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                                                                   Exhibit 10.12

                            SUBMANAGEMENT AGREEMENT
                            -----------------------

     This Submanagement Agreement (the "Subagreement") is made as of the 1st day
of July, 1997 by and between KENWOOD CONGREGATE ASSOCIATES LIMITED PARTNERSHIP,
an Illinois limited partnership (the "Owner"), ACTIVE LIFE MANAGEMENT
CORPORATION, an Illinois corporation (the "Agent") and BROOKDALE LIVING
COMMUNITIES OF MINNESOTA-II, INC., a Delaware corporation (the "Manager").

     A.   The Owner is the owner of certain real estate located at 825 Summit
Avenue, Minneapolis, Minnesota, known as The Kenwood, a 156 unit elderly
apartment building (the "Building"). (The Real Estate and the Building are
collectively referred to herein as the "Property").

     B.   Owner retained Agent to manage the Property pursuant to a management
agreement dated January 1, 1995 (the "Agreement").

     C.   The Agent desires to subcontract with Manager for Manager to perform
services on behalf of the Agent as required by the Agreement in connection with
the operation of the Property.

     D.   Manager desires to be retained as the manager of the Property as
hereinafter set forth.

     NOW, THEREFORE, OWNER, AGENT AND MANAGER hereby agree as follows:

     1.   Hiring. The Agent hereby hires the Manager to exclusively rent and
          manage and operate the Property, and Manager hereby accepts such
          responsibility subject to the terms and conditions of this
          Subagreement.

     2.   Duties of Manager. As Manager of the Property, Manager shall have the
          following duties and responsibilities:

          (a) Duties.

              (i)     Hiring. The Manager shall hire, promote, discharge and
                      supervise the work of the executive staff (i.e., managers
                      and department heads) of the Property and supervise
                      through said executive staff the hiring, promotion,
                      discharge and work of all other employees performing
                      services in or about the Property. All such personnel
                      shall be employees of the Manager. All wages,
                      compensation, fringe benefits, payroll taxes and related
                      expenses payable to, or in respect of, the Property's
                      personnel

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                      shall be expenses of the Property. In the hiring of the
                      executive staff and other employees of the Property, the
                      Manager will use or cause said executive staff to use
                      reasonable care to select qualified, competent and
                      trustworthy employees. The Manager will negotiate with
                      any labor union lawfully entitled to represent such
                      employees. Manager agrees that any employees at the
                      Property who were employees at the Property prior to the
                      date of this Agreement and who Manager retains on staff
                      after the turnover of the Property to Manager shall keep
                      their original dates of hire at the Property for the
                      purpose of determining seniority and vacation benefits
                      under Manager's employment benefits program.

              (ii)    Licenses and Permits.  Manager, in the name and at the
                      expense of the Owner, shall cause to be applied for, and
                      use its best efforts to obtain and maintain, all licenses
                      and permits required of the Owner, the Agent or the
                      Manager in connection with the management and operation of
                      the Property. The Owner and Agent agrees to execute and
                      deliver any and all applications and other documents and
                      to otherwise cooperate to the fullest extent with the
                      Manager in applying for and obtaining and maintaining such
                      licenses and permits.

              (iii)   Insurance.  Subject to availability, the Manager will, on
                      behalf of the Owner and Agent and at the expense of the
                      Owner, cause to be placed and kept in force at all times
                      during the term of this Subagreement, all insurance of the
                      type and in the amounts required to be maintained by any
                      mortgagee or Owner and naming as insured specific parties
                      all as set forth in writing by the Owner or Agent and,
                      subject to the prior written consent of the Owner, such
                      other insurance as is normally carried by properties
                      similar in size, type and location as the Property. All
                      such insurance shall be effected by policies issued by
                      companies approved in writing by the Owner. Policies of
                      insurance and certificates therefor, complying with the
                      standards as set forth in writing by the Owner or Agent,
                      shall be obtained by the Manager and delivered to such
                      parties as directed by the Owner or Agent. The Agent and
                      the Manager will be named as an additional party insured
                      on all liability policies, and on all other policies, in
                      which it is reasonable to name Agent and Manager given the
                      nature of the Agreement and this Subagreement.

              (iv)    Books, Records and Reports. During the term of the
                      Subagreement, the Manager shall cause to be prepared and
                      submitted to the Owner, the Agent and such other parties
                      as designated by the Owner or Agent, those books and
                      reports as set forth on Exhibit A attached hereto (the
                      foregoing books,

