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                                                                   EXHIBIT 10.86

                                  ALLONGE #1 TO
                              DEED OF TRUST NOTE OF
                               ARV SUNNYVALE, L.P.
                                       TO
                           RED MORTGAGE CAPITAL, INC.
                 IN THE ORIGINAL PRINCIPAL SUM OF $8,855,000.00
                             DATED DECEMBER 5, 2000

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        1. Except as provided in Paragraphs 2, and 3 below, Maker may not prepay
any sums due under the Mortgage Note (the "Note") prior to February 1, 2006.
Commencing on February 1, 2006, upon thirty (30) days advance written notice to
the Holder, Maker may prepay the indebtedness evidenced by this Note, in whole
or in an amount equal to one or more monthly payments of principal next due, on
the last day of any month, provided such prepayment is accompanied by the
prepayment penalty (expressed as a percentage of the principal amount so
prepaid) set forth below:

                 PREPAYMENT PERIODS                       PREPAYMENT PENALTY
                 ------------------                       ------------------

        February 1, 2006 through January 31, 2007                  5%
        February 1, 2007 through January 31, 2008                  4%
        February 1, 2008 through January 31, 2009                  3%
        February 1, 2009 through January 31, 2010                  2%
        February 1, 2010 through January 31, 2011                  1%
        February 1, 2011 and thereafter                          None

        All such prepayments, including the principal sum and interest thereon
to and including the date of such prepayment, shall be in immediately available
Federal Funds.

        2. Notwithstanding any prepayment prohibition imposed and/or penalty
required by this Allonge #1 with respect to voluntary prepayments made prior to
February 1, 2010, the indebtedness may be prepaid in whole or in part without
the consent of the holder and without prepayment premium if the Commissioner
determines that prepayment will avoid a mortgage insurance claim and is
therefore in the best interest of the Federal Government.

        3. The provisions of Paragraph 1 of this Allonge #1 shall not apply and
no prepayment premium shall be collected by the holder with respect to any
prepayment which is made by or on behalf of Maker from insurance proceeds as a
result of damage to the property or condemnation awards which may, at the option
of the holder, be applied to reduce the indebtedness evidenced by the Note
pursuant to the terms of the Mortgage given of even date to secure the
indebtedness evidenced by the Note.

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        4. A reduction in the principal amount of the Note required by the
Commissioner at the time of Initial/Final Endorsement by the Commissioner as a
result of the Commissioner's cost certification requirements shall not be
construed as a prepayment hereunder. If a reduction is required by the
Commissioner as aforesaid, or if any prepayment from any source (to the extent
permitted herein) is made, the remaining payments due on the Note may, with the
approval of the holder and the Commissioner, be recast such that the required
monthly payments of principal and interest shall be in equal amounts sufficient
to amortize the Note over the then remaining term thereof.

                             ARV SUNNYVALE, L.P.
                             a California limited partnership

                             By:    American Retirement Villas Properties II
                                    a California limited partnership,
                                    General Partner

                                    By:     ARV Assisted Living, Inc.
                                            a Delaware corporation,
                                            General Partner


                                            By:    ____________________________
                                                   Abdo H. Khoury
                                                   Senior Vice President