Document:

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                                                                    EXHIBIT 10.5

                                    GUARANTY

         THIS GUARANTY ("Guaranty") is executed as of January 11, 2002 by
SUNRISE DUNWOODY ASSISTED LIVING, L.P., a Georgia limited partnership, SUNRISE
COLUMBUS ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership,
SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company,
SUNRISE GREENVILLE ASSISTED LIVING LIMITED PARTNERSHIP, a South Carolina limited
partnership, SUNRISE POLAND ASSISTED LIVING, L.L.C., an Ohio limited liability
company, SUNRISE AUGUSTA ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited
partnership, SUNRISE EASTOVER ASSISTED LIVING, L.L.C., a North Carolina limited
liability company, SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited
liability company, SUNRISE FALL CREEK ASSISTED LIVING, L.L.C., an Indiana
limited liability company, SUNRISE FORT WAYNE ASSISTED LIVING, L.L.C., an
Indiana limited liability company, SUNRISE SHAKER HEIGHTS ASSISTED LIVING,
L.L.C., a Virginia limited liability company, SUNRISE WILLOW LAKE ASSISTED
LIVING, L.L.C., an Indiana limited liability company, SUNRISE WOOSTER ASSISTED
LIVING, L.L.C., an Ohio limited liability company, SUNRISE FLOSSMOOR ASSISTED
LIVING, L.L.C., an Illinois limited liability company, and SUNRISE ASSISTED
LIVING INVESTMENTS, INC., a Virginia corporation ("SALII"), all having a mailing
address at c/o Sunrise Assisted Living, Inc., 7902 Westpark Drive, McLean,
Virginia 22102 (jointly and severally, hereinafter called "Guarantors"), for the
benefit of FLEET NATIONAL BANK, a national banking association having an address
at One Federal Street, 4th Floor, Mail Stop: MA DE 10304X, Boston, Massachusetts
02110, as administrative agent for the Lenders (in such capacity, together with
its successors and assigns in such capacity, the "Administrative Agent"). This
Guaranty is given in connection with a $92,000,000 loan (the "Loans") as
evidenced by certain promissory note(s) (collectively, if more than one, the
"Notes") given in connection with the Credit Agreement referred to below and
which is secured by certain mortgages dated as of even date herewith, as may be
amended from time to time (collectively, the "Mortgages") given by Guarantors in
favor of the Administrative Agent.

         Capitalized terms used herein and not otherwise specifically defined
shall have the same meaning herein as in the Credit Agreement dated as of even
date herewith, as may be amended from time to time (the "Credit Agreement"),
among SUNRISE ASSISTED LIVING, INC., a Delaware corporation having an address at
7902 Westpark Drive, McLean, Virginia 22102 ("Borrower"), the institutions from
time to time who are a party thereto as "Lenders" (whether by execution of
thereof or through an Assignment and Acceptance Agreement), Administrative
Agent, and the other Agents listed therein.

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                                    RECITALS

         WHEREAS, the Guarantors and Borrower are engaged in related businesses,
and each Guarantor has derived and will derive substantial direct and indirect
benefit from the making of the extensions of credit under the Credit Agreement;

         NOW, THEREFORE, for value received, and to induce Lenders to extend
credit to Borrower, as provided for in the Credit Agreement and the other Loan
Documents, Guarantors hereby jointly and severally unconditionally agree as
follows:

         1. GUARANTY. Each Guarantor, as a primary party and not merely as a
surety, unconditionally and irrevocably guarantees the following (the
"Guaranteed Obligations"):

                  A. ALL OBLIGATIONS. The prompt and full payment (and not
         merely the collectability), performance and observance of all of the
         obligations, terms and conditions to be paid, performed or observed by
         Borrower under the Notes, the Credit Agreement, the Mortgages, the
         Interest Rate Protection Agreements, and each other Loan Document, each
         as the same may be hereafter amended, modified, extended, renewed or
         recast, including, but not limited to the payment of $92,000,000, or so
         much thereof as may be outstanding as principal, together with interest
         and other charges thereon as provided for in the Notes and the Credit
         Agreement.

                  B. CARRY. The prompt and full payment, and not merely the
         collectability, when due of interest on the Loans and all other costs
         of financing, owning, developing, operating, leasing, maintaining,
         repairing and restoring the Facilities, including, without limitation,
         the payment when due of all real estate taxes, municipal charges,
         utility charges, insurance premiums, other operating expenses and
         expenses of developing, marketing and leasing.

         Notwithstanding any provision contained in this Agreement or any other
Loan Document to the contrary, it is the intention and agreement of each
Guarantor that the obligations of such Guarantor under this Agreement shall be
valid and enforceable against such Guarantor to the maximum extent permitted by
applicable law. Accordingly, if any provision of this Agreement creating any
obligation of any Guarantor in favor of the Administrative Agent and the Lenders
shall be declared to be invalid or unenforceable in any respect or to any
extent, it is the stated intention and agreement of such Guarantor, the
Administrative Agent and the Lenders that any balance of the obligation created
by such provision and all other obligations of such Guarantor to the
Administrative Agent and the Lenders created by other provisions of this
Agreement shall remain valid and enforceable. Likewise, if any sums which the
Administrative Agent and the Lenders may be otherwise entitled to collect from
such Guarantor under this Agreement shall be declared to be in excess of those
permitted under any law (including any federal or state fraudulent conveyance or
like statute or rule of law) applicable to such Guarantor's Guarantor
Obligations, it is the stated intention and agreement of such Guarantor to the
Administrative Agent and the Lenders, that all sums not in excess of those
permitted under such applicable law shall remain fully collectible by the
Administrative Agent and the Lenders from such Guarantor and such excess sums
shall nevertheless survive as a subordinate obligation of such Guarantor,

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junior in right to the claims of general unsecured creditors, but prior to the
claims of equityholders in such Guarantor.

         Upon any Event of Default under the Credit Agreement, or any of the
other Loan Documents, or if Administrative Agent has accelerated the Loans
pursuant to a right to do so under the Credit Agreement, Administrative Agent
may at its option proceed directly and at once, without further notice, against
any or all Guarantors hereunder, without proceeding against Borrower, or any
other person or other Collateral for the obligations secured by this Guaranty.
Any sums payable by Guarantors hereunder shall bear interest at the Default Rate
from the date of demand until the date paid.

         If Borrower, or any Guarantor if so required, shall fail or refuse to
perform or continue performance of all of the Obligations of the Credit
Agreement on the part of Borrower to be kept and performed, then, if an Event of
Default exists on account thereof under the Credit Agreement or this Guaranty,
in addition to any other rights and remedies which Administrative Agent may have
hereunder or elsewhere, and not in limitation thereof, Administrative Agent, at
Administrative Agent's option, may exercise any or all of its rights and
remedies under the Credit Agreement and each other Loan Document.

         This Guaranty shall survive and continue in full force and effect
beyond and after the payment and satisfaction of the Guaranteed Obligations and
the Obligations of Borrower in the event the Administrative Agent or Lenders are
required to disgorge or return any payment or property received as a result of
any laws pertaining to preferences, fraudulent transfers or fraudulent
conveyances.

         2. WAIVERS. Each Guarantor hereby waives and relinquishes to the
fullest extent now or hereafter not prohibited by applicable law:

                  (a) all suretyship defenses and defenses in the nature
         thereof;

                  (b) any right or claim of right to cause a marshalling of the
         assets of Borrower or of any Collateral, or to cause Administrative
         Agent to proceed against any of the other security for the Guaranteed
         Obligations or the Obligations of Borrower before proceeding under this
         Agreement against Guarantor, or, if there shall be more than one
         Guarantor, to require Administrative Agent to proceed against any other
         Guarantor or any of Guarantors in any particular order;

                  (c) until the full and Non-Contestable Payment (as hereinafter
         defined) and satisfaction of all Obligations, all rights and remedies,
         including, but not limited to, any rights of subrogation, contribution,
         reimbursement, exoneration or indemnification pursuant to any
         agreement, express or implied, or now or hereafter accorded by
         applicable law to indemnitors, guarantors, sureties or accommodation
         parties. Provided, however, unless Administrative Agent otherwise
         expressly agrees in writing, such waiver by a Guarantor shall not be
         effective to the extent that by virtue thereof such Guarantor's
         liability under this Guaranty or under any other Loan Document is
         rendered invalid, voidable, or

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         unenforceable under any applicable state or federal law dealing with
         the recovery or avoidance of so-called preferences or fraudulent
         transfers or conveyances or otherwise;

                  (d) notice of the acceptance hereof, presentment, demand for
         payment, protest, notice of protest, or any and all notice of
         nonpayment, nonperformance, nonobservance or default, or other proof or
         notice of demand whereby to charge Guarantors therefor;

                  (e) the pleading of any Statute of Limitations as a defense to
         Guarantors' obligations hereunder;

                  (f) the right to a trial by jury in any matter related to this
         Guaranty; and

                  (g) the benefit of all other provisions of law which may be
         validly waived.

         3. CUMULATIVE RIGHTS. Administrative Agent's rights under this
Agreement shall be in addition to and not in limitation of all of the rights and
remedies of Administrative Agent under the Loan Documents. All rights and
remedies of Administrative Agent shall be cumulative and may be exercised in
such manner and combination as Administrative Agent may determine.

         4. NO IMPAIRMENT. The liability of Guarantors hereunder shall in no way
be limited or impaired by, and Guarantors hereby assent to and agree to be bound
by, any amendment or modification of the provisions of the Loan Documents to or
with Lenders or Administrative Agent by Borrower or any other Guarantor or any
person who succeeds Borrower or a Guarantor as owner of the Facilities. In
addition, the liability of Guarantors under this Guaranty and the other Loan
Documents shall in no way be limited or impaired by:

                  (a) any extensions of time for performance required by any of
         the Loan Documents;

                  (b) any amendment to or modification of any of the Loan
         Documents;

                  (c) any sale or assignment of the Loans or any sale,
         assignment or foreclosure of the Mortgages or any sale, transfer or
         exchange of all or part of the Facilities;

                  (d) any exculpatory, or nonrecourse, or limited recourse,
         provision in any of the Loan Documents limiting Administrative Agent's
         recourse to the Facilities encumbered by the Mortgages or to any other
         property or limiting Administrative Agent's rights to a deficiency
         judgment against Borrower or any other person or entity;

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                  (e) the accuracy or inaccuracy of any of the representations
         or warranties made by or on behalf of Borrower or Guarantors, under any
         Loan Document or otherwise;

                  (f) the release of Borrower or any other person or entity,
         from performance or observance of any of the agreements, covenants,
         terms or conditions contained in any of the Loan Documents by operation
         of law, Administrative Agent's voluntary act, or otherwise;

                  (g) the filing of any bankruptcy or reorganization proceeding
         by or against Borrower or any subsequent owner of the Facilities;

                  (h) the release or substitution in whole or part of any
         collateral or security for the Obligations or the Guaranteed
         Obligations;

                  (i) Administrative Agent's failure to record the Mortgages or
         file any UCC financing statements, or Administrative Agent's improper
         recording or filing of any thereof, or Administrative Agent's failure
         to otherwise perfect, protect, secure, or insure any security interest
         or lien given as security for the Obligations;

                  (j) the release of any other party now or hereafter liable
         upon or in respect of this Guaranty or any of the other Loan Documents;
         or

                  (k) the invalidity or unenforceability of all or any portion
         of any of the Loan Documents as to Borrower or any other person or
         entity.

Any of the foregoing may be accomplished with or without notice to Borrower or
any Guarantor and with or without consideration.

         5. DELAY NOT WAIVER. No delay on Administrative Agent's part in
exercising any right, power or privilege hereunder or under any of the Loan
Documents shall operate as a waiver of any such privilege, power or right. No
waiver by Administrative Agent in any instance shall constitute a waiver in any
other instance.

         6. WARRANTIES AND REPRESENTATIONS. Each Guarantor warrants and
represents to Lenders and Administrative Agent for the express purpose of
inducing Lenders and Administrative Agent to make the Loans and enter into the
Loan Documents, and to accept this Guaranty, that as of the date of this
Guaranty and at all times thereafter until the Loans are repaid and all
Guaranteed Obligations to Administrative Agent and Lenders have been satisfied
in full, as follows:

                  (a) EXISTENCE/GOOD STANDING. Each Guarantor is a limited
         partnership or a limited liability company duly organized and existing
         and in good standing under the laws of the jurisdiction of its
         formation, has the power to own its property and to carry on its
         business as now being conducted, and is duly

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         qualified to do business and is in good standing in each jurisdiction
         in which each Facility owned by such Guarantor is located and in which
         the character of the properties owned by it therein or in which the
         transaction of its business makes such qualification necessary.

                  (b) POWER AND AUTHORITY. Each Guarantor has full power and
         authority to execute and deliver this Agreement and each of the other
         Loan Documents executed and delivered by it, to enter into this
         Guaranty and the Security Documents, and to incur the Obligations, all
         of which have been duly authorized by all proper and necessary entity
         action. No consent or approval of partners or members of, or lenders
         to, Guarantors, and no consent or approval of any Governmental
         Authority or any third party payor on the part of Guarantors, is
         required as a condition to the validity or enforceability of this
         Agreement or any of the other Loan Documents executed and delivered by
         any of Guarantors or to the payment or performance by Guarantors of the
         Obligations.

                  (c) BINDING AGREEMENTS. This Guaranty and each of the other
         Loan Documents executed and delivered by Guarantors have been properly
         executed by Guarantors, constitute valid and legally binding
         obligations of Guarantors, and are fully enforceable against Guarantors
         in accordance with their respective terms.

                  (d) LITIGATION. There are no proceedings pending before any
         court or arbitrator or before or by any Governmental Authority which,
         in any one case or in the aggregate, will cause a Material Adverse
         Change in any of Guarantors or affect the authority of any of
         Guarantors to enter into this Guaranty or any of the other Loan
         Documents executed and delivered by any of Guarantors. There is no
         pending revocation, suspension, termination, probation, restriction,
         limitation or non-renewal of any License, Participation Agreement or
         any similar accreditation or approval organization or Governmental
         Authority for healthcare providers, including, without limitation, the
         issuance of any provisional License or other License with a term of
         less than twelve (12) months, as a consequence of any sanctions imposed
         by any Governmental Authority, nor is there any pending assessment of
         any civil or criminal penalties by any Governmental Authority, the
         outcome of which, if determined adversely to any of Guarantors, could
         result in a Material Adverse Change in any of Guarantors. Guarantors do
         not have any appeals regarding rates or reimbursements currently
         pending or contemplated before any Governmental Authority or any
         administrator of any third party payor or preferred provider program or
         referral source, the outcome of which, if determined adversely to any
         of Guarantors, could result in a Material Adverse Change in any of
         Guarantors. There are no Medicare or Medicaid recoupments or
         recoupments of any other third party payor being sought, requested or
         claimed, against any of Guarantors in writing to, and approved by, the
         Administrative Agent.

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                  (e) NO CONFLICTING AGREEMENTS. There is (a) no provision of
         any Guarantors' partnership agreement, articles of incorporation or
         operating agreement and no provision of any existing mortgage,
         indenture, contract or agreement binding on any of the Guarantors or
         affecting its property, and (b) to the knowledge of Guarantors, no
         provision of law or order of court binding upon any of Guarantors,
         which would conflict with or in any way prevent the execution,
         delivery, or performance of the terms of this Agreement or of any of
         the other Loan Documents executed and delivered by any of Guarantors,
         or which would be violated as a result of such execution, delivery or
         performance, or, if so, all necessary consents have been obtained.