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                      records and reports, as well as those requested by the
                      Owner or Agent, as hereinafter provided, are collectively
                      referred to as the "Reporting Documents"). In addition
                      thereto, the Manager shall furnish, at the Owner's
                      expense, such additional Reporting Documents as required
                      from time to time by the Owner or Agent pursuant to a
                      written request to the Manager. All such Reporting
                      Documents shall be furnished within the time limits set
                      forth on Exhibit A or as set forth in writing by the Owner
                      or Agent and shall be compiled and prepared in accordance
                      with the directions of the Owner or Agent and general
                      accounting standards utilized in the residential housing
                      industry generally applicable to the Property. Nothing
                      contained herein shall require the Manager to prepare any
                      statements or reports that deal with the Owner or the
                      Agent as an individual entity, but shall be limited to
                      statements and reports relating to the Property and the
                      operation thereof. The parties acknowledge that all costs
                      included in preparation of the Reporting Documents
                      including, without limitation, expenses for personnel,
                      computers, equipment and supplies, shall be an expense of
                      the Owner; provided, however, that Manager agrees that
                      such costs will not exceed the current budgeted
                      administrative and employee expenses for the Property,
                      except for typical cost of living increases on an annual
                      basis. Any outside annual audit would be at the expense of
                      the Owner. Manager shall be permitted to charge the Owner
                      or the Property up to $5,000 in order to implement
                      Manager's operating and reporting system. Manager agrees
                      to charge the Project no more than $2,500 of the above
                      charge in 1997. Manager shall receive the balance of the
                      charge in 1998. Manager agrees that any costs in excess of
                      the $5,000 or which exceed the current budgeted
                      administrative and employee expenses for the Property
                      (subject to cost of living increases on an annual basis)
                      shall be borne by Manager or offset against Manager's fee.

              (v)     Legal Action.  The Manager shall institute in its own name
                      or in the name of the Owner, but in any event at the
                      expense of the Owner, any and all legal action or
                      proceedings which the Manager deems advisable to collect
                      rents or other income from tenants or to oust or
                      dispossess tenants or other persons in possession of the
                      units therefrom, or to cancel or terminate any lease,
                      license or concession agreement for the licensee or
                      concessionaire.

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               (vi)   Collection of Rents. The Manager shall collect all monthly
                      rents, charges, fees and assessments and security
                      deposits due from tenants; all rents and/or fees due from
                      users of the garage or parking spaces and from users or
                      lessees of other nondwelling facilities in the Property;
                      and all sums due from concessionaires in consequence of
                      the authorized operation of facilities in the Property.
                      All such sums so collected shall be deposited in Manager's
                      custodial account, as hereinafter provided, or as
                      otherwise may be provided by applicable law as in the case
                      of security deposits.

               (vii)  Banking and Disbursements. The Manager shall deposit in a
                      banking institution or institutions mutually approved by
                      the Owner, Agent and the Manager in accounts in the name
                      of the Owner, all monies furnished by the Owner or Agent
                      as working funds and all monies received by the Manager in
                      connection with the operations of the Property. The
                      Manager shall disburse and pay the same on behalf of and
                      in the name of the Owner or Agent in such amounts and at
                      such time as the same are required to be made in
                      connection with the operation of the Property in the
                      payment of expenses thereof and disbursements of monies to
                      the Owner or Agent.

               (viii) Operating Supplies. The Manager shall purchase all
                      necessary food, beverages, operating supplies and other
                      materials and supplies in the name of, for the account of
                      and at the expense of, the Owner.

               (ix)   Concession Contracts. For the benefit of and subject to
                      the approval by the Owner, the Manager shall make
                      arrangements for the concessionaires, licensees, tenants
                      or other intended users of the facilities of the Property.

               (x)    Utilities and Services. The Manager shall enter into
                      contracts in the name and at the expense of the Owner for
                      the furnishing to the Property of electricity, gas, water,
                      steam, telephone, cleaning (including window cleaning),
                      exterminators, elevator and boiler maintenance, air-
                      conditioning maintenance, master television antennas'
                      installation and service, laundry service, dry cleaning
                      service, and any other utilities, services and concessions
                      as are provided in connection with the maintenance and
                      operation of property similar to the Property.

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               (xi)     Maintenance and Repair. Manager shall cause the
                        buildings, appurtenances and grounds of the Property to
                        be maintained at Owner's expense according to standards
                        acceptable to Owner or Agent, including, but not limited
                        to, interior and exterior cleaning, painting, and
                        decorating of the areas, and repair and maintenance of
                        plumbing, HVAC, electrical and other systems within the
                        areas, subject to any limitations imposed by Owner or
                        Agent in a written notice to Manager in addition to
                        those contained herein. For any one item of repair or
                        replacement, the expense incurred shall not exceed the
                        sum of ONE THOUSAND FIVE HUNDRED ($1,500.00) DOLLARS
                        unless specifically authorized by Owner or Agent or
                        specified in the Budget, provided, however, that
                        emergency repairs, involving manifest danger to life or
                        property, or immediately necessary for the preservation
                        and safety of the Property, or for the safety of the
                        tenants or occupants, or required to avoid the
                        suspension of any necessary service to the Property, may
                        be made by the Manager irrespective of the cost
                        limitation imposed by this paragraph. Notwithstanding
                        this authority as to emergency repairs, it is understood
                        and agreed that the Manager will, if at all possible,
                        confer immediately with Owner or Agent regarding such
                        expenditure.

