any mortgage, deed of trust, assignment, pledge, lien, security interest, chargeor encumbrance, including, without limitation, the right of a vendor or under a conditional sale contract or the lessor under a capitalized lease (collectively,(“Liens”) of any kind or nature in or upon any of the asset of the Borrower except: (a)Liens created or deposits made that are incidental to the conduct of the business of the Borrower, that are not incurred in connection withany borrowing or the obtaining of any credit and that do not and will not interfere with the use by the Borrower of any of its assets in thenormal course of its business or materially impair the value of such assets for the purpose of such business; and (b)Liens securing the Indebtedness.8.8 Debt. Except as provided above in Section 8.7, without the prior written consent of the Lender, the Borrower shall not incur or permit to exist anydebt for borrowed funds, the deferred purchase price of goods or services or capitalized lease obligations, except for (a) trade debt incurred in the ordinarycourse of business, and (b) the Indebtedness.8.9 Contingent Liabilities. Without the prior written consent of the Lender, neither the Borrower nor the Guarantor shall guarantee, endorse, becomecontingently liable upon or assume the obligation of any person, or permit any such contingent liability to exist, except by the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinary course of business.8.10 Sale of Assets. Without the prior written consent of the Lender, the Borrower shall not sell, lease, assign or otherwise dispose of any of its assetsexcept for (a) sales in the ordinary course of business including sales of Lots and Units as approved by the Lender from time to time, (b) the disposition ofassets that are no longer needed or useful in its business, (c) assets which have been removed and replaced and (d) sale and conveyance of the ApartmentParcel following recordation of the Record Plat and payment in full of all principal, accrued interest and other charges due under the Apartment Loan. 31th8.11 Mergers and Acquisitions. Without the prior written consent of the Lender, the Borrower shall not merge or consolidate with, or acquire all orsubstantially all of the assets, stock, partnership interests or other ownership interests of, any other person.8.12 Loans and Advances. Without the prior written consent of the Lender, the Borrower shall not make any loan or advance to any affiliate, director,member, manager, officer or employee of the Borrower, or any other person, except for the creation of accounts receivable in the ordinary course of businesson terms that are no less favorable than would apply in an arms-length transaction.8.13 Subsidiaries and Joint Ventures. Without the prior written consent of the Lender, the Borrower shall not form any subsidiary, become a general orlimited partner in any partnership or become a party to a joint venture. If the Lender grants its consent to the formation or acquisition of a subsidiaryBorrower, such entity shall cause each subsidiary to perform and observe all of the covenants contained in this Agreement and the other Loan Documents.8.14 Affiliates. Without the prior written consent of the Lender, the Borrower shall not engage in business with any of its affiliates except in theordinary course of business and on terms that are no less favorable to the Borrower than would apply in an arm’s length transaction.8.15 Organization; Control and Management; Transfers. Until such time as the Loans and the LC Facility are fully repaid, there shall be no Transfer(hereinafter defined) of any interest in the Borrower, nor any change in the Control (hereinafter defined) or management of either the Borrower or theGuarantor, nor any Transfer of the Property except for sales of Lots and Units in accordance with the terms of the Loan Documents, without the Lender’s priorwritten consent. “Transfer” means any assignment, pledge, conveyance, sale, transfer, mortgage, encumbrance, grant of a security interest or other disposition,either directly or indirectly, in the aggregate of fifty percent (50%) or more of the beneficial ownership interests of an entity and the possession, directly orindirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ability to exercise voting power, bycontract or otherwise. “Controlled by” and “controlling” shall have the respective correlative meanings thereto.SECTION NINEDEFAULT AND REMEDIES9.1 Default. Each of the following shall constitute an “Event of Default” under this Agreement:(a) Failure to Pay. If: (i) the Borrower shall fail to pay any monthly payment required under the Development Loan Note or the ConstructionLoan Note (“Monthly Payments”) when due thereunder or (ii) the Borrower shall fail to pay any amount (other than the Monthly Payments) as and when dueunder the LC Note or any of the other Loan Documents; 32(b) Failure to Give Notices. If the Borrower fails to give the Lender any notice required by Section 8.5 of this Agreement within thirty (30) daysafter it has actual knowledge of the event giving rise to the obligation to give such notice.(c) Failure to Permit Inspections. If the Borrower refuses to permit the Lender to inspect its books and records in accordance with the provisionsof Section 8.6 or failure to permit the Lender to inspect the Property upon reasonable advance notice.(d) Failure to Record Record Plat. If the Record Plat is not recorded within ninety (90) days following closing the Loans and the LC Facility.(e) Failure to Observe Covenants. If the Borrower fails to perform or observe any non-monetary term, covenant, warranty or agreement containedin this Agreement or in the other Loan Documents for which no cure period or another cure period is provided, and such failure shall continue for a period ofthirty (30) days after written notice of such failure has been given to the Borrower by the Lender; provided, however, if such default is not in the payment ofany sum due to the Lender hereunder, or was not the subject of an Event of Default for which notice was previously provided, and provided the Borrower isdiligently pursuing the cure of such default , then the Borrower shall have an additional sixty (60) days within which to cure such default prior to the Lenderexercising any right or remedy available hereunder, or at law or in equity.(f) Defaults Under Loan Documents. If an Event of Default shall occur under any of the Notes or any other Loan Document and shall not be curedwithin any applicable grace period.(g) Breach of Representation. Discovery by the Lender that any representation or warranty made or deemed made by the Borrower in thisAgreement or in any other Loan Document or in any statement or representation made in any certificate, report or opinion delivered pursuant to thisAgreement or other Loan Document or in connection with any borrowing under this Agreement by the Borrower or the Guarantor or any member, manager,officer, agent, employee or director of the Borrower or the Guarantor, was materially untrue when made or deemed to be made.(h) Voluntary Bankruptcy. If the Borrower or the Guarantor makes an assignment for the benefit of creditors, files a petition in bankruptcy,petitions or applies to any tribunal for any receiver or any trustee of the Borrower or the Guarantor or any substantial part of the property of the Borrower orthe Guarantor, or commences any proceeding relating to the Borrower or the Guarantor under any reorganization, arrangement, composition, readjustment,liquidation or dissolution law or statute of any jurisdiction, whether in effect now or after this Agreement is executed.(i) Involuntary Bankruptcy. If, within sixty (60) days after the filing of a bankruptcy petition or the commencement of any proceeding againstthe Borrower or the Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar 33relief under any present or future statue, law or regulation, the proceeding shall not have been dismissed, or, if within sixty (60) days, after the appointment,without the consent or acquiescence of the Borrower or the Guarantor, of any trustee, receiver or liquidator of any Borrower or all or any substantial part ofthe properties of the Borrower or the Guarantor, the appointment shall not have been vacated.(j) Cross Default. If, as a result of default, any present or future obligations of the Borrower or the Guarantor or any affiliate of the Borrower or theGuarantor to the Lender or any other creditor, whether due to acceleration provisions or otherwise therein, are declared to be due and payable prior to theexpressed maturity of such obligations.(k) Cross Default to Particular Instruments: If an Event of Default by the applicable borrower shall occur under any of the following, as any of thefollowing may be amended, substituted or replaced from time to time: (i) the Apartment Loan, (ii) any loan documents evidencing and/or securing thatcertain loan from the Lender to New Hampshire Ave. Ventures, LLC (“NHA”) in the amount of $6,000,000.00, which is evidenced, among other things, by aRevolving Development Loan Promissory Note dated August 13, 2012 made by NHA to the order of the Lender; (iii) any loan documents evidencing and/orsecuring that certain loan from the Lender to NHA in the amount of $4,000,000.00, which is evidenced, among other things, by a Revolving ConstructionLoan Promissory Note dated August 13, 2012 made by NHA to the order of the Lender; (iv) any loan documents evidencing and/or securing that certain loanfrom the Lender to Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C., jointly and severally, in the amount of $9,960,000.00, which isevidenced, among other things, by a Deed of Trust Note dated May 30, 2012 made by those obligors to the order of the Lender; and (v) the Subordinate Loan.(l) Material Adverse Change. A material adverse change occurs in the financial or business condition of the Borrower or the Guarantor.(m) Judgment. If a judgment, attachment, garnishment or other process is entered against the Borrower and is not vacated or bonded within sixty(60) days after entry (or such shorter period of time as necessary in order to avoid attachment or foreclosure), or if a judgment, attachment, garnishment orother process is entered against the Guarantor that would materially affect the Guarantor’s ability to perform its obligations under the Loan Documents, andsuch judgment, attachment, garnishment or other process is not vacated or bonded with in sixty (60) day after entry (or such shorter period of time asnecessary in order to avoid attachment or foreclosure).(n) Dissolution. The dissolution, liquidation or termination of existence of the Borrower or the Guarantor unless a substitute guarantor,satisfactory to the Lender in its sole and absolute discretion, assumes all liability under the Guaranty and Environmental Indemnity and executes anydocuments which the Lender may reasonably require to implement such substitution, within sixty (60) days after event of dissolution, liquidation ortermination of existence. 34(o) Change in Management/Control. A change in the management of or controlling interest in the Borrower or the Guarantor without the priorwritten consent of the Lender.9.2 Remedies. Upon the occurrence of an Event of Default (a) the Lender, at its option, by written notice to the Borrower, may declare all Indebtednessto the Lender to be immediately due and payable, whether such Indebtedness was incurred prior to, contemporaneous with or subsequent to the date of thisAgreement and whether represented in writing or otherwise, without presentment, demand, protest or further notice of any kind, and (b) the Lender mayexercise all rights and remedies available to it under the Loan Documents and applicable law. The Borrower agrees to pay all costs and expenses incurred bythe Lender in enforcing any obligation under this Agreement or the other Loan Documents, including, without limitation, attorneys’ fees. No failure or delayby the Lender in exercising any power or right will operate as a waiver of such power or right, nor will any single or partial exercise of any power or rightpreclude any other future exercise of such power or right, or the exercise of any other power or right.9.3 Borrower to Pay Fees and Charges. The Borrower shall pay all fees and charges incurred in the procuring, making and enforcement of the Loans,including without limitation the reasonable fees and disbursements of Lender’s attorneys, charges for appraisals, the fee of Lender’s inspector andconstruction consultant, fees and expenses relating to examination of title, title insurance premiums, surveys, and mortgage recording, documentary, transferor other similar taxes and revenue stamps, loan extension fees, if any, and the Lender’s fees for the Loans.SECTION TENGENERAL PROVISIONS10.1 Defined Terms. Each accounting term used in this Agreement, not otherwise defined, shall have the meaning given to it under GAAP applied on aconsistent basis. The term “person” shall mean any individual partnership, corporation, trust, joint venture, unincorporated association, governmentalsubdivision or agency or any entity of any nature. The term “subsidiary” means, with respect to any person, a corporation or other person of which shares ofstock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other managers of such corporation or personare at the time owned, or the management of which it otherwise controlled, directly or indirectly, through one or more intermediaries, by such person. Theterm “affiliate” means, with respect to any specified person, any other person that, directly or indirectly, controls or is controlled by, or is under commoncontrol with, such specified person. All meanings assigned to defined terms in this Agreement shall be applicable to the singular and plural forms of the termsdefined.10.2 Notices. All notices, requests, demands and other communication with respect hereto shall be in writing and shall be delivered by hand, prepaidby Federal Express (or a comparable overnight delivery service), or sent by the United States first-class mail, certified, postage prepaid, return receiptrequested, to the parties at their respective addresses set forth as follows: 35If to the Lender, to:EAGLEBANK7815 Woodmont AvenueBethesda, MD 20814Attn: Douglas Vigen, Senior Vice PresidentWith a copy to:Friedlander Misler, PLLC5335 Wisconsin Avenue, N.W., Suite 600Washington, D.C. 20015Attn: Leonard A. Sloan, Esq.If to the Borrower, to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Christopher ClementeWith a copy to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Jubal Thompson, Esq.Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be)upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, (c) on the business day after theday on which it is properly delivered by Federal Express (or a comparable overnight delivery service), or (d) on the third (3) business day after the day onwhich it is deposited in the United States mail. Any party may change such party’s address by notifying the other parties of the new address in any mannerpermitted by this Section.10.3 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Lender and the Borrower and their respectivesuccessors, assigns, personal representatives, executors and administrators, provided that the Borrower may not assign or transfer its rights under thisAgreement. 