EXHIBIT 4.2

LOAN NO.: 26-5950521                                       GREENBRIER APARTMENTS
                                                        FREDERICKSBURG, VIRGINIA


                        INDEMNITY AND GUARANTY AGREEMENT

         THIS INDEMNITY AND GUARANTY  AGREEMENT (this  "Agreement"),  made as of
March 23, 2001 by CORNERSTONE REALTY INCOME TRUST, INC., a Virginia  corporation
("Indemnitor"), whose address is 306 East Main Street, Richmond, Virginia 23219,
Attention:  Glade M. Knight,  in favor of FIRST UNION  NATIONAL BANK, a national
banking  association  ("Lender"),  whose address is One First Union Center,  301
South College Street,  Mailcode NC 0166,  Charlotte,  North Carolina 28288-0166,
Attention: Contract Finance.

                              W I T N E S S E T H:

         WHEREAS,  CRIT-VA II, INC., a Virginia  corporation  ("Borrower"),  has
obtained a loan (the "Loan") in the  principal  amount of Twelve  Million  Seven
Hundred Fifty Thousand and No/100 Dollars ($12,750,000.00) from Lender; and

         WHEREAS,  the Loan is evidenced by a Promissory Note (the "Note") dated
of even date herewith,  executed by Borrower and payable to the order of Lender,
in the stated  principal  amount of Twelve  Million Seven Hundred Fifty Thousand
and  No/100  Dollars  ($12,750,000.00),  and is  secured  by a Deed of Trust and
Security  Agreement  dated of even date  herewith  (the  "Deed of  Trust")  from
Borrower  for the benefit of Lender,  encumbering  that  certain  real  property
situated  in the  City of  Fredericksburg,  Commonwealth  of  Virginia,  as more
particularly  described on Exhibit A attached hereto and incorporated  herein by
this reference,  together with the buildings,  structures and other improvements
now or  hereafter  located  thereon  (the  "Property")  and by  the  other  Loan
Documents (as defined in the Deed of Trust); and

         WHEREAS,  as a  condition  to making the Loan to  Borrower,  Lender has
required that Indemnitor indemnify Lender from and against and guarantee payment
to Lender of those items for which Borrower has recourse liability and for which
Lender has recourse against Borrower under the terms of Section 2.6 of the Note;
and

         WHEREAS,  Indemnitor is the sole shareholder of Borrower, the extension
of the Loan to Borrower is of substantial  benefit to Indemnitor and, therefore,
Indemnitor desires to indemnify Lender from and against and guarantee payment to
Lender of those  items for which  Borrower  is  personally  liable and for which
Lender has recourse against Borrower under the terms of the Note and the Deed of
Trust.

         NOW, THEREFORE,  to induce Lender to extend the Loan to Borrower and in
consideration  of the  foregoing  premises  and  for  other  good  and  valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Indemnitor hereby covenants and agrees for the benefit of Lender, as follows:

<PAGE>

         1. Indemnity and Guaranty.  Indemnitor  hereby  assumes  liability for,
hereby guarantees  payment to Lender of, hereby agrees to pay,  protect,  defend
and save Lender harmless from and against,  and hereby  indemnifies  Lender from
and against any and all liabilities,  obligations,  losses,  damages,  costs and
expenses (including, without limitation,  reasonable attorneys' fees), causes of
action,  suits,  claims,  demands  and  judgments  of any nature or  description
whatsoever  (collectively,  "Costs")  which may at any time be actually  imposed
upon, incurred by or awarded against Lender as a result of:

                  (a) Misapplication or misappropriation by Borrower of proceeds
paid under any insurance  policies (or paid to Borrower as a result of any other
claim or cause of action against any person or entity) by reason of damage, loss
or destruction to all or any portion of the Property, to the full extent of such
proceeds not previously  delivered to Lender,  but which, under the terms of the
Loan Documents, should have been delivered to Lender;

                  (b) Misapplication or misappropriation by Borrower of proceeds
or  awards   resulting  from  the  condemnation  or  other  taking  in  lieu  of
condemnation  of all or any  portion of the  Property to the full extent of such
proceeds or awards not  previously  delivered  to Lender,  but which,  under the
terms of the Loan Documents, should have been delivered to Lender;