               (xii)    Consultants. From time to time and as provided for in
                        the Budget (as hereinafter defined) and as approved by
                        the Owner or Agent, the Manager shall be authorized to
                        retain the services of consultants in connection with
                        the operation or management of the Property.

               (xiii)   Necessary Acts. At the expense of the Owner, the
                        Manager shall use its best efforts to perform all such
                        acts and things to be done in and about the Property,
                        which shall be necessary to comply with all applicable
                        statutes, ordinances, laws, rules, regulations, orders,
                        requirements and agreements of or with any federal,
                        state or municipal government and appropriate
                        departments, commissions, boards and officers having
                        jurisdiction over the use or manner of use of the
                        Property or the maintenance or operation thereof, as
                        well as with all orders and requirements of the local
                        board of fire underwriters or any other body which may
                        hereafter exercise similar functions, as well as with
                        the requirements of any lender and any health service
                        provider; provided, however, that such action shall not
                        be taken without the written approval of the Owner or
                        Agent unless it is provided for in the current Budget or
                        involves an

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                      emergency or the failure to promptly comply with any order
                      or violation shall result in the suspension of operations
                      of the Property or shall expose any party hereto to the
                      imminent danger of criminal liability, then in such event
                      the Manager shall cause the same to be done or complied
                      with at the expense of the Owner, provided further,
                      however, that notice to the Owner and Agent of such act
                      shall be given as soon as practicable.

               (xiv)  Emergency Repairs. At Owner's expense, the Manager shall
                      make any emergency repairs required to preserve the
                      immediate safety of person or property or necessary to
                      prevent the imminent cessation of the Property's
                      operations, provided that notice of the nature and extent
                      of the repairs shall be given to the Owner as soon as
                      practical given the circumstances of the emergency.

               (xv)   Annual Budgets.

                      (A)  Preparation and Submission. Manager acknowledges that
                           Manager has received from Agent the budget for the
                           Property through December 31, 1997. At least forty
                           five (45) days prior to December 31, 1997 and prior
                           to December 31 for each subsequent calendar year that
                           commences during the term of this Subagreement.
                           Manager shall submit to Agent and Owner a proposed
                           annual budget for the Property projecting the
                           revenues available and funds required during such
                           fiscal year in order to operate the Property and to
                           make capital improvements necessary or desirable in
                           order to keep the Building's physical plant in good
                           condition and repair. The proposed annual budget
                           shall be based upon data and information then
                           available to Manager and shall include, without
                           limitation, estimated salaries and fringe benefits
                           for all personnel groups, projected staffing
                           expenditures and purchases of equipment, supplies,
                           inventory, food and similar items, and an estimate of
                           the level of rates and charges to residents of the
                           Property. The proposed annual budget shall be an
                           estimate of revenues and costs, and Owner, Agent and
                           Manager acknowledge that (1) projected revenue may
                           not actually be received and (2) projected costs may
                           be exceeded by actual expenses and capital
                           expenditures incurred in connection with the
                           operation and

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                    maintenance of the Property. By submitting such projected
                    budget, Manager will not be deemed to be providing a
                    guarantee or warranty as to the projected revenue, expenses
                    or capital expenditures of the Property.

               (B)  Adoption. The budget for the period ending December 31, 1997
                    and each annual budget as finally established in accordance
                    with this paragraph (B) (including as it may thereafter be
                    revised from time to time during a calendar year pursuant to
                    the written agreement of Owner, Agent and Manager), as the
                    same may be modified by Owner, Agent and Manager, shall
                    constitute the "Budget" for all purposes under this
                    Subagreement. Owner and Agent shall, within thirty days (30)
                    days following receipt of a proposed annual budget proposal,
                    notify Manager of either (1) Owner's and Agent's approval of
                    such proposed annual budget or (2) those items of which
                    Owner and Agent approve and those items of which Owner and
                    Agent disapprove. In the event that Owner or Agent does not
                    either approve or disapprove of, in total or in part, such
                    proposal annual budget in writing within such 30 day period,
                    then such proposed annual budget shall be deemed approved by
                    Owner and Agent and shall be the Budget for such calendar
                    year. If Owner or Agent disapproves of the proposed annual
                    budget either in total or in part within such 30 day period,
                    then Owner, Agent and Manager shall have thirty (30) days
                    from the date of the disapproval notice to formulate a
                    mutually agreeable Budget. If the parties are unable to
                    reach an agreement within said 30 day period, then the
                    Budget for the immediately preceding calendar year,
                    including any such prior Budget determined in accordance
                    with this sentence, shall constitute the Budget pending
                    final adoption of a Budget; provided, however, that the
                    budgeted items for the categories of heat, light, power,
                    insurance and real estate taxes shall be deemed increased or
                    decreased as required to reflect actual expenses for the
                    preceding calendar year.

               (C)  Efforts to Operate within Annual Budget. Manager agrees to
                    use its reasonable best efforts to operate the Property in
                    accordance with the Budget.

