<PAGE>   1
                                                                    EXHIBIT 10.5


                       Multifamily Mortgage, Assignment of
                          Rents and Security Agreement

         Document Number        Document Title















                                             Recording Area
                                           ------------------------------------
                                             Name and Return Address


                                             Randall S. Frye, Esq.
                                             AMRESCO Capital, L.P.
                                             700 N. Pearl Street
                                             Suite 2400, LB #342
                                             Dallas, Texas  75201-7424




                                              Parcel Identification Number (PIN)
                                              60-0809-251-0195-1





This Instrument was drafted by:

RANDALL S. FRYE, ESQ.
AMRESCO CAPITAL, L.P.
700 N. PEARL STREET, SUITE 2400, LB #342
DALLAS, TEXAS  75201-7424





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<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                   Page
                                                                                                   ----

<S>                                                                                                  <C>
1.      DEFINITIONS...................................................................................1


2.      UNIFORM COMMERCIAL CODE SECURITY AGREEMENT....................................................7


3.      ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION............................7


4.      ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.................................9


5.      PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM................11


6.      EXCULPATION..................................................................................12


7.      DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES..............................................12


8.      COLLATERAL AGREEMENTS........................................................................13


9.      APPLICATION OF PAYMENTS......................................................................13


10.     COMPLIANCE WITH LAWS.........................................................................13


11.     USE OF PROPERTY..............................................................................14


12.     PROTECTION OF LENDER'S SECURITY..............................................................14


13.     INSPECTION...................................................................................15





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<TABLE>
<S>                                                                                                 <C>
14.     BOOKS AND RECORDS; FINANCIAL REPORTING.......................................................15


15.     TAXES; OPERATING EXPENSES....................................................................17


16.     LIENS; ENCUMBRANCES..........................................................................17


17.     PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY...............................18


18.     ENVIRONMENTAL HAZARDS........................................................................19


19.     PROPERTY AND LIABILITY INSURANCE.............................................................25


20.     CONDEMNATION.................................................................................26


21.     TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.................................27


22.     EVENTS OF DEFAULT............................................................................31


23.     REMEDIES CUMULATIVE..........................................................................32


24.     FORBEARANCE..................................................................................32


25.     LOAN CHARGES.................................................................................33


26.     WAIVER OF STATUTE OF LIMITATIONS.............................................................33


27.     WAIVER OF MARSHALLING........................................................................33


28.     FURTHER ASSURANCES...........................................................................33
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<TABLE>
<S>                                                                                                 <C>
29.     ESTOPPEL CERTIFICATE.........................................................................34


30.     GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.............................................34


31.     NOTICE.......................................................................................34


32.     SALE OF NOTE; CHANGE IN SERVICER.............................................................35


33.     SINGLE ASSET BORROWER........................................................................35


34.     SUCCESSORS AND ASSIGNS BOUND.................................................................35


35.     JOINT AND SEVERAL LIABILITY..................................................................35


36.     RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY..........................................35


37.     SEVERABILITY; AMENDMENTS.....................................................................36


38.     CONSTRUCTION.................................................................................36


39.     LOAN SERVICING...............................................................................36


40.     DISCLOSURE OF INFORMATION....................................................................36


41.     NO CHANGE IN FACTS OR CIRCUMSTANCES..........................................................37


42.     SUBROGATION..................................................................................37


43.     ACCELERATION; REMEDIES.......................................................................37
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<TABLE>
<S>                                                                                                 <C>
44.     RELEASE......................................................................................37


45.     ACCELERATED REDEMPTION PERIODS...............................................................37


46.     WAIVER OF TRIAL BY JURY......................................................................38
</TABLE>






<PAGE>   6


                              MULTIFAMILY MORTGAGE,
                               ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

   (THE MORTGAGED PROPERTY [AS HEREINAFTER DEFINED] IS NOT HOMESTEAD PROPERTY)

THIS MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (the
"INSTRUMENT") is dated as of the 16th day of July, 1999, between ALS KANSAS,
INC., a corporation organized and existing under the laws of Delaware, whose
address is c/o Alterra Healthcare Corporation, 450 N. Sunnyslope Road, Suite
300, Brookfield, Wisconsin 53005, as mortgagor ("BORROWER"), and AMRESCO
CAPITAL, L.P., a limited partnership, organized and existing under the laws of
Delaware, whose address is c/o AMRESCO Services, L.P., 245 Peachtree Center
Avenue, N.E., Suite 1800, Atlanta, Georgia 30303-1231, as mortgagee ("LENDER").

         Borrower is indebted to Lender in the principal amount of
$3,786,000.00, as evidenced by Borrower's Multifamily Note payable to Lender
dated as of the date of this Instrument, and maturing on August 1, 2009.

         TO SECURE TO LENDER the repayment of the Indebtedness, and all
renewals, extensions and modifications of the Indebtedness, and the performance
of the covenants and agreements of Borrower contained in the Loan Documents,
Borrower mortgages, warrants, grants, conveys and assigns to Lender the
Mortgaged Property, including the Land located in Dane County, State of
Wisconsin, and described in Exhibit A attached to this Instrument.

         Borrower represents and warrants that Borrower is lawfully seized of
the Mortgaged Property and has the right, power and authority to mortgage,
grant, convey and assign the Mortgaged Property, and that the Mortgaged Property
is unencumbered. Borrower covenants that Borrower will warrant and defend
generally the title to the Mortgaged Property against all claims and demands,
subject to any easements and restrictions listed in a schedule of exceptions to
coverage in any title insurance policy issued to Lender contemporaneously with
the execution and recordation of this Instrument and insuring Lender's interest
in the Mortgaged Property.

COVENANTS.  Borrower and Lender covenant and agree as follows:

         1.     DEFINITIONS.  The following terms, when used in this Instrument
(including when used in the above recitals), shall have the following meanings:




<PAGE>   7


         (a)    "BORROWER"  means all persons or entities  identified  as
"Borrower" in the first paragraph of this Instrument, together with their
successors and assigns.

         (b)    "COLLATERAL AGREEMENT" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for the
Mortgaged Property, establishing a fund to assure completion of repairs or
improvements specified in that agreement, or assuring reduction of the
outstanding principal balance of the Indebtedness if the occupancy of or income
from the Mortgaged Property does not increase to a level specified in that
agreement, or any other agreement or agreements between Borrower and Lender
which provide for the establishment of any other fund, reserve or account.

         (c)    "ENVIRONMENTAL PERMIT" means any permit, license, or other
authorization issued under any Hazardous Materials Law with respect to any
activities or businesses conducted on or in relation to the Mortgaged Property.

         (d)    "EVENT OF DEFAULT" means the occurrence of any event listed in
Section 22.

         (e)    "FIXTURES" means all property which is so attached to the Land
or the Improvements as to constitute a fixture under applicable law, including:
machinery, equipment, engines, boilers, incinerators, installed building
materials; systems and equipment for the purpose of supplying or distributing
heating, cooling, electricity, gas, water, air, or light; antennas, cable,
wiring and conduits used in connection with radio, television, security, fire
prevention, or fire detection or otherwise used to carry electronic signals;
telephone systems and equipment; elevators and related machinery and equipment;
fire detection, prevention and extinguishing systems and apparatus; security and
access control systems and apparatus; plumbing systems; water heaters, ranges,
stoves, microwave ovens, refrigerators, dishwashers, garbage disposers, washers,
dryers and other appliances; light fixtures, awnings, storm windows and storm
doors; pictures, screens, blinds, shades, curtains and curtain rods; mirrors;
cabinets, paneling, rugs and floor and wall coverings; fences, trees and plants;
swimming pools; and exercise equipment.

         (f)    "GOVERNMENTAL AUTHORITY" means any board, commission,
department or body of any municipal, county, state or federal governmental unit,
or any subdivision of any of them, that has or acquires jurisdiction over the
Mortgaged Property or the use, operation or improvement of the Mortgaged
Property.

         (g)    "HAZARDOUS MATERIALS" means petroleum and petroleum products
and compounds containing them, including gasoline, diesel fuel and oil;
explosives; flammable materials; radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become
friable; underground or above-ground storage tanks, whether empty or containing
any substance;




<PAGE>   8


any substance the presence of which on the Mortgaged Property is
prohibited by any federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the future
defined as a "hazardous substance," "hazardous material," "hazardous waste,"
"toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the
meaning of any Hazardous Materials Law.

         (h)    "HAZARDOUS MATERIALS LAWS" means all federal, state, and local
laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that relate
to Hazardous Materials and apply to Borrower or to the Mortgaged Property.
Hazardous Materials Laws include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the
Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. Section 5101, and their state analogs.

         (i)    "IMPOSITIONS" and "IMPOSITION DEPOSITS" are defined in
Section 7(a).

         (j)    "IMPROVEMENTS" means the buildings, structures, improvements,
and alterations now constructed or at any time in the future constructed or
placed upon the Land, including any future replacements and additions.

         (k)    "INDEBTEDNESS" means the principal of, interest on, and all
other amounts due at any time under, the Note, this Instrument or any other Loan
Document, including prepayment premiums, late charges, default interest, and
advances as provided in Section 12 to protect the security of this Instrument.

         (l)    [Intentionally omitted]

         (m)    "KEY PRINCIPAL" means the natural person(s) or entity
identified as such at the foot of this Instrument, and any person or entity who
becomes a Key Principal after the date of this Instrument and is identified as
such in an amendment or supplement to this Instrument.

         (n)    "LAND" means the land described in Exhibit A.

         (o)    "LEASES" means all present and future leases, subleases,
licenses, concessions or grants or other possessory interests now or hereafter
in force, whether oral or written, covering or affecting the Mortgaged Property,
or any portion of the Mortgaged Property (including proprietary leases or
occupancy agreements if Borrower is a cooperative housing corporation), and all
modifications, extensions or renewals.























<PAGE>   9


         (p)    "LENDER" means the entity  identified as "Lender" in the first
paragraph of this Instrument and its successors and assigns, or any subsequent
holder of the Note.

         (q)    "LOAN DOCUMENTS" means the Note, this Instrument, all
guaranties, all indemnity agreements, all Collateral Agreements, O&M Programs,
and any other documents now or in the future executed by Borrower, Key
Principal, any guarantor or any other person in connection with the loan
evidenced by the Note, as such documents may be amended from time to time.

         (r)    "LOAN SERVICER" means the entity that from time to time is
designated by Lender to collect payments and deposits and receive notices under
the Note, this Instrument and any other Loan Document, and otherwise to service
the loan evidenced by the Note for the benefit of Lender. Unless Borrower
receives notice to the contrary, the Loan Servicer is the entity identified as
"Lender" in the first paragraph of this Instrument.

         (s)    "MORTGAGED  PROPERTY"  means all of Borrower's  present and
future right, title and interest in and to all of the following:

                (1)      the Land;

                (2)      the Improvements;

                (3)      the Fixtures;

                (4)      the Personalty;

                (5)      all current and future rights, including air rights,
                         development rights, zoning rights and other similar
                         rights or interests, easements, tenements,
                         rights-of-way, strips and gores of land, streets,
                         alleys, roads, sewer rights, waters, watercourses,
                         and appurtenances related to or benefiting the Land
                         or the Improvements, or both, and all rights-of-way,
                         streets, alleys and roads which may have been or may
                         in the future be vacated;

                (6)      all proceeds paid or to be paid by any insurer of the
                         Land, the Improvements, the Fixtures, the Personalty
                         or any other part of the Mortgaged Property, whether
                         or not Borrower obtained the insurance pursuant to
                         Lender's requirement;

                (7)      all awards, payments and other compensation made or
                         to be made by any municipal, state or federal
                         authority with respect to the Land, the





















<PAGE>   10


                         Improvements, the Fixtures, the Personalty or any other
                         part of the Mortgaged Property, including any awards or
                         settlements resulting from condemnation proceedings
                         or the total or partial taking of the Land, the
                         Improvements, the Fixtures, the Personalty or any
                         other part of the Mortgaged Property under the power
                         of eminent domain or otherwise and including any
                         conveyance in lieu thereof;
                (8)      all contracts, options and other agreements for the
                         sale of the Land, the Improvements, the Fixtures, the
                         Personalty or any other part of the Mortgaged
                         Property entered into by Borrower now or in the
                         future, including cash or securities deposited to
                         secure performance by parties of their obligations;

                (9)      all proceeds from the conversion, voluntary or
                         involuntary, of any of the above into cash or
                         liquidated claims, and the right to collect such
                         proceeds;

                (10)     all Rents and Leases;

                (11)     all earnings, royalties, accounts receivable, issues
                         and profits from the Land, the Improvements or any
                         other part of the Mortgaged Property, and all
                         undisbursed proceeds of the loan secured by this
                         Instrument and, if Borrower is a cooperative housing
                         corporation, maintenance charges or assessments
                         payable by shareholders or residents;

                (12)     all Imposition Deposits;

                (13)     all refunds or rebates of Impositions by any
                         municipal, state or federal authority or insurance
                         company (other than refunds applicable to periods
                         before the real property tax year in which this
                         Instrument is dated);

                (14)     all tenant security deposits which have not been
                         forfeited by any tenant under any Lease; and

                (15)     all names under or by which any of the above
                         Mortgaged Property may be operated or known, and all
                         trademarks, trade names, and goodwill relating to any
                         of the Mortgaged Property.

         (t)    "NOTE" means the Multifamily Note described on page 1 of this
Instrument, including the Acknowledgment and Agreement of Key Principal to
Personal Liability for Exceptions to Non-Recourse Liability (if any), and all
schedules, riders, allonges and addenda, as such Multifamily Note may be amended
from time to time.






<PAGE>   11


         (u)    "O&M PROGRAM" is defined in Section 18(a).

         (v)    "PERSONALTY" means all furniture, furnishings, equipment,
machinery, building materials, appliances, goods, supplies, tools, books,
records (whether in written or electronic form), computer equipment (hardware
and software) and other tangible personal property (other than Fixtures) which
are used now or in the future in connection with the ownership, management or
operation of the Land or the Improvements or are located on the Land or in the
Improvements, and any operating agreements relating to the Land or the
Improvements, and any surveys, plans and specifications and contracts for
architectural, engineering and construction services relating to the Land or the
Improvements and all other intangible property and rights relating to the
operation of, or used in connection with, the Land or the Improvements,
including all governmental permits relating to any activities on the Land.

         (w)    "PROPERTY JURISDICTION" is defined in Section 30(a).

         (x)    "RENTS" means all rents (whether from residential or
non-residential space), revenues and other income of the Land or the
Improvements, including parking fees, laundry and vending machine income and
fees and charges for food, health care and other services provided at the
Mortgaged Property, whether now due, past due, or to become due, and deposits
forfeited by tenants.

         (y)    "TAXES" means all taxes, assessments, vault rentals and other
charges, if any, general, special or otherwise, including all assessments for
schools, public betterments and general or local improvements, which are levied,
assessed or imposed by any public authority or quasi-public authority, and
which, if not paid, will become a lien, on the Land or the Improvements.

