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                                                                    Exhibit 10.6

 
                             EMPLOYMENT AGREEMENT
                             --------------------


     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Michael W. Reschke, an individual
domiciled in the State of Illinois ("Executive").


                              W I T N E S S E T H
                              -------------------

     A.   Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.

     B.   Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.

     C.   Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.

     D.   The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:

     1.   Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Chairman of the Board of Employer on the terms
and conditions provided in this Agreement. Executive shall conduct, operate,
manage and promote the business and business concept of Employer, and exercise
such other powers and authority as are provided by the By-laws of Employer ("By-
laws"). The Board of Directors of Employer (the "Board") may from time to time
further define and clarify Executive's duties and services hereunder or under
the By-laws as Chairman of the Board. Executive agrees to devote sufficient
time, attention, energy and skill to perform his duties as Chairman of the Board
of Employer. Executive shall have no obligation to devote full-time to his
duties, it being expressly understood that Executive has other professional and
managerial duties and responsibilities to companies other than Employer.
Further, during the Employment Term, Employer agrees to recommend Executive to
be elected as a member of the Board.
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     2.   Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on March 31, 2000 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one-
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.

     3.   Compensation and Related Matters. (a) Base Salary. As compensation for
performing the services required by this Agreement during the Employment Term
Employer shall pay to Executive an annual salary of no less than One Hundred
Thousand Dollars ($100,000) ("Base Compensation"), payable in accordance with
the general policies and procedures for payment of salaries to its executive
personnel maintained, from time to time, by Employer (but no less frequently
than monthly), subject to withholding for applicable federal, state, and local
taxes. Increases in Base Compensation, if any, shall be determined by the
Compensation Committee of the Board (the "Committee") based on periodic reviews
of Executive's performance conducted on at least an annual basis.

          (b)  Bonus. In addition to Base Compensation, Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus distribution for each calendar year during the Employment Term, commencing
on the date hereof through the end of the 1997 calendar year (the "Initial Bonus
Period") and for each calendar year thereafter, in such amounts as determined by
the three point formula delineated hereinbelow (collectively, a yearly
"Performance Bonus Distribution"); provided, however, that the aggregate
Performance Bonus Distribution for the Initial Bonus Period or for any calendar
year thereafter distributable in accordance with the provisions of this Section
3(b) shall in no event exceed 100% of the Base Compensation for the Initial
Bonus Period or such subsequent calendar year, respectively. The amount of the
Performance Bonus Distribution for the Initial Bonus Period or for each calendar
year thereafter distributable to Executive hereunder shall be determined by the
Committee based upon the achievement of Employer's annual business plan approved
by the Board for the Initial Bonus Period or such subsequent calendar year, as
applicable, as reflected in the audited financial statements of Employer
prepared in accordance with generally accepted accounting principles and
auditing standards and practices, consistently applied ("GAAP"). Prior to
issuance of the final audited financial statements for the Initial Bonus Period
or for each calendar year thereafter, as applicable, Executive shall have the
right to review and approve or challenge any calculation or determination of the
amount of the Performance Bonus Distribution distributable for the Initial Bonus
Period or for such subsequent calendar year, as applicable. Any amount of
Performance Bonus Distribution required to be distributed to Executive for the
Initial Bonus Period or for any calendar year thereafter during the Employment
Term shall be distributed by Employer to Executive during the pay period of
Employer following finalization of the audit for the Initial Bonus Period or for
such calendar year, as applicable, and final review and approval of the bonus
calculation by the Committee, and, in all events, on or before April 15 of the
year immediately following the end

                                       2
<PAGE>
 
of the Initial Bonus Period or the subsequent calendar year for which such
Performance Bonus Distribution is attributable.

          The three point formula to determine a Performance Bonus Distribution
for the Initial Bonus Period or for any calendar year thereafter during the
Employment Term shall be as follows:

               (i)  After-Tax GAAP Earnings Per Share Plus Depreciation and
Amortization. Executive's Performance Bonus Distribution in an amount of up to
sixty percent (60%) of Executive's Base Compensation for the Initial Bonus
Period or for any given subsequent calendar year shall be based on Employer's
after-tax GAAP earnings per share on a fully-diluted basis plus depreciation and
amortization ("Actual EPS") for the Initial Bonus Period or the applicable
subsequent calendar year in relation to the earnings per share plus depreciation
and amortization set forth in Employer's Board approved annual business plan for
the Initial Bonus Period or for such subsequent calendar year ("Plan EPS") as
follows:

               A.   If Actual EPS is less than 90% of Plan EPS, Executive shall
not be entitled to any Performance Bonus Distribution under this Section
3(b)(i).