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                           Notwithstanding anything in this Agreement, if
                           Manager determines in good faith that the incurrence
                           of any expenditure is required in order to comply
                           with applicable law or regulations, then Manager
                           shall be entitled to make such expenditures up to
                           $5,000 in any calendar year, and all such
                           expenditures shall be deemed, for all purposes of
                           this Agreement, to be in accordance with the then
                           current Budget.

               (xvi)  Fidelity Bond. As soon as practicable after the date of
                      this Agreement, Manager shall furnish and maintain for the
                      duration of this Subagreement and any renewals or
                      extensions, plus 30 days after its expiration or
                      termination, a commercial blanket bond (the "Fidelity
                      Bond") in favor of Owner and Agent, jointly or severally,
                      in an amount not less than two (2) months gross potential
                      rents for the Property plus tenants' security deposits.
                      The Fidelity Bond shall be in a form and with a company
                      reasonably acceptable to Owner and Agent. The Fidelity
                      Bond shall cover Manager and all employees hired by
                      Manager in connection with this Subagreement. The Fidelity
                      Bond shall cover losses discovered by Owner or Agent for a
                      period of two (2) years after the occurrence of such
                      losses. The cost of the Fidelity Bond shall be an
                      operating expense of the Property.

          (b)  Proper Operation of the Property. Subject to the provisions of
               this Subagreement, the Manager shall take all other action, at
               Owner's expense, to operate the Property at all times in a first
               class manner given the nature and condition of the Property as of
               the date hereof.

          (c)  Qualifications on the Manager's Duties. All of the foregoing set
               forth herein with respect to the Manager's duties and
               responsibilities shall be subject to the reservation on the part
               of the Owner and Agent to give Manager directions with respect to
               all aspects of the operation of the Property; but such
               reservation of authority shall not diminish Manager's
               responsibility, except to the extent that the Manager has acted
               pursuant to the directions issued by Owner or Agent; provided,
               however, that the Manager shall have the exclusive right to
               supervise the day to day operations of the Property. The Manager
               will be available to consult with the Owner and Agent on matters
               of general policy, planning and goals. If any duties and
               responsibilities to be carried out by the Manager involve the
               expenditure of money or the incurring of obligations or
               settlement of a claim not in litigation the Manager shall not
               incur the same unless the expense, obligation or cost

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               is provided for in the then current Budget or otherwise allowed
               (e.g. in an emergency or incurred in accordance with this
               Subagreement). The Owner will not object to any expenditure made
               by the Manager in good faith in accordance with the provisions
               hereof. The Manager shall have no responsibility under this
               Subagreement to take action involving the expenditure of money or
               the incurring of obligations unless adequate funds therefor are
               available out of the Property operations or otherwise are
               provided by the Owner.

          (d)  Manager's General Undertaking.

               (i)  No Guarantee of Profitability. Manager does not guarantee
                    that operation of the Property will be profitable, but
                    Manager shall use its best efforts to operate the Property
                    in as cost effective and profitable a manner as reasonably
                    possible consistent with maintaining operations in
                    accordance with the senior and assisted living industry's
                    highest prevailing standards in the Minneapolis/St. Paul
                    metropolitan area.

               (ii) Standard of Performance; Acting within Budget. In performing
                    its obligations under this Subagreement Manager shall use
                    its reasonable best efforts and act in good faith and with
                    professionalism in accordance with the Budget and the
                    highest prevailing standards of the senior and assisted
                    living industry in the Minneapolis/St. Paul metropolitan
                    area.

     3.   Term. The term of this Subagreement shall commence on July 1, 1997
          (the "Commencement Date") and shall terminate, unless sooner
          terminated as hereinafter provided or as otherwise agreed in writing,
          on December 31, 2005.

          (a)  This Subagreement may be terminated (i) by Owner and Agent (A)
               upon six months' prior written notice to Manager given at any
               time after the last day of the 29th month of the term of this
               Subagreement or (B) for Cause (as hereinafter defined), or (ii)
               by Manager (A) upon six months' prior written notice to Owner and
               Agent given at any time after the last day of the 29th month of
               the term of this Subagreement or (B) upon the occurrence of a
               Change in Control (as hereinafter defined) of Owner; provided,
               however, that in the event of a termination by Manager pursuant
               to clause (ii)(A) above, Manager shall cooperate with and assist
               Owner and Agent during said six month period in engaging a
               qualified replacement manager for the Property. Upon any
               termination of this Subagreement pursuant to the immediately
               preceding sentence, the parties hereto shall have no further
               obligations or liabilities other than the right of Manager to

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               receive fees through the date of termination, except that, upon
               the expiration or earlier termination of this Subagreement for
               any reason, the parties shall cooperate (at Owner's expense) to
               minimize the impact of the change on the residents of the
               Property, and during any such period for which Manager provides
               services or assists in the operation of the Property in
               connection therewith, it shall be entitled to receive the fees
               provided herein.