                  (c)  Misapplication  or  misappropriation  by  Borrower of all
tenant  security  deposits  or  other  refundable  deposits  paid  to or held by
Borrower  or any other  person  or entity  under the  control  or  direction  of
Borrower,  if any,  in  connection  with  leases  of all or any  portion  of the
Property,  which are not applied in accordance  with the terms of the applicable
lease or other agreement;

                  (d) Misapplication or misappropriation by Borrower of rent and
other  payments  received from tenants under leases of all or any portion of the
Property paid more than one (1) month in advance;

                  (e) Misapplication or  misappropriation  by Borrower of rents,
issues,  profits and revenues of all or any portion of the Property  received by
Borrower  or any other  person  or entity  under the  control  or  direction  of
Borrower that are applicable to a period after the occurrence and continuance of
an Event of Default under the Loan Documents,  or any event which with notice or
the passage of time, or both,  would  constitute an Event of Default,  which are
not  either   applied  to  the  ordinary  and  necessary   expenses  or  capital
expenditures  in  connection  with owning and  operating the Property or paid to
Lender or otherwise as contemplated or permitted by the Loan Documents;

                  (f) Waste committed on the Property, or damage to the Property
as a result of the intentional misconduct or gross negligence of Borrower or any
of its officers, general partners or members, as the case may be, Indemnitor, or
any agent or employee of any such persons,  or any removal of any portion of the
Property  not  repaired as required by the Loan  Documents  in  violation of the
terms of the Loan  Documents,  to the  full  extent  of the  losses  or  damages
actually incurred by Lender on account of such occurrence;


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<PAGE>

                  (g) Failure by Borrower to pay any valid  taxes,  assessments,
mechanic's liens, materialmen's liens or other liens which could create liens on
any  portion of the  Property  which  would be  superior to the lien or security
title of the Deed of Trust or the other Loan Documents  except,  with respect to
any such taxes or assessments, to the extent that funds have been deposited with
Lender  pursuant  to the  terms  of the  Deed  of  Trust  specifically  for  the
applicable  taxes or assessments and not applied by Lender to pay such taxes and
assessments;

                  (h) All  obligations and indemnities of Borrower under Section
1.31 of the Deed of Trust and the Environmental  Indemnity Agreement (as defined
in the Note)  relating to hazardous or toxic  substances  or radon or compliance
with environmental laws and regulations; and

                  (i) Fraud, material misrepresentation or failure to disclose a
material fact by Borrower or any of its officers,  general  partners or members,
as the  case  may  be,  Indemnitor,  or any  agent,  employee  or  other  person
authorized  to make  statements,  representations  or  disclosures  on behalf of
Borrower,  any  officer,  general  partner  or  member,  as the case may be,  of
Borrower, or Indemnitor,  to the full extent of any losses, damages and expenses
actually incurred by Lender on account thereof.

         This is a guaranty of payment and  performance  and not of  collection.
The liability of Indemnitor for Costs under this  Agreement  shall be direct and
immediate and not  conditional  or  contingent  upon the pursuit of any remedies
against  Borrower or any other  person  (including,  without  limitation,  other
guarantors,  if any), nor against the collateral for the Loan. Indemnitor waives
any right to require  that an action be brought  against  Borrower  or any other
person or to require  that resort be made to any  collateral  for the Loan or to
any balance of any deposit  account or credit on the books of Lender in favor of
Borrower or any other person.  In the event, on account of the Bankruptcy Reform
Act of 1978,  as amended,  or any other debtor  relief law  (whether  statutory,
common  law,  case law or  otherwise)  of any  jurisdiction  whatsoever,  now or
hereafter  in  effect,  which may be or  become  applicable,  Borrower  shall be
relieved of or fail to incur any debt,  obligation  or  liability as provided in
the Loan  Documents,  Indemnitor  shall  nevertheless  be fully liable for Costs
hereunder. In the event of a default under the Loan Documents which is not cured
within  any  applicable  grace or cure  period,  Lender  shall have the right to
enforce  its  rights,  powers  and  remedies  (including,   without  limitation,
foreclosure of all or any portion of the collateral for the Loan)  thereunder or
hereunder, in any order, and all rights, powers and remedies available to Lender
in such event shall be non-exclusive and cumulative of all other rights,  powers
and remedies  provided  thereunder  or hereunder or by law or in equity.  If the
Costs  guaranteed  hereby  are  partially  paid or  discharged  by reason of the
exercise  of any of the  remedies  available  to Lender,  this  Agreement  shall
nevertheless remain in full force and effect, and Indemnitor shall remain liable
for all  remaining  Costs  guaranteed  hereby,  even  though  any  rights  which
Indemnitor  may have against  Borrower may be  destroyed  or  diminished  by the
exercise of any such remedy.

