<PAGE>

                                                                   EXHIBIT 10.44
 
                          LOAN AND SECURITY AGREEMENT
                          ---------------------------

          THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as
of June 1, 1997, by GLN CAPITAL CO., LLC., a Delaware limited liability company 
(the "Borrower") and G & L REALTY PARTNERSHIP, L.P., a Delaware limited 
partnership (the "Lender").

                                  WITNESSETH:
                                  ----------

          WHEREAS, subject to and upon the terms, conditions and provisions of
this Agreement, the Lender shall provide a loan in the amount of Fourteen
Million Dollars ($14,000,000.00) (the "LOAN") to the Borrower upon and subject
to the provisions of this Agreement.

          NOW, THEREFORE, in consideration of the mutual covenants and 
agreements set forth in this Agreement and intending to be legally bound, the 
Borrower and Lender agree as follows:

                                   ARTICLE 1.
                                  DEFINITIONS

          Section 1.1 DEFINITIONS.
                      -----------

          In this Agreement (except as otherwise expressly provided for or 
unless the context otherwise requires), the following terms shall have the 
meanings specified in this Article:

          "ACCOUNTANT" means a nationally recognized accounting firm or other 
firm acceptable to the Lender.

          "AFFILIATE" means, with respect to any designated Person, each Person 
who directly, or indirectly through one or more intermediaries, controls, or is 
controlled by, or is under common control with, another designated PERSON.

          "AGREEMENT" means this Loan and Security Agreement as amended, 
modified or supplemented from time to time.

          "ASSIGNMENT OF BONDS" means the Assignment of Bonds dated as of June 
1, 1997 from the Borrower to the Lender.

          "AUTHORIZED PERSON" means one or more individuals duly authorized to 
bind the Borrower in connection with this Agreement.  By a written notice to the
Lender, duly authorized by the Borrower, the Borrower may add or substitute 
additional individuals to act as Authorized Persons.


<PAGE>
 
     "BONDS" means Massachusetts Industrial Finance Authority Health Care 
Revenue Bonds (Hampden Nursing Homes, Inc. Project) Series 1989A and 
Massachusetts Industrial Finance Agency Revenue Bonds (Hampden Nursing Homes, 
Inc. Project) Series 1989B.

     "BUSINESS DAY" means any day other than (i) a Saturday or Sunday, (ii) a 
day on which banking institutions in Los Angeles, California are required or 
authorized by applicable Legal Requirements (including executive order) to 
close, or (iii) a day on which the New York Stock Exchange is closed.

     "CLOSING" means 10:00 a.m. on June 1, 1997, or on such other date as the 
parties shall mutually agree, at the offices of Lender, 439 North Bedford Drive,
Beverly Hills, California 90210.

     "CODE" means the Internal Revenue Code of 1986, as amended, and the rules 
and regulations thereunder, including any amendments and successor provisions 
thereto.

     "COLLATERAL" means the Bonds and any and all other property now or 
hereafter acquired by the Borrower or in which the Borrower now has or at any 
time in the future may acquire any right, title and interest and in which the 
Borrower has granted a security interest to the Lender as security for the 
Borrower's obligations hereunder or under any other Credit Document.

     "CONTROL" (including, with the correlative meanings, the terms 
"controlling", "controlled by" and "under common control with") means, as used 
with respect to any Person, the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such other 
Person, or of the Person, whether through contract, stock ownership, partnership
interests, membership, voting rights, governing boards, committees, divisions 
or other bodies with one or more common members, directors, trustees or other 
managers, or otherwise.

     "CREDIT DOCUMENTS" means, collectively, this Agreement, the Note, the 
Assignment of Bonds and any other agreements or instruments relating to the 
Loan, as each may be amended, modified or supplemented from time to time.

     "DEFAULT" means an event or condition which constitutes, or which after 
giving of notice or lapse of time or both would constitute, an Event of Default.

     "DEFAULT RATE" shall have the meaning ascribed to such term in Section 2.5.
                                                                    -----------
     "EVENT OF DEFAULT" shall have the meaning ascribed to such term in 
Section 6.1.
-----------

     "FIRM COMMITMENT" means a commitment from HUD for the provision of mortgage
insurance for the Projects.

     "FISCAL YEAR" means the annual accounting year of the Borrower, which 
currently begins on January 1 in each calendar year.

                                       2
<PAGE>
 
     "GAAP" means at any time with respect to the determination of the character
or amount of any asset or liability or item of income or expense, or any 
consolidation or other accounting computation, generally accepted accounting 
principles as in effect on the date of, or at the end of the period covered by, 
the financial statements from which such asset, liability, item of income, or 
item of expense, is derived, or, in the case of any such computation, as in 
effect on the date when such computation is required to be determined.

     "Members" means G & L Realty Partnership, L.P., a Delaware limited 
partnership, and Property Acquisition Trust I, a Delaware business trust.

     "Governmental Action" or "Governmental Actions" means all permits,
authorizations, registrations, consents, certifications, approvals, waivers,
exceptions, variances, claims, orders, judgments and decrees, licenses,
exemptions, publications, filings, notices to and declarations of or with any
Governmental Authority.

     "Governmental Authority" means any federal, state, or local governmental or
quasi-governmental subdivision, authority, or other instrumentality thereof and
any entity asserting or exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
 
     "HUD" means, collectively, the Federal Housing Administration and the
United States Department of Housing and Urban Development.

     "Indebtedness" means the indebtedness due in respect of the Loan.

     "Interest Rate" means the Prime Rate plus 1.5%, adjusted monthly.

     "Legal Requirements" means all statutes, codes, laws, ordinances,
regulations, rules, policies, or other federal, state, local and municipal
requirements of any Governmental Authority whether now or hereafter enacted or
adopted, and all judgments, decrees, injunctions, writs, orders or like action
of an arbitrator or a court or other Governmental Authority of competent
jurisdiction (including specifically those pertaining to health, safety, the
environment, tax-status of Real Estate Investment Trusts, Medicaid, Medicare and
nursing home certification and inspection).

     "Loan Fee" means the fee due to General Motors Acceptance Corporation
("GMAC") from Borrower in connection with the pay-off of the loan ("GMAC Loan")
made by GMAC to Lender and assumed by Borrower, which was secured by the Bonds.

     "Material Adverse Effect" means a material adverse effect on (a) the 
business, operations, property or condition (financial or otherwise) of the 
Borrower, (b) the ability of the Borrower to perform its obligations under this 
Agreement, the Note or any of the Credit Documents or (c) the validity or 
enforceability of this Agreement, the Notes or any of the Credit Documents or 
the rights and remedies of the Lender hereunder or thereunder.

                                       3
<PAGE>
 
      "Maturity Date" means the final and absolute due date of the Note (whether
by acceleration, declaration, extension or otherwise), which shall be June 1, 
1998, subject to the terms of Section 2.2.
                              -----------

      "Note" means that certain promissory note of even date herewith issued by
the Borrower to the Lender in the principle amount of Fourteen Million Dollars
($14,000,000) to evidence the Loan, as the same may be amended, modified or
supplemented from time to time.