36ththrd10.4 Entire Agreement. Except for the other Loan Documents expressly referred to in this Agreement, this Agreement represents the entire agreementbetween the Lender and the Borrower, supersedes all prior commitments and may be modified only by an agreement in writing.10.5 Survival. All agreements, covenants, representations and warranties made in this Agreement and all other provisions of this Agreement willsurvive the delivery of this Agreement and the other Loan Documents and the making of the advances under this Agreement and will remain in full force andeffect until the obligations of the Borrower under this Agreement and the other Loan Documents are indefeasibly satisfied.10.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, without reference toconflict of laws principles.10.7 Headings. Section headings are for convenience of reference only and shall not affect the interpretation of this Agreement.10.8 Participations. The Lender shall have the right to sell all or any part of its rights under the Loan Documents, and the Borrower authorizes theLender to disclose to any prospective participant in any of the Loans any and all financial and other information in the Lender’s possession concerning theBorrower or the collateral for the Loans.10.9 No Third Party Beneficiary. The parties do not intend the benefits of this Agreement or any other Loan Document to inure to any third party.10.10 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE LENDER AND THE BORROWER KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY BASED ON, ARISING OUT OF OR UNDER, ORIN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.10.11 Waiver. The rights of the Lender under this Agreement and the other Loan Documents shall be in addition to all other rights provided by law. Nowaiver of any provision of this Agreement, or any other Loan Document, shall be effective unless in writing, and no waiver shall extend beyond the particularpurpose involved. No waiver in any one case shall require the Lender to give any subsequent waivers.10.12 Severability. If any provision of this Agreement or any other Loan Document is held to be void, invalid, illegal or unenforceable in any respect,such provision shall be fully severable and this Agreement or the applicable Loan Document shall be construed as if the void, invalid, illegal orunenforceable provision were not included in this Agreement or in such Loan Document.10.13 No Setoffs. With respect to a monetary default claimed by the Lender under the Loan Documents, no setoff, claim, counterclaim, reduction ordiminution of any obligation or defense of any kind or nature that the Borrower has or may have against the Lender (other than the defenses of payment, 37the Lender’s gross negligence or willful misconduct) shall be available against the Lender in any action, suit or proceeding brought by the Lender to enforcethis Agreement or any other Loan Document. The foregoing shall not be construed as a waiver by the Borrower of any such rights or claims against theLender, but any recovery upon any such rights or claims shall be had from the Lender separately, it being the intent of this Agreement and the other LoanDocuments that the Borrower shall be obligated to pay, absolutely and unconditionally, all amounts due under this Agreement and the other LoanDocuments.10.14 No Merger. The Borrower and the Lender expressly agree that the Borrower’s agreement and obligation to pay the Lender’s reasonable attorneys’fees and costs, and all other litigation expenses, shall not be merged into any judgment obtained by the Lender, but shall survive the same and shall not beextinguished by any monetary judgment. It is the express intent of the parties hereto that all post-judgment collection fees and expenses (includingreasonable attorneys’ fees and costs) shall survive entry of a final judgment and shall be collectible by the Lender against the Borrower from time to timefollowing entry of any final judgment obtained by the Lender against the Borrower.10.15. Counterparts. This Agreement may be executed for the convenience of the parties in several counterparts, which are in all respects similar andeach of which is to be deemed to be complete in and of itself, and any one of which may be introduced in evidence or used for any other purpose with theproduction of the other counterparts thereof.10.16 Consent to Jurisdiction. The Borrower irrevocably submits to jurisdiction of any state or federal court sitting in the Commonwealth of Virginiaor the State of Maryland over any suit, action or proceeding arising out of or relating to this Agreement, the Notes or any other Loan Documents. Theundersigned irrevocably waives, to the fullest extent permitted by law, any objection that the undersigned may now or hereafter have to the venue of anysuch suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been broughtin an inconvenient forum. Final judgment in any such court shall be conclusive and binding and may be enforced in any court in which the undersigned issubject to jurisdiction by a suit upon such judgment provided that service of process is effected as provided herein or as otherwise permitted by applicablelaw.10.17 Service of Process. The Borrower hereby consents to process being served in any suit, action or proceeding instituted in the Commonwealth ofVirginia or the State of Maryland in connection with the Loans by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receiptrequested, to the Borrower at the address set forth in the Notices section of this Agreement and (ii) serving a copy thereof upon the Borrower’s registeredagent for service of process. The undersigned irrevocably agrees that such service shall be deemed to be service of process upon the undersigned in any suchsuit, action or proceeding. Nothing in this Agreement shall affect the right of the Lender otherwise to bring proceedings against the undersigned in the courtsof any jurisdiction or jurisdictions. 3810.18 Exhibits. All exhibits referred to herein as attached hereto are incorporated in full by reference as though fully set forth in this Agreement. TheExhibits are: Exhibit A: Legal Description of the Property and the Apartment ParcelExhibit B: Unit Costs BudgetExhibit C: LC Promissory Note FormExhibit D: Carve Out ObligationsExhibit E: Form of Apartment Parcel Deed of TrustExhibit F: Form of Letter of Credit[SIGNATURES ON FOLLOWING PAGES] 39IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to be executed in their respective names by duly authorizedrepresentatives as of the day and year first above written. The Guarantor joins herein to consent and agree to the terms, conditions, provisions and covenantsof those sections of this Agreement that address a covenant or obligation of the Guarantor. WITNESS: BORROWER: COMSTOCK REDLAND ROAD, L.C., a Virginialimited liability company By: Comstock Holding Companies, Inc., a Delaware corporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of Comstock RedlandRoad, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Redland Road, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 40 GUARANTOR:Witness: COMSTOCK HOLDING COMPANIES, INC., aDelaware corporation Print Name: By: Christopher D. Clemente Chief Executive OfficerCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., a Delaware corporation, party to theforegoing instrument, and that the same is his act and deed and the act and deed of said Comstock Holding Companies, Inc.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 41 LENDER:Witness: EAGLEBANK Print Name: By: Douglas Vigen Senior Vice President[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Douglas Vigen personally appeared before me in saidjurisdiction and acknowledged that he a Senior Vice President of EAGLEBANK; that he has been duly authorized to execute and deliver the foregoinginstrument for the purposes therein contained and that the same is his act and deed; that the seal affixed to said instrument is such corporate seal and that itwas so affixed by order of the Board of Directors of said Bank; and that he signed his name thereon by like order.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 42EXHIBIT ALegal Description of the Property and the Apartment ParcelParcel P-146 in Montgomery County, Maryland, being that tract of land comprising 4.24307 acres, more or less, said tract of land being bisected byYellowstone Way.Tax ID No. 04-001-00776834.For metes and bounds description, see Exhibit “A” to Commitment for Title Insurance issued by Stewart Title Guaranty Company on February 13, 2013, FileNo. 01242 – 1549. 43EXHIBIT BUNIT COSTS BUDGET 44EXHIBIT CFORM OF LC PROMISSORY NOTENON-REVOLVING PROMISSORY NOTE $ , 2013FOR VALUE RECEIVED, COMSTOCK REDLAND ROAD, L.C., a Virginia limited liability company (the “Borrower”) promises to pay to the order ofEAGLEBANK (the “Lender”), at such place as the holder hereof may from time to time designate in writing, in lawful money of the United States of America,without defense, offset or counterclaim, the principal sum of AND NO/100 DOLLARS ($ .00), or so much thereof as may be advancedand outstanding hereunder or under the other Facility Documents (hereinafter defined), including without limitation any Protective Advances (hereinafterdefined), together with interest as described below and in accordance with the following terms and provisions:1. Advances. The letter of credit facility evidenced hereby (the “Facility”) is governed by the terms of that certain Loan Agreement dated of even dateherewith (the “Loan Agreement”) by and between the Borrower and the Lender (as applicable to the Facility, and as the same may be amended, restated orsupplemented from time to time, the “Facility Agreement”). This Non-Revolving Promissory Note (as the same may be amended, restated, renewed,supplemented or substituted from time to time, the “Note”) evidences the Borrower’s obligations under the Facility, including without limitation, withrespect to amounts drawn under an irrevocable stand by letter of credit (the “Letter of Credit”) issued or to be issued by Lender for the account of theBorrower in accordance with the terms of the Facility Agreement. Notwithstanding the foregoing, no principal shall be deemed to be advanced or bearinterest under this Note with respect to the Letter of Credit obligation except for advances on account of draws under such Letter of Credit.2. Interest Rate.a. Commencing on the date hereof, the unpaid principal balance of this Note outstanding from time to time shall bear interest at the floating rateper annum equal to three percent (3.0%) above the thirty (30) day LIBOR Rate (hereinafter defined), rounded upwards, if necessary, to the nearest one-eighthof one percent (0.125%). The LIBOR Rate means, for each calendar month, the annualized weighted average of the 30-day London Interbank Offered Rates(at approximately11:00 a.m. London time) for U.S. Dollar transactions on the day that is two (2) business days prior to the first day of that calendar month, asreported by Bloomberg Business News; if Bloomberg Business News is not available, the Lender shall select a similar source for the LIBOR index and shallnotify the Borrower of such selection. If no LIBOR index is available, or if the Lender determines in its sole discretion that any reported LIBOR Rate isunreliable, the Lender may select an alternative index upon notice to the Borrower of such selection. Interest shall be calculated using a 360-day year, basedupon the actual number of days for which the calculation is being made. Notwithstanding the above, in no event shall the Note bear interest at a rate belowthe floor interest rate of five percent (5.0%) per annum (the “Interest Rate Floor”). 45b. It is not intended hereby to charge interest at a rate in excess of the maximum legal rate of interest permitted to be charged under applicablelaw, but if, nevertheless, interest in excess of such rate shall be paid, then the rate imposed shall be reduced to such maximum legal rate and if, from anycircumstance, Lender shall ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be deemed excessiveinterest shall be applied to the reduction of the unpaid principal balance hereunder and not to the payment of interest.3. Payments. Payments of principal and interest shall be due and payable as follows:a. Commencing thirty (30) days after the date hereof and continuing on the same day of each month thereafter (the “Payment Date”), monthlypayments of interest only on the outstanding principal balance hereof shall be due and payable;b. Within five (5) days after each and every draw under the Letter of Credit, Borrower shall: (i) pay Lender the amount of the applicable drawmade on the Letter of Credit for application to the amount outstanding hereunder, or (ii) deposit the amount of the applicable draw made on the Letter ofCredit into the LC Escrow (as defined in the Facility Agreement).c. This Note shall have an initial maturity date on the date which is one (1) year from the date hereof, subject to extension in accordance with theFacility Agreement and subject to payment of an extension fee in the amount of one percent (1%) of the face amount of the Letter of Credit on eachanniversary of the Letter of Credit.d. The entire principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on the outsidematurity date of , 2015 (the “Maturity Date”) and the Letter of Credit shall automatically expire on the Maturity Date.4. Prepayment. There shall be no prepayment fee for any prepayments made under this Note. Amounts prepaid may not be reborrowed.5. Application of Payments. All payments hereunder shall be payable in lawful money of the United States and in immediately available funds. Allpayments received hereon shall be applied, in Lender’s sole discretion: (i) first, to payment of accrued and unpaid interest, if any; (ii) second, to payment ofany principal then due, if any; (iii) third to late charges, if any; (iv) fourth, to reasonable attorney’s fees and costs of collection; and (v) fifth, to reduce theoutstanding principal balance of this Note until such principal shall have been fully repaid. All payments hereunder shall be made without offset, demand,counterclaim, deduction, abatement, defense, or recoupment, each of which Borrower hereby waives.6. Facility Documents. This Note is issued pursuant to the Facility Agreement. The performance of the Borrower’s obligations hereunder is secured bythe documents and instruments set forth in the Facility Agreement. This Note, the Facility Agreement, the Letter of Credit and all documents executed inconnection with the Letter of Credit (including without limitation, the application for Letter of Credit), and any other document executed or delivered by theBorrower in connection with the Facility, all as the same may be amended, restated, supplemented or substituted from time to time, shall be referred to hereinas the “Facility Documents”. 