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                                                                   EXHIBIT 10.97

REGULATORY AGREEMENT FOR                            U.S. DEPARTMENT OF HOUSING
MULTIFAMILY HOUSING PROJECTS                        AND URBAN DEVELOPMENT
                                                    Office of Housing
                                                    Federal Housing Commissioner


Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits


Project No. 121-22029-PM-ALF/REF

Mortgagee: RED MORTGAGE CAPITAL, INC.

Amount of Mortgage Note:  $3,997,100.00                  Date:  February 1, 2001

<TABLE>
<S>                    <C>                       <C>                                  <C>
Mortgage: Recorded:    State:   California       County:    San Mateo                 Date:  February 1, 2001
          Concurrently Herewith                  Book  __________ Page  ____________
</TABLE>

         Originally endorsed for insurance under Section 232 pursuant to Section
223(f) of the National Housing Act, as amended.

         This Agreement entered into as of the 1st day of February, 2001,
between ARV DALY CITY, L.P., a California limited partnership whose address is
245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their successors,
heirs, and assigns (jointly and severally, hereinafter referred to as Owners)
and the undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his
successors (hereinafter referred to as Secretary).

         In consideration of the endorsement for insurance by the Secretary of
the above described note or in consideration of the consent of the Secretary to
the transfer of the mortgaged property or the sale and conveyance of the
mortgaged property by the Secretary, and in order to comply with the
requirements of the National Housing Act, as amended, and the Regulations
adopted by the Secretary pursuant thereto, Owners agree for themselves, their
successors, heirs and assigns, that in connection with the mortgaged property
and the project operated thereon and so long as the contract of mortgage
insurance continues in effect, and during such further period of time as the
Secretary shall be the owner, holder or reinsurer of the mortgage, or during any
time the Secretary is obligated to insure a mortgage on the mortgage property:

        1.      Owners, except as limited by paragraph 17 hereof, assume and
                agree to make promptly all payments due under the note and
                mortgage.

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        2.      (a) Owners shall establish or continue to maintain a reserve
                fund for replacements by the allocation to such reserve fund in
                a separate account with the mortgagee or in a safe and
                responsible depository designated by the mortgagee, concurrently
                with the beginning of payments towards amortization of the
                principal of the mortgage insured or held by the Secretary of an
                amount equal to $3,388.75 per month unless a different date or
                amount is approved in writing by the Secretary. Said monthly
                deposit consists of $1,966.17 for Realty and $1,422.58 for
                Non-Realty. In addition, the Owner has made an initial deposit
                to the fund of $190,694.00. Such fund, whether in the form of a
                cash deposit or invested in obligations of, or fully guaranteed
                as to principal by, the United States of America shall at all
                times be under the control of the mortgagee. Disbursements from
                such fund, whether for the purpose of effecting replacement of
                structural elements and mechanical equipment of the project or
                for any other purpose, may be made only after receiving the
                consent in writing of the Secretary. In the event that the owner
                is unable to make a mortgage note payment on the due date and
                that payment cannot be made prior to the due day of the next
                such installment or when the mortgagee has agreed to forgo
                making an election to assign the mortgage to the Secretary based
                on a monetary default, or to withdraw an election already made,
                the Secretary is authorized to instruct the mortgagee to
                withdraw funds from the reserve fund for replacements to be
                applied to the mortgage payment in order to prevent or cure the
                default. In addition, in the event of a default in the terms of
                the mortgage, pursuant to which the loan has been accelerated,
                the Secretary may apply or authorize the application of the
                balance in such fund to the amount due on the mortgage debt as
                accelerated.

                (b) Where Owners are acquiring a project already subject to an
                insured mortgage, the reserve fund for replacements to be
                established will be equal to the amount due to be in such fund
                under existing agreements or charter provisions at the time
                Owners acquire such project, and payments hereunder shall begin
                with the first payment due on the mortgage after acquisition,
                unless some other method of establishing and maintaining the
                fund is approved in writing by the Secretary.

        3.      Real property covered by the mortgage and this agreement is
                described in Exhibit A attached hereto.