     "Person" means any individual, for-profit or not-for-profit corporation, 
partnership, joint venture, association, limited liability company, limited 
liability partnership, joint-stock company, trust, unincorporated organization 
or government or any agency or political subdivision thereof.

     "Prime Rate" means the rate of interest as published by The Wall Street 
                                                             ---------------
Journal in the Money Rates section from time to time.
-------
     "Project Owner" means Hampden Nursing Homes, Inc., a Massachusetts 
not-for-profit corporation.

      "Project" or "Projects" means the Chestnut Hill Nursing Home located in 
East Longmeadow, Massachusetts, the Riverdale Gardens Nursing Home located in 
West Springfield, Massachusetts and the Mary Lyon Nursing Home located in 
Hampden, Massachusetts.

      Section 1.2  Certain Terms Defined in Uniform Commercial Code. The 
                   ------------------------------------------------
following terms which are defined in the Uniform Commercial Code in effect in 
the State of California on the date hereof (the "UCC") are used herein as so 
defined: Accounts, Chattel Paper, General Intangibles, Instruments and Proceeds.

      Section 1.3  Rules of Construction; Time of Day. In this Agreement, unless
                   ----------------------------------
otherwise indicated, (i) defined terms may be used in the singular or the plural
and the use of any gender includes all genders, (ii) the words "hereof", 
"herein", "hereto", "hereby" and "hereunder" refer to this entire Agreement, 
(iii) all references to particular Articles or Sections are references to the 
Articles or Sections of this Agreement, (iv) the terms "agree" and "agreements" 
contained herein are intended to include and mean "covenant" and "covenants", 
and (v) the term "including" shall mean "including, but not limited to". 
References to any time of the day in this Agreement shall refer to Pacific 
Standard Time or Pacific Daylight Saving Time, as in effect in Los Angeles, 
California on such day.


                                  ARTICLE 2.
                                  THE LOAN

      Section 2.1  Loan. Subject to the terms and conditions of this Agreement 
                   ----
and the Note, and relying upon the representations and warranties set forth
herein, the Lender agrees to make the Loan to the Borrower and the Borrower
agrees to accept the Loan from the Lender, and in consideration for the Loan,
the Borrower agrees to pay interest and certain fees to the Lender in accordance
with the terms of this Agreement and the Note.
                  
                                       4
<PAGE>
 
     Section 2.2  MATURITY; PREPAYMENT.
                  --------------------
                   
                  2.2.1   The Note shall mature and the entire unpaid principal 
amount of the Loan shall be due and payable on the Maturity Date.

                  2.2.2   The Borrower shall be entitled to prepay the Loan in 
whole or in part before the Maturity Date of the Note upon fifteen 
(15) days prior notice to Lender.

     Section 2.3  INTEREST.
                  --------

                  2.3.1   RATE AND CALCULATION OF INTEREST. Interest shall 
                          --------------------------------
accrue on the outstanding unpaid principal balance of the Loan at the Interest 
Rate from and after the date hereof through and until the Maturity Date of the 
Note. Interest shall be calculated daily on the basis of a 365-day year factor 
applied to actual days elapsed.

                  2.3.2   MONTHLY PAYMENTS. On the first day of each month, 
                          ----------------
commencing July 1 1997 and on the Maturity Date, the Borrower shall pay to the 
Lender an amount equal to all interest accrued on the unpaid balance of the
Loan. All sums due by the Borrower hereunder or under the Note, whether
principal, interest, fees or other sums, shall be due and payable in full on the
Maturity Date of the Note.

     Section 2.4  MANNER AND PLACE OF PAYMENT.  The Borrower shall pay the 
                  ---------------------------
principal of, and interest on, the Note during regular business hours at the 
Lender's office set forth in Section 7.1 or to such other address as the Lender 
                             -----------
may from time to time designate in writing, in lawful money of the United States
and by wire transfer of immediately available funds (provided, however, that any
payment of principal of or interest on the Note received by the Lender at such 
office or other place after 2:30 p.m., Los Angeles time, on any day shall be 
deemed to have been received by the Lender on the next Business Day thereafter, 
and shall bear interest accordingly. Any payment tendered other than by wire 
transfer of federal or other immediately available funds shall be accepted by 
the Lender subject to collection, and interest shall continue to accrue on the 
unpaid balance of the principal sum as if such payment had not been made, until 
the date immediately available funds are, on account of such payment, payable to
the Lender for its immediate use. All payments made under the Note shall be 
applied first to late charges or other sums owing to the Lender, next to accrued
interest, and then to principal, or, in such other order or proportion as the 
Lender, in its sole discretion may determine.

     Section 2.5  LATE PAYMENT CHARGES; DEFAULT RATE. If the Borrower fails to 
                  ----------------------------------
make any payment of interest within five (5) days of the date such payment 
becomes due and payable, the Borrower shall pay to the Lender a late charge 
equal to ten percent (10%) of the amount of such payment. The late charge shall 
be payable to the Lender as additional interest and not as a penalty. In 
addition, if the Borrower fails to pay to the Lender any installment of 
principal of or interest on, the Note or any other amount required to be paid 
to the Lender hereunder or under the Note, this Agreement, or the other Credit 
Documents when due, whether by acceleration or otherwise, the Borrower shall pay
to the Lender on demand interest on such principal, interest or other amount 
from the date such payment incurred the above-referenced late charge until the 
day of payment (after as well as before any judgment) at a rate equal to the 
lesser of the Prime Rate plus five percent (5.0%) per annum, or the maximum rate
of interest permitted under

                                       5
<PAGE>
 
applicable Legal Requirements of the State of California (the "DEFAULT RATE").  
From and after the Maturity Date of the Note, the entire unpaid balance of the 
Loan and all unpaid interest accrued on the Loan at such maturity shall bear 
interest at the Default Rate.  Interest at the Default Rate shall be payable 
with the payment of the overdue amount, and otherwise shall be compounded 
monthly on the first day of each and every calendar month until paid in full.

     SECTION 2.6 SECURITY.
                 --------

                 2.6.1  PLEDGE AND ASSIGNMENT OF BONDS.  The Borrower hereby 
                        ------------------------------
assigns and pledges to the Lender and grants the Lender a security interest in, 
as additional collateral security for the Loan (and the Borrower acknowledges 
and agrees that the Lender shall have a continuing security interest in) all of 
the Borrower's right, title and interest in and to the Bonds, all of the 
Borrower's rights associated with such Bonds, all General Intangibles arising 
out of the Borrower's rights as holder of the Bonds, all present and future 
rights of the Borrower to receive any payment of money or other distribution or 
payment in its capacity as holder of the Bonds, any other property to which the 
Borrower now or in the future may be entitled in its capacity as holder of the 
Bonds, any other claim which the Borrower now has or may in the future acquire 
in its capacity as holder of the Bonds, and all Proceeds of the foregoing.   The
Borrower shall deliver the Bonds to the Lender or its designated agent 
accompanied by the duly executed Assignment of Bonds.