467. Default. An Event of Default shall occur hereunder if (a) the Borrower shall fail to pay any amount due under this Note or any of the FacilityDocuments as and when due and payable, or (b) if a default occurs under any of the Facility Documents and is not cured within any applicable grace or cureperiod, or (c) if a default occurs under any document or instrument that is cross-defaulted to the Borrower’s obligations pursuant to the terms of the LoanAgreement. Upon the occurrence of an Event of Default hereunder, the entire principal balance hereof, all accrued interest thereon and all other amountspayable hereunder and under the Facility Documents shall become immediately due and payable at the option of the Lender. Any delay by the Lender inexercising or any failure of the Lender to exercise the aforesaid option to accelerate with respect to an Event of Default shall not constitute a waiver of itsright to exercise such option with respect to that or any subsequent Event of Default. Acceleration of maturity, once claimed hereunder by the holder hereofmay be rescinded, at such holder’s option, by written acknowledgment to that effect, but the tender and acceptance of partial payment or partial performancealone shall not in any way affect or rescind such acceleration of maturity. After the occurrence of an Event of Default, and until such Event of Default iscured, interest shall accrue on all amounts outstanding hereunder at five percent (5%) plus the rate of interest then payable hereunder from the date of suchEvent of Default, and the Interest Rate Floor shall be increased by five percent (5%) per annum (the “Default Rate”).8. Late Charge. The Borrower shall pay to the Lender a late charge equal to five percent (5%) of any amount due hereunder that is not received by theLender within ten (10) days after the date on which such amount is due.9. Waiver; Extensions. The Borrower hereby waives presentment, demand, notice of dishonor, protest and all other exemptions provided debtors. TheBorrower agrees that it shall remain liable for the payment hereof notwithstanding any agreement for the extension of the due date of any amount payablehereunder made by the Lender after the maturity thereof.10. Collection Costs and Expenses. The Borrower shall pay all reasonable costs, fees and expenses incurred by the Lender in collecting or attemptingto collect any amount that becomes due hereunder or in seeking legal advice with respect to such collection or an Event of Default.11. Notices. All notices, requests, demands and other communication with respect hereto shall be in writing and shall be delivered by hand, sentprepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States first-class mail, certified, postage prepaid, return receiptrequested, to the following addresses:If to the Lender, to:EAGLEBANK7815 Woodmont AvenueBethesda, MD 20814Attn: Douglas L. Vigen, Senior Vice President 47with a copy to:Friedlander Misler, PLLC5335 Wisconsin Avenue, NW, Suite 600Washington, DC 20015Attn: Leonard A. Sloan, Esq.If to the Borrower, to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Christopher D. ClementeWith a copy to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Jubal Thompson, Esq.Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be)upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, or (c) on the business day afterthe day on which it is properly delivered by Federal Express (or a comparable overnight delivery service),. Any party may change such party’s address bynotifying the other parties of the new address in any manner permitted by this paragraph.12. Severability. If any provision of this Note, or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable,the remainder of the provisions of this Note, or the application of such provision to other persons or circumstances, shall not be affected thereby, and eachprovision of this Note shall be valid and enforceable to the fullest extent permitted by law.13. Successors and Assigns. This Note shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successorsand assigns; provided, however, that the Borrower may not assign or delegate its obligations hereunder without the prior written consent of the Lender.14. Payments. All payments due hereunder shall be made in immediately available funds. 48thth15. WAIVER OF JURY TRIAL. BORROWER IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANYRIGHT BORROWER MAY NOW OR HEREAFTER HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY ORINDIRECTLY ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY OF THE FACILITY DOCUMENTS.16. Offset. If an Event of Default occurs under this Note or an Event of Default occurs under any other Facility Document, and such Event of Default isnot cured within any applicable notice and/or grace period, then the Lender shall have the right to offset any amounts due hereunder against any controlaccount, now or hereafter maintained with the Lender by the Borrower (but not against any general deposit account of Borrower or any affiliate of Borrower).17. Governing Law; Amendment. This Note shall be governed by and construed in accordance with the laws of the State of Maryland, withoutreference to conflict of laws principles. This Note may not be changed orally, but only by an agreement in writing signed by the parties against whomenforcement of any waiver, change, modification or discharge is sought.18. Business Purpose. Borrower hereby represents and warrants to Lender that it is a business or commercial organization, and further represents andwarrants that the Facility evidenced hereby was made and transacted solely for the purpose of carrying on a business or an investment in real estate.19. Consent to Jurisdiction. Borrower irrevocably submits to jurisdiction of any state or federal court sitting in the State of Maryland, theCommonwealth of Virginia or the District of Columbia over any suit, action, or proceeding arising out of or relating to the Note or any other FacilityDocuments. Borrower irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the venue of any such suit,action or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in aninconvenient forum. Final judgment in any such court shall be conclusive and binding and may be enforced in any court in which the Borrower is subject tojurisdiction by a suit upon such judgment provided that service of process is effected as provided herein or as otherwise permitted by applicable laws.20. Sealed Instrument. This Non-Revolving Promissory Note is executed under seal and is intended to be a sealed instrument.[signatures on following page] 49IN WITNESS WHEREOF, the Borrower has executed this Non-Revolving Promissory Note under seal as of the day and year first above written. BORROWER: COMSTOCK REDLAND ROAD, L.C.,A Virginia limited liability company By: Comstock Holding Companies, Inc.a Delaware corporationIts Manager By: Print Name: Print Name: Christopher D. Clemente Print Title: Chief Executive Officer STATE OF ) ) ss:COUNTY OF )I, , a Notary Public in and for the aforesaid said jurisdiction, do hereby certify that Christopher D. Clemente personallyappeared before me in said jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Managerof Comstock Redland Road, L.C., a party to the foregoing instrument, and that the same is his act and deed and the act and deed of said Comstock RedlandRoad, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of March, 2013. Notary Public(SEAL) My Commission expires: 50EXHIBIT DCARVE OUT OBLIGATIONSThe Guarantor shall also guaranty the full and timely payment of any and all actual loss, damage, cost, expense, liability, claim or other obligation incurredby the Lender (including reasonable attorneys’ fees and out-of-pocket costs actually incurred) arising out of or in connection with any one or more of thefollowing (the “Carve Out Obligations”):(i) Fraud, material misrepresentation or willful misconduct by Borrower or Guarantor or any of their respective members, managers, officers, principals,or any other person properly authorized to make statements or representations, or act, on behalf of Borrower or Guarantor in connection with the Loans or theProperty;(ii) physical waste committed on the Property; damage to the Property as a result of the intentional misconduct, recklessness or gross negligence ofBorrower or Guarantor, or any agent or employee of any such persons; or the removal of any portion of the Property by or at the direction of Borrower orGuarantor or any direct or indirect member or manager thereof, in violation of the terms of the Loan Documents (as defined in the Loan Agreement) followinga default under either of the Loans which is not cured within any applicable grace or cure period (an “Event of Default”);(iii) subject to any right to contest or bond off such matters, as provided in the Deed of Trust or Loan Agreement, failure to pay any valid taxes,assessments, mechanics’ liens, materialmen’s liens or other liens which could create liens on any portion of the Property which would be superior to the lienor security title of the Deed of Trust or the other Loan Documents, to the full extent of the amount claimed by any such lien claimant;(iv) the breach of any representation, warranty or covenant in, and any liability under any provision in, that certain Environmental IndemnityAgreement of even date herewith given by Borrower and Guarantor to Lender or the breach of any representation, warranty or covenant relating solely to, andany liability under any provision concerning, environmental laws, hazardous substances or asbestos in the Deed of Trust;(v) the misapplication or conversion of (A) any insurance proceeds paid to Borrower by reason of any loss, damage or destruction to the Property,(B) any awards or other amounts received by Borrower in connection with the condemnation of all or a portion of the Property, or (C) any rents from theProperty following an Event of Default or collected in advance; and(vi) failure to maintain any insurance policies required under the Loan Documents, or timely to pay or provide the amount of any insurance deductible,to the extent of the applicable deductible, following a casualty or other insured event. 51EXHIBIT EFORM OF APARTMENT PARCEL DEED OF TRUST[ATTACHED] 52EXHIBIT FFORM OF MONTGOMERY COUNTY LETTER OF CREDIT[ATTACH MONTGOMERY COUNTY FORM] 53Exhibit 10.79LOAN AGREEMENTTHIS LOAN AGREEMENT (as amended, modified or supplemented from time to time, “Agreement”), dated as of the day of March, 2013, by andbetween (i) EAGLEBANK (the “Lender”), and (ii) COMSTOCK REDLAND ROAD, L.C., a Virginia limited liability company (the “Borrower”), recites andprovides:RECITALS:R-1. The Borrower has acquired a certain development site consisting of acreage approved for a 117-unit multi-family apartment building, togetherwith the improvements thereon, whether now existing or hereinafter constructed, located on Redland Road and Yellowstone Way, Montgomery County,Maryland, as more particularly described on Exhibit A attached hereto (the “Property”), on which the Borrower intends to undertake certain developmentimprovements.R-2. Subject to the terms of this Agreement, the Lender agrees to make an acquisition and development loan (the “Loan”) to the Borrower, as moreparticularly described in Section One below, for the purpose of financing the acquisition and the Development (as hereinafter defined) of the Property.R-3. The Lender and the Borrower agree that the Loan will be made and advanced upon and subject to the terms, covenants and conditions set forth inthis Agreement.R-4. Simultaneously herewith the Lender is making a separate credit facility available to the Borrower (the “AD&C Loans”) for acquisition,development and construction of housing with respect to certain property adjacent to the Property (the “Housing Parcel”) that has been approved forconstruction of 39 single family detached or townhome housing units, which was to have been subdivided pursuant to a record plat (the “Record Plat”) tocreate the Property and the Housing Parcel each as a separate subdivided record lot; however, the Record Plat has not been recorded and the Property and theHousing Parcel are part of one single subdivided record lot known as P-146 in Montgomery County, Maryland.R-5. The Borrower has requested that the Lender waive the condition to closing the Loan that the Record Plat be recorded, and the Lender is amenableto such request provided the Borrower performs its duties and obligations strictly in accordance with the terms and conditions of this Agreement.AGREEMENTACCORDINGLY, for and in consideration of the foregoing Recitals which are a material part of this Agreement and not mere prefatory language, andof the mutual covenants and conditions set forth in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which arehereby acknowledged, the Lender and the Borrower agree as follows: 1SECTION ONETHE LOAN1.1 Amount. The maximum principal amount that may be advanced under the Loan shall not exceed the lesser of (i) Two Million Four HundredThousand and No/100 Dollars ($2,400,000.00), or (ii) sixty-five percent (65%) of the cost of acquisition of the Property and the Development thereof inaccordance with a budget approved by the Lender, or (iii) sixty percent (60%) of the discounted (“When Developed”) value of the Property pursuant to theAppraisal (hereinafter defined) and any appraisals which may be engaged by the Lender from time to time subsequent to the date hereof. The Loan will beevidenced by a Promissory Note made by the Borrower payable to the order of the Lender (as the same may be amended, renewed, restated, supplemented orsubstituted from time to time, the “Note”) which shall be governed by Maryland law.1.2 Purpose. The Borrower will use the Loan proceeds as follows: (i) up to One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00)toward the purchase price of the Property plus up to Seventy Thousand and No/100 Dollars ($70,000.00 toward closing costs (the “Acquisition Advance”)shall be applied to costs (including closing costs) of acquisition of the Property; and (ii) up to Eight Hundred Thirty Thousand and No/100 Dollars($830,000.00) (the “Development Advance” or if more than one “Development Advances”) shall be used for the Development of the Property in accordancewith a Development Budget that shall have been approved by the Lender in advance and in accordance with plans and specifications to be submitted to andapproved by the Lender, and with advances to be made as the work progresses, all as set forth in this Agreement. The Lender shall not be obligated to makeany Development Advances until the Record Plat is recorded except for interest on the Loan for the first ninety (90) days following the Loan closing,notwithstanding the provisions of this Loan Agreement for the Interest Reserve, as hereinafter provided. For purposes of this Agreement, the term“Development” shall mean, generally, (a) land clearing and rough grading; (b) provision of storm drainage structures and facilities, sediment control devices,base paving of streets, curbs and gutters; (c) providing sewer and water distribution systems and erecting temporary street signs; (d) provision of undergroundelectric and gas utility lines, cable television easements and easements for private utility companies to install telephone lines and other utilities; and (e) othersubdivision improvements as required by governmental authorities in order for use and occupancy permits to issue, all in accordance with final site planreview by Montgomery County, Maryland and the Record Plat. The