                  (f) FINANCIAL INFORMATION. All financial statements or
         information hereto furnished to the Lenders with respect to Guarantors,
         each Facility and Borrower is complete and correct in all material
         respects and fairly presents the financial condition of Guarantors and
         the financial condition of the Facilities. There are no liabilities,
         direct or indirect, fixed or contingent, of any of Guarantors which are
         not reflected in the their respective financial statements or in the
         notes thereto. There has been no Material Adverse Change in the
         financial condition or operations of any of Guarantors since the
         financial statements dated December 31, 2000 (and to Guarantors'
         knowledge, no such Material Adverse Change is pending), and none of
         Guarantors has guaranteed the obligations of, or made any investments
         in or advances to, any company, individual or other entity, except as
         disclosed in such information.

                  (g) NO DEFAULT. None of Guarantors is in default under or with
         respect to any obligation under any agreement to which such Guarantor
         is a party in any respect which could result in a Material Adverse
         Change. There is no Event of Default hereunder.

                  (h) TAXES. Guarantors have filed or have caused to have been
         filed all federal, state and local tax or informational returns which
         are required by law to be filed, and has paid or caused to have been
         paid all taxes as shown on such returns or on any assessment received
         by them, to the extent that such taxes have become due, or which are
         required by law to be paid, unless and to the extent only that such
         taxes, assessments and governmental charges are currently contested in
         good faith and by appropriate proceedings by Guarantors and adequate
         reserves therefor have been established as required under GAAP.

                  (i) PLACE(s) OF BUSINESS AND LOCATION OF COLLATERAL.
         Guarantors warrant that the address of Guarantors' chief executive
         office is as specified above and that the address of each other place
         of business of any of Guarantors, are as disclosed on Schedule 4.1D in
         the Credit Agreement. The Collateral and all books and records
         pertaining to the Collateral are and/or will be located at such
         addresses. Guarantors will immediately advise the Administrative Agent
         in writing of the opening of any new place of business or the closing
         of any existing

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         place of business of any of Guarantors, and of any change in the
         location of the places where the Collateral, or any part thereof, or
         the books and records concerning the Collateral, or any part thereof,
         are kept or of any change in the states of organization of a Guarantor.

                  (j) USE; TITLE AND CONDITION OF PROPERTIES. Each Facility is
         utilized principally as an assisted living facility and is consistent
         with the operating characteristics of the existing portfolio of
         facilities controlled by Borrower. Each Facility other than Sunrise of
         Wooster (Ohio) is wholly owned in fee by Borrower or a Guarantor which
         is a wholly owned subsidiary of Borrower. Guarantors have good and
         marketable title to all of their properties, including, without
         limitation, the Facilities and the Collateral. The Facilities and the
         Collateral are free and clear of mortgages, pledges, liens, springing
         liens, charges and other encumbrances other than the Permitted Liens on
         the Facilities. There are no material environmental and/or structural
         defects and material deferred maintenance with respect to any Facility.

                  (k) RECORDING. Each of the Mortgages will be effective to
         create in favor of the Administrative Agent, for the benefit of the
         Lenders, a legally valid and enforceable Lien on the Facilities
         described therein and proceeds thereof; and when the Mortgages are
         filed in the appropriate offices in the jurisdictions in which the
         Facilities are located, each such Mortgage shall constitute a fully
         perfected first priority Lien on, and security interest in, all right,
         title and interest of the Guarantors in the Facilities and the proceeds
         thereof, as security for their respective obligations (as set forth in
         the relevant Mortgage), in each case prior and superior in right to any
         other Person subject to those matters listed on the title insurance
         policies being issued to the Administrative Agent as of the date of
         recording.

                  (l) ERISA. With respect to any "pension plan", as defined in
         Section 3(2) of ERISA, which plan is now or previously has been
         maintained or contributed to by any of Guarantors and/or by any
         Commonly Controlled Entity: (a) no "accumulated funding deficiency" as
         defined in Code Section 412 or ERISA Section 302 has occurred, whether
         or not that accumulated funding deficiency has been waived; (b) no
         "reportable event" as defined in ERISA Section 4043 has occurred; (c)
         no termination of any plan subject to Title IV of ERISA has occurred;
         (d) neither any of Guarantors nor any Commonly Controlled Entity has
         incurred a "complete withdrawal" within the meaning of ERISA Section
         4203 from any multiemployer plan; (e) neither any of Guarantors nor any
         Commonly Controlled Entity has incurred a "partial withdrawal" within
         the meaning of ERISA Section 4205 with respect to any multiemployer
         plan; (f) no multiemployer plan to which any of Guarantors or any
         Commonly Controlled Entity has an obligation to contribute is in
         "reorganization" within the meaning of ERISA Section 4241 nor has
         notice been received by any of Guarantors or any Commonly Controlled
         Entity that such a multiemployer plan will be placed in
         "reorganization".

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                  (m) GOVERNMENTAL CONSENT. Neither the nature of any of
         Guarantors or of its business or properties, nor any relationship
         between any of Guarantors and any other Person, nor any circumstance in
         connection with the making of the Loan, or the offer, issue, sale or
         delivery of the Notes is such as to require a consent, approval or
         authorization of, or filing, registration or qualification with, any
         Governmental Authority, on the part of any of Guarantors, as a
         condition to the execution and delivery of this Agreement or any of the
         other Loan Documents, the borrowing of the principal amounts of the
         Loan or the offer, issue, sale or delivery of the Note 4.

                  (n) FULL DISCLOSURE. The financial statements that were
         delivered to Lenders in connection with the Loans do not, nor does this
         Guaranty, nor do any written statements furnished by Guarantors to the
         Administrative Agent in connection with the making available of the
         Loans, contain any untrue statement of fact or knowingly omit a
         material fact necessary to make the statements contained therein or
         herein not materially misleading. Guarantors have not failed to
         disclose any fact to the Administrative Agent in writing which
         materially adversely affects or, will or could prove to materially
         adversely affect the properties, business, prospects, profits or
         condition (financial or otherwise) of any of Guarantors or the ability
         of any of Guarantors to perform this Guaranty or any of the other Loan
         Documents.

                  (o) BUSINESS NAMES AND ADDRESSES. Guarantors have not
         conducted business under any name other than their current names or
         trade names or under the "Karrington" name and have not conducted their
         business in any jurisdiction other than those listed on Schedule 4.1D
         to the Credit Agreement. Guarantors intend to operate the Facilities
         under the names set forth on Schedule 4.1D to the Credit Agreement.
         Guarantors shall promptly notify the Administrative Agent of any change
         in the name of any Facility.

                  (p) LICENSES AND CERTIFICATIONS. Guarantors further represent
         and warrant to the Lenders that, with respect to any License they
         possess or have applied for, (a) no Default or Event of Default has
         occurred or is continuing under the terms of any of the Licenses, or
         any condition to the issuance, maintenance, renewal and/or continuance
         of any License, (b) Guarantors have paid all fees, charges and other
         expenses to the extent due and payable with respect to, and have
         provided all information and otherwise complied with all material
         conditions precedent to, the issuance, maintenance, renewal, and
         continuance of all Licenses, (c) Guarantors have not received any
         notice from any Governmental Authority relating to any actual or
         pending suspension, revocation, restriction, or imposition of any
         probationary use, of any License, nor has any License been materially
         amended, supplemented, rescinded, terminated, or otherwise modified
         except as otherwise disclosed in writing to, and approved by, the
         Administrative Agent, (d) Guarantors have not made any previous
         assignment of any of the Licenses to any Person, and (e) no financing
         statement covering any of the Licenses is on file in

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         any public office except financing statements in favor of the Lenders.
         Without implying any limitation to the other representations and
         warranties contained in this Agreement, Guarantors are not required by
         any applicable Legal Requirement of any state, county or city in which
         any of the Facilities is located to obtain a certificate of need to
         operate any Facility as an assisted living facility or has applied for
         and obtained such Certificate(s) of Need. Licenses to operate are
         required in all states where the Facilities are. In New York and
         Illinois, licenses must be held by a Home Healthcare Provider as of the
         date hereof. After January 1, 2002 an Illinois Facility owner may apply
         for a direct license, and a Home Healthcare Provider will not be
         required. A list of the major Licenses for each Facility is attached as
         Schedule 1.

                  (q) OPERATING AGREEMENTS AND MANAGEMENT CONTRACTS. Guarantors
         have furnished to the Administrative Agent photocopies of all material
         Operating Agreements and Management Contracts entered into with respect
         to the Facilities, and all amendments, supplements and modifications
         thereto including, without limitation, the Management Agreement.
         Guarantors further represent and warrant to the Lenders that (a) all of
         the material Operating Agreements and Management Contracts are or will
         be at the time of execution and delivery thereof valid and binding on
         the parties thereto and in full force and effect, (b) no Default or
         Event of Default has occurred or is continuing under the terms of any
         of the material Operating Agreements and Management Contracts, and no
         party thereto has attempted or threatened to terminate any such
         Management Contract or Operating Agreement, (c) Guarantors have not
         made any previous assignment of any Operating Agreements and Management
         Contracts to any Person, and (d) no financing statement covering any of
         the Operating Agreements and Management Contracts is on file in any
         public office, except financing statements in favor of the Lenders in
         connection with the Credit Facility.

                  (r) PARTICIPATION AGREEMENTS AND RESIDENT AGREEMENTS.
         Guarantors have furnished to the Administrative Agent, on or before the
         Closing Date, Guarantors' form of Resident Agreement used with respect
         to all Facilities and, if requested by the Administrative Agent after
         the occurrence and during the continuance of a Default, copies of all
         current, executed Resident Agreements for any or all of the Facilities.

                  Guarantors further covenant to the Lenders that, with respect
         to the Participation Agreements, if any, (i) to the best of their
         knowledge, all Participation Agreements will be at the time of
         execution and delivery thereof valid and binding on the parties thereto
         and in full force and effect, and (ii) all Participation Agreements
         will provide for payment to the applicable Guarantor for services
         rendered to residents. Guarantors represent and warrant that as of the
         date hereof it has not entered into any Participation Agreement for any
         Facility.

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                  To the extent Guarantors participate or will participate in
         Medicare or Medicaid payment and reimbursement programs, Guarantors
         have complied and will comply with all notice and other requirements
         under Title XVIII and Title XIX of the Social Security Act to enable
         Guarantors to participate in the Medicare and Medicaid payment and
         reimbursement programs.

                  (s) COMPLIANCE WITH LAWS. None of Guarantors is in violation
         of any applicable laws of any Governmental Authority pertaining to
         employment practices, health standards or controls, environmental and
         occupational standards or controls or order of any court or arbitrator,
         the violation of which, considered in the aggregate, would result in a
         Material Adverse Change in any of Guarantors. Each of Guarantors are in
         compliance with all accreditation standards and requirements to which
         it is subject. Each of Guarantors has obtained or will obtain all
         Licenses necessary to the ownership of its property or to the conduct
         of its activities which, if not obtained, could materially adversely
         affect the ability of any of Guarantors to conduct its activities of
         operating each Facility as an assisted living facility, including,
         without limitation if and as required by any Governmental Authorities
         for the dispensing, storage, prescription, disposal, and use of drugs,
         medications and other "controlled substances" and for the maintenance
         of cafeteria and other food and beverage facilities or services or the
         condition (financial or otherwise) of any of Guarantors.

                  (t) PRESENCE OF HAZARDOUS MATERIALS OR HAZARDOUS MATERIALS
         CONTAMINATION. None of Guarantors has placed Hazardous Materials on any
         real property owned, controlled or operated by any of Guarantors or for
         which any of Guarantors are responsible except as described in the
         following sentence. To the best of Guarantors' knowledge, no Hazardous
         Materials are located on any real property owned, controlled or
         operated by any of Guarantors, except for reasonable quantities of
         necessary supplies for use by Guarantors in the ordinary course of its
         current line of business and stored, used and disposed of in accordance
         with applicable Legal Requirements, and no property owned, controlled
         or operated by any of Guarantors has ever been used as a manufacturing,
         storage, or dump site for Hazardous Materials nor is such property
         affected by Hazardous Materials contamination.

                  (u) BENEFITS TO GUARANTORS. Each Person included in the term
         "Guarantors" hereby represents and warrants to the Administrative Agent
         that each of them will derive benefits, directly and indirectly, from
         each advance under the Loan, both in their separate capacity and as a
         member of the integrated group to which each such Person belongs and
         because the successful operation of the integrated group is dependent
         upon the continued successful performance of the functions of the
         integrated group as a whole. Each Guarantor is, both before and after
         giving effect to the incurrence of the Loans, will be and will continue
         to be at all times, Solvent.

                                      -11-
<PAGE>

                  (v) COMPLIANCE WITH ZONING. Guarantors represent and warrant
         that the use of each Facility complies with applicable zoning
         ordinances, regulations and restrictive covenants affecting such
         Facility, all use requirements of any Governmental Authority having
         jurisdiction have been satisfied, and no violation of any law or
         regulation exists with respect thereto.

                  (w) OTHER LIENS. Guarantors represent and warrant that except
         as otherwise provided in the Loan Documents, Guarantors have made no
         contract or arrangement of any kind the performance of which by the
         other party thereto would give rise to a Lien on any Facility.

                  (x) DEFAULTS. Guarantors represent and warrant that there is
         no Default or Event of Default on the part of any of Guarantors under
         the Loan Documents.

                  (y) NOTES RECEIVABLE. SALII hereby represents and warrants
         that the provisions of the Article III of the Credit Agreement are true
         and correct with respect to the Notes Receivable held by SALII.

                  (z) SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES. All
         representations and warranties contained in or made under or in
         connection with this Guaranty and the other Loan Documents shall
         survive the date of this Agreement and the Loan made hereunder. The
         Lenders acknowledge and agree that any and all representations and
         warranties contained in, or made under, or in connection with, this
         Guaranty may be amended, changed or otherwise modified by Guarantors at
         any time and from time to time after the date of this Guaranty so as to
         accurately reflect the matters represented and warranted therein;
         provided, that such amendments, changes and/or modifications are
         disclosed in writing to the Administrative Agent. The Lenders shall
         have no obligation to waive any Event of Default due to any present or
         future inaccuracy of such representation or warranty or to agree to any
         amendment, change or modification of any such representation or
         warranty.

         7. AFFIRMATIVE COVENANTS OF GUARANTORS. Until payment in full and the
performance of all of the Obligations hereunder, each Guarantor shall:

                  (a) FINANCIAL STATEMENTS. Furnish to the Administrative Agent:

                           (i) QUARTERLY STATEMENTS. Not later than forty-five
                  (45) days after the close of each of Guarantors' fiscal
                  quarters internally prepared financial statements of
                  Guarantors on a quarterly and year-to-date basis including a
                  balance sheet and rent roll as of the close of such period and
                  an income and expense statement for such period, certified by
                  the chief financial officer of Guarantor's general partner or
                  managing member unless such report is included in the
                  quarterly report of Borrower; and

                                      -12-
<PAGE>

                           (ii) ANNUAL STATEMENTS. Not later than one hundred
                  twenty (120) days after the close of each of Guarantors'
                  fiscal years, (i) a copy of the annual financial statements of
                  Guarantors in reasonable detail satisfactory to the
                  Administrative Agent, internally prepared in accordance with
                  GAAP, which financial statements shall include a balance sheet
                  of Guarantors, as at the end of such fiscal year and the
                  related statements of operations and retained earnings and
                  cash flow statements for such fiscal year in a format
                  acceptable to the Administrative Agent, and (ii) updated rent
                  rolls in a format acceptable to the Administrative Agent; and

                           (iii) SALII STATEMENTS. Separate financial statements
                  do not have to be provided by SALII so long as the information
                  is included in the consolidating financial statements of
                  Borrower being provided pursuant to the Loan Agreement.