         (z)    "TRANSFER" means (A) a sale, assignment, transfer or other
disposition (whether voluntary, involuntary or by operation of law); (B) the
granting, creating or attachment of a lien, encumbrance or security interest
(whether voluntary, involuntary or by operation of law); (C) the issuance or
other creation of an ownership interest in a legal entity, including a
partnership interest, interest in a limited liability company or corporate
stock; (D) the withdrawal, retirement, removal or involuntary resignation of a
partner in a partnership or a member or manager in a limited liability company;
or (E) the merger, dissolution, liquidation, or consolidation of a legal entity.
"Transfer" does not include (i) a conveyance of the Mortgaged Property at a
judicial or non-judicial foreclosure sale under this Instrument or (ii) the
Mortgaged Property becoming part of a bankruptcy estate by operation of law
under the United States Bankruptcy Code. For purposes of defining the term
"Transfer," the term "partnership" shall mean a general partnership, a limited
partnership, a joint venture and a limited liability partnership, and the term
"partner" shall mean a general partner, a limited partner and a joint venturer.




















<PAGE>   12


         2.     UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is
also a security agreement under the Uniform Commercial Code for any of the
Mortgaged Property which, under applicable law, may be subject to a security
interest under the Uniform Commercial Code, whether acquired now or in the
future, and all products and cash and non-cash proceeds thereof (collectively,
"UCC COLLATERAL"), and Borrower hereby grants to Lender a security interest in
the UCC Collateral. Borrower shall execute and deliver to Lender, upon Lender's
request, financing statements, continuation statements and amendments, in such
form as Lender may require to perfect or continue the perfection of this
security interest. Borrower shall pay all filing costs and all costs and
expenses of any record searches for financing statements that Lender may
require. Without the prior written consent of Lender, Borrower shall not create
or permit to exist any other lien or security interest in any of the UCC
Collateral. If an Event of Default has occurred and is continuing, Lender shall
have the remedies of a secured party under the Uniform Commercial Code, in
addition to all remedies provided by this Instrument or existing under
applicable law. In exercising any remedies, Lender may exercise its remedies
against the UCC Collateral separately or together, and in any order, without in
any way affecting the availability of Lender's other remedies. This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property which is or may become a Fixture.

         3.     ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN
POSSESSION.

         (a)    As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all Rents. It is
the intention of Borrower to establish a present, absolute and irrevocable
transfer and assignment to Lender of all Rents and to authorize and empower
Lender to collect and receive all Rents without the necessity of further action
on the part of Borrower. Promptly upon request by Lender, Borrower agrees to
execute and deliver such further assignments as Lender may from time to time
require. Borrower and Lender intend this assignment of Rents to be immediately
effective and to constitute an absolute present assignment and not an assignment
for additional security only. For purposes of giving effect to this absolute
assignment of Rents, and for no other purpose, Rents shall not be deemed to be a
part of the "Mortgaged Property," as that term is defined in Section 1(s).
However, if this present, absolute and unconditional assignment of Rents is not
enforceable by its terms under the laws of the Property Jurisdiction, then the
Rents shall be included as a part of the Mortgaged Property and it is the
intention of the Borrower that in this circumstance this Instrument create and
perfect a lien on Rents in favor of Lender, which lien shall be effective as of
the date of this Instrument.

         (b)    After the occurrence of an Event of Default, Borrower authorizes
Lender to collect, sue for and compromise Rents and directs each tenant of the
Mortgaged Property to pay all Rents to, or as directed by, Lender. However,
until the occurrence of an Event of Default, Lender hereby


















<PAGE>   13


grants to Borrower a revocable license to collect and receive all Rents, to hold
all Rents in trust for the benefit of Lender and to apply all Rents to pay the
installments of interest and principal then due and payable under the Note and
the other amounts then due and payable under the other Loan Documents, including
Imposition Deposits, and to pay the current costs and expenses of managing,
operating and maintaining the Mortgaged Property, including utilities, Taxes and
insurance premiums (to the extent not included in Imposition Deposits), tenant
improvements and other capital expenditures. So long as no Event of Default has
occurred and is continuing, the Rents remaining after application pursuant to
the preceding sentence may be retained by Borrower free and clear of, and
released from, Lender's rights with respect to Rents under this Instrument. From
and after the occurrence of an Event of Default, and without the necessity of
Lender entering upon and taking and maintaining control of the Mortgaged
Property directly, or by a receiver, Borrower's license to collect Rents shall
automatically terminate and Lender shall without notice be entitled to all Rents
as they become due and payable, including Rents then due and unpaid. Borrower
shall pay to Lender upon demand all Rents to which Lender is entitled. At any
time on or after the date of Lender's demand for Rents, Lender may give, and
Borrower hereby irrevocably authorizes Lender to give, notice to all tenants of
the Mortgaged Property instructing them to pay all Rents to Lender, no tenant
shall be obligated to inquire further as to the occurrence or continuance of an
Event of Default, and no tenant shall be obligated to pay to Borrower any
amounts which are actually paid to Lender in response to such a notice. Any such
notice by Lender shall be delivered to each tenant personally, by mail or by
delivering such demand to each rental unit. Borrower shall not interfere with
and shall cooperate with Lender's collection of such Rents.

         (c)    Borrower represents and warrants to Lender that Borrower has not
executed any prior assignment of Rents (other than an assignment of Rents
securing indebtedness that will be paid off and discharged with the proceeds of
the loan evidenced by the Note), that Borrower has not performed, and Borrower
covenants and agrees that it will not perform, any acts and has not executed,
and shall not execute, any instrument which would prevent Lender from exercising
its rights under this Section 3, and that at the time of execution of this
Instrument there has been no anticipation or prepayment of any Rents for more
than two months prior to the due dates of such Rents. Borrower shall not collect
or accept payment of any Rents more than two months prior to the due dates of
such Rents.

         (d)    If an Event of Default has occurred and is continuing, Lender
may, regardless of the adequacy of Lender's security or the solvency of Borrower
and even in the absence of waste, enter upon and take and maintain full control
of the Mortgaged Property in order to perform all acts that Lender in its
discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3(a),
protecting




















<PAGE>   14


the Mortgaged Property or the security of this Instrument, or for such other
purposes as Lender in its discretion may deem necessary or desirable.
Alternatively, if an Event of Default has occurred and is continuing, regardless
of the adequacy of Lender's security, without regard to Borrower's solvency and
without the necessity of giving prior notice (oral or written) to Borrower,
Lender may apply to any court having jurisdiction for the appointment of a
receiver for the Mortgaged Property to take any or all of the actions set forth
in the preceding sentence. If Lender elects to seek the appointment of a
receiver for the Mortgaged Property at any time after an Event of Default has
occurred and is continuing, Borrower, by its execution of this Instrument,
expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte if permitted by applicable law. Lender or the
receiver, as the case may be, shall be entitled to receive a reasonable fee for
managing the Mortgaged Property. Immediately upon appointment of a receiver or
immediately upon the Lender's entering upon and taking possession and control of
the Mortgaged Property, Borrower shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents. In the event Lender takes possession and control of the Mortgaged
Property, Lender may exclude Borrower and its representatives from the Mortgaged
Property. Borrower acknowledges and agrees that the exercise by Lender of any of
the rights conferred under this Section 3 shall not be construed to make Lender
a mortgagee-in-possession of the Mortgaged Property so long as Lender has not
itself entered into actual possession of the Land and Improvements.

         (e)    If Lender enters the Mortgaged Property, Lender shall be liable
to account only to Borrower and only for those Rents actually received. Lender
shall not be liable to Borrower, anyone claiming under or through Borrower or
anyone having an interest in the Mortgaged Property, by reason of any act or
omission of Lender under this Section 3, and Borrower hereby releases and
discharges Lender from any such liability to the fullest extent permitted by
law.

         (f)    If the Rents are not sufficient to meet the costs of taking
control of and managing the Mortgaged Property and collecting the Rents, any
funds expended by Lender for such purposes shall become an additional part of
the Indebtedness as provided in Section 12.

         (g)    Any entering upon and taking of control of the Mortgaged
Property by Lender or the receiver, as the case may be, and any application of
Rents as provided in this Instrument shall not cure or waive any Event of
Default or invalidate any other right or remedy of Lender under applicable law
or provided for in this Instrument.

         4.     ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.



















<PAGE>   15


         (a)    As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all of Borrower's
right, title and interest in, to and under the Leases, including Borrower's
right, power and authority to modify the terms of any such Lease, or extend or
terminate any such Lease. It is the intention of Borrower to establish a
present, absolute and irrevocable transfer and assignment to Lender of all of
Borrower's right, title and interest in, to and under the Leases. Borrower and
Lender intend this assignment of the Leases to be immediately effective and to
constitute an absolute present assignment and not an assignment for additional
security only. For purposes of giving effect to this absolute assignment of the
Leases, and for no other purpose, the Leases shall not be deemed to be a part of
the "Mortgaged Property," as that term is defined in Section 1(s). However, if
this present, absolute and unconditional assignment of the Leases is not
enforceable by its terms under the laws of the Property Jurisdiction, then the
Leases shall be included as a part of the Mortgaged Property and it is the
intention of the Borrower that in this circumstance this Instrument create and
perfect a lien on the Leases in favor of Lender, which lien shall be effective
as of the date of this Instrument.

         (b)    Until Lender gives notice to Borrower of Lender's exercise of
its rights under this Section 4, Borrower shall have all rights, power and
authority granted to Borrower under any Lease (except as otherwise limited by
this Section or any other provision of this Instrument), including the right,
power and authority to modify the terms of any Lease or extend or terminate any
Lease. Upon the occurrence of an Event of Default, the permission given to
Borrower pursuant to the preceding sentence to exercise all rights, power and
authority under Leases shall automatically terminate. Borrower shall comply with
and observe Borrower's obligations under all Leases, including Borrower's
obligations pertaining to the maintenance and disposition of tenant security
deposits.

         (c)    Borrower acknowledges and agrees that the exercise by Lender,
either directly or by a receiver, of any of the rights conferred under this
Section 4 shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements. The acceptance by Lender of the
assignment of the Leases pursuant to Section 4(a) shall not at any time or in
any event obligate Lender to take any action under this Instrument or to expend
any money or to incur any expenses. Lender shall not be liable in any way for
any injury or damage to person or property sustained by any person or persons,
firm or corporation in or about the Mortgaged Property. Prior to Lender's actual
entry into and taking possession of the Mortgaged Property, Lender shall not (i)
be obligated to perform any of the terms, covenants and conditions contained in
any Lease (or otherwise have any obligation with respect to any Lease); (ii) be
obligated to appear in or defend any action or proceeding relating to the Lease
or the Mortgaged Property; or (iii) be responsible for the operation, control,
care, management or repair of the Mortgaged Property or any portion of the
Mortgaged Property. The execution of this Instrument by Borrower shall
constitute conclusive evidence that all responsibility


















<PAGE>   16


for the operation, control, care, management and repair of the Mortgaged
Property is and shall be that of Borrower, prior to such actual entry and taking
of possession.

         (d)   Upon delivery of notice by Lender to Borrower of Lender's
exercise of Lender's rights under this Section 4 at any time after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, by a
receiver, or by any other manner or proceeding permitted by the laws of the
Property Jurisdiction, Lender immediately shall have all rights, powers and
authority granted to Borrower under any Lease, including the right, power and
authority to modify the terms of any such Lease, or extend or terminate any such
Lease.

         (e)    Borrower shall, promptly upon Lender's request, deliver to
Lender an executed copy of each residential Lease then in effect. All Leases for
residential dwelling units shall be on forms approved by Lender, shall be for
initial terms of at least six months and not more than two years, and shall not
include options to purchase. If customary in the applicable market, residential
Leases with terms of less than six months may be permitted with Lender's prior
written consent.

         (f)    Borrower shall not lease any portion of the Mortgaged Property
for non-residential use except with the prior written consent of Lender and
Lender's prior written approval of the Lease agreement. Borrower shall not
modify the terms of, or extend or terminate, any Lease for non-residential use
(including any Lease in existence on the date of this Instrument) without the
prior written consent of Lender. Borrower shall, without request by Lender,
deliver an executed copy of each non-residential Lease to Lender promptly after
such Lease is signed. All non-residential Leases, including renewals or
extensions of existing Leases, shall specifically provide that (1) such Leases
are subordinate to the lien of this Instrument (unless waived in writing by
Lender); (2) the tenant shall attorn to Lender and any purchaser at a
foreclosure sale, such attornment to be self-executing and effective upon
acquisition of title to the Mortgaged Property by any purchaser at a foreclosure
sale or by Lender in any manner; (3) the tenant agrees to execute such further
evidences of attornment as Lender or any purchaser at a foreclosure sale may
from time to time request; (4) the Lease shall not be terminated by foreclosure
or any other transfer of the Mortgaged Property; (5) after a foreclosure sale of
the Mortgaged Property, Lender or any other purchaser at such foreclosure sale
may, at Lender's or such purchaser's option, accept or terminate such Lease; and
(6) the tenant shall, upon receipt after the occurrence of an Event of Default
of a written request from Lender, pay all Rents payable under the Lease to
Lender.

         (g)    Borrower shall not receive or accept Rent under any Lease
(whether residential or non-residential) for more than two months in advance.

         5.     PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS;
PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due


















<PAGE>   17


in accordance with the terms of the Note and the other Loan Documents and shall
perform, observe and comply with all other provisions of the Note and the other
Loan Documents. Borrower shall pay a prepayment premium in connection with
certain prepayments of the Indebtedness, including a payment made after Lender's
exercise of any right of acceleration of the Indebtedness, as provided in the
Note.

         6.     EXCULPATION. Borrower's personal liability for payment of the
Indebtedness and for performance of the other obligations to be performed by it
under this Instrument is limited in the manner, and to the extent, provided in
the Note.

         7.     DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

         (a)    Borrower shall deposit with Lender on the day monthly
installments of principal or interest, or both, are due under the Note (or on
another day designated in writing by Lender), until the Indebtedness is paid in
full, an additional amount sufficient to accumulate with Lender the entire sum
required to pay, when due (1) any water and sewer charges which, if not paid,
may result in a lien on all or any part of the Mortgaged Property, (2) the
premiums for fire and other hazard insurance, rent loss insurance and such other
insurance as Lender may require under Section 19, (3) Taxes, and (4) amounts for
other charges and expenses which Lender at any time reasonably deems necessary
to protect the Mortgaged Property, to prevent the imposition of liens on the
Mortgaged Property, or otherwise to protect Lender's interests, all as
reasonably estimated from time to time by Lender. The amounts deposited under
the preceding sentence are collectively referred to in this Instrument as the
"IMPOSITION DEPOSITS". The obligations of Borrower for which the Imposition
Deposits are required are collectively referred to in this Instrument as
"IMPOSITIONS". The amount of the Imposition Deposits shall be sufficient to
enable Lender to pay each Imposition before the last date upon which such
payment may be made without any penalty or interest charge being added. Lender
shall maintain records indicating how much of the monthly Imposition Deposits
and how much of the aggregate Imposition Deposits held by Lender are held for
the purpose of paying Taxes, insurance premiums and each other obligation of
Borrower for which Imposition Deposits are required. Any waiver by Lender of the
requirement that Borrower remit Imposition Deposits to Lender may be revoked by
Lender, in Lender's discretion, at any time upon notice to Borrower.

         (b)    Imposition Deposits shall be held in an institution (which may
be Lender, if Lender is such an institution) whose deposits or accounts are
insured or guaranteed by a federal agency. Lender shall not be obligated to open
additional accounts or deposit Imposition Deposits in additional institutions
when the amount of the Imposition Deposits exceeds the maximum amount of the
federal deposit insurance or guaranty. Lender shall apply the Imposition
Deposits to pay Impositions so long as no Event of Default has occurred and is
continuing. Unless applicable law requires, Lender shall not be required to pay
Borrower any interest, earnings or profits on the Imposition Deposits. Borrower
hereby pledges and grants to Lender a security interest in the




















<PAGE>   18


Imposition Deposits as additional security for all of Borrower's obligations
under this Instrument and the other Loan Documents. Any amounts deposited with
Lender under this Section 7 shall not be trust funds, nor shall they operate to
reduce the Indebtedness, unless applied by Lender for that purpose under Section
7(e).