               For purposes of this Subagreement, "Cause" shall mean (i) fraud,
               misappropriation or embezzlement by Manager involving Owner's or
               Agent's property or other wrongful acts by Manager that
               materially impair the goodwill or business of Owner or the
               Property or that cause material damage to Owner's property,
               goodwill or business or (ii) failure by Manager to substantially
               perform its duties and obligations owing to Owner and Agent under
               this Subagreement after a written demand for substantial
               performance by Manager is delivered to Manager by Owner or Agent
               that specifically identifies the manner in which Owner or Agent
               believes Manager has not substantially performed its duties and
               after Manager has been given at least 30 days in which to cure
               such performance deficiencies; and a "Change in Control" of the
               Owner shall be deemed to have occurred if (A) any unrelated
               person or group shall acquire 50% or more of the Owner's
               partnership interests and (B) both Partners for Senior
               Communities, Inc. and Henry Hyatt are no longer general partners
               of the Owner and (C) any substituted general partner of Owner is
               not substantially owned (at least 50%) or otherwise controlled by
               any one or more of the shareholders of Partners for Senior
               Communities, Inc. as of the date of this Subagreement.

          (b)  Owner may terminate this Subagreement in the event of a taking by
               governmental action or conveyance in lieu thereof of all or a
               substantial portion of the Property which makes it uneconomical
               in Owner's judgment to continue to operate the Property, and the
               termination shall be effective as of the date of such taking or
               conveyance in lieu thereof.

          (c)  Owner may terminate this Subagreement in the event of the total
               or substantial damage or destruction of the Property from fire or
               other casualty if Owner elects, within ninety (90) days of the
               date of the casualty, not to rebuild, repair or restore the
               Property; and the termination shall be effective as of the date
               the Property ceased operation.


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4.   Events of Default and Remedies.

     (a)  Defaults. Each of the following shall constitute an Event of Default
          hereunder:

          (i)    if Owner or Agent shall fail to pay or allow payment of any
                 installment of the fees due to Manager in accordance with
                 Section 5 hereof for a period of seven (7) days after written
                 notice of such default from Manager;

          (ii)   if Owner or Agent, on the one hand, or Manager, on the other,
                 fails to perform in any material respect any term, provision,
                 or covenant of this Subagreement [other than as set forth in
                 Section 4(a)(i)]; and such failure continues for (30) days
                 after written notice from the other party specifiying such
                 failure to perform, unless such failure cannot reasonably be
                 cured within such 30 day period and the defaulting party
                 commences to cure within such 30 day period and diligently
                 pursues the completion of the cure as promptly as is
                 practicable; or

          (iii)  if either Owner or Agent, on the one hand, or Manager, on the
                 other, is dissolved or liquidated, applies for or consents to
                 the appointment of a receiver, trustee or liquidator of all or
                 a substantial part of its assets, files a voluntary petition in
                 bankruptcy or is the subject of an involuntary bankruptcy
                 filing, a petition or an answer seeking reorganization or
                 arrangement with creditors or to take advantage of any
                 insolvency law, or if an order, judgment or decree shall be
                 entered by any court of competent jurisdiction, on the
                 application of a creditor, adjudicating Owner, Agent or Manager
                 bankrupt or insolvent or approving a petition seeking
                 reorganization of Owner, Agent or Manager or appointing a
                 receiver, trustee or liquidator for such party of all or a
                 substantial part of its assets, and such order, judgment or
                 decree shall continue unstayed and in effect for any period of
                 sixty (60) consecutive days.

     (b)  Remedies. At any time after the occurrence and during the continuance
          of an Event of Default, the party who has not committed the Event of
          Default may, at its option, terminate this Subagreement by giving
          written notice to the other party and, except as provided in this
          Subagreement shall be entitled to exercise all rights and remedies
          available under applicable law; provided, however, that Owner or Agent
          may cause the effective date of any termination of Manager to be
          deferred for up to thirty (30) days to afford Owner or Agent the


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               opportunity to engage a replacement operator of the Property
               provided that Manager shall be compensated through the date of
               termination. Without limiting the generality of the foregoing, if
               Owner or Agent is the defaulting party, or if Owner or Agent
               shall terminate the Subagreement other than as a result of an
               Event of Default or pursuant to Section 3 of this Subagreement,
               then Agent shall pay Manager, within thirty (30) days following
               the date of such termination, the sum of (i) all unpaid fees
               accrued through the date of such termination and all unpaid
               amounts for which Manager is then entitled to receive
               reimbursement under this Subagreement and (ii) as liquidated
               damages and not as a penalty, the product of (A) an amount equal
               to three percent (3%) of the average Gross Monthly Revenues (as
               hereinafter defined) of the Property for the twelve months
               immediately preceding the date of termination and (B) the lesser
               of (1) six and (2) half of the number of months remaining in the
               term of this Subagreement immediately prior to such termination.
               In the event of any breach of this Subagreement by Manager,
               including any breach resulting in an Event of Default, Owner's
               and Agent's sole remedy shall be to terminate this Subagreement
               in accordance with the terms hereof, and Owner and Agent shall
               have no other liability to Manager hereunder.