                           (iv) TAX RETURNS. Not later than thirty (30) days
                  after the date of filing, the federal and state income tax
                  returns for Guarantors for the year in question as well as any
                  requests for extensions filed in connection therewith;

                           (v) PROPERTY INFORMATION. By December 1st in each
                  year collateral reports including annual projections for the
                  next fiscal year;

                           (vi) OTHER INFORMATION. With reasonable promptness
                  such additional information, reports or statements as the
                  Administrative Agent may from time to time reasonably request;
                  and

                           (vii) CERTIFICATION. All required financial
                  statements, required pursuant to sub-paragraphs (a) and (b)
                  above shall include the following certification:

                  "The undersigned as _____________ of ____________ certifies
                  that the financial information contained in the financial
                  statement dated _________, is true and complete as of this
                  date. This statement is provided to Fleet National Bank (the
                  "Bank") as administrative agent for certain Lenders for the
                  purpose of obtaining credit or in fulfillment of the terms and
                  conditions of credit already provided. Accordingly, it is
                  intended that the Bank may rely on this information".

                  (b) TAXES AND CLAIMS. Pay and discharge all taxes, assessments
         and governmental charges or levies imposed upon it or any of its income
         or properties prior to the date on which penalties attach thereto, and
         all lawful claims which, if unpaid, might become a lien or charge upon
         any of its properties; provided, however, Guarantors shall not be
         required to pay any such tax, assessment, charge, levy or claim, the
         payment of which is being contested in good faith and by proper
         proceedings.

                                      -13-
<PAGE>

                  (c) LEGAL EXISTENCE. Maintain their existence as limited
         partnerships or limited liability companies in good standing in the
         states of their formation and in each jurisdiction where they are
         required to register or qualify to do business.

                  (d) CONDUCT OF BUSINESS AND COMPLIANCE WITH LAWS. Except for
         SALII, be and remain a single purpose entity which shall engage solely
         in the ownership and operation of only one of the Facilities. Do or
         cause to be done all things necessary to obtain, enter into, preserve
         and to keep in full force and effect its material rights and its trade
         names, patents, trademarks and Licenses, Participation Agreements, and
         Operating Agreements and Management Contracts which are necessary for
         the operation of each Facility as an adult assisted living facility as
         contemplated by Guarantors, engage in and continue to engage
         substantially only in the business of owning and operating an adult
         assisted living facility and related services in compliance with all
         applicable laws of the state in which the applicable Facility is
         located or any other Governmental Authority having jurisdiction over
         such Facility, and comply with all applicable Legal Requirements, and
         observe the valid requirements of Governmental Authorities, and perform
         the terms of all Participation Agreements to which it is a party, the
         noncompliance with or the nonobservance of which might materially
         interfere with the performance of its Obligations or the proper or
         prudent conduct of its business or the applicable Facilities. In
         addition, Guarantors covenant and agree that they will:

                           (i) obtain and maintain in full force and effect all
                  Licenses necessary to the acquisition and/or ownership and/or
                  operation of each Facility including, without limitation,
                  Licenses and other approvals related to the storage,
                  dispensation, use, prescription and disposal of drugs,
                  medications and other "controlled substances" and, to the
                  extent offered by Guarantors, the maintenance of cafeteria and
                  other food and beverage facilities or services;

                           (ii) administer, maintain and operate (or will cause
                  to be administered, maintained and operated) each Facility as
                  a revenue-producing assisted living facility;

                           (iii) to the extent Guarantors participate in any
                  such programs, maintain and operate each Facility to meet the
                  standards and requirements and to provide healthcare of such
                  quality and in such manner as would enable Guarantors to
                  participate in, and provide services in connection with,
                  recognized medical and healthcare insurance programs;

                           (iv) obtain, maintain and comply with all conditions
                  for the continuance of, all Licenses, including without
                  limitation, Licenses which may at any time be required by the
                  state in which the applicable Facility is located or other
                  appropriate governmental entity, necessary or desirable

                                      -14-
<PAGE>

                  for the operation of each Facility as an adult assisted living
                  facility (or independent living facility, as applicable); and

                           (v) to the extent Guarantors presently participate or
                  in the future will participate in such programs, obtain,
                  maintain and comply with all conditions for the continuance of
                  certification from each applicable Governmental Authority that
                  Guarantors meet all conditions for participation in the
                  Medicare and Medicaid programs.

                  (e) INSURANCE. Provide or cause to be provided to the
         Administrative Agent and maintain in full force and effect at ALL times
         during the term of the Loans, such policies of insurance as may be
         required by the terms of the Loan Documents from a company or
         companies, and in form and amounts satisfactory to the Administrative
         Agent including, by way of example and not by way of limitation, at
         least the following:

                           (i) Casualty or physical damage insurance coverage
                  for each Facility affording protection against loss or damage
                  by fire or other hazards covered by the standard all-risk fire
                  and hazard insurance policy with "extended coverage"
                  endorsement and such other risks as shall be customarily
                  covered with respect to projects similar in construction,
                  location and use as the Facilities, or as the Administrative
                  Agent may from time to time otherwise require in amounts
                  necessary to prevent the application of any co-insurance
                  provisions of any applicable policies up to an amount not less
                  than the greater of the full insurable value of the
                  Improvements (as defined in the Mortgages) or the aggregate
                  principal amount of the Obligations; no policy of insurance
                  shall be written such that the proceeds thereof will produce
                  less than the minimum coverage required by this Section by
                  reason of co-insurance provisions or otherwise; the term "full
                  insurable value" means the actual replacement cost of the
                  Facilities (as defined in the Mortgages) (excluding foundation
                  and excavation costs and costs of underground flues, pipes,
                  drains and other uninsurable items); and as to Facilities
                  naming the Administrative Agent on behalf of the Lenders as
                  loss payee and mortgagee;

                           (ii) General public liability insurance in amounts
                  usually carried by similar operations against claims for
                  bodily injury or death and property damage insurance for
                  claims for damage to property (including loss of use)
                  occurring upon, in or about the Facilities naming the
                  Administrative Agent on behalf of the Lenders as loss payee
                  thereunder, with such insurance to afford protection to the
                  limit of not less than $5,000,000 for the aggregate of all
                  occurrences during any given annual policy period for each
                  Facility;

                                      -15-
<PAGE>

                           (iii) Workers' compensation insurance in accordance
                  with the requirements of applicable law or regulation naming
                  the Administrative Agent on behalf of the Lenders as loss
                  payee thereunder;

                           (iv) Business interruption insurance naming the
                  Administrative Agent on behalf of the Lenders as additional
                  insured with respect to each Facility in an amount equal to at
                  least twelve (12) months' debt service on a portion of the
                  Loan (as determined by the Administrative Agent); and

                           (v) To the extent that healthcare professionals are
                  employed by any of Guarantors or the Management Company,
                  medical liability, malpractice and other healthcare
                  professional liability insurance protecting Guarantors and its
                  employees against claims arising from the professional
                  services performed by Guarantors or the Management Company and
                  their employees with limits of (i) not less than One Million
                  Dollars ($1,000,000.00) with respect to injury or death for
                  each person or occurrence, and (ii) not less than Three
                  Million Dollars ($3,000,000.00) in the aggregate for claims
                  made for injury or death in any one year, and an umbrella
                  policy insuring against such liability in an aggregate amount
                  of Five Million Dollars ($5,000,000.00). In addition,
                  Guarantors shall ensure that all healthcare providers with
                  whom any of Guarantors contracts to provide services at any
                  Facility are insured against claims arising from such services
                  with limits as set forth in clauses (i) and (ii) above.

                  Guarantors shall file with the Administrative Agent, upon its
         request, a detailed list of the insurance then in effect and stating
         the names of the insurance companies, the amounts and rates of the
         insurance, dates of the expiration thereof and the properties and risks
         covered thereby. Each policy of insurance shall (A) be issued by one or
         more recognized, financially sound and responsible insurance companies
         approved by the Administrative Agent and which are qualified or
         authorized by the laws of the state in which the applicable Facility is
         located to assume the risk covered by such policy, (B) with respect to
         the insurance described under the preceding subsections (i), (ii) and
         (v) have attached thereto standard noncontributing, non-reporting
         mortgagee clauses in favor of and entitling the Administrative Agent on
         behalf of Lenders without contribution to collect any and all proceeds
         payable under such insurance, (C) provide that such policy shall not be
         canceled or modified without at least thirty (30) days prior written
         notice to the Administrative Agent, and (D) provide that any loss
         otherwise payable thereunder shall be payable notwithstanding any act
         of negligence of any of Guarantors which might, absent such agreement,
         result in a forfeiture of all or a part of such insurance payment.
         Unless an escrow account has been established for insurance premiums
         pursuant to the provisions of a Mortgage, Guarantors shall promptly pay
         all premiums within thirty (30) days prior to the payment due date.
         Guarantor will provide a certificate of insurance, evidencing
         Administrative Agent (on behalf of Lenders) as additional insured and

                                      -16-
<PAGE>

         mortgagee/loss payee, prior to the effective date of coverage for all
         insurance coverages outlined in (i) - (v) above and, if requested by
         Administrative Agent, copies of the policies. Guarantors will
         immediately give the Administrative Agent notice of any cancellation
         of, or change in, any insurance policy. The Lenders shall not, because
         of accepting, rejecting, approving or obtaining insurance, incur any
         liability for (i) the existence, nonexistence, form or legal
         sufficiency thereof, (ii) the solvency of any insurer, or (iii) the
         payment of losses.

                  (f) FLOOD INSURANCE. If required by applicable law or
         regulation, provide or cause to be provided to the Administrative Agent
         a separate policy of flood insurance in the aggregate amount of the
         applicable Loan or the maximum limit of coverage available with respect
         to the Facilities, whichever is the lesser, from a company or companies
         satisfactory to the Administrative Agent and written in strict
         conformity with the Flood Disaster Protection Act of 1973, as amended,
         and all applicable regulations adopted pursuant thereto. Any such
         policy shall provide that the policy may not be surrendered, canceled
         or substantially modified (including, without limitation, cancellation
         for nonpayment of premiums) without at least thirty (30) days' prior
         written notice to any and all insureds named therein, including the
         Lenders.

                  (g) MAINTENANCE OF PROPERTIES. Keep its properties, whether
         owned in fee or otherwise, or leased, including, without limitation,
         all of the Facilities, in good operating condition; make all proper
         repairs, renewals, replacements, additions and improvements thereto
         needed to maintain such properties in good operating condition; comply
         with the provisions of all leases to which it is a party or under which
         it occupies property so as to prevent any loss or forfeiture thereof or
         thereunder; and comply with all laws, rules, regulations and orders
         applicable to its properties or business or any part thereof.

                  (h) MAINTENANCE OF THE COLLATERAL. Not permit anything to be
         done to the Collateral which may impair the value thereof. Any of the
         Lenders or an agent designated by such Lender, shall be permitted to
         enter the premises of any of Guarantors and examine, audit and inspect
         the Collateral at any reasonable time and from time to time without
         notice. The Lenders shall not have any duty to, and Guarantors hereby
         release the Lenders from, all claims of loss or damage caused by the
         delay or failure to collect or enforce any of the accounts or
         receivables or to preserve any rights against any other party with an
         interest in the Collateral.

                  (i) OTHER LIENS, SECURITY INTERESTS, ETC. Keep the Collateral
         and the Facilities free from all liens, security interests and claims
         of every kind and nature, other than Permitted Liens; provided,
         Guarantors may lease office equipment and other equipment used in the
         normal course of its business for the operation of a Facility provided
         the total implied cost of such leased equipment at any Facility shall
         not exceed $75,000 at any one time.

                                      -17-
<PAGE>

                  (j) DEFENSE OF TITLE AND FURTHER ASSURANCES. At its expense
         defend the title to the Collateral (or any part thereof), and promptly
         upon request execute, acknowledge and deliver any financing statement,
         renewal, affidavit, deed, assignment, continuation statement, security
         agreement, certificate or other document the Administrative Agent may
         reasonably require in order to perfect, preserve, maintain, protect,
         continue and/or extend any lien or security interest granted to the
         Lenders under this Agreement or any of the Security Documents and its
         priority. Guarantors shall pay to the Administrative Agent, on demand
         all taxes, costs and expenses incurred by any of the Lenders, in
         connection with the preparation, execution, recording and filing of any
         such document or instrument.

                  (k) BOOKS AND RECORDS. Keep and maintain accurate books and
         records, make entries on such books and records in form reasonably
         satisfactory to the Administrative Agent disclosing the Lenders'
         assignment of, and security interest in and lien on, the Collateral and
         all collections received by Guarantors on its accounts, furnish to the
         Administrative Agent promptly upon request such information, reports,
         contracts, invoices, lists of purchases of inventory (showing names,
         addresses and amount owing) and other data concerning account debtors
         and Guarantors' accounts and inventory and all contracts and
         collection(s) relating thereto as the Administrative Agent may from
         time to time specify, unless the Administrative Agent shall otherwise
         consent in writing, keep and maintain all such books and records
         mentioned in (a) above only at the addresses listed in Schedule 4.1D of
         the Credit Agreement, and permit any person designated by any of the
         Lenders to enter the premises of Borrowers and examine, audit and
         inspect the books and records at any reasonable time and from time to
         time.

                  (l) ERISA. With respect to any pension plan which any of
         Guarantors and/or any Commonly Controlled Entity maintains or
         contributes to, either now or in the future, that: (a) such bonding as
         is required under ERISA Section 412 will be maintained; (b) as soon as
         practicable and in any event within 15 days after any of Guarantors or
         any Commonly Controlled Entity knows or has reason to know that a
         "reportable event" has occurred or is likely to occur, Guarantors will
         deliver to the Administrative Agent a certificate signed by its chief
         financial officer setting forth the details of such "reportable event";
         (c) neither Borrowers nor any Commonly Controlled Entity will: (i)
         engage in or permit any "prohibited transaction" (as defined in ERISA
         Section 406 or Code Section 4975) to occur; (ii) cause any "accumulated
         funding deficiency" as defined in ERISA Section 302 and/or Code Section
         412; (iii) terminate any pension plan in a manner which could result in
         the imposition of a lien on the property of Borrowers pursuant to ERISA
         Section 4068; (iv) terminate or consent to the termination of any
         multiemployer plan; (v) incur a complete or partial withdrawal with
         respect to any multiemployer plan within the meaning of ERISA Sections
         4203 and 4205; and (d) within 15 days after notice is received by any
         of Guarantors or any Commonly Controlled Entity that any multiemployer
         plan has been or will be placed in "reorganization" within the meaning
         of ERISA Section 4241, Guarantors will notify the Administrative Agent
         to that

                                      -18-
<PAGE>

         effect. Upon the Administrative Agent's request, Guarantors will
         deliver to the Administrative Agent a copy of the most recent actuarial
         report, financial statements and annual report completed with respect
         to any "defined benefit plan", as defined in ERISA Section 3(35).

                  (m) CHANGE IN MANAGEMENT. There shall be no change of the
         Management Company for any Facility to any manager other than SALMI or
         another Wholly Owned Subsidiary without the prior written consent of
         the Administrative Agent and the Required Lenders.