         (c)    If Lender receives a bill or invoice for an Imposition, Lender
shall pay the Imposition from the Imposition Deposits held by Lender. Lender
shall have no obligation to pay any Imposition to the extent it exceeds
Imposition Deposits then held by Lender. Lender may pay an Imposition according
to any bill, statement or estimate from the appropriate public office or
insurance company without inquiring into the accuracy of the bill, statement or
estimate or into the validity of the Imposition.

         (d)    If at any time the amount of the Imposition Deposits held by
Lender for payment of a specific Imposition exceeds the amount reasonably deemed
necessary by Lender, the excess shall be credited against future installments of
Imposition Deposits. If at any time the amount of the Imposition Deposits held
by Lender for payment of a specific Imposition is less than the amount
reasonably estimated by Lender to be necessary, Borrower shall pay to Lender the
amount of the deficiency within 15 days after notice from Lender.

         (e)    If an Event of Default has occurred and is continuing, Lender
may apply any Imposition Deposits, in any amounts and in any order as Lender
determines, in Lender's discretion, to pay any Impositions or as a credit
against the Indebtedness. Upon payment in full of the Indebtedness, Lender shall
refund to Borrower any Imposition Deposits held by Lender.

         8.     COLLATERAL AGREEMENTS. Borrower shall deposit with Lender such
amounts as may be required by any Collateral Agreement and shall perform all
other obligations of Borrower under each Collateral Agreement.

         9.     APPLICATION OF PAYMENTS. If at any time Lender receives, from
Borrower or otherwise, any amount applicable to the Indebtedness which is less
than all amounts due and payable at such time, then Lender may apply that
payment to amounts then due and payable in any manner and in any order
determined by Lender, in Lender's discretion. Neither Lender's acceptance of an
amount which is less than all amounts then due and payable nor Lender's
application of such payment in the manner authorized shall constitute or be
deemed to constitute either a waiver of the unpaid amounts or an accord and
satisfaction. Notwithstanding the application of any such amount to the
Indebtedness, Borrower's obligations under this Instrument and the Note shall
remain unchanged.

         10.    COMPLIANCE WITH LAWS. Borrower shall comply with all laws,
ordinances, regulations and requirements of any Governmental Authority and all
recorded lawful covenants and




















<PAGE>   19


agreements relating to or affecting the Mortgaged Property, including all laws,
ordinances, regulations, requirements and covenants pertaining to health and
safety, construction of improvements on the Mortgaged Property, fair housing,
zoning and land use, and Leases. Borrower also shall comply with all applicable
laws that pertain to the maintenance and disposition of tenant security
deposits. Borrower shall at all times maintain records sufficient to demonstrate
compliance with the provisions of this Section 10. Borrower shall take
appropriate measures to prevent, and shall not engage in or knowingly permit,
any illegal activities at the Mortgaged Property that could endanger tenants or
visitors, result in damage to the Mortgaged Property, result in forfeiture of
the Mortgaged Property, or otherwise materially impair the lien created by this
Instrument or Lender's interest in the Mortgaged Property. Borrower represents
and warrants to Lender that no portion of the Mortgaged Property has been or
will be purchased with the proceeds of any illegal activity.

         11.    USE OF PROPERTY. Unless required by applicable law, Borrower
shall not (a) except for any change in use approved by Lender, allow changes in
the use for which all or any part of the Mortgaged Property is being used at the
time this Instrument was executed, (b) convert any individual dwelling units or
common areas to commercial use, (c) initiate or acquiesce in a change in the
zoning classification of the Mortgaged Property, or (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property.

         12.    PROTECTION OF LENDER'S SECURITY.

         (a)    If Borrower fails to perform any of its obligations under this
Instrument or any other Loan Document, or if any action or proceeding is
commenced which purports to affect the Mortgaged Property, Lender's security or
Lender's rights under this Instrument, including eminent domain, insolvency,
code enforcement, civil or criminal forfeiture, enforcement of Hazardous
Materials Laws, fraudulent conveyance or reorganizations or proceedings
involving a bankrupt or decedent, then Lender at Lender's option may make such
appearances, disburse such sums and take such actions as Lender reasonably deems
necessary to perform such obligations of Borrower and to protect Lender's
interest, including (1) payment of fees and out-of-pocket expenses of attorneys,
accountants, inspectors and consultants, (2) entry upon the Mortgaged Property
to make repairs or secure the Mortgaged Property, (3) procurement of the
insurance required by Section 19, and (4) payment of amounts which Borrower has
failed to pay under Sections 15 and 17.

         (b)    Any amounts disbursed by Lender under this Section 12, or under
any other provision of this Instrument that treats such disbursement as being
made under this Section 12, shall be added to, and become part of, the principal
component of the Indebtedness, shall be immediately due and payable and shall
bear interest from the date of disbursement until paid at the "DEFAULT RATE", as
defined in the Note.

<PAGE>   20


         (c)    Nothing in this Section 12 shall require Lender to incur any
expense or take any action.

         13.    INSPECTION. Lender, its agents, representatives, and designees
may make or cause to be made entries upon and inspections of the Mortgaged
Property (including environmental inspections and tests) during normal business
hours, or at any other reasonable time.

         14.    BOOKS AND RECORDS; FINANCIAL REPORTING.

         (a)    Borrower shall keep and maintain at all times at the Mortgaged
Property or the management agent's offices, and upon Lender's request shall make
available at the Mortgaged Property, complete and accurate books of account and
records (including copies of supporting bills and invoices) adequate to reflect
correctly the operation of the Mortgaged Property, and copies of all written
contracts, Leases, and other instruments which affect the Mortgaged Property.
The books, records, contracts, Leases and other instruments shall be subject to
examination and inspection at any reasonable time by Lender.

         (b)    Borrower shall furnish to Lender all of the following:

                (1)      within 120 days after the end of each fiscal year of
                         Borrower, a statement of income and expenses for
                         Borrower's operation of the Mortgaged Property for
                         that fiscal year, a statement of changes in financial
                         position of Borrower relating to the Mortgaged
                         Property for that fiscal year and, when requested by
                         Lender, a balance sheet showing all assets and
                         liabilities of Borrower relating to the Mortgaged
                         Property as of the end of that fiscal year;

                (2)      within 120 days after the end of each fiscal year of
                         Borrower, and at any other time upon Lender's
                         request, a rent schedule for the Mortgaged Property
                         showing the name of each tenant, and for each tenant,
                         the space occupied, the lease expiration date, the
                         rent payable for the current month, the date through
                         which rent has been paid, and any related information
                         requested by Lender;

                (3)      within 120 days after the end of each fiscal year of
                         Borrower, and at any other time upon Lender's
                         request, an accounting of all security deposits held
                         pursuant to all Leases, including the name of the
                         institution (if any) and the names and identification
                         numbers of the accounts (if any) in which such
                         security deposits are held and the name of the person
                         to contact at such financial institution, along with
                         any authority or release necessary for Lender to
                         access information regarding such accounts;















<PAGE>   21


                (4)      within 120 days after the end of each fiscal year of
                         Borrower, and at any other time upon Lender's
                         request, a statement that identifies all owners of
                         any interest in Borrower and the interest held by
                         each, if Borrower is a corporation, all officers and
                         directors of Borrower, and if Borrower is a limited
                         liability company, all managers who are not members;

                (5)      upon Lender's request, a monthly property management
                         report for the Mortgaged Property, showing the number
                         of inquiries made and rental applications received
                         from tenants or prospective tenants and deposits
                         received from tenants and any other information
                         requested by Lender;

                (6)      upon Lender's request, a balance sheet, a statement
                         of income and expenses for Borrower and a statement
                         of changes in financial position of Borrower for
                         Borrower's most recent fiscal year; and

                (7)      if required by Lender, a statement of income and
                         expense for the Mortgaged Property for the prior
                         month or quarter.

         (c)    Each of the statements, schedules and reports required by
Section 14(b) shall be certified to be complete and accurate by an individual
having authority to bind Borrower, and shall be in such form and contain such
detail as Lender may reasonably require. Lender also may require that any
statements, schedules or reports be audited at Borrower's expense by independent
certified public accountants acceptable to Lender.

         (d)    If Borrower fails to provide in a timely manner the statements,
schedules and reports required by Section 14(b), Lender shall have the right to
have Borrower's books and records audited, at Borrower's expense, by independent
certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 12.

         (e)    If an Event of Default has occurred and is continuing, Borrower
shall deliver to Lender upon written demand all books and records relating to
the Mortgaged Property or its operation.

         (f)    Borrower authorizes Lender to obtain a credit report on Borrower
at any time.

         (g)    If an Event of Default has occurred and Lender has not
previously required Borrower to furnish a quarterly statement of income and
expense for the Mortgaged Property,























<PAGE>   22


Lender may require Borrower to furnish such a statement within 45 days after the
end of each fiscal quarter of Borrower following such Event of Default.

         15.    TAXES; OPERATING EXPENSES.

         (a)    Subject to the provisions of Section 15(c) and Section 15(d),
Borrower shall pay, or cause to be paid, all Taxes when due and before the
addition of any interest, fine, penalty or cost for nonpayment.

         (b)    Subject to the provisions of Section 15(c), Borrower shall pay
the expenses of operating, managing, maintaining and repairing the Mortgaged
Property (including insurance premiums, utilities, repairs and replacements)
before the last date upon which each such payment may be made without any
penalty or interest charge being added.

         (c)    As long as no Event of Default exists and Borrower has timely
delivered to Lender any bills or premium notices that it has received, Borrower
shall not be obligated to pay Taxes, insurance premiums or any other individual
Imposition to the extent that sufficient Imposition Deposits are held by Lender
for the purpose of paying that specific Imposition. If an Event of Default
exists, Lender may exercise any rights Lender may have with respect to
Imposition Deposits without regard to whether Impositions are then due and
payable. Lender shall have no liability to Borrower for failing to pay any
Impositions to the extent that any Event of Default has occurred and is
continuing, insufficient Imposition Deposits are held by Lender at the time an
Imposition becomes due and payable or Borrower has failed to provide Lender with
bills and premium notices as provided above.

         (d)    Borrower, at its own expense, may contest by appropriate legal
proceedings, conducted diligently and in good faith, the amount or validity of
any Imposition other than insurance premiums, if (1) Borrower notifies Lender of
the commencement or expected commencement of such proceedings, (2) the Mortgaged
Property is not in danger of being sold or forfeited, (3) Borrower deposits with
Lender reserves sufficient to pay the contested Imposition, if requested by
Lender, and (4) Borrower furnishes whatever additional security is required in
the proceedings or is reasonably requested by Lender, which may include the
delivery to Lender of the reserves established by Borrower to pay the contested
Imposition.

         (e)    Borrower shall promptly deliver to Lender a copy of all notices
of, and invoices for, Impositions, and if Borrower pays any Imposition directly,
Borrower shall promptly furnish to Lender receipts evidencing such payments.

         16.    LIENS; ENCUMBRANCES. Borrower acknowledges that, to the extent
provided in Section 21, the grant, creation or existence of any mortgage, deed
of trust, deed to secure debt,























<PAGE>   23


security interest or other lien or encumbrance (a "LIEN") on the Mortgaged
Property (other than the lien of this Instrument) or on certain ownership
interests in Borrower, whether voluntary, involuntary or by operation of law,
and whether or not such Lien has priority over the lien of this Instrument, is a
"TRANSFER" which constitutes an Event of Default.

         17.    PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.

         (a)    Borrower (1) shall not commit waste or permit impairment or
deterioration of the Mortgaged Property, (2) shall not abandon the Mortgaged
Property, (3) shall restore or repair promptly, in a good and workmanlike
manner, any damaged part of the Mortgaged Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing,
whether or not insurance proceeds or condemnation awards are available to cover
any costs of such restoration or repair, (4) shall keep the Mortgaged Property
in good repair, including the replacement of Personalty and Fixtures with items
of equal or better function and quality, (5) shall provide for professional
management of the Mortgaged Property by a residential rental property manager
satisfactory to Lender under a contract approved by Lender in writing, and (6)
shall give notice to Lender of and, unless otherwise directed in writing by
Lender, shall appear in and defend any action or proceeding purporting to affect
the Mortgaged Property, Lender's security or Lender's rights under this
Instrument. Borrower shall not (and shall not permit any tenant or other person
to) remove, demolish or alter the Mortgaged Property or any part of the
Mortgaged Property except in connection with the replacement of tangible
Personalty.

         (b)    If, in connection with the making of the loan evidenced by the
Note or at any later date, Lender waives in writing the requirement of Section
17(a)(5) above that Borrower enter into a written contract for management of the
Mortgaged Property and if, after the date of this Instrument, Borrower intends
to change the management of the Mortgaged Property, Lender shall have the right
to approve such new property manager and the written contract for the management
of the Mortgaged Property and require that Borrower and such new property
manager enter into an Assignment of Management Agreement on a form approved by
Lender. If required by Lender (whether before or after an Event of Default),
Borrower will cause any Affiliate of Borrower to whom fees are payable for the
management of the Mortgaged Property to enter into an agreement with Lender, in
a form approved by Lender, providing for subordination of those fees and such
other provisions as Lender may require. "Affiliate of Borrower" means any
corporation, partnership, joint venture, limited liability company, limited
liability partnership, trust or individual controlled by, under common control
with, or which controls Borrower (the term "control" for these purposes shall
mean the ability, whether by the ownership of shares or other equity interests,
by contract or otherwise, to elect a majority of the directors of a corporation,
to make management decisions on behalf of, or independently to select the
managing partner of, a partnership, or otherwise to have the power independently
to remove and then select a majority of those

<PAGE>   24


individuals exercising managerial authority over an entity, and control shall be
conclusively presumed in the case of the ownership of 50% or more of the equity
interests).

         18.    ENVIRONMENTAL HAZARDS.

         (a)    Except for matters covered by a written program of operations
and maintenance approved in writing by Lender (an "O&M PROGRAM") or matters
described in Section 18(b), Borrower shall not cause or permit any of the
following:

                (1)      the presence, use, generation, release, treatment,
                         processing, storage (including storage in above
                         ground and underground storage tanks), handling, or
                         disposal of any Hazardous Materials on or under the
                         Mortgaged Property or any other property of Borrower
                         that is adjacent to the Mortgaged Property;

                (2)      the transportation of any Hazardous Materials to, from,
                         or across the Mortgaged Property;

                (3)      any occurrence or condition on the Mortgaged Property
                         or any other property of Borrower that is adjacent to
                         the Mortgaged Property, which occurrence or condition
                         is or may be in violation of Hazardous Materials
                         Laws; or

                (4)      any violation of or noncompliance with the terms of
                         any Environmental Permit with respect to the
                         Mortgaged Property or any property of Borrower that
                         is adjacent to the Mortgaged Property.

The matters  described  in clauses  (1) through (4) above are referred to
collectively in this Section 18 as "PROHIBITED ACTIVITIES OR CONDITIONS".