         2.       Indemnification Procedures.

                  (a) If any action shall be brought  against  Lender based upon
any of the Costs for which Lender is indemnified hereunder,  Lender shall notify
Indemnitor in writing thereof and


                                       3
<PAGE>

Indemnitor  shall  promptly  assume  the  defense  thereof,  including,  without
limitation,  the employment of counsel  reasonably  acceptable to Lender and the
negotiation of any settlement;  provided, however, that any failure of Lender to
notify  Indemnitor of such matter shall not impair or reduce the  obligations of
Indemnitor  hereunder.  In the  event  Indemnitor  shall  fail to  discharge  or
undertake to defend  Lender  against any Costs for which  Lender is  indemnified
hereunder,  Lender may, at its sole option and  election,  defend or settle such
claim,  loss  or  liability,  and,  upon  reasonable  prior  written  notice  to
Indemnitor,  Lender shall have the right,  at the expense of  Indemnitor  (which
expense  shall be included  in Costs),  to employ  separate  counsel in any such
action and to participate in the defense thereof. The liability of Indemnitor to
Lender  hereunder shall be conclusively  established by such settlement  (absent
manifest  error),  provided such settlement is made in good faith, the amount of
such  liability to include both the settlement  consideration  and the costs and
expenses,   including,  without  limitation,   reasonable  attorneys'  fees  and
disbursements, actually incurred by Lender in effecting such settlement. In such
event,  such settlement  consideration,  costs and expenses shall be included in
Costs and Indemnitor shall pay the same as hereinafter provided.

                  (b) Indemnitor shall not, without the prior written consent of
Lender, such consent not to be unreasonably  withheld or delayed:  (i) settle or
compromise any action, suit,  proceeding or claim or consent to the entry of any
judgment that does not include as an unconditional  term thereof the delivery by
the claimant or plaintiff  to Lender of a full and complete  written  release of
Lender  (in  form,  scope  and  substance  satisfactory  to  Lender  in its sole
discretion)  from all liability in respect of such action,  suit,  proceeding or
claim and a dismissal with prejudice of such action, suit,  proceeding or claim;
or (ii) settle or compromise any action, suit, proceeding or claim in any manner
that may adversely  affect  Lender or obligate  Lender to pay any sum or perform
any obligation as reasonably determined by Lender.

                  (c) All Costs shall be immediately reimbursable to Lender when
and as incurred and, in the event of any litigation,  claim or other proceeding,
without any requirement of waiting for the ultimate  outcome of such litigation,
claim or other proceeding,  and Indemnitor shall pay to Lender any and all Costs
within ten (10) days after  receipt of written  notice from Lender  itemizing in
reasonable  detail the amounts thereof  incurred to the date of such notice.  In
addition  to any  other  remedy  available  for the  failure  of  Indemnitor  to
periodically pay such Costs, such Costs, if not paid within said ten-day period,
shall bear interest at the Default Interest Rate (as defined in the Note).

         3. Reinstatement of Obligations.  If at any time all or any part of any
payment made by Indemnitor or received by Lender from  Indemnitor  under or with
respect to this  Agreement  is or must be  rescinded  or returned for any reason
whatsoever  (including,  but not  limited  to,  the  insolvency,  bankruptcy  or
reorganization  of Indemnitor or Borrower),  then the  obligations of Indemnitor
hereunder shall, to the extent of the payment  rescinded or returned,  be deemed
to have continued in existence,  notwithstanding  such previous  payment made by
Indemnitor,  or receipt of payment by Lender,  and the obligations of Indemnitor
hereunder  shall continue to be effective or be reinstated,  as the case may be,
as to such payment,  all as though such previous payment by Indemnitor had never
been made.