                  (n) MANAGEMENT. (a) Subject to the terms of any Management Fee
         Subordination Agreement by and among a Guarantor, SALMI and the
         Administrative Agent, signed in connection with a Facility Closing
         (individually or collectively, the "Management Fee Subordination
         Agreement"), Guarantors shall cause SALMI to agree to subordinate
         payment of any and all management fees under, or in connection with,
         the Management Agreement (the "Management Fees") to payment of the
         Obligations, in accordance with the terms and conditions of one or more
         subordination agreements in form and content acceptable to the
         Administrative Agent in its reasonable discretion, and not amend,
         restate, supplement, terminate, cancel or otherwise modify any of the
         terms or conditions of such Management Agreement, in any material
         respect, without the prior written consent of the Administrative Agent,
         and (b) terminate the Management Agreement upon receipt of notice from
         the Administrative Agent directing Guarantors to terminate the
         Management Agreement after the occurrence of an Event of Default, and,
         if requested to do so by the Administrative Agent, enter into a
         management agreement for the management of any Facility with an
         independent manager. The Management Agreement shall be approved in
         writing by the Administrative Agent prior to execution. A fully
         executed copy of the Management Agreement shall be delivered to the
         Administrative Agent by Guarantors promptly after it is signed.

                  (o) SURVEYS. Upon the Administrative Agent's request from time
         to time if an Event of Default exists, Guarantors shall furnish the
         Administrative Agent with surveys of the Facilities with a current
         certification to the Administrative Agent by a registered land surveyor
         licensed in the jurisdiction in which the Facility is located, which
         survey must be satisfactory to the Administrative Agent.

                  (p) INSPECTIONS; COOPERATION. Guarantors shall permit the
         Lenders and their duly authorized representatives upon reasonable prior
         notice to enter upon and inspect any of the Facilities, to examine and
         make copies of all records and books of account maintained by or on
         behalf of Guarantors relating thereto and to discuss the affairs,
         finances and accounts pertaining to any Facility with representatives
         of Guarantors.

                                      -19-
<PAGE>

                  (q) GOVERNMENTAL SURVEYS OR INSPECTIONS. Furnish to the
         Administrative Agent upon its request, within thirty (30) days of
         receipt thereof, copies of any and all annual surveys or inspections
         performed by any Governmental Authority or accreditation or
         certification organization with respect to any Facility.

                  (r) COST REPORTS. Prepare and file all applicable cost reports
         to all third-party payors, if any, to the extent required by any such
         third-party payor and, within thirty (30) days thereafter, notify the
         Administrative Agent of any settlement of any cost report disclosed to
         the Administrative Agent as being open or unsettled as of the Closing
         Date to the extent any such cost report would have a materially adverse
         effect on Guarantors.

                  (s) APPRAISALS. The Administrative Agent shall have the right,
         in its discretion, to require appraisals of any or all of the
         Facilities, which appraisals shall be prepared by an appraiser or
         appraisers designated by the Administrative Agent and shall be in all
         respects reasonably acceptable to the Administrative Agent which
         appraisals shall include, if deemed necessary by the Administrative
         Agent, in its reasonable discretion, updated discounted cash flow
         analysis, inspections of and commentary on the physical status of the
         applicable Facility and an engineering review. The basis of the
         appraisal calculations shown on such appraisal reports and all other
         aspects of the appraisal reports must be satisfactory to the
         Administrative Agent in all material respects. Guarantors shall
         reimburse the Administrative Agent upon demand for all costs and
         expenses incurred by any of the Lenders with respect to the preparation
         and review of all future appraisals required pursuant to the terms
         hereof.

                  (t) NOTIFICATION OF CERTAIN EVENTS, EVENTS OF DEFAULT AND
         ADVERSE DEVELOPMENTS. Promptly give written notice to the
         Administrative Agent who will forward a copy of the notice to the
         Lenders upon obtaining knowledge of the occurrence of any of the
         following:

                           (i) any Event of Default under the Loan Documents;

                           (ii) any event, development or circumstance whereby
                  the financial statements furnished under the Loan Documents
                  fail in any material respect to present fairly, in accordance
                  with GAAP, the financial condition and operational results of
                  Guarantors;

                           (iii) any judicial, administrative or arbitral
                  proceeding pending against any of Guarantors or any judicial
                  or administrative proceeding known by Guarantors to have been
                  threatened against any of them in a written communication
                  which threatened proceeding, if adversely decided, could cause
                  a Material Adverse Change in any of Guarantors;

                                      -20-
<PAGE>

                           (iv) the revocation, suspension, probation,
                  restriction, limitation or refusal to renew, or any
                  administrative procedure then in process for the revocation,
                  suspension, probation, restriction, limitation, or refusal to
                  renew, of any License, or the decertification, revocation,
                  suspension, probation, restriction, limitation, or refusal to
                  renew, or the pending, decertification, revocation,
                  suspension, probation, restriction, limitation, or refusal to
                  renew or any administrative procedure then in process for any
                  participation or eligibility in any third party payor program
                  in which any of Guarantors elects to participate, including,
                  without limitation, Medicare, Medicaid or other private
                  insurer programs or any accreditation of any of Guarantors, or
                  the issuance or pending issuance of any License for a period
                  of less than twelve (12) months, as a consequence of sanctions
                  imposed by any Governmental Authority, or the assessment or
                  pending assessment, of any civil or criminal penalties by any
                  Government Authority, any third party payor or any
                  accreditation organization or Person, which could materially
                  adversely affect the financial condition or operations of
                  Guarantors in the aggregate as determined by the
                  Administrative Agent, in its sole but reasonable discretion;

                           (v) any action, including, but not limited to, the
                  filing of any certificate of need application if required by
                  law, the amendment of any facility license or certification,
                  or the issuance of any new license or certification for any
                  Facility, under which any of Guarantors proposes (i) to
                  develop a new facility or service and/or (ii) eliminate,
                  materially expand or materially reduce any service;

                           (vi) any actual contingent liability of any
                  Guarantors of $100,000 or more per Facility;

                           (vii) any other development in the business or
                  affairs of the Guarantor results in a Material Adverse Change;
                  and

                           (viii) in each case listed in clauses (i) through
                  (vii), inclusive, of this Section describing in detail
                  satisfactory to the Administrative Agent the nature thereof
                  and, in the case, if any, of notification under clause (a),
                  the action Guarantors propose to take with respect thereto or
                  a statement that Guarantors intend to take no action and an
                  explanation of the reasons for such inaction. In addition,
                  Guarantors will furnish to the Administrative Agent
                  immediately after receipt thereof copies of all administrative
                  notices material to Guarantors' business and operation of any
                  Facility and all responses by or on behalf of Guarantors with
                  respect to such administrative notices.

                  (u) COMPLIANCE WITH ENVIRONMENTAL LAWS. If any Hazardous
         Materials are used, present or generated on or in the Facilities,
         Guarantors shall

                                      -21-
<PAGE>

         use, process, distribute, handle, maintain, treat, store, dispose of
         and transport such substance in compliance with all applicable
         Environmental Laws.

                  (v) HAZARDOUS MATERIALS; CONTAMINATION. The Administrative
         Agent shall have the right, in its sole but reasonable discretion, to
         obtain (at Guarantors' expense) environmental reports for the
         Facilities. Guarantors shall (a) give notice to the Administrative
         Agent within five (5) Banking Days of any Guarantor's acquiring
         knowledge of the presence of any Hazardous Materials on any property
         owned or controlled by any of Guarantors or for which any of Guarantors
         is responsible or of any Hazardous Materials contamination with a full
         description thereof, except for reasonable quantities of necessary
         supplies for use by Guarantors in the ordinary course of their current
         line of business and stored, used and disposed of in accordance with
         applicable Legal Requirements; (b) promptly comply with any laws
         requiring special handling, maintenance, servicing, removal, treatment
         or disposal of Hazardous Materials or Hazardous Materials contamination
         and provide the Administrative Agent upon request with satisfactory
         evidence of such compliance; (c) provide the Administrative Agent,
         within thirty (30) days after a demand by the Administrative Agent,
         with a bond, letter of credit or similar financial assurance evidencing
         to the Administrative Agent's satisfaction that funds are available to
         pay the cost of removing, treating, and disposing of such Hazardous
         Materials or Hazardous Materials contamination and discharging any lien
         which may be established as a result thereof on any property owned,
         operated or controlled by any of Guarantors or for which any of
         Guarantors are responsible; and (d) defend, indemnify and hold harmless
         the Administrative Agent, the Lenders and each of their agents,
         employees, trustees, successors and assigns from any and all claims
         which may now or in the future (whether before or after the termination
         of this Agreement) be asserted as a result of the presence of any
         Hazardous Materials on or in the Facilities.

                  (w) PARTICIPATION IN REIMBURSEMENT PROGRAMS. In the event any
         of Guarantors elects to participate in any or all plans and/or programs
         for third party payment and/or reimbursement, and the revenues derived
         from a single plan or program exceed ten percent (10%) of the gross
         revenues of the applicable Facility, such Guarantor will continue its
         participation in any and all such plans and/or programs for third party
         payment and/or reimbursement from, and claims against, private insurers
         or programs for payment and/or reimbursement from federal, state and
         local governmental agencies and/or private or quasi-public insurers,
         including, without limitation, Managed Care Plans, Medicaid and
         Medicare and the Veterans Administration (as determined by Guarantors
         in the good faith exercise of their prudent and commercially reasonable
         business judgment). While participating in such plans, Guarantors shall
         comply with any and all rules, regulations, standards, procedures and
         decrees necessary to maintain Guarantors' participation in any such
         third party payment or reimbursement program or plan.

                                      -22-
<PAGE>

                  (x) SUBORDINATION OF DISTRIBUTIONS AND MANAGEMENT FEES.
         Subordinate, and cause the partners or members of each of Guarantors to
         subordinate, all distributions of Guarantors to principal and interest
         payments on the Loan. Subordinate the payment of management fees with
         respect to each Facility pursuant to the terms of all Management Fee
         Subordination Agreement (as the same may be modified from time to time)
         by and among any of Guarantors, the Administrative Agent and the
         Management Company.

                  (y) DEPOSITORY BANK. If the Notes have not been repaid in full
         by April 1, 2002, Guarantors shall, to the extent practicable, maintain
         its primary operating accounts with the Administrative Agent (as a
         Lender), provided that such Lender shall agree that it will exercise
         any right of set-off against such account to pay the Obligations
         (unless the exercise of such right would prejudice other remedies of
         the Lenders in any jurisdiction) prior to applying them to any other
         indebtedness owed to such Lender and provided such Administrative Agent
         or other Lender pays commercially competitive rates on Guarantors'
         funds.

                  (z) NOTES RECEIVABLE. Comply with the provisions of Article
         III of the Credit Agreement regarding the Notes Receivable held by
         SALII.

         8.NEGATIVE COVENANTS OF GUARANTOR. Until payment in full and the
performance of all of the Obligations, without the prior written consent of the
Administrative Agent, Guarantors will not directly or indirectly:

                  (a) INDEBTEDNESS. Create, issue, incur, assume, become liable
         in respect of or suffer to exist any Funded Debt, except:

                           (i) Funded Debt of any Loan Party pursuant to any
                  Loan Document;

                           (ii) Funded Debt of any Guarantor to the Borrower or
                  any other Guarantor subordinated on terms satisfactory to the
                  Required Lenders pursuant to written agreements in form and
                  substance satisfactory to the Required Lenders;

                           (iii) unsecured Funded Debt incurred in the ordinary
                  course of business by Guarantors; and

                           (iv) Funded Debt of any Loan Party under any Interest
                  Rate Protection Agreement.

                  "Funded Debt" of any Guarantor at any time means (a)
         indebtedness for borrowed money, (b) any obligations in respect of
         letters of credit, banker's or other acceptances or similar obligations
         issued or created for the account of any Guarantor, (c) lease
         obligations which have been or should be, in accordance with GAAP,
         capitalized on the books of any Guarantor, (d) all liabilities secured
         by

                                      -23-
<PAGE>

         any property owned by any Guarantor to the extent attached to any
         Guarantor's interest in such property, even though such Guarantor has
         not assumed or become liable for the payment thereof, and in the case
         of any Guarantor (e) (i) amounts payable by a Guarantor under any
         terminated or defaulted interest rate protection products or which
         remain outstanding or (ii) take-out commitments (excluding a
         refinancing or a commitment of a third party) or purchase contracts
         including the deferred purchase price of property or services in each
         instance if a Guarantor does not control the incurring obligation, (f)
         (i) the amount of any guaranty of indebtedness for borrowed money or
         (ii) other debt owed by Persons other than a Guarantor which is in
         default and for which the creditor is pursuing payment by a Guarantor,
         (g) any obligation of a Guarantor or a Commonly Controlled Entity to a
         Multiemployer Plan (h) any synthetic lease obligations, and (i) other
         amounts considered to be debt by all of the following: the
         Administrative Agent, the Syndication Agent and the Documentation Agent
         in a dollar amount to be mutually agreed upon by the Administrative
         Agent and a Guarantor; but excluding trade and other accounts payable
         in the ordinary course of business in accordance with customary trade
         terms and which are not overdue (as determined in accordance with
         customary trade practices) or which are being disputed in good faith by
         a Guarantor and for which adequate reserves are being provided on the
         books of a Guarantor in accordance with GAAP, all of the above whether
         recourse or non-recourse, secured or unsecured.

                  (b) MORTGAGES AND PLEDGES. Create, incur, assume or suffer to
         exist any deed of trust, mortgage, pledge, Lien or other encumbrance of
         any kind upon, or any security interest in, any of its property or
         assets, including the Collateral, whether now owned or hereafter
         acquired, other than Permitted Liens.

                  (c) SALE OR TRANSFER OF ASSETS. Directly or indirectly enter
         into any arrangement whereby any of Guarantors shall sell, lease,
         transfer, assign or otherwise dispose of more than $50,000 of personal
         property in connection with any Facility in any one year other than
         sales or other disposition of assets in the ordinary course of business
         for value, provided the proceeds thereof are used to pay down the Loan
         or the asset sold or disposed of is replaced by one of equal or greater
         value.

                  (d) "DUE-ON-SALE". Guarantors shall not, without the prior
         written consent of the Administrative Agent, make, create, permit or
         consent to any conveyance, sale, assignment or transfer of any of the
         Facilities or any part thereof, other than in connection with the Loan
         Documents or as otherwise provided or permitted therein.

                  (e) ADVANCES AND LOANS. Make loans or advances to any Person,
         including, without limitation, Affiliates, partners and employees of
         Guarantors.

                                      -24-
<PAGE>

                  (f) CONTINGENT LIABILITIES. Assume, guarantee, endorse,
         contingently agree to purchase or otherwise become liable upon the
         obligation of any Person, except by the endorsement of negotiable
         instruments for deposit and collection or similar transactions in the
         ordinary course of business.

                  (g) LICENSES. Allow any Licenses, permit, right, franchise or
         privilege necessary for the ownership or operation of any Facility for
         the purposes for which any Facility is intended to be used to lapse, be
         suspended or be forfeited unless solely due to administrative delay by
         the licensing authority.

                  (h) ERISA COMPLIANCE. (a) Restate or amend any Plan
         established and maintained by Guarantors or any Commonly Controlled
         Entity and subject to the requirements of ERISA, in a manner designed
         to disqualify such Plan and its related trusts under the applicable
         requirements of the Code; (b) permit any partners of Guarantors or any
         Commonly Controlled Entity to materially adversely affect the qualified
         tax-exempt status of any Plan or related trusts of Guarantors or any
         Commonly Controlled Entity under the Code; (c) engage in or permit any
         Commonly Controlled Entity to engage in any Prohibited Transaction; (d)
         incur or permit any Commonly Controlled Entity to incur any Accumulated
         Funding Deficiency, whether or not waived, in connection with any Plan;
         (e) take or permit any Commonly Controlled Entity to take any action or
         fail to take any action which causes a termination of any Plan in a
         manner which could result in the imposition of a lien on the property
         of Guarantors or any Commonly Controlled Entity pursuant to Section
         4068 of ERISA; (f) fail to notify the Administrative Agent that notice
         has been received of a "termination" (as defined in ERISA) of any
         Multiemployer Plan to which any of Guarantors or any Commonly
         Controlled Entity has an obligation to contribute; (g) incur or permit
         any Commonly Controlled Entity to incur a "complete withdrawal" or
         "partial withdrawal" (as defined in ERISA) from any Multiemployer Plan
         to which any of Guarantors or any Commonly Controlled Entity has an
         obligation to contribute; or (h) fail to notify the Administrative
         Agent that notice has been received from the administrator of any
         Multiemployer Plan to which any of Guarantors or any Commonly
         Controlled Entity has an obligation to contribute that any such Plan
         will be placed in "reorganization" (as defined in ERISA).

