EXHIBIT 10.6

                               OPERATING AGREEMENT
                                       OF
                                CRIT-NC III, LLC

         This Operating Agreement (this "Agreement") is made as of March 6, 2001
by and between  CRIT-NC  III,  LLC, a Delaware  limited  liability  company (the
"Company"),  and CRIT  Special  II,  Inc.,  a  Virginia  corporation  (the "Sole
Member").

                                    RECITALS

         The Company  was  organized  as a Delaware  limited  liability  company
pursuant to a Certificate  of Formation  filed on March 5, 2001.  The Company is
owned by the Sole Member and has no intention of admitting additional members.

                                    ARTICLE I
                    DEFINITIONS, PURPOSE AND GENERAL MATTERS

         1.1  PURPOSE.  The  purpose  of the  Company is to engage in any lawful
activity. Without limiting the scope of the foregoing, the Company is authorized
(a)  to  acquire  from  Cornerstone   Realty  Income  Trust,  Inc.,  a  Virginia
corporation,  those certain parcels of real property listed on Exhibit A hereto,
together with all improvements located thereon (collectively, the "Properties");
and (b) to own, hold, sell, assign, transfer,  operate, lease, mortgage,  pledge
and otherwise deal with the Properties.

         1.2  OPERATING  NAMES.  The Company may operate  under its own name and
under such assumed names as it deems appropriate or convenient.

         1.3  QUALIFICATIONS  IN OTHER  JURISDICTIONS.  If required by law,  the
Company  shall  promptly  qualify  or  register  to  transact  business  in  all
jurisdictions  in which it  transacts  business as a foreign  limited  liability
company.

         1.4 LIMITED  LIABILITY.  No member or manager of the  Company  shall be
personally obligated for any debt, obligation or liability of the Company solely
by reason of being a member or acting as a manager, except as may be required by
applicable  law.  Such  limited  liability  shall  exist to the  maximum  extent
permitted by the Delaware Limited Liability Company Act, as it may be amended or
replaced from time to time (the "Act").  As of the date of this  Agreement,  the
Act is set forth in sections  18-101  through  -1109 of Title 6 of the  Delaware
Code.

         1.5 STATUS OF  AGREEMENT.  This  Agreement  is  intended  to serve as a
"limited liability company agreement" within the meaning of the Act.

<PAGE>

                                   ARTICLE II
                                   MEMBERSHIP

         2.1  ADMISSION OF  ADDITIONAL  MEMBERS.  The Company  shall not admit a
member in addition to the Sole Member unless all of the  following  requirements
are satisfied: (a) the Sole Member grants prior written consent to the admission
of the additional  member;  (b) the Company and the Sole Member amend or replace
this Agreement as may be necessary or appropriate  for the purpose of addressing
any issues  raised by joint or multiple  ownership of the Company;  and (c) each
person or entity who seeks to be admitted  as a member of the  Company  executes
the  current  Operating  Agreement  of the  Company,  as amended or  replaced in
accordance  with  the  preceding   clause  ,  and  makes  any  required  capital
contributions to the Company in full.

         2.2 RESIGNATION.  The Sole Member shall not resign or withdraw from the
Company,  except by operation of law or by  transferring  its entire interest in
the Company in accordance with this Agreement.

                                   ARTICLE III
          MANAGEMENT, PROHIBITED ACTIVITIES AND SEPARATENESS COVENANTS

         3.1  APPOINTMENT  OF MANAGER.  The Company shall be managed by a single
manager (the "Manager").  The Manager may be a person or an entity.  The initial
Manager of the  Company  shall be the Sole  Member,  who shall not resign as the
Manager unless a qualified  replacement Manager has agreed to become the Manager
upon such resignation.

         3.2 TERM OF  MANAGER.  The  Manager's  term  shall  continue  until the
Manager's  resignation,  termination by operation of law or death (as applicable
for the then current Manager),  or removal by the Company.  The Company shall be
entitled,  in its sole discretion,  to remove or replace the Manager at any time
and for any reason.

