Document:

<PAGE>

                                                                    EXHIBIT 4.17

                                MULTIFAMILY NOTE

US $8,525,000.00                                                   June 20, 2001

         FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally
(if more than one) promises to pay to the order of ARCS Commercial Mortgage Co.,
L.P., a California limited partnership, the principal sum of Eight Million Five
Hundred Twenty Five Thoursand Dollars and 0/100's (US $8,525,000.00), with
interest on the unpaid principal balance at the annual rate of Seven and
099/1000's percent (7.099%).

         1.  Defined Terms. As used in this Note, (i) the term "Lender" means
the holder of this Note, and (ii) the term "Indebtedness" means the principal
of, interest on, or any other amounts due at any time under, this Note, the
Security Instrument or any other Loan Document, including prepayment premiums,
late charges, default interest, and advances to protect the security of the
Security Instrument under Section 12 of the Security Instrument. Event of
Default, Key Principal and other capitalized terms used but not defined in this
Note shall have the meanings given to such terms in the Security Instrument (as
defined in Paragraph 5).

         2.  Address for Payment. All payments due under this Note shall be
payable at 26901 Agoura Road, Suite 200, Calabasas Hills, CA 91301 or such other
place as may be designated by written notice to Borrower from or on behalf of
Lender.

         3.  Payment of Principal and Interest.  Principal and interest shall be
paid as follows:

         (a) Unless disbursement of principal is made by Lender to Borrower on
the first day of the month, interest for the period beginning on the date of
disbursement and ending on and including the last day of the month in which such
disbursement is made shall be payable simultaneously with the execution of this
Note. Interest under this Note shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.

         (b) Consecutive monthly installments of principal and interest, each in
the amount of Fifty Seven Thousand Two Hundred Eighty Four Dollars and
98/100's(US $57,284.98), shall be payable on the first day of each month
beginning on August 1, 2001, until the entire unpaid principal balance evidenced
by this Note is fully paid. Any accrued interest remaining past due for 30 days
or more shall be added to and become part of the unpaid principal balance and
shall bear interest at the rate or rates specified in this Note, and any
reference below to "accrued interest" shall refer to accrued interest which has
not become part of the unpaid principal balance. Any remaining principal and
interest shall be due and payable on July 1, 2011 or on any earlier date on
which the unpaid principal balance of this Note becomes due and payable, by
acceleration or otherwise (the "Maturity Date"). The unpaid principal balance
shall continue to bear interest after the Maturity Date at the Default Rate set
forth in this Note until and including the date on which it is paid in full.

         (c) Any regularly scheduled monthly installment of principal and
interest that is received by Lender before the date it is due shall be deemed to
have been received on the due date solely for the purpose of calculating
interest due.

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         4. Application of Payments. If at any time Lender receives, from
Borrower or otherwise, any amount applicable to the Indebtedness which is less
than all amounts due and payable at such time, Lender may apply that payment to
amounts then due and payable in any manner and in any order determined by
Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance
of a payment from Borrower in an amount that is less than all amounts then due
and payable nor Lender's application of such payment shall constitute or be
deemed to constitute either a waiver of the unpaid amounts or an accord and
satisfaction.

         5. Security. The Indebtedness is secured, among other things, by a
Multifamily Deed of Trust, Assignment of Rents and Security Agreement and
Fixture Filing dated as of the date of this Note (the "Security Instrument"),
and reference is made to the Security Instrument for other rights of Lender
concerning the collateral for the Indebtedness.

         6. Acceleration. If an Event of Default has occurred and is continuing,
the entire unpaid principal balance, any accrued interest, the prepayment
premium payable under Paragraph 10, if any, and all other amounts payable under
this Note and any other Loan Document shall at once become due and payable, at
the option of Lender, without any prior notice to Borrower. Lender may exercise
this option to accelerate regardless of any prior forbearance.

         7. Late Charge. If any monthly amount payable under this Note or under
the Security Instrument or any other Loan Document is not received by Lender
within 10 days after the amount is due, Borrower shall pay to Lender,
immediately and without demand by Lender, a late charge equal to 5 percent of
such amount. Borrower acknowledges that its failure to make timely payments will
cause Lender to incur additional expenses in servicing and processing the loan
evidenced by this Note (the "Loan"), and that it is extremely difficult and
impractical to determine those additional expenses. Borrower agrees that the
late charge payable pursuant to this Paragraph represents a fair and reasonable
estimate, taking into account all circumstances existing on the date of this
Note, of the additional expenses Lender will incur by reason of such late
payment. The late charge is payable in addition to, and not in lieu of, any
interest payable at the Default Rate pursuant to Paragraph 8.

         8. Default Rate. So long as any monthly installment or any other
payment due under this Note remains past due for 30 days or more, interest under
this Note shall accrue on the unpaid principal balance from the earlier of the
due date of the first unpaid monthly installment or other payment due, as
applicable, at a rate (the "Default Rate") equal to the lesser of 4 percentage
points above the rate stated in the first paragraph of this Note or the maximum
interest rate which may be collected from Borrower under applicable law. If the
unpaid principal balance and all accrued interest are not paid in full on the
Maturity Date, the unpaid principal balance and all accrued interest shall bear
interest from the Maturity Date at the Default Rate. Borrower also acknowledges
that its failure to make timely payments will cause Lender to incur additional
expenses in servicing and processing the Loan, that, during the time that any
monthly installment or other payment under this Note is delinquent for more than
30 days, Lender will incur additional costs and expenses arising from its loss
of the use of the money due and from the adverse impact on Lender's ability to
meet its other obligations and to take advantage of other investment
opportunities, and that it is extremely difficult and impractical to determine
those additional costs and expenses. Borrower also acknowledges that, during the
time that any monthly installment or other payment due under this Note is
delinquent for more than 30 days, Lender's risk of nonpayment of this Note will
be materially increased and Lender is entitled to be compensated for such
increased risk. Borrower agrees that the increase in the rate of interest
payable under this Note to the Default Rate represents a fair and reasonable
estimate, taking into account all circumstances existing on the date of this
Note, of the additional costs and expenses Lender will incur by reason of the
Borrower's delinquent payment and the additional compensation Lender is entitled
to receive for the increased risks of nonpayment associated with a delinquent
loan.

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         9.  Limits on Personal Liability.

         (a) Except as otherwise provided in this Paragraph 9, Borrower shall
have no personal liability under this Note, the Security Instrument or any other
Loan Document for the repayment of the Indebtedness or for the performance of
any other obligations of Borrower under the Loan Documents, and Lender's only
recourse for the satisfaction of the Indebtedness and the performance of such
obligations shall be Lender's exercise of its rights and remedies with respect
to the Mortgaged Property and any other collateral held by Lender as security
for the Indebtedness. This limitation on Borrower's liability shall not limit or
impair Lender's enforcement of its rights against any guarantor of the
Indebtedness or any guarantor of any obligations of Borrower.

         (b) Borrower shall be personally liable to Lender for the repayment of
a portion of the Indebtedness equal to any loss or damage suffered by Lender as
a result of (1) failure of Borrower to pay to Lender upon demand after an Event
of Default, all Rents to which Lender is entitled under Section 3(a) of the
Security Instrument and the amount of all security deposits collected by
Borrower from tenants then in residence; (2) failure of Borrower to apply all
insurance proceeds and condemnation proceeds as required by the Security
Instrument; (3) failure of Borrower to comply with Section 14(d) or (e) of the
Security Instrument relating to the delivery of books and records, statements,
schedules and reports; (4) fraud or written material misrepresentation by
Borrower, Key Principal or any officer, director, partner, member or employee of
Borrower in connection with the application for or creation of the Indebtedness
or any request for any action or consent by Lender; or (5) failure to apply
Rents, first, to the payment of reasonable operating expenses (other than
Property management fees that are not currently payable pursuant to the terms of
an Assignment of Management Agreement or any other agreement with Lender
executed in connection with the Loan) and then to amounts ("Debt Service
Amounts") payable under this Note, the Security Instrument or any other Loan
Document (except that Borrower will not be personally liable (i) to the extent
that Borrower lacks the legal right to direct the disbursement of such sums
because of a bankruptcy, receivership or similar judicial proceeding, or (ii)
with respect to Rents that are distributed in any calendar year if Borrower has
paid all operating expenses and Debt Service Amounts for that calendar year).