         (b)    Prohibited Activities and Conditions shall not include the safe
and lawful use and storage of quantities of (1) pre-packaged supplies, cleaning
materials and petroleum products customarily used in the operation and
maintenance of comparable multifamily properties, (2) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by tenants and occupants of residential dwelling units in
the Mortgaged Property; and (3) petroleum products used in the operation and
maintenance of motor vehicles from time to time located on the Mortgaged
Property's parking areas, so long as all of the foregoing are used, stored,
handled, transported and disposed of in compliance with Hazardous Materials
Laws.




<PAGE>   25


         (c)    Borrower shall take all commercially reasonable actions
(including the inclusion of appropriate provisions in any Leases executed after
the date of this Instrument) to prevent its employees, agents, and contractors,
and all tenants and other occupants from causing or permitting any Prohibited
Activities or Conditions. Borrower shall not lease or allow the sublease or use
of all or any portion of the Mortgaged Property to any tenant or subtenant for
nonresidential use by any user that, in the ordinary course of its business,
would cause or permit any Prohibited Activity or Condition.

         (d)    If an O&M Program has been established with respect to Hazardous
Materials, Borrower shall comply in a timely manner with, and cause all
employees, agents, and contractors of Borrower and any other persons present on
the Mortgaged Property to comply with the O&M Program. All costs of performance
of Borrower's obligations under any O&M Program shall be paid by Borrower, and
Lender's out-of-pocket costs incurred in connection with the monitoring and
review of the O&M Program and Borrower's performance shall be paid by Borrower
upon demand by Lender. Any such out-of-pocket costs of Lender which Borrower
fails to pay promptly shall become an additional part of the Indebtedness as
provided in Section 12.

         (e)    Borrower represents and warrants to Lender that, except as
previously disclosed by Borrower to Lender in writing:

                (1)      Borrower has not at any time engaged in, caused or
                         permitted any  Prohibited  Activities or Conditions;

                (2)      to the best of Borrower's knowledge after reasonable
                         and diligent inquiry, no Prohibited Activities or
                         Conditions exist or have existed;

                (3)      except to the extent previously disclosed by Borrower
                         to Lender in writing, the Mortgaged Property does not
                         now contain any underground storage tanks, and, to
                         the best of Borrower's knowledge after reasonable and
                         diligent inquiry, the Mortgaged Property has not
                         contained any underground storage tanks in the past.
                         If there is an underground storage tank located on
                         the Property which has been previously disclosed by
                         Borrower to Lender in writing, that tank complies
                         with all requirements of Hazardous Materials Laws;

                (4)      Borrower has complied with all Hazardous Materials
                         Laws, including all requirements for notification
                         regarding releases of Hazardous Materials. Without
                         limiting the generality of the foregoing, Borrower
                         has obtained all Environmental Permits required for
                         the operation of the Mortgaged Property




<PAGE>   26


                         in accordance with Hazardous Materials Laws now in
                         effect and all such Environmental Permits are in full
                         force and effect;

                (5)      no event has occurred with respect to the Mortgaged
                         Property that constitutes, or with the passing of
                         time or the giving of notice would constitute,
                         noncompliance with the terms of any Environmental
                         Permit;

                (6)      there are no actions, suits, claims or proceedings
                         pending or, to the best of Borrower's knowledge after
                         reasonable and diligent inquiry, threatened that
                         involve the Mortgaged Property and allege, arise out
                         of, or relate to any Prohibited Activity or
                         Condition; and

                (7)      Borrower has not received any complaint, order,
                         notice of violation or other communication from any
                         Governmental Authority with regard to air emissions,
                         water discharges, noise emissions or Hazardous
                         Materials, or any other environmental, health or
                         safety matters affecting the Mortgaged Property or
                         any other property of Borrower that is adjacent to
                         the Mortgaged Property.

The representations and warranties in this Section 18 shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the loan evidenced by the Note, until the Indebtedness
has been paid in full.

         (f)    Borrower shall promptly notify Lender in writing upon the
occurrence of any of the following events:

                (1)      Borrower's discovery of any Prohibited Activity or
                         Condition;

                (2)      Borrower's receipt of or knowledge of any complaint,
                         order, notice of violation or other communication
                         from any Governmental Authority or other person with
                         regard to present or future alleged Prohibited
                         Activities or Conditions or any other environmental,
                         health or safety matters affecting the Mortgaged
                         Property or any other property of Borrower that is
                         adjacent to the Mortgaged Property; and

                (3)      any  representation  or warranty in this  Section 18
                         becomes  untrue  after the date of this Agreement.

Any such notice given by Borrower shall not relieve Borrower of, or result in a
waiver of, any obligation under this Instrument, the Note, or any other Loan
Document.




<PAGE>   27


         (g)    Borrower shall pay promptly the costs of any environmental
inspections, tests or audits ("ENVIRONMENTAL INSPECTIONS") required by Lender in
connection with any foreclosure or deed in lieu of foreclosure, or as a
condition of Lender's consent to any Transfer under Section 21, or required by
Lender following a reasonable determination by Lender that Prohibited Activities
or Conditions may exist. Any such costs incurred by Lender (including the fees
and out-of-pocket costs of attorneys and technical consultants whether incurred
in connection with any judicial or administrative process or otherwise) which
Borrower fails to pay promptly shall become an additional part of the
Indebtedness as provided in Section 12. The results of all Environmental
Inspections made by Lender shall at all times remain the property of Lender and
Lender shall have no obligation to disclose or otherwise make available to
Borrower or any other party such results or any other information obtained by
Lender in connection with its Environmental Inspections. Lender hereby reserves
the right, and Borrower hereby expressly authorizes Lender, to make available to
any party, including any prospective bidder at a foreclosure sale of the
Mortgaged Property, the results of any Environmental Inspections made by Lender
with respect to the Mortgaged Property. Borrower consents to Lender notifying
any party (either as part of a notice of sale or otherwise) of the results of
any of Lender's Environmental Inspections. Borrower acknowledges that Lender
cannot control or otherwise assure the truthfulness or accuracy of the results
of any of its Environmental Inspections and that the release of such results to
prospective bidders at a foreclosure sale of the Mortgaged Property may have a
material and adverse effect upon the amount which a party may bid at such sale.
Borrower agrees that Lender shall have no liability whatsoever as a result of
delivering the results of any of its Environmental Inspections to any third
party, and Borrower hereby releases and forever discharges Lender from any and
all claims, damages, or causes of action, arising out of, connected with or
incidental to the results of, the delivery of any of Lender's Environmental
Inspections.

         (h)    If any investigation, site monitoring, containment, clean-up,
restoration or other remedial work ("REMEDIAL WORK") is necessary to comply with
any Hazardous Materials Law or order of any Governmental Authority that has or
acquires jurisdiction over the Mortgaged Property or the use, operation or
improvement of the Mortgaged Property under any Hazardous Materials Law,
Borrower shall, by the earlier of (1) the applicable deadline required by
Hazardous Materials Law or (2) 30 days after notice from Lender demanding such
action, begin performing the Remedial Work, and thereafter diligently prosecute
it to completion, and shall in any event complete the work by the time required
by applicable Hazardous Materials Law. If Borrower fails to begin on a timely
basis or diligently prosecute any required Remedial Work, Lender may, at its
option, cause the Remedial Work to be completed, in which case Borrower shall
reimburse Lender on demand for the cost of doing so. Any reimbursement due from
Borrower to Lender shall become part of the Indebtedness as provided in Section
12.




<PAGE>   28


         (i)    Borrower shall cooperate with any inquiry by any Governmental
Authority and shall comply with any governmental or judicial order which arises
from any alleged Prohibited Activity or Condition.

         (j)    Borrower shall indemnify, hold harmless and defend (i) Lender,
(ii) any prior owner or holder of the Note, (iii) the Loan Servicer, (iv) any
prior Loan Servicer, (v) the officers, directors, shareholders, partners,
employees and trustees of any of the foregoing, and (vi) the heirs, legal
representatives, successors and assigns of each of the foregoing (collectively,
the "INDEMNITEES") from and against all proceedings, claims, damages, penalties
and costs (whether initiated or sought by Governmental Authorities or private
parties), including fees and out-of-pocket expenses of attorneys and expert
witnesses, investigatory fees, and remediation costs, whether incurred in
connection with any judicial or administrative process or otherwise, arising
directly or indirectly from any of the following:

                (1)      any breach of any representation or warranty of
                         Borrower in this Section 18;

                (2)      any failure by Borrower to perform any of its
                         obligations under this Section 18;

                (3)      the existence or alleged existence of any Prohibited
                         Activity or Condition;

                (4)      the presence or alleged presence of Hazardous
                         Materials on or under the Mortgaged Property or any
                         property of Borrower that is adjacent to the
                         Mortgaged Property; and

                (5)      the actual or alleged violation of any Hazardous
                         Materials Law.

         (k)    Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. However, any Indemnitee may elect
to defend any claim or legal or administrative proceeding at the Borrower's
expense.

         (l)    Borrower shall not, without the prior written consent of those
Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "CLAIM"), settle or compromise the Claim if the settlement (1)
results in the entry of any judgment that does not include as an unconditional
term the delivery by the claimant or plaintiff to Lender of a written release of
those Indemnitees, satisfactory in form and substance to Lender; or (2) may
materially and adversely affect Lender, as determined by Lender in its
discretion.




<PAGE>   29


         (m)    Lender agrees that the indemnity under this Section 18 shall be
limited to the assets of Borrower and Lender shall not seek to recover any
deficiency from any natural persons who are general partners of Borrower.

         (n)    Borrower shall, at its own cost and expense, do all of the
following:

                (1)      pay or satisfy any judgment or decree that may be
                         entered against any Indemnitee or Indemnitees in any
                         legal or administrative proceeding incident to any
                         matters against which Indemnitees are entitled to be
                         indemnified under this Section 18;

                (2)      reimburse Indemnitees for any expenses paid or
                         incurred in connection with any matters against which
                         Indemnitees are entitled to be indemnified under this
                         Section 18; and

                (3)      reimburse Indemnitees for any and all expenses,
                         including fees and out-of-pocket expenses of
                         attorneys and expert witnesses, paid or incurred in
                         connection with the enforcement by Indemnitees of
                         their rights under this Section 18, or in monitoring
                         and participating in any legal or administrative
                         proceeding.

         (o)    In any circumstances in which the indemnity under this Section
18 applies, Lender may employ its own legal counsel and consultants to
prosecute, defend or negotiate any claim or legal or administrative proceeding
and Lender, with the prior written consent of Borrower (which shall not be
unreasonably withheld, delayed or conditioned), may settle or compromise any
action or legal or administrative proceeding. Borrower shall reimburse Lender
upon demand for all costs and expenses incurred by Lender, including all costs
of settlements entered into in good faith, and the fees and out-of-pocket
expenses of such attorneys and consultants.

         (p)    The provisions of this Section 18 shall be in addition to any
and all other obligations and liabilities that Borrower may have under
applicable law or under other Loan Documents, and each Indemnitee shall be
entitled to indemnification under this Section 18 without regard to whether
Lender or that Indemnitee has exercised any rights against the Mortgaged
Property or any other security, pursued any rights against any guarantor, or
pursued any other rights available under the Loan Documents or applicable law.
If Borrower consists of more than one person or entity, the obligation of those
persons or entities to indemnify the Indemnitees under this Section 18 shall be
joint and several. The obligation of Borrower to indemnify the Indemnitees under
this Section 18 shall survive any repayment or discharge of the Indebtedness,
any foreclosure proceeding, any foreclosure sale, any delivery of any deed in
lieu of foreclosure, and any release of record of the lien of this Instrument.




<PAGE>   30


         19.    PROPERTY AND LIABILITY INSURANCE.

         (a)    Borrower shall keep the Improvements insured at all times
against such hazards as Lender may from time to time require, which insurance
shall include but not be limited to coverage against loss by fire and allied
perils, general boiler and machinery coverage, and business income coverage.
Lender's insurance requirements may change from time to time throughout the term
of the Indebtedness. If Lender so requires, such insurance shall also include
sinkhole insurance, mine subsidence insurance, earthquake insurance, and, if the
Mortgaged Property does not conform to applicable zoning or land use laws,
building ordinance or law coverage. If any of the Improvements is located in an
area identified by the Federal Emergency Management Agency (or any successor to
that agency) as an area having special flood hazards, and if flood insurance is
available in that area, Borrower shall insure such Improvements against loss by
flood.

         (b)    All premiums on insurance policies required under Section 19(a)
shall be paid in the manner provided in Section 7, unless Lender has designated
in writing another method of payment. All such policies shall also be in a form
approved by Lender. All policies of property damage insurance shall include a
non-contributing, non-reporting mortgage clause in favor of, and in a form
approved by, Lender. Lender shall have the right to hold the original policies
or duplicate original policies of all insurance required by Section 19(a).
Borrower shall promptly deliver to Lender a copy of all renewal and other
notices received by Borrower with respect to the policies and all receipts for
paid premiums. At least 30 days prior to the expiration date of a policy,
Borrower shall deliver to Lender the original (or a duplicate original) of a
renewal policy in form satisfactory to Lender.

         (c)    Borrower shall maintain at all times commercial general
liability insurance, workers' compensation insurance and such other liability,
errors and omissions and fidelity insurance coverages as Lender may from time to
time require.

         (d)    All insurance policies and renewals of insurance policies
required by this Section 19 shall be in such amounts and for such periods as
Lender may from time to time require, and shall be issued by insurance companies
satisfactory to Lender.

         (e)    Borrower shall comply with all insurance requirements and shall
not permit any condition to exist on the Mortgaged Property that would
invalidate any part of any insurance coverage that this Instrument requires
Borrower to maintain.

         (f)    In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to Lender. Borrower hereby authorizes and
appoints Lender as attorney-in-fact for Borrower to make proof of loss, to
adjust and compromise any claims under policies of property




<PAGE>   31


damage insurance, to appear in and prosecute any action arising from such
property damage insurance policies, to collect and receive the proceeds of
property damage insurance, and to deduct from such proceeds Lender's expenses
incurred in the collection of such proceeds. This power of attorney is coupled
with an interest and therefore is irrevocable. However, nothing contained in
this Section 19 shall require Lender to incur any expense or take any action.
Lender may, at Lender's option, (1) hold the balance of such proceeds to be used
to reimburse Borrower for the cost of restoring and repairing the Mortgaged
Property to the equivalent of its original condition or to a condition approved
by Lender (the "RESTORATION"), or (2) apply the balance of such proceeds to the
payment of the Indebtedness, whether or not then due. To the extent Lender
determines to apply insurance proceeds to Restoration, Lender shall do so in
accordance with Lender's then-current policies relating to the restoration of
casualty damage on similar multifamily properties.

         (g)    Lender shall not exercise its option to apply insurance proceeds
to the payment of the Indebtedness if all of the following conditions are met:
(1) no Event of Default (or any event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default) has occurred and
is continuing; (2) Lender determines, in its discretion, that there will be
sufficient funds to complete the Restoration; (3) Lender determines, in its
discretion, that the rental income from the Mortgaged Property after completion
of the Restoration will be sufficient to meet all operating costs and other
expenses, Imposition Deposits, deposits to reserves and loan repayment
obligations relating to the Mortgaged Property; (4) Lender determines, in its
discretion, that the Restoration will be completed before the earlier of (A) one
year before the maturity date of the Note or (B) one year after the date of the
loss or casualty; and (5) upon Lender's request, Borrower provides Lender
evidence of the availability during and after the Restoration of the insurance
required to be maintained by Borrower pursuant to this Section 19.