                  (i) SALE OF ACCOUNTS OR RECEIVABLES. Sell, discount, transfer,
         assign or otherwise dispose of any of its accounts or receivables of
         any Facility, such as accounts receivable, notes receivable,
         installment or conditional sales agreements or any other rights to
         receive income, revenues or moneys, however evidenced.

                  (j) AMENDMENTS; TERMINATIONS. Amend or terminate or agree to
         amend or terminate any License, the Management Agreement, or any
         participation agreement which exceeds 10% of the aggregate Net
         Operating Income of the Facilities, or except in the ordinary course of
         business any other Management Contracts and Operating Agreements which
         may have been entered into by

                                      -25-
<PAGE>

         Guarantors with respect to any Facility and which exceeds 10% of the
         aggregate Net Operating Income of the Facilities, or consent to or
         waive any material provisions thereof.

                  (k) DISTRIBUTIONS TO PARTNERS OR MEMBERS.

                           (a) Make any distributions of dividends of any kind
                  to partners or members of any of Guarantors other than
                  distributions to Borrower.

                           (b) All distributions to partners or members in any
                  fiscal quarter shall be disclosed to the Lenders in the
                  Compliance Certificate for such period.

                  (l) MERGERS OR ACQUISITIONS. Enter into any merger or
         consolidation or amalgamation, wind up or dissolve itself (or suffer
         any liquidation or dissolution), or acquire all or substantially all of
         the assets of any person, firm, joint venture or corporation except to
         acquire a Wholly Owned Subsidiary.

                  (m) PARTNERSHIP INTERESTS. Repurchase, redeem or retire any
         partnership or membership interest in any of Guarantors.

                  (n) IMPAIRMENT OF SECURITY. Guarantors shall take no action
         which shall impair in any manner the value of any of the Facilities or
         the validity, priority or security of any Mortgages.

                  (o) CONDITIONAL SALES. Guarantors shall not incorporate in the
         Improvements any property acquired under a conditional sales contract,
         or lease, or as to which the vendor retains title or a security
         interest, without the prior written consent of the Administrative
         Agent, except as set forth in Section 7(i) above.

         9. EVENTS OF DEFAULT. The occurrence of one or more of the following
events shall be "Events of Default" under this Agreement, and the terms "Event
of Default" shall mean, whenever they are used in this Guaranty, any one or more
of the following events:

                  (a) FAILURE TO PAY AND/OR PERFORM THE OBLIGATIONS. Guarantors
         shall fail to pay and to perform any of the Guaranteed Obligations as
         when due and payable in accordance with the provisions of this Guaranty
         and such failure continues for five (5) calendar days after the written
         notice thereof to such Guarantor by the Administrative Agent.

                  (b) BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
         representation or warranty made in this Guaranty or in any report,
         certificate, opinion, financial statement or other instrument furnished
         in connection with the Guaranteed Obligations or with the execution and
         delivery of any of the Loan

                                      -26-
<PAGE>

         Documents, shall prove to have been false or misleading when made (or,
         if applicable, when reaffirmed) in any material respect.

                  (c) FAILURE TO COMPLY WITH COVENANTS. Default shall be made by
         Guarantors in the due observance and performance of any covenant,
         condition or agreement contained in Article 7 (Affirmative Covenants of
         Guarantors) (except for Section 7(h) (Maintenance of Properties),
         Section 7(g) (Maintenance of the Collateral), Section 7(i) (Other
         Liens, Security Interests, etc.), Section 7(l) (ERISA)) or in Article 8
         (Negative Covenants of Borrower).

                  (d) FAILURE TO COMPLY WITH BOOKS AND RECORDS. Default shall be
         made by Guarantors in the due observance or performance of Section 7(k)
         (Books and Records), which default shall remain unremedied, and
         Guarantors shall cure such default promptly, but in no event more than
         ten (10) days after written notice thereof to Guarantors by the
         Administrative Agent.

                  (e) OTHER DEFAULTS. Default shall be made by Guarantors in the
         due observance or performance of any other term, covenant or agreement
         other than as set forth in this Article 9 (Events of Default), which
         default shall remain unremedied for more than thirty (30) days after
         written notice thereof to Guarantors by the Administrative Agent,
         unless the nature of the failure is such that (a) it cannot be cured
         within the thirty (30) day period, and (b) Guarantors institute
         corrective action within the thirty (30) day period and (c) Guarantors
         diligently pursue such action and complete the cure within ninety (90)
         days.

                  (f) DEFAULT UNDER OTHER LOAN DOCUMENTS. A default shall occur
         under any of the other Loan Documents, and such default is not cured
         within any applicable grace period provided therein.

                  (g) BANKRUPTCY; REORGANIZATION.

                           (i) Any Guarantor shall (i) apply for or consent to
                  the appointment of a receiver, trustee or liquidator of itself
                  or any of its property, (ii) admit in writing its inability to
                  pay its debts as they mature, (iii) make a general assignment
                  for the benefit of creditors, (iv) be adjudicated a bankrupt
                  or insolvent, (v) file a voluntary petition in bankruptcy or a
                  petition or an answer seeking or consenting to reorganization
                  or an arrangement with creditors or to take advantage of any
                  bankruptcy, reorganization, insolvency, readjustment of debt,
                  dissolution or liquidation law or statute, or an answer
                  admitting the material allegations of a petition filed against
                  it in any proceeding under any such law, or take corporate
                  action for the purposes of effecting any of the foregoing, or
                  (vi) by any act indicate its consent to, approval of or
                  acquiescence in any such proceeding or the appointment of any
                  receiver of or trustee for any of its property, or suffer any
                  such receivership, trusteeship or proceeding to continue
                  undischarged for a period of sixty

                                      -27-
<PAGE>

                  (60) days, or (vii) by any act indicate its consent to,
                  approval of or acquiescence in any order, judgment or decree
                  by any court of competent jurisdiction or any Governmental
                  Authority enjoining or otherwise prohibiting the operation of
                  a material portion of any Guarantor's business or the use or
                  disposition of a material portion of any Guarantor's assets.

                           (ii) (i) An order for relief shall be entered in any
                  involuntary case brought against any Guarantor under the
                  Bankruptcy Code, or (ii) any such case shall be commenced
                  against any Guarantor and shall not be dismissed within sixty
                  (60) days after the filing of the petition, or (iii) an order,
                  judgment or decree under any other Law is entered by any court
                  of competent jurisdiction or by any other Governmental
                  Authority on the application of a Governmental Authority or of
                  a Person other than a Guarantor (A) adjudicating such
                  Guarantor bankrupt or insolvent, or (B) appointing a receiver,
                  trustee or liquidator of such Guarantor, or of a material
                  portion of such Guarantor's assets, or (C) enjoining,
                  prohibiting or otherwise limiting the operation of a material
                  portion of such Guarantor's businesses or the use or
                  disposition of a material portion of such Guarantor's assets,
                  and such order, judgment or decree continues unstayed and in
                  effect for a period of thirty (30) days from the date entered.

                  (h) JUDGMENT. Any judgment against any of Guarantors of
         $250,000 or more or any attachment or other levy against any property
         of any of Guarantors remain unpaid, unstayed on appeal, undischarged,
         unbonded or undismissed for a period of the earlier of thirty (30) days
         after such Guarantor receives notice of the same or forty-five (45)
         days after the same.

                  (i) EXECUTION; ATTACHMENT. Any execution or attachment shall
         be levied against the Collateral, or any part thereof, and such
         execution or attachment shall not be set aside, discharged or stayed
         within thirty (30) days after the same shall have been levied.

                  (j) DEFAULT UNDER OTHER BORROWINGS.

                           (i) Default which continues beyond any applicable
                  grace period shall be made under any obligation of or
                  guaranteed by any of Guarantors equal to or greater than
                  $250,000, if a notice of default has been sent to a Guarantor
                  (and any applicable grace period has expired) or if the effect
                  of such default is to accelerate the maturity of such
                  obligation or to permit the holder or obligee thereof to cause
                  such obligation to become due prior to its stated maturity.

                           (ii) Default shall be made under any obligation equal
                  to or greater than $1,000,000 of a consolidated Affiliate,
                  which is otherwise non-recourse to Guarantors if the holder or
                  obligee of such obligation has

                                      -28-
<PAGE>

                  commenced action on any of the remedies available to it under
                  the obligation.

                  (k) MATERIAL ADVERSE CHANGE. If the Administrative Agent or
         the Required Lenders in their reasonable discretion determine that a
         Material Adverse Change has occurred in the financial condition of any
         of Guarantors.

                  (l) IMPAIRMENT OF POSITION. If the Administrative Agent or the
         Required Lenders in their reasonable discretion determines that an
         event has occurred which impairs the prospect of payment of the
         Obligations and/or the aggregate value of the Facilities or the
         Collateral.

                  (m) CHANGE IN STATUS OR OWNERSHIP. Any of Guarantors is
         dissolved, merged, consolidated or reorganized, or any change occurs in
         the ownership of any of Guarantors or Facilities without the prior
         written consent of the Administrative Agent.

                  (n) ZONING. Any change in any zoning ordinance or any other
         public restriction is enacted, limiting or defining the uses which may
         be made of any of the Facilities or a part thereof, such that the use
         of any of the Facilities, as specified herein, would be in material
         violation of such restriction or zoning change.

                  (o) CHANGE IN MANAGEMENT. The Management Agreement is
         terminated without the prior written consent of the Administrative
         Agent.

                  (p) LICENSES. The involuntary, imposed or required revocation,
         suspension, probation, restriction, limitation or refusal to renew, or
         the pending revocation, suspension, probation, restriction, limitation,
         of, or refusal to renew, of any License; other than in the ordinary
         course of business or to the extent that Guarantors deem such action to
         be, in the exercise of prudent business judgment, in the best interest
         of Guarantors, the decertification, revocation, suspension, probation,
         restriction, limitation, or refusal to renew, or the pending
         decertification, revocation, suspension, probation, restriction,
         limitation, or refusal to renew any participation or eligibility in any
         third party payor program in which Guarantors elect to participate,
         including, without limitation, the Medicaid or Medicare programs; or
         the issuance or pending issuance of any License for a period of less
         than twelve (12) months as a consequence of any sanctions imposed by
         any Governmental Authority; or the assessment or pending assessment, of
         any civil or criminal penalties by any Governmental Authority, any
         third party payor or any accreditation organization or person.

                  (q) COMPLIANCE WITH LAW. Guarantors fail to comply with any
         material requirement of any Governmental Authority having jurisdiction
         within the time required by such Governmental Authority; or any
         proceeding is commenced or action taken to enforce any remedy for a
         violation of any material

                                      -29-
<PAGE>

         requirement of a Governmental Authority or any material restrictive
         covenant affecting the Property or any part thereof.

         10. NOTICES. Any notice or other communication in connection with this
Guaranty shall be given in accordance with the provisions of the Credit
Agreement.

         11. NO ORAL CHANGE. No provision of this Agreement may be changed,
waived, discharged, or terminated orally (in person or by telephone) or by any
other means except by an instrument in writing signed by the party against whom
enforcement of the change, waiver or discharge or termination is sought.

         12. PARTIES BOUND; BENEFIT. This Agreement shall be binding upon
Guarantors and Guarantors' respective successors, assigns, heirs and personal
representatives and shall be for the benefit of Administrative Agent and
Lenders, and of any subsequent holder of their respective interests in the Loans
and of any owner of a participation interest therein. In the event the interest
of any Lender or Administrative Agent under the Loan Documents is sold or
transferred, then the liability of the Guarantors to such Lender or
Administrative Agent shall then be in favor of both Administrative Agent and
Lenders originally named herein and each subsequent holder of such
Administrative Agent's or Lender's interest therein, to the extent of their
respective interests.

         13. JOINT AND SEVERAL. If at any time there is more than one (1)
Guarantor, the obligations of each Guarantor and such Guarantor's respective
successors, assigns, heirs and personal representatives shall be and remain
joint and several. Each reference to Guarantor shall include each Guarantor
separately as well as all Guarantors collectively.

         14. PARTIAL INVALIDITY. Each of the provisions hereof shall be
enforceable against Guarantor to the fullest extent now or hereafter not
prohibited by applicable law. The invalidity or unenforceability of any
provision hereof shall not limit the validity or enforceability of each other
provision hereof.

         15. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall in all respects be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Massachusetts, without giving effect to principles of conflicts of law. In
addition, the fact that portions of the Loan Documents may include provisions
drafted to conform to the laws of the states other than the Commonwealth of
Massachusetts is not intended, nor shall it be deemed, in any way to derogate
the parties' choice of law as set forth herein. Administrative Agent may enforce
its rights hereunder and under the other Loan Documents, including, but not
limited to, its rights to sue Guarantors or to collect any outstanding
indebtedness in accordance with applicable law. It is understood and agreed that
this Guaranty and all of the other Loan Documents were negotiated, executed and
delivered in the Commonwealth of Massachusetts which Commonwealth the parties
agree has a substantial relationship to the parties and to the underlying
transactions embodied by the Loan Documents.

         16. CONSENT TO JURISDICTION. Each Guarantor hereby irrevocably submits
to the nonexclusive personal jurisdiction of any Massachusetts State Court or
any Federal Court sitting

                                      -30-
<PAGE>

in Massachusetts over any suit, action or proceeding arising out of or relating
to this Guaranty. Each Guarantor hereby agrees and consents that in addition to
any methods of service of process provided for under applicable law, all service
of process in any such suit, action or proceeding in any Massachusetts State or
Federal Court sitting in Massachusetts may be made by certified or registered
mail, return receipt requested, directed to Guarantor at the address indicated
above and service so made shall be deemed completed five (5) days after the same
shall have been so mailed.

         17. SUBORDINATION.

                  17.1. Any indebtedness of Borrower to Guarantor, or to any
affiliated entity, with respect to the Facilities or otherwise now or hereafter
existing together with any interest thereon shall be, and such indebtedness is,
hereby deferred, postponed and subordinated to the prior, full and
Non-Contestable Payment and satisfaction of all Obligations of Borrower to the
Administrative Agent and Lenders under the Credit Agreement, the Notes, and the
other Loan Documents. Payment and satisfaction of Obligations shall be deemed
"Non-Contestable Payment" only upon such payment and satisfaction and the
expiration of all periods of time within which a claim for the recovery of a
preferential payment, or fraudulent conveyance, or fraudulent transfer, in
respect of payments received by Administrative Agent as to the Obligations could
be filed or asserted with: (A) no such claim having been filed or asserted, or
(B) if so filed or asserted, the final, non-appealable decision of a court of
competent jurisdiction denying the claim or assertion.