               B.   If Actual EPS is 120% or more of Plan EPS, Executive shall
be entitled to a Performance Bonus Distribution under this Section 3(b)(i) equal
to 60% of Executive's Base Compensation for the Initial Bonus Period or for such
subsequent calendar year.

               C.   If Actual EPS is equal to or greater than 90% of Plan EPS
but than less 120% of Plan EPS, then a pro rata adjustment shall be made to the
Performance Bonus Distribution to which Executive is entitled under this Section
3(b)(i) for the Initial Bonus Period or for such subsequent calendar year.

               (ii) Average Common Stock Price.
                    -------------------------- 

               Executive's Performance Bonus Distribution in an amount of up to
twenty percent (20%) of Executive's Base Compensation for the Initial Bonus
Period or for such subsequent calendar year, as applicable, shall be based on
the percentage increase (the "% Increase in Employer's Stock Price"), if any, in
the per share price of Employer's common stock from December 31 of the calendar
year immediately preceding the calendar year for which the Performance Bonus
Distribution is being calculated (or, for purposes of the Initial Bonus Period,
the increase in the per share price of Employer's common stock from the initial
public offering per share price) to December 31 of the calendar year for which
the Performance Bonus Distribution is being calculated compared to the average
percentage increase, if any, over the same period of the Standard & Poor's 500
Stock Index determined by reference to the Standard & Poor's 500 Stock Index as
set forth in the Wall Street Journal on the applicable dates (the "% Increase in
S&P 500 Stock Index") as follows:

               (A)  For purposes of this Section 3(b)(ii), (1) the term "Lower
Bound" shall mean the greater of 5% (3.75% for the Initial Bonus Period) or 75%
of the % Increase in the S&P

                                       3
<PAGE>
 
500 Stock Index, and (2) the term "Upper Bound" shall mean the greater of 15%
(11.25% for the Initial Bonus Period) or 125% of the % Increase in the S&P 500
Stock Index.

               (B)  If the % Increase in Employer's Stock Price is equal to or
less than the Lower Bound, Executive shall not be entitled to any Performance
Bonus Distribution under this Section 3(b)(ii) for the Initial Bonus Period or
for such subsequent calendar year.

               (C)  If the % Increase in Employer's Stock Price is equal to or
greater than the Upper Bound, Executive shall be entitled to a Performance Bonus
Distribution under this Section 3(b)(ii) equal to 20% of Executive's Base
Compensation for the Initial Bonus Period or for such subsequent calendar year.

               (D)  If, for the Initial Bonus Period or for such subsequent
calendar years, the % Increase in Employer's Stock Price is greater than the
Lower Bound but less than the Upper Bound, Executive shall be entitled to a
Performance Bonus Distribution under this Section 3(b)(ii) in an amount
calculated in accordance with the following formula:

          Performance Bonus Distribution under Section                          
          3(b)(ii) = (20% of Executive's Base Compensation                      
          for the period) x (1 - (Upper Bound -% Increase                       
          in Employer's Stock Price) / (Upper Bound -                           
          Lower Bound))                                                         

                (iii) Discretionary. Executive's Performance Bonus Distribution
in an amount of up to twenty percent (20%) of Executive's Base Compensation for
the Initial Bonus Period or for any given subsequent calendar year shall be
determined at the sole discretion of the Board or the Committee based upon
achievement of such corporate or individual performance goals and objectives as
may be established or determined by the Board or the Committee from time to
time.

          (c)  Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
his eligible dependents shall have the right to participate in any retirement,
pension, insurance, health, dental, life insurance or other benefit plan or
program that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
his participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.

          (d)  Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and

                                       4
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procedures, as such policies and procedures may be amended or modified from time
to time by Employer, for all reasonable and necessary expenses incurred by
Executive in the performance of his duties hereunder.

     4.   Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 100,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.