                                       4
<PAGE>

         4.       Waivers by Indemnitor. To the fullest extent permitted by law,
Indemnitor hereby waives and agrees not to assert or take advantage of:

                  (a) Any right to require Lender to proceed against Borrower or
any other person or to proceed against or exhaust any security held by Lender at
any time or to pursue  any other  remedy  in  Lender's  power or under any other
agreement before proceeding against Indemnitor hereunder;

                  (b) Any  defense  that may arise by reason of the  incapacity,
lack of  authority,  death or  disability  of any other person or persons or the
failure  of  Lender  to  file  or  enforce  a  claim   against  the  estate  (in
administration,  bankruptcy  or any other  proceeding)  of any  other  person or
persons;

                  (c) Except as expressly provided herein,  demand,  presentment
for  payment,  notice of  nonpayment,  protest,  notice of protest and all other
notices of any kind, or the lack of any thereof, including, without limiting the
generality of the foregoing,  notice of the existence,  creation or incurring of
any new or additional  indebtedness or obligation or of any action or non-action
on the part of  Borrower,  Lender,  any  endorser  or creditor of Borrower or of
Indemnitor or on the part of any other person whomsoever under this or any other
Loan Document held by Lender;

                  (d) Any defense based upon an election of remedies by Lender;

                  (e) Any right or claim or right to cause a marshalling  of the
assets of Indemnitor;

                  (f) Any principle or provision of law, statutory or otherwise,
which  is or  might  be in  conflict  with  the  terms  and  provisions  of this
Agreement;

                  (g) Any duty on the part of Lender to disclose  to  Indemnitor
any facts  Lender may now or  hereafter  know about  Borrower  or the  Property,
regardless  of  whether  Lender  has  reason  to  believe  that any  such  facts
materially  increase the risk beyond that which Indemnitor  intends to assume or
has  reason to  believe  that such  facts are  unknown  to  Indemnitor  or has a
reasonable  opportunity  to  communicate  such  facts  to  Indemnitor,  it being
understood and agreed that Indemnitor is fully responsible for being and keeping
informed  of the  financial  condition  of  Borrower,  of the  condition  of the
Property and of any and all circumstances bearing on the risk that liability may
be incurred by Indemnitor hereunder;

                  (h)  Any  lack  of  notice  of  disposition  or of  manner  of
disposition of any collateral for the Loan;

                  (i) Any invalidity, irregularity or unenforceability, in whole
or in part, of any one or more of the Loan Documents;

                  (j) Any lack of commercial  reasonableness in dealing with the
collateral for the Loan;


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<PAGE>

                  (k) Any  deficiencies  in the  collateral  for the Loan or any
deficiency in the ability of Lender to collect or to obtain performance from any
persons or entities now or hereafter  liable for the payment and  performance of
any obligation hereby guaranteed;

                  (l) An assertion or claim that the automatic  stay provided by
11  U.S.C.  ss.362  (arising  upon  the  voluntary  or  involuntary   bankruptcy
proceeding of Borrower) or any other stay provided under any other debtor relief
law (whether  statutory,  common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, shall
operate or be interpreted to stay, interdict,  condition,  reduce or inhibit the
ability  of  Lender to  enforce  any of its  rights,  whether  now or  hereafter
required,  which Lender may have against  Indemnitor or the  collateral  for the
Loan;

                  (m) Any  modifications of the Loan Documents or any obligation
of Borrower  relating to the Loan by operation of law or by action of any court,
whether pursuant to the Bankruptcy Reform Act of 1978, as amended,  or any other
debtor relief law (whether statutory,  common law, case law or otherwise) of any
jurisdiction whatsoever, now or hereafter in effect, or otherwise; and

                  (n) Any action,  occurrence,  event or matter  consented to by
Indemnitor  under  Section 6(h) hereof,  under any other  provision  hereof,  or
otherwise.

         5. Representation and Warranty. Indemnitor hereby represents,  warrants
and  covenants  that  Indemnitor's  net worth is,  and at all times  while  this
Agreement shall be in effect, shall be not less than $500,000,  as determined in
accordance with generally accepted accounting principles consistently applied.

