THIRD AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS


         THIS THIRD  AMENDMENT  TO LOAN  AGREEMENT  AND  DOCUMENTS,  dated as of
October 20, 1998 (the  "Amendment"),  is entered  into by and between  BROOKDALE
LIVING COMMUNITIES,  INC., a Delaware corporation (the "Borrower"),  and LaSALLE
NATIONAL BANK, a national banking association (the "Bank").

                                   WITNESSETH

         WHEREAS,  Borrower has previously  executed and delivered to the Bank a
certain  Note dated April 27,  1998 in the  original  principal  amount of up to
Fifteen  Million Dollars  ($15,000,000.00)  (the "Original  Note")  evidencing a
certain loan (the "Loan") set forth more fully in and governed by a certain Loan
Agreement  of that same date to which  the Bank is also a party  (the  "Original
Loan Agreement");

         WHEREAS,  the Loan was subsequently  modified and amended by Borrower's
execution and delivery to the Bank of a certain  Amended and Restated Note dated
July 16, 1998 increasing the principal amount of the Loan by $10,000,000.00,  on
an interim basis only, from  $15,000,000.00 to $25,000,000.00  (the "Amended and
Restated Note") and a certain First Amendment to Loan Agreement and Documents of
that same date to which the Bank is also a party (the  "First  Amendment")  that
(a) increased the principal  amount of the Loan on an interim basis as aforesaid
and (b)  permitted  a portion of the Loan to be  reserved  for the  issuance  of
standby  Letters of Credit by the Bank to and for the benefit of  municipalities
and other  governmental  units in connection with projects developed by Borrower
from time to time as set forth more fully therein;

         WHEREAS,  the Loan was subsequently  modified and amended by Borrower's
execution  and  delivery  to the  Bank of a  certain  Second  Amendment  to Loan
Agreement and Documents dated October 14, 1998 to which the Bank is also a party
(the  "Second  Amendment")  wherein  (a) the Bank  consented  to the  Borrower's
proposed issuance of a convertible  subordinated and unsecured note to OZ Master
Fund, Ltd. in the principal amount of Ten Million Dollars ($10,000,000.00),  (b)
the Bank  permitted  the Borrower to guarantee  financing  from other  financial
institutions  to certain  Subsidiaries  of Borrower in  connection  with certain
development  projects  located in New York,  New York (Battery Park City),  Glen
Ellyn,  Illinois  and  Raleigh,  North  Carolina,  which  projects  were  to  be
originally  financed  by  Nomura  Asset  Capital  Corporation,  (c) the Event of
Default set forth in Section  7.01(O) of the Loan  Agreement  was  modified  and
restructured,  and (d) the  Interim  Maturity  Date was  extended to November 3,
1998,  all of the  foregoing as set forth more fully in and subject to the terms
and conditions of the Second Amendment (the Original Loan Agreement,  as amended
by the First  Amendment and the Second  Amendment,  is herein referred to as the
"Loan Agreement");

         WHEREAS,   the  Borrower  has  requested  to  Bank  to  modify  certain
provisions of the Loan Agreement, which the Bank is willing to do subject to the
terms and conditions set forth herein:

         NOW,  THEREFORE,  in consideration  of the premises,  the covenants and
agreements  herein  contained,  and other good and valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereby
agree as follows:

         1.  Incorporation  of Recitals.  The above and  foregoing  recitals are
incorporated into and made a part of this Amendment.  All capitalized terms used
herein,  if not  otherwise  specifically  defined,  shall have the  meanings and
definitions  prescribed  in the Loan  Agreement  and the  Documents  referred to
therein.


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         2.  Outstanding  Principal  Balance  of  Loan.  For  purposes  of  this
Amendment and the Loan Agreement,  the outstanding principal balance of the Loan
at any time shall be the sum of (a) all amounts of the Loan  Advances made under
the Loan Agreement remaining unpaid plus (b) all outstanding LC Reserves.

         3. Borrowing Availability Restricted. As of the date of this Amendment,
the  outstanding   principal  balance  of  the  Loan  is   $24,953,750.00   (the
"Outstanding  Principal  Amount").  Notwithstanding  any  provision  of the Loan
Agreement  or  the  Documents  to  the  contrary,  the  Maximum  Revolving  Loan
Commitment is hereby frozen at, and shall not exceed, the Outstanding  Principal
Amount, unless otherwise consented to by the Bank in writing.

