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                                                                   EXHIBIT 10.98


REGULATORY AGREEMENT                    U.S. DEPARTMENT OF HOUSING
NURSING HOMES                           AND URBAN DEVELOPMENT
                                        Office of Housing
                                        Federal Housing Commissioner


<TABLE>
<S>                           <C>       <C>           <C>
Project Number                          Mortgagee
121-22029-PM-ALF/REF                    Red Capital Mortgage, Inc., an Ohio
                                        corporation

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

Mortgage Recorded (State)    County                   Date
California                   San Mateo                As of February 1, 2001

Book                                        Page
</TABLE>


        This Agreement entered into as of the 1st day of February, 2001 between
RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is
245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and
severally, hereinafter referred to as Lessee) and the undersigned FEDERAL
HOUSING COMMISSIONER, (hereinafter called Commissioner).

        In consideration of the consent of the Commissioner to the leasing of
the aforesaid project by ARV DALY CITY, L.P., a California limited partnership,
Mortgagor, and in order to comply with the requirements of the National Housing
Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees
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 Commissioner shall be the owner, holder or reinsurer of
the mortgage, or during any time the Commissioner is obligated to insure a
mortgage on the mortgaged property:

        (1)     The lease shall be subject and subordinate to the mortgage
                securing the note or other obligation endorsed for insurance by
                the commissioner;

        (2)     Lessee shall make payments under lease when due;

        (3)     Payments by the lessee to the lessor shall be sufficient to pay
                all mortgage payments including payments to reserves for taxes,
                insurance, etc., payments to the Reserve for Replacements, and
                to take care of necessary maintenance. If at the end of any
                calendar year, or any fiscal year if the project operates on the
                basis of a fiscal


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                year, payments under the lease have not been sufficient to take
                care of the above items, the lessor and lessee upon request in
                writing from the Commissioner shall renegotiate the amounts due
                under the lease so that such amounts shall be sufficient to take
                care of such items; the Commissioner shall be furnished by the
                lessee, within thirty days after being called upon to do so,
                with a financial report in form satisfactory to the Commissioner
                covering the operations of the mortgaged property and of the
                project;

        (4)     The lessee shall not sublease the project or any part thereof
                without the consent of the Commissioner;

        (5)     The lessee shall at all times maintain in full force and effect
                a license from the State or other licensing authority to operate
                the project as a nursing home, but the owner shall not be
                required to maintain such a license;

        (6)     Lessee shall maintain in good repair and condition any parts of
                the project for the maintenance of which lessee is responsible
                under the terms of the lease;

        (7)     Lessee shall not remodel, reconstruct, add to, or demolish any
                part of the mortgaged property or subtract from any real or
                personal property of the project;

        (8)     Lessee shall not use the project for any purpose except the
                operation of a nursing home;

        (9)     If a default is declared by the Commissioner under the
                provisions of Paragraph 10 of the Regulatory Agreement entered
                into by the lessor-mortgagor and the Commissioner on the 1st day
                of February, 2001, a copy of notice of default having been given
                to the lessee, the lessee will thereafter make all future
                payments under the lease to the Commissioner;

        (10)    The lease may be cancelled upon thirty days written notice by
                the Commissioner given to the lessor and the lessee for a
                violation of any of the above provisions unless the violation is
                corrected to the satisfaction of the Commissioner within said
                thirty day period.

        (11)    The Commissioner must approve any change in or transfer of
                ownership of the lessee entity, and any change in or transfer of
                the management operation, or control of the project.


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        (12)    The lessee shall not reduce or expand, allow to be reduced or
                expanded, or cause the expansion or reduction of the bed
                capacity of the project without the consent of the Commissioner.
                Any change in the bed capacity shall violate this Regulatory
                Agreement.

        (13)    The lessee shall not enter into any management contract
                involving the project, unless such shall contain a provision
                that, in the event of default under the Regulatory Agreement as
                recited in paragraph 9 (above) of this Agreement, the management
                agreement shall be subject to termination without penalty upon
                written request of the Commissioner. Upon such request the
                lessee shall immediately arrange to terminate the contract
                within a period of not more than thirty (30) days and shall make
                arrangements satisfactory to the Commissioner for continuing
                proper management of the project.

        (14)    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
                Commissioner or his duly authorized agents. Lessee 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 Commissioner or
                his/her duly authorized agents.

        (15)    There shall be full compliance with the provisions of (1) any
                State or local laws prohibiting discrimination in housing on the
                basis of race, color, creed, or national origin; and (2) with
                the Regulations of the Federal Housing Administration providing
                for non-discrimination and equal opportunity in housing. It is
                understood and agreed that failure or refusal to comply with any
                such provisions shall be a proper basis for the Commissioner to
                take any corrective action he may deem necessary including, but
                not limited to, the refusal to consent to a further renewal of
                the lease between the mortgagor-lessor and the lessee, the
                rejection of applications for FHA mortgage insurance and the
                refusal to enter into future contracts of any kind with which
                the lessee is identified; and further, if the lessee is a
                corporation or any other type of business association or
                organization which may fail or refuse to comply with the
                aforementioned provisions, the Commissioner shall have a similar
                right of corrective action (1) with respect to any individuals
                who are officers, directors, trustees, managers, partners,
                associates or principal stockholders of the lessee; and (2) with
                respect to any other type of business association, or
                organization with which the officers, directors, trustees,
                managers, partners, associates or principal stockholders of the
                lessee may be identified.


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


                             RETIREMENT INNS II, LLC

                                    By:  AMERICAN RETIREMENT VILLAS
                                         PROPERTIES II
                                         Its sole member

                                         By: ARV Assisted Living, Inc.
                                             Its 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


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