         6.       General Provisions.

                  (a)  Fully  Recourse.   All  Costs  guaranteed  hereunder  are
recourse  obligations  of Indemnitor  and not  restricted  by any  limitation on
recourse liability set forth in any of the Loan Documents.

                  (b) Unsecured Obligations. Indemnitor hereby acknowledges that
Lender's  appraisal of the Property is such that Lender is not willing to accept
the  consequences  of the inclusion of  Indemnitor's  indemnity set forth herein
among the obligations  secured by the Deed of Trust and the other Loan Documents
and that Lender would not make the Loan but for the unsecured recourse liability
undertaken by Indemnitor herein.

                  (c) Survival.  This Agreement shall be deemed to be continuing
in nature  and shall  remain in full  force and  effect  and shall  survive  the
exercise  of any  remedy by  Lender  under the Deed of Trust or any of the other
Loan Documents,  including,  without limitation, any foreclosure or deed in lieu
thereof,  even if, as a part of such  remedy,  the Loan is paid or  satisfied in
full.


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<PAGE>

                  (d)   No    Subrogation;    No   Recourse    Against   Lender.
Notwithstanding  the  satisfaction  by Indemnitor  of any  liability  hereunder,
Indemnitor shall not have any right of subrogation, contribution,  reimbursement
or  indemnity  whatsoever  or any right of  recourse  to or with  respect to the
assets or property of Borrower or to any  collateral for the Loan. In connection
with  the  foregoing,   Indemnitor  expressly  waives  any  and  all  rights  of
subrogation to Lender against Borrower,  and Indemnitor hereby waives any rights
to enforce any remedy which  Lender may have  against  Borrower and any right to
participate  in any  collateral  for the Loan. In addition to and without in any
way  limiting  the  foregoing,   Indemnitor  hereby  subordinates  any  and  all
indebtedness of Borrower now or hereafter owed to Indemnitor to all indebtedness
of Borrower to Lender,  and agrees with Lender that Indemnitor  shall not demand
or accept any payment of principal or interest  from  Borrower,  shall not claim
any offset or other reduction of Indemnitor's  obligations  hereunder because of
any such  indebtedness  and  shall  not take any  action  to  obtain  any of the
collateral  from the  Loan.  Further,  Indemnitor  shall  not have any  right of
recourse  against Lender by reason of any action Lender may take or omit to take
under the  provisions  of this  Agreement or under the  provisions of any of the
Loan Documents.

                  (e) Reservation of Rights. Nothing contained in this Agreement
shall  prevent or in any way diminish or interfere  with any rights or remedies,
including, without limitation, the right to contribution,  which Lender may have
against  Borrower,  Indemnitor  or  any  other  party  under  the  Comprehensive
Environmental  Response,  Compensation  and Liability  Act of 1980  (codified at
Title 42 U.S.C. ss.9601 et seq.), as it may be amended from time to time, or any
other  applicable  federal,  state or local laws,  all such rights  being hereby
expressly reserved.

                  (f)  Financial  Statements.  Indemnitor  hereby  agrees,  as a
material  inducement to Lender to make the Loan to Borrower,  to comply with the
provisions  of  Section  1.18(f)  of the Deed of Trust as  concerns  Indemnitor.
Indemnitor hereby warrants and represents unto Lender that any and all financial
data which have  heretofore  been given or may hereafter be given to Lender with
respect  to  Indemnitor  did or will at the  time of such  delivery  fairly  and
accurately present the financial condition of Indemnitor.

                  (g) Rights  Cumulative;  Payments.  Lender's rights under this
Agreement  shall be in addition to all rights of Lender under the Note, the Deed
of Trust and the other Loan  Documents.  FURTHER,  PAYMENTS  MADE BY  INDEMNITOR
UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S  OBLIGATIONS AND
LIABILITIES  UNDER THE NOTE,  THE DEED OF TRUST  AND THE  OTHER  LOAN  DOCUMENTS
EXCEPT  WITH  RESPECT  TO,  AND TO THE  EXTENT  OF,  BORROWER'S  OBLIGATION  AND
LIABILITY FOR THE PAYMENT MADE BY INDEMNITOR.