Development Budget for purposes of the Development Advance and portions thereofshall include the foregoing Development costs together with real estate taxes, an interest reserve to be withheld from loan proceeds and applied monthly topayment of accrued interest as hereinafter set forth, and other expenses approved by the Lender. Certain other costs normally considered part of developmentcosts shall be deferred and paid for by the Borrower out of its own funds, including by way of example and not limitation, final paving of streets, siteamenities, landscaping and erosion control.1.3 Record Plat. The Borrower shall use commercially reasonable efforts with the highest due diligence to cause the Record Plat to be approved byapplicable governmental authorities and recorded. The terms and conditions with respect to the Record Plat are as follows: 2 (a)If the Record Plat, in form as shall have been approved by the Lender, has not been recorded within ninety (90) days from the closing of theLoan, an Event of Default shall have occurred on the ninety-first (91) day following the closing. (b)The Deed of Trust (hereinafter defined) shall initially encumber the Property and the Housing Parcel as security for the Loan. Upon recordationof the Record Plat, the Deed of Trust shall be amended to reflect the new legal description and the Lender’s loan policy of title insurance shall beappropriately endorsed in form satisfactory to the Lender in all respects. (c)Provided there has then occurred no Event of Default hereunder or under the AD&C Loans, following recordation of the Record Plat, if (i) theBorrower sells the Property and upon closing of such sale pays the Loan in full, the Lender shall release the Property from the lien of the Deed ofTrust, or (ii) the Borrower determines to develop the Property and transfer the Property to an affiliate, the Lender shall release the Property fromthe lien of the Deed of Trust and simultaneously therewith the Property shall be encumbered by a new deed of trust (the “Apartment Parcel Deedof Trust”) as security for the Loan as well as cross-collateral as security for the Loan and the AD&C Loans. (d)If applicable under Subparagraph 1.3(c) above, the Apartment Parcel Deed of Trust shall be in the form as attached to this Agreement as ExhibitB and shall constitute a first lien on the Property. (e)The Leases Assignment (hereinafter defined) shall encumber all leases, rents and profits with respect to the Property and the Housing Parcel. TheProperty may be released from the Leases Assignment in the event of (i) sale and payment in full of the Loan as contemplated in Subparagraph1.3(c) above or (ii) transfer of the Property to an affiliate, in which event a new assignment of leases and rents in form substantively identical tothe Leases Assignment shall be recorded against the Property simultaneously with such release. (f)UCC-1 Financing Statements that constitute a fixture filing shall be recorded against the Property and the Housing Parcel. Such UCC-1Financing Statements may be terminated as to the Property in the event of (i) sale and payment in full of the Loan as contemplated inSubparagraph 1.3(c) above or (ii) transfer of the Property to an affiliate, in which event a new UCC-1 Financing Statement in form substantivelyidentical to the initial instrument shall be filed against the Property simultaneously with such termination.1.4 Guarantor. Comstock Holding Companies, Inc. (the “Guarantor”) shall guarantee the payment and performance of the Borrower’s obligations,covenants and agreements under the Loan and, as evidenced by the Loan Documents, and shall also guarantee the Carve Out Obligations (defined on ExhibitC attached hereto), which guaranty shall be evidenced by an instrument of unlimited and unconditional guaranty of payment, performance and completionfrom the Guarantor for the benefit of the Lender, in form and substance satisfactory to the Lender (the “Guaranty”). 3st1.5 Term. The Note shall mature twelve (12) months after the date of closing on the Loan (the “Maturity”). It is acknowledged and agreed thatnotwithstanding any provisions herein, the Borrower has not applied for, nor has the Lender made any commitment with respect to, any extension of suchMaturity. Upon any application for an extension, any approval of an extension on any terms would be contingent upon the usual and customary underwritingprocedures of EagleBank, including without limitation, full credit and collateral evaluation and review, the approval of the loan committee of EagleBank,and payment to the Lender of extension fees as determined by the Lender.1.6 Interest Rate. Commencing on the closing of the Loan, the unpaid balance of each of the Note outstanding from time to time shall bear interest andbe payable at the floating rate per annum equal to three percent (3%) above the thirty (30) day LIBOR Rate (hereinafter defined), rounded upwards, ifnecessary, to the nearest one-eighth of one percent (0.125%). The LIBOR rate means, for each calendar month, the annualized weighted average of the 30-dayLondon Interbank Offered Rates (at approximately 11:00 a.m. London time) for U.S. Dollar transactions on the day that is two (2) business days prior to thefirst day of that calendar month, as reported by Bloomberg Business News; if Bloomberg Business News is not available, the Lender shall select a similarsource for the LIBOR index and shall notify the Borrower of such selection. If no LIBOR index is available, or if the Lender determines in its sole discretionthat any reported LIBOR rate is unreliable, the Lender may select an alternative index upon notice to the Borrower of such selection. Interest shall becalculated using a 360-day year, based upon the actual number of days for which the calculation is being made. Notwithstanding the above, in no event shallthe Note bear interest at a rate below the floor interest rate of five percent (5%) per annum at any time (the “Interest Rate Floor”).1.6 Interest Reserve. From the proceeds of the Loan, One Hundred Twenty Thousand and No/100 Dollars ($120,000.00) shall not be disbursed but shallbe reserved by the Lender for the payment of interest on the Loan (the “Interest Reserve”) until such reserve is exhausted. Notwithstanding the foregoing orany provision of the Loan Documents to the contrary, the Lender shall not be obligated to make any disbursements from the Interest Reserve if any Event ofDefault shall have occurred, and further, notwithstanding the foregoing or any provision of any of the Loan Documents to the contrary, nothing containedherein shall be deemed to release or in any way to relieve the Borrower from its obligation under the Note to pay interest as provided in the Note. Eachdisbursement from the Interest Reserve shall constitute a disbursement of principal of the Loan and shall be added to the then outstanding principal balanceof the Loan.1.7 Real Estate Tax Reserve. From the proceeds of the Loan, Sixty Thousand and No/100 Dollars ($60,000.00) shall not be disbursed but shall bereserved by the Lender (the “Taxes Reserve”) for the payment of real estate taxes and other governmental impositions against the Property (collectively,“Taxes”) until such reserve is exhausted. Notwithstanding the foregoing or any provision of the Loan Documents to the contrary, the Lender shall not beobligated to make any disbursements from the Taxes Reserve if any Event of Default shall have occurred, and further, notwithstanding the foregoing or any 4provision of any of the Loan Documents to the contrary, nothing contained herein shall be deemed to release or in any way to relieve the Borrower from itsobligation under the Loan Documents to pay Taxes as they become due. Each disbursement from the Taxes Reserve shall constitute a disbursement ofprincipal of the Loan and shall be added to the then outstanding principal balance of the Loan.1.8 Collateral. The Loan shall be secured by, among other things, the following: (i)A first lien deed of trust, security agreement and fixture filing (as the same may be amended, restated, supplemented or substituted, the“Deed of Trust”) on the Property and the Housing Parcel; (ii)An assignment of Leases and Rents on the Property and the Housing Parcel (as the same may be amended, restated, supplemented orsubstituted, the “Leases Assignment”); (iii)Assignments of all Development documents including, without limitation, plans and specifications, permits, architect’s contracts,engineering contracts, and Development contracts (the “Documents Assignment”); (iv)Consents to Assignment executed by each of the general contractor, architect and project engineer for the Development (the“Consents”); (v)An Environmental Indemnity Agreement made by the Borrower and the Guarantor for the benefit of the Lender (as the same may beamended, restated, supplemented or substituted, the “Environmental Indemnity”); (vi)Such UCC-1 Financing Statements as the Lender may determine to be necessary or desirable.1.9 Equity Requirement. As a condition of the Loan, as of the closing of the Loan the Borrower shall have made an equity investment in the Property inan amount not less than One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00), and shall have provided reasonable evidence of suchinvestment to the Lender in the form of cash investment or mezzanine financing acceptable to the Lender in its sole discretion.1.10 Cross Defaulted Loan. An event of default under the AD&C Loans (sometimes herein collectively called the “Cross-Defaulted Loan”) shallconstitute an Event of Default under the Loan Documents. From and after recordation of the Record Plat, release of the Property from the lien of the Deed ofTrust, and recordation of the Apartment Parcel Deed of Trust, (i) the Property shall secure, in addition to the Loan, the AD&C Loans, and (ii) the HousingParcel shall secure, in addition to the AD&C Loans, the Loan. In addition, simultaneous closing on the AD&C Loans shall be a condition to closing on theLoan.1.11 Deposit Relationship. As a condition of the Loan, the Borrower shall establish its primary operating account and all escrow accounts hereunderwith the Lender and shall maintain such accounts with the Lender throughout the term of the Loan. In addition, the Borrower and/or Guarantor and/or anyrelated entities shall maintain an aggregate minimum monthly average aggregate deposit balance with the Lender of ten percent (10%) of the combinedoutstanding principal balances of the Loan 5and the Cross-Defaulted Loan, tested quarterly, with the first quarterly test period commencing on April 1, 2013 and tested at June 30, 2013. Such depositsshall be held in demand deposits or money market accounts. If at any time under any of the Loan Documents the Lender is collecting deposits for thepayment of insurance premiums and/or real estate taxes, the amount(s) on deposit, to the extent unapplied as of the date of any such semi-annual test, shall becounted toward the foregoing deposit balance requirements. The foregoing deposit balance requirement is in addition to any deposit balance requirementunder the terms of the loan documents for any other loan or loans by the Lender to the Borrower, the Guarantor or any affiliate(s) of the Borrower or theGuarantor. The failure to comply with the foregoing deposit balance requirements shall not constitute a default under the Loan; however, interest shall accrueon all amounts outstanding under the Loan at one-quarter of one percent (0.25%) plus the rate of interest then payable under the Note (and the Interest RateFloor shall also increase by one-quarter of one percent (0.25%)) from the date of such failure until such time as the deposit balance requirement is satisfied atthe next quarterly test.1.12 Fees. The Borrower shall pay to the Lender a fee for the Loan in the amount of Twelve Thousand and No/100 Dollars ($12,000.00), one-half ofwhich has been received by the Lender and the balance of which shall be paid upon closing of the Loan. The Lender acknowledges receipt from the Borrowerof Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00), for application to the Lender’s third-party costs and towards the Lender’s underwritingin connection with the Loan (including without limitation fees of appraisers, consultants and legal counsel), any unused balance of which may be applied tothe foregoing Loan fee.1.13 Intercreditor Agreement. It is understood that, contemporaneously herewith, the Borrower has borrowed One Million One Hundred Ten Thousandand No/100 Dollars ($1,110,000.00) (the “Subordinate Loan”) from Eagle Commercial Ventures, LLC (“Subordinated Lender”). As a condition of closing theLoan, Subordinated Lender shall enter into a Subordination and Standstill Agreement with the Lender (the “Intercreditor Agreement”), in form and substancesatisfactory to the Lender in all respects, pursuant to which Subordinated Lender shall subordinate all of its rights in and to the Subordinate Loan to theLender’s rights, remedies and security under the Loan Documents.SECTION TWOPAYMENTS, COMPUTATIONS, FEES, CHARGES AND PROTECTIVE ADVANCES2.1 Payments. All payments due with respect to this Agreement or the Loan shall be made in immediately available funds to the Lender at such place asdesignated by the Lender from time to time. The Lender is authorized, but shall be under no obligation, to charge any deposit account maintained by theBorrower with the Lender or any affiliate of the Lender for any payments due to the Lender with respect to this Agreement or the Loan. Payments shall beapplied, at Lender’s sole discretion: (i) first, to payment of accrued and unpaid interest, if any; (ii) second, to payment of any principal then due, if any;(iii) third, to late charges, if any; (iv) fourth, to reasonable attorneys’ fees and costs of collection; and (v) fifth, to reduce the outstanding principal balance ofthe Note until such principal shall have been fully repaid. All payments hereunder shall be made without offset, demand counterclaim, deduction, abatement,defense, or recoupment, each of which the Borrower hereby waives. 62.2 Late Charges. If any payment due under the Note is not made within ten (10) days of its due date, the Borrower shall pay to the Lender upondemand (which may be in the form of the usual monthly billing or invoice) a late charge equal to five percent (5%) of the amount of such payment.1.3. Default Rate. After an Event of Default (hereinafter defined), the interest which accrues on the Note shall be increased to the Default Rate (asdefined in the Note).1.4 Computations. Interest and fees on the Loan shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed.1.5 Prepayment. The Borrower may prepay the Note in whole or in part without premium or penalty at any time upon ten (10) days prior written noticeto the Lender. Partial prepayments shall be applied to installments of principal in their inverse order of maturity, if applicable. Amounts prepaid under theNote may not be re-borrowed.1.6 Indebtedness. As used in this Agreement, the term “Indebtedness” means all present and future indebtedness of the Borrower to the Lender arisingout of or in connection with the Note or any of the other Loan Documents.SECTION THREECONDITIONS3.1 Conditions Precedent to Closing. In addition to any other conditions stated in this Agreement, the following conditions must be satisfied prior toLender closing on the Loan.