                (This paragraph 4 is not applicable to cases insured under
                Section 232).

N/A

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N/A


         5.       (a) If the mortgage is originally a Secretary-held purchase
                  money mortgage, or is originally endorsed for insurance under
                  any Section other than Sections 231 or 232 and is not designed
                  primarily for occupancy by elderly persons, Owners shall not
                  in selecting tenants discriminate against any person or
                  persons by reason of the fact that there are children in the
                  family.

                  (b) If the mortgage is originally endorsed for insurance under
                  Section 221, Owners shall in selecting tenants give to
                  displaced persons or families an absolute preference or
                  priority of occupancy which shall be accomplished as follows:


                           (1)       For a period of sixty (60) days from the
                                     date of original offering, unless a shorter
                                     period of time is approved in writing by
                                     the Secretary, all units shall be held for
                                     such preferred applicants,


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                                     after which time any remaining unrented
                                     units may be rented to non-preferred
                                     applicants;

                           (2)       Thereafter, and on a continuing basis, such
                                     preferred applicants shall be given
                                     preference over non-preferred applicants in
                                     their placement on a waiting list to be
                                     maintained by the Owners; and

                           (3)       Through such further provisions agreed to
                                     in writing by the parties.

                (c) Without the prior written approval of the Secretary not more
                than 25% of the number of units in a project insured under
                Section 231 shall be occupied by persons other than elderly
                persons.

                (d) All advertising or efforts to rent a project insured under
                Section 231 shall reflect a bona fide effort of the Owners to
                obtain occupancy by elderly persons.

        6.      Owners shall not without the prior written approval of the
                Secretary:

                (a) Convey, transfer, or encumber any of the mortgaged property,
                or permit the conveyance, transfer or encumbrance of such
                property.

                (b) Assign, transfer, dispose of, or encumber any personal
                property of the project, including rents, or pay out any funds
                except from surplus cash, except for reasonable operating
                expenses and necessary repairs.

                (c) Convey, assign, or transfer any beneficial interest in any
                trust holding title to the property, or the interest of any
                general partner in a partnership owning the property, or any
                right to manage or receive the rents and profits from the
                mortgaged property.

                (d) Remodel, add to, reconstruct, or demolish any part of the
                mortgaged property or subtract from any real or personal
                property of the project.

                (e) Make, or receive and retain, any distribution of assets or
                any income of any kind of the project except surplus cash and
                except on the following conditions:


                        (1)     All distributions shall be made only as of and
                                after the end of a semiannual or annual fiscal
                                period, and only as permitted by the law of the
                                applicable jurisdiction;


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                        (2)     No distribution shall be made from borrowed
                                funds, prior to the completion of the project or
                                when there is any default under this Agreement
                                or under the note or mortgage;

                        (3)     Any distribution of any funds of the project,
                                which the party receiving such funds is not
                                entitled to retain hereunder, shall be held in
                                trust separate and apart from any other funds;
                                and

                        (4)     There shall have been compliance with all
                                outstanding notices of requirements for proper
                                maintenance of the project.

                (f) Engage, except for natural persons, in any other business or
                activity, including the operation of any other rental project,
                or incur any liability or obligation not in connection with the
                project.

                (g) Require, as a condition of the occupancy or leasing of any
                unit in the project, any consideration or deposit other than the
                prepayment of the first month's rent plus a security deposit in
                an amount not in excess of one month's rent to guarantee the
                performance of the covenants of the lease. Any funds collected
                as security deposits shall be kept separate and apart from all
                other funds of the project in a trust account the amount of
                which shall at all times equal or exceed the aggregate of all
                outstanding obligations under said account.

                (h) Permit the use of the dwelling accommodations or nursing
                facilities of the project for any purpose except the use which
                was originally intended, or permit commercial use greater than
                that originally approved by the Secretary.

        7.      Owners shall maintain the mortgaged premises, accommodations and
                the grounds and equipment appurtenant thereto, in good repair
                and condition. In the event all or any of the buildings covered
                by the mortgage shall be destroyed or damaged by fire or other
                casualty, the money derived from any insurance on the property
                shall be applied in accordance with the terms of the mortgage.