                 2.6.2  FINANCING STATEMENTS. The Borrower will execute and
                        --------------------
deliver such financing statements and continuation statements, and perform such
other acts, under the Uniform Commercial Code of the applicable states or other
applicable Legal Requirements as the Lender may specify in order to perfect and
maintain perfection of the Lender's security interests under this Agreement and
the Credit Documents, and the Borrower will pay the costs of filing the same in
such public offices as the Lender may designate.

                2.6.3  BORROWER REMAIN LIABLE. Anything herein to the contrary
                       ----------------------
notwithstanding, the Borrower shall remain liable under the Collateral to 
observe and perform all the conditions and obligations to be observed and 
performed by it thereunder, all in accordance with and pursuant to the terms and
provisions thereof.  The Lender shall not have any obligation or liability by 
reason of or arising out of this Agreement or the receipt by the Lender of any 
payment relating to any Collateral pursuant hereto, nor shall the Lender be 
obligated in any manner to perform any of the obligations of the Borrower under 
or pursuant to the Collateral, to make any payment, to make any inquiry as to 
the nature or the sufficiency of any payment received by it or as to the 
sufficiency of any performance by any party under any thereof, to present or 
file any claim, to take any action to enforce any performance or to collect the 
payment of any amounts that may have been pledged to it or to which it may be 
entitled at any time or times.

                2.6.4  PROCEEDS.  Unless an Event of Default shall have 
                       --------
occurred, the Lender hereby authorizes the Borrower to collect, receive and
retain, dividend or otherwise utilize all payments of principal or interest made
on the Bonds. Upon notice by the Lender at any time after the occurrence of an
Event of Default, the foregoing authorization shall automatically be terminated
and thereafter any such payments which may be paid to or collected by the
Borrower, shall be forthwith deposited by the Borrower in the exact form
received, duly

                                       6

<PAGE>
 
endorsed (without recourse) by the Borrower to the Lender if required, in a 
special bank account maintained by the Lender, subject to withdrawal by the 
Lender as hereinafter provided, and until so turned over, shall be held by the 
Borrower in trust for the Lender, segregated from other funds of the Borrower.

                2.6.5 Lender's Appointment as Attorney-in-fact.
                      ----------------------------------------

                      (a) Powers as Attorney-in-fact. Effective immediately, 
                          --------------------------
without limiting any rights or powers granted herein to the Lender while no
Event of Default has occurred and is continuing, the Borrower hereby irrevocably
constitutes and appoints the Lender and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority, in the place and stead of the Borrower and in
the name of the Borrower or in its own name, for the purpose of carrying out the
terms of this Agreement, without notice to or assent by the Borrower, to do the
following:

                          (i)     upon the occurrence and during the continuance
of any Event of Default, to exercise all rights, powers and principles to the
same extent as the Borrower under the Collateral;
                        
                          (ii)    to the extent that the Borrower would have the
right to do under the Collateral, upon the occurrence and during the continuance
of any Event of Default, in the name of the Borrower or its own name, or
otherwise, to take possession of and endorse (without recourse) and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under the Collateral or any Account, Instrument or General Intangible
arising thereunder and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Lender for the purpose of collecting any and all such moneys due under the
Collateral or any Account, Instrument or General Intangible arising thereunder;

                          (iii)   upon the occurrence and during the continuance
of any Event of Default, to pay or discharge taxes and liens levied or placed on
the Collateral and to execute any and all documents and instruments that may be
necessary or desirable to accomplish the purposes hereof; and

                          (iv)    upon the occurrence and during the continuance
of any Event of Default, (A) to direct any party liable for any payment under 
any of the Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct, (B) to ask or 
demand for, collect, receive payment of and receipt for, any and all moneys, 
claims and other amounts due or to become due at any time in respect of or 
arising out of any Collateral, (C) to sign and endorse any invoices, freight or 
express bills, bills of lading, storage or warehouse receipts, drafts against 
debtors, assignments, verifications, notices and other documents in connection 
with any of the Collateral, (D) to commence and prosecute any suits, actions or 
proceedings at law or in equity in any court of competent jurisdiction to 
collect the Collateral or any part thereof and to enforce any other right in 
respect of any Collateral, (E) to defend any suit, action or proceeding brought 
against the Borrower with respect to any Collateral, (F) to settle, compromise
or adjust any suit, action or proceeding described in clause (E) above and, in
connection therewith, to give such discharges or releases

                                       7
<PAGE>
 
as the Lender may deem appropriate and (G) generally, to sell, transfer, pledge
and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Lender were the absolute owner
thereof for all purposes, and to do, at the Lender's option and the Borrower's
expense, at any time, or from time to time, all acts and things that the Lender
deems necessary to protect, preserve or realize upon the Collateral and the
liens thereon and security interest therein created and continued hereby and to
effect the intent of this Agreement, all as fully and effectively as the
Borrower might do.

The Borrower hereby ratifies all that said attorneys shall lawfully do or cause 
to be done by virtue hereof.  This power of attorney is a power coupled with an 
interest and shall be irrevocable.

                (b) Other Powers.  The Borrower also authorizes the Lender, at 
                    ------------
any time and from time to time, to execute, in connection with any sale provided
for herein, any endorsements, assignments or other instruments of conveyance or 
transfer with respect to the Collateral.

          2.6.6 Performance by Lender of Borrower's Obligations. The Lender may,
                -----------------------------------------------
immediately upon the occurrence and during the continuance of an Event of
Default and without limiting any rights or powers granted herein to the Lender
and without releasing the Borrower from any obligation, covenant or condition
hereof, make any payment or perform or cause the performance of any such
obligation, covenant or condition or take any other action in such manner and to
such extent as the Lender may deem necessary to protect, perfect or continue the
perfection of the liens and security interests created or continued or intended
to be created or continued pursuant to this Agreement.

          2.6.7 Lender's Duties.  The powers conferred on the Lender hereunder 
                ---------------
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Lenders shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Lender's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Lender deals
with similar securities and property for its own account. Neither the Lender nor
any of its directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Borrower or otherwise.

          2.6.8 Security Interest Absolute. All rights of the Lender hereunder, 
                --------------------------
the liens and security interests created and continued hereby and all 
obligations of the Borrower hereunder shall be absolute and unconditional 
irrespective of:

                (a) any change in the time, manner or place of payment of, or in
any other term of the Loan, or any other amendment or waiver of or any consent
to any departure from any documents delivered in connection with the
transactions contemplated by this Agreement; or

                                       8

<PAGE>
 
                         (b)  any exchange, release or non-perfection of any 
other collateral, or any release or amendment or waiver of or consent to or 
departure from any guaranty, for all or any of the Loan.

                  2.6.9  Continuing Pledge and Security Interest. This Agreement
                         ---------------------------------------
shall constitute a continuing pledge of and security interest in the Collateral 
and shall (a) remain in full force and effect until payment in full of the Loan 
and (b) be binding upon, and inure to the benefit of, the parties hereto and 
their respective successors and assigns.

                  2.6.10 Powers Coupled with An Interest. All authorizations, 
                         -------------------------------
agencies and powers herein contained with respect to the Collateral are 
irrevocable and are coupled with an interest.