         (h)    If the Mortgaged Property is sold at a foreclosure sale or
Lender acquires title to the Mortgaged Property, Lender shall automatically
succeed to all rights of Borrower in and to any insurance policies and unearned
insurance premiums and in and to the proceeds resulting from any damage to the
Mortgaged Property prior to such sale or acquisition.

         20.    CONDEMNATION.

         (a)    Borrower shall promptly notify Lender of any action or
proceeding relating to any condemnation or other taking, or conveyance in lieu
thereof, of all or any part of the Mortgaged Property, whether direct or
indirect (a "CONDEMNATION"). Borrower shall appear in and prosecute or defend
any action or proceeding relating to any Condemnation unless otherwise directed
by Lender in writing. Borrower authorizes and appoints Lender as
attorney-in-fact for Borrower to commence, appear in and prosecute, in Lender's
or Borrower's name, any action or proceeding relating to any Condemnation and to
settle or compromise any claim in connection with any Condemnation. This power
of attorney is coupled with an interest and therefore is irrevocable.




<PAGE>   32


However, nothing contained in this Section 20 shall require Lender to incur any
expense or take any action. Borrower hereby transfers and assigns to Lender all
right, title and interest of Borrower in and to any award or payment with
respect to (i) any Condemnation, or any conveyance in lieu of Condemnation, and
(ii) any damage to the Mortgaged Property caused by governmental action that
does not result in a Condemnation.

         (b)    Lender may apply such awards or proceeds, after the deduction of
Lender's expenses incurred in the collection of such amounts, at Lender's
option, to the restoration or repair of the Mortgaged Property or to the payment
of the Indebtedness, with the balance, if any, to Borrower. Unless Lender
otherwise agrees in writing, any application of any awards or proceeds to the
Indebtedness shall not extend or postpone the due date of any monthly
installments referred to in the Note, Section 7 of this Instrument or any
Collateral Agreement, or change the amount of such installments. Borrower agrees
to execute such further evidence of assignment of any awards or proceeds as
Lender may require.

         21.    TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.

         (a)    The occurrence of any of the following events shall constitute
an Event of Default under this Instrument:

                (1)      a  Transfer of all or any part of the Mortgaged
                         Property or any interest in the Mortgaged Property;

                (2)      a Transfer of a Controlling Interest in Borrower;

                (3)      a Transfer of a Controlling Interest in any entity
                         which owns, directly or indirectly through one or
                         more intermediate entities, a Controlling Interest in
                         Borrower;

                (4)      a Transfer of all or any part of Key Principal's
                         ownership interests (other than limited partnership
                         interests) in Borrower, or in any other entity which
                         owns, directly or indirectly through one or more
                         intermediate entities, an ownership interest in
                         Borrower;

                (5)      if Key Principal is an entity, (A) a Transfer of a
                         Controlling Interest in Key Principal, or (B) a
                         Transfer of a Controlling Interest in any entity
                         which owns, directly or indirectly through one or
                         more intermediate entities, a Controlling Interest in
                         Key Principal;





<PAGE>   33


                (6)      if Borrower or Key Principal is a trust, the
                         termination or revocation of such trust; and

                (7)      a conversion of Borrower from one type of legal
                         entity into another type of legal entity, whether or
                         not there is a Transfer.

         Lender shall not be required to demonstrate any actual impairment of
its security or any increased risk of default in order to exercise any of its
remedies with respect to an Event of Default under this Section 21.

         (b)    The occurrence of any of the following events shall not
constitute an Event of Default under this Instrument, notwithstanding any
provision of Section 21(a) to the contrary:

                (1)      a Transfer to which Lender has consented;

                (2)      a Transfer that occurs by devise, descent, or by
                         operation of law upon the death of a natural person;

                (3)      the grant of a leasehold interest in an individual
                         dwelling unit for a term of two years or less not
                         containing an option to purchase;

                (4)      a Transfer of obsolete or worn out Personalty or
                         Fixtures that are contemporaneously replaced by items
                         of equal or better function and quality, which are
                         free of liens, encumbrances and security interests
                         other than those created by the Loan Documents or
                         consented to by Lender;

                (5)      the grant of an easement, if before the grant Lender
                         determines that the easement will not materially
                         affect the operation or value of the Mortgaged
                         Property or Lender's interest in the Mortgaged
                         Property, and Borrower pays to Lender, upon demand,
                         all costs and expenses incurred by Lender in
                         connection with reviewing Borrower's request; and

                (6)      the creation of a tax lien or a mechanic's,
                         materialman's or judgment lien against the Mortgaged
                         Property which is bonded off, released of record or
                         otherwise remedied to Lender's satisfaction within 30
                         days of the date of creation.

         (c)    Lender shall consent, without any adjustment to the rate at
which the Indebtedness secured by this Instrument bears interest or to any other
economic terms of the Indebtedness, to a




<PAGE>   34
Transfer that would otherwise violate this Section 21 if, prior to the Transfer,
Borrower has satisfied each of the following requirements:

                  (1)      the submission to Lender of all information required
                           by Lender to make the determination required by this
                           Section 21(c);

                  (2)      the absence of any Event of Default;

                  (3)      the transferee meets all of the eligibility, credit,
                           management and other standards (including any
                           standards with respect to previous relationships
                           between Lender and the transferee and the
                           organization of the transferee) customarily applied
                           by Lender at the time of the proposed Transfer to the
                           approval of borrowers in connection with the
                           origination or purchase of similar mortgages, deeds
                           of trust or deeds to secure debt on multifamily
                           properties;

                  (4)      the Mortgaged Property, at the time of the proposed
                           Transfer, meets all standards as to its physical
                           condition that are customarily applied by Lender at
                           the time of the proposed Transfer to the approval of
                           properties in connection with the origination or
                           purchase of similar mortgages on multifamily
                           properties;

                  (5)      in the case of a Transfer of all or any part of the
                           Mortgaged Property, or direct or indirect ownership
                           interests in Borrower or Key Principal (if an
                           entity), if transferor or any other person has
                           obligations under any Loan Document, the execution by
                           the transferee or one or more individuals or entities
                           acceptable to Lender of an assumption agreement
                           (including, if applicable, an Acknowledgement and
                           Agreement of Key Principal to Personal Liability for
                           Exceptions to Non-Recourse Liability) that is
                           acceptable to Lender and that, among other things,
                           requires the transferee to perform all obligations of
                           transferor or such person set forth in such Loan
                           Document, and may require that the transferee comply
                           with any provisions of this Instrument or any other
                           Loan Document which previously may have been waived
                           by Lender;

                  (6)      if a guaranty has been executed and delivered in
                           connection with the Note, this Instrument or any of
                           the other Loan Documents, the Borrower causes one or
                           more individuals or entities acceptable to Lender to
                           execute and deliver to Lender a guaranty in a form
                           acceptable to Lender; and

<PAGE>   35

                  (7)      Lender's receipt of all of the following:

                           (A)      a non-refundable  review fee in the amount
                                    of $3,000 and a transfer fee equal to 1
                                    percent of the outstanding  Indebtedness
                                    immediately prior to the Transfer.

                           (B)      In addition, Borrower shall be required to
                                    reimburse Lender for all of Lender's
                                    out-of-pocket costs (including reasonable
                                    attorneys' fees) incurred in reviewing the
                                    Transfer request, to the extent such
                                    expenses exceed $3,000.

         (d) For purposes of this Section, the following terms shall have the
meanings set forth below:

                  (1)      "INITIAL  OWNERS"  means,  with respect to Borrower
                           or any other entity,  the persons or entities who on
                           the date of the Note own in the aggregate 100% of the
                           ownership interests in Borrower or that entity.

                  (2)      A Transfer of a "CONTROLLING INTEREST" shall mean,
                           with respect to any entity, the following:

                           (i)      if such entity is a general partnership or a
                                    joint venture, a Transfer of any general
                                    partnership interest or joint venture
                                    interest which would cause the Initial
                                    Owners to own less than 51% of all general
                                    partnership or joint venture interests in
                                    such entity;

                           (ii)     if such entity is a limited partnership, a
                                    Transfer of any general partnership
                                    interest;

                           (iii)    if such entity is a limited liability
                                    company or a limited liability partnership,
                                    a Transfer of any membership or other
                                    ownership interest which would cause the
                                    Initial Owners to own less than 51% of all
                                    membership or other ownership interests in
                                    such entity;

                           (iv)     if such entity is a corporation (other than
                                    a Publicly-Held Corporation) with only one
                                    class of voting stock, a Transfer of any
                                    voting stock which would cause the Initial
                                    Owners to own less than 51% of voting stock
                                    in such corporation;

<PAGE>   36


                           (v)      if such entity is a corporation (other than
                                    a Publicly-Held Corporation) with more than
                                    one class of voting stock, a Transfer of any
                                    voting stock which would cause the Initial
                                    Owners to own less than a sufficient number
                                    of shares of voting stock having the power
                                    to elect the majority of directors of such
                                    corporation; and

                           (vi)     if such entity is a trust, the removal,
                                    appointment or substitution of a trustee of
                                    such trust other than (A) in the case of a
                                    land trust, or (B) if the trustee of such
                                    trust after such removal, appointment or
                                    substitution is a trustee identified in the
                                    trust agreement approved by Lender.

                  (3)      "PUBLICLY-HELD  CORPORATION"  shall mean a
                           corporation  the outstanding  voting stock of which
                           is registered  under Section 12(b) or 12(g) of the
                           Securities and Exchange Act of 1934, as amended.

         22.      EVENTS OF DEFAULT.  The occurrence of any one or more of the
following shall constitute an Event of Default under this Instrument:

         (a)      any failure by Borrower to pay or deposit when due any amount
required by the Note, this Instrument or any other Loan Document;

         (b)      any failure by Borrower to maintain the insurance coverage
required by Section 19;

         (c)      any failure by Borrower to comply with the provisions of
Section 33;

         (d)      fraud or material misrepresentation or material omission by
Borrower, or any of its officers, directors, trustees, general partners or
managers, Key Principal or any guarantor in connection with (A) the application
for or creation of the Indebtedness, (B) any financial statement, rent roll, or
other report or information provided to Lender during the term of the
Indebtedness, or (C) any request for Lender's consent to any proposed action,
including a request for disbursement of funds under any Collateral Agreement;

         (e)      any Event of Default under Section 21;

         (f)      the commencement of a forfeiture action or proceeding, whether
civil or criminal, which, in Lender's reasonable judgment, could result in a
forfeiture of the Mortgaged Property or otherwise materially impair the lien
created by this Instrument or Lender's interest in the Mortgaged Property;

<PAGE>   37

         (g)      any failure by Borrower to perform any of its obligations
under this Instrument (other than those specified in Sections 22(a) through
(f)), as and when required, which continues for a period of 30 days after notice
of such failure by Lender to Borrower, but no such notice or grace period shall
apply in the case of any such failure which could, in Lender's judgment, absent
immediate exercise by Lender of a right or remedy under this Instrument, result
in harm to Lender, impairment of the Note or this Instrument or any other
security given under any other Loan Document;

         (h)      any failure by Borrower to perform any of its obligations as
and when required under any Loan Document other than this Instrument which
continues beyond the applicable cure period, if any, specified in that Loan
Document; and

         (i)      any exercise by the holder of any other debt instrument
secured by a mortgage, deed of trust or deed to secure debt on the Mortgaged
Property of a right to declare all amounts due under that debt instrument
immediately due and payable.

         23.      REMEDIES CUMULATIVE. Each right and remedy provided in this
Instrument is distinct from all other rights or remedies under this Instrument
or any other Loan Document or afforded by applicable law, and each shall be
cumulative and may be exercised concurrently, independently, or successively, in
any order.

         24.      FORBEARANCE.

         (a)      Lender may (but shall not be obligated to) agree with
Borrower, from time to time, and without giving notice to, or obtaining the
consent of, or having any effect upon the obligations of, any guarantor or other
third party obligor, to take any of the following actions: extend the time for
payment of all or any part of the Indebtedness; reduce the payments due under
this Instrument, the Note, or any other Loan Document; release anyone liable for
the payment of any amounts under this Instrument, the Note, or any other Loan
Document; accept a renewal of the Note; modify the terms and time of payment of
the Indebtedness; join in any extension or subordination agreement; release any
Mortgaged Property; take or release other or additional security; modify the
rate of interest or period of amortization of the Note or change the amount of
the monthly installments payable under the Note; and otherwise modify this
Instrument, the Note, or any other Loan Document.

         (b)      Any forbearance by Lender in exercising any right or remedy
under the Note, this Instrument, or any other Loan Document or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any other right or remedy. The acceptance by Lender of payment of all or any
part of the Indebtedness after the due date of such payment, or in an amount
which is less than the required payment, shall not be a waiver of Lender's right
to require prompt

<PAGE>   38

payment when due of all other payments on account of the Indebtedness or to
exercise any remedies for any failure to make prompt payment. Enforcement by
Lender of any security for the Indebtedness shall not constitute an election by
Lender of remedies so as to preclude the exercise of any other right available
to Lender. Lender's receipt of any awards or proceeds under Sections 19 and 20
shall not operate to cure or waive any Event of Default.

         25.      LOAN CHARGES. If any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower is interpreted
so that any charge provided for in any Loan Document, whether considered
separately or together with other charges levied in connection with any other
Loan Document, violates that law, and Borrower is entitled to the benefit of
that law, that charge is hereby reduced to the extent necessary to eliminate
that violation. The amounts, if any, previously paid to Lender in excess of the
permitted amounts shall be applied by Lender to reduce the principal of the
Indebtedness. For the purpose of determining whether any applicable law limiting
the amount of interest or other charges permitted to be collected from Borrower
has been violated, all Indebtedness which constitutes interest, as well as all
other charges levied in connection with the Indebtedness which constitute
interest, shall be deemed to be allocated and spread over the stated term of the
Note. Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest so computed is
uniform throughout the stated term of the Note.

         26.      WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the
right to assert any statute of limitations as a bar to the enforcement of the
lien of this Instrument or to any action brought to enforce any Loan Document.

         27.      WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interests in the Mortgaged Property held by Lender or by any
other party, Lender shall have the right to determine the order in which any or
all of the Mortgaged Property shall be subjected to the remedies provided in
this Instrument, the Note, any other Loan Document or applicable law. Lender
shall have the right to determine the order in which any or all portions of the
Indebtedness are satisfied from the proceeds realized upon the exercise of such
remedies. Borrower and any party who now or in the future acquires a security
interest in the Mortgaged Property and who has actual or constructive notice of
this Instrument waives any and all right to require the marshalling of assets or
to require that any of the Mortgaged Property be sold in the inverse order of
alienation or that any of the Mortgaged Property be sold in parcels or as an
entirety in connection with the exercise of any of the remedies permitted by
applicable law or provided in this Instrument.

         28.      FURTHER ASSURANCES. Borrower shall execute, acknowledge, and
deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements, transfers and
assurances as Lender may require from time to time in order to

<PAGE>   39
 better assure, grant, and convey to Lender the rights intended to be granted,
now or in the future, to Lender under this Instrument and the Loan Documents.

         29.      ESTOPPEL CERTIFICATE. Within 10 days after a request from
Lender, Borrower shall deliver to Lender a written statement, signed and
acknowledged by Borrower, certifying to Lender or any person designated by
Lender, as of the date of such statement, (i) that the Loan Documents are
unmodified and in full force and effect (or, if there have been modifications,
that the Loan Documents are in full force and effect as modified and setting
forth such modifications); (ii) the unpaid principal balance of the Note; (iii)
the date to which interest under the Note has been paid; (iv) that Borrower is
not in default in paying the Indebtedness or in performing or observing any of
the covenants or agreements contained in this Instrument or any of the other
Loan Documents (or, if the Borrower is in default, describing such default in
reasonable detail); (v) whether or not there are then existing any setoffs or
defenses known to Borrower against the enforcement of any right or remedy of
Lender under the Loan Documents; and (vi) any additional facts requested by
Lender.