     5.   Termination and Termination Benefits. (a) Termination by Employer. (i)
Without Cause. Employer may terminate this Agreement and Executive's employment
at any time for any reason or for no reason at all upon thirty (30) days' prior
written notice to Executive following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(i),
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such termination occurs (but, to the extent not previously paid, Executive shall
be entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) in accordance with Sections 3(a) and 3(b),
respectively (provided that, if such termination occurs prior to February 28, no
bonus shall be payable for or with respect to the calendar year in which such
termination occurs), up to the effective date of such termination, (B) be
entitled to the benefits set forth in Sections 3(c) and 3(d) hereof up to the
effective date of such termination and (C) receive the Termination Compensation
specified in Section 5(e) hereof. (For purposes of this Agreement, the
"effective date of termination" shall mean the last day on which the Executive
is employed with Employer, which may be later than the date of the delivery of
any applicable notice of termination.)

               (ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform his duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid his Base Compensation in accordance with Section
3(a) hereof up to the effective date of such termination, (B) forfeit his
entitlement to any bonus otherwise payable to him in accordance with Section
3(b) hereof for or with respect to the calendar year in which the termination
occurs (but, to the extent not previously paid, Executive shall be entitled to
any bonuses payable to Executive in accordance with Section 3(b) hereof for or
with respect to any calendar years prior to the calendar year in which such
termination occurs) and (C) be entitled to the benefits set forth in Sections
3(c) and 3(d) hereof up to the effective date of such termination. For purposes
of this Section 5(a)(ii), "cause" shall mean (A) a finding by the Board that
Executive has materially harmed Employer, its business, assets or employees
through an act of dishonesty, material conflict of interest, gross misconduct or
willful malfeasance, (B) Executive's conviction of

                                       5
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(or pleading nolo contendere to) a felony, (C) Executive's failure to perform
(which shall not include inability to perform due to disability) in any material
respects his material duties under this Agreement after written notice
specifying the failure and a reasonable opportunity to cure (it being understood
that if Executive's failure to perform is not of a type requiring a single
action to fully cure, then Executive may commence the cure promptly after such
written notice and thereafter diligently prosecute such cure to completion), (D)
the breach by Executive of any of his material obligations hereunder (other than
those covered by clause (C) above) and the failure of Executive to cure such
breach within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (E)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).

               (iii)  Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any six (6)
consecutive months to perform the duties required by this Agreement, Employer
may terminate this Agreement upon thirty (30) days' written notice to Executive.
In such event, Executive shall (A) be paid his Base Compensation in accordance
with Section 3(a) hereof up to the effective date of such termination, (B) be
paid a pro rata portion through the first day of the six (6) month period of any
bonus otherwise payable to him for or with respect to the calendar year in which
such disability occurs (but, to the extent not previously paid, Executive shall
be entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) in accordance with Section 3(b) hereof (provided
that, if such disability occurs prior to February 28, no bonus shall be payable
for or with respect to the calendar year in which such disability occurs), and
(C) be entitled to the benefits set forth in Sections 3(c) hereof (or the after-
tax cash equivalent) up to the effective date of such termination, and be
entitled to the benefits set for in Section 3(d) hereof up to the date of such
disability. This Section 5(a)(iii) shall not limit the entitlement of Executive,
his estate or beneficiaries to any disability or other benefits available to
Executive under any disability insurance or other benefits plan or policy which
is maintained by Employer for Executive's benefit. For purposes of this
Agreement, the "date of disability" shall mean the first day of the consecutive
period during which Executive fails to perform the duties required by this
Agreement due to illness, physical or mental disability or other incapacity.

          (b)  Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, his duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Executive shall (A) be paid his
Base Compensation and a pro rata portion of any bonus otherwise payable to him
for or with respect to the calendar year in which such termination occurs (but,
to the extent not previously paid, Executive shall be entitled to any bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any

                                       6
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calendar years prior to the calendar year in which such termination occurs) in
accordance with Sections 3(a) and 3(b) hereof, respectively (provided that, if
such termination occurs prior to February 28, no bonus shall be payable for or
with respect to the calendar year in which such termination occurs), up to the
effective date of such termination, (B) be entitled to the benefits set forth in
Sections 3(c) and 3(d) hereof up to the effective date of such termination and
(C) receive the Termination Compensation specified in Section 5(e) hereof. For
purposes of this Agreement, in the event Employer defaults in its obligation
under Section 9 hereof and, as a consequence thereof, Executive's employment
with Employer (or Employer's successor or assign) terminates, such termination
shall be deemed to be a termination under this Section 5(b)(i).