                                  ARTICLE 3.
                  REPRESENTATIONS AND WARRANTIES OF BORROWER

     The Borrower represents and warrants to and for the benefit of the Lender 
as follows:

     Section 3.1 Existence. The Borrower is a limited liability company, 
                 ---------
organized, validly existing and in good standing under the Legal Requirements of
the State of Delaware and is duly qualified to do business in all states where 
such qualification is necessary in connection with the transactions contemplated
hereby.

     Section 3.2 Power, Authorization and No Conflicts. Each of the Borrower and
                 -------------------------------------
its Members has all requisite power and authority and the legal right to conduct
its business and operations as they are currently being conducted and as 
proposed to be conducted by it. The execution, delivery and performance by the 
Borrower of this Agreement and the other Credit Documents to which the Borrower 
is a party (i) are within the Borrower's and the Members' powers, (ii) have been
duly authorized by all necessary organizational and legal action, and (iii) do 
not contravene the operating agreement or certificate of organization of the 
Borrower, or any Legal Requirement applicable to the Borrower, or restriction 
binding on or affecting the Borrower or its Members or any of their respective 
assets, or result in the creation of any mortgage, pledge, lien or encumbrance 
upon any of their respective assets other than as provided by the terms 
thereof.

     Section 3.3 Governmental Authorizations and Other Approvals. The Borrower 
                 -----------------------------------------------
has all necessary Governmental Actions and qualifications, and has complied in 
all material respects with all applicable Legal Requirements necessary to 
conduct its business as it is presently conducted and to own and operate its 
facilities in accordance with the provisions of the Credit Documents. No 
authorization, approval or other action by, and no notice to or filing with, any
Governmental Authority is required for the due execution, delivery and 
performance by the Borrower of this Agreement or the other Credit Documents to 
which the Borrower is a party, except such as have been obtained or are not 
issuable on or before the date of execution and delivery of this Agreement.

                                       9
<PAGE>
 
     SECTION 3.4  VALIDITY AND BINDING EFFECT.  This Agreement and the other
                  ---------------------------
Credit Documents to which the Borrower is a party are the legal, valid and 
binding obligations of the Borrower, enforceable against the Borrower in 
accordance with their respective terms, subject to the application by a court of
general principles of equity and to the effect of any applicable bankruptcy, 
insolvency, reorganization, moratorium or similar Legal Requirement affecting 
creditors' rights generally.

     SECTION 3.5  NO LITIGATION.  Except as disclosed to the Lender in writing, 
                  -------------
there is no threatened action or proceeding (pending or threatened in writing)
(a) affecting the Borrower before any Governmental Authority or arbitrator 
which, in any case, might materially and adversely affect the business, 
operations, assets, condition (financial or otherwise) or prospects of the 
Borrower, or the validity or enforceability of this Agreement or the other 
Credit Documents or (b) affecting the Bonds or any documents related to the 
Bonds.

     SECTION 3.6  NO VIOLATIONS.  The Borrower is in compliance with, and not in
                  -------------
breach of or default under (a) any applicable Legal Requirements of the United 
States or any other Governmental Authority or (b) the Credit Documents or any 
other credit agreement, indenture, mortgage, agreement or other instrument to 
which it is a party or otherwise subject.  No event has occurred and is 
continuing which, with the passage of time or the giving of notice or both, 
would constitute an event of default under any such instrument except for 
violations, if any, which the Borrower has disclosed to the Lender in writing 
and is proceeding in good faith to remove or correct.

     SECTION 3.7  NOTICES UNDER BOND DOCUMENTS.  To the best of its actual 
                  ----------------------------
knowledge, the Borrower has not received any notices of default, notices of 
redemption, other notices, reports, filings, or other correspondence relating to
the Bonds, from any trustee for the holders of the Bonds or any Governmental 
Authority, except as shall have been disclosed by the Borrower to the Lender in 
writing.

     SECTION 3.8  OWNERSHIP OF COLLATERAL; LIENS.  The Borrower is the legal and
                  ------------------------------
beneficial owner of the Collateral, free and clear of all liens and security
interests, except for the liens and security interests created by this
Agreement. The Borrower has all requisite power and authority and the legal
right to pledge to the Lender, and to grant to the Lender, a first priority lien
on and continuing first priority security interest in the Collateral. No
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office,
except such as may have been filed in favor of the Lender pursuant to this
Agreement.

     SECTION 3.9  SECURITY INTEREST.  The security interests granted and 
                  -----------------
continued pursuant to this Agreement constitute perfected first priority 
security interests in the Collateral in favor of the Lender and are enforceable 
as such against all creditors of and purchasers from the Borrower.  All action 
necessary or desirable to perfect such security interests in each item of the 
Collateral requested by the Lender, including the filing of financing statements
in all appropriate public offices, has been or will be duly taken.

     SECTION 3.10  SOLVENCY.  The Borrower is and, after giving effect to this 
                   --------
Agreement and all other agreements of the Borrower being entered into on the 
date of execution and delivery

                                      10
<PAGE>
 
of this Agreement, will be solvent (which for this purpose shall mean that the 
fair market value of its property is in excess of the total amount of its debts 
and that it is able to pay its debts as they mature).

      Section 3.11 Principal Place of Business, Etc.  The Borrower's principal 
                   --------------------------------
place of business, chief executive office and the office where the Borrower 
keeps its records concerning transactions contemplated hereby are located at 439
North Bedford Drive, Beverly Hills, California 90210, Attention: Daniel 
Gottlieb, Chief Executive Officer.

      Section 3.12 Tax Returns and Payments. The Borrower has filed all tax 
                   ------------------------
returns required to be filed by it and has paid (a) all taxes and assessments 
payable by it which have become due and (b) all other taxes, fees or other 
charges imposed on it or any of its property by any Governmental Authority, 
other than those not yet delinquent or those that are reserved against in 
accordance with GAAP which are being diligently contested in good faith by 
appropriate proceedings. No tax lien has been filed against the Borrower.

      Section 3.13 Investment Company Act; Public Utility Holding Company Act. 
                   ----------------------------------------------------------
The borrower is not (a) an "investment company" or a company "controlled" by an 
"investment company," within the meaning of the Investment Company Act of 1940, 
as amended, (b) a "holding company" or a "subsidiary company" of a "holding 
company" or an "affiliate" of either a "holding company" or a "subsidiary 
company" within the meaning of the Public Utility Holding Company Act of 1935, 
as amended, or (c) subject to any other federal or state law or regulation which
purports to restrict or regulate its ability to borrow money.

                                  ARTICLE 4.
                               GENERAL COVENANTS

      So long as the Indebtedness remains outstanding, the Borrower covenants 
and agrees that, except to the extent the Lender shall otherwise consent in 
writing, each of the following covenants shall be performed and complied with by
the Borrower as indicated:

      Section 4.1  Payment of Principal, Interest and Fees.  The Borrower shall
                   ---------------------------------------
duly and punctually pay to the Lender the principal of and interest on the Note 
as and when same shall be due and payable in accordance with and subject to the
terms of this Agreement and the terms of the Note.
            