(a) Loan Documents. Receipt by Lender of appropriately completed and duly executed originals of this Agreement, the Note, the Guaranty, theDeed of Trust, the Leases Assignment, the Documents Assignment, the Consents, the Environmental Indemnity, UCC-1 Financing Statements andIntercreditor Agreement, all as Lender may require (collectively, together with any other documents executed and delivered in connection with theIndebtedness, the “Loan Documents”).(b) Organizational Documents. The Borrower and each entity comprising the Borrower shall supply to the Lender, to the extent it has notpreviously done so in any prior transaction with the Lender: (i) a currently certified copy of its Articles of Organization and all amendments thereto;(ii) evidence satisfactory to the Lender and its counsel that it is in good standing in the jurisdiction where organized and qualified to do business in everyjurisdiction in which the nature of its businesses or its properties makes such qualification necessary; (iii) resolutions authorizing the due execution anddelivery of the Loan Documents to which it is a party; and (iv) certified copies of its Operating Agreement and all amendments thereto. The Articles ofOrganization and the Operating Agreement of Borrower and each entity comprising the Borrower shall not be amended, changed or modified in any respectwithout prior written consent of the Lender. In addition, the Guarantor shall supply, to the extent it has not previously done so in any prior transaction withthe Lender: (i) a currently certified copy of its Articles of 7Incorporation and all amendments thereto; (ii) evidence satisfactory to Lender and its counsel that it is in good standing in the jurisdiction where organizedand qualified to do business in every jurisdiction in which the nature of its businesses or its properties makes such qualification necessary; (iii) resolutionsauthorizing the due execution and delivery of the Loan Documents to which it is a party and a certificate of incumbency; and (iv) certified copies of its By-Laws and all amendments thereto. The Articles of Incorporation and the Bylaws of the Guarantor shall not be amended, changed or modified in any respectwithout the prior written consent of the Lender; provided, however, that on the condition that the Lender is given thirty (30) days advance written notice, theLender hereby consents to the Guarantor’s change in corporate domicile from Delaware to Virginia and all amendments to its organizational documents as arereasonably required to effect such change in domicile subsequent to the closing of the Loan; provided further that UCC-1 financing statements shall be filedin the changed domicile at the cost and expense of the Borrower.(c) Opinion. Receipt by the Lender of the opinion(s) of the counsel for Borrower and the Guarantor, in form and content satisfactory to theLender, in its sole, but reasonable, discretion.(d) Insurance. Receipt by the Lender of certificate(s) of insurance to evidence a fully paid policy or policies of comprehensive public liabilityinsurance naming Lender as an additional insured thereunder in an amount not less than Two Million and No/100 Dollars ($2,000,000.00) in the aggregatewith not less than One Million and No/100 Dollars ($1,000.000.00) per occurrence; in any event, the amount of all insurance shall be sufficient to preventany co-insurance contribution on any loss, with each policy providing for a thirty (30) day prior written notice of cancellation, amendment or alteration.(e) Operating Account. The Borrower shall have established its primary operating account with the Lender.(f) Financing Statements. The financing statements necessary to perfect the Lender’s security interest in the personal property subject to the Deedof Trust, and in any other collateral requiring the filing of a financing statement for perfection of a lien thereon, shall be duly filed in all appropriate officesand jurisdictions, all other financing statements covering any of such personal property shall be terminated or the Lender shall be reasonably satisfied thatsuch terminations are forthcoming, and filing and recording receipts evidencing such filings and terminations shall be delivered to Lender, all in form andsubstance satisfactory to the Lender.(g) Property Documents. The Lender shall have received and approved in its sole discretion, the following:(1) Appraisals. An appraisal of the Property, prepared by an appraiser acceptable to the Lender, in form and content acceptable to theLender, conforming to all regulatory and internal appraisal guidelines applicable to or established by the Lender, in its sole, absolute, nonreviewablediscretion, reflecting a “when developed” discounted value satisfactory to the Lender (the “Appraisal”); 8(2) Title Insurance. A commitment for title insurance (the “Title Commitment”) insuring the first priority lien of the Deed of Trust in theaggregate amount of the Note and the AD&C Loans, containing no exceptions unacceptable to the Lender, issued in the name of the Lender by a titlecompany acceptable to the Lender and in an amount equal to the aggregate principal amount of the Note and the AD&C Loans. The Title Commitmentand the title policy issued pursuant thereto (the “Title Policy”) shall reflect that all requirements for issuance of the Title Policy have been satisfied,and shall contain such other endorsements or coverages as the Lender may require.(3) Survey. A current survey and legal description of the Property and the Housing Parcel satisfactory to the Lender from a registered landsurveyor of the State of Maryland, which survey shall show all easements, rights of way and other matters of record, shall locate all existingimprovements on the Property and the Housing Parcel, shall contain metes and bounds descriptions of each applicable constituent portion of theProperty acceptable to the Lender and its counsel, shall generally show a state of facts acceptable to the Lender, and shall contain a surveyor’scertificate satisfactory to the Lender.(4) Subdivision Plat. Approval by the Lender and its construction consultant of the form of Record Plat to be recorded.(5) Development Approvals. Copies of the certified site plan for the Property showing, without limitation, evidence satisfactory to theLender that the Property can be developed without any requirement for development of the Housing Parcel.(6) Development and Construction Budgets. Final budget for the Development for the Property which shall have been reviewed andapproved by the Lender in its sole discretion and by the Lender’s Development and construction consultant (the “Lender’s Inspector”). It is understoodthat the Development budget may be a combined budget for development work on the Housing Parcel, in which event the Lender will allocate fundingunder the Loan and the AD&C Loans based upon percentage of work completed as determined by the Lender’s Inspector.(7) Development Documents. The Plans and Specifications, Development Schedule and any and all other Development documentsrequested by the Lender and/or the Lender’s Inspector, which shall have been reviewed and approved by the Lender in its sole discretion and by theLender’s Inspector. 9(8) Flood Hazard. Evidence that no part of the Property or the Housing Parcel is located in a special flood hazard area.(9) Public Utilities. Evidence to the effect that sanitary sewer, water, electric, gas, telephone and other public utilities are available andadequate to serve the Property and the Housing Parcel.(10) Licenses and Permits. Copies of all licenses and permits in connection with the Property and the Housing Parcel, including withoutlimitation licenses, permits, proffers and other conditions to final subdivision and site plan approval for the Property and the Housing Parcel.(11) Consultant’s Review. Satisfactory review and analysis by the Lender’s construction consultant of the Development plans, documentsand budgets.(12) Zoning. Receipt by the Lender of a zoning endorsement to the Title Policy acceptable to the Lender or such other written evidence asis acceptable to the Lender that the Property and the Housing Parcel are zoned consistent with the uses contemplated beyond any possibility of appealand can be developed as proposed as a matter of right, and to the effect, further, that there are no pending proceedings, either administrative, legislativeor judicial, which would in any manner adversely affect the status of the zoning with respect to the Property and the Housing Parcel or any part thereof.(13) Marketing Report. Receipt and satisfactory review and analysis by the Lender of a marketing report.(h) No Default. No event shall have occurred and be continuing that constitutes an Event of Default (as defined below).(i) Representations. All representations and warranties contained in this Agreement shall be true and correct in every material respect as of thedate of closing of the Loan.(j) Satisfactory Documents. All documents delivered pursuant to this Agreement must be in form and substance satisfactory to the Lender and itscounsel and all legal matters incident to this Agreement must be satisfactory to Lender’s counsel. 10(k) Identification. As required by federal regulation, closing the Loan is contingent upon satisfactory verification of identity of the signatoriesand verification that none of the Borrower or the Guarantor or any signers is restricted from conducting business in the United States.3.2 Conditions Precedent to Advances of Loan. In addition to any other conditions stated in this Agreement, the following conditions related to theDevelopment must be satisfied prior to any disbursements under the Loan and all of the following matters shall have been approved by the Lender.(a) Permits. Copies of any and all building and similar permits required in connection with the Development, or such portion thereof for whichadvances are requested, together with such evidence as the Lender may require to the effect that all fees for such permits have been paid. Satisfactoryevidence shall be submitted to the Lender that all governmental approvals necessary for the Development, or such portion thereof for which advances arerequested, have been obtained. The Lender shall also receive satisfactory evidence that all applicable safety, ecological and environmental laws and anyother codes or regulations affecting the Development and/or proposed use of the Property have been complied with.(b) Plans and Specifications. Two (2) sets of complete copies of the final Plans and Specifications of the Development, which Plans andSpecifications shall be satisfactory to the Lender in all respects. The Lender’s review of the Plans and Specifications is solely for the benefit of the Lender,and the Lender’s approval thereof shall not be deemed in any respect to be a representation or warranty, expressed or implied, that the Development will besound, have a value of any particular magnitude or otherwise satisfy a particular standard. Prior to any advances for hard costs, the Borrower shall furnish theLender with copies of the Montgomery County-approved stamped Plans, together with such evidence as the Lender may require to the effect that such Plansand Specifications have been approved by all governmental and quasi-governmental authorities having or claiming jurisdiction, and together with a finalDevelopment Budget which must be satisfactory to the Lender in its discretion.(c) Trade Payment Breakdown. A breakdown of total development costs, which shall include a draw schedule (the “Development Budget”)containing reasonable details of amounts anticipated to be payable for each category of work to be performed and materials to be supplied in connection withthe Development, and a projected schedule for the progress of the Development, all in such form and containing such details as the Lender shall require. Anychange orders shall be subject to the Lender’s prior approval. No hard costs shall be advanced under the Loan until such time as the Development Budget hasbeen approved by the Lender in its sole discretion. The Borrower may, from time to time, request reallocation of amounts in the Development Budget basedupon such reasonable supporting documentation justifying such reallocation as may be approved by the Lender; any such reallocation shall be subject to theLender’s approval in its sole discretion.(d) Development Schedule. A projected Schedule (“Development Schedule”) for the progress of the Development of the Property and aprojection of cash flow, each in such form and containing such details as the Lender shall require. The Borrower shall be required to diligently pursue 11and proceed with the Development in accordance with the Development Schedule to completion. Failure of the Borrower to meet the requirements of theDevelopment Schedule for completion of Development shall constitute an Event of Default under this Agreement.(e) General Contractor. All contracts for Development shall be subject to the Lender’s approval. Each Development contract shall be assigned tothe Lender effective on a default under any of the Loan Documents. Each Development contractor shall consent to such assignment and agree, in the event ofany such default, to continue performance of the contract for the Lender, if the Lender so requests. Comstock Homes of Washington, L.C., an affiliate of theGuarantor, is hereby approved as the general contractor for Development. Prior to any advances for Development costs, the Borrower shall furnish the Lenderwith a copy of the contractor’s license for that portion of the Development. The Borrower shall also furnish the Lender with copies of licenses for all majorsubcontractors.(f) Architect’s and Engineer’s Certificate. The architect and the engineer for the Development shall be subject to the Lender’s approval. Inaddition, the contracts with the architect and the engineer shall be subject to the Lender’s approval. A certificate from the architect and/or project engineerwill be required to the effect that the Development, if completed in accordance with the Plans and Specifications, will comply with all federal, state, Countyand local laws, statutes, ordinances, codes, regulations, rules or other laws applicable to the Development (“Applicable Laws”). Prior to any advances forDevelopment costs, the Borrower shall furnish the Lender with a copy of the engineer’s license and the architect’s license.(g) Lender’s Development Consultant. All draw requests shall be submitted to the Lender and the Lender’s Inspector for review and approval.The Borrower shall be responsible for payment of all of the Lender’s Inspector’s fees.3.3 Provisions Governing Disbursements of Loan. Disbursements of the Loan shall be governed by the following provisions:(a) The Development shall be performed by the Borrower in strict accordance with all applicable (whether present or future) laws, ordinances,codes, rules, regulations, requirements and orders of any governmental or regulatory authority having or claiming jurisdiction. The Development shall be instrict accordance with all applicable use or other restrictions and the provisions of any prior declarations, covenants, conditions, restrictions and zoningordinances and regulations.