PROMISSORY NOTE


$15,000,000 00             Pittsburgh, Pennsylvania           December 15, 1995


         FOR VALUE  RECEIVED,  the  undersigned,  MCNEIL  REAL ESTATE FUND XXVI,
L.P.,  a California  limited  partnership  (hereinafter  called  "Maker"),  with
offices at 13760 Noel Road, Suite 700, LB70, Dallas,  Texas 75240, hereby agrees
and promises to pay to the order of THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,
a  Texas  corporation  (hereinafter  called  "Payee"),  at 2929  Allen  Parkway,
Houston, Harris County, Texas, 77019 Attn: Director - Mortgage Loans, or at such
other place as the holder hereof may from time to time designate in writing, the
principal sum of FIFTEEN MILLION AND NO/100 DOLLARS  ($15,000,000.00)  in lawful
money of the United States of America,  with  interest on the principal  balance
from time to time remaining  unpaid from the date of advancement  until maturity
at the rate of seven and one-half percent (7.50%) per annum,  said principal and
interest being payable in the manner and form as follows:


An installment of interest on the unpaid principal  balance hereof from the date
of funding through December 31, 1995, shall be due and payable at the funding of
this Note.


Commencing  January 1, 1996,  this Note  shall be payable in  eighty-three  (83)
consecutive monthly  installments of principal and interest in the amount of ONE
HUNDRED TEN THOUSAND EIGHT HUNDRED  FORTY-NINE AND NO/100 DOLLARS  ($110,849.00)
each  (calculated on the basis of a 360-day year and an  amortization  period of
twenty-five  [25]  years);  the first  installment  shall be due and  payable on
February 1, 1996, and a like  installment  shall be due and payable on the first
day of each of the next eighty-two (82) calendar months.


A FINAL  INSTALLMENT IN THE AMOUNT OF THE ENTIRE UNPAID PRINCIPAL BALANCE HEREOF
TOGETHER WITH INTEREST  ACCRUED  THEREON SHALL BE DUE AND PAYABLE ON DECEMBER 1,
2002 (THE "MATURITY DATE").


         Each  payment  shall  be  credited  first to  prepayment  fees or other
charges  hereunder  (other than  interest),  next on  interest  then due and the
remainder on principal, and interest shall thereupon cease upon the principal so
credited.


         Should default be made in payment of any of the indebtedness  evidenced
hereby,  after the entire  principal  amount  hereof  shall have  become due and
payable,  whether by acceleration,  at maturity or otherwise,  the entire unpaid
balance of that  principal  shall bear interest at the lesser of (I) the maximum
rate of interest  permitted by applicable state and federal law or (ii) the rate
of eighteen percent (18%) per annum.


         In the event that any payment required hereunder or under the "Security
Instruments"  (as  hereinafter  defined)  shall not be made within ten (10) days
after the date due, a late  charge  equal to the lesser of (I) an amount  which,
when added to all other amounts  constituting  "interest" under applicable state
or federal law,  does not exceed the maximum  non-usurious  amount  permitted by
applicable  state or federal law, or (ii) four percent (4%) of the amount of any
such  delinquent  payment so overdue  may be charged by Payee for the purpose of
defraying the expense incident to handling such delinquent  payments.  Such late
charge  represents the reasonable  estimate of Payee and Maker of a fair average
compensation  for the loss that may be  sustained by Payee due to the failure of
Maker to make timely payments.  Such late charge shall be paid without prejudice
to the right of Payee to collect  any other  amounts  provided  to be paid or to
declare a default hereunder or under the Security Instruments.