      Section 4.2 Payment of Additional Sums. The Borrower shall duly and 
                  -------------------------- 
punctually repay to the Lender according to the terms of this Agreement, any 
additional sums advanced, or expended by the Lender for the Borrower's account, 
together with interest on such sums at the Default Rate.

      Section 4.3 Performance of Credit Documents. The Borrower shall observe, 
                  -------------------------------                          
perform and discharge all covenants, conditions and obligations of the Borrower 
contained in the provisions of the Credit Documents in accordance with their 
respective terms.


                                      11

<PAGE>
 
     SECTION 4.4 COMPLIANCE WITH LEGAL REQUIREMENTS.  The Borrower will comply 
                 ---------------------------------- 
with all applicable Legal Requirements.

     SECTION 4.5 MAINTENANCE OF GOVERNMENTAL AUTHORIZATIONS.  The Borrower will 
                 ------------------------------------------
maintain in full force and effect all of its Governmental Actions and 
qualifications necessary for the conduct of its business as it is presently 
being conducted and the ownership and operation of its facilities as they are 
presently being operated.  The Borrower will promptly furnish copies of all 
reports and correspondence relating to a loss or proposed revocation of any such
qualification to the Lender.

     SECTION 4.6 ACTIONS UNDER BOND DOCUMENTS.  The Borrower shall provide the
                 ---------------------------- 
Lender with true, correct and complete copies of all notices, reports, filings 
or correspondence received by the Borrower under the Bonds or the related 
documents or otherwise relating to the Bonds as soon as practicable and in no 
event later than five (5) Business Days following receipt thereof by the 
Borrower. The Borrower has not and shall not, without the prior written consent 
of the Lender, consent to any amendment of the Bonds or the documents related 
thereto or any waiver of any provisions thereof or direct any action or exercise
any remedies thereunder.

     SECTION 4.7 INSPECTION RIGHTS.  The Borrower will, at any reasonable time
                 ----------------- 
and from time to time, permit the Lender or its agents or representatives to 
examine and make copies of and abstracts from the records and books of account 
of, and visit the properties of, the Borrower, and to discuss the affairs, 
finances and accounts of the Borrower and accountants of the Borrower.

     SECTION 4.8 KEEPING OF BOOKS. The Borrower will keep proper books of record
                 ----------------
and account in which full and correct entries shall be made of financial 
transactions and the assets and operations of the Borrower prepared in 
accordance with GAAP consistently applied, and have a complete audit of such 
books of record and account made by the Accountant for each Fiscal Year.

     SECTION 4.9 TAX RETURNS.  The Borrower will timely file all required tax 
                 -----------
returns, pay when due all taxes imposed on its operations, assets, income or 
properties (or file extensions), and, upon request, provide to the Lender copies
of such returns and receipts for payment of such taxes.

                                  ARTICLE 5.
                             CONDITIONS PRECEDENT

     SECTION 5.1 PAYMENT OF CERTAIN FEES AND EXPENSES.  As a condition precedent
                 ------------------------------------
to the Lender's making the Loan, on the date of execution and delivery of this 
Agreement, (a) Borrower shall have paid the Loan Fee to GMAC, and (b) the Lender
shall have received, in immediately available funds, an amount equal to the 
costs and expenses set forth in SECTION 7.5 incurred as of the date of the 
                                -----------
execution and delivery hereof.

                                      12
<PAGE>
 
      Section 5.2  Documentation.  As conditions precedent to the Lender's 
                   -------------
making the Loan, the Lender shall have received, or waived the receipt of, each 
of the following in form and substance satisfactory to the Lender:

                   5.2.1  Duly executed counterpart originals of this Agreement,
the Note, the Assignment of Bonds, and all documentation delivered in connection
therewith.

                   5.2.2  Such other documents, certificates, approvals, 
assurances and opinions as the Lender may request.


                                   ARTICLE 6
                             DEFAULTS AND REMEDIES

      SECTION 6.1  Defaults.  Each of the following shall constitute an event of
                   --------
default hereunder ("Event of Default"):

                   6.1.1  Failure by the Borrower to pay (i) the entire 
outstanding Loan evidenced by the Note on the Maturity Date of the Note, or (ii)
any other amount within five (5) Business Days of the date when it is due under 
this Agreement or any of the other Credit Documents;

                   6.1.2  Failure by the Borrower to perform or comply with any
of the other terms or conditions contained in this Agreement or any of the other
Credit Documents and continuance of such failure for thirty (30) days after the 
earlier of written notice from the Lender to the Borrower or the Borrower has 
actual knowledge that such failure has occurred, or such longer period to which 
the Lender may agree in the case of a default not curable by the exercise of due
diligence within such thirty (30) day period, provided that the Borrower shall 
have commenced to cure such default within such 30 day period and shall complete
such cure as quickly as reasonably possible with the exercise of due diligence;

                   6.1.3  Any of the representations or warranties of the
Borrower set forth in this Agreement, any of the other Credit Documents or any
other document furnished to the Lender pursuant to the terms hereof proves to
have been false or misleading in any respect when made; provided, however, that
Borrower shall have an opportunity to cure in order to make such representations
or warranties not false or misleading;

                   6.1.4  The Borrower (i) applies for or consents to the 
appointment of a receiver, trustee, liquidator or custodian or the like of 
itself or of its property or (ii) admits in writing its inability to pay its 
debts generally as they become due, or (iii) makes a general assignment for the 
benefit of creditors, or (iv) is adjudicated a bankrupt or insolvent, or (v) 
commences a voluntary case under the United States Bankruptcy Code or files a 
voluntary petition or answer seeking reorganization, an arrangement with 
creditors or an order for relief or seeking to take advantage of any insolvency 
law or files an answer admitting the material allegations of a petition filed 
against it in any bankruptcy, reorganization or insolvency proceeding, or it 
takes action for the purpose of effecting any of the foregoing, or (vi) has 
instituted against it, without its application, approval or consent, a 
proceeding in any court of 

                                      13
<PAGE>
 
competent jurisdiction, under any Legal Requirements relating to bankruptcy, 
insolvency, reorganization or relief of debtors, seeking an order for relief or 
an adjudication in bankruptcy, reorganization, dissolution, winding up or 
liquidation, a composition or arrangement with creditors, a readjustment of 
debts, the appointment of a trustee, receiver, liquidator or custodian or the 
like of the it or all of any substantial part of its assets or other like relief
in respect thereof under any Legal Requirements relating to bankruptcy or 
insolvency law, and, if such proceeding is being contested by it in good faith, 
the same (A) results in the entry of an order for relief of any such 
adjudication or appointment or (B) remains undismissed and undischarged for a 
period of sixty (60) days; or

                  6.1.5 The occurrence of an Event of Default under any of the
Credit Documents;

     Section 6.2  Remedies.  If an Event of Default has occurred and has 
                  -------- 
continued uncured for five (5) Business Days after notice thereof from the 
Lender (provided that in no event shall Lender be required to give more than one
such notice of Default during any 12-month period), the Lender may:

                  6.2.1 Exercise any of the rights and remedies available to it
under the Credit Documents; and

                  6.2.2 Declare the Borrower's obligations hereunder and under 
the other Credit Documents to be, whereupon the entire Loan shall become, 
immediately due and payable without presentment, demand, protest or notice of 
any kind, all of which are expressly waived by the Borrower; and

                  6.2.3 Exercise, or cause to be exercised, any and all such 
remedies or rights as it may have under this Agreement or the other Credit 
Documents or any other document or at law or in equity.