                  (h) No Limitation on Liability. Indemnitor hereby consents and
agrees that Lender may at any time and from time to time without further consent
from Indemnitor do any of the following events,  and the liability of Indemnitor
under this Agreement shall be unconditional  and absolute and shall in no way be
impaired or limited by any of the following  events,  whether  occurring with or
without  notice to Indemnitor or with or without  consideration  unless the same
shall  have the  effect  of  satisfying  Borrower's  obligations  under the Loan
Documents:  (i) any  extensions of time for  performance  required by any of the
Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or
foreclosure of the Note, the Deed of Trust or


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<PAGE>

any of the other Loan  Documents  or any sale or transfer of the  Property  (but
subject  to the  provisions  of  Section  1.5(d)(C)(5)  of the Note and  Section
1.13(b)(10)  of the Deed of  Trust);  (iii)  any  change in the  composition  of
Borrower, including, without limitation, the withdrawal or removal of Indemnitor
from any  current or future  position  of  ownership,  management  or control of
Borrower;  (iv) the accuracy or inaccuracy of the representations and warranties
made by Indemnitor  herein or by Borrower in any of the Loan Documents;  (v) the
release  of  Borrower  or of any  other  person or entity  from  performance  or
observance of any of the agreements, covenants, terms or conditions contained in
any of the  Loan  Documents  by  operation  of law,  Lender's  voluntary  act or
otherwise;  (vi) the release or substitution in whole or in part of any security
for the Loan;  (vii) Lender's failure to record the Deed of Trust or to file any
financing  statement (or Lender's  improper  recording or filing  thereof) or to
otherwise perfect, protect, secure or insure any lien or security interest given
as security for the Loan; or (viii) the  modification of the terms of any one or
more of the Loan  Documents.  No such action  which Lender shall take or fail to
take in connection  with the Loan  Documents or any collateral for the Loan, nor
any course of dealing with Borrower or any other person,  shall limit, impair or
release Indemnitor's obligations hereunder,  affect this Agreement in any way or
afford Indemnitor any recourse against Lender. Nothing contained in this Section
shall be construed  to require  Lender to take or refrain from taking any action
referred to herein.

                  (i) Entire Agreement; Amendment;  Severability. This Agreement
contains the entire agreement between the parties  respecting the matters herein
set forth and supersedes all prior agreements,  whether written or oral, between
the parties respecting such matters. Any amendments or modifications  hereto, in
order to be effective, shall be in writing and executed by the parties hereto. A
determination  that any provision of this Agreement is  unenforceable or invalid
shall not affect the enforceability or validity of any other provision,  and any
determination  that the  application  of any provision of this  Agreement to any
person  or  circumstance  is  illegal  or  unenforceable  shall not  affect  the
enforceability  or  validity  of such  provision  as it may  apply to any  other
persons or circumstances.

                  (j)  Governing  Law. THIS  AGREEMENT  SHALL BE GOVERNED BY AND
CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE IN WHICH THE  PROPERTY  IS
LOCATED, EXCEPT TO THE EXTENT THAT THE APPLICABILITY OF ANY OF SUCH LAWS MAY NOW
OR  HEREAFTER  BE PREEMPTED BY FEDERAL LAW, IN WHICH CASE SUCH FEDERAL LAW SHALL
SO GOVERN AND BE CONTROLLING.

                  (k) Binding Effect; Waiver of Acceptance. This Agreement shall
bind Indemnitor and its heirs, personal representatives,  successors and assigns
and  shall  inure  to  the  benefit  of  Lender  and  the  officers,  directors,
shareholders,  agents  and  employees  of  Lender  and their  respective  heirs,
successors  and assigns.  Notwithstanding  the foregoing,  Indemnitor  shall not
assign any of its rights or obligations  under this Agreement  without the prior
written  consent of Lender,  which consent may be withheld by Lender in its sole
discretion. Indemnitor hereby waives any acceptance of this Agreement by Lender,
and this Agreement shall immediately be binding upon Indemnitor.