        8.      Owners shall not file any petition in bankruptcy or for a
                receiver or in insolvency or for reorganization or composition,
                or make any assignment for the benefit of creditors or to a
                trustee for creditors, or permit an adjudication in bankruptcy
                or the taking possession of the mortgaged property or any part
                thereof by a receiver or the seizure and sale of the mortgaged
                property or any part hereof under judicial process or pursuant
                to any power of sale, and fail to have such adverse actions set
                aside within forty-five (45) days.

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        9.      (a) Any management contract entered into by Owners or any of
                them involving the project shall contain a provision that, in
                the event of default hereunder, it shall be subject to
                termination without penalty upon written request by the
                Secretary. Upon such request Owners shall immediately arrange to
                terminate the contract within a period of not more than thirty
                (30) days and shall make arrangements satisfactory to the
                Secretary for continuing proper management of the project.

                (b) Payment for services, supplies, or materials shall not
                exceed the amount ordinarily paid for such services, supplies,
                or materials in the area where the services are rendered or the
                supplies or materials furnished.

                (c) The mortgaged property, equipment, buildings, plans,
                offices, apparatus, devices, books, contracts, records,
                documents, and other papers relating thereto shall at all times
                be maintained in reasonable condition for proper audit and
                subject to examination and inspection at any reasonable time by
                the Secretary or his duly authorized agents. Owners shall keep
                copies of all written contracts or other instruments which
                affect the mortgaged property, all or any of which may be
                subject to inspection and examination by the Secretary or his
                duly authorized agents.

                (d) The books and accounts of the operations of the mortgaged
                property and of the project shall be kept in accordance with the
                requirements of the Secretary.

                (e) Within sixty (60) days following the end of each fiscal year
                the Secretary shall be furnished with a complete annual
                financial report based upon an examination of the books and
                records of mortgagor prepared in accordance with the
                requirements of the Secretary, prepared and certified to by an
                officer or responsible Owner and, when required by the
                Secretary, prepared and certified by a Certified Public
                Accountant, or other person acceptable to the Secretary.

                (f) At the request of the Secretary, his agents, employees, or
                attorneys, the Owners shall furnish monthly occupancy reports
                and shall give specific answers to questions upon which
                information is desired from time to time relative to income,
                assets, liabilities, contracts, operation, and condition of the
                property and the status of the insured mortgage.

                (g) All rents and other receipts of the project shall be
                deposited in the name of the project in a financial institution,
                whose deposits are insured by an agency of the Federal
                Government. Such funds shall be withdrawn only in accordance
                with the provisions of this Agreement for expenses of the
                project or for distributions of


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                surplus cash as permitted by paragraph 6(e) above. Any Owner
                receiving funds of the project other than by such distribution
                of surplus cash shall immediately deposit such funds in the
                project bank account and failing so to do in violation of this
                Agreement shall hold such funds in trust. Any Owner receiving
                property of the project in violation of this Agreement shall
                hold such funds in trust. At such time as the Owners shall have
                lost control and/or possession of the project, all funds held in
                trust shall be delivered to the mortgagee to the extent that the
                mortgage indebtedness has not been satisfied.

                (h) If the mortgage is insured under Section 232:

                1.      The Owners or lessees shall at all times maintain in
                        full force and effect from the state or other licensing
                        authority such license as may be required to operate the
                        project as a nursing home and shall not lease all or
                        part of the project except on terms approved by the
                        Secretary.

                2.      The Owners shall suitably equip the project for nursing
                        home operations.

                3.      The Owners shall execute a Security Agreement and
                        Financing Statement (or other form of chattel lien) upon
                        all items of equipment, except as the Secretary may
                        exempt, which are not incorporated as security for the
                        insured mortgage. The Security Agreement and Financing
                        Statement shall constitute a first lien upon such
                        equipment and shall run in favor of the mortgagee as
                        additional security for the insured mortgage.