         (c) Borrower shall become personally liable to Lender for the repayment
of all of the Indebtedness upon the occurrence of any of the following Events of
Default: (1) Borrower's acquisition of any property or operation of any business
not permitted by Section 33 of the Security Instrument; or (2) a Transfer that
is an Event of Default under Section 21 of the Security Instrument.

         (d) To the extent that Borrower has personal liability under this
Paragraph 9, Lender may exercise its rights against Borrower personally without
regard to whether Lender has exercised any rights against the Mortgaged Property
or any other security, or pursued any rights against any guarantor, or pursued
any other rights available to Lender under this Note, the Security Instrument,
any other Loan Document or applicable law. For purposes of this Paragraph 9, the
term "Mortgaged Property" shall not include any funds that (1) have been applied
by Borrower as required or permitted by the Security Instrument prior to the
occurrence of an Event of Default, or (2) Borrower was unable to apply as
required or permitted by the Security Instrument because of a bankruptcy,
receivership, or similar judicial proceeding.

         10. Voluntary and Involuntary Prepayments.

         (a) A prepayment premium shall be payable in connection with any
prepayment made under this Note as provided below:

                                                                          Page 3

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         (1) Borrower may voluntarily prepay all (but not less than all) of the
unpaid principal balance of this Note on the last Business Day of a calendar
month if Borrower has given Lender at least 30 days prior notice of its
intention to make such prepayment. Such prepayment shall be made by paying (A)
the amount of principal being prepaid, (B) all accrued interest, (C) all other
sums due Lender at the time of such prepayment, and (D) the prepayment premium
calculated pursuant to Schedule A. For all purposes, including the accrual of
interest, any prepayment received by Lender on any day other than the last
calendar day of the month shall be deemed to have been received on the last
calendar day of such month. For purposes of this Note, a "Business Day" means
any day other than a Saturday, Sunday or any other day on which Lender is not
open for business.

         (2) Upon Lender's exercise of any right of acceleration under this
Note, Borrower shall pay to Lender, in addition to the entire unpaid principal
balance of this Note outstanding at the time of the acceleration, (A) all
accrued interest and all other sums due Lender under this Note and the other
Loan Documents, and (B) the prepayment premium calculated pursuant to Schedule
A.

         (3) Any application by Lender of any collateral or other security to
the repayment of any portion of the unpaid principal balance of this Note prior
to the Maturity Date and in the absence of acceleration shall be deemed to be a
partial prepayment by Borrower, requiring the payment to Lender by Borrower of a
prepayment premium. The amount of any such partial prepayment shall be computed
so as to provide to Lender a prepayment premium computed pursuant to Schedule A
without Borrower having to pay out-of-pocket any additional amounts.

         (b) Notwithstanding the provisions of Paragraph 10(a), no prepayment
premium shall be payable with respect to (A) any prepayment made no more than 90
days before the Maturity Date, or (B) any prepayment occurring as a result of
the application of any insurance proceeds or condemnation award under the
Security Instrument.

         (c) Schedule A is hereby incorporated by reference into this Note.

         (d) Any required prepayment of less than the unpaid principal balance
of this Note shall not extend or postpone the due date of any subsequent monthly
installments or change the amount of such installments, unless Lender agrees
otherwise in writing.

         (e) Borrower recognizes that any prepayment of the unpaid principal
balance of this Note, whether voluntary or involuntary or resulting from a
default by Borrower, will result in Lender's incurring loss, including
reinvestment loss, additional expense and frustration or impairment of Lender's
ability to meet its commitments to third parties. Borrower agrees to pay to
Lender upon demand damages for the detriment caused by any prepayment, and
agrees that it is extremely difficult and impractical to ascertain the extent of
such damages. Borrower therefore acknowledges and agrees that the formula for
calculating prepayment premiums set forth on Schedule A represents a reasonable
estimate of the damages Lender will incur because of a prepayment.

         (f) Borrower further acknowledges that the prepayment premium
provisions of this Note are a material part of the consideration for the Loan,
and acknowledges that the terms of this Note are in other respects more
favorable to Borrower as a result of the Borrower's voluntary agreement to the
prepayment premium provisions.

         11. Costs and Expenses. Borrower shall pay on demand all expenses and
costs, including fees and out-of-pocket expenses of attorneys and expert
witnesses and costs of investigation, incurred by Lender as a result of any
default under this Note or in connection with efforts to collect any amount due
under this Note, or to enforce the provisions of any of the other Loan
Documents, including those incurred in post-judgment collection efforts and in
any bankruptcy proceeding (including any action for

                                                                          Page 4

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relief from the automatic stay of any bankruptcy proceeding) or judicial or
non-judicial foreclosure proceeding.

         12. Forbearance. Any forbearance by Lender in exercising any right or
remedy under this Note, the Security Instrument, or any other Loan Document or
otherwise afforded by applicable law, shall not be a waiver of or preclude the
exercise of that or any other right or remedy. The acceptance by Lender of any
payment after the due date of such payment, or in an amount which is less than
the required payment, shall not be a waiver of Lender's right to require prompt
payment when due of all other payments or to exercise any right or remedy with
respect to any failure to make prompt payment. Enforcement by Lender of any
security for Borrower's obligations under this Note shall not constitute an
election by Lender of remedies so as to preclude the exercise of any other right
or remedy available to Lender.

         13. Waivers. Presentment, demand, notice of dishonor, protest, notice
of acceleration, notice of intent to demand or accelerate payment or maturity,
presentment for payment, notice of nonpayment, grace, and diligence in
collecting the Indebtedness are waived by Borrower, Key Principal, and all
endorsers and guarantors of this Note and all other third party obligors.

         14. Loan Charges. Borrower and Lender intend at all times to comply
with the law of the State of Texas governing the maximum rate or amount of
interest payable on or in connection with this Note and the Indebtedness (or
applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, reserve or receive a greater amount of interest than
under Texas law). If the applicable law is ever judicially interpreted so as to
render usurious any amount payable under this Note or under any other Loan
Document, or contracted for, charged, taken, reserved or received with respect
to the Indebtedness, or of acceleration of the maturity of this Note, or if any
prepayment by Borrower results in Borrower having paid any interest in excess of
that permitted by any applicable law, then Borrower and Lender expressly intend
that all excess amounts collected by Lender shall be applied to reduce the
unpaid principal balance of this Note (or, if this Note has been or would
thereby be paid in full, shall be refunded to Borrower), and the provisions of
this Note, the Security Instrument and any other Loan Documents immediately
shall be deemed reformed and the amounts thereafter collectible under this Note
or any other Loan Document reduced, without the necessity of the execution of
any new documents, so at to comply with any applicable law, but so as to permit
the recovery of the fullest amount otherwise payable under this Note or any
other Loan Document. The right to accelerate the maturity of this Note does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and Lender does not intend to collect any
unearned interest in the event of acceleration. All sums paid or agreed to be
paid to Lender for the use, forbearance or detention of the Indebtedness shall,
to the extent permitted by any applicable law, be amortized, prorated, allocated
and spread throughout the full term of the Indebtedness until payment in full so
that the rate or amount of interest on account of the Indebtedness does not
exceed the applicable usury ceiling. Notwithstanding any provision contained in
this Note, the Security Instrument or any other Loan Document that permits the
compounding of interest, including any provision by which any accrued interest
is added to the principal amount of this Note, the total amount of interest that
Borrower is obligated to pay and Lender is entitled to receive with respect to
the Indebtedness shall not exceed the amount calculated on a simple (i.e.
                                                                     ----
noncompounded) interest basis at the maximum rate on principal amounts actually
advanced to or for the account of Borrower, including all current and prior
advances and any advances made pursuant to the Security Instrument or other Loan
Documents (such as for the payment of taxes, insurance premiums and similar
expenses or costs).

         15. Commercial  Purpose.  Borrower  represents that the Indebtedness is
being incurred by Borrower solely for the purpose of carrying on a business or
commercial enterprise, and not for personal, family or household purposes.

                                                                          Page 5

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          16. Counting of Days. Except where otherwise specifically provided,
any reference in this Note to a period of "days" means calendar days, not
Business Days.

          17. Governing Law. This Note shall be governed by the law of the
jurisdiction in which the Land is located.

          18. Captions. The captions of the paragraphs of this Note are for
convenience only and shall be disregarded in construing this Note.