                  17.2. At all times until the full and Non-Contestable Payment
and satisfaction of the Obligations of Borrower to Administrative Agent and
Lenders with respect to the Loan (and including interest accruing on the Note
after the commencement of a case by or against Borrower under the Bankruptcy
Code now or hereafter in effect, which interest the parties agree shall remain a
claim that is prior and superior to any claim of Guarantors or any affiliated
entity notwithstanding any contrary practice, custom or ruling in cases under
the Bankruptcy Code, as now or hereafter in effect, generally), Guarantors, and
each affiliated entity, agree not to accept any payment or satisfaction for any
kind of indebtedness of Borrower to Guarantors, or any affiliated entity, and
hereby assign such indebtedness to Administrative Agent including, but not
limited to, the right to file proofs of claim and to vote thereon in connection
with any such case under the Bankruptcy Code, as now or hereafter in effect, and
the right to vote on any plan of reorganization.

                  17.3. Any mortgage, security interest, lien or charge on the
Collateral, all rights therein and thereto, and on the revenue and income to be
realized therefrom, which Guarantors, or any affiliated entity, may have or
obtain as security for any loans, advances, indebtedness or costs in connection
with the construction and completion of the Improvements or in connection with
the Facilities, or otherwise, shall be, and such mortgage, security interest,
lien or charge hereby is, subordinated to the Mortgages and to the full and
Non-Contestable Payment and satisfaction of all Obligations of Borrower to the
Administrative Agent and Lenders.

                                      -31-
<PAGE>

                  17.4. In addition to the foregoing, and not in limitation
thereof, any claims of Guarantors, or any affiliated entity, of subrogation,
contribution, reimbursement, exoneration, indemnification, or reimbursement
arising out of any payment made on this Guaranty, whether such claim is based
upon an express or implied contract, or operation of law, are hereby waived
until the full and Non-Contestable Payment and satisfaction of all Obligations
of Borrower to Administrative Agent and Lenders. Provided, however, unless
Administrative Agent otherwise expressly agrees in writing, such waiver by
Guarantors shall not be effective to the extent that by virtue thereof
Guarantors' liability under this Guaranty or under any other Loan Document is
rendered invalid, voidable, or unenforceable under any applicable state or
federal law dealing with the recovery or avoidance of so-called preferences or
fraudulent conveyances or otherwise.

         18. LEGAL FEES, COSTS AND EXPENSES. Guarantors further agree to pay
upon demand all costs and expenses reasonably incurred by Administrative Agent
or its successors or assigns in connection with enforcing any of the rights or
remedies of Administrative Agent, or such successors or assigns, under or with
respect to this Guaranty including, but not limited to, reasonable attorneys'
fees and the out-of-pocket expenses and disbursements of such attorneys. Any
such amounts which are not paid within fifteen (15) days of demand therefor
shall bear interest at the Default Rate from the date of demand until paid.

         19. SET-OFF. Each Guarantor hereby grants to Administrative Agent and
each of the Lenders, a continuing lien, security interest and right of setoff as
security for all liabilities and obligations to Administrative Agent and the
Lenders, whether now existing or hereafter arising, upon and against all
deposits, credits, collateral and property, now or hereafter in the possession,
custody, safekeeping or control of any Lender or any entity under the control of
FleetBoston Financial Corporation and their successors and assigns or in transit
to any of them. At any time, without demand or notice (any such notice being
expressly waived by Guarantors), Administrative Agent may setoff the same or any
part thereof and apply the same to any liability or obligation of Borrower and
Guarantors even though unmatured and regardless of the adequacy of any other
collateral securing the Loans. ANY AND ALL RIGHTS TO REQUIRE ADMINISTRATIVE
AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER OR ANY GUARANTOR, ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

         20. JURY TRIAL WAIVER. GUARANTORS, ADMINISTRATIVE AGENT AND LENDERS (BY
ACCEPTANCE OF THIS GUARANTY) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE
OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF ADMINISTRATIVE AGENT AND/OR THE

                                      -32-
<PAGE>

LENDERS RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN
DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
EXCEPT AS PROHIBITED BY LAW, EACH GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. EACH GUARANTOR CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ADMINISTRATIVE AGENT AND/OR THE LENDERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT ADMINISTRATIVE AGENT AND/OR THE LENDERS WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR ADMINISTRATIVE AGENT AND THE LENDERS TO ACCEPT THIS
GUARANTY AND MAKE THE LOANS.

         21. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. The provisions of this Section 21 shall
in no respect limit the obligations and liabilities of any Guarantor to the
Administrative Agent and the Lenders, and each Guarantor shall remain liable to
the Administrative Agent and the Lenders for the full amount guaranteed by such
Guarantor hereunder.

         22. ENTIRE AGREEMENT. This Guaranty is intended by the parties as the
final, complete and exclusive statement of the transactions evidenced by this
Guaranty. All prior or contemporaneous promises, agreements and understandings,
whether oral or written, are deemed to be superceded by this Guaranty, and no
party is relying on any promise, agreement or understanding not set forth in
this Guaranty. This Guaranty may not be amended or modified except by a written
instrument describing such amendment or modification executed by Guarantor and
Administrative Agent.

         23. COUNTERPARTS. This Guaranty may be executed and delivered in
counterparts, including facsimile counterpart signatures (to be followed in due
course by delivery of original signature counterparts), shall be effective when
each party has delivered its counterpart signature, and all counterparts taken
together shall be deemed a single original agreement.

                            *Signatures on next page*

                                      -33-
<PAGE>

         Witness the execution and delivery hereof as an instrument under seal
as of the date set forth above.

                                       GUARANTORS:

                                       SUNRISE DUNWOODY ASSISTED LIVING, L.P., a
                                       Georgia limited partnership

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its General Partner

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the General Partner of Sunrise Dunwoody Assisted Living,
L.P., and acknowledged the foregoing instrument to be such person's free act and
deed and the free act and deed of such entities for the purposes therein stated
and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE COLUMBUS ASSISTED LIVING LIMITED
                                       PARTNERSHIP, a Georgia limited
                                       partnership

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its General Partner

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the General Partner of Sunrise Columbus Assisted Living
Limited Partnership, and acknowledged the foregoing instrument to be such
person's free act and deed and the free act and deed of such entities for the
purposes therein stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE EDINA ASSISTED LIVING, L.L.C., a
                                       Minnesota limited liability company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Edina Assisted Living, L.L.C., and
acknowledged the foregoing instrument to be such person's free act and deed and
the free act and deed of such entities for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE GREENVILLE ASSISTED LIVING
                                       LIMITED PARTNERSHIP, a South Carolina
                                       limited partnership

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its General Partner

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the General Partner of Sunrise Greenville Assisted Living
Limited Partnership, and acknowledged the foregoing instrument to be such
person's free act and deed and the free act and deed of such entities for the
purposes therein stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE POLAND ASSISTED LIVING, L.L.C.,
                                       an Ohio limited liability company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Poland Assisted Living, L.L.C.,
and acknowledged the foregoing instrument to be such person's free act and deed
and the free act and deed of such entities for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE AUGUSTA ASSISTED LIVING LIMITED
                                       PARTNERSHIP, a Georgia limited
                                       partnership

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its General Partner

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the General Partner of Sunrise Augusta Assisted Living
Limited Partnership, and acknowledged the foregoing instrument to be such
person's free act and deed and the free act and deed of such entities for the
purposes therein stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE EASTOVER ASSISTED LIVING, L.L.C.,
                                       a North Carolina limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Eastover Assisted Living, L.L.C.,
and acknowledged the foregoing instrument to be such person's free act and deed
and the free act and deed of such entities for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE HAMILTON ASSISTED LIVING, L.L.C.,
                                       a Virginia limited liability company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Hamilton Assisted Living, L.L.C.,
and acknowledged the foregoing instrument to be such person's free act and deed
and the free act and deed of such entities for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE FALL CREEK ASSISTED LIVING,
                                       L.L.C., an Indiana limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Fall Creek Assisted Living,
L.L.C., and acknowledged the foregoing instrument to be such person's free act
and deed and the free act and deed of such entity for the purposes therein
stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE FORT WAYNE ASSISTED LIVING,
                                       L.L.C., an Indiana limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Fort Wayne Assisted Living,
L.L.C., and acknowledged the foregoing instrument to be such person's free act
and deed and the free act and deed of such entity for the purposes therein
stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE SHAKER HEIGHTS ASSISTED LIVING,
                                       L.L.C., a Virginia limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Shaker Heights Assisted Living,
L.L.C., and acknowledged the foregoing instrument to be such person's free act
and deed and the free act and deed of such entity for the purposes therein
stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE WILLOW LAKE ASSISTED LIVING,
                                       L.L.C., an Indiana limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Willow Lake Assisted Living,
L.L.C., and acknowledged the foregoing instrument to be such person's free act
and deed and the free act and deed of such entity for the purposes therein
stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE WOOSTER ASSISTED LIVING, L.L.C.,
                                       an Indiana limited liability company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Wooster Assisted Living, L.L.C.,
and acknowledged the foregoing instrument to be such person's free act and deed
and the free act and deed of such entity for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE FLOSSMOOR ASSISTED LIVING,
                                       L.L.C., an Indiana limited liability
                                       company

                                       By Sunrise Assisted Living Investments,
                                                 Inc., its Sole Member

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., the Sole Member of Sunrise Flossmoor Assisted Living, L.L.C.,
and acknowledged the foregoing instrument to be such person's free act and deed
and the free act and deed of such entity for the purposes therein stated and
intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]

                       *Signatures continued on next page*

<PAGE>

                                       SUNRISE ASSISTED LIVING INVESTMENTS,
                                       INC., a Virginia corporation

                                            By /s/ James S. Pope
                                               ---------------------------------
                                            Print Name James S. Pope
                                                       -------------------------
                                            Title Vice President
                                                  ------------------------------

STATE OF
         ---------------
COUNTY OF                                                     January ___, 2002
          --------------

         Then personally appeared before me the above-named
_______________________, the _______________ of Sunrise Assisted Living
Investments, Inc., and acknowledged the foregoing instrument to be such person's
free act and deed and the free act and deed of such entity for the purposes
therein stated and intending to be legally bound thereby.

                                            ------------------------------------
                                            Notary Public
                                            Print Name
                                                       -------------------------
                                            My commission expires
                                                                  --------------
                                            [SEAL]<PAGE>

                                                                    EXHIBIT 10.6

                        MASTER CREDIT FACILITY AGREEMENT

                                 BY AND BETWEEN

   SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership,

  SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company,

SUNRISE WILTON ASSISTED LIVING, L.L.C., a Connecticut limited liability company,

  SUNRISE WALL ASSISTED LIVING, L.L.C., a New Jersey limited liability company,

  SUNRISE WESTON ASSISTED LIVING, LIMITED PARTNERSHIP, a Massachusetts limited
                                   partnership

                                       AND

                          GLASER FINANCIAL GROUP, INC.

                                   dated as of

                                NOVEMBER 29, 2001

<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
MASTER CREDIT FACILITY AGREEMENT..................................................................................1
ARTICLE 1 THE COMMITMENT..........................................................................................2
   SECTION 1.01.        The Commitment............................................................................2
   SECTION 1.02.        Requests for Advances.....................................................................2
   SECTION 1.03.        Maturity Date of Advances.................................................................2
   SECTION 1.04.        Interest on Advances......................................................................3
   SECTION 1.05.        Coupon Rates for Advances.................................................................4
   SECTION 1.06.        Notes.....................................................................................4
   SECTION 1.07.        Extension of Variable Facility Termination Date...........................................5
   SECTION 1.08.        Conversion from Variable Facility Commitment to Fixed Facility Commitment.................5
   SECTION 1.09.        Limitations on Right to Convert...........................................................6
   SECTION 1.10.        Conditions to Conversion..................................................................6
ARTICLE 2 THE ADVANCES............................................................................................6
   SECTION 2.01.        Rate Setting for an Advance...............................................................6
   SECTION 2.02.        Advance Confirmation Instrument for Variable Advances.....................................7
   SECTION 2.03.        Breakage and other Costs..................................................................7
   SECTION 2.04.        Advances..................................................................................7
   SECTION 2.05.        Determination of Allocable Facility Amount and Valuations.................................8
ARTICLE 3 COLLATERAL CHANGES......................................................................................9
   SECTION 3.01.        Right to Add Collateral...................................................................9
   SECTION 3.02.        Procedure for Adding Collateral...........................................................9
   SECTION 3.03.        Right to Obtain Releases of Collateral...................................................10
   SECTION 3.04.        Procedure for Obtaining Releases of Collateral...........................................10
   SECTION 3.05.        Right to Substitute Collateral...........................................................11
   SECTION 3.06.        Procedure for Substituting Collateral....................................................11
ARTICLE 4 EXPANSION OF CREDIT FACILITY...........................................................................13
   SECTION 4.01.        Right to Increase Commitment.............................................................13
   SECTION 4.02.        Procedure for Obtaining Increases in Commitment..........................................13
ARTICLE 5 TERMINATION OF FACILITIES..............................................................................14
   SECTION 5.01.        Right to Complete or Partial Termination of Facilities...................................14
   SECTION 5.02.        Procedure for Complete or Partial Termination of Facilities..............................14
   SECTION 5.03.        Right to Terminate Credit Facility.......................................................14
   SECTION 5.04.        Procedure for Terminating Credit Facility................................................15
ARTICLE 6 CONDITIONS PRECEDENT TO ALL REQUESTS...................................................................15
   SECTION 6.01.        Conditions Applicable to All Requests....................................................15
   SECTION 6.02.        Conditions Precedent to Initial Advance..................................................17
   SECTION 6.03.        Conditions Precedent to Future Advances..................................................17
   SECTION 6.04.        Conditions Precedent to Addition of an Additional Mortgaged Property to the
   Collateral Pool...............................................................................................18
</Table>

                                        i
<PAGE>

<Table>
<S>                                                                                                            <C>
   SECTION 6.05.        Conditions Precedent to Release of Property from the Collateral Pool.....................19
   SECTION 6.06.        Conditions Precedent to Substitution of a Substitute Mortgaged Property into the
   Collateral Pool...............................................................................................20
   SECTION 6.07.        Conditions Precedent to Increase in Commitment...........................................21
   SECTION 6.08.        Conditions Precedent to Conversion.......................................................22
   SECTION 6.09.        Conditions Precedent to Complete or Partial Termination of Facilities....................22
   SECTION 6.10.        Conditions Precedent to Termination of Credit Facility...................................23
   SECTION 6.11.        Delivery of Closing Documents Relating to Advance Request, Addition Request or
   Expansion Request.............................................................................................23
   SECTION 6.12.        Delivery of Property-Related Documents...................................................23
ARTICLE 7 REPRESENTATIONS AND WARRANTIES.........................................................................24
   SECTION 7.01.        Representations and Warranties of Borrower...............................................24
   SECTION 7.02.        Representations and Warranties of Lender.................................................24
ARTICLE 8 AFFIRMATIVE COVENANTS OF BORROWER......................................................................25
   SECTION 8.01.        Compliance with Agreements...............................................................25
   SECTION 8.02.        Maintenance of Existence.................................................................25
   SECTION 8.03.        Financial Statements; Accountants' Reports; Other Information............................25
   SECTION 8.04.        Access to Records; Discussions With Officers and Accountants.............................27
   SECTION 8.05.        Certificate of Compliance................................................................27
   SECTION 8.06.        Maintain Licenses........................................................................28
   SECTION 8.07.        Inform Lender of Material Events.........................................................28
   SECTION 8.08.        Compliance with Applicable Laws..........................................................29
   SECTION 8.09.        Alterations to the Mortgaged Properties..................................................29
   SECTION 8.10.        Loan Document Taxes......................................................................30
   SECTION 8.11.        Further Assurances.......................................................................30
   SECTION 8.12.        Transfer of Ownership Interest of Borrower and Sunrise...................................30
   SECTION 8.13.        Transfer of Ownership of Mortgaged Property..............................................32
   SECTION 8.14.        Change in Senior Management..............................................................33
   SECTION 8.15.        Date-Down Endorsements...................................................................33
   SECTION 8.16.        Ownership of Mortgaged Properties........................................................33
   SECTION 8.17.        Compliance with Net Worth Test...........................................................33
   SECTION 8.18.        Compliance with Liquidity Test...........................................................33
   SECTION 8.19.        Facility Balancing.......................................................................33
ARTICLE 9 NEGATIVE COVENANTS OF BORROWER.........................................................................34
   SECTION 9.01.        Other Activities.........................................................................34
   SECTION 9.02.        Liens....................................................................................34
   SECTION 9.03.        Indebtedness.............................................................................34
   SECTION 9.04.        Principal Place of Business..............................................................34
   SECTION 9.05.        Condominiums.............................................................................35
   SECTION 9.06.        Restrictions on Partnership Distributions................................................35
ARTICLE 10 FEES..................................................................................................35
   SECTION 10.01.       Standby Fee..............................................................................35
   SECTION 10.02.       Origination Fee..........................................................................35
   SECTION 10.03.       Due Diligence Fees.......................................................................35
   SECTION 10.04.       Legal Fees and Expenses..................................................................36
</Table>