     5.   Compensation. Except as provided for upon termination, as compensation
          for its services to be rendered hereunder, the Agent shall pay to the
          Manager the following sums:

          (a)  As regular compensation to commence on Commencement Date and
               continuing thereafter, determined on a monthly basis, a sum equal
               to three percent (3%) of the Gross Monthly Revenues of the
               Property; provided, however, that Manager shall receive no
               regular compensation under this Section 5(a) for the first ten
               months of the term of this Subagreement. Such monthly fee shall
               be payable out of the custodial account(s) to the extent of funds
               available therein and otherwise by the Agent or Owner. Such
               monthly fee shall be payable in arrears upon submission to the
               Owner and Agent of the monthly reports as provided in Paragraph
               2(a)(iv) above. "Gross Monthly Revenues" shall mean and include
               all revenues and income of any kind derived directly or
               indirectly from the Property actually collected by the Manager as
               rents or other charges for use or occupancy of space or
               facilities or services in the Property in a calendar month,
               including food, furniture rental, parking, forfeited amounts
               collected as security deposits, late charges, income from coin-
               operated machines, and all other miscellaneous income collected
               at the Property; excluding, however, any and all interest or
               investment income, insurance

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               proceeds, tax refunds of Owner, eminent domain awards, and
               dividends on insurance policies.

          (b)  As an incentive management fee, Agent shall pay Manager an amount
               each year (or portion thereof) during the term hereof equal to
               twenty percent (20%) of any increase in the Net Operating
               Income (as hereinafter defined) of the Property for any calendar
               year over the Net Operating Income for the previous calendar
               year; provided, however, that no incentive fee will be due for
               any calendar year if the Net Operating Income for the Project for
               that calendar year does not exceed $600,000. If Manager manages
               the Property for a portion of a calendar year, the incentive fee,
               if any, will be prorated for the number of months Manager
               actually managed the property during that calendar year. The
               incentive fee will be due within fifteen (15) days of Owner's and
               Agent's receipt of the completed audited financial statement for
               the calendar year for which the incentive fee is being
               calculated. For purposes of calculating the incentive fee, "Net
               Operating Income" shall mean the Gross Monthly Revenues for the
               calendar year less all expenses required to own and operate the
               Property, including, without limitation, real estate taxes,
               insurance, the greater of actual or budgeted capital improvements
               (provided that if the budgeted capital improvements amount is
               higher than the actual amount, the difference shall be subtracted
               from the capital improvements amount in subsequent years in order
               to avoid double counting a portion of the capital improvements
               expense) and budgeted capital reserve deposits and excluding debt
               service payments, depreciation and Owner's income taxes. In
               calculating the incentive fee for calendar years 1997 and 1998,
               the operating expenses shall include a management fee of 3% of
               the Gross Monthly Revenues for those initial ten months of the
               Term hereunder during which no fee is actually being paid to or
               accrued on behalf of Manager.

     6.   Operating Expenses. In performing its duties hereunder during the
          term of this Subagreement, the Manager shall act solely as agent for
          the account of the Owner or Agent. The Manager shall in no event be
          required to advance any of its own funds for the operation of the
          Property nor to incur any liability in connection therewith unless the
          Owner or Agent shall furnish the Manager with funds necessary for the
          discharge thereof.

     7.   Group Purchases. It is acknowledged by the parties that the Manager
          may be engaged in the management or operation of other properties
          similar to the Property. In connection therewith, the Manager agrees
          that if any items required for the Property or services to be
          furnished to the Property are purchased by the Manager at a cost
          savings on a group basis for other


                                      13
<PAGE>
 
          properties managed or operated by the Manager, the Manager will, to
          the extent practical, purchase such services or items for the Property
          on a group basis. It is understood and agreed by the Manager that, in
          and about managing the Property, any and all services, supplies,
          equipment, goods or the like purchased on behalf of the Property shall
          be purchased at the actual cost to the Manager from the supplier.

     8.   Assignability. Agent may assign this Subagreement to Owner at any
          time. Except as herein provided, neither Owner nor Agent shall have
          the right to assign this Subagreement to any person or entity without
          the prior written consent of the Manager. Owner may assign the
          Agreement and the Subagreement to a subsequent owner of the Property
          without obtaining Manager's consent. The Manager shall not have the
          right to assign this Subagreement without the prior written consent of
          the Owner. Nothwithstanding a the foregoing, and only to the extent
          permitted by applicable law and regulations and subject to Manager's
          receipt of all required licenses permits. approvals and authorizations
          of applicable governmental agencies, the Manager shall have the right
          to assign this Subagreement to a wholly-owned subsidiary of the
          Manager which subsidiary shall remain a wholly-owned subsidiary of the
          Manager at all times hereunder. In the event of any such assignment to
          a subsidiary, prior written notice thereof shall be given to the
          Owner.