          19. Notices. All notices, demands and other communications required or
permitted to be given by Lender to Borrower pursuant to this Note shall be given
in accordance with Section 31 of the Security Instrument.

          20. Consent to Jurisdiction and Venue. Borrower and Key Principal each
agrees that any controversy arising under or in relation to this Note shall be
litigated exclusively in the jurisdiction in which the Land is located (the
"Property Jurisdiction"). The state and federal courts and authorities with
jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over
all controversies which shall arise under or in relation to this Note. Borrower
and Key Principal irrevocably consents to service, jurisdiction, and venue of
such courts for any such litigation and waives any other venue to which it might
be entitled by virtue of domicile, habitual residence or otherwise.

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

          ATTACHED SCHEDULES. The following Schedules are attached to this Note:

          [X] Schedule A Prepayment Premium (required)

          [X] Schedule B Modifications to Multifamily Note

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

BORROWER

CAC IV Limited Partnership
a Virginia limited Partnership

By:       CAC IV Special General, Inc.

                                                                          Page 6

<PAGE>

         a Virginia corporation
Its:     General Partner

         By:    /s/ Stanley J. Olander, Jr.
                ----------------------------------
                Stanley J. Olander, Jr.
         Its:   Vice President

Borrower's Social Security/Employer ID Number 54-1589139

PAY TO THE ORDER OF

WITHOUT RECOURSE

LENDER:

ARCS Commercial Mortgage Co., L.P.,
a California limited partnership
By:      ACMC Realty, Inc.,
                  a California corporation

         By:    /s/ Shelly Eisenberg
                --------------------------
                Shelly Eisenberg
         Its:   Vice President

ARCS Loan # 226833
Fannie Mae # 383925

                                                                          Page 7

<PAGE>

                ACKNOWLEDGMENT AND AGREEMENT OF KEY PRINCIPAL TO
           PERSONAL LIABILITY FOR EXCEPTIONS TO NON-RECOURSE LIABILITY

         Key Principal, who has an economic interest in Borrower or who will
otherwise obtain a material financial benefit from the Loan, hereby absolutely,
unconditionally and irrevocably agrees to pay to Lender, or its assigns, on
demand, all amounts for which Borrower is personally liable under Paragraph 9 of
the Multifamily Note to which this Acknowledgment is attached (the "Note"). The
obligations of Key Principal shall survive any foreclosure proceeding, any
foreclosure sale, any delivery of any deed in lieu of foreclosure, and any
release of record of the Security Instrument. Lender may pursue its remedies
against Key Principal without first exhausting its remedies against the Borrower
or the Mortgaged Property. All capitalized terms used but not defined in this
Acknowledgment shall have the meanings given to such terms in the Note.

         The obligations of Key Principal shall be performed without demand by
Lender and shall be unconditional irrespective of the genuineness, validity, or
enforceability of the Note, or any other Loan Document, and without regard to
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or a guarantor. Key Principal hereby waives the benefit of
all principles or provisions of law, which are or might be in conflict with the
terms of this Acknowledgment, and agrees that Key Principal's obligations shall
not be affected by any circumstances which might otherwise constitute a legal or
equitable discharge of a surety or a guarantor. Key Principal hereby waives the
benefits of any right of discharge and all other rights under any and all
statutes or other laws relating to guarantors or sureties, to the fullest extent
permitted by law, diligence in collecting the Indebtedness, presentment, demand
for payment, protest, all notices with respect to the Note including this
Acknowledgment, which may be required by statute, rule of law or otherwise to
preserve Lender's rights against Key Principal under this Acknowledgment,
including notice of acceptance, notice of any amendment of the Loan Documents,
notice of the occurrence of any default or Event of Default, notice of intent to
accelerate, notice of acceleration, notice of dishonor, notice of foreclosure,
notice of protest, notice of the incurring by Borrower of any obligation or
indebtedness and all rights to require Lender to (a) proceed against Borrower,
(b) proceed against any general partner of Borrower, (c) proceed against or
exhaust any collateral held by Lender to secure the repayment of the
Indebtedness, or (d) if Borrower is a partnership, pursue any other remedy it
may have against Borrower, or any general partner of Borrower. In addition, Key
Principal waives the benefit of any right to discharge under Chapter 34 of the
Texas Business and Commerce Code and all other rights of sureties and guarantors
thereunder.

         At any time without notice to Key Principal, and without affecting the
liability of Key Principal hereunder, (a) the time for payment of the principal
of or interest on the Indebtedness may be extended or the Indebtedness may be
renewed in whole or in part; (b) the time for Borrower's performance of or
compliance with any covenant or agreement contained in the Note, or any other
Loan Document, whether presently existing or hereinafter entered into, may be
extended or such performance or compliance may be waived; (c) the maturity of
the Indebtedness may be accelerated as provided in the Note or any other Loan
Document; (d) the Note or any other Loan Document may be modified or amended by
Lender and Borrower in any respect, including an increase in the principal
amount; and (e) any security for the Indebtedness may be modified, exchanged,
surrendered or otherwise dealt with or additional security may be pledged or
mortgaged for the Indebtedness.

         Key Principal acknowledges that Key Principal has received a copy of
the Note and all other Loan Documents. Neither this Acknowledgment nor any of
its provisions may be waived, modified, amended, discharged, or terminated
except by an agreement in writing signed by the party against which the
enforcement of the waiver, modification, amendment, discharge, or termination is
sought, and then only to the extent set forth in that agreement. Key Principal
agrees to notify Lender (in the manner for

                                                                        Page 8

<PAGE>

giving notices provided in Section 31 of the Security Instrument) of any change
of Key Principal's address within 10 Business Days after such change of address
occurs. Any notices to Key Principal shall be given in the manner provided in
Section 31 of the Security Instrument. Key Principal agrees to be bound by
Paragraphs 20 and 21 of the Note.

         THIS ACKNOWLEDGMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

         THIS ACKNOWLEDGMENT IS AN INSTRUMENT SEPARATE FROM, AND NOT A PART OF,
THE NOTE. BY SIGNING THIS ACKNOWLEDGMENT, KEY PRINCIPAL DOES NOT INTEND TO
BECOME AN ACCOMMODATION PARTY TO, OR AN ENDORSER OF, THE NOTE.

         IN WITNESS WHEREOF, Key Principal has signed and delivered this
Acknowledgment or has caused this Acknowledgment to be signed and delivered by
its duly authorized representative.

                                     KEY PRINCIPAL

                                     Cornerstone Realty Income Trust, Inc.

                                            By:   /s/ Stanley J. Olander, Jr.
                                                  ------------------------------

                                            Its:   Vice President
                                                  ------------------------------

                                     306 E. Main Street
                                     Richmond, VA 23219
                                     Social Security/Employer ID No.: 54-1589139

                                                                        Page 9

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                                   SCHEDULE A

                               PREPAYMENT PREMIUM

          Any prepayment premium payable under Paragraph 10 of this Note shall
be computed as follows:

         (a)      If the prepayment is made during the first 9.5 years beginning
                  on the date of the Note (the "Yield Maintenance Period"), the
                  prepayment premium shall be the greater of:

                        (i)  1% of the unpaid principal balance of this Note; or

                        (ii) The product obtained by multiplying:

                             (A)   the amount of principal being prepaid,

                             by

                             (B)   the difference obtained by subtracting from
                                   the interest rate on this Note the yield rate
                                   (the "Yield Rate") on the 5% U.S. Treasury
                                   Security due February, 2011 (the "Specified
                                   U.S. Treasury as the Yield Rate is reported
                                   on the fifth Business Day preceding (x) the
                                   date notice of prepayment is given to Lender
                                   where prepayment is voluntary, or (y) the
                                   date Lender accelerates the Loan,

                             by

                             (C)   the present value factor calculated
                                   using the following formula:

                                         1 - (1 + r)/-n/
                                         ---------------
                                                r
                                         [r =     Yield Rate
                                          n =     the number of
                                                  365-day years (or 366-day
                                                  years, if applicable), and
                                                  any fraction thereof,
                                                  remaining between the
                                                  Prepayment Date and the
                                                  expiration of the Yield
                                                  Maintenance Period]

                                                                    Page A-1

<PAGE>

                                            In the event that no Yield Rate is
                                            published for the Specified U.S.
                                            Treasury Security, then the nearest
                                            equivalent U.S. Treasury Security
                                            shall be selected at Lender's
                                            discretion. If the publication of
                                            such Yield Rates in The Wall Street
                                            Journal is discontinued, Lender
                                            shall determine such Yield Rates
                                            from another source selected by
                                            Lender.