         1. Maker shall have the right to prepay the entire  principal  sum (but
not any lesser amount) of this Note on any regular monthly  installment date for
the payment of principal and interest  hereunder,  provided that (I) Payee shall
have received at least sixty (60) days' prior written  notice (the  "Notice") of
such  full  prepayment,  (ii)  at the  time  specified  in the  Notice  for  any
prepayment  there shall be no default  under this Note or under any of the other
Security  Instruments,  and (iii) such prepayment is accompanied by a prepayment
fee in an amount equal to the lesser of (x) an amount  which,  when added to all
other sums received,  charged,  or contracted for by Payee which are interest or
are deemed to be  interest  by  applicable  laws,  does not  exceed the  maximum
non-usurious  rate that may be received,  charged,  or  contracted  for by Payee
under applicable laws from time to time in effect (the "Maximum Lawful Rate") or
(y) the greater of an amount  calculated as set forth in  Paragraphs  (a) or (b)
(as applicable), below:


(a)        at the time of receipt by Payee of the Notice, the difference between
           (I) the then present  value of all unpaid  installments  of principal
           and interest  due and payable  under this Note,  calculated  from the
           date of the proposed  prepayment to the Maturity I) rate,  discounted
           at the  "Reinvestment  Rate" (as hereinafter  defined),  and (ii) the
           outstanding  principal  balance  under  this  Note on the date of the
           proposed prepayment; or


(b)  one percent (1%) of the then outstanding principal balance of this Note.


As used in this Note,  "Reinvestment  Rate"  shall be the yield to maturity on a
United States treasury bond or note (the choice of which security to be used for
such  purposes  being in the sole and absolute  discretion  of Payee),  having a
maturity  date of December 1, 2002 (or the maturity  date closest  thereto if no
such bond or note has a maturity date of December 1, 2002).


         2. If  Payee  shall  at any  time  come  into  possession  of  proceeds
resulting  from an  acceleration  of the maturity of this Note,  tender prior to
foreclosure,  foreclosure,  or any  other  reason  (other  than as a  result  of
application of insurance or condemnation  proceeds),  such  possession  shall be
deemed  to be and shall be  treated  as a  voluntary  prepayment  hereunder  and
consequently  there shall be added to the  outstanding  unpaid  principal sum of
this Note as additional  indebtedness  immediately due and payable hereunder and
secured by the Security  Instruments,  a prepayment fee equal to greater of that
provided for in Paragraph (lXa) or (b), above, whichever is applicable.


         3. Upon receipt by Payee of the Notice, Payee shall, within thirty (30)
days  thereafter,  give  notice  to  Maker  of the  Reinvestment  Rate  and,  if
applicable,  the amount of the  prepayment fee payable under  Paragraph  (1)(a),
above.  Determination  of the  Reinvestment  Rate  and the  amount  of any  such
prepayment fee by Payee shall be ending on Maker absent mathematical error.


         4. If Maker gives Payee  Notice of  prepayment  as herein  provided and
thereafter fails to prepay this Note (with payment of the applicable  prepayment
fee) at which time  specified  in the Notice,  such  failure  shall be a default
hereunder and, without further notice by Payee, entitle Payee, at its option, to
accelerate the maturity of this Note and exercise any and all remedies available
to Payee under the Security , instruments.


         5.  Notwithstanding  any provisions to the contrary  contained  herein,
there shall be no prepayment  premium or fee payable  hereunder  with respect to
prepayments  made in  accordance  with the terms hereof  during the last 90 days
prior to the Maturity Date  provided that Maker has timely  delivered the Notice
to Payee as required herein.


         This  Note  is  secured   by  all   mortgages,   security   agreements,
assignments,  and lien  instruments  (the  "Security  Instruments")  executed by
Maker,  the "Principals" of Maker (as hereinafter  defined),  or any other party
acting on behalf of Maker in favor of the Payee,  pertaining to and securing the
Note,  including  those  executed   simultaneously   herewith,   those  executed
heretofore and those executed  hereafter and including  specifically and without
limitation  that certain  Mortgage and Security  Agreement of even date herewith
(the  "Mortgage")  executed  by  Maker,  as  Mortgagor,  in favor of  Payee,  as
Mortgagee,  covering  approximately  29.30  acres of land  located in  Allegheny
County,  Pennsylvania,  together  with all  buildings  and  improvements  now or
hereafter erected thereon (hereinafter called the "Mortgaged Property"),  all as
more fully set forth and described in such instrument.