(b) The Borrower shall have submitted to the Lender and the Lender’s Inspector such information as may be requested by the Lender or theLender’s Inspector to verify the Development costs which are to be incurred in connection with the Development. The Lender shall not be obligated toauthorize disbursement of Loan proceeds with respect to the Development for an amount in excess of the Development costs to be incurred in connectiontherewith as verified by the Lender or the Lender’s Inspector pursuant to the provisions of the preceding sentence. The funding of each draw request is subjectto an inspection and approval by the Lender’s Inspector. 12(c) Loan proceeds will be advanced in installments as the Development progresses in accordance with the terms of this Agreement to finance theDevelopment in accordance with the Plans and Specifications, but no more often than once monthly, provided that the Lender is satisfied that the amountsavailable under the Loan will be sufficient to complete the work and pay or provide for all reasonably anticipated Development costs through the requiredDevelopment completion date under the Development Schedule. In the event the Lender determines that the amounts available under the Loan, together withany additional cash provided by the Borrower to the Lender, if any, is insufficient to complete the Development in such manner as the Lender may require,the Borrower shall provide such funds necessary to complete the Development. Except for advances for materials and supplies to be delivered to the Property,as to which no retainage will be required, advances of the Loan shall be subject to withholding of retainage in the amount of ten percent (10%) of directDevelopment costs approved by the Lender or the Lender’s Inspector, and at the Lender’s discretion of labor and materials brought into the Development andeligible for payment on a trade payable basis.(d) Advances of the Loan shall be conditioned upon the Lender’s receipt of (i) written certification by parties approved by the Lender that thework which is the basis of the requested advance was completed in accordance with the approved Plans and Specifications and within the cost estimatesapproved by the Lender (or such adjustments of cost estimates of line items as shall be required and approved by the Lender, provided that sufficient funds tocomplete the Development will be available under such adjusted estimates), to the satisfaction of the Lender, and (ii) evidence that at that time all necessarycertificates required to be obtained from any board, agency or department (government or otherwise) have been obtained. All documents required to besubmitted to the Lender as a condition of each disbursement shall be on standard AIA forms and shall be furnished to the Lender at the Lender’s address setforth in this Agreement. The Lender shall have at least ten (10) business days after receipt of the foregoing documentation prior to funding an approvedadvance.(e) The Lender shall have received a notice of title continuation or an endorsement to the title insurance policy with respect to the Propertytheretofore delivered to the Lender, showing that since the last preceding advance, there has been no change in the status of title and no other exception nottheretofore approved by the Lender, which endorsement shall have the effect of advancing the effective date of the policy to the date of the advance thenbeing made and increasing the coverage of the policy by an amount equal to the advance then being made, if the policy does not by its terms provideautomatically for such an increase.(f) Before making the first advance of Loan Proceeds, the Borrower shall have provided to the Lender satisfactory documentary evidence that thegeneral contractor has obtained a Basic Business License from the State of Maryland and such license is in effect. 13(g) Before making any advance of Loan proceeds, the Lender may require the Borrower to obtain from any contractor or materialmen it mayengage in connection with the Development, acknowledgements of payment and releases of liens and rights to claim liens, if applicable, down to the date ofthe last preceding advance and concurrently with the final advance. All such acknowledgements and releases shall be in form and substance satisfactory tothe Lender.(h) The Lender shall not be obligated to make the final advance of Loan proceeds hereunder, which shall include the retainage described above,unless (i) the Lender’s Inspector has certified to the Lender on standard AIA forms that the work is complete; (ii) the Lender has received evidence satisfactoryto it that all work requiring inspection by governmental or regulatory authorities having or claiming jurisdiction has been duly inspected and approved bysuch authorities and by any rating or inspection organization, bureau, association, or office having or claiming jurisdiction; (iii) that completion of theDevelopment has occurred free and clear of all mechanics’ or materialmen’s liens and any bills or claims for labor, materials and services in connection withthe completion of the Development; and (iv) certificates from the Borrower’s architect, engineer and/or contractor, and, if required, from the Lender’sInspector, certifying that the Development has been completed in accordance with, and as completed comply with, the Plans and Specifications and all lawsand governmental requirements. All fees and costs of the Lender’s Inspector shall be paid by the Borrower.(i) The Lender shall not be obligated to make any advances of Loan proceeds hereunder unless, in the reasonable judgment of the Lender, allwork completed at the time of the application for advance has been performed in a good and workmanlike manner, and all materials and fixtures usuallyfurnished and installed at that stage of the development have been furnished and installed, and no default which has not been cured has occurred under thisAgreement or any of the documents evidencing, securing or guaranteeing the Loan.SECTION FOURREPRESENTATIONS AND WARRANTIESIn order to induce the Lender to extend credit to the Borrower, the Borrower and the Guarantor each make the following representations and warrantiesas to itself:4.1 Organization. The Borrower and each entity comprising the Borrower is a limited liability company duly organized, validly existing and in goodstanding under the laws of the Commonwealth of Virginia and is duly qualified as a foreign limited liability company and in good standing under the laws ofeach other jurisdiction in which such qualification is required. The Guarantor represents and warrants that it is a corporation duly organized, validly existingand in good standing under the laws of the State of Delaware and is duly qualified as a foreign corporation and in good standing under the laws of each otherjurisdiction in which such qualification is required.5.2 Execution and Delivery. The Borrower and each entity comprising the Borrower has the power, and has taken all of the necessary actions, toexecute and deliver and perform its obligations under the Loan Documents, and the Loan Documents, when executed and delivered, will be bindingobligations of each such entity enforceable in accordance with their respective terms. 144.3 Power. Each of the Borrower and each entity comprising the Borrower has the power and authority to own its properties and to carry on its businessas now being conducted.4.4 Financial Statements. Al financial statements and information delivered to the Lender are correct and complete in all material respects and presentfairly the financial conditions, and reflect all known liabilities, contingent and otherwise, of the Borrower and the Guarantor as of the dates of such statementsand information, and since such dates no material adverse change in the assets, liabilities, financial condition, business or operations of the Borrower or theGuarantor has occurred.4.5 Taxes. All tax returns and reports of the Borrower and the Guarantor required by law to be filed have been duly filed, and all taxes, assessments,other governmental charges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith inappropriate proceedings) upon the Borrower and/or the Guarantor and upon any of their respective properties, assets, income or franchises, that are due andpayable have been paid.4.6 Litigation. There is no action, suit or proceeding pending or, to the knowledge of the Borrower or the Guarantor, threatened against or affecting theBorrower or the Guarantor that, either in any case or in the aggregate, may result in any material adverse change in the business, properties or assets or in thecondition, financial or otherwise, of the Borrower or the Guarantor, or that may result in any material liability on the part of the Borrower or the Guarantorthat would materially and adversely affect the ability of the Borrower or the Guarantor to perform its and/or their obligations under the Loan Documents, orthat questions the validity of any of the Loan Documents or any action taken or to be taken in connection with the Loan Documents.4.7 No Breach. The execution and delivery of the Loan Documents, and compliance with the provisions of the Loan Documents, will not conflict withor violate any provisions of law or conflict with, result in a breach of, or constitute a default under, the organizational documents of the Borrower, or anyjudgment, order or decree binding on the Borrower, or any other agreements to which the Borrower is a party.4.8 No Defaults. To the best of the Borrower’s knowledge, the Borrower is not in default with respect to any debt, direct or indirect, upon or as to whichthe Borrower has any liability or obligation.4.9 Compliance. The Borrower is in compliance in all material respects with all applicable laws and regulations, including, without limitation, theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”). 15410 Approvals. No authorizations, approvals or consents of, and no filings and registrations with, any governmental or regulatory authority or agency,are necessary for the execution, delivery or performance of the Loan Documents by the Borrower.4.11 Title to Assets. The Borrower has good and marketable title to all of its assets, subject only to the liens and security interests permitted by thisAgreement.4.12 Use of Proceeds. The proceeds of the Loan shall be used only for the purposes described in this Agreement. The proceeds of the Loan shall not beused to purchase or carry any margin stock, as such term is define din Regulation U of the Board of Governors of the Federal Reserve System.4.13 Vacant Status of Property and Housing Parcel. Seneca Concrete, Inc., former tenant of a portion of the Property and/or the Housing Parcel, hasvacated its leased premises, and the Property and the Housing Parcel are vacant and free of any tenancy that would or might impair development thereof.SECTION FIVECOVENANTS OF BORROWER AND GUARANTORIn consideration of credit extended or to be extended by the Lender, the Borrower covenants and agrees as follows:5.1 Financial Information. The Borrower and the Guarantor shall each deliver to the Lender: (i) with respect to the Borrower, each year within ninety(90) days after the close of its fiscal year, financial statements prepared in accordance with standard accounting principles consistently applied, certified astrue and correct by an officer of each such entity; (ii) with respect to the Guarantor, each year within ninety (90) days after the close of its fiscal year, auditedfinancial statements; (iii) each year within thirty (30) days after filing, a copy of each such entity’s federal income tax return and all schedules thereto,provided that in the event of such extension such entity shall provide the Lender with a copy of the federal income tax return and all schedules thereto withinthirty (30) days of the filing of same with the Internal Revenue Services, and (iv) promptly upon the Lender’s request, such financial and other information asthe Lender reasonably may require from time to time. All financial statements shall be in such reasonable detail and shall be accompanied by such certificatesof the Borrower or the Guarantor, as applicable, as may reasonably be required by the Lender.5.2 Taxes. All tax returns and reports of the Borrower required by law to be filed have been duly filed, and all taxes, assessments, other governmentalcharges or levies (other than those presently payable without penalty or interest and those that are being contested in good faith in appropriate proceedings)upon the Borrower and upon the Borrower’s properties, assets, income or franchises, that are due and payable, have been paid.5.3 Compliance with Laws. The Borrower shall comply with all applicable laws and regulations including, without limitation, ERISA. 165.4 Maintain Existence. The Borrower and the Guarantor each shall maintain its existence in good standing, maintain and keep its properties in goodcondition (ordinary wear and tear excepted), maintain adequate insurance for all of its properties with financially sound and reputable insurers. The Borrowershall remain in the same line of business as it is on the date of this Agreement and shall not enter into any new lines of business without the prior writtenconsent of the Lender.5.5 Notices. As soon as it has actual knowledge, the Borrower shall notify the Lender of the institution or threat of any material litigation orcondemnation or administrative proceeding of any nature involving the Borrower.5.6 Books and Records. The Borrower shall maintain complete and accurate books of account and records. The principal books of account and recordsshall be kept and maintained at 1886 Metro Center Drive, 4 Floor, Reston, VA 10190. The Borrower shall not remove such books of account and recordswithout giving the Lender at least thirty (30) days prior written notice. The Borrower, upon reasonable notice from the Lender, shall permit the Lender, or anyofficer, employee or agent designated by the Lender, to examine the books of account and records maintained by the Borrower, and agree that the Lender orsuch officer, employee or agent may audit and verify the books and records. The Borrower shall reimburse the Lender for any reasonable expenses incurred bythe Lender in connection with any such audits. All accounting records and financial reports furnished to the Lender by the Borrower and the Guarantorpursuant to this Agreement shall be maintained and prepared in accordance with GAAP.5.7 Liens. The Borrower shall not create, incur, assume or permit to exist any mortgage, deed of trust, assignment, pledge, lien, security interest, chargeor encumbrance, including, without limitation, the right of a vendor or under a conditional sale contract or the lessor under a capitalized lease (collectively,(“Liens”) of any kind or nature in or upon any of the asset of the Borrower except: (a)Liens created or deposits made that are incidental to the conduct of the business of the Borrower, that are not incurred in connection withany borrowing or the obtaining of any credit and that do not and will not interfere with the use by the Borrower of any of its assets in thenormal course of its business or materially impair the value of such assets for the purpose of such business; and (b)Liens securing the Indebtedness.5.8 Debt. Except as provided above in Section 5.7, without the prior written consent of the Lender, the Borrower shall not incur or permit to exist anydebt for borrowed funds, the deferred purchase price of goods or services or capitalized lease obligations, except for (a) trade debt incurred in the ordinarycourse of business, and (b) the Indebtedness.5.9 Contingent Liabilities. Without the prior written consent of the Lender, neither the Borrower nor the Guarantor shall guarantee, endorse, becomecontingently liable upon or assume the obligation of any person, or permit any such contingent liability to exist, except by the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinary course of business. 