                                       ii
<PAGE>

<Table>
<S>                                                                                                            <C>
   SECTION 10.05.       Failure to Close any Request.............................................................36
ARTICLE 11 EVENTS OF DEFAULT.....................................................................................36
   SECTION 11.01.       Events of Default........................................................................36
ARTICLE 12 REMEDIES..............................................................................................38
   SECTION 12.01.       Remedies; Waivers........................................................................38
   SECTION 12.02.       Waivers; Rescission of Declaration.......................................................39
   SECTION 12.03.       Lender's Right to Protect Collateral and Perform Covenants and Other Obligations.........39
   SECTION 12.04.       No Remedy Exclusive......................................................................40
   SECTION 12.05.       No Waiver................................................................................40
   SECTION 12.06.       No Notice................................................................................40
ARTICLE 13 RIGHTS OF FANNIE MAE..................................................................................40
   SECTION 13.01.       Special Pool Purchase Contract...........................................................40
   SECTION 13.02.       Assignment of Rights.....................................................................40
   SECTION 13.03.       Release of Collateral....................................................................41
   SECTION 13.04.       Replacement of Lender....................................................................41
   SECTION 13.05.       Fannie Mae and Lender Fees and Expenses..................................................41
   SECTION 13.06.       Third-Party Beneficiary..................................................................41
ARTICLE 14 INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES.................................................41
   SECTION 14.01.       Insurance and Real Estate Taxes..........................................................41
   SECTION 14.02.       Replacement Reserves.....................................................................42
ARTICLE 15 PERSONAL LIABILITY OF THE BORROWER....................................................................42
   SECTION 15.01.       Personal Liability of the Borrower.......................................................42
ARTICLE 16 INTENTIONALLY OMITTED.................................................................................42
ARTICLE 17 MISCELLANEOUS PROVISIONS..............................................................................42
   SECTION 17.01.       Counterparts.............................................................................42
   SECTION 17.02.       Amendments, Changes and Modifications....................................................43
   SECTION 17.03.       Payment of Costs, Fees and Expenses......................................................43
   SECTION 17.04.       Payment Procedure........................................................................44
   SECTION 17.05.       Payments on Business Days................................................................44
   SECTION 17.06.       Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial.............................44
   SECTION 17.07.       Severability.............................................................................45
   SECTION 17.08.       Notices..................................................................................46
   SECTION 17.09.       Further Assurances and Corrective Instruments............................................47
   SECTION 17.10.       Term of this Agreement...................................................................48
   SECTION 17.11.       Assignments; Third-Party Rights..........................................................48
   SECTION 17.12.       Headings.................................................................................48
   SECTION 17.13.       General Interpretive Principles..........................................................48
   SECTION 17.14.       Interpretation...........................................................................48
   SECTION 17.15.       Standards for Decisions, Etc.............................................................49
   SECTION 17.16.       Decisions in Writing.....................................................................49
   SECTION 17.17.       Requests.................................................................................49
</Table>

<PAGE>

                                    EXHIBITS

EXHIBIT A         Schedule of Initial Mortgaged Properties and Initial
                  Valuations
EXHIBIT B         Fixed Facility Note
EXHIBIT C         Variable Facility Note
EXHIBIT D         Certificate of Borrower
EXHIBIT E         Guaranty
EXHIBIT F         Compliance Certificate
EXHIBIT G-1       Organizational Certificate (Borrower)
EXHIBIT G-2       Organizational Certificate (Guarantor)
EXHIBIT H         Conversion Request
EXHIBIT I         Master Credit Facility Agreement Conversion Amendment
EXHIBIT J         Rate Form
EXHIBIT K         Advance Confirmation Instrument
EXHIBIT L         Advance Request
EXHIBIT M         Request
EXHIBIT N         Confirmation of Obligations
EXHIBIT O         Expansion Request
EXHIBIT P         Facility Termination Request
EXHIBIT Q         Amendment to Master Credit Facility Agreement
EXHIBIT R         Credit Facility Termination Request

APPENDIX I        Definitions

                                       iv
<PAGE>

                        MASTER CREDIT FACILITY AGREEMENT

         THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 29th day of
November, 2001 by and among (a) (i) SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a
California limited partnership ("Riverside"), (ii) SUNRISE PARMA ASSISTED
LIVING, L.L.C., a Virginia limited liability company ("Parma"), (iii) SUNRISE
WILTON ASSISTED LIVING, L.L.C., a Connecticut limited liability company
("Wilton"), (iv) SUNRISE WALL ASSISTED LIVING, L.L.C., a New Jersey limited
liability company ("Wall"), and (v) SUNRISE WESTON ASSISTED LIVING, LIMITED
PARTNERSHIP, a Massachusetts limited partnership ("Weston") (individually and
collectively, Riverside, Parma, Wilton, Wall and Weston, "Borrower"), and (b)
GLASER FINANCIAL GROUP, INC., a Minnesota corporation ("Lender").

                                    RECITALS

         A. Borrower owns one or more Multifamily Residential Properties (unless
otherwise defined or the context clearly indicates otherwise, capitalized terms
shall have the meanings ascribed to such terms in Appendix I of this Agreement)
as more particularly described in Exhibit A to this Agreement.

         B. Borrower has requested that Lender establish a $60,000,000 Credit
Facility in favor of Borrower, comprised initially of a $60,000,000 Variable
Facility, all or part of which can be converted to a Fixed Facility in
accordance with, and subject to, the terms and conditions of this Agreement.

         C. To secure the obligations of Borrower under this Agreement and the
other Loan Documents issued in connection with the Credit Facility, Borrower
shall create a Collateral Pool in favor of Lender. The Collateral Pool shall be
comprised of (i) Security Instruments on the Multifamily Residential Properties
listed on Exhibit A and (ii) any other Security Documents executed by Borrower
pursuant to this Agreement or any other Loan Documents.

         D. Each Security Document shall be cross-defaulted (i.e., a default
under any Security Document, or under this Agreement, shall constitute a default
under each Security Document, and this Agreement) and cross-collateralized
(i.e., each Security Instrument shall secure all of Borrower's obligations under
this Agreement and the other Loan Documents) and it is the intent of the parties
to this Agreement that Lender may accelerate any Note without needing to
accelerate any other Note and that in the exercise of its rights and remedies
under the Loan Documents, Lender may, except as provided in this Agreement,
exercise and perfect any and all of its rights in and under the Loan Documents
with regard to any Mortgaged Property without needing to exercise and perfect
its rights and remedies with respect to any other Mortgaged Property and that
any such exercise shall be without regard to the Allocable Facility Amount
assigned to such Mortgaged Property and that Lender may recover an amount equal
to the full amount outstanding in respect of any of the Notes in connection with
such exercise and any such amount shall be applied as determined by Lender in
its sole and absolute discretion.

                                       1
<PAGE>

         E. Subject to the terms, conditions and limitations of this Agreement,
Lender has agreed to establish the Credit Facility.

         NOW, THEREFORE, Borrower and Lender, in consideration of the mutual
promises and agreements contained in this Agreement, hereby agree as follows:

                                    ARTICLE 1

                                 THE COMMITMENT

         SECTION 1.01. The Commitment.

         Subject to the terms, conditions and limitations of this Agreement:

                  (a) Variable Facility Commitment. Lender agrees to make
Variable Advances to Borrower from time to time during the Variable Facility
Availability Period. The aggregate principal balance of the Variable Advances
Outstanding at any time shall not exceed the Variable Facility Commitment.
Borrower may re-borrow any part of the Variable Advances which it has previously
borrowed and repaid.

                  (b) Fixed Facility Commitment. Lender agrees to make Fixed
Advances to Borrower from time to time during the Fixed Facility Availability
Period. The aggregate original principal of the Fixed Advances shall not exceed
the Fixed Facility Commitment. The borrowing of a Fixed Advance shall
permanently reduce the Fixed Facility Commitment by the original principal
amount of such Fixed Advance. Borrower may not re-borrow any part of the Fixed
Advance which it has previously borrowed and repaid.

         SECTION 1.02. Requests for Advances.

         Borrower shall request an Advance by giving Lender an Advance Request
in accordance with Section 2.04. The Advance Request shall indicate whether the
Request is for a Fixed Advance, a Variable Advance or both.

         SECTION 1.03. Maturity Date of Advances.

                  (a) Variable Advances. The MBS Issue Date shall be the first
day of a month and the maturity date of the MBS funding each Variable Advance
shall be specified by Borrower in its Advance Request, which date shall be:

                           (i) no earlier than the date which completes one full
month after the MBS Issue Date; and

                           (ii) no later than the date which completes nine full
months after the MBS Issue Date.

                                       2
<PAGE>

         For these purposes, a year shall be deemed to consist of 12 30-day
months. For example, the date which completes three full months after September
1 shall be December 1; and the date which completes three full months after
January 1 shall be April 1.

         No principal payments in respect of any Variable Advance shall be due
prior to the maturity date of such Variable Advance.

                  (b) Fixed Advances; Amortization Period. The maturity date of
each Fixed Advance shall be specified by Borrower, provided that such maturity
date shall be the 5th, 7th or 10th anniversary of the making of such Fixed
Advance, provided that in no event shall the maturity date of any Fixed Advance
be later than the 10th anniversary of the Initial Closing Date. The principal of
each Fixed Advance shall be amortized on a 25-year schedule.

                  (c) Prepayment. Fixed Advances are not prepayable at any time,
provided that, notwithstanding the foregoing, Borrower (i) may prepay not less
than all of any Fixed Advance during the last ninety (90) days of the term of
such Fixed Advance, and (ii) may prepay not less than all of any Fixed Advance
pursuant to the yield maintenance provisions of the Fixed Facility Note.

         SECTION 1.04. Interest on Advances.

                  (a) Partial Month Interest. Notwithstanding anything to the
contrary in this Section, if an Advance is not made on the first day of a
calendar month, and the MBS Issue Date is the first day of the month following
the month in which the Advance is made, Borrower shall pay interest on the
original stated principal amount of the Advance for the partial month period
commencing on the Closing Date for the Advance and ending on the last day of the
calendar month in which the Closing Date occurs, (i) for a Variable Advance at a
rate per annum equal to the greater of (1) the Coupon Rate as determined in
accordance with Section 1.05(a) and (2) a rate determined by Lender, based on
Lender's cost of funds and approved in advance, in writing, by Borrower,
pursuant to the procedures mutually agreed upon by Borrower and Lender, and (ii)
for a Fixed Advance at a rate, per annum equal to the greater of (1) the
interest rate for the described in subsection (c)(i) of this Section and (2) a
rate determined by Lender, based on Lender's cost of funds, and approved in
advance, in writing, by Borrower, pursuant to procedures mutually agreed upon by
Borrower and Lender.

                  (b) Variable Advances.

                           (i) Discount. Each Variable Advance shall be a
discount loan. The original stated principal amount of a Variable Advance shall
be the sum of the Price and the Discount. The Price and Discount of each
Variable Advance shall be determined in accordance with the procedures set out
in Section 2.01. The proceeds of the Variable Advance made available by Lender
to Borrower will equal the original stated principal amount of the Variable
Advance. Borrower shall pay to Lender, in advance of Lender making a Variable
Advance requested by Borrower, the entire Discount for the Variable Advance. On
the maturity of each Variable Advance, the Borrower shall pay the Lender an
amount equal to the original stated principal amount of such Variable Advance.

                                       3
<PAGE>

                           (ii) Variable Facility Fee. In addition to paying the
Discount and the partial month interest, if any, Borrower shall pay monthly
installments of the Variable Facility Fee to Lender for each Variable Advance
from the applicable MBS Issue Date to its maturity date. The Variable Facility
Fee shall be payable in advance, in accordance with the terms of the Variable
Facility Note. The first installment shall be payable on or prior to the Closing
Date for the Variable Advance and shall apply to the first full calendar month
of such MBS. Subsequent installments shall be payable on the first day of each
calendar month, commencing on the first day of the second full calendar month of
such MBS, to its maturity date. Each installment of the Variable Facility Fee
shall be in an amount equal to the product of (1) the Variable Facility Fee, (2)
the original stated principal amount of the Variable Advance, and (3) 1/12.

                  (c) Fixed Advances.

                           (i) Annual Interest Rate. Each Fixed Advance shall
bear interest at a rate, per annum, equal to the sum of (1) the MBS Pass-Through
Rate for such Fixed Advance and (2) the Fixed Facility Fee.

                           (ii) Fixed Facility Fee. In addition to paying the
partial month interest, if any, Borrower shall pay monthly installments of the
MBS Pass-Through Rate and the Fixed Facility Fee to Lender for each Fixed
Advance from the applicable MBS Issue Date to its maturity date. The MBS
Pass-Through Rate and the Fixed Facility Fee shall be payable in arrears, in
accordance with the terms of the Fixed Facility Note. The first installment
shall be payable on the first day of each calendar month, commencing on the
first day of the second full calendar month of such MBS, to its maturity date.
Each installment of the Fixed Facility Fee shall be in an amount equal to the
product of (1) the Fixed Facility Fee, (2) the amount of the Fixed Advance, and
(3) 1/12.

         SECTION 1.05. Coupon Rates for Advances.

                  (a) Variable Advances. The Coupon Rate shall equal the sum of
(1) an interest rate as determined by Lender (rounded to three places) payable
for the MBS pursuant to the MBS Commitment ("MBS Imputed Interest Rate") and (2)
the Variable Facility Fee.

                  (b) Fixed Advances. The Coupon Rate shall be the rate of
interest applicable to such Fixed Advance pursuant to Section 1.04(c)(i).

         SECTION 1.06. Notes.

                  (a) Variable Advances. The obligation of Borrower to repay
shall be evidenced by the Variable Facility Note. The Variable Facility Note
shall be payable to the order of Lender and shall be made in the amount of the
Variable Facility Commitment.

                  (b) Fixed Advances. The obligation of Borrower to repay shall
be evidenced by the Fixed Facility Notes. The Fixed Facility Notes shall be
payable to the order of Lender and shall be made in the original principal
amount of each Fixed Advance.

                                       4
<PAGE>

         SECTION 1.07. Extension of Variable Facility Termination Date.

         Borrower shall have the right to extend the Variable Facility
Termination Date for one (1) five (5) year period ("Extension") upon
satisfaction of each of the following conditions:

                  (a) Borrower provides written notice requesting the Extension
("Extension Notice") to Lender not less than 30 nor more than 360 days prior to
the then effective Variable Facility Termination Date.