         4. Interim  Maturity Date.  The term "Interim  Maturity Date" is hereby
amended and restated to mean November 3, 1998.

         5. Decreased Loan  Commitment.  On the Interim  Maturity Date,  without
further  notice  (a) the  outstanding  principal  balance  of the Loan  shall be
reduced to $10,000,000.00,  and (b) the principal amount of the Loan and Maximum
Revolving Loan Commitment  shall be decreased from  $25,000,000.00  to an amount
not to exceed $10,000,000.00.

         6.  Maturity  Date.  The term  "Maturity  Date" is hereby  amended  and
restated to mean (a) the Interim  Maturity Date as to any and all amounts of the
outstanding  principal balance of the Loan in excess of $10,000,000.00,  and (b)
April 26, 1999 as to the outstanding principal balance of the Loan together with
any  accrued but unpaid  interest  thereon and any other costs or amount owed to
the Bank under the Loan Agreement as amended hereby.

         7. Interim  Interest  Rate.  The Loan  Agreement  is hereby  amended to
provide that,  effective as of October 20, 1998, (a) the  outstanding  principal
balance of the Loan in excess of  $10,000,000.00  shall bear interest payable on
demand  at the  Prime  Rate plus four  percent  (4.0%)  and (b) the  outstanding
principal  balance  of the Loan  not in  excess  of  $10,000,000.00  shall  bear
interest  payable at the Prime Rate plus  one-half  of one  percent  (0.50%) per
annum (the "Interim  Interest  Rate").  The Interim Interest Rate is, during its
pendency,  in lieu of the  interest  rate set forth in Section  2.02 of the Loan
Agreement  and in lieu of the  Interim  Interest  Rate set  forth in the  Second
Amendment.

         8. Interim  Maturity Default Rate. The Loan Agreement is hereby amended
to provide that if the outstanding  principal balance of the Loan is not reduced
to $10,000,000.00 by the Interim Maturity Date as required under this Amendment,
Borrower  shall be  considered  in  default  under the Loan  Agreement  and,  in
addition to all other rights and  remedies  available to the Bank under the Loan
Agreement,  the  Documents,  at law or equity,  any and all amounts  outstanding
under the Loan Agreement shall,  without notice, bear interest payable on demand
at the Prime Rate plus six and one-half of one percent (6.50%) ("Revised Default
Rate"). The Revised Default Rate is, during its pendency, in lieu of the default
rate of interest set forth in Section 2.03 of the Loan  Agreement and in lieu of
the Revised Default Rate set forth in the Second Amendment.

         9.  Further  Decrease  of  Loan  Commitment.  As of the  date  of  this
Amendment,  the Loan  Agreement and Documents are hereby amended and restated to
provide that if at any time that any portion of the loan remains outstanding and
the closing price of Borrower's publicly traded shares of stock as quoted on the
NASDAQ (the  "Stock  Price")  (the date of the  occurrence  described  herein is
hereafter referred to as the "Trigger Date") is:

                  a. Less than  $12.50 per share but not less than  $10.00,  the
         principal amount of the Loan and the Maximum  Revolving Loan Commitment
         shall,  without  further  notice,  be  decreased to  $5,000,000.00  and
         Borrower  shall pay within one  business day of Trigger  Date,  without
         further notice or demand, amounts

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         necessary to reduce the outstanding principal balance of the Loan to 
         $5,000,000.00.

                  b. Less than  $10.00 per share,  the  principal  amount of the
         Loan and the Maximum Revolving Loan Commitment  shall,  without further
         notice,  be  decreased  to $0.00  and  Borrower  shall pay  within  one
         business day of Trigger Date, without further notice or demand, amounts
         necessary to reduce the  outstanding  principal  balance of the Loan to
         $0.00. If any amount of the outstanding  principal  balance of the Loan
         is comprised of LC Reserves,  Borrower shall provide the Bank with cash
         collateral in an amount equal to the  outstanding  LC Reserve to secure
         the amount of the  outstanding  principal  balance  comprised of the LC
         Reserve.