     9    Limitation on Owner's and Agent's Liability Manager acknowledges that
          Manager's sources of compensation hereunder are limited to (i)
          revenues from the Property. (ii) advances voluntary made by Owner or
          (iii) advances voluntarily made by Agent. Manager agrees that Agent
          shall be under no obligation whatsoever to make any advances to
          Manager to cover any operating shortfalls of whatever nature,
          including Manager's compensation hereunder. Manager further agrees
          that Owner liability hereunder shall be limited to the Owner's assets,
          less third party liabilities, and that no partner of Owner shall be
          personally responsible for any amounts ever due Manager under this
          Subagreement.

     10.  Notices. All notices, demands, requests, consents, approvals and other
          communications (herein collectively called "Notices") required or
          permitted to be given hereunder or which are to be given with respect
          to this Subagreement shall be in writing and shall be deemed
          effectively given: (i) upon personal delivery or receipt, (ii) if
          mailed, upon the first to occur of receipt or the expiration of
          seventy-two (72) hours after deposit with the United States Postal
          Service, certified or registered mail, postage prepaid and sent to a
          party at its address as set forth below, (iii) if sent by overnight
          courier, upon the first business day after being placed with such
          courier for delivery to a party at its address as set forth below, or
          (iv) if by facsimile,

                                      14
<PAGE>
 
          upon the date transmission to the party at the facsimile number set
          forth below occurs, provided the transmission is completed by 4:00 PM
          CST and a copy of the transmission confirmation and a copy of the
          notice arc sent to the receiving party by regular mail on the date of
          the transmission. Notices sent by facsimile after 4:00 PM CSI~ or on a
          non-business day shall be deemed effectively given on the next
          business day following the transmission. The addresses and facsimile
          number for Notices are:

          IF TO MANAGER:         Brookdale Living Communities of
                                 Minnesota-II, Inc.
                                 c/o Brookdale Living Communities, Inc.
                                 77 West Wacker Drive
                                 Suite 3900
                                 Chicago, IL 60601
                                 Facsimile No.: 312/917-0460
                                 Attention: Mark J. Schulte

          with a copy to:        General Counsel of Manager at Manager's
                                 address but at facsimile number  312/917-7284

          IF TO AGENT:           ActiveLife Management Corporation
                                 222 N. LaSalle Street, Suite 1414
                                 Chicago, IL 60601
                                 Facsimile No.: 3l2/726-0091
                                 Attention: Henry Hyatt

          IF TO OWNER:           Kenwood Congregate  Associates  Limited
                                 Partnership
                                 222 N. LaSalle Street
                                 Suite 1414
                                 Chicago, IL 60601
                                 Facsimile No.: (312) 726-0091
                                 Attention: Daniel N. Epstein

Either party may change its notice address or facsimile number at any time by
providing written notice thereof to the other party.

     11.  Governing Law. This Subagreement has been made and entered into in the
          State of lllinois and shall be construed in accordance with the laws
          of the State of Illinois.

     12.  Relationship of the Parties. The relationship of Manager to Owner and
          to Agent in connection with this Subagreement shall be that of an
          independent contractor, and all acts performed by Manager during the
          term hereof shall

                                      15
<PAGE>
 

          be deemed to be performed in Manager's capacity as an independent
          contractor. Nothing contained in this Subagreement is intended to or
          shall be construed to give rise to or create a partnership or joint
          venture or lease between Owner, Agent or their successors and assigns
          on the one hand, and Manager, itS successors and assigns on the other
          hand.

     13.  Entire Agreement. This Subagreement and any documents executed in
          connection herewith contain the entire agreement among the parties and
          shall be binding upon their respective successors and assigns. This
          Subagreement may not be modified or amended except by written
          instrument signed by the parties hereto.

     14.  Contract Modifications for Certain Legal Events. In the event any
          state or federal laws or regulations, whether now existing or enacted
          or promulgated after the effective date of this Subagreement are
          interpreted by judicial decision, a regulatory agency or legal counsel
          of the parties in such a manner as to indicate that the structure of
          this Subagreement may be in violation of such lass or regulations
          Owner, Agent and Manager agree to cooperate In restructuring their
          relationship and this Subagreement to eliminate such violation or to
          reduce the risk thereof; provided, that any such restructuring shall,
          to the maximum extent possible, preserve the underlying economic and
          financial arrangements between Owner, Agent and Manager. The parties
          agree that such amendment may require one or more of the parties to
          obtain appropriate regulatory licenses and approvals. Owner, Agent and
          Manager agree that the foregoing is not a binding obligation to
          consummate any transactions contemplated by, or discussed during
          negotiations conducted under, this Section 13, it being understood any
          such amendment or restructuring of this Subagreement shall be entered
          into at the sole and absolute discretion of Owner and Manager.

     15.  Captions. The captions used herein are for convenience of reference
          only and shall not be construed in any manner to limit or modify any
          of the terms hereof.

     16.  Severability. In the event one or more of the provisions contained in
          this Subagreement is deemed to be invalid, illegal or unenforceable in
          any respect under applicable law, the validity, legality and
          enforceability of the remaining provisions hereof shall not in any way
          be impaired thereby.