     For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest, Executive, his siblings, his and their spouses and issue,
and any trusts for the benefit of any of the foregoing (the "Executive Group")
and excluding a trustee or fiduciary holding securities under an employee
benefit plan of Employer), becomes the beneficial owner of shares of common
stock of Employer having at least fifty percent (50%) of the total number of
votes that may be cast for the election of directors of Employer; (2) the merger
or other business combination of Employer, sale of all or substantially all of
Employer's assets or combination of the foregoing transactions (a
"Transaction"), other than a Transaction immediately following which the
shareholders of Employer immediately prior to the Transaction continue to have a
majority of the voting power in the resulting entity (excluding for this purpose
any shareholder, other than The Prime Group, Inc., its affiliates and the
Executive Group, owning directly or indirectly more than ten percent (10%) of
the shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive, including a
removal of the Executive as Chairman of the Board or (2) the compensation
package for Executive.

               (ii) Without Good Reason. Executive may terminate this Agreement
and his employment at any time for any reason or for no reason at all upon sixty
(60) days' written notice to Employer, during which period Executive shall
continue to perform his duties under this Agreement if Employer so elects. In
connection with the termination of Executive's employment pursuant to this
Section 5(b)(ii), Executive shall (A) be paid his Base Compensation in
accordance

                                       7
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with Section 3(a) hereof up to the effective date of such termination, (B)
forfeit his entitlement to any bonus otherwise payable to him in accordance with
Section 3(b) hereof for or with respect to the calendar year in which the such
termination occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) and (C) be entitled to the benefits set forth in
Sections 3(c) and 3(d) hereof up to the effective date of such termination.

          (c)  Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such death occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such death occurs) in accordance with Sections 3(a) and 3(b) hereof,
respectively (provided that, if such death occurs prior to February 28, no bonus
shall be payable for or with respect to the calendar year in which such death
occurs), up to the date of such death and (B) be entitled to the benefits set
forth in Sections 3(c) (or the after-tax cash equivalent) and 3(d) hereof up to
the date of such death. This Section 5(c) shall not limit the entitlement of
Executive, his estate or beneficiaries under any insurance or other benefits
plan or policy which is maintained by Employer for Executive's benefit.

          (d)  Removal as Director. Notwithstanding any other provision of this
Agreement, if Executive shall be removed from office as a director of Employer
at any time during the Employment Term, then Executive may notify Employer in
writing of his election to terminate this Agreement with good reason upon
written notice to Employer and such notice shall be effective immediately upon
receipt by Employer. In such event, Executive shall (A) be paid his Base
Compensation in accordance with Section 3(a) hereof up to the effective date of
such termination and a pro rata portion of any bonus otherwise payable to him
for or with respect to the calendar year in which such termination occurs (but,
to the extent not previously paid, Executive shall be entitled to any bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs) in accordance with Section 3(b) hereof, provided that, if such
termination occurs prior to February 28, no bonus shall be payable for or with
respect to the calendar year in which such termination occurs, (B) be entitled
to the benefits set forth in Sections 3(c) and 3(d) hereof up to the effective
date of such termination and (C) receive the Termination Compensation specified
in Section 5(e) hereof.

          (e)  Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(b)(i) or 5(d) hereof, Employer shall
pay to Executive, within thirty (30) days of termination, an amount in one lump
sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(d) hereof, the greater of (A) Executive's
annual Base Compensation as of the effective date of such termination, or (B)
50% of the product of (1) Executive's annual Base Compensation as of the
effective date of such termination times (2) a fraction, the numerator of which
is the number of days between such date of termination and expiration of the
Employment Term and the denominator of which is 365 or (ii) in the case of a

                                       8
<PAGE>
 
termination pursuant to Section 5(b)(i) hereof, two times (A) the average annual
Base Compensation paid or payable to Executive for or with respect to the two
full calendar years immediately preceding the calendar year in which the date of
termination occurs, plus (B) the average annual Performance Bonus Distribution
paid or payable to Executive for or with respect to the two full calendar years
immediately preceding the calendar year in which the date of termination occurs.
For purposes of calculating Employee's Termination Compensation pursuant to
clause (ii) above, if the termination takes place prior to December 31, 1999,
the Termination Compensation for any applicable calendar year in which the
termination takes place shall be determined as follows:

               (1)  if the termination takes place on or prior to December 31,
1997, the full Termination Compensation described in clause (e)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the Initial Bonus
Period;