     Section 6.3  No Waiver; Remedies Cumulative. No failure on the part of the 
                  ------------------------------
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; and no single or partial exercise of any right
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies available under any other document or at law or in
equity.

     Section 6.4  Rights and Remedies in Collateral.
                  ---------------------------------

                  6.4.1 If an Event of Default shall have occurred and be 
continuing, (a) all payments made in respect of the Collateral and received by 
or on behalf of the Lender in accordance with the provisions of this Agreement 
or otherwise, may, in the discretion of the Lender, (i) be held by or on behalf 
of the Lender as Collateral, and/or (ii) then or at any time thereafter be 
applied to the Loan in such order as the Lender shall determine, and (b) to the 
extent permitted by applicable Legal Requirements, the Bonds and any other 
certificates or evidences of the Collateral shall be registered in the name of 
the Lender or its nominee, and (whether or not so registered) the Lender or its 
nominee may thereafter exercise (i) all voting and other rights pertaining to 
the Collateral and (ii) any and all rights of conversion, exchange,

                                      14

   
<PAGE>
 
subscription and any other rights, privileges or options pertaining to the 
Collateral as if it were the absolute owner thereof all without liability except
to account for property actually received by it, but the Lender shall have no 
duty to exercise any such right, privilege or option and shall not be 
responsible for any failure to do so or delay in so doing.

                 6.4.2  If an Event of Default shall have occurred and be 
continuing, then, in addition to any other rights and remedies provided for 
herein and in any other instrument or agreement securing, evidencing or relating
to the Loan, or that may otherwise be available, the Lender may without any 
demand, advertisement or notice (except as expressly provided for below in this 
Section 6.4.2), exercise all the rights and remedies of a secured party under 
-------------
the UCC, and in addition may sell, lease, assign, give option or options to 
purchase, or otherwise dispose of the Collateral, or any part thereof, as 
hereinafter provided.  The Collateral may be sold or otherwise disposed of in 
one or more sales, at public or private sale, conducted by any officer or agent 
of, or auctioneer or attorney for, the Lender, at any exchange or broker's board
or at the Lender's place of business or elsewhere, for cash, upon credit or for 
other property, for immediate or future delivery, and at such price or prices 
and on such terms as the Lender shall, in its sole discretion, deem appropriate.
The Lender may be the purchaser of any or all of the Collateral so sold at a 
sale and thereafter may hold the same, and the obligations of the Borrower 
and/or the Partnership, to such purchaser may be applied as a credit against the
purchase price.  The Lender may, in its sole discretion, at any such sale 
restrict the prospective bidders or purchasers as to their number, nature of 
business and investment intention.  Upon any such sale, the Lender shall have 
the right to deliver, assign and transfer to the purchaser thereof (including 
the Lender) the Collateral so sold, absolutely free from any claim or right of 
whatsoever kind, including any equity or right of redemption, of the 
Borrower, and the Borrower hereby specifically waives, to the fullest extent it 
may lawfully do so, all rights of redemption, stay or appraisal that it has or 
may have under any rule of law or statute now existing or hereafter adopted.  
The Borrower agrees that the Lender need not give more than ten (10) days, 
notice of the time and place of any public sale or of the time after which a 
private sale or other intended disposition is to take place and that such notice
is reasonable notification of such matters.  No notification need be given to 
the Borrower if it has signed after the occurrence of an Event of Default a 
statement renouncing or modifying any right to notification of sale or other 
intended disposition.  Any such public sale shall be held at such time or times 
within ordinary business hours as the Lender shall fix in the notice of such 
sale.  At any such sale, the Collateral may be sold in one lot as an entirety or
in separate parcels.  The Lender shall not be obligated to make any sale 
pursuant to any such notice.  The Lender may, without notice or publication, 
adjourn any public or private sale or cause the same to be adjourned from time 
to time by announcement at the time and place fixed for such sale, and any such
sale may be made at any time or place to which the same may be so adjourned  
without further notice or publication.  In case of any sale of all or any part 
of the Collateral on credit or for future delivery, the Collateral so sold may 
be retained by the Lender until the full selling price is paid by the purchaser 
thereof, but the Lender shall not incur any liability in case of the failure of 
such purchaser to take up and pay for the Collateral so sold, and, in case of 
any such failure, such Collateral may again be sold pursuant to the provisions 
hereof.

                 6.4.3  If an Event of Default shall have occurred and be 
continuing, instead of exercising the power of sale provided in Section 6.4.2 
                                                                -------------
hereof, the Lender may

                                 15          
<PAGE>
 
proceed by a suit or suits at law or in equity to foreclose the pledge and 
security interest under this Agreement and sell the Collateral or any portion 
thereof under a judgment or decree of a court or courts of competent 
jurisdiction. 

          6.4.4 The Lender, as attorney-in-fact pursuant to Section 2.6.6
                                                            -------------
hereof,may, in the name and stead of the Borrower, make and execute all
conveyances, assignments and transfers of the Collateral sold pursuant to
Section 6.4.2 or Section 6.4.3 hereof, and, to the extent permitted
-------------    -------------
by applicable law, the Borrower hereby ratifies and confirms all that the
Lender, as said attorney-in-fact, shall do by virtue hereof. Nevertheless, the
Borrower shall, if so requested by the Lender, ratify and confirm any sale or
sales by executing and delivering to the Lender, or to such purchaser or
purchasers, all such instruments as may, in the judgment of the Lender, be
advisable for the purpose.

          6.4.5  The receipt of the Lender for the purchase money paid at such
sale made by it pursuant to Sections 6.4.2 or 6.4.3 hereof shall be sufficient
                            -----------------------
discharge therefore to any purchaser of the Collateral, or any portion thereof,
sold as aforesaid; and no such purchaser (or the representatives or assigns of
such purchaser), after paying such purchase money and receiving such receipt,
shall be bound to see to the application of such purchase money or any part
thereof or in any manner whatsoever be answerable for any loss, misapplication
or non-application of any such purchase money, or any part thereof, or be bound
to inquire as to the authorization, necessity, expediency or regularity of any
such sale.

          6.4.6  The Lender shall not incur any liability as a result of the
sale of the Collateral, or any part thereof, at any private sale pursuant to
Section 6.4.2 hereof conducted in a commercially reasonable manner. The Borrower
-------------
hereby waives, to the fullest extent permitted by applicable law, all claims,
damages and demands against the Lender arising out of the repossession or
retention of the Collateral or the sale of the Collateral pursuant to Section
                                                                      -------
6.4.2 or 6.4.3 hereof, including, without limitation, any claims against the
--------------
Lender arising by reason of the fact that the price at which the Collateral, or
any part thereof, may have been sold at a private sale was less than the price
that might have been obtained at a public sale or was less than the aggregate
amount of the obligations, even if the Lender accepts the first offer received
that the Lender in good faith deems to be commercially reasonable under the
circumstances and does not offer the Collateral to more than one offeree. To the
fullest extent permitted by the law, the Borrower shall have the burden of
proving that any such sale of the Collateral was conducted in a commercially
unreasonable manner.