17th5.10 Sale of Assets. Without the prior written consent of the Lender, the Borrower shall not sell, lease, assign or otherwise dispose of any of its assetsexcept for (a) the disposition of assets that are no longer needed or useful in its business, (b) assets which have been removed and replaced, (c) sale andconveyance of the Property following recordation of the Record Plat and payment in full of all principal, accrued interest and other charges due under theLoan, and (d) sales of housing lots and units on the Housing Parcel as provided for in the Deed of Trust.5.11 Mergers and Acquisitions. Without the prior written consent of the Lender, the Borrower shall not merge or consolidate with, or acquire all orsubstantially all of the assets, stock, partnership interests or other ownership interests of, any other person.5.12 Loans and Advances. Without the prior written consent of the Lender, the Borrower shall not make any loan or advance to any affiliate, director,member, manager, officer or employee of the Borrower, or any other person, except for the creation of accounts receivable in the ordinary course of businesson terms that are no less favorable than would apply in an arms-length transaction.5.13 Subsidiaries and Joint Ventures. Without the prior written consent of the Lender, the Borrower shall not form any subsidiary, become a general orlimited partner in any partnership or become a party to a joint venture. If the Lender grants its consent to the formation or acquisition of a subsidiaryBorrower, such entity shall cause each subsidiary to perform and observe all of the covenants contained in this Agreement and the other Loan Documents.5.14 Affiliates. Without the prior written consent of the Lender, the Borrower shall not engage in business with any of its affiliates except in theordinary course of business and on terms that are no less favorable to the Borrower than would apply in an arm’s length transaction.5.15 Organization; Control and Management; Transfers. Until such time as the Loan is fully repaid, there shall be no Transfer (hereinafter defined) ofany interest in the Borrower, nor any change in the Control (hereinafter defined) or management of either the Borrower or the Guarantor, nor any Transfer ofthe Property without the Lender’s prior written consent. “Transfer” means any assignment, pledge, conveyance, sale, transfer, mortgage, encumbrance, grantof a security interest or other disposition, either directly or indirectly, in the aggregate of fifty percent (50%) or more of the beneficial ownership interests ofan entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether throughthe ability to exercise voting power, by contract or otherwise. “Controlled by” and “controlling” shall have the respective correlative meanings thereto.SECTION SIXDEFAULT AND REMEDIES6.1 Default. Each of the following shall constitute an “Event of Default” under this Agreement: 18(a) Failure to Pay. If: (i) the Borrower shall fail to pay any monthly payment required under the Note (“Monthly Payments”) when due thereunderor (ii) the Borrower shall fail to pay any amount (other than the Monthly Payments) as and when due under any of the other Loan Documents;(b) Failure to Give Notices. If the Borrower fails to give the Lender any notice required by Section 5.5 of this Agreement within thirty (30) daysafter it has actual knowledge of the event giving rise to the obligation to give such notice.(c) Failure to Permit Inspections. If the Borrower refuses to permit the Lender to inspect its books and records in accordance with the provisionsof Section 5.6 or failure to permit the Lender to inspect the Property upon reasonable advance notice.(d) Failure to Record Record Plat. If the Record Plat is not recorded within ninety (90) days following closing the Loan.(e) Failure to Observe Covenants. If the Borrower fails to perform or observe any non-monetary term, covenant, warranty or agreement containedin this Agreement or in the other Loan Documents for which no cure period or another cure period is provided, and such failure shall continue for a period ofthirty (30) days after written notice of such failure has been given to the Borrower by the Lender; provided, however, if such default is not in the payment ofany sum due to the Lender hereunder, or was not the subject of an Event of Default for which notice was previously provided, and provided the Borrower isdiligently pursuing the cure of such default , then the Borrower shall have an additional sixty (60) days within which to cure such default prior to the Lenderexercising any right or remedy available hereunder, or at law or in equity.(f) Defaults Under Loan Documents. If an Event of Default shall occur under the Note or any other Loan Document and shall not be cured withinany applicable grace period.(g) Breach of Representation. Discovery by the Lender that any representation or warranty made or deemed made by the Borrower in thisAgreement or in any other Loan Document or in any statement or representation made in any certificate, report or opinion delivered pursuant to thisAgreement or other Loan Document or in connection with any borrowing under this Agreement by the Borrower or the Guarantor or any member, manager,officer, agent, employee or director of the Borrower or the Guarantor, was materially untrue when made or deemed to be made.(h) Voluntary Bankruptcy. If the Borrower or the Guarantor makes an assignment for the benefit of creditors, files a petition in bankruptcy,petitions or applies to any tribunal for any receiver or any trustee of the Borrower or the Guarantor or any substantial part of the property of the Borrower orthe Guarantor, or commences any proceeding relating to the Borrower or the Guarantor under any reorganization, arrangement, composition, readjustment,liquidation or dissolution law or statute of any jurisdiction, whether in effect now or after this Agreement is executed. 19(i) Involuntary Bankruptcy. If, within sixty (60) days after the filing of a bankruptcy petition or the commencement of any proceeding againstthe Borrower or the Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under anypresent or future statue, law or regulation, the proceeding shall not have been dismissed, or, if within sixty (60) days, after the appointment, without theconsent or acquiescence of the Borrower or the Guarantor, of any trustee, receiver or liquidator of any Borrower or all or any substantial part of the propertiesof the Borrower o the Guarantor, the appointment shall not have been vacated.(j) Cross Default. If, as a result of default, any present or future obligations of the Borrower or the Guarantor or any affiliate of the Borrower or theGuarantor to the Lender or any other creditor, whether due to acceleration provisions or otherwise therein, are declared to be due and payable prior to theexpressed maturity of such obligations.(k) Cross Default to Particular Instruments: If an Event of Default by the applicable borrower shall occur under any of the following, as any of thefollowing may be amended, substituted or replaced from time to time: (i) the AD&C Loans, (ii) any loan documents evidencing and/or securing that certainloan from the Lender to New Hampshire Ave. Ventures, LLC (“NHA”) in the amount of $6,000,000.00, which is evidenced, among other things, by aRevolving Development Loan Promissory Note dated August 13, 2012 made by NHA to the order of the Lender; (iii) any loan documents evidencing and/orsecuring that certain loan from the Lender to NHA in the amount of $4,000,000.00, which is evidenced, among other things, by a Revolving ConstructionLoan Promissory Note dated August 13, 2012 made by NHA to the order of the Lender; (iv) any loan documents evidencing and/or securing that certain loanfrom the Lender to Comstock Potomac Yard, L.C. and Comstock Penderbrook, L.C., jointly and severally, in the amount of $9,960,000.00, which isevidenced, among other things, by a Deed of Trust Note dated May 30, 2012 made by those obligors to the order of the Lender; and (v) the Subordinate Loan.(l) Material Adverse Change. A material adverse change occurs in the financial or business condition of the Borrower or the Guarantor.(m) Judgment. If a judgment, attachment, garnishment or other process is entered against the Borrower and is not vacated or bonded within sixty(60) days after entry (or such shorter period of time as necessary in order to avoid attachment or foreclosure), or if a judgment, attachment, garnishment orother process is entered against the Guarantor that would materially affect the Guarantor’s ability to perform its obligations under the Loan Documents, andsuch judgment, attachment, garnishment or other process is not vacated or bonded with in sixty (60) day after entry (or such shorter period of time asnecessary in order to avoid attachment or foreclosure). 20(n) Dissolution. The dissolution, liquidation or termination of existence of the Borrower or the Guarantor unless a substitute guarantor,satisfactory to the Lender in its sole and absolute discretion, assumes all liability under the Guaranty and Environmental Indemnity and executes anydocuments which the Lender may reasonably require to implement such substitution, within sixty (60) days after event of dissolution, liquidation ortermination of existence.(o) Change in Management/Control. A change in the management of or controlling interest in the Borrower or the Guarantor without the priorwritten consent of the Lender.6.2 Remedies. Upon the occurrence of an Event of Default (a) the Lender, at its option, by written notice to the Borrower, may declare all Indebtednessto the Lender to be immediately due and payable, whether such Indebtedness was incurred prior to, contemporaneous with or subsequent to the date of thisAgreement and whether represented in writing or otherwise, without presentment, demand, protest or further notice of any kind, and (b) the Lender mayexercise all rights and remedies available to it under the Loan Documents and applicable law. The Borrower agrees to pay all costs and expenses incurred bythe Lender in enforcing any obligation under this Agreement or the other Loan Documents, including, without limitation, attorneys’ fees. No failure or delayby the Lender in exercising any power or right will operate as a waiver of such power or right, nor will any single or partial exercise of any power or rightpreclude any other future exercise of such power or right, or the exercise of any other power or right.6.3 Borrower to Pay Fees and Charges. The Borrower shall pay all fees and charges incurred in the procuring, making and enforcement of the Loan,including without limitation the reasonable fees and disbursements of Lender’s attorneys, charges for appraisals, the fee of Lender’s inspector andconstruction consultant, fees and expenses relating to examination of title, title insurance premiums, surveys, and mortgage recording, documentary, transferor other similar taxes and revenue stamps, loan extension fees, if any, and the Lender’s fees for the Loan.SECTION SEVENGENERAL PROVISIONS7.1 Defined Terms. Each accounting term used in this Agreement, not otherwise defined, shall have the meaning given to it under GAAP applied on aconsistent basis. The term “person” shall mean any individual partnership, corporation, trust, joint venture, unincorporated association, governmentalsubdivision or agency or any entity of any nature. The term “subsidiary” means, with respect to any person, a corporation or other person of which shares ofstock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other managers of such corporation or personare at the time owned, or the management of which it otherwise controlled, directly or indirectly, through one or more intermediaries, by such person. Theterm “affiliate” means, with respect to any specified person, any other person that, directly or indirectly, controls or is controlled by, or is under commoncontrol with, such specified person. All meanings assigned to defined terms in this Agreement shall be applicable to the singular and plural forms of the termsdefined. 217.2 Notices. All notices, requests, demands and other communication with respect hereto shall be in writing and shall be delivered by hand, prepaid byFederal Express (or a comparable overnight delivery service), or sent by the United States first-class mail, certified, postage prepaid, return receipt requested,to the parties at their respective addresses set forth as follows:If to the Lender, to:EAGLEBANK7815 Woodmont AvenueBethesda, MD 20814Attn: Douglas Vigen, Senior Vice PresidentWith a copy to:Friedlander Misler, PLLC5335 Wisconsin Avenue, N.W., Suite 600Washington, D.C. 20015Attn: Leonard A. Sloan, Esq.If to the Borrower, to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Christopher ClementeWith a copy to:Comstock Redland Road, L.C.c/o Comstock Holding Companies, Inc.1886 Metro Center Drive, 4 FloorReston, VA 20190Attn: Jubal Thompson, Esq.Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be)upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, (c) on the business day after theday on which it is properly delivered by Federal Express (or a comparable overnight delivery service), or (d) on the third (3) business day after the day onwhich it is deposited in the United States mail. Any party may change such party’s address by notifying the other parties of the new address in any mannerpermitted by this Section. 22ththrd7.3 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Lender and the Borrower and their respectivesuccessors, assigns, personal representatives, executors and administrators, provided that the Borrower may not assign or transfer its rights under thisAgreement.7.4 Entire Agreement. Except for the other Loan Documents expressly referred to in this Agreement, this Agreement represents the entire agreementbetween the Lender and the Borrower, supersedes all prior commitments and may be modified only by an agreement in writing.7.5 Survival. All agreements, covenants, representations and warranties made in this Agreement and all other provisions of this Agreement will survivethe delivery of this Agreement and the other Loan Documents and the making of the advances under this Agreement and will remain in full force and effectuntil the obligations of the Borrower under this Agreement and the other Loan Documents are indefeasibly satisfied.7.