If  the  outstanding  principal  balance  of the  Loan  is  not  reduced  to the
applicable  amount by the close of the next business day  immediately  following
the Trigger Date or if Borrower fails to provide the Bank with  sufficient  cash
collateral as required in subsection (b) herein, Borrower shall be considered in
default  under the Loan  Agreement  and,  in  addition  to all other  rights and
remedies available to the Bank under the Loan Agreement,  the Documents,  at law
or equity,  any and all  amounts  outstanding  under the Loan  Agreement  shall,
without  notice,  bear  interest  payable on demand at (i) the  default  rate of
interest set forth in Section 2.03 of the Loan Agreement if the event of default
set forth  herein  occurs  after the Interim  Maturity  Date or (ii) the Revised
Default Rate if the event of default set forth herein  occurs before the Interim
Maturity  Date. The Bank waives any prior default that occurred under the Second
Amendment due to the Borrower not reducing the outstanding  principal balance of
the Loan to $10,000,000.00 or less within one business day after the Stock Price
closed below 14.00 per share.

         10. Reaffirmation.  To the extent any term(s) or condition(s) in any of
the Documents  (including,  without  limitation,  the Amended and Restated Note)
shall  contradict  or be in conflict  with the amended  terms of the Loan as set
forth herein,  such terms and conditions are hereby deemed  modified and amended
accordingly, upon the effective date hereof, to reflect the terms of the Loan as
so amended herein. All terms of the Documents  (including,  without  limitation,
the Amended and Restated Note),  as amended hereby,  shall be and remain in full
force and effect and shall constitute the legal, valid,  binding and enforceable
obligations of Borrower to the Bank. As of the date of this Amendment,  Borrower
herein  restates,  ratifies and reaffirms  each and every term and condition set
forth in the  Documents  as amended  herein.  There are no other  changes to the
Documents except for the changes specifically set forth herein.

         11.  No  Waiver.  No  failure  or  delay  on the  part  of the  Bank in
exercising  any right,  power or remedy  hereunder or under any other  Documents
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such right,  power or remedy preclude any other or further  exercise thereof
or the exercise of any other right, power or remedy hereunder or under any other
Document.  The  remedies  herein  provided  and  under any  other  Document  are
cumulative and not exclusive of any remedies provided by law.

         12.  Certification.  To  further  induce  the Bank to enter  into  this
Amendment, Borrower represents and warrants to the Bank as follows: (a) Borrower
is empowered to perform all acts and things undertaken and done pursuant to this
Amendment and has taken all corporate or other action necessary to authorize the
execution,  delivery and performance of the of this Amendment;  (b) the officers
of Borrower  executing  this  Amendment  have been duly elected or appointed and
have been fully  authorized to execute the same at the time  executed;  (c) this
Amendment,  when executed and  delivered,  will be the legal,  valid and binding
obligation of Borrower, enforceable against it in accordance with its respective
terms; and (d) Borrower is delivering to the Bank contemporaneously  herewith, a
certificate  of Borrower's  Secretary  certifying as to the  resolutions  of the
Executive  Committee of Borrower's  Board of Directors  approving this Amendment
and the  incumbency  and  signatures  of the  officers of Borrower  signing this
Amendment.


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         13.  Absence Of Claim.  To  further  induce the Bank to enter into this
Amendment,  Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense,  counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.

         14.  Illinois  Law To  Govern.  This  Amendment  and  each  transaction
contemplated  hereunder  shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.

         15.  Binding  Effect.  The terms,  provisions  and  conditions  of this
Amendment  shall be binding  upon and inure to the  benefit  of each  respective
party and their respective legal representatives, successors and assigns.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized,  as of the date
first above written.

                                       BORROWER:

                                       BROOKDALE LIVING COMMUNITIES, INC.


                                    By: /s/ Darryl W. Copeland, Jr.         
                                    Print Name: Darryl W. Copeland, Jr.
                                    Title:  Executive Vice President

ATTEST:

By: /s/ Robert J. Rudnik
Print Name:  Robert J. Rudnik            
Title:  Secretary


                                       BANK:

                                       LaSALLE NATIONAL BANK


                                    By: /s/  Ann B. O'Shaughnessy              
                                    Print Name:  Ann B. O'Shaughnessy          
                                    Title:  Assistant Vice President           


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