          6.4.7  If the Lender shall demand possession of any Collateral or any
part thereof not already in its possession in connection with its rights
pursuant to Sections 6.4.2 or 6.4.3 hereof, the Borrower will, at its own
            -----------------------
expense, forthwith cause such Collateral or any part thereof designated by the
Lender to be assembled and made available and/or delivered to the Lender at any
place reasonably designated by the Lender.

          6.4.8  No Sale or other disposition of all or any part of the
Collateral by the Lender pursuant to this Section 6.4 shall he deemed to relieve
                                          -----------
the Borrower of its obligations in respect of any Indebtedness except to the
extent the proceeds thereof are applied by the Lender to the payment of such
Indebtedness.

                                      16

<PAGE>
 
      Section 6.5  Waiver.  To the fullest extent it may lawfully so agree, the 
                   ------
Borrower agrees that it will not at any time insist upon, claim, plead or take
any benefit or advantage of any appraisement, valuation, stay, extension,
moratorium, redemption, or similar law now or hereinafter in force in order to
prevent, delay, or hinder the enforcement hereof or the absolute sale of any
part of the Collateral. The Borrower for itself and all who claim through it, so
far as it or they now or hereafter lawfully may do so, hereby waives the benefit
of all such laws, and all right to have the Collateral marshaled upon any
foreclosure hereof, and agrees that any court having jurisdiction to foreclose
this Agreement may order the sale of the Collateral as an entirety. Without
limiting the generality of the foregoing, the Borrower hereby; (a) authorizes
the Lender, in its sole discretion and without notice to or demand upon the
Borrower and without otherwise affecting the obligations of the Borrower
hereunder or in respect of the Loan, from time to time to take and hold other
collateral (in addition to the Collateral) for payment of any obligations, or
any part thereof, and to exchange, enforce or release such other collateral or
any part thereof and to accept and hold any endorsement or guarantee of payment
of the Loan or any part thereof and to release or substitute any endorser or
guarantor or any other Person granting security for or in any other way
obligated upon the obligations or any part thereof; and (b) waives and releases
any and all right to require the Lender to collect any of the Loan from any
specific item or items of the Collateral or from any other party liable as
guarantor or in any other manner in respect of any of the obligations or from
any collateral (other than such Collateral) for any of the obligations.
                  
      Section 6.6 Specific Performance.  The Borrower hereby irrevocably waives,
                  --------------------
to the extent that it may do so under Applicable Law, any defense based on the 
adequacy of a remedy at law that may be asserted as a bar to the remedy of 
specific performance in any action brought against the Borrower for specific 
performance of this Agreement by the Lender or in respect of all or a 
substantial part of the Borrower's assets under the bankruptcy or insolvency 
laws of any jurisdiction to which the Borrower or its assets are subject.

      Section 6.7  Private Sales.  The Borrower recognizes that the Lender may
                   -------------
be unable to effect a public sale of any or all the Collateral, by reason of 
certain prohibitions contained in the Securities Act and applicable state 
securities laws or otherwise, and may be compelled to resort to one or more 
private sales thereof to a restricted group of purchasers which will be obliged 
to agree, among other things, to acquire the Collateral for their own account 
for investment and not with a view to the distribution thereof.  The Borrower 
acknowledges and agrees that any such private sale may result in prices and 
other terms less favorable to the Lender than if such sale were a public sale 
and agrees that such circumstances shall not, in and of themselves, result in a 
determination that such sale was not made in a commercially reasonable manner.


                                   ARTICLE 7.
                                 MISCELLANEOUS

      Section 7.1  Notices.  All notices and other communications provided for 
                   -------
hereunder shall be in writing and sent by United States certified or registered 
mail, return receipt requested, or by telegraph, telex, telecopier or private 
delivery service, addressed as follows:

                                      17
<PAGE>
 
                   If to the Borrower:

                           GLN Capital Co., LLC
                           439 North Bedford Drive
                           Beverly Hills, California 90210
                           Attn:  Danial M. Gottlieb, Chief Executive Officer
                     and:
                           Property Acquisition Trust I
                           c/o Nomura Asset Capital Corporation
                           Two World Financial Center, Building B
                           New York, NY 10281-1198
                           Attn:  Gregory Anderson

                           with a copy to:
                          
                                  Jay L. Zagoren, Esquire
                                  Dechert Price & Rhoads
                                  Princeton Price Corporate Center
                                  997 Lenox Drive
                                  Building Three, Suite 210
                                  Lawrenceville, NJ 08748

                           and:
                                  Nomura Asset Capital Corporation
                                  Two World Financial Center, Building B,
                                  New York, NY 10281-1198
                                  Attn:  Sheryl McAfee

                           and:
                                  Nomura Asset Capital Corporation
                                  Two World Financial Center, Building B,
                                  New York, NY 10281-1198
                                  Attn:  Legal Counsel

                   If to the Lender:
                           
                           G & L Realty Partnership, L.P.
                           439 North Bedford Drive
                           Beverly Hills, CA 90210
                           Attn:  Daniel M. Gottlieb, Chief Executive Officer

                           with a copy to:
                               
                                  Martin H. Blank, Jr., Esquire
                                  11755 Wilshire Boulevard, Suite 1400
                                  Los Angeles, California, 90025

                                      18

<PAGE>
 
Either party hereto and the Lender may change the address to which notices to 
it are to be sent by written notice given to the other persons listed in this 
Section. All notices shall, when mailed as aforesaid, be effective on the date 
indicated on the return receipt, and all notices given by other means shall be 
effective when received. 

     Section 7.2 Successors and Assigns. This Agreement shall inure to the 
                 ----------------------
benefit of and shall be binding upon the parties hereto and their respective 
successors and assigns. The Lender may assign its rights under this Agreement 
without the consent of the Borrower or any other person. The Borrower may not 
assign its rights under this Agreement without the prior written consent of the 
Lender (which consent shall not be unreasonably withheld). The Borrower and the
Lender intend that no person other than the parties hereto, and their successors
and assigns as permitted hereunder shall have any claim or interest under this 
Agreement or right of action hereon or hereunder.

     Section 7.3 Survival of Covenants. All covenants made by the Borrower 
                 ---------------------
herein and in any document delivered pursuant hereto shall survive the 
termination of this Agreement.

     Section 7.4 Counterparts. The execution hereof by each party hereto shall 
                 ------------
constitute a contract between them for the uses and purposes herein set forth,
and this Agreement may be executed in any number of counterparts, with each
executed counterpart constituting an original and all counterparts together
constituting one agreement.