                                            For purposes of subparagraph
                                            (ii)(C), the "Prepayment Date" shall
                                            be (x) in the case of a voluntary
                                            prepayment, the date on which the
                                            prepayment is made, and (y) in any
                                            other case, the date on which Lender
                                            accelerates the unpaid principal
                                            balance of this Note.

         (b)      If the prepayment is made after the expiration of the Yield
                  Maintenance Period but more than 90 days before the Maturity
                  Date, the prepayment premium shall be 1% of the unpaid
                  principal balance of this Note.

                                                 Initial(s)    /s/ SJO
                                                          ---------------------

                                                                      Page A-2

<PAGE>

                                   SCHEDULE B

                        MODIFICATIONS TO MULTIFAMILY NOTE

         The Multifamily Note dated June 20, 2001, in the original principal
amount of $8,525,000.00 (the "Note") issued by CAC IV Limited Partnership, a
Virginia limited partnership ("Borrower") and payable to the order of ARCS
Commercial Mortgage Co., L.P., a California limited partnership ("Lender") is
hereby amended as follows:

         1. The last sentence of Paragraph 3(a) of the Note is hereby deleted
and the following new sentence is inserted in lieu thereof:

            "Interest shall be computed on basis of a 360-day year."

         2. The following sentence is hereby added at the end of Paragraph 3(b)
of the Note:

            "The amount of each monthly payment by Borrower pursuant to
         this Paragraph 3(b) that is allocated to interest will be based on the
         actual number of calendar days during such month and shall be
         calculated by multiplying the unpaid principal balance of this Note by
         the per annum interest rate, dividing the product by 360 and
         multiplying the quotient by the actual number of days elapsed during
         the month. Borrower understands that the amount allocated to interest
         for each month will vary depending on the actual number of calendar
         days during such month."
                                                            /s/ SJO
                                                      --------------------------
                                                                 INITIALS<PAGE>

Prepared by, and after recording                                    EXHIBIT 4.18
return to:

ARCS Commercial Mortgage Co., L.P.
26901 Agoura Road, Suite 200
Calabasas Hills, CA 91301

Attn.:  Closing Dept.

ARCS # 226833

FNMA # 383925

                           MULTIFAMILY DEED OF TRUST,
                           --------------------------
                              ASSIGNMENT OF RENTS,
                              --------------------
                      SECURITY AGREEMENT AND FIXTURE FILING
                      -------------------------------------
                                     (TEXAS)

________________________________________________________________________________

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                      PAGE
                                                      ----

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

2.  UNIFORM COMMERCIAL CODE SECURITY AGREEMENT ....    6

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

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

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

6.  EXCULPATION ...................................   11

7.  DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES   11

8.  COLLATERAL AGREEMENTS .........................   12

9.  APPLICATION OF PAYMENTS .......................   12

10. COMPLIANCE WITH LAWS ..........................   12

11. USE OF PROPERTY ...............................   13

12. PROTECTION OF LENDER'S SECURITY ...............   13

13. INSPECTION ....................................   13

14. BOOKS AND RECORDS; FINANCIAL REPORTING ........   13

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

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

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF
    MORTGAGED PROPERTY ............................   16

18. ENVIRONMENTAL HAZARDS .........................   17

19. PROPERTY AND LIABILITY INSURANCE ..............   22
</TABLE>

                                                                         Page i

<PAGE>

<TABLE>
<S>                                                       <C>
20. CONDEMNATION ......................................   24

21. TRANSFERS OF THE MORTGAGED PROPERTY OR
    INTERESTS IN BORROWER .............................   24

22. EVENTS OF DEFAULT .................................   28

23. REMEDIES CUMULATIVE ...............................   29

24. FORBEARANCE .......................................   29

25. INTENTIONALLY DELETED .............................   30

26. WAIVER OF STATUTE OF LIMITATIONS ..................   30

27. WAIVER OF MARSHALLING .............................   30

28. FURTHER ASSURANCES ................................   30

29. ESTOPPEL CERTIFICATE ..............................   30

30. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE ..   31

31. NOTICE ............................................   31

32. SALE OF NOTE; CHANGE IN SERVICER ..................   31

33. SINGLE ASSET BORROWER .............................   31

34. SUCCESSORS AND ASSIGNS BOUND ......................   32

35. JOINT AND SEVERAL LIABILITY .......................   32

36. RELATIONSHIP OF PARTIES; NO THIRD PARTY
    BENEFICIARY .......................................   32

37. SEVERABILITY; AMENDMENTS ..........................   32

38. CONSTRUCTION ......................................   32

39. LOAN SERVICING ....................................   33

40. DISCLOSURE OF INFORMATION .........................   33

41. NO CHANGE IN FACTS OR CIRCUMSTANCES ...............   33
</TABLE>

                                                                         Page ii

<PAGE>

42. SUBROGATION .................................   33

43. ACCELERATION; REMEDIES ......................   33

44. RELEASE .....................................   37

45. TRUSTEE .....................................   37

46. VENDOR'S LIEN; RENEWAL AND EXTENSION ........   37

47. NO FIDUCIARY DUTY ...........................   37

48. FIXTURE FILING ..............................   38

49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF
    RENTS .......................................   38

50. LOAN CHARGES ................................   38

51. PROPERTY AND LIABILITY INSURANCE DELIVERY OF
    POLICY TO LENDER ............................   39

52. ENTIRE AGREEMENT ............................   39

53. WAIVER OF TRIAL BY JURY .....................   39

                                                                        Page iii

<PAGE>

                           MULTIFAMILY DEED OF TRUST,
                               ASSIGNMENT OF RENTS
                      SECURITY AGREEMENT AND FIXTURE FILING

         THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (the Instrument) is dated as of the 20th day of June, 2001,
by CAC IV Limited Partnership, a limited partnership organized and existing
under the laws of Virginia, whose address is c/o Cornerstone REIT, 306 East Main
Street, Richmond VA 23219, as trustor (Borrower), to First American Title
Insurance Company, as trustee (Trustee), for the benefit of ARCS Commercial
Mortgage Co., L.P., a limited partnership organized and existing under the laws
of California, whose address is 26901 Agoura Road, Suite 200, Calabasas Hills,
CA 91301, as beneficiary (Lender).

         Borrower, in consideration of the Indebtedness and the trust created by
this Instrument, irrevocably grants, conveys and assigns to Trustee, in trust,
with power of sale, the Mortgaged Property, including the Land located in
Tarrant County, State of Texas and described in Exhibit A attached to this
Instrument. To have and to hold the Mortgaged Property unto Trustee, Trustees
successor in trust and Trustees assigns forever.

         TO SECURE TO LENDER the repayment of the Indebtedness evidenced by
Borrowers Multifamily Note payable to Lender, dated as of the date of this
Instrument, and maturing on July 1, 2011, in the principal amount of
$8,525,000.00, and all renewals, extensions and modifications of the
Indebtedness, and the performance of the covenants and agreements of Borrower
contained in the Loan Documents.

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

Covenants.  Borrower and Lender covenant and agree as follows:

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

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

         (b) "Collateral Agreement" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for the
Mortgaged Property, establishing a fund to assure completion of repairs or
improvements specified in that agreement, or

                                                                          Page 1

<PAGE>

assuring reduction of the outstanding principal balance of the Indebtedness if
the occupancy of or income from the Mortgaged Property does not increase to a
level specified in that agreement, or any other agreement or agreements between
Borrower and Lender which provide for the establishment of any other fund,
reserve or account.

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

         (d) "Event of Default" means the occurrence of any event listed in
Section 22.

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

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

         (g) "Hazardous Materials" means petroleum and petroleum products and
compounds containing them, including gasoline, diesel fuel and oil; explosives;
flammable materials; radioactive materials; polychlorinated biphenyls ("PCBs")
and compounds containing them; lead and lead-based paint; asbestos or
asbestos-containing materials in any form that is or could become friable;
underground or above-ground storage tanks, whether empty or containing any
substance; any substance the presence of which on the Mortgaged Property is
prohibited by any federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the future
defined as a "hazardous substance," "hazardous material," "hazardous waste,"
"toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the
meaning of any Hazardous Materials Law.