         30.      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

         (a)      This Instrument, and any Loan Document which does not itself
expressly identify the law that is to apply to it, shall be governed by the laws
of the jurisdiction in which the Land is located (the "PROPERTY JURISDICTION").

         (b)      Borrower agrees that any controversy arising under or in
relation to the Note, this Instrument, or any other Loan Document shall be
litigated exclusively in the Property Jurisdiction. The state and federal courts
and authorities with jurisdiction in the Property Jurisdiction shall have
exclusive jurisdiction over all controversies which shall arise under or in
relation to the Note, any security for the Indebtedness, or any other Loan
Document. Borrower irrevocably consents to service, jurisdiction, and venue of
such courts for any such litigation and waives any other venue to which it might
be entitled by virtue of domicile, habitual residence or otherwise.

         31.      NOTICE.

         (a)      All notices, demands and other communications ("NOTICE") under
or concerning this Instrument shall be in writing. Each notice shall be
addressed to the intended recipient at its address set forth in this Instrument,
and shall be deemed given on the earliest to occur of (1) the date when the
notice is received by the addressee; (2) the first Business Day after the notice
is delivered to a recognized overnight courier service, with arrangements made
for payment of charges for next Business Day delivery; or (3) the third Business
Day after the notice is deposited in the United States mail with postage
prepaid, certified mail, return receipt requested. As used in this

<PAGE>   40
Section 31, the term "Business Day" means any day other than a Saturday, a
Sunday or any other day on which Lender is not open for business.

         (b)      Any party to this Instrument may change the address to which
notices intended for it are to be directed by means of notice given to the other
party in accordance with this Section 31. Each party agrees that it will not
refuse or reject delivery of any notice given in accordance with this Section
31, that it will acknowledge, in writing, the receipt of any notice upon request
by the other party and that any notice rejected or refused by it shall be deemed
for purposes of this Section 31 to have been received by the rejecting party on
the date so refused or rejected, as conclusively established by the records of
the U.S. Postal Service or the courier service.

         (c)      Any notice under the Note and any other Loan Document which
does not specify how notices are to be given shall be given in accordance with
this Section 31.

         32.      SALE OF NOTE; CHANGE IN SERVICER. The Note or a partial
interest in the Note (together with this Instrument and the other Loan
Documents) may be sold one or more times without prior notice to Borrower. A
sale may result in a change of the Loan Servicer. There also may be one or more
changes of the Loan Servicer unrelated to a sale of the Note. If there is a
change of the Loan Servicer, Borrower will be given notice of the change.

         33.      SINGLE ASSET BORROWER. Until the Indebtedness is paid in full,
Borrower (a) shall not acquire any real or personal property other than the
Mortgaged Property and personal property related to the operation and
maintenance of the Mortgaged Property; (b) shall not operate any business other
than the management and operation of the Mortgaged Property; and (c) shall not
maintain its assets in a way difficult to segregate and identify.

         34.      SUCCESSORS AND ASSIGNS BOUND. This Instrument shall bind, and
the rights granted by this Instrument shall inure to, the respective successors
and assigns of Lender and Borrower. However, a Transfer not permitted by Section
21 shall be an Event of Default.

         35.      JOINT AND SEVERAL LIABILITY. If more than one person or entity
signs this Instrument as Borrower, the obligations of such persons and entities
shall be joint and several.

         36.      RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

         (a)      The relationship between Lender and Borrower shall be solely
that of creditor and debtor, respectively, and nothing contained in this
Instrument shall create any other relationship between Lender and Borrower.

<PAGE>   41

         (b)      No creditor of any party to this Instrument and no other
person shall be a third party beneficiary of this Instrument or any other Loan
Document. Without limiting the generality of the preceding sentence, (1) any
arrangement (a "SERVICING ARRANGEMENT") between the Lender and any Loan Servicer
for loss sharing or interim advancement of funds shall constitute a contractual
obligation of such Loan Servicer that is independent of the obligation of
Borrower for the payment of the Indebtedness, (2) Borrower shall not be a third
party beneficiary of any Servicing Arrangement, and (3) no payment by the Loan
Servicer under any Servicing Arrangement will reduce the amount of the
Indebtedness.

         37.      SEVERABILITY; AMENDMENTS. The invalidity or unenforceability
of any provision of this Instrument shall not affect the validity or
enforceability of any other provision, and all other provisions shall remain in
full force and effect. This Instrument contains the entire agreement among the
parties as to the rights granted and the obligations assumed in this Instrument.
This Instrument may not be amended or modified except by a writing signed by the
party against whom enforcement is sought.

         38.      CONSTRUCTION. The captions and headings of the sections of
this Instrument are for convenience only and shall be disregarded in construing
this Instrument. Any reference in this Instrument to an "Exhibit" or a "Section"
shall, unless otherwise explicitly provided, be construed as referring,
respectively, to an Exhibit attached to this Instrument or to a Section of this
Instrument. All Exhibits attached to or referred to in this Instrument are
incorporated by reference into this Instrument. Any reference in this Instrument
to a statute or regulation shall be construed as referring to that statute or
regulation as amended from time to time. Use of the singular in this Agreement
includes the plural and use of the plural includes the singular. As used in this
Instrument, the term "including" means "including, but not limited to."

         39.      LOAN SERVICING. All actions regarding the servicing of the
loan evidenced by the Note, including the collection of payments, the giving and
receipt of notice, inspections of the Property, inspections of books and
records, and the granting of consents and approvals, may be taken by the Loan
Servicer unless Borrower receives notice to the contrary. If Borrower receives
conflicting notices regarding the identity of the Loan Servicer or any other
subject, any such notice from Lender shall govern.

         40.      DISCLOSURE OF INFORMATION. Lender may furnish information
regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including trustees, master
servicers, special servicers, rating agencies, and organizations maintaining
databases on the underwriting and performance of multifamily mortgage loans.
Borrower irrevocably waives any and all rights it may have under applicable law
to prohibit such disclosure, including any right of privacy.

<PAGE>   42

         41.      NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the
application for the loan submitted to Lender (the "LOAN APPLICATION") and in all
financial statements, rent rolls, reports, certificates and other documents
submitted in connection with the Loan Application are complete and accurate in
all material respects. There has been no material adverse change in any fact or
circumstance that would make any such information incomplete or inaccurate.

         42.      SUBROGATION. If, and to the extent that, the proceeds of the
loan evidenced by the Note are used to pay, satisfy or discharge any obligation
of Borrower for the payment of money that is secured by a pre-existing mortgage,
deed of trust or other lien encumbering the Mortgaged Property (a "PRIOR LIEN"),
such loan proceeds shall be deemed to have been advanced by Lender at Borrower's
request, and Lender shall automatically, and without further action on its part,
be subrogated to the rights, including lien priority, of the owner or holder of
the obligation secured by the Prior Lien, whether or not the Prior Lien is
released.

         43.      ACCELERATION; REMEDIES. At any time during the existence of an
Event of Default, Lender, at Lender's option, and without notice, may declare
the Indebtedness to be immediately due and payable without further demand and
may pursue any remedies permitted by applicable law or provided in this
Instrument or in any other Loan Document, including the enforcement of its
rights under this Instrument by foreclosure proceedings. Borrower has the right
to bring an action to assert the nonexistence of an Event of Default or any
other defense of Borrower to acceleration and foreclosure. Lender shall be
entitled to collect all costs and expenses incurred in pursuing such remedies,
including attorneys' fees and costs of documentary evidence, abstracts and title
reports.

         Lender shall deliver to the purchaser at a foreclosure sale, within a
reasonable time after the sale, a Lender's deed conveying the Mortgaged Property
so sold without any covenant or warranty, express or implied. The recitals in
Lender's deed shall be prima facie evidence of the truth of the statements made
therein. The proceeds of the sale shall be applied in the following order: (a)
to all costs and expenses of the sale, including attorneys' fees and costs of
title evidence; (b) to the Indebtedness in such order as Lender, in Lender's
discretion, directs; and (c) the excess, if any, to the clerk of the Circuit
Court of the county in which the sale is held.

         44.      RELEASE. Upon payment of the Indebtedness, Lender shall
release this Instrument. Borrower shall pay Lender's reasonable costs incurred
in releasing this Instrument.

         45.      ACCELERATED REDEMPTION PERIODS. Borrower hereby agrees to the
provisions of Section 846.103 of Wisconsin Statutes (or any successor provision
thereto) permitting

<PAGE>   43

Lender to elect a shortened redemption period on the conditions specified
therein in the event of a foreclosure of this Instrument

         46.      WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE
ARISING OUT OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS
BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT
EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT
LEGAL COUNSEL.

         ATTACHED EXHIBITS. The following Exhibits are attached to this
Instrument:

         |X|      Exhibit A          Description of the Land (required).

         |X|      Exhibit B          Modifications to Instrument


         IN WITNESS WHEREOF, Borrower has signed and delivered this Instrument
or has caused this Instrument to be signed and delivered by its duly authorized
representative.

                                   BORROWER:

                                   ALS KANSAS, INC.,
                                   a Delaware corporation


                                   By:       /s/ Mark Chapman
                                        --------------------------------
                                   Name:         Mark Chapman
                                   Title:        Vice President

                                   Taxpayer Identification Number:  39-1960113



<PAGE>   44


                                 ACKNOWLEDGMENT


STATE OF GEORGIA  )
                  )
COUNTY OF FULTON  )

         The above and foregoing Instrument was acknowledged before me, the
undersigned Notary Public, on this 16th day of July, 1999, by Mark Chapman, Vice
President of ALS KANSAS, INC., a Delaware corporation, on behalf of said
corporation.


                                        /s/ Lawrence J. Vicario
                                        --------------------------------------
                                        Notary Public for the State of Georgia

                                        Lawrence J. Vicario
                                        --------------------------------------
                                        Printed/Typed Name of Notary

My Commission Expires:

   12/9/01
---------------------

<PAGE>   45


                          KEY PRINCIPAL IDENTIFICATION


KEY PRINCIPAL

NAME:            ALTERRA HEALTHCARE CORPORATION,
                 a Delaware corporation

ADDRESS:         450 N. Sunnyslope Road, Suite 300
                 Brookfield, Wisconsin  53005









<PAGE>   46
                                    EXHIBIT A

                            [DESCRIPTION OF THE LAND]


<PAGE>   47

                                    EXHIBIT B

                           MODIFICATIONS TO INSTRUMENT
          (SENIORS HOUSING; CROSS-DEFAULT AND CROSS-COLLATERALIZATION)


         The following modifications are made to the text of the Instrument that
precedes this Exhibit:

         1.       Section 1(g) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "The term "Hazardous Materials" shall also include any medical
                  products or devices, including, but not limited to, those
                  materials defined as "medical waste" or "biological waste"
                  under relevant statutes or regulations pertaining to any
                  Hazardous Materials Law."

         2.       Section 1(o) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "The term "Leases" shall also include any occupancy and
                  admission agreements pertaining to occupants of the Mortgaged
                  Property, including both residential and commercial
                  agreements, and shall also specifically include, without
                  limitation, that certain Lease Agreement (the "Operating
                  Lease") dated as of July 16, 1999 by and between Borrower, as
                  "Landlord" thereunder, and ALTERRA HEALTHCARE CORPORATION,
                  f/k/a Alternative Living Services, Inc., a Delaware
                  corporation, as "Tenant" thereunder."

         3.       Section 1(s) of the Instrument is hereby amended to add the
following sections (16), (17), (18), and (19) at the end thereof:

                  "(16) all payments due, or received, from occupants, second
                  party charges added to base rental income, base and/or
                  additional meal sales, commercial operations located on the
                  Mortgaged Property or provided as a service to the occupants
                  of the Mortgaged Property, rental from guest suites, seasonal
                  lease charges, furniture leases, and laundry services, and any
                  and all other services provided to third parties in connection
                  with the Mortgaged Property, and any and all other personal
                  property on the real property site, excluding personal
                  property belonging to occupants of the real property (other
                  than property belonging to Borrower);

<PAGE>   48
                  (17) subject to applicable law and regulations, all permits,
                  licenses and contracts relating to the operation and authority
                  to operate the Mortgaged Property as a Seniors Housing
                  Facility;

                  (18) all rights to payments from Medicare or Medicaid
                  programs, or similar federal, state or local programs, boards,
                  bureaus or agencies and rights to payment from residents or
                  private insurers ("third party payments"), arising from the
                  operation of the Mortgaged Property as a Seniors Housing
                  Facility, utility deposits, unearned premiums, accrued,
                  accruing or to accrue under insurance policies now or
                  hereafter obtained by the Borrower and all proceeds of any
                  conversion of the Mortgaged Property or any part thereof
                  including, without limitation, proceeds of hazard and title
                  insurance and all awards and compensation for the taking by
                  eminent domain, condemnation or otherwise, of all or any part
                  of the Mortgaged Property or any easement therein; and,

                  (19) all of Borrower's inventory, accounts, accounts
                  receivable, contract rights, general intangibles, and all
                  proceeds thereof."

         4.       Section 1(v) of the Instrument is hereby amended to add the
following phrase and sentence at the end thereof:

                  ", to the extent permitted by applicable law. The term
                  "Personalty" shall also include all personal property
                  currently owned or acquired by Borrower after the date hereof
                  used in connection with the ownership and operation of the
                  Mortgaged Property as a Seniors Housing Facility, all kitchen
                  or restaurant supplies, dining room facilities, medical
                  facilities, or related furniture and equipment, and any other
                  equipment, supplies or furniture owned by Borrower and leased
                  to any third party service provider or facility operator under
                  any use, occupancy, or lease agreements, as well as all
                  licenses, permits, certificates, and approvals required for
                  the operation of the Mortgaged Property as a Seniors Housing
                  Facility, to the extent permitted by applicable law and
                  regulations, including replacements and additions thereto."

         5.       Section 1(x) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "together with and including all proceeds from any private
                  insurance for tenants to cover rental charges and charges for
                  services at or in connection with the Mortgaged Property, and
                  the right to payments from Medicare or Medicaid programs, or
                  similar federal, state or local programs, boards, bureaus or
                  agencies and rights to payment from tenants, private insurers
                  or others ("third party payments"), due for the rents of

<PAGE>   49

                  tenants or for services at the Mortgaged Property. " Each of
                  the foregoing shall be considered "Rents" for the purposes of
                  the actions and rights set forth in Section 3 of the
                  Instrument."

         6.       Section 1 of the Instrument is hereby amended to add the
following paragraph (aa) at the end thereof:

         "(aa) "SENIORS HOUSING FACILITY" means a residential housing facility
         which qualifies as "housing for older persons" under the Fair Housing
         Amendments Act of 1988 and includes congregate living units and
         assisted living units, but which does not include any nursing care
         units."

         7.       Section 3(b) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "After an Event of Default, Lender is further authorized to
                  give notice to all third party providers, including insurers,
                  any governmental provider, or Medicare or Medicaid or any
                  similar program or provider, at Lender's option, instructing
                  them to pay all Rents which would be otherwise paid to
                  Borrower to Lender, to the extent permitted by law."