                (i)     If the mortgage is insured under Section 231, Owners or
                        lessees shall at all times maintain in full force and
                        effect from the state or other licensing authority such
                        license as may be required to operate the project as
                        housing for the elderly.

        10.     Owners will comply with the provisions of any Federal, State, or
                local law prohibiting discrimination in housing on the grounds
                of race, color, religion or creed, sex, or national origin,
                including Title VIII of the Civil Rights Act of 1968 (Public Law
                90-284; 82 Stat. 73), as amended, Executive Order 11063, and all
                requirements imposed by or pursuant to the regulations of the
                Department of Housing and Urban Development implementing these
                authorities (including 24 CFR Parts 100, 107 and 110, and
                Subparts I and M of Part 200).

        11.     Upon a violation of any of the above provisions of this
                Agreement by Owners, the Secretary may give written notice
                thereof, to Owners, by registered or certified mail, addressed
                to the addresses stated in this Agreement, or such other
                addresses


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                as may subsequently, upon appropriate written notice thereof to
                the Secretary, be designated by the Owners as their legal
                business address. If such violation is not corrected to the
                satisfaction of the Secretary within thirty (30) days after the
                date such notice is mailed or within such further time as the
                Secretary determines is necessary to correct the violation,
                without further notice the Secretary may declare a default under
                this Agreement effective on the date of such declaration of
                default and upon such default the Secretary may:

                (a)  (i)  If the Secretary holds the note - declare the whole
                          of said indebtedness immediately due and payable and
                          then proceed with the foreclosure of the mortgage;

                     (ii) If said note is not held by the Secretary - notify the
                          holder of the note of such default and request holder
                          to declare a default under the note and mortgage, and
                          holder after receiving such notice and request, but
                          not otherwise, at its option, may declare the whole
                          indebtedness due, and thereupon proceed with
                          foreclosure of the mortgage, or assign the note and
                          mortgage to the Secretary as provided in the
                          Regulations;

                (b) Collect all rents and charges in connection with the
                operation of the project and use such collections to pay the
                Owners' obligations under this Agreement and under the note and
                mortgage and the necessary expenses of preserving the property
                and operating the project.

                (c) Take possession of the project, bring any action necessary
                to enforce any rights of the Owners growing out of the project
                operation, and operate the project in accordance with the terms
                of this Agreement until such time as the Secretary in his
                discretion determines that the Owners are again in a position to
                operate the project in accordance with the terms of this
                Agreement and in compliance with the requirements of the note
                and mortgage.

                (d) Apply to any court, state or Federal, for specific
                performance of this Agreement, for an injunction against any
                violation of the Agreement, for the appointment of a receiver to
                take over and operate the project in accordance with the terms
                of the Agreement, or for such other relief as may be
                appropriate, since the injury to the Secretary arising from a
                default under any of the terms of this Agreement would be
                irreparable and the amount of damage would be difficult to
                ascertain.


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        12.     As security for the payment due under this Agreement to the
                reserve fund for replacements, and to secure the Secretary
                because of his liability under the endorsement of the note for
                insurance, and as security for the other obligations under this
                Agreement, the Owners respectively assign, pledge and mortgage
                to the Secretary their rights to the rents, profits, income and
                charges of whatsoever sort which they may receive or be entitled
                to receive from the operation of the mortgaged property,
                subject, however, to any assignment of rents in the insured
                mortgage referred to herein. Until a default is declared under
                this Agreement, however, permission is granted to Owners to
                collect and retain under the provisions of this Agreement such
                rents, profits, income, and charges, but upon default this
                permission is terminated as to all rents due or collected
                thereafter.