         (h) "Hazardous Materials Laws" means all federal, state, and local
laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that relate
to Hazardous Materials and apply to Borrower or to the Mortgaged Property.
Hazardous Materials Laws include, but are not limited to, the Comprehensive

                                                                          Page 2

<PAGE>

Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the
Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. Section 5101, et seq., and their state analogs.

         (i) "Impositions" and "Imposition Deposits" are defined in Section
7(a).

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

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

         (l) Intentionally omitted.

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

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

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

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

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

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

                                                                          Page 3

<PAGE>

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

          (1)  the Land;

          (2)  the Improvements;

          (3)  the Fixtures;

          (4)  the Personalty;

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

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

          (7)  all awards, payments and other compensation made or to be made by
               any municipal, state or federal authority with respect to the
               Land, the Improvements, the Fixtures, the Personalty or any other
               part of the Mortgaged Property, including any awards or
               settlements resulting from condemnation proceedings or the total
               or partial taking of the Land, the Improvements, the Fixtures,
               the Personalty or any other part of the Mortgaged Property under
               the power of eminent domain or otherwise and including any
               conveyance in lieu thereof;

          (8)  all contracts, options and other agreements for the sale of the
               Land, the Improvements, the Fixtures, the Personalty or any other
               part of the Mortgaged Property entered into by Borrower now or in
               the future, including cash or securities deposited to secure
               performance by parties of their obligations;

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

          (10) all Rents and Leases;

          (11) all earnings, royalties, accounts receivable, issues and profits
               from the Land, the Improvements or any other part of the
               Mortgaged Property, and all

                                                                       Page 4

<PAGE>

               undisbursed proceeds of the loan secured by this Instrument and,
               if Borrower is a cooperative housing corporation, maintenance
               charges or assessments payable by shareholders or residents;

          (12) all Imposition Deposits;

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

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

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

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

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

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

     (w) "Property Jurisdiction" is defined in Section 30(a).

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

     (y) "Taxes" means all taxes, assessments, vault rentals and other charges,
if any, general, special or otherwise, including all assessments for schools,
public betterments and general

                                                                        Page 5

<PAGE>

or local improvements, which are levied, assessed or imposed by any public
authority or quasi-public authority, and which, if not paid, will become a lien,
on the Land or the Improvements.

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

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

                                                                       Page 6

<PAGE>

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

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

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

                                                                        Page 7

<PAGE>

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

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

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

                                                                        Page 8

<PAGE>

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

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

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

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

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

          (c)  Borrower acknowledges and agrees that the exercise by Lender,
either directly or by a receiver, of any of the rights conferred under this
Section 4 shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements. The acceptance by Lender of the
assignment of the Leases pursuant to Section 4(a) shall not at any time or in
any event obligate Lender to take any action under this Instrument or to expend
any money or to incur any expenses. Lender shall not be liable in any way for
any injury or damage to person or property sustained by any person or persons,
firm or corporation in or about the Mortgaged Property. Prior to Lender's actual
entry into

                                                                        Page 9

<PAGE>

and taking possession of the Mortgaged Property, Lender shall not (i) be
obligated to perform any of the terms, covenants and conditions contained in any
Lease (or otherwise have any obligation with respect to any Lease); (ii) be
obligated to appear in or defend any action or proceeding relating to the Lease
or the Mortgaged Property; or (iii) be responsible for the operation, control,
care, management or repair of the Mortgaged Property or any portion of the
Mortgaged Property. The execution of this Instrument by Borrower shall
constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Mortgaged Property is and shall be
that of Borrower, prior to such actual entry and taking of possession.

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

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

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

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

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

                                                                       Page 10

<PAGE>

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

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

          7.  DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

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

          (b) Imposition Deposits shall be held in an institution (which may be
Lender, if Lender is such an institution) whose deposits or accounts are insured
or guaranteed by a federal agency. Lender shall not be obligated to open
additional accounts or deposit Imposition Deposits in additional institutions
when the amount of the Imposition Deposits exceeds the maximum amount of the
federal deposit insurance or guaranty. Lender shall apply the Imposition
Deposits to pay Impositions so long as no Event of Default has occurred and is
continuing. Unless applicable law requires, Lender shall not
be required to pay Borrower any interest, earnings or profits on the Imposition
Deposits. Borrower hereby pledges and grants to Lender a security interest in
the Imposition Deposits as additional security for all of Borrower's obligations
under this Instrument and the other Loan Documents. Any amounts deposited with
Lender under this Section 7 shall not be trust funds, nor shall they operate to
reduce the Indebtedness, unless applied by Lender for that purpose under Section
7(e).

                                                                      Page 11

<PAGE>

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

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

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

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

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

          10. COMPLIANCE WITH LAWS. Borrower shall comply with all laws,
ordinances, regulations and requirements of any Governmental Authority and all
recorded lawful covenants and agreements relating to or affecting the Mortgaged
Property, including all laws, ordinances, regulations, requirements and
covenants pertaining to health and safety, construction of improvements on the
Mortgaged Property, fair housing, zoning and land use, and Leases. Borrower also
shall comply with all applicable laws that pertain to the maintenance and
disposition of tenant security deposits. Borrower shall at all times maintain
records sufficient to demonstrate compliance with the provisions of this Section
10. Borrower shall take appropriate measures to prevent, and shall not engage in
or knowingly permit, any illegal activities at the Mortgaged Property that could
endanger tenants or visitors, result in damage to the Mortgaged Property, result
in forfeiture of the Mortgaged Property, or otherwise materially impair the lien
created by this Instrument or Lender's interest in the Mortgaged Property.
Borrower represents and warrants to

                                                                  Page 12

<PAGE>

Lender that no portion of the Mortgaged Property has been or will be purchased
with the proceeds of any illegal activity.

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

          12. PROTECTION OF LENDER'S SECURITY.

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

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

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

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

          14. BOOKS AND RECORDS; FINANCIAL REPORTING.

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

                                                                      Page 13

<PAGE>

inspection at any reasonable time by Lender.

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

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

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

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

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

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

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

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

         (c)      Each of the statements, schedules and reports required by
Section 14(b) shall be

                                                                         Page 14

<PAGE>

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

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

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

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

     (g) If an Event of Default has occurred and Lender has not previously
required Borrower to furnish a quarterly statement of income and expense for the
Mortgaged Property, Lender may require Borrower to furnish such a statement
within 45 days after the end of each fiscal quarter of Borrower following such
Event of Default.

     15. TAXES; OPERATING EXPENSES.

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

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

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

                                                                         Page 15

<PAGE>

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

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

         16. LIENS; ENCUMBRANCES. Borrower acknowledges that, to the extent
provided in Section 21, the grant, creation or existence of any mortgage, deed
of trust, deed to secure debt, security interest or other lien or encumbrance (a
"Lien") on the Mortgaged Property (other than the lien of this Instrument) or on
certain ownership interests in Borrower, whether voluntary, involuntary or by
operation of law, and whether or not such Lien has priority over the lien of
this Instrument, is a "Transfer" which constitutes an Event of Default.

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

         (b) If, in connection with the making of the loan evidenced by the Note
or at any later date, Lender waives in writing the requirement of Section
17(a)(5) above that Borrower enter into a written contract for management of the
Mortgaged Property and if, after the date of this Instrument, Borrower intends
to change the management of the Mortgaged Property, Lender shall have the right
to approve such new property manager and the written contract for the management
of the Mortgaged Property and require that Borrower and such new property
manager enter into an Assignment of Management Agreement on a form approved by
Lender. If required by Lender (whether before or after an Event of Default),
Borrower will cause any Affiliate of Borrower to whom fees are payable for the
management of the Mortgaged Property to enter into an agreement

                                                                         Page 16

<PAGE>

with Lender, in a form approved by Lender, providing for subordination of those
fees and such other provisions as Lender may require. "Affiliate of Borrower"
means any corporation, partnership, joint venture, limited liability company,
limited liability partnership, trust or individual controlled by, under common
control with, or which controls Borrower (the term "control" for these purposes
shall mean the ability, whether by the ownership of shares or other equity
interests, by contract or otherwise, to elect a majority of the directors of a
corporation, to make management decisions on behalf of, or independently to
select the managing partner of, a partnership, or otherwise to have the power
independently to remove and then select a majority of those individuals
exercising managerial authority over an entity, and control shall be
conclusively presumed in the case of the ownership of 50% or more of the equity
interests).