         This Note shall become immediately due and payable at the option of the
Payee or other  holder  hereof,  without  presentment  or demand  or any  notice
(including,  without  limitation,  notice of intent to  accelerate  or notice of
acceleration) to the Maker, on Maker's failure to pay any installment  hereon on
the date such  installment  is due, upon default under the terms of any Security
Instruments,  or if any event occurs or condition  exists which  authorizes  the
acceleration  of  maturity  hereof  under  any  agreement  made by the  Maker in
connection with the Security Instruments.


         If this Note is  collected  by suit,  through  probate,  or  bankruptcy
court,  or by any  other  judicial  proceedings,  or if this Note is not paid at
maturity,  howsoever  such maturity may be brought  about,  and is placed in the
hands of an attorney for collection,  then the Maker promises to pay in addition
to all other amounts owing hereunder, reasonable attorney's fees.


         It is the intention of the parties hereto to comply with the usury laws
of the State of Pennsylvania  and of the United States of America;  accordingly,
it is agreed that  notwithstanding any provision to the contrary in this Note or
in any Security  Instrument,  no such  provision  shall require the charging of,
payment of, or permit the  collection of sums deemed to be interest in excess of
the maximum  permitted  by  applicable  state and federal  law. If any excess of
interest in such  respect is  provided  for,  or shall be  adjudicated  to be so
provided for, in this Note or in any Security Instrument, then in such event (a)
the provisions of this paragraph shall govern and control, (b) neither the Maker
nor its  successors or assigns or any other party liable for the payment  hereof
shall be obligated  to pay the amount of such  interest to the extent that it is
in excess of the maximum amount  permitted by applicable  state and federal law,
and the same shall be construed as a mutual  mistake of the parties and, (c) any
such excess  which may have been  collected  shall be, at the option of Payee or
any legal  holder  hereof,  either  applied as a credit  against the then unpaid
principal amount hereof or refunded to Maker.


         The Maker and all sureties,  endorsers, and guarantors of this Note, to
the extent permitted by law (I) waive demand, presentment for payment, notice of
non-payment,  protest,  notice of  protest,  notice  of  intent  to  accelerate,
acceleration  and all other  notice,  filing of suit and diligence in collecting
this  Note  or  enforcing  any  of  the  security  herefor,  (ii)  agree  to any
substitution,  exchange or release of any party primarily or secondarily  liable
hereon,  (iii) agree that the Payee or other holder hereof shall not be required
first to  institute  suit or exhaust its  remedies  hereon  against the Maker or
others liable or to become  liable  hereon or to enforce its rights  against any
security  hereof in order to  enforce  payment  of this  Note by them,  and (iv)
consent to any extension or  postponement of time of payment of this note and to
any other indulgence with respect hereto Without notice thereof to any of them.


         If an event of default occurs, Maker hereby authorizes and empowers the
Prothonotary, Clerk of Court or similar official or any attorney of any court of
record of  Pennsylvania,  or  elsewhere,  to appear for and to confess  judgment
against  Maker in favor of Payee,  its  successors  or assigns,  as of any term,
past, present or future,  with or without  declaration,  or to sign for Maker an
amicable action or actions and to confess  judgment  therein against Maker,  for
the debt  evidenced  by this Note and all other  sums  payable  hereunder  or on
account  hereof with  interest  thereon  and/or under the Security  Instruments,
together with costs of suit and  attorneys'  fee for  collection of  $10,000.00,
with release of all errors, and on which judgment Payee may, on failure of Maker
to comply with any of the terms,  provisions and conditions of this Note, or any
of the  Security  Instruments,  issue or cause to be  issued,  an  execution  or
executions.  The  authority  herein  granted  to confess  judgment  shall not be
exhausted by any exercise  thereof,  but shall continue from time to time and at
all times until full payment of all amounts due hereunder.