        13.     As used in this Agreement the term:

                (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage",
                "Security Instrument", and any other security for the note
                identified herein, and endorsed for insurance or held by the
                Secretary;

                (b) "Mortgagee" refers to the holder of the mortgage identified
                herein, its successors and assigns;

                (c) "Owners" refers to the persons named in the first paragraph
                hereof and designated as Owners, their successors, heirs and
                assigns;

                (d) "Mortgaged Property" includes all property, real, personal
                or mixed, covered by the mortgage or mortgages securing the note
                endorsed for insurance or held by the Secretary;

                (e) "Project" includes the mortgaged property and all its other
                assets of whatsoever nature or wheresoever situate, used in or
                owned by the business conducted on said mortgaged property,
                which business is providing housing and other activities as are
                incidental thereto;

                (f) "Surplus Cash" means any cash remaining after:

                        (1)     the payment of:

                                (i)     All sums due or currently required to be
                                        paid under the terms of any mortgage or
                                        note insured or held by the Secretary;





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                                (ii)    All amounts required to be deposited in
                                        the reserve fund for replacements;

                                (iii)   All obligations of the project other
                                        than the insured mortgage unless funds
                                        for payment are set aside or deferment
                                        of payment has been approved by the
                                        Secretary; and

                        (2)     the segregation of:

                                (i)     An amount equal to the aggregate of all
                                        special funds required to be maintained
                                        by the project; and

                                (ii)    All tenant security deposits held.

                (g) "Distribution" means any withdrawal or taking of cash or any
                assets of the project, including the segregation of cash or
                assets for subsequent withdrawal within the limitations of
                Paragraph 6(e) hereof, and excluding payment for reasonable
                expenses incident to the operation and maintenance of the
                project.

                (h) "Default" means a default declared by the Secretary when a
                violation of this Agreement is not corrected to his satisfaction
                within the time allowed by this Agreement or such further time
                as may be allowed by the Secretary after written notice;

                (i) "Section" refers to a Section of the National Housing Act,
                as amended.

                (j) "Displaced persons or families" shall mean a family or
                families, or a person, displaced from an urban renewal area, or
                as the result of government action, or as a result of a major
                disaster as determined by the President pursuant to the Disaster
                Relief Act of 1970.

                (k) "Elderly person" means any person, married or single, who is
                sixty-two years of age or over.

        14.     This instrument shall bind, and the benefits shall inure to, the
                respective Owners, their heirs, legal representatives,
                executors, administrators, successors in office or interest, and
                assigns, and to the Secretary and his successors so long as the
                contract of mortgage insurance continues in effect, and during
                such further time as the Secretary shall be the owner, holder,
                or reinsurer of the mortgage, or obligated to reinsure the
                mortgage.

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        15.     Owners warrant that they have not, and will not, execute any
                other agreement with provisions contradictory of, or in
                opposition to, the provisions hereof, and that, in any event,
                the requirements of this Agreement are paramount and controlling
                as to the rights and obligations set forth and supersede any
                other requirements in conflict therewith.

        16.     The invalidity of any clause, part or provision of this
                Agreement shall not affect the validity or the remaining
                portions thereof.

        17.     The following Owners: ARV Daly City, L.P., a California limited
                partnership, and all present and future limited and general
                partners thereof, do not assume personal liability for payments
                due under the note and mortgage, or for the payments to the
                reserve for replacements, or for matters not under their
                control, provided that said Owners shall remain liable under
                this Agreement only with respect to the matters hereinafter
                stated; namely:

                (a) for funds or property of the project coming into their hands
                which, by the provisions hereof, they are not entitled to
                retain; and

                (b) for their own acts and deeds or acts and deeds of others
                which they have authorized in violation of the provisions
                hereof.

(To be executed with formalities for recording a deed to real estate)



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         All references herein to the terms "nursing home" or nursing homes"
shall mean and include the terms "assisted living facility" and "assisted living
facilities."

         See Rider I attached hereto and made a part hereof.

         IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date first hereinabove written.


                                       ARV DALY CITY, 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:
                                          --------------------------------------
                                          Douglas Armstrong
                                          Vice President

                                  February 1, 2001



                                  SECRETARY OF HOUSING AND URBAN
                                  DEVELOPMENT ACTING BY AND
                                  THROUGH THE FEDERAL HOUSING
                                  COMMISSIONER


                                  By:
                                     -------------------------------------------
                                     Authorized Agent

                                  February 1, 2001