               (2)  if the termination takes place after December 31, 1997 but
on or prior to December 31, 1998, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (e)(ii) above
shall be deemed to be two times the average of (A) the amount of the Performance
Bonus Distribution paid to Executive or to which Executive is entitled for the
Initial Bonus Period pursuant to Section 3(b) hereof and (B) the greater of (1)
75% of Executive's Base Compensation for the 1998 calendar year or (2) 133% the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the Initial Bonus Period pursuant to Section 3(b) hereof; or

               (3)  if the termination takes place after December 31, 1998 but
on or prior to December 31, 1999, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (e)(ii) above
shall be deemed to be two times the average of (A) 133% of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the Initial
Bonus Period pursuant to Section 3(b) hereof and (B) the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof.

     6.   Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or any
subsidiary of Employer and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.

     7.   Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.

     8.   Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree

                                       9
<PAGE>
 
to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform it if no such succession or assignment had
taken place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.

     9.   Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
confirmed facsimile, courier or certified mail, postage and delivery charges
prepaid, to the following addresses:

                                      10
<PAGE>
 
     (a)  if to Executive, to:

          Michael W. Reschke
          The Prime Group, Inc.
          Suite 3900
          77 West Wacker Drive
          Chicago, IL  60601
          Facsimile:  (312) 917-1511

          With a copy to:
          -------------- 

          Michael W. Reschke
          20774 North Meadow Lane
          Barrington, IL  60610
          Facsimile: (847) 381-5260

     (b)  if to Employer, to:

          Brookdale Living Communities, Inc.
          Suite 3900
          77 West Wacker Drive
          Chicago, IL 60601
          Attn: Chief Executive Officer
          Facsimile: (312) 917-0460

          With a copy to:
          -------------- 

          Brookdale Living Communities, Inc.
          Suite 3900
          77 West Wacker Drive
          Chicago, IL 60601
          Attn: General Counsel
          Facsimile: (312) 917-0460

          and to:
          ------ 

          Winston & Strawn
          35 West Wacker Drive
          Chicago, IL  60601
          Attn:  Wayne D. Boberg
          Facsimile: (312) 558-5700

                                       11
<PAGE>
 
Any notice, claim, demand, request or other communication given as provided in
this Section 9, if delivered personally, shall be effective upon delivery; if
given by facsimile, shall be effective one (1) business day after transmission
has been confirmed (which confirmation may be machine generated); and if given
by courier, shall be effective one (1) business day after deposit with the
courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 9.

     10.  Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.

     11.  Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.

     12.  Severability. Employer and Executive each expressly agree and contract
that it is not the intention of either party to violate any public policy,
statutory or common law, and that if any covenant, sentence, paragraph, clause
or combination of the same of this Agreement (a "Contractual Provision") is in
violation of the law of any state where applicable, such Contractual Provision
shall be void in the jurisdictions where it is unlawful, and the remainder of
such Contractual Provision, if any, and the remainder of this Agreement shall
remain binding on the parties such that such Contractual Provision shall be
binding only to the extent that such Contractual Provision is lawful or may be
lawfully performed under then existing applicable laws. In the event that any
part of any Contractual Provision of this Agreement is determined by a court of
competent jurisdiction to be overly broad thereby making the Contractual
Provision unenforceable, the parties hereto agree, and it is their desire, that
such court shall substitute a judicially enforceable limitation in its place,
and that the Contractual Provision, as so modified, shall be binding upon the
parties as if originally set forth herein.

     13.  Representation of Executive. Executive represents and warrants that he
is not personally subject to any agreement, order or decree which restricts his
acceptance of this Agreement and the performance of his duties with Employer
hereunder.

     14.  Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of his acts or
omissions that constitute bad faith, willful or intentional conduct that cause
harm to Employer's business or reputation. Executive also shall indemnify
Employer for any and all consequential damages, costs and expenses resulting
from his acts of omission constituting reckless disregard of his duties to
Employer following notice thereof by Employer after it becomes aware of such
conduct and Executive's failure to so cure within thirty (30) days.

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<PAGE>
 
     15.  Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.


                           [signature page follows]

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<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

                                    EMPLOYER:

                                    BROOKDALE LIVING COMMUNITIES, INC.



                                    By: /s/ Mark J. Schulte
                                        -----------------------------------

                                    Title: President
                                           --------------------------------

                                    /s/ Michael W. Reschke
                                    ---------------------------------------
                                    Michael W. Reschke

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