         3.3  AUTHORITY OF MANAGER.  The Manager shall have the authority to act
on behalf of the Company to the maximum  extent  permitted  by the Act.  Without
limiting the scope of the  foregoing,  the Manager  shall be entitled to appoint
any officers of the Company (the  "Officers")  and to establish  the  authority,
duties, terms and compensation (if any) of the Officers. The parties acknowledge
and agree that the Officers also may hold offices in corporations, including but
not limited to corporations affiliated with the Sole Member.

         3.4 EXPENSES AND  REIMBURSEMENT.  The Company shall be responsible  for
all expenses, costs and liabilities arising from the management, organization or
operation of the Company in accordance with this Agreement ("Company Expenses").
The Manager and the Officers shall be entitled to receive  prompt  reimbursement
from the Company to the extent,  if any,  that they incur any Company  Expenses,
unless such Company  Expenses arose from a violation of this Agreement,  willful
misconduct or knowing violation of criminal law.

         3.5 MANAGEMENT  COMPENSATION.  No salary or other compensation shall be
paid to the Manager for the Manager's actions on behalf of the Company.


                                       2
<PAGE>

         3.6 CERTAIN PROHIBITED ACTIVITIES. Notwithstanding any provision hereof
to the contrary, the following shall govern:

                  (a) The  indebtedness  of the Company  shall consist only of a
first lien  mortgage on the  Properties  arising  from  financing by First Union
National  Bank (the  "Mortgage"),  any other  indebtedness  permitted  under the
Mortgage,  and normal trade accounts payable in the ordinary course of business.
For so long as any obligation  secured by the Mortgage  remains  outstanding and
not paid in  full,  the  Company  shall  not  incur,  assume,  or  guaranty  any
indebtedness not permitted hereunder.

                  (b) The Company  shall not  consolidate  or merge with or into
any other entity, or convey or transfer its properties and assets  substantially
as an entirety to any entity, unless:

                           (i)   the   entity   that   is   formed   upon   such
consolidation,  that survives  such merger (if other than the Company),  or that
acquires by  conveyance  or transfer  the  properties  and assets of the Company
substantially  as an entirety,  shall:  (A) be organized and existing  under the
laws of the United  States of America or any State or the  District of Columbia,
(B) include in its  organizational  documents the same  limitations set forth in
this  Article II and in Section  2.4 hereof  (Separateness  Covenants),  and (C)
expressly  assume the due and timely  performance of the Company's  obligations;
and

                           (ii)   immediately   after  giving   effect  to  such
transaction,  no  default  or event of  default  will  have  occurred  under any
agreement to which the Company is a party.

                  (c) For so  long as any  obligation  secured  by the  Mortgage
remains  outstanding  and not paid in full,  the Company  shall not  voluntarily
commence a case with respect to itself, as debtor,  under the Federal Bankruptcy
Code or any similar  federal or state statute  without the unanimous  consent of
the Sole Member's Board of Directors.  For so long as any obligation  secured by
the Mortgage remains  outstanding and not paid in full, no material amendment to
this Company  Agreement may be made without the prior  approval of the mortgagee
holding the Mortgage.

         3.7 SEPARATENESS COVENANTS. Notwithstanding any provision hereof to the
contrary,  the following shall govern:  For so long as any obligation secured by
the Mortgage remains  outstanding and not paid in full, in order to preserve and
ensure the Company's  separate and distinct  identity,  in addition to the other
provisions  set forth in this Company  Agreement,  the Company shall conduct its
affairs in accordance with the following provisions:

                  (a) It shall  establish  and maintain an office  through which
its business shall be conducted separate and apart from those of the Sole Member
and any affiliate and it shall  allocate  fairly and reasonably any overhead for
shared office space.

                  (b) It shall  maintain  separate  records and books of account
from those of the Sole Member and any affiliate.


                                       3
<PAGE>

                  (c) All actions by the Company shall be authorized by the Sole
Member,  who shall observe all  necessary  formalities  in connection  with such
authorization.

                  (d) It  shall  not  commingle  assets  with  those of the Sole
Member or any affiliate.

                  (e) It shall conduct its own business in its own name.