     17.  Remedies Cumulative; No Waiver. No right or remedy herein conferred
          upon or reserved to any of the parties hereto is intended to be
          exclusive of any other right or remedy, and each and every right and
          remedy shall be cumulative and in addition to any other right or
          remedy given hereunder, or now or hereafter legally existing upon the
          occurrence of an Event of Default

                                      16
<PAGE>
 
               hereunder. The failure of any party hereto to insist at any time
               upon the strict observance or performance of any of the
               provisions of this Subagreement or to exercise any right or
               remedy as provided in this Subagreement shall not impair any such
               right or remedy or be construed as a waiver or relinquishment
               thereof with respect to subsequent defaults. Every right and
               remedy given by this Subagreement to the respective parties
               hereto may be exercised from time to time and as often as may be
               deemed expedient by such parties.

          18.  Counterparts. This Subagreement may be executed in any number of
               counterparts, each of which shall be an original, and each such
               counterpart shall together constitute but one and the same
               Agreement.

          19.  Option to Purchase. Owner hereby grants Manager an option to
               purchase the Property for $23,400,000, subject to the terms and
               conditions of a real estate sale contract mutually acceptable to
               both Owner and Manager. Except as provided in the paragraph
               below, this option shall terminate upon the earlier to occur of
               (a) the termination of this Subagreement, (b) the assignment of
               this Subagreement by Manager except as permitted under Section 8
               hereof, unless Owner agrees in writing at the time of such
               assignment that the assignee may assume this option for its
               remaining term and (c) June 30, 2000 (the "Option Period").

               Owner agrees to provide Manager with any proposed terms of sale
               if Owner decides to sell the Property.

               At any time during the Option Period, Owner may give Manager
               notice of Owner's intent to sell the Property. Manager shall have
               30 days from the date of Owner's notice to exercise Manager's
               option to purchase the Property at the price set forth herein. If
               Manager exercises the option, Manager and Owner shall proceed in
               good faith to close the sale of the Property to Manager within
               120 days from the date of Owner's notice. If the sale fails to
               close within said period for reasons other than a default by
               Owner, the Manager's option to purchase shall automatically
               terminate on the 121st day following the date of Owner's notice,
               unless the parties mutually agree otherwise in writing. If
               Manager does not exercise its option to purchase within 30 days
               of the date of Owner's notice, Owner shall have 120 days from the
               date of Owner's notice to transfer the Property to another party.
               If Owner fails to complete the transfer to another party within
               such period, Manager's option to purchase shall be automatically
               reinstated on the 121st day following the date of Owner's notice
               to Manager, unless the parties mutually agree otherwise in
               writing.

          20.  Agreement not to be Recorded. This Subagreement shall not be
               recorded. Any violation of this provision shall render this
               Subagreement void.

                                      17
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed and delivered this
Subagreement on the date first above written.


OWNER:                                         MANAGER:                      
                                                                            
KENWOOD CONGREGATE ASSOCIATES                  BROOKDALE LIVING COMMUNITIES 
LIMITED PARTNERSHIP                            OF MINNESOTA, INC.           
an Illinois limited partnership                a Delaware corporation        

By: Partners for Senior Communities, Inc.
    a general partner


    By: /s/ Daniel N. Epstein                  By: /s/ Mark J. Schulte
        ---------------------------                ---------------------------
    Name: Daniel N. Epstein                    Name: Mark J. Schulte
          -------------------------                  -------------------------
    Title: Vice President                      Title: President
           ------------------------                   ------------------------

AGENT:

ACTIVELIFE MANAGEMENT CORPORATION 
an Illinois corporation

By: /s/ Daniel N. Epstein
    -------------------------------
Name: Daniel N. Epstein
      -----------------------------
Title: Vice President                        
       ----------------------------


                                      18
<PAGE>
 
                                   EXHIBIT A
                           MONTHLY REPORT COMPONENTS

     Set forth below is a list of the components of the Monthly Reports to be
provided to Owner and Agent pursuant to Section 2(a)(iv):

     1.   Statement of income and expenses, with a comparison to budget, for
          both the month and the year-to-date.

     2.   Reconciled bank statements for all Accounts.

     3.   Detailed listing of all cash disbursements in check number order.

     4.   General ledger listing cash receipts and disbursements in account
          number order.

     5.   Statement of changes in financial condition.

     6.   Monthly trial balance.

     7.   Analysis of significant variances from budget.

     8.   Balance sheet.

     The monthly reports with respect to each month shall be delivered to the
Owner by the twentieth (20th) day of the following month.

                            ANNUAL REPORT COMPONENT

     With respect to each fiscal year ending during the term of this
Subagreement the Manager will have an annual financial report prepared by a
certified public accountant based upon such person's examination of the books
and records of the Owner and the Manager. Such report shall be delivered to the
Owner by the seventy-fifth (75th) day following the end of such fiscal year.
Owner shall pay the compensation for the certified public accountant.

                                    RECORDS

     The Manager shall establish and maintain a comprehensive system of records,
books and accounts in a manner reasonably satisfactory to Owner. All records
will be subject to examination by the Owner at reasonable hours by any
authorized representative of Owner.


                                      19