         8.       Section 3(c) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "Because of the special regulatory requirements applicable to
                  the Mortgaged Property as a Seniors Housing Facility,
                  including the requirement that operators be approved and
                  licensed, Borrower (and any licensed operator or manager of
                  the Mortgaged Property), in order to induce Lender to lend
                  funds hereunder, hereby agrees, upon the occurrence of an
                  Event of Default and at the option of Lender, that for a
                  period of up to six (6) months following the date on which
                  Lender accelerates the Note secured by this Instrument, it
                  shall continue to provide all necessary services required
                  under any operating agreement or applicable licensing or
                  regulatory requirements and shall fully cooperate with Lender
                  and any receiver as may be appointed by a court, in performing
                  these services and agree to arrange for an orderly transition
                  to a replacement licensed operator, manager or provider of the
                  necessary services."

         9.       Section 4(e) of the Instrument is hereby amended to provide
that acceptable Leases may have a month-to-month term.

         10.      Section 4(f) of the Instrument is hereby deleted in its
entirety and shall have

<PAGE>   50
substituted in place thereof the following:

                  "(f) Borrower shall not lease any portion of the Mortgaged
                  Property for non-residential use except with the prior written
                  consent and approval of Lender with the exception of (A) the
                  Operating Lease which has previously been approved by Lender,
                  and (B) any other non-residential Lease of the Land or the
                  Seniors Housing Facility such that the aggregate amount (for
                  both Borrower and Key Principal) of (1) all non-residential
                  Leases (excluding the Operating Lease), based on the annual
                  rental income from such non-residential Leases, and (2) all
                  indebtedness of Borrower and/or Key Principal with respect to
                  the Seniors Housing Facility secured solely by purchase money
                  security interests in vehicles or office equipment, and not by
                  a lien upon the Land or the Improvements (which purchase money
                  indebtedness is used exclusively for the purchase of the
                  aforesaid items which are necessary for the operation of the
                  Mortgaged Property as a Seniors Housing Facility), does not
                  exceed three percent (3%) of the original principal balance of
                  the Note described in this Instrument (such Leases being
                  hereinafter referred to as the "Excluded Leases"). Borrower
                  shall not modify the terms of, or extend or terminate, any
                  Lease (including, without limitation, the Operating Lease) for
                  non-residential use (including any Lease in existence on the
                  date of this Instrument), except with respect to the Excluded
                  Leases, without the prior written consent of Lender. Except
                  for the Excluded Leases, Borrower shall, without request by
                  Lender, deliver an executed copy of each non-residential Lease
                  to Lender promptly after such Lease is signed. Except for the
                  Excluded Leases, all non-residential Leases (including ,
                  without limitation, the Operating Lease), including renewals
                  or extensions of existing Leases, shall specifically provide
                  that (1) such Leases are subordinate to the lien of this
                  Instrument (unless waived in writing by Lender); (2) the
                  tenant shall attorn to Lender and any purchaser at a
                  foreclosure sale, such attornment to be self-executing and
                  effective upon acquisition of title to the Mortgaged Property
                  by any purchaser at a foreclosure sale or by Lender in any
                  manner; (3) the tenant agrees to execute such further
                  evidences of attornment as Lender or any purchaser at a
                  foreclosure sale may from time to time request; (4) the Lease
                  shall not be terminated by foreclosure or any other transfer
                  of the Mortgaged Property; (5) after a foreclosure sale of the
                  Mortgaged Property, Lender or any other purchaser at such
                  foreclosure sale may, at Lender's or such purchaser's option,
                  accept or terminate such Lease; and (6) the tenant shall, upon
                  receipt after the occurrence of an Event of Default of a
                  written request from Lender, pay all Rents payable under the
                  Lease to Lender."

         11.      Section 7(a) of the Instrument is hereby amended to add the
following sentence at the end thereof:

<PAGE>   51

                  "Notwithstanding the preceding provisions of this Section
                  7(a), Borrower shall be permitted to suspend its obligation to
                  include among the Imposition Deposits deposited with Lender on
                  a monthly basis the premiums for fire and other insurance,
                  rent loss insurance and such other insurance as Lender may
                  require under Section 19, as long as each of the following
                  conditions are satisfied:

                           (i)     Not later than fifteen (15) days prior to the
                  expiration date of each of the insurance policies described in
                  Section 19, Borrower has delivered to Lender satisfactory
                  evidence of (x) the renewal of each such insurance policy and
                  (y) the payment of the premiums therefor for a period of at
                  least six months in advance; and

                           (ii)    no Event of Default (or any event which, with
                  the giving of notice or the passage of time, or both, would
                  constitute an Event of Default) has occurred and is
                  continuing."

         12.      Section 10 of the Instrument is amended to delete therefrom
the first sentence thereof in its entirety and to substitute in its place the
following:

                  "Borrower shall comply in all material respects with all laws,
                  ordinances, regulations and requirements of any Governmental
                  Authority and all recorded lawful covenants and agreements
                  relating to or affecting the Mortgaged Property, including all
                  laws, ordinances, regulations, requirements and covenants
                  pertaining to health and safety, construction of improvements
                  on the Mortgaged Property, fair housing, zoning and land use,
                  and Leases."

         13.      Section 11 of the Instrument is hereby amended to add the
following phrase in the second line following the word "for" and preceding the
word "any" in "(a)" thereof, and by adding the following sentences at the end
thereof:

                  "activities closely related to and compatible with a Seniors
                  Housing Facility and except for"

                  "Borrower further covenants and agrees that it shall not
                  permit more than 20% of its total units or more than 20% of
                  its total income to be derived from units relying on Medicaid
                  or Medicare payments. If by reason of applicable law or
                  regulation more than 20% of the total units or more than 20%
                  of the total income becomes derived from units relying on
                  Medicaid or Medicare payments, the Borrower shall diligently
                  and expeditiously take all reasonable steps necessary to bring
                  the Mortgaged Property into compliance with the preceding
                  sentence to the extent permissible by applicable law or
                  regulation. Borrower further covenants and agrees that it
                  shall limit the use and occupancy of the Mortgaged Property to
                  tenants that meet the


<PAGE>   52

                  standards for congregate living or assisted living, and that
                  it shall not accept tenants that require skilled nursing care
                  or permit, except to the extent required by law, tenants
                  requiring skilled nursing care to remain at the Mortgaged
                  Property as a routine matter."

         14.      Section 12(a) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "and, (5) payments for any required licensing fees, permits,
                  or other expenses related to the operation of the Mortgaged
                  Property by or on behalf of the Lender as a Seniors Housing
                  Facility, any fines or penalties that may be assessed against
                  the Mortgaged Property, any costs incurred to bring the
                  Mortgaged Property into full compliance with applicable codes
                  and regulatory requirements, and any fees or costs related to
                  Lender's employment of a licensed operator for the Mortgaged
                  Property."

         15.      Section 14(b) of the Instrument is hereby amended to delete
therefrom sections (1) and (7) in their entirety and to substitute in place
thereof the following sections (1) and (7), and to add the following sections
(8), (9) and (10) at the end thereof:

                  "(1) within 120 days after the end of each fiscal year of
                  Borrower: (i) a statement of income and expenses for
                  Borrower's operation of the Mortgaged Property for that fiscal
                  year; (ii) copies of the Forms 10-Q and 10-K filed by Key
                  Principal with the Securities and Exchange Commission during
                  that fiscal year; and (iii) the written re-certification,
                  executed by a duly authorized representative of Borrower,
                  confirming the continued compliance by the Borrower with the
                  provisions of Section 33 of this Instrument;

                  (7) within 45 days after the end of each calendar quarter, a
                  statement of income and expenses for the Mortgaged Property
                  for that calendar quarter;

                  (8) copies of (i) all inspection reports, reviews, and
                  certifications prepared by, for, or on behalf of any licensing
                  or regulatory authority relating to the Mortgaged Property and
                  (ii) any legal actions, orders, notices, or reports relating
                  to the Mortgaged Property issued by the applicable regulatory
                  or licensing authorities, in either instance reflecting: (x)
                  that the license or any other certification for the Seniors
                  Housing Facility situated upon the Mortgaged Property is being
                  downgraded to a substandard category, converted to a
                  probationary status, revoked, or suspended, or that action is
                  pending or being considered to downgrade to a substandard
                  category, convert to probationary status, revoke, or suspend
                  such license or certification; or (y) matters which are likely
                  to have a Material Adverse Effect upon the operation of the
                  Seniors Housing Facility situated upon the


<PAGE>   53

                  Mortgaged Property (including within the time period required
                  by the particular agency for furnishing a plan of correction
                  [A] copies of the plan of correction generated from any such
                  survey or report for the Seniors Housing Facility and [B]
                  evidence of the implementation of the plan of correction of
                  any deficiencies, the curing of which is a condition of
                  continued licensure of the Seniors Housing Facility situated
                  upon the Mortgaged Property, by the date required for cure by
                  such agency [or any extensions thereof granted by such
                  agency]);

                  (9) Upon the request of Lender, copies of all reports relating
                  to the services and operations of the Mortgaged Property,
                  including, if applicable, Medicaid cost reports and records
                  relating to account balances due to or from Medicaid or any
                  private insurer and,

                  (10) For purposes of this Section 14(b), the term "Material
                  Adverse Effect" shall mean a material adverse effect upon (i)
                  the business or the financial position or results of operation
                  of Borrower or Key Principal, taken as a whole, (ii) the
                  ability of Borrower or Key Principal to perform, or of Lender
                  to enforce, any of the Loan Documents or (iii) the value of
                  (x) the Borrower's Projects, taken as a whole or (y) the
                  Mortgaged Property."

         16.      Section 14(c) of the Instrument is hereby amended to delete
therefrom the second sentence thereof in its entirety and to substitute in its
place the following:

                  "Upon the occurrence of an Event of Default, Lender also may
                  require that any statements, schedules or reports be audited
                  at Borrower's expense by independent certified public
                  accountants acceptable to Lender."

         17.      Section 16 of the Instrument is hereby amended to delete the
period at the end thereof and to substitute in its place the following:

                  "; provided, however, that for purposes of this Section 16 and
                  of Section 21 of this Instrument, the grant, creation or
                  existence of a security interest or lien or other encumbrance
                  securing purchase money financing shall not constitute a
                  Transfer and shall be a permitted encumbrance hereunder, if
                  and to the extent that, the aggregate amount of (1) all
                  indebtedness of Borrower and/or Key Principal with respect to
                  the Seniors Housing Facility which is secured solely by
                  purchase money security interests in vehicles or office
                  equipment, and not by a lien upon the Land or the Improvements
                  (which purchase money financing is used exclusively for the
                  purchase of the aforesaid items which are necessary for the
                  operation of the Mortgaged Property as a Seniors Housing
                  Facility) and (2) all non-residential Leases (excluding the
                  Operating Lease), based on the annual rental income from



<PAGE>   54

                  such non-residential Leases, does not exceed three percent
                  (3%) of the original principal balance of the Note described
                  in this Instrument."

         18.      Section 17(a) of the Instrument is hereby amended to add the
following sentences at the end thereof:

                  "Borrower further covenants and agrees that it shall maintain
                  and operate the Mortgaged Property as a Seniors Housing
                  Facility at all times in accordance with the standards
                  required by any applicable license or permit and as required
                  by any regulatory authority, that it shall maintain in good
                  standing all operating licenses and permits, and that it shall
                  cause to renew and extend all such required operating licenses
                  or permits, and shall not fail to take any action necessary to
                  keep all such licenses and permits in good standing and full
                  force and effect. Borrower will immediately provide Lender
                  with any notice or order which may materially adversely impact
                  the Mortgaged Property, its operations or its compliance with
                  licensing and regulatory requirements."

         19.      Section 17(b) of the Instrument is hereby amended to replace
the second sentence of Section 17(b) with the following sentence:

              "If required by Lender (whether before or after an Event of
              Default), Borrower will cause any Affiliate of Borrower to whom
              fees are payable for the management of the Mortgaged Property to
              enter into an agreement with Lender, in a form approved by Lender,
              providing for subordination of those fees and such other
              provisions as Lender may reasonably require."

         20.      The reference in Section 17(a)(5) to a residential rental
property manager shall be deemed to mean and refer to an operator of a Seniors
Housing Facility and any management company engaged thereby.

         21.      Section 18(b) of the Instrument is hereby amended to add the
following sentence at the end thereof:

                  "Prohibited Activities and Conditions also shall not include
                  the safe and lawful use and storage of medical products and
                  devices customarily used in the operation of a Seniors Housing
                  Facility."

         22.      Section 18(g) of the Instrument is hereby amended to delete
the period following the third sentence thereof and to add the following phrase
at the end of the third sentence:


<PAGE>   55

                  "provided, however, that if Lender discloses such results or
                  information to third parties in connection with the
                  enforcement of Lender's rights hereunder, such results or
                  information shall also be made available to Borrower."

         23.      Section 19 of the Instrument is hereby amended to delete
therefrom Sections 19(c) and 19(d) in their entirety and to substitute in their
place the following subsections (c) and (d) and to add at the end thereof the
following new subsection (i):

                  "(c) Borrower shall maintain at all times commercial general
                  liability insurance, workers' compensation insurance and such
                  other liability, errors and omissions and fidelity insurance
                  coverages as Lender may from time to time reasonably require,
                  provided, however, that such insurance coverages shall not
                  materially vary from the insurance coverages maintained by
                  Borrower as of the date of this Instrument.

                  (d) All insurance policies and renewals of insurance policies
                  required by this Section 19 shall be in such amounts and for
                  such periods as Lender may from time to time reasonably
                  require, provided, however, that such insurance coverages
                  shall not materially vary from the insurance coverages
                  maintained by Borrower as of the date of this Instrument, and
                  shall be issued by insurance companies reasonably satisfactory
                  to Lender.

                  (i) Notwithstanding the preceding provisions of this Section
                  19 to the contrary, in the event of any insured damage to or
                  destruction of the Mortgaged Property, or any part thereof, if
                  (A) the loss is in the aggregate amount of less than two
                  percent (2%) of the original principal balance of the Note,
                  (B) in the reasonable judgment of Lender, the Mortgaged
                  Property can be restored within six (6) months following the
                  date of the loss and (C) no Event of Default (or any event
                  which, with the giving of notice or the passage of time, or
                  both, would constitute an Event of Default) has occurred and
                  is continuing, then the proceeds of the insurance shall be
                  applied to reimburse Borrower for the cost of restoring,
                  repairing, replacing or rebuilding the Mortgaged Property or
                  part thereof subject to the insured casualty; provided,
                  however, in any event Borrower shall pay all costs of such
                  restoring, repairing, replacing or rebuilding in excess of the
                  net proceeds of insurance made available pursuant to the terms
                  of this Section 19(i)."

         24.      Section 21(a) of the Instrument is hereby amended to delete
therefrom sections (3) and (5) and to substitute in their place the following
sections (3) and (5) and to add the following section (8) at the end thereof:

                  "(3) a Transfer of a Controlling Interest in any entity
                  (unless such entity is a Publicly-Held Corporation or,
                  immediately following such Transfer, is wholly-



<PAGE>   56
                  owned by a Publicly-Held Corporation) which owns, directly or
                  indirectly through one or more intermediate entities, a
                  Controlling Interest in Borrower;

                  (5) if Key Principal is an entity, (A) a Transfer of a
                  Controlling Interest in Key Principal (unless Key Principal is
                  a Publicly-Held Corporation or, immediately following such
                  Transfer, is wholly-owned by a Publicly-Held Corporation) or
                  (B) a Transfer of a Controlling Interest in any entity (unless
                  such entity is a Publicly-Held Corporation or, immediately
                  following such Transfer is wholly-owned by a Publicly-Held
                  Corporation) which owns, directly or indirectly through one or
                  more intermediate entities, a Controlling Interest in Key
                  Principal; and,

                  (8) a Transfer to a separate entity, or change in the holder,
                  of the operating license or permit allowing the Mortgaged
                  Property to operate as a Seniors Housing facility."