                  (f) It shall maintain financial  statements  separate from the
Sole Member and any affiliate.

                  (g) It  shall  pay  any  liabilities  out of  its  own  funds,
including  salaries  of any  employees,  not  funds  of the Sole  Member  or any
affiliate.

                  (h) It shall  maintain an arm's length  relationship  with the
Sole Member and any affiliate.

                  (i) It shall not  guarantee or become  obligated for the debts
of any other person or entity (including, without limitation, the Sole Member or
any affiliate)  and shall not hold out its credit as being  available to satisfy
the obligations of others.

                  (j) It shall use stationery, invoices and checks separate from
the Sole Member and any affiliate.

                  (k) It shall not  pledge  its  assets  for the  benefit of any
other person or entity (including,  without  limitation,  the Sole Member or any
affiliate).

                  (l) It shall hold  itself out as an entity  separate  from the
Sole Member and any affiliate.

                  (m) It shall not make any loans or advances to any third party
(including, without limitation, any affiliate).

                  (n) It shall comply with its obligations  under the agreements
and instruments evidencing the Mortgage.

         3.8  DEFINITIONS.  For purpose of this Article III, the following terms
shall have the indicated meanings:

                  (a) "affiliate"  means,  with respect to a specified person or
entity:

                           (i) any  person  or  entity  directly  or  indirectly
owning,  controlling  or holding with power to vote ten percent (10%) or more of
the outstanding voting securities or interests of the specified entity;

                           (ii) any person or entity ten  percent  (10%) or more
of whose  outstanding  voting securities or interests are directly or indirectly
owned, controlled or held with power to vote by the specified person or entity;


                                       4
<PAGE>

                           (iii) any  person or entity  directly  or  indirectly
controlling,  controlled by or under common control with the specified person or
entity;

                           (iv)  any   officer,   director  or  partner  of  the
specified person or entity;

                           (v) if the specified  person or entity is an officer,
director or partner,  any company for which the specified  person or entity acts
in any such capacity; and

                           (vi) any close  relative  or spouse of the  specified
person.

                  (b) "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the  management  and policies of a
person or entity, whether through ownership of voting securities, by contract or
otherwise.

                  (c)  "person or  entity"  means any  individual,  corporation,
partnership,  limited liability company, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization,
government or any agency or political subdivision thereof.

                                   ARTICLE IV
                            CAPITAL AND DISTRIBUTIONS

         4.1 CAPITAL CONTRIBUTIONS.  The Sole Member has made an initial capital
contribution to the Company, and shall be entitled,  in its sole discretion,  to
make  additional  capital   contributions  to  the  Company.  All  such  capital
contributions  are shown on Exhibit B to this Agreement,  which shall be amended
as necessary from time to time.

         4.2 LOANS.  Any loans from the Sole Member to the Company shall be made
on commercially  reasonable  terms and  conditions,  and shall not be considered
capital contributions.

         4.3 DISTRIBUTIONS.  The Company shall make annual  distributions of any
cash amounts  that,  in the  reasonable  determination  of the Manager,  are not
necessary for the  Company's  operations,  expenses or reserves.  The Manager is
entitled to authorize  more frequent  distributions  of such cash amounts in the
Manager's sole discretion.

                                    ARTICLE V
                              TRANSFER OF INTEREST

         5.1  RESTRICTION.  The Sole Member shall be prohibited  from assigning,
selling, exchanging or otherwise transferring its interest in the Company unless
all of the following  requirements are satisfied:  (a) the proposed  transaction
would apply to the entire  interest of the Sole Member in the  Company;  (b) the
proposed   transaction  would  involve  one  transferee;   (c)  the  prospective
transferee  tenders full payment of the required  purchase  price and executes a
counterpart signature page to this Agreement as a member of the Company; and (d)
the Company  receives an opinion  from its legal  counsel,  satisfactory  to the
Company in form and


                                       5
<PAGE>

substance,  confirming  that the  proposed  transaction  would not  violate  any
federal or state securities laws or any other applicable laws.