                                       8
<PAGE>

                  (l)  Notice.   All   notices,   demands,   requests  or  other
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly  given or served by
delivery of the same in person to the intended  addressee,  or by depositing the
same with Federal Express or another  reputable private courier service for next
business day delivery to the intended  addressee at its address set forth on the
first page of this  Agreement or at such other  address as may be  designated by
such party as herein  provided,  or by depositing  the same in the United States
mail,  postage prepaid,  registered or certified mail, return receipt requested,
addressed to the  intended  addressee at its address set forth on the first page
of this Agreement or at such other address as may be designated by such party as
herein provided. All notices,  demands and requests shall be effective upon such
personal  delivery,  or one (1)  business  day after  being  deposited  with the
private courier  service,  or two (2) business days after being deposited in the
United  States mail as required  above.  Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein  required  shall be  deemed to be  receipt  of the  notice,  demand or
request  sent.  By giving to the other party hereto at least  fifteen (15) days'
prior written  notice  thereof in accordance  with the  provisions  hereof,  the
parties hereto shall have the right from time to time to change their respective
addresses  and each shall have the right to  specify  as its  address  any other
address within the United States of America.

                  (m) No Waiver;  Time of Essence;  Business Day. The failure of
any party  hereto to  enforce  any right or  remedy  hereunder,  or to  promptly
enforce any such right or remedy, shall not constitute a waiver thereof nor give
rise to any  estoppel  against  such party nor excuse any of the parties  hereto
from their respective obligations hereunder.  Any waiver of such right or remedy
must be in  writing  and  signed  by the party to be bound.  This  Agreement  is
subject to  enforcement  at law or in equity,  including  actions for damages or
specific performance.  Time is of the essence hereof. The term "business day" as
used herein shall mean a weekday,  Monday through Friday, except a legal holiday
or a day on which banking  institutions  in New York, New York are authorized by
law to be closed.

                  (n) Captions for Convenience. The captions and headings of the
sections and paragraphs of this Agreement are for  convenience of reference only
and shall not be construed in interpreting the provisions hereof.

                  (o) Reasonable  Attorney's  Fees. In the event it is necessary
for Lender to retain the  services of an attorney  or any other  consultants  in
order to enforce this Agreement,  or any portion thereof,  Indemnitor  agrees to
pay to Lender any and all costs and  expenses,  including,  without  limitation,
reasonable  attorneys'  fees,  incurred  by Lender as a result  thereof and such
costs, fees and expenses shall be included in Costs.

                  (p) Successive  Actions.  A separate right of action hereunder
shall arise each time Lender  acquires  knowledge of any matter  indemnified  or
guaranteed by Indemnitor under this Agreement.  Separate and successive  actions
may be brought hereunder to enforce any of the provisions hereof at any time and
from time to time. No action hereunder shall preclude any subsequent action, and
Indemnitor  hereby  waives and covenants not to assert any defense in the nature
of splitting of causes of action or merger of judgments.


                                       9
<PAGE>

                  (q)  Reliance.  Lender  would  not make  the Loan to  Borrower
without   this   Agreement.    Accordingly,    Indemnitor    intentionally   and
unconditionally  enters into the covenants and agreements as set forth above and
understands  that, in reliance upon and in  consideration  of such covenants and
agreements,  the Loan shall be made and,  as part and parcel  thereof,  specific
monetary and other  obligations  have been,  are being and shall be entered into
which would not be made or entered into but for such reliance.

                  (r) Counterparts. This Agreement may be executed in any number
of  counterparts,  each of which  shall be  effective  only  upon  delivery  and
thereafter  shall be deemed an  original,  and all of which shall be taken to be
one and the same  instrument,  for the same effect as if all parties  hereto had
signed the same  signature  page.  Any signature  page of this  Agreement may be
detached from any  counterpart  of this  Agreement  without  impairing the legal
effect of any signatures  thereon and may be attached to another  counterpart of
this  Agreement  identical in form hereto but having  attached to it one or more
additional signature pages.

                  (s) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.

                  (1)  INDEMNITOR,  TO THE FULL EXTENT  PERMITTED BY LAW, HEREBY
         KNOWINGLY,  INTENTIONALLY AND VOLUNTARILY,  WITH AND UPON THE ADVICE OF
         COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN
         WHICH THE PROPERTY IS LOCATED OVER ANY SUIT,  ACTION OR  PROCEEDING  BY
         ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT,  (B) AGREES THAT
         ANY SUCH  ACTION,  SUIT OR  PROCEEDING  MAY BE  BROUGHT IN ANY STATE OR
         FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY AND STATE
         IN WHICH THE PROPERTY IS LOCATED,  (C) SUBMITS TO THE  JURISDICTION  OF
         SUCH COURTS,  AND (D) TO THE FULLEST  EXTENT  PERMITTED BY LAW,  AGREES
         THAT  INDEMNITOR  WILL NOT BRING ANY ACTION,  SUIT OR PROCEEDING IN ANY
         OTHER FORUM (BUT  NOTHING  HEREIN  SHALL  AFFECT THE RIGHT OF LENDER TO
         BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).