         18. ENVIRONMENTAL HAZARDS.

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

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

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

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

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

The matters described in clauses (1) through (4) above are referred to
collectively in this Section 18 as "Prohibited Activities or Conditions".

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

                                                                         Page 17

<PAGE>

used, stored, handled, transported and disposed of in compliance with Hazardous
Materials Laws.

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

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

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

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

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

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

               (4)  Borrower has complied with all Hazardous Materials Laws,
                    including all requirements for notification regarding
                    releases of Hazardous Materials. Without limiting the
                    generality of the foregoing, Borrower has obtained all
                    Environmental Permits required for the operation of the
                    Mortgaged Property in accordance with Hazardous Materials
                    Laws now in effect and all such Environmental Permits are in
                    full force and effect;

               (5)  no event has occurred with respect to the Mortgaged Property
                    that

                                                                         Page 18

<PAGE>

                    constitutes, or with the passing of time or the giving of
                    notice would constitute, noncompliance with the terms of any
                    Environmental Permit;

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

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

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

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

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

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

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

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

         (g)   Borrower shall pay promptly the costs of any environmental
inspections, tests or audits ("Environmental Inspections") required by Lender in
connection with any foreclosure or deed in lieu of foreclosure, or as a
condition of Lender's consent to any Transfer under Section 21, or required by
Lender following a reasonable determination by Lender that Prohibited Activities
or Conditions may exist. Any such costs incurred by Lender (including the fees
and out-of-pocket costs of attorneys and technical consultants whether incurred
in connection with any judicial or administrative process or otherwise) which
Borrower fails to pay promptly shall become an

                                                                         Page 19

<PAGE>

additional part of the Indebtedness as provided in Section 12. The results of
all Environmental Inspections made by Lender shall at all times remain the
property of Lender and Lender shall have no obligation to disclose or otherwise
make available to Borrower or any other party such results or any other
information obtained by Lender in connection with its Environmental Inspections.
Lender hereby reserves the right, and Borrower hereby expressly authorizes
Lender, to make available to any party, including any prospective bidder at a
foreclosure sale of the Mortgaged Property, the results of any Environmental
Inspections made by Lender with respect to the Mortgaged Property. Borrower
consents to Lender notifying any party (either as part of a notice of sale or
otherwise) of the results of any of Lender's Environmental Inspections. Borrower
acknowledges that Lender cannot control or otherwise assure the truthfulness or
accuracy of the results of any of its Environmental Inspections and that the
release of such results to prospective bidders at a foreclosure sale of the
Mortgaged Property may have a material and adverse effect upon the amount which
a party may bid at such sale. Borrower agrees that Lender shall have no
liability whatsoever as a result of delivering the results of any of its
Environmental Inspections to any third party, and Borrower hereby releases and
forever discharges Lender from any and all claims, damages, or causes of action,
arising out of, connected with or incidental to the results of, the delivery of
any of Lender's Environmental Inspections.

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

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

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

                                                                         Page 20

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                                                         Page 21

<PAGE>

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

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

         19. PROPERTY AND LIABILITY INSURANCE.

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

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

         (c) Borrower shall maintain at all times commercial general liability
insurance,

                                                                         Page 22

<PAGE>

workers' compensation insurance and such other liability, errors and omissions
and fidelity insurance coverages as Lender may from time to time require.

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

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

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

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

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

         20. CONDEMNATION.

                                                                         Page 23

<PAGE>

         (a) Borrower shall promptly notify Lender of any action or proceeding
relating to any condemnation or other taking, or conveyance in lieu thereof, of
all or any part of the Mortgaged Property, whether direct or indirect (a
"Condemnation"). Borrower shall appear in and prosecute or defend any action or
proceeding relating to any Condemnation unless otherwise directed by Lender in
writing. Borrower authorizes and appoints Lender as attorney-in-fact for
Borrower to commence, appear in and prosecute, in Lender's or Borrower's name,
any action or proceeding relating to any Condemnation and to settle or
compromise any claim in connection with any Condemnation. This power of attorney
is coupled with an interest and therefore is irrevocable. However, nothing
contained in this Section 20 shall require Lender to incur any expense or take
any action. Borrower hereby transfers and assigns to Lender all right, title and
interest of Borrower in and to any award or payment with respect to (i) any
Condemnation, or any conveyance in lieu of Condemnation, and (ii) any damage to
the Mortgaged Property caused by governmental action that does not result in a
Condemnation.

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

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

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

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

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

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

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

                                                                         Page 24

<PAGE>

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

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

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

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

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

             (1)  a Transfer to which Lender has consented;

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

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

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

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

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

         (c) Lender shall consent, without any adjustment to the rate at which
the Indebtedness secured by this Instrument bears interest or to any other
economic terms of the Indebtedness, to a Transfer that would otherwise violate
this Section 21 if, prior to the Transfer, Borrower has

                                                                         Page 25

<PAGE>

satisfied each of the following requirements:

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

             (2)  the absence of any Event of Default;

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

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

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

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

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

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

                                                                         Page 26

<PAGE>

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

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

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

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

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

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

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

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

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

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

             (3) "Publicly-Held Corporation" shall mean a corporation the
                 outstanding

                                                                         Page 27

<PAGE>

                    voting stock of which is registered under Section 12(b) or
                    12(g) of the Securities and Exchange Act of 1934, as
                    amended.

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

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

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

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

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

         (e) any Event of Default under Section 21;

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

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

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

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

         23. REMEDIES CUMULATIVE. Each right and remedy provided in this
Instrument is distinct from all other rights or remedies under this Instrument
or any other Loan Document or

                                                                         Page 28

<PAGE>

afforded by applicable law, and each shall be cumulative and may be exercised
concurrently, independently, or successively, in any order.

         24. FORBEARANCE.

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

         (b) Any forbearance by Lender in exercising any right or remedy under
the Note, this Instrument, or any other Loan Document or otherwise afforded by
applicable law, shall not be a waiver of or preclude the exercise of any other
right or remedy. The acceptance by Lender of payment of all or any part of the
Indebtedness after the due date of such payment, or in an amount which is less
than the required payment, shall not be a waiver of Lender's right to require
prompt payment when due of all other payments on account of the Indebtedness or
to exercise any remedies for any failure to make prompt payment. Enforcement by
Lender of any security for the Indebtedness shall not constitute an election by
Lender of remedies so as to preclude the exercise of any other right available
to Lender. Lender's receipt of any awards or proceeds under Sections 19 and 20
shall not operate to cure or waive any Event of Default.

         25. [INTENTIONALLY DELETED]. See Section 50.

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

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

                                                                         Page 29

<PAGE>

this Instrument.

         28. FURTHER ASSURANCES. Borrower shall execute, acknowledge, and
deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements, transfers and
assurances as Lender may require from time to time in order to better assure,
grant, and convey to Lender the rights intended to be granted, now or in the
future, to Lender under this Instrument and the Loan Documents.

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

         30. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

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

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

         31. NOTICE.

         (a) All notices, demands and other communications ("notice") under or
concerning this Instrument shall be in writing. Each notice shall be addressed
to the intended recipient at its address set forth in this Instrument, and shall
be deemed given on the earliest to occur of (1) the date when the notice is
received by the addressee; (2) the first Business Day after the notice is
delivered to a recognized overnight courier service, with arrangements made for
payment of charges for next Business Day delivery; or (3) the third Business Day
after the notice is deposited in the United States mail with postage prepaid,
certified mail, return receipt requested. As used in this Section 31, the term
"Business Day" means any day other than a Saturday, a Sunday or any other

                                                                         Page 30

<PAGE>

day on which Lender is not open for business.

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

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

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

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

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

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

         36. RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

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

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

                                                                         Page 31

<PAGE>

reduce the amount of the Indebtedness.

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

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

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

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

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

         42. SUBROGATION. If, and to the extent that, the proceeds of the loan
evidenced by the Note are used to pay, satisfy or discharge any obligation of
Borrower for the payment of money that is secured by a pre-existing mortgage,
deed of trust or other lien encumbering the Mortgaged Property (a "Prior Lien"),
such loan proceeds shall be deemed to have been advanced by Lender at

                                                                         Page 32

<PAGE>

Borrower's request, and Lender shall automatically, and without further action
on its part, be subrogated to the rights, including lien priority, of the owner
or holder of the obligation secured by the Prior Lien, whether or not the Prior
Lien is released.