         5.2  EFFECT  OF  TRANSFER.  If the Sole  Member  transfers  its  entire
interest in the Company in accordance with this  Agreement,  such transfer shall
operate, upon completion,  as the complete resignation or withdrawal of the Sole
Member from the Company.

         5.3 RELATED  MATTERS.  Any transaction  that is subject to this Article
and that fails in any way to comply with its provisions shall be ineffective and
void.

                                   ARTICLE VI
                                   TAX MATTERS

         6.1 TAX  CLASSIFICATION.  The Company shall be disregarded as an entity
separate from the Sole Member for federal income tax purposes in accordance with
the Internal Revenue Code of 1986, as amended, and section  301.7701-3(b)(1)(ii)
of the Treasury Regulations thereunder (or any successor provisions thereof).

         6.2 TAX FILINGS. The Company shall make such filings as may be required
to  maintain  its tax  classification  as a  disregarded  entity  for income tax
purposes.  The  Company  may  obtain a federal  tax  identification  number  for
business  purposes,  and such action  shall not be  construed as a change to the
Company's tax classification as a disregarded entity.

                                   ARTICLE VII
                        INDEMNIFICATION AND REIMBURSEMENT

         7.1 DEFINITIONS.  As used in this Article,  the term "Affiliate"  shall
refer to the Sole Member,  the Manager (if  different  from the Sole Member) and
the Officers, and each employee,  director and officer of the Sole Member or the
Manager.

         7.2 INDEMNIFICATION. The Company shall indemnify each Affiliate against
any and all claims,  liabilities,  costs and expenses (including but not limited
to reasonable  legal fees and costs)  arising  directly or  indirectly  from any
suit,  action,  investigation or other  proceeding  (whether formal or informal)
that (a) is brought or threatened against an Affiliate;  and (b) is based on the
acts or omissions of such  Affiliate on behalf of the Company,  unless such acts
or omissions violated this Agreement, constituted willful misconduct or resulted
from a knowing  violation of criminal  law. The Company shall have no obligation
to indemnify an Affiliate to the extent,  if any, that the Affiliate is entitled
to be indemnified by another source, such as, without  limitation,  an insurance
company.

         7.3 REIMBURSEMENT. If an Affiliate incurs or pays any indemnified cost,
the  Company  shall  reimburse  the  Affiliate  for  the  full  amount  of  such
indemnified  cost.  Such  reimbursement  shall be due promptly after the Company
receives (a) a written  request for  reimbursement  from the Affiliate;  (b) all
information necessary to establish the nature and amount of the indemnified cost
that was incurred or paid by the Affiliate;  and (c) a written  agreement by the
Affiliate to repay such  reimbursement  if the Company  subsequently  determines


                                       6
<PAGE>

that the  Affiliate  was not  entitled to  indemnification  or if the  Affiliate
subsequently  receives  reimbursement  from  another  source,  such as,  without
limitation, an insurance company.

                                  ARTICLE VIII
                                   DISSOLUTION

         8.1  EVENTS  OF  DISSOLUTION.  The  Company  shall  dissolve  upon  the
occurrence of any of the following  events:  (a) the written  instruction of the
Sole Member; or (b) any event requiring dissolution under the Act.

         8.2 WINDING UP OF AFFAIRS.  Upon the  dissolution  of the Company,  the
Manager shall wind up the affairs of the Company.  The Manager  shall  determine
the time,  place,  manner and other terms of any sales  involving  the Company's
assets, with due regard to the activity and the condition of the Company and the
relevant market and economic conditions.

         8.3 FINAL  DISTRIBUTIONS.  Upon the  dissolution  of the  Company,  and
subject to the  requirements of the Act, the Manager shall distribute the assets
of the Company in the following order of priority:

                  (a) first, to any creditors of the Company;

                  (b)  second,  to  known  and  reasonably  estimated  costs  of
dissolution and winding up;

                  (c) third, to any reserves  established by the Manager, in the
sole discretion thereof, for contingent liabilities of the Company; and

                  (d) fourth, to the Sole Member.