         This Note is intended to be  performed in  accordance  with and only to
the extent  permitted by all applicable  law. If any portion of this Note or the
application  thereof to any person or circumstance  shall, for any reason and to
any  extent,  be  invalid  or  unenforceable,  neither  the  remainder  of  this
instrument  nor  the   application  of  such  provisions  to  other  persons  or
circumstances  shall be affected  thereby,  but rather  shall be enforced to the
greatest extent permitted by law.


         The  liability  of Maker and the  Principals  of Maker for  failure  to
perform  Maker's  obligations  hereunder  or under  the  Mortgage  and  Security
Instruments  is expressly  limited to the security for payment of the Note,  the
same  being  all  properties,  rights,  and  estates  subject  to  the  Security
Instruments  and Payee agrees not to seek any damages or money judgment  against
Maker or the  Principals of Maker for any default on the part of Maker under the
Note  or  any of  the  Security  Instruments.  Notwithstanding  anything  to the
contrary  contained  in the  Note  or in any of the  Security  Instruments,  and
notwithstanding any delay on the part of Payee in exercising any right, power or
remedy in connection with any default under the Note, the Mortgage or any of the
other Security Instruments, Payee shall have full recourse against Maker and the
Principals  of Maker and Maker and the  Principals  of Maker shall be personally
liable,  jointly and severally,  for and shall promptly  account (by delivery of
funds or proof that the same have been  theretofore  expended for costs incurred
in  connection  with the Mortgaged  Property) to Payee for (a) all  condemnation
awards  and  proceeds  and  insurance  proceeds  (to the  extent  same  have not
therefore been applied toward payment of the sums due under the Note or used for
repair of the Mortgaged Property or otherwise used with Payee's written consent)
and, with respect to such insurance proceeds which represent proceeds paid under
any rent insurance,  to the additional extent such rent insurance  proceeds have
not heretofore  been applied toward the payment of taxes and insurance  premiums
or otherwise used with Payee's written  consent);  (b) all amounts  necessary to
repair any damage to the  Mortgaged  Property,  excluding  normal wear and tear,
caused by acts or omissions of Maker, its agents, employees, or contractors; (c)
all tenant  security  deposits as to which the tenants  still have rights  under
applicable  law; (d) failure to pay, in  accordance  with the  Mortgage,  taxes,
assessments  or other  charges  which can  create  liens on any  portion  of the
Mortgaged  Property and are payable hereunder or under the Security  Instruments
(to the full  extent  of any such  taxes,  assessments  or other  charges);  (e)
failure to pay charges for labor or materials or other  charges which can create
liens on any portion of the Mortgaged Property (to the full extent of the amount
rightfully claimed by any such claimant);  (f) prepaid rent (rent paid more than
one (1) month in advance) and rental or other income  derived from the Mortgaged
Property (to the extent such rental or other income has not been applied  toward
payment of sums due  hereunder  or for repair of the  Mortgaged  Property or for
payment of bonafide, third party operating costs of the Mortgaged Property) from
and after  receipt by Maker of notice of the  occurrence  of a default under the
Note or the Security  Instruments  (g) any loss incurred by Payee as a result of
Maker's forfeiture of the Mortgaged Property resulting from criminal activity by
any person  whether or not such  criminal  activity  is  conducted  on or in any
manner relates to the Mortgaged Property;  and (h) all sums due Payee (excluding
payments of principal and interest under this Note) following  exercise by Payee
of its right to perform Maker's  obligations  under the Security  Instruments to
preserve,  protect  and  defend the  Mortgaged  Property  after such  notice and
opportunity   to  cure  as  may  be  provided  in  the   Security   Instruments.
Additionally,  Payee  shall  have the right to offset  against  any sums owed by
Maker under items (a) through (h),  above,  any funds held by Payee  (including,
without  limitation,  escrows for taxes and insurance)  pursuant to the Note and
any of the Security Instruments.  Nothing herein contained shall be construed to
prevent Payee from  exercising  and enforcing any other remedy allowed at law or
in  equity  or by any  statute  or by the  terms  of the  Note  or the  Security
Instruments  nor shall  anything  herein  contained be deemed to be a release or
impairment  of the  Mortgage,  any  of the  other  Security  Instruments  or the
indebtedness  evidenced  by the Note or  secured  thereby  or shall be deemed to
prejudice  the  right of Payee as  against  Maker  or any  other  entity  now or
hereafter  liable under any  guaranty,  bond,  or lease  covering the  Mortgaged
Property or any portion  thereof,  policy of insurance or other  agreement which
Maker  may  have  delivered  to  Payee  in  compliance  with  any of the  terms,
covenants,  and  conditions of the Note or any of the Security  Instruments,  or
preclude the Payee from  exercising  its right to  foreclose  under the Mortgage
(either by judicial means or nonjudicial  means) in the event of a default under
the Note or any of the Security Instruments,  or except as may be limited by the
foregoing  provisions of this  paragraph or any other express  provisions of the
Security  Documents or this Note, from enforcing any of the Payee's rights under
the Note or under any of the Security Instruments including, without limitation,
the right to the appointment of a receiver for the Mortgaged Property,  or limit
the rights or remedies  which Payee would  otherwise be entitled to at law or in
equity absent the limitation of liability provisions set forth in this paragraph
against  Maker  for fraud  perpetrated  by Maker  against  Payee.  In  addition,
notwithstanding  any other  provisions of the Note or the Security  Instruments,
Maker, jointly and severally, shall be personally liable for any loss, damage or
injury  sustained  by Payee  arising from the breach by Maker of any warranty or
representation of Maker contained in any affidavit made by or on behalf of Maker
or in any of the  Security  Instruments  regarding  hazardous  wastes  or  other
hazardous  or  toxic  substances.  Additionally,  Maker  shall  be  jointly  and
severally liable for any breach of the warranties, representations, covenants or
indemnities  contained  in Article 11 of the  Mortgage  relating  to  "Hazardous
Materials" (as therein defined).