         43. ACCELERATION; REMEDIES. At any time during the existence of an
Event of Default, Lender, at Lender's option, may declare the Indebtedness to be
immediately due and payable without further demand, and may invoke the power of
sale and any other remedies permitted by Texas law or provided in this
Instrument or in any other Loan Document. Borrower acknowledges that the power
of sale granted in this Instrument may be exercised by Lender without prior
judicial hearing. Lender shall be entitled to collect all costs and expenses
incurred in pursuing such remedies, including attorneys' fees, costs of
documentary evidence, abstracts and title reports.

         If Lender invokes the power of sale, Lender may, by and through the
Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such
portions, order and parcels as Lender may determine, with or without having
first taken possession of the Mortgaged Property, to the highest bidder for cash
at public auction. Such sale shall be made at the courthouse door of the county
in which all or any part of the Land to be sold is situated (whether the parts
or parcel, if any, situated in different counties are contiguous or not, and
without the necessity of having any Personalty present at such sale) on the
first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., after
advertising the time, place and terms of sale and that portion of the Mortgaged
Property to be sold by posting or causing to be posted written or printed notice
of sale at least twenty-one (21) days before the date of the sale at the
courthouse door of the county in which the sale is to be made and at the
courthouse door of any other county in which a portion of the Land may be
situated, and by filing such notice with the County Clerk(s) of the county(s) in
which all or a portion of the Land may be situated, which notice may be posted
and filed by the Trustee acting, or by any person acting for the Trustee, and
Lender has, at least twenty-one (21) days before the date of the sale, served
written or printed notice of the proposed sale by certified mail on each debtor
obligated to pay the Indebtedness according to Lender's records by the deposit
of such notice, enclosed in a postpaid wrapper, properly addressed to such
debtor at debtor's most recent address as shown by Lender's records, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to the
effect that such service was completed shall be prima facie evidence of the fact
of service.

         Trustee shall deliver to the purchaser at the sale, within a reasonable
time after the sale, a deed conveying the Mortgaged Property so sold in fee
simple with covenants of general warranty. Borrower covenants and agrees to
defend generally the purchaser's title to the Mortgaged Property against all
claims and demands. The recitals in Trustee's deed shall be prima facie evidence
of the truth of the statements contained in those recitals. Trustee shall apply
the proceeds of the sale in the following order: (a) to all reasonable costs and
expenses of the sale, including reasonable Trustee's fees and attorneys' fees
and costs of title evidence; (b) to the Indebtedness in such order as Lender, in
Lender's discretion, directs; and (c) the excess, if any, to the person or
persons legally entitled to the excess.

         If all or any part of the Mortgaged Property is sold pursuant to this
Section 43, Borrower will be divested of any and all interest and claim to the
Mortgaged Property, including any interest

                                                                         Page 33

<PAGE>

or claim to all insurance policies, utility deposits, bonds, loan commitments
and other intangible property included as a part of the Mortgaged Property.
Additionally, after a sale of all or any part of the Land, Improvements,
Fixtures and Personalty, Borrower will be considered a tenant at sufferance of
the purchaser of the same, and the purchaser shall be entitled to immediate
possession of such property. If Borrower shall fail to vacate the Mortgaged
Property immediately, the purchaser may and shall have the right, without
further notice to Borrower, to go into any justice court in any precinct or
county in which the Mortgaged Property is located and file an action in forcible
entry and detainer, which action shall lie against Borrower or its assigns or
legal representatives, as a tenant at sufferance. This remedy is cumulative of
any and all remedies the purchaser may have under this Instrument or otherwise.

         In any action for a deficiency after a foreclosure under this
Instrument, if any person against whom recovery is sought requests the court in
which the action is pending to determine the fair market value of the Mortgaged
Property, as of the date of the foreclosure sale, the following shall be the
basis of the court's determination of fair market value:

         (a)      the Mortgaged Property shall be valued as is and in its
                  condition as of the date of foreclosure, and no assumption of
                  increased value because of post-foreclosure repairs,
                  refurbishment, restorations or improvements shall be made;

         (b)      any adverse effect on the marketability of title because of
                  the foreclosure or because of any other title condition not
                  existing as of the date of this Instrument shall be
                  considered;

         (c)      the valuation of the Mortgaged Property shall be based upon an
                  assumption that the foreclosure purchaser desires a prompt
                  resale of the Mortgaged Property for cash within a six
                  month-period after foreclosure;

         (d)      although the Mortgaged Property may be disposed of more
                  quickly by the foreclosure purchaser, the gross valuation of
                  the Mortgaged Property as of the date of foreclosure shall be
                  discounted for a hypothetical reasonable holding period (not
                  to exceed 6 months) at a monthly rate equal to the average
                  monthly interest rate on the Note for the twelve months before
                  the date of foreclosure;

         (e)      the gross valuation of the Mortgaged Property as of the date
                  of foreclosure shall be further discounted and reduced by
                  reasonable estimated costs of disposition, including brokerage
                  commissions, title policy premiums, environmental assessment
                  and clean-up costs, tax and assessment, prorations, costs to
                  comply with legal requirements and attorneys' fees;

         (f)      expert opinion testimony shall be considered only from a
                  licensed appraiser certified by the State of Texas and, to the
                  extent permitted under Texas law, a member of the Appraisal
                  Institute, having at least five years experience in appraising
                  property similar to the Mortgaged Property in the county where
                  the Mortgaged Property is located, and who has conducted and
                  prepared a complete written appraisal of the

                                                                         Page 34

<PAGE>

                  Mortgaged Property taking into considerations the factors set
                  forth in this Instrument; no expert opinion testimony shall be
                  considered without such written appraisal;

         (g)      evidence of comparable sales shall be considered only if also
                  included in the expert opinion testimony and written appraisal
                  referred to in the preceding paragraph; and

         (h)      an affidavit executed by Lender to the effect that the
                  foreclosure bid accepted by Trustee was equal to or greater
                  than the value of the Mortgaged Property determined by Lender
                  based upon the factors and methods set forth in subparagraphs
                  (a) through (g) above before the foreclosure shall constitute
                  prima facie evidence that the foreclosure bid was equal to or
                  greater than the fair market value of the Mortgaged Property
                  on the foreclosure date.

         Lender may, at Lender's option, comply with these provisions in the
manner permitted or required by Title 5, Section 51.002 of the Texas Property
Code (relating to the sale of real estate) or by Chapter 9 of the Texas Business
and Commerce Code (relating to the sale of collateral after default by a
debtor), as those titles and chapters now exist or may be amended or succeeded
in the future, or by any other present or future articles or enactments relating
to same subject. Unless expressly excluded, the Mortgaged Property shall include
Rents collected before a foreclosure sale, but attributable to the period
following the foreclosure sale, and Borrower shall pay such Rents to the
purchaser at such sale. At any such sale:

         (a)      whether made under the power contained in this Instrument,
                  Section 51.002, the Texas Business and Commerce Code, any
                  other legal requirement or by virtue of any judicial
                  proceedings or any other legal right, remedy or recourse, it
                  shall not be necessary for Trustee to have physically present,
                  or to have constructive possession of, the Mortgaged Property
                  (Borrower shall deliver to Trustee any portion of the
                  Mortgaged Property not actually or constructively possessed by
                  Trustee immediately upon demand by Trustee) and the title to
                  and right of possession of any such property shall pass to the
                  purchaser as completely as if the property had been actually
                  present and delivered to the purchaser at the sale;

         (b)      each instrument of conveyance executed by Trustee shall
                  contain a general warranty of title, binding upon Borrower;

         (c)      the recitals contained in any instrument of conveyance made by
                  Trustee shall conclusively establish the truth and accuracy of
                  the matters recited in the Instrument, including nonpayment of
                  the Indebtedness and the advertisement and conduct of the sale
                  in the manner provided in this Instrument and otherwise by law
                  and the appointment of any successor Trustee;

         (d)      all prerequisites to the validity of the sale shall be
                  conclusively presumed to have been satisfied;

                                                                         Page 35

<PAGE>

         (e)      the receipt of Trustee or of such other party or officer
                  making the sale shall be sufficient to discharge to the
                  purchaser or purchasers for such purchaser(s) purchase money,
                  and no such purchaser or purchasers, or such purchaser(s)
                  assigns or personal representatives, shall thereafter be
                  obligated to see to the application of such purchase money or
                  be in any way answerable for any loss, misapplication or
                  nonapplication of such purchase money;

         (f)      to the fullest extent permitted by law, Borrower shall be
                  completely and irrevocably divested of all of Borrower's
                  right, title, interest, claim and demand whatsoever, either at
                  law or in equity, in and to the property sold, and such sale
                  shall be a perpetual bar to any claim to all or any part of
                  the property sold, both at law and in equity, against Borrower
                  and against any person claiming by, through or under Borrower;
                  and

         (g)      to the extent and under such circumstances as are permitted by
                  law, Lender may be a purchaser at any such sale.