     Section 7.5 Costs, Expenses and Taxes. The Borrower agrees to pay on demand
                 -------------------------
all reasonable costs and expenses of the Lender in connection with the 
preparation, execution, and delivery of this Agreement, the other Credit 
Documents and any other documents that may be delivered in connection with this 
Agreement, including, the reasonable fees and expenses of counsel for the 
Lender. In addition, the Borrower shall pay any and all stamp and other taxes, 
recording fees, taxes (other than the Lender's income taxes) and charges and all
other fees and charges payable or determined to be payable in connection with 
the execution and delivery of this Agreement, the other Credit Documents and 
such other documents. The Borrower agrees to indemnify and to hold the Lender 
harmless from and against any and all liabilities with respect to or resulting 
from any delay in paying or omission to pay such taxes and fees; provided that 
the Lender promptly notifies the Borrower of any such taxes and fees.

     Section 7.6 Amendments. This Agreement may be amended only by an instrument
                 ----------
in writing executed and delivered by the Borrower and the Lender.

     Section 7.7 Severability; Interest Limitation. If any provision hereof is 
                 ---------------------------------
found by a court of competent jurisdiction to be prohibited or unenforceable in 
any jurisdiction, it shall be ineffective as to such jurisdiction only to the 
extent of such prohibition or unenforceability, and such prohibition or 
unenforceability shall not invalidate the balance of such provision as to such 
jurisdiction to the extent it is not prohibited or unenforceable, nor invalidate
such provision in any other jurisdiction, nor invalidate the other provisions 
hereof, all of which shall be liberally construed in favor of the Lender in
order to effect the provisions of this Agreement. Notwithstanding anything to
the contrary herein contained, the total liability of the Borrower for payment
of interest pursuant hereto shall not exceed the maximum amount, if any, of such
interest permitted by applicable Legal Requirements to be contracted for,
charged or received,

                                      19
<PAGE>
 
and if any payments by the Borrower to the Lender include interest in excess of 
such a maximum amount, the Lender shall apply such excess to the reduction of 
the unpaid principal amount due pursuant hereto, or if none is due, such excess 
shall be refunded to the Borrower; provided that, to the extent permitted by
applicable Legal Requirements, in the event the interest is not collected, is
applied to principal or is refunded pursuant to this sentence and interest
thereafter payable pursuant hereto shall be less than such maximum amount, then
such interest thereafter so payable shall be increased up to such maximum amount
to the extent necessary to recover the amount of interest, if any, theretofore
uncollected, applied to principal or refunded pursuant to this sentence. Any
such application or refund shall not cure or waive any Event of Default. In
determining whether or not any interest payable under this Agreement exceeds the
highest rate permitted by applicable Legal Requirements, any nonprincipal
payment (except payments specifically stated in this Agreement to be "interest")
shall be deemed, to the extent permitted by applicable Legal Requirements, to be
an expense, fee, premium or penalty rather than interest.

     SECTION 7.8 CONFLICTS.  Insofar as possible the provisions of this 
                 ---------
Agreement shall be deemed complementary to the terms of the other Credit 
Documents, but in the event of conflict the terms hereof shall control to the 
extent such are enforceable under applicable Legal Requirements.

     SECTION 7.9 CONSENT TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.  ALL 
                 ----------------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER ARISING OUT OF OR RELATING TO 
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY 
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE 
OF NEW YORK, COUNTY AND CITY OF LOS ANGELES.  BY EXECUTING AND DELIVERING THIS 
AGREEMENT, THE BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, 
IRREVOCABLY

                 7.9.1  ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE 
JURISDICTION AND VENUE OF SUCH COURTS;

                 7.9.2  WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

                 7.9.3  AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH 
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH 
SECTION 7.1, IN THE EVENT SERVICE OF PROCESS IN PERSON CANNOT BE MADE AFTER 
-----------
THREE (3) DAYS;

                 7.9.4  AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE BORROWER IN ANY SUCH 
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING 
SERVICE IN EVERY RESPECT.

                 7.9.5  AGREES THAT THE LENDER RETAINS THE RIGHT TO SERVICE 
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING

                                      20

<PAGE>
 
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION; AND

             7.9.6  AGREES THAT THE PROVISIONS OF THIS SECTION 7.9 RELATING TO 
                                                       -----------
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT 
PERMISSIBLE UNDER APPLICABLE NEW YORK LAW.

      THE BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION 
ARISING HEREUNDER OR UNDER THIS AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS,
OR OTHERWISE IN CONNECTION HEREWITH.

      Section 7.10 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
                   -------------
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.

      Section 7.11  Headings. Section headings in this Agreement are included 
                    --------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

      Section 7.12 Further Assurances.  The Borrower will execute and deliver 
                   ------------------
such further instruments and perform such further acts as may be requested by 
the Lender from time to time to confirm the provisions of this Agreement and the
other Credit Documents, and/or to confirm the priority and/or perfection of any
lien, pledge, assignment or security interest created or intended to be created
by this Agreement in any property, rights or interests of the Borrower. The
Borrower agrees to pay all costs of any such acts required to be taken by the
Borrower hereunder including, the recording, filing and acknowledging of such
documents in such public offices as the Lender may require.

      Section 7.13 Reinstatement. This Agreement shall continue to be effective,
                   -------------
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the indebtedness is rescinded or must otherwise be restored
or returned by the Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any substantial part of their property, or
otherwise, all as though such payments had not been made.

      Section 7.14 Indemnity. The Borrower shall indemnify the Lender from and
                   ---------
against any and all claims, losses and liabilities growing out of or resulting
from (i) the Agreement (including, without limitation, enforcement of this
Agreement) and (ii) the transactions contemplated solely by this Agreement, but,
in the case of each of clauses (i) and (ii), excluding any such claims, losses
or liabilities found by a final order of a court of competent jurisdiction to
result from the Lender's gross negligence or willful misconduct.

      Section 7.15 Waivers; Consents. No waiver of, or consent with respect to,
                   -----------------
any provision of this Agreement shall in any event be effective unless the same
shall be in writing

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<PAGE>
 
and signed by the Lender, and then such waiver or consent shall be effective 
only in the specific instance and for the specific purpose for which it was 
given.

          IN WITNESS WHEREOF, the Borrower and the Lender have caused this 
Agreement to be duly executed and delivered as of the date first above written.

BORROWER:           GLN CAPITAL CO., LLC
--------            a Delaware limited liability company

                    By: G & L REALTY PARTNERSHIP, L.P.
                        a Delaware limited partnership
                        Its Member

                        By: G & L REALTY CORP., a Maryland corporation
                            Its General Partner

                            By /s/ Daniel M. Gottlieb
                              ----------------------------------------------
                                 Daniel M. Gottlieb, Chief Executive Officer

                        By: PROPERTY ACQUISITION TRUST I,
                            a Delaware business trust
                            Its Member

                            By     /s/ Sheryl McAffee
                              --------------------------------------
                            Name   Sheryl McAffee
                                ------------------------------------
                            Title  Attorney-in-fact
                                 -----------------------------------

LENDER:                 G & L REALTY PARTNERSHIP, L.P., 
------                  a Delaware limited partnership            

                        By: G & L Realty Corp., a Maryland corporation
                            Its General Partner

                     
                            By /s/ Daniel M. Gottlieb
                              ---------------------------------------------
                                Daniel M. Gottlieb, Chief Executive Officer

                                      22