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, without reference toconflict of laws principles.7.7 Headings. Section headings are for convenience of reference only and shall not affect the interpretation of this Agreement.7.8 Participations. The Lender shall have the right to sell all or any part of its rights under the Loan Documents, and the Borrower authorizes the Lenderto disclose to any prospective participant in the Loan any and all financial and other information in the Lender’s possession concerning the Borrower or thecollateral for the Loan.7.9 No Third Party Beneficiary. The parties do not intend the benefits of this Agreement or any other Loan Document to inure to any third party.7.10 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW, THE LENDER AND THE BORROWER KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY BASED ON, ARISING OUT OF OR UNDER, ORIN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.7.11 Waiver. The rights of the Lender under this Agreement and the other Loan Documents shall be in addition to all other rights provided by law. Nowaiver of any provision of this Agreement, or any other Loan Document, shall be effective unless in writing, and no waiver shall extend beyond the particularpurpose involved. No waiver in any one case shall require the Lender to give any subsequent waivers. 237.12 Severability. If any provision of this Agreement or any other Loan Document is held to be void, invalid, illegal or unenforceable in any respect,such provision shall be fully severable and this Agreement or the applicable Loan Document shall be construed as if the void, invalid, illegal orunenforceable provision were not included in this Agreement or in such Loan Document.7.13 No Setoffs. With respect to a monetary default claimed by the Lender under the Loan Documents, no setoff, claim, counterclaim, reduction ordiminution of any obligation or defense of any kind or nature that the Borrower has or may have against the Lender (other than the defenses of payment, theLender’s gross negligence or willful misconduct) shall be available against the Lender in any action, suit or proceeding brought by the Lender to enforce thisAgreement or any other Loan Document. The foregoing shall not be construed as a waiver by the Borrower of any such rights or claims against the Lender,but any recovery upon any such rights or claims shall be had from the Lender separately, it being the intent of this Agreement and the other Loan Documentsthat the Borrower shall be obligated to pay, absolutely and unconditionally, all amounts due under this Agreement and the other Loan Documents.7.14 No Merger. The Borrower and the Lender expressly agree that the Borrower’s agreement and obligation to pay the Lender’s reasonable attorneys’fees and costs, and all other litigation expenses, shall not be merged into any judgment obtained by the Lender, but shall survive the same and shall not beextinguished by any monetary judgment. It is the express intent of the parties hereto that all post-judgment collection fees and expenses (includingreasonable attorneys’ fees and costs) shall survive entry of a final judgment and shall be collectible by the Lender against the Borrower from time to timefollowing entry of any final judgment obtained by the Lender against the Borrower.7.15. Counterparts. This Agreement may be executed for the convenience of the parties in several counterparts, which are in all respects similar andeach of which is to be deemed to be complete in and of itself, and any one of which may be introduced in evidence or used for any other purpose with theproduction of the other counterparts thereof.7.16 Consent to Jurisdiction. The Borrower irrevocably submits to jurisdiction of any state or federal court sitting in the Commonwealth of Virginia orthe State of Maryland over any suit, action or proceeding arising out of or relating to this Agreement, the Note or any other Loan Documents. Theundersigned irrevocably waives, to the fullest extent permitted by law, any objection that the undersigned may now or hereafter have to the venue of anysuch suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been broughtin an inconvenient forum. Final judgment in any such court shall be conclusive and binding and may be enforced in any court in which the undersigned issubject to jurisdiction by a suit upon such judgment provided that service of process is effected as provided herein or as otherwise permitted by applicablelaw.7.17 Service of Process. The Borrower hereby consents to process being served in any suit, action or proceeding instituted in the Commonwealth ofVirginia or the State of Maryland in connection with the Loan by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested,to the Borrower at the address set forth in the Notices section of this Agreement and (ii) 24serving a copy thereof upon the Borrower’s registered agent for service of process. The undersigned irrevocably agrees that such service shall be deemed to beservice of process upon the undersigned in any such suit, action or proceeding. Nothing in this Agreement shall affect the right of the Lender otherwise tobring proceedings against the undersigned in the courts of any jurisdiction or jurisdictions.9.18 Exhibits. All exhibits referred to herein as attached hereto are incorporated in full by reference as though fully set forth in this Agreement. TheExhibits are: Exhibit A: Legal Description of the Property and the Housing ParcelExhibit B: Form of Apartment Parcel Deed of TrustExhibit C: Carve Out Obligations[SIGNATURES ON FOLLOWING PAGES] 25IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to be executed in their respective names by duly authorizedrepresentatives as of the day and year first above written. The Guarantor joins herein to consent and agree to the terms, conditions, provisions and covenantsof those sections of this Agreement that address a covenant or obligation of the Guarantor. WITNESS: BORROWER: COMSTOCK REDLAND ROAD, L.C., a Virginialimited liability company By: Comstock Holding Companies, Inc., a Delawarecorporation, its Manager By: Christopher D. Clemente Chief Executive Officer[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., which is the Manager of Comstock RedlandRoad, L.C., a Virginia limited liability company, party to the foregoing instrument, and that the same is his act and deed and the act and deed of saidComstock Redland Road, L.C.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 26Witness: GUARANTOR: COMSTOCK HOLDING COMPANIES, INC., aDelaware corporation______________ Print Name: By: Christopher D. Clemente Chief Executive OfficerCOMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Christopher D. Clemente personally appeared before me insaid jurisdiction and acknowledged that he is the Chief Executive Officer of Comstock Holding Companies, Inc., a Delaware corporation, party to theforegoing instrument, and that the same is his act and deed and the act and deed of said Comstock Holding Companies, Inc..IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 27Witness: LENDER: EAGLEBANK______________ Print Name: By: Douglas Vigen Senior Vice President[SEAL]COMMONWEALTH OF VIRGINIACOUNTY OF , ss:I, , a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Douglas Vigen personally appeared before me in saidjurisdiction and acknowledged that he a Senior Vice President of EAGLEBANK; that he has been duly authorized to execute and deliver the foregoinginstrument for the purposes therein contained and that the same is his act and deed; that the seal affixed to said instrument is such corporate seal and that itwas so affixed by order of the Board of Directors of said Bank; and that he signed his name thereon by like order.IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2013. Notary Public[SEAL] My Commission expires: . Notary Registration No. . 28EXHIBIT ALegal Description of the Property and the Housing ParcelParcel P-146 in Montgomery County, Maryland, being that tract of land comprising 4.24307 acres, more or less, said tract of land being bisected byYellowstone Way.Tax ID No. 04-001-00776834.For metes and bounds description, see Exhibit “A” to Commitment for Title Insurance issued by Stewart Title Guaranty Company on February 13, 2013, FileNo. 01242 – 1549. 29EXHIBIT BFORM OF APARTMENT PARCEL DEED OF TRUST[ATTACHED] 30EXHIBIT CCARVE OUT OBLIGATIONSThe Guarantor shall also guaranty the full and timely payment of any and all actual loss, damage, cost, expense, liability, claim or other obligation incurredby the Lender (including reasonable attorneys’ fees and out-of-pocket costs actually incurred) arising out of or in connection with any one or more of thefollowing (the “Carve Out Obligations”):(i) Fraud, material misrepresentation or willful misconduct by Borrower or Guarantor or any of their respective members, managers, officers, principals,or any other person properly authorized to make statements or representations, or act, on behalf of Borrower or Guarantor in connection with the Loan or theProperty;(ii) physical waste committed on the Property; damage to the Property as a result of the intentional misconduct, recklessness or gross negligence ofBorrower or Guarantor, or any agent or employee of any such persons; or the removal of any portion of the Property by or at the direction of Borrower orGuarantor or any direct or indirect member or manager thereof, in violation of the terms of the Loan Documents (as defined in the Loan Agreement) followinga default under the Loan which is not cured within any applicable grace or cure period (an “Event of Default”);(iii) subject to any right to contest or bond off such matters, as provided in the Deed of Trust or Loan Agreement, failure to pay any valid taxes,assessments, mechanics’ liens, materialmen’s liens or other liens which could create liens on any portion of the Property which would be superior to the lienor security title of the Deed of Trust or the other Loan Documents, to the full extent of the amount claimed by any such lien claimant;(iv) the breach of any representation, warranty or covenant in, and any liability under any provision in, that certain Environmental IndemnityAgreement of even date herewith given by Borrower and Guarantor to Lender or the breach of any representation, warranty or covenant relating solely to, andany liability under any provision concerning, environmental laws, hazardous substances or asbestos in the Deed of Trust;(v) the misapplication or conversion of (A) any insurance proceeds paid to Borrower by reason of any loss, damage or destruction to the Property,(B) any awards or other amounts received by Borrower in connection with the condemnation of all or a portion of the Property, or (C) any rents from theProperty following an Event of Default or collected in advance; and(vi) failure to maintain any insurance policies required under the Loan Documents, or timely to pay or provide the amount of any insurance deductible,to the extent of the applicable deductible, following a casualty or other insured event. 31Exhibit 21.1List of Subsidiaries Name State of Incorporationor Organization1. Buckhead Overlook, LLC Georgia2. Comstock Acquisitions, L.C. Virginia3. Comstock Aldie, L.C. Virginia4. Comstock Barrington Park, L.C. Virginia5. Comstock Bellemeade, L.C. Virginia6. Comstock Belmont Bay 5, L.C. Virginia7. Comstock Belmont Bay 89, L.C. Virginia8. Comstock Blooms Mill II, L.C. Virginia9. Comstock Brandy Station, L.C. Virginia10. Comstock Carter Lake, L.C. Virginia11. Comstock Cascades, L.C. Virginia12. Comstock Communities, L.C. Virginia13. Comstock Countryside, L.C. Virginia14. Comstock Delta Ridge II, L.L.C. Virginia15. Comstock East Capitol, L.L.C. Virginia16. Comstock Emerald Farm, L.C. Virginia17. Comstock Fairfax I, L.C. Virginia18. Comstock Flynn’s Crossing, L.C. Virginia19. Comstock Hamlets of Blue Ridge, L.C. Virginia20. Comstock Holland Road, L.L.C. Virginia21. Comstock Homes of Atlanta, LLC Georgia22. Comstock Homes of North Carolina, L.L.C. North Carolina23. Comstock Homes of Raleigh, L.L.C. North Carolina24. Comstock Homes of Washington, L.C. Virginia25. Comstock James Road, L.L.C. Georgia26. Comstock Kelton II, L.C. Virginia27. Comstock Lake Pelham, L.C. Virginia28. Comstock Landing, L.L.C. Virginia29. Comstock Loudoun Condos 1, L.C. Virginia30. Comstock Massey Preserve, L.L.C. Virginia31. Comstock North Carolina, L.L.C. North Carolina32. Comstock Penderbrook, L.C. Virginia33. Comstock Potomac Yard, L.C. Virginia34. Comstock Realty, LLC Georgia35. Comstock Ryan Park, L.C. Virginia36. Comstock Sherbrooke, L.C. Virginia37. Comstock Station View, L.C. Virginia38. Comstock Summerland, L.C. Virginia39. Comstock Wakefield, L.L.C. Virginia40. Comstock Wakefield II, L.L.C. Virginia41. Culpeper Commercial, L.C. Virginia42. Highland Avenue Properties, LLC Georgia43. Highland Station Partners, LLC Georgia44. Mathis Partners, LLC Georgia45. North Shore Raleigh II, L.L.C. Virginia46. Post Preserve, LLC Georgia47. Raleigh Resolution, L.L.C. Virginia48. Settlement Title Services, L.L.C. Virginia49. TCG Debt Fund II, L.C. Virginia50. TCG Fund I, L.C. Virginia51. Tribble Road Development, LLC Georgia52. Comstock Cascades II, L.C Virginia53. Comstock Ventures XVI, L.C. Virginia54. New Hampshire Ave. Ventures, L.L.C. Virginia55. W. Street Ventures, L.L.C. Virginia56. Comstock Property Management, L.C. Virginia57. Comstock Contracting, L.C. Virginia58. Comstock Yorkshire, L.C Virginia59. Comstock Newell, L.C. Virginia60. Comstock Eastgate, L.C. Virginia61. Comstock Services, L.C. Virginia62. Comstock Redland Road, L.L.C. VirginiaExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-123709) of Comstock Holding Companies,Inc. of our report dated March 27, 2013 relating to the financial statements, which appears in this Form 10-K. / S / PRICEWATERHOUSECOOPERS LLPMcLean, VirginiaMarch 27, 2013Exhibit 31.1CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Christopher Clemente, certify that:1. I have reviewed this annual report on Form 10-K of Comstock Holding Companies, Inc. for the fiscal year ended December 31, 2012;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscalquarter of the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 27, 2013 / S / CHRISTOPHER CLEMENTEChristopher ClementeChairman and Chief Executive Officer(Principal executive officer)Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Joseph M. Squeri, certify that:1. I have reviewed this annual report on Form 10-K of Comstock Holding Companies, Inc. for the fiscal year ended December 31, 2012;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscalquarter of the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 27, 2013 / S / JOSEPH M. SQUERIJoseph M. SqueriChief Financial Officer(Principal financial officer)Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Comstock Holding Companies, Inc. (the “Company”) for the year ended December 31, 2012, asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), each of Christopher Clemente, Chairman and Chief Executive Officerof the Company and Joseph M. Squeri, Chief Financial Officer of the Company, certify, to our best knowledge and belief, pursuant to 18 U.S.C. § 1350, asadopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 27, 2013 / S / CHRISTOPHER CLEMENTE Christopher Clemente Chairman and Chief Executive OfficerDate: March 27, 2013 / S / JOSEPH M. SQUERI Joseph M. Squeri Chief Financial Officer

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