     For purposes hereof the  "Principals" of Maker shall mean McNeil  Partners,
L.P.  (the general  partner of Maker) and McNeil  Investors,  Inc.  (the general
partner of the general partner of Maker).

         This  Note  and the  Security  Instruments  shall  be  governed  by and
construed in accordance with the laws of the State of Pennsylvania.

McNeil Real Estate Fund XXVI, L.P., a
California limited partnership, by its
undersigned General Partner
(SEAL)

By: McNeil Partners, L.P., a Delaware
    limited partnership, by its undersigned
    sole General Partner
(SEAL)

By: McNeil Investors,
    Delaware corporation
(SEAL)

                                      By:  /s/ Donald K. Reed
                                           ------------------
                                      Name: Donald K. Reed
                                      Title: President


         The undersigned McNeil Partners,  L.P. and McNeil Investors,  Inc. join
in the execution hereof to acknowledge  their liability as "Principals" of Maker
subject to, as limited by and in accordance  with, the terms of this  Promissory
Note.

McNeil Partners, L.P., a Delaware
limited partnership, by its undersigned
sole General Partner
(SEAL)

By: McNeil Investors, Inc., a
    Delaware corporation
    (SEAL)

                                      By:
                                      Name:
                                      Title:




<PAGE>


McNeil Investors, Inc., a Delaware
corporation

By:
Name
Title:
(SEAL)


                SIGNATURE PAGE TO $15,000,000.00 PROMISSORY NOTE
                      DATED DECEMBER ls3 ,1995, EXECUTED BY
                       MCNEIL REAL ESTATE FUND XXVI, L.P.
                             PAYABLE TO THE ORDER OF
                  THE VARIABLE ANNUITY LIFER INSURANCE COMPANY