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

         45.      TRUSTEE.

         (a)      Trustee may resign by giving of notice of such resignation in
                  writing to Lender. If Trustee shall die, resign or become
                  disqualified from acting under this Instrument or shall fail
                  or refuse to act in accordance with this Instrument when
                  requested by Lender or if for any reason and without cause
                  Lender shall prefer to appoint a substitute trustee to act
                  instead of the original Trustee named in this Instrument or
                  any prior successor or substitute trustee, Lender shall have
                  full power to appoint a substitute trustee and, if preferred,
                  several substitute trustees in succession who shall succeed to
                  all the estate, rights, powers and duties of the original
                  Trustee named in this Instrument. Such appointment may be
                  executed by an authorized officer, agent or attorney-in-fact
                  of Lender (whether acting pursuant to a power of attorney or
                  otherwise), and such appointment shall be conclusively
                  presumed to be executed with authority and shall be valid and
                  sufficient without proof of any action by Lender.

         (b)      Any successor Trustee appointed pursuant to this Section
                  shall, without any further act, deed or conveyance, become
                  vested with all the estates, properties, rights, powers and
                  trusts of the predecessor Trustee with like effect as if
                  originally named as Trustee in this Instrument; but,
                  nevertheless, upon the written request of Lender or such
                  successor Trustee, the Trustee ceasing to act shall execute
                  and deliver an instrument transferring to such successor
                  Trustee, all the estates, properties, rights, powers and
                  trusts of the Trustee so ceasing to act, and shall duly
                  assign, transfer and deliver any of the property and monies
                  held by the Trustee ceasing to act to the successor Trustee.

                                                                         Page 36

<PAGE>

         (c) Trustee may authorize one or more parties to act on Trustee's
             behalf to perform the ministerial functions required of Trustee
             under this Instrument, including the transmittal andposting of any
             notices.

         46. INTENTIONALLY DELETED

         47. NO FIDUCIARY DUTY. Lender owes no fiduciary or other special duty
to Borrower.

         48. FIXTURE FILING. This Instrument is also a fixture filing under the
Uniform Commercial Code of Texas.

         49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS. In no event
shall the assignment of Rents or Leases in Section 3 and Section 4 cause the
Indebtedness to be reduced by an amount greater than the Rents actually received
by Lender and applied by Lender to the Indebtedness, whether before, during or
after (i) an Event of Default, or (ii) a suspension or revocation of the license
granted to Borrower in Section 3(c) with regard to the Rents. Borrower and
Lender specifically intend that the assignment of Rents and Leases in Section 3
and Section 4 is not intended to result in a pro tanto reduction of the
Indebtedness. The assignment of Rents and Leases in Section 3 and Section 4 is
not intended to constitute a payment of, or with respect to, the Indebtedness
and, therefore, Borrower and Lender specifically intend that the Indebtedness
shall not be reduced by the value of the Rents and Leases assigned. Such
reduction shall occur only if, and to the extent that, Lender actually receives
Rents pursuant to Section 3 and applies such Rents to the Indebtedness. Borrower
agrees that the value of the license granted with regard to the Rents equals the
value of the absolute assignment of Rents to Lender. The assignment of Rents
contained in Section 3 shall terminate upon the release of this Instrument.

         50. LOAN CHARGES. Borrower and Lender intend at all times to comply
with the laws of the State of Texas governing the maximum rate or amount of
interest payable on or in connection with the Indebtedness (or applicable United
States federal law to the extent that it permits Lender to contract for, charge,
take, reserve or receive a greater amount of interest than under Texas law). If
the applicable law is ever judicially interpreted so as to render usurious any
amount payable under the Note, this Instrument or any other Loan Document, or
contracted for, charged, taken, reserved or received with respect to the
Indebtedness, or if acceleration of the maturity of the Indebtedness, or if any
prepayment by Borrower results in Borrower having paid any interest in excess of
that permitted by any applicable law, then Borrower and Lender expressly intend
that all excess amounts collected by Lender shall be applied to reduce the
unpaid principal balance of the Indebtedness (or, if the Indebtedness has been
or would thereby be paid in full, shall be refunded to Borrower), and the
provisions of the Note, this Instrument and the other Loan Documents immediately
shall be deemed reformed and the amounts thereafter collectible under the Loan
Documents reduced, without the necessity of the execution of any new documents,
so as to comply with any applicable law, but so as to permit the recovery of the
fullest amount otherwise payable under the Loan Documents. The right to
accelerate the maturity of the Indebtedness does not include the right to
accelerate any interest which has not otherwise accrued on the date of such

                                                                         Page 37

<PAGE>

acceleration, and Lender does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the Indebtedness shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of the Indebtedness until payment in full so that the rate or amount of
interest on account of the Indebtedness does not exceed the applicable usury
ceiling. Notwithstanding any provision contained in the Note, this Instrument or
any other Loan Document that permits the compounding of interest, including any
provision by which any accrued interest is added to the principal amount of the
Indebtedness, the total amount of interest that Borrower is obligated to pay and
Lender is entitled to receive with respect to the Indebtedness shall not exceed
the amount calculated on a simple (i.e., noncompounded) interest basis at the
maximum rate on principal amounts actually advanced to or for the account of
Borrower, including all current and prior advances and any advances made
pursuant to the Instrument or any other Loan Document (such as for the payment
of Impositions and similar expenses or costs).

         51. PROPERTY AND LIABILITY INSURANCE DELIVERY OF POLICY TO LENDER.
Notwithstanding the provisions of Section 19(b), Borrower shall not be required
to deliver the original (or a duplicate original) of any renewal policy of
insurance to Lender more than 15 days prior to the expiration date of the policy
then held by Lender.

         52. ENTIRE AGREEMENT. THIS INSTRUMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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

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

                  [X]  Exhibit A      Description of the Land (required).
                   -

                  [_]  Exhibit B      Modifications to Instrument

                                                                         Page 38

<PAGE>

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

BORROWER:

CAC IV Limited Partnership
a Virginia limited Partnership

By:      CAC IV Special General, Inc.
         a Virginia corporation
Its:     General Partner

         By:      /s/ Stanley J. Olander, Jr.
                   ----------------------------------
                  Stanley J. Olander, Jr.
         Its:     Vice President

Borrower's Social Security/Employer ID Number:  54-1589139

                                                                         Page 39

<PAGE>

                                  KEY PRINCIPAL

Key Principal(s)

Cornerstone Realty Income Trust, Inc.
306 E. Main Street
Richmond, VA 23219

                                                                         Page 40

<PAGE>

THE STATE OF VIRGINIA
             --------

CITY OF RICHMOND
        --------

         BEFORE ME Kay T. Eaves, the undersigned, a Notary Public in and for
                   ------------
said City and State, on this day personally appeared Stanley J. Olander, Jr.,
                                                     ----------------------
known to me to be the Vice President of CAC IV Special General, Inc., a Virginia
                      ----------------------------------------------------------
corporation, General Partner of CAC IV Limited Partnership, a Virginia limited
------------------------------------------------------------------------------
partnership that executed the foregoing instrument, and known to me to be the
-----------
person who executed the foregoing instrument on behalf of said corporation.

         GIVEN UNDER MY HAND AND SEAL OF OFFICE this 20 day of June, 2001.
                                                     --        ----

                                                      /s/ Kay T. Eaves
                                                      --------------------------

                                                      Notary Public in and for
                                                      City of Richmond, Virginia
                                                      --------------------------

<PAGE>

                                    EXHIBIT A

                                    [OMITTED]

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