         25.      Section 22 of the Instrument is hereby amended to add the
following sections (g), (h), and (i) at the end thereof:

                  "(g) any failure by Borrower to comply with the use and
                  licensing requirements set forth in Sections 10 and 11,
                  including but not limited to Borrower's loss of its license or
                  other legal authority to operate the Mortgaged Property as a
                  Seniors Housing Facility;

                  (h) any failure by Borrower to correct, within the time
                  deadlines set by any federal, state or local licensing agency,
                  any deficiency that justifies any action by such agency with
                  respect to the Mortgaged Property that may have a material
                  adverse affect on the income and operation of the Mortgaged
                  Property or Borrower's interest in the Mortgaged Property,
                  including, without limitation, a termination, revocation or
                  suspension of any applicable license, registration, permit,
                  certificate, authorization or approval necessary for the
                  operation of the Mortgaged Property as a Seniors Housing
                  Facility.

                  (i) if, without the consent of Lender: (a) Borrower ceases to
                  operate the Mortgaged Property as a Seniors Housing Facility;
                  (b) Borrower ceases to provide such kitchens (except ovens)
                  separate bathrooms, and areas for eating, sitting and sleeping
                  in each unit as are provided in the units as of the date of
                  this Instrument; (c) Borrower ceases to provide other
                  facilities and services normally associated with congregate or
                  assisted living units, including, without limitation, (i)
                  central dining services providing one to three meals per day,
                  (ii) periodic housekeeping, (iii) laundry services, and (iv)
                  customary transportation services; (d) except as required by
                  applicable law or regulation, Borrower provides or contracts
                  for skilled nursing


<PAGE>   57
                  care for any of the units; (e) non-residential space leased or
                  held available for lease to commercial tenants (i.e., space
                  other than the units, dining areas, activity rooms, lobby,
                  parlors, kitchen, mailroom, marketing/management offices)
                  exceeds ten percent (10%) of the net rental area; or, (f) the
                  Mortgaged Property is no longer classified as housing for
                  older persons pursuant to the Fair Housing Amendments Act of
                  1988, as it may be amended from time to time hereafter."

         26.      The former Sections 22 (g), (h), and (i) are hereby changed to
be Sections 22 (j), (k), and (l), respectively, and Section 22(j) is hereby
amended in the third line thereof to insert the following phrase after the word
"Borrower" and prior to the comma immediately preceding the word "but":

                  "provided, however, if such failure cannot be cured prior to
                  the expiration of such 30-day notice period, it shall not
                  constitute an Event of Default hereunder if Borrower has
                  promptly commenced cure efforts and pursues diligently to
                  completion for the period of time necessary to effect such
                  cure (which shall in no event exceed a period of 120 days
                  after notice of such failure by Lender to Borrower),"

         27.      Section 33 of the Instrument is hereby amended to read as
follows:

                  "Until the Indebtedness evidenced by the Note is paid in full,
                  Borrower shall not (1) acquire any real or personal property
                  other than the Borrower's Projects (as defined in Section 50)
                  and assets (such as accounts) related to the ownership,
                  leasing and/or operation and/or maintenance of the Borrower's
                  Projects, or (2) operate any business other than the
                  ownership, leasing and/or management and/or operation and/or
                  maintenance of the Borrower's Projects."

         28.      Section 43 of the Instrument is hereby amended to add the
following paragraph at the end thereof:

                  "In addition to the remedies set forth herein and elsewhere in
                  this Instrument, Lender upon an Event of Default shall be
                  entitled to mandate the use of a lockbox bank account, to be
                  maintained under the control and supervision of Lender, for
                  all income of the Mortgaged Property, including, but not
                  limited to, Rents, service charges, insurance payments, third
                  party provider payments including Medicare and Medicaid and
                  any other governmental or private program by which the rents
                  or occupancy charges are being paid. Lender may, upon an Event
                  of Default, cause the removal of Borrower from any Mortgaged
                  Property operations. Until such time as Lender has located a
                  replacement licensed operator, Borrower or its related or
                  affiliated entity acting as the licensed operator, for a
                  period of up to six (6) months

<PAGE>   58

                  following the date on which Lender accelerates the Note
                  secured by this Instrument, shall continue to provide all
                  required services to maintain the Mortgaged Property in full
                  compliance with all licensing and regulatory requirements as a
                  Seniors Housing Facility.  Borrower acknowledges that its
                  failure to perform this service shall constitute a form of
                  waste of the Mortgaged Property, causing irreparable harm to
                  Lender and the Mortgaged Property, and shall constitute
                  sufficient cause for the appointment of a receiver."

         29.      The following new Sections are added to the Instrument after
the last numbered Section:

                  "47.  BORROWER'S  REPRESENTATIONS AND WARRANTIES.  In addition
         to any other  representations and warranties  contained in this
         Instrument, Borrower hereby represents and warrants to Lender as
         follows:

         (a) The Mortgaged Property is duly licensed as a community-based
         residential facility and Borrower and/or Key Principal is in all
         respects otherwise legally authorized to operate the Mortgaged Property
         as a Seniors Housing Facility, under the applicable laws of the
         Property Jurisdiction;

         (b) Borrower and the Mortgaged Property (and the operation thereof) are
         in compliance in all material respects with the applicable provisions
         of all laws, statutes, regulations, ordinances, orders, standards,
         restrictions and rules of any federal, state or local government or
         quasi-government body, agency, board or authority having jurisdiction
         over the operation of the Mortgaged Property, including, without
         limitation: (a) health care and fire safety codes; (b) laws regulating
         the handling and disposal of medical or biological waste; (c) the
         applicable provisions of Seniors Housing Facility laws, rules,
         regulations and published interpretations thereof to which the Borrower
         or the Mortgaged Property is subject; and (d) all criteria established
         to classify the Mortgaged Property as housing for older persons under
         the Fair Housing Amendments Act of 1988;

         (c) If required, Borrower has a current provider agreement under any
         and all applicable federal, state and local laws for reimbursement: (a)
         to an Seniors Housing Facility; or (b) for other type of care provided
         at such facility. There is no decision not to renew any provider
         agreement related to the Mortgaged Property, nor is there any action
         pending or threatened to impose material intermediate or alternative
         sanctions with respect to the Mortgaged Property;

         (d) Borrower and the Mortgaged Property are not subject to any
         proceeding, suit or investigation by any federal, state or local
         government or quasi-government body, agency, board authority or any
         other administrative or investigative body which may result in the



<PAGE>   59

         imposition of a fine or alternative, interim or final sanction which
         would have a material adverse effect on Borrower or the operation of
         the Mortgaged Property, or which would result in the appointment of a
         receiver or manager or would result in the revocation, transfer,
         surrender, suspension or other impairment of the operating certificate,
         license, permit, approval or authorization of the Mortgaged Property to
         operate as an Seniors Housing Facility;

         (e) Upon Lender's request, copies of resident care agreements shall be
         provided to Lender. All resident records at the Mortgaged Property are
         true and correct in all material respects;

         (f) Neither the execution and delivery of the Note, the Instrument or
         the Loan Documents, Borrower's performance thereunder, nor the
         recordation of the Instrument will adversely affect the licenses,
         registrations, permits, certificates, authorizations and approvals
         necessary for the operation of the Mortgaged Property as a Seniors
         Housing Facility in the Property Jurisdiction;

         (g) Borrower is not a participant in any federal program whereby any
         federal, state or local, government or quasi-governmental body, agency,
         board or other authority may have the right to recover funds by reason
         of the advance of federal funds. Borrower has received no notice, and
         is not aware of any violation of applicable antitrust laws of any
         federal, state or local, government or quasi-government body, agency,
         board or other authority; and,

         (h) Except as otherwise specifically disclosed to the Lender in
         writing, in the event any existing management agreement is terminated
         or Lender acquires the Mortgaged Property through foreclosure or
         otherwise, neither Borrower, Lender, any subsequent manager, nor any
         subsequent purchaser (through foreclosure or otherwise) must obtain a
         certificate of need from any applicable state health care regulatory
         authority or agency (other than giving such notice required under the
         applicable state law or regulation) prior to applying for any
         applicable license, registration, permit, certificate, authorization or
         approval necessary for the operation of the Mortgaged Property as a
         Seniors Housing Facility, provided that no service or the unit
         complement is changed.

         48.       CROSS-DEFAULT AND CROSS-COLLATERALIZATION.

                           (a) In addition to the Mortgaged Property described
                   on Exhibit A attached hereto, the Borrower also owns each of
                   the senior housing facilities described on Exhibit C to this
                   Instrument. All of the properties described on Exhibit C,
                   together with the Mortgaged Property, are referred to herein
                   collectively as the "Borrower's Projects". Contemporaneous
                   with the closing and funding of the loan to the Borrower
                   evidenced by the Note, the Lender has extended additional

<PAGE>   60

                  loans to the Borrower, each loan being secured by a
                  Multifamily Mortgage or Deed of Trust, Assignment of Rents
                  and Security Agreement (a "Security Instrument") against each
                  of the other Borrower's Projects.

                           (b) The Borrower acknowledges that the Lender is
                  unwilling to extend the loan evidenced by the Note to the
                  Borrower unless the Borrower agrees that all of the Borrower's
                  Projects will be treated as a single project through the
                  imposition of cross-collateralization, cross-default and
                  release provisions. The Borrower further acknowledges that the
                  Lender's agreement to amend the single asset borrower
                  provisions of Section 33 of this Instrument, to permit the
                  Borrower's ownership of all of the Borrower's Projects, is in
                  partial consideration for the cross-collateralization,
                  cross-default and release provisions set forth herein below.

                           (c) The Borrower hereby agrees and consents that as
                  additional security to the Lender, each of the Borrower's
                  Projects shall be subject to the lien of the Lender's Security
                  Instrument for each of the other of the Borrower's Projects,
                  and that each of the respective Borrower's Projects shall
                  collateralize the other Borrower's Projects as follows: all
                  Mortgaged Property (as defined in the respective Security
                  Instrument) for each of the Borrower's Projects shall be
                  considered part of the "Mortgaged Property" under this
                  Instrument, and shall be collateral under this Instrument and
                  the Loan Documents.

                           (d) The Borrower hereby agrees and consents that upon
                  the occurrence of an Event of Default under the Security
                  Instrument securing one of the Borrower's Projects, then an
                  Event of Default shall exist under the Security Instrument
                  with respect to the other Borrower's Projects. No notice shall
                  be required to be given to the Borrower in connection with
                  such Event of Default. In the event of an Event of Default
                  under the Security Instrument with respect to any one of the
                  Borrower's Projects, the Lender shall have the right, in its
                  sole and absolute discretion, to exercise and perfect any and
                  all rights in and under the Loan Documents with regard to any
                  or all of the other Borrower's Projects, including, but not
                  limited to, an acceleration of one or all of the Notes and the
                  sale of one or all of the Borrower's Projects in accordance
                  with the terms of the respective Security Instrument. No
                  notice, except as may be required by the respective Security
                  Instrument, shall be required to be given to the Borrower in
                  connection with the Lender's exercise of any and all of its
                  rights after an Event of Default has occurred.

                           (e) The Borrower may request that Lender make a
                  determination whether any of the Borrower's Projects may be
                  released from the cross-default and

<PAGE>   61
                  cross-collateral provisions of this Section if (i) the
                  Borrower proposes to pay off an individual loan held by Lender
                  and secured by one of the Borrower's Projects, or (ii) the
                  Borrower proposes to sell one of the Borrower's Projects and
                  have the Borrower's loan on that project assumed by a buyer
                  acceptable to Lender. Upon such request from Borrower, Lender
                  shall consent to the release of the Borrower's Project from
                  the cross-default and cross-collateralization provisions of
                  this Section, provided:

                                    (1) The remaining loans to the Borrower
                           secured by the remaining Borrower's Projects that are
                           not requested to be released have, in the aggregate,
                           a minimum overall 1.40 debt service coverage, based
                           on the remaining Borrower's Projects' collective Net
                           Operating Income for the 12 months of operation
                           immediately prior to the Borrower's request for such
                           release; and

                                    (2) If the Borrower's loan is to be assumed
                           by a buyer acceptable to and approved by Lender, the
                           assumed loan must also have a minimum 1.40 debt
                           service coverage, based on that Project's Net
                           Operating Income for the 12 months of operation
                           immediately prior to the Borrower's request for such
                           release; and

                                    (3) As consideration for the Lender's
                           agreement to modify the single asset borrower
                           provisions of Section 33 of the Instrument, and
                           permit the Borrower to own all of the Borrower's
                           Projects, in the event the Borrower proposes to pay
                           off one of the Borrower's loans secured by one of the
                           Borrower's Projects by refinancing the respective
                           loan with a new lender, but not in connection with
                           the sale of the respective secured Borrower's
                           Project, the Borrower must convey the Borrower's
                           Project being refinanced to a different ownership
                           entity (with neither the specific Borrower's Project
                           or the proposed new ownership entity being owned by
                           the Borrower) prior to such refinancing, so that none
                           of the Borrower's Projects will be security for
                           financing held by any lender other than the Lender
                           that is the owner and holder of the Note.

                  For purposes of (1) and (2) of this paragraph (e), "Net
                  Operating Income" is defined as:

                                    (i) the lesser of all actual rents and other
                           income derived from the Borrower's Project sought to
                           be released from the cross-default and cross
                           collateralization provisions of this Section
                           collected for the 12 month

<PAGE>   62

                           period (net of any concession) or 95% of the gross
                           potential rental income for the 12 month period; plus

                                    (ii) all service income and other ancillary
                           income (including, without limitation, community fees
                           and fees from amenities), cable and alarm fees,
                           application fees, move-in fees, late fees and
                           forfeited deposits for the 12 month period; less

                                    (iii) the greater of the actual operating
                           expenses for the 12 month period (including the
                           required Replacement Reserves funding for the period
                           utilized by Lender in its final underwriting) or the
                           operating expenses used by Lender in its final
                           underwriting (including Replacement Reserves),
                           increased at the rate of 3% per annum.

                           (f) Notwithstanding any provision of this Section to
                  the contrary, the Borrower shall not be permitted to request a
                  release of any of the Borrower's Projects from the
                  cross-default and cross-collateral provisions of this Section
                  if, at the time of such request, a default or Event of Default
                  under any of the loans held by Lender on any of the Borrower's
                  Projects. No release of any of the Borrower's Projects from
                  the cross-default and cross-collateral provisions of this
                  Section shall be permitted by Lender unless Borrower has paid
                  all costs and expenses of Lender incurred in connection with
                  its processing of the requested release, including, without
                  limitation, all title endorsement premiums, recording fees,
                  inspection fees, and attorney fees.

                  49.      EXHIBIT C.  Exhibit C is attached to this
         Instrument."

         30.      All capitalized terms used in this Exhibit not specifically
defined herein shall have the meanings set forth in the text of the Instrument
that precedes this Exhibit.


                                      BORROWER'S INITIALS: _____________