         8.4 FILING OF CERTIFICATE OF CANCELLATION.  Following the winding up of
the Company,  the Manager  shall be  responsible  for filing,  if  necessary,  a
Certificate of Cancellation on behalf of the Company with the Delaware Secretary
of State,  together with any other  documents  required to terminate the Company
and its legal existence.

                                   ARTICLE IX
                                 ADMINISTRATION

         9.1 OFFICES.  The Company's  initial  registered  office and registered
agent shall be as designated in its Certificate of Formation.  The Manager shall
be entitled to change such designations from time to time, in the Manager's sole
discretion, subject to any requirements of the Act.

         9.2  INFORMATION  AND  RECORDS.  The Company  shall keep  accurate  and
complete   information  and  records  at  its  principal  office  (the  "Company
Records").


                                       7
<PAGE>

         9.3  INSPECTION.  Upon prior  notice to the Company of at least two (2)
business  days,  any  designated  representative  of the  Sole  Member  shall be
entitled,  during normal  business  hours, to inspect the Company Records and to
copy them at the expense of the Sole Member.

                                    ARTICLE X
                            MISCELLANEOUS PROVISIONS

         10.1 GOVERNING LAW. The laws of the State of Delaware  (without  regard
to those laws  involving  choice of law) shall  govern  this  Agreement  and all
matters relating to its interpretation or enforcement.

         10.2 OTHER AGREEMENTS.  Any prior operating  agreements with respect to
the Company,  whether oral or written, have been merged and integrated into this
Agreement and are superseded by this Agreement.

         10.3  MODIFICATIONS AND WAIVERS.  Modifications of this Agreement shall
not be binding, valid or enforceable unless they are approved in writing by each
of the parties.  Any  modification  or waiver of a provision  in this  Agreement
shall be limited to that  provision  and the occasion on which it occurred,  and
shall not be  construed  as a  modification  or waiver with respect to any other
provision or occasion.

         10.4  ENFORCEABLE  PROVISIONS.  All  provisions  in this  Agreement are
severable and each valid and  enforceable  provision  shall remain in full force
and effect,  regardless  of any  judicial  or other  official  declaration  that
certain provisions are invalid or unenforceable.

         10.5  CAPTIONS  AND  HEADINGS.  Captions  and headings are used in this
Agreement  for  convenience  only and shall not  affect  its  interpretation  or
enforcement.   Terms  such  as  "hereof,"   "hereby,"   "hereto,"  "herein"  and
"hereunder"  shall be deemed to refer to this Agreement as a whole,  rather than
to any particular provision.

         10.6 SUCCESSORS.  This Agreement shall be binding upon, and enforceable
against,  the parties and all of their  permitted  assignees  and  successors in
title or interest.

         10.7 EXCLUSION OF THIRD PARTY  BENEFIT.  This Agreement is not intended
for the  benefit of any  person or entity  who is not a party to this  Agreement
(such as, without limitation,  a creditor of the Company or of the Sole Member),
and no such  person or entity  shall  have any  rights in  connection  with this
Agreement, whether for enforcement or otherwise.

         10.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original,  and all of which shall  constitute,  when
taken together, a single instrument.


                                       8
<PAGE>

WITNESS the following signatures:


COMPANY:                            CRIT-NC III, LLC
                                    a Delaware limited liability company

                                    By:  CRIT Special II, Inc.
                                    Its: Sole Member


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


SOLE MEMBER:                        CRIT Special II, Inc.
                                    a Virginia corporation


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


                                       9
<PAGE>

                                    Exhibit A

                              (List of Properties)

The Properties consist of those real properties,  together with all improvements
thereon, that are located at the following addresses:


         Highland Hills Apartments
         180 BPW Club Road
         Carrboro, North Carolina  27510
<PAGE>

                                    Exhibit B


                             Capital Contribution(s)


<TABLE>
<CAPTION>
Name and Address                               Amount of                  Type of                  Date of
of Member                                 Capital Contribution         Contribution             Contribution
---------                                 --------------------         -------------            ------------
<S>                                             <C>                        <C>                  <C>
CRIT Special II, Inc.                           $100.00                    Cash                 March 6, 2001
306 East Main Street
Richmond, Virginia  23219
</TABLE>