                  (2)  INDEMNITOR,  TO THE FULL EXTENT  PERMITTED BY LAW, HEREBY
         KNOWINGLY,  INTENTIONALLY AND VOLUNTARILY,  WITH AND UPON THE ADVICE OF
         COMPETENT COUNSEL,  WAIVES,  RELINQUISHES AND FOREVER FORGOES THE RIGHT
         TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,  ARISING OUT
         OF, OR IN ANY WAY RELATING TO THIS  AGREEMENT  OR ANY  CONDUCT,  ACT OR
         OMISSION OF LENDER OR INDEMNITOR, OR ANY OF THEIR DIRECTORS,  OFFICERS,
         PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS
         AFFILIATED WITH LENDER OR INDEMNITOR,  IN EACH OF THE FOREGOING  CASES,
         WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

                  (t)  Waiver by  Indemnitor.  Indemnitor  covenants  and agrees
that, upon the commencement of a voluntary or involuntary  bankruptcy proceeding
by or against Borrower,


                                       10
<PAGE>

Indemnitor  shall not seek or cause  Borrower  or any other  person or entity to
seek a  supplemental  stay or other  relief,  whether  injunctive  or otherwise,
pursuant to 11 U.S.C. ss.105 or any other provision of the Bankruptcy Reform Act
of 1978, as amended, or any other debtor relief law, (whether statutory,  common
law, case law or otherwise) of any jurisdiction whatsoever,  now or hereafter in
effect, which may be or become applicable, to stay, interdict, condition, reduce
or  inhibit  the  ability  of Lender to  enforce  any  rights of Lender  against
Indemnitor  or the  collateral  for the  Loan by  virtue  of this  Agreement  or
otherwise.

                  (u) Secondary  Market.  Lender may sell,  transfer and deliver
the Loan Documents to one or more investors in the secondary mortgage market. In
connection  with such  sale,  Lender  may  retain or assign  responsibility  for
servicing  the Loan or may delegate  some or all of such  responsibility  and/or
obligations  to a servicer,  including,  but not limited to, any  subservicer or
master servicer, on behalf of the investors.

                  (v) Dissemination of Information.  If Lender determines at any
time to sell,  transfer or assign the Note, the Deed of Trust and the other Loan
Documents,  and any or all servicing  rights with respect  thereto,  or to grant
participations  therein (the  "Participations")  or issue mortgage  pass-through
certificates or other securities  evidencing a beneficial interest in a rated or
unrated  public  offering or private  placement (the  "Securities"),  Lender may
forward  to  each  purchaser,   transferee,   assignee,  servicer,  participant,
investor,   or  their  respective   successors  in  such  Participations  and/or
Securities  (collectively,  the  "Investor") or any Rating Agency (as defined in
the Deed of Trust) rating such Securities, each prospective Investor and each of
the foregoing's  respective counsel,  all documents and information which Lender
now has or may  hereafter  acquire  relating  to the Loan and to  Borrower,  any
Indemnitor and the Property, which shall have been furnished by Borrower, or any
Indemnitor as Lender determines necessary or desirable.


             [THE BALANCE OF THIS PAGE WAS LEFT BLANK INTENTIONALLY]






                                       11
<PAGE>


         IN WITNESS WHEREOF, Indemnitor has executed this Indemnity Agreement as
of the day and year first written above.


                                          INDEMNITOR:

                                          CORNERSTONE REALTY INCOME TRUST, INC.,
                                          a Virginia corporation


                                          By:/s/ Stanley J. Olander, Jr.
                                             ---------------------------
                                             Name:      Stanley J. Olander, Jr.
                                             Title:     Executive Vice President

<PAGE>


                                    EXHIBIT A

                                Legal Description


                                    [Omitted]