                  (b) No Event of Default or Potential Event of Default exists
on either the date the Extension Notice is given or on the then effective
Variable Facility Termination Date.

                  (c) All of the representations and warranties of Borrower
contained in Article 7 of this Agreement and the other Loan Documents are true
and correct in all material respects on the date the Extension Notice is given
and on the then effective Variable Facility Termination Date.

                  (d) Borrower is in compliance with all of the covenants
contained in Articles 8 and 9 on the date the Extension Notice is given and on
the then effective Variable Facility Termination Date.

         Upon receipt of the Extension Notice and upon compliance with
conditions set forth above, the Variable Facility Termination Date shall be
extended for five (5) years on the terms and conditions contained in this
Agreement and the other Loan Documents. The Variable Facility Fee and the
Standby Fee applicable to the Variable Facility during the Extension shall be as
agreed to by the parties prior to the Extension.

         SECTION 1.08. Conversion from Variable Facility Commitment to Fixed
Facility Commitment.

         Except as provided in Section 1.09, Borrower shall have the right, from
time to time during the Fixed Facility Availability Period, to convert all or
any portion of the Variable Facility Commitment to the Fixed Facility
Commitment. The Variable Facility Commitment shall be reduced by, and the Fixed
Facility Commitment shall be increased by, the amount of each conversion.

                  (a) Request. To convert all or a portion of the Variable
Facility Commitment to the Fixed Facility Commitment, Borrower shall deliver a
Conversion Request to Lender. Each Conversion Request shall designate (1) the
amount of the conversion and (2) any Variable Advances Outstanding which will be
prepaid on or before the Closing Date for the conversion as required by Section
1.09(c).

                  (b) Closing. Subject to Section 1.09 and provided that all
conditions contained in Section 1.10 are satisfied, Lender shall permit the
requested conversion to close at offices designated by Lender on a Closing Date
selected by Lender, and occurring within 30 Business Days after Lender's receipt
of the Conversion Request (or on such other date as

                                       5
<PAGE>

Borrower and Lender may agree). At the closing, Lender and Borrower shall
execute and deliver, at the sole cost and expense of Borrower, in form and
substance satisfactory to Lender, the Conversion Documents.

         SECTION 1.09. Limitations on Right to Convert.

         Borrower's right to convert all or any portion of the Variable Facility
Commitment to the Fixed Facility Commitment is subject to the following
limitations:

                  (a) Closing Date. The Closing Date shall occur during the
Fixed Facility Availability Period.

                  (b) Minimum Request. Each Conversion Request shall be in the
minimum amount of $5,000,000.

                  (c) Obligation to Prepay Variable Advances. Borrower shall
prepay any difference by which, after the conversion, the aggregate unpaid
principal balance of all Variable Advances Outstanding will exceed the Variable
Facility Commitment.

         SECTION 1.10. Conditions to Conversion.

         The conversion of all or any portion of the Variable Facility
Commitment to the Fixed Facility Commitment is subject to the satisfaction, on
or before the Closing Date, of (a) the conditions precedent contained in Section
6.08 and (b) all applicable General Conditions contained in Section 6.01.

                                    ARTICLE 2

                                  THE ADVANCES

         SECTION 2.01. Rate Setting for an Advance.

         Rates for an Advance shall be set in accordance with the following
procedures:

                  (a) Preliminary, Nonbinding Quote. At Borrower's request
Lender shall quote an estimate of the MBS Pass-Through Rate (for a proposed
Fixed Advance) or MBS Imputed Interest Rate (for a proposed Variable Advance).
Lender's quote shall be based on (1) a solicitation of bids from institutional
investors selected by Lender and (2) the proposed terms and amount of the
Advance selected by Borrower. The quote shall not be binding upon Lender.

                  (b) Rate Setting. If Borrower satisfies all of the conditions
to Lender's obligation to make the Advance, then Borrower may submit to Lender,
by facsimile transmission before 1:00 p.m. Washington, D.C. time on any Business
Day ("Rate Setting Date"), a completed and executed Rate Form. The Rate Form
shall specify the amount, term, MBS Issue Date, Facility Fee, any breakage fee
deposit amount, the proposed maximum Coupon Rate ("Maximum Annual Coupon Rate")
and Closing Date for the Advance.

                                       6
<PAGE>

                  (c) Rate Confirmation. Within one Business Day after receipt
of the Rate Form, Lender shall solicit bids from institutional investors
selected by Lender based on the information in the Rate Form and, provided the
actual Coupon Rate (if the low bid were accepted) would be at or below the
Maximum Annual Coupon Rate, shall obtain a commitment ("MBS Commitment") for the
purchase of an MBS having the bid terms described in the related Rate Form.
Lender shall then complete and countersign the Rate Form thereby confirming the
amount, term, MBS Issue Date, MBS Delivery Date, MBS Imputed Interest Rate or
MBS Pass-Through Rate, Facility Fee, Coupon Rate, Discount, Price, and Closing
Date for the Advance and shall immediately deliver by facsimile transmission the
Rate Form to Borrower.

         SECTION 2.02. Advance Confirmation Instrument for Variable Advances.

         On or before the Closing Date for a Variable Advance, Borrower shall
execute and deliver to Lender a fully executed Advance Confirmation Instrument,
confirming the amount, term, MBS Issue Date, MBS Delivery Date, MBS Imputed
Interest Rate, Variable Facility Fee, Coupon Rate, Discount, Price and Closing
Date for the Advance, and Borrower's obligation to repay the Variable Advance in
accordance with the terms of the Variable Facility Note and this Agreement. Upon
the funding of the Variable Advance, Lender shall insert the date of funding on
the Advance Confirmation Instrument and deliver a copy of the completed Advance
Confirmation Instrument to Borrower to evidence the date of funding and to
confirm that the Advance Confirmation Instrument is not effective until the date
of funding. Lender's failure to do so shall not invalidate the Advance
Confirmation Instrument or otherwise affect in any way any obligation of
Borrower to repay Variable Advances in accordance with the Advance Confirmation
Instrument, the Variable Facility Note or the other Loan Documents.

         SECTION 2.03. Breakage and other Costs.

         If Lender obtains, and then fails to fulfill, the MBS Commitment
because the Advance is not made (for a reason other than Lender's default),
Borrower shall pay all reasonable out-of-pocket costs payable to the potential
investor and other reasonable costs, fees and damages incurred by Lender in
connection with its failure to fulfill the MBS Commitment. Lender reserves the
right to require Borrower to post a deposit at the time the MBS Commitment is
obtained. Such deposit shall be refundable to Borrower upon the delivery of the
related MBS.

         SECTION 2.04. Advances.

         Borrower may deliver an Advance Request to Lender.

                  (a) If the Advance Request is to obtain the Initial Advance
and all conditions precedent contained in Section 6.02 and the General
Conditions contained in Section 6.01 are satisfied on or before the Closing Date
for the Initial Advance, Lender shall make the Initial Advance on the Initial
Closing Date or on such other date as Borrower and Lender may agree.

                  (b) If the Advance Request is to obtain a Future Advance, such
Advance Request shall be in the minimum amount of $3,000,000, provided that the
limitation set forth in this sentence shall not apply to Future Advances made
simultaneously with a Rollover Variable

                                       7
<PAGE>

Advance. Borrower may have one or more Advances of not less than $3,000,000 even
though such Advances are made on the same day and mature on the same date. If
all conditions precedent contained in Section 6.03 and the General Conditions
contained in Section 6.01 are satisfied, Lender shall make the requested Future
Advance, at a closing to be held at offices designated by Lender on a Closing
Date selected by Lender, which date shall be not more than three (3) Business
Days after Borrower's receipt from Lender of the confirmed Rate Form (or on such
other date as Borrower and Lender may agree).

                  (c) Borrower shall be entitled, from time to time, to
additional Advances based on increases in the Aggregate Loan to Value Ratio or
in the Aggregate Debt Service Coverage Ratios as determined by Lender annually.
The amount of such additional Advances shall be equal to the amount which, when
combined with Advances already Outstanding, equals the Borrowing Up Limitation.
No such additional Advances shall be permitted if the Variable Facility
Commitment has been terminated, or if there are Outstanding Advances in the full
amount of the Variable Facility Commitment and the Fixed Facility Commitment.

         SECTION 2.05. Determination of Allocable Facility Amount and
Valuations.

                  (a) Initial Determinations. On the Initial Closing Date,
Lender shall determine (i) the Allocable Facility Amount and Valuation for each
Mortgaged Property and (ii) the Aggregate Debt Service Coverage Ratio and the
Aggregate Loan to Value Ratio. Determinations made pursuant to the preceding
sentence shall be made (i) for five and seven year Fixed Advances, based on an
underwriting interest rate of 7.75%, and (ii) for 10 year Fixed Advances, based
on an underwriting interest rate of 6.5%. The determinations made as of the
Initial Closing Date shall remain unchanged until the first anniversary of the
Initial Closing Date.

                  (b) Monitoring Determinations. (i) Once each Calendar Quarter
or, if the Commitment consists only of a Fixed Facility Commitment, once each
Calendar Year, within 20 Business Days after Borrower has delivered to Lender
the reports required in Section 8.03, Lender shall determine the Aggregate Debt
Service Coverage Ratio and the Aggregate Loan to Value Ratio and calculations
required in connection with the other covenants set forth in the Loan Documents,
and whether the Borrower is in compliance, (ii) after the first anniversary of
the Initial Closing Date, on an annual basis, and if Lender reasonably decides
that changed market or property conditions warrant, Lender shall determine
Allocable Facility Amounts and Valuations, (iii) Lender shall also redetermine
Allocable Facility Amounts to take account of any addition, release or
substitution of Collateral or other event which invalidates the outstanding
determinations. In determining the Aggregate Debt Service Coverage Ratio, if the
Borrower has purchased an interest rate cap that (1) is from a cap provider
acceptable to Lender, in its sole discretion, (2) contains terms and conditions
acceptable to Lender, in its sole discretion, and (3) is assigned to Lender as
security for the Obligations, Lender shall determine the portion of the
Aggregate Debt Service Coverage Ratio attributable to the Variable Facility
based on the lower of (A) the actual interest rate for the Variable Facility for
such period and (B) the rate provided by the interest rate cap. In determining
Valuations, Lender shall use Cap Rates based on its internal survey and analysis
of cap rates for comparable sales in the vicinity of the Mortgaged Property,
with such adjustments as Lender deems appropriate and without any obligation to
use

                                       8
<PAGE>

any information provided by Borrower. If Lender is unable to determine a Cap
Rate for a Mortgaged Property, Lender shall have the right, not more than once
annually, to obtain a market study in order to establish a Cap Rate. Lender
shall promptly disclose its determinations to Borrower. Until redetermined, the
outstanding Allocable Facility Amounts and Valuations shall remain in effect.
Fixed Advances based on increased Valuations or additions to the Collateral Pool
and expansion of the Facility shall be based on underwriting floors determined
by Lender from time to time. During the first Loan Year a Mortgaged Property is
in the Collateral Pool, all calculations of Aggregate Debt Service Coverage and
Aggregate Loan to Value Ratios including such Mortgaged Property shall be based
on actual operations of such Mortgaged Property during the period the Mortgaged
Property was in the Collateral Pool and underwriting proforma results for the
remainder of such Loan Year.

                                    ARTICLE 3

                               COLLATERAL CHANGES

         SECTION 3.01. Right to Add Collateral.

         Subject to the terms and conditions of this Article, Borrower shall
have the right, from time to time during the Term of this Agreement, to add
Multifamily Residential Properties to the Collateral Pool.

         SECTION 3.02. Procedure for Adding Collateral.

         The procedure for adding Collateral contained in this Section 3.02
shall apply to all additions of Collateral including, but not limited to,
additions of Collateral in connection with substitutions of Collateral and
expansion of the Credit Facility.

                  (a) Request. Borrower may deliver to Lender an Addition
Request to add one or more Multifamily Residential Properties to the Collateral
Pool. Each Addition Request shall be accompanied by the following: (i) the
information required by the DUS Guide Underwriting Requirements and any
additional information Lender may reasonably request; and (ii) the payment of
all Additional Collateral Due Diligence Fees.

                  (b) Underwriting. Lender shall evaluate the proposed
Additional Mortgaged Property in accordance with the DUS Guide Underwriting
Requirements, and shall make underwriting determinations as to the Aggregate
Debt Service Coverage Ratio and the Aggregate Loan to Value Ratio applicable to
the Collateral Pool on the basis of the lesser of (1) the acquisition price of
the proposed Additional Mortgaged Property if purchased by Borrower within 12
months of the related Addition Request, and (2) a Valuation made with respect to
the proposed Additional Mortgaged Property. Within 30 Business Days (provided
that Lender shall use reasonable efforts to respond sooner) after receipt of (1)
the Addition Request and (2) all reports, certificates and documents required by
the DUS Guide Underwriting Requirements, including a zoning analysis undertaken
in accordance with Section 206 of Part III of the DUS Guide, Lender shall notify
Borrower whether it shall consent to the Addition Request. If Lender

                                       9
<PAGE>

consents it shall set forth the Aggregate Debt Service Coverage Ratio and the
Aggregate Loan to Value Ratio which it estimates shall result from the addition
of the proposed Additional Mortgaged Property. Within 30 Business Days after
receipt of Lender's consent to the Addition Request, Borrower shall notify
Lender whether it elects to add the proposed Additional Mortgaged Property to
the Collateral Pool. If Borrower fails to respond within the period of 30
Business Days, it shall be conclusively deemed to have elected not to add the
proposed Additional Mortgaged Property to the Collateral Pool.

                  (c) Closing. If Lender consents to the Addition Request,
Borrower timely elects to add the proposed Additional Mortgaged Property to the
Collateral Pool and all conditions precedent contained in Section 6.04 and all
General Conditions contained in Section 6.01 are satisfied, Lender shall permit
the addition of the proposed Additional Mortgaged Property to the Collateral
Pool, at a closing to be held at offices designated by Lender on a Closing Date
selected by Lender, occurring within 30 Business Days after Lender's receipt of
Borrower's election (or on such other date as Borrower and Lender may agree).

         SECTION 3.03. Right to Obtain Releases of Collateral.

         Subject to the terms and conditions of this Article, Borrower shall
have the right to obtain a release of Collateral from the Collateral Pool.

         SECTION 3.04. Procedure for Obtaining Releases of Collateral.

                  (a) Request. To obtain a release of Collateral from the
Collateral Pool, Borrower may deliver a Release Request to Lender. The Release
Request shall not result in a termination of all or any part of the Credit
Facility. Borrower may terminate all or any part of the Credit Facility only by
delivering a Facility Termination Request or Credit Facility Termination Request
pursuant to Article 5.

                  (b) Closing. If all conditions precedent contained in Section
6.05 and all General Conditions contained in Section 6.01 are satisfied, Lender
shall cause the Release Property to be released, at a closing to be held at
offices designated by Lender on a Closing Date selected by Lender, and occurring
not less than 15 days after Lender's receipt of the Release Request (or on such
other date as Borrower and Lender may agree), by executing and delivering, and
causing all applicable parties to execute and deliver, all at the sole cost and
expense of Borrower, the Release Documents. Borrower shall prepare the Release
Documents and submit them to Lender for its review.

                  (c) Release Price. The Release Price for each Mortgaged
Property shall be the greater of (i) the Allocable Facility Amount for the
Release Property and (ii) the amount of any Advances Outstanding which are
required to be repaid by Borrower to Lender so that, immediately after the
release, the Coverage and LTV Tests will be satisfied. In addition, Borrower
shall pay to Lender all other amounts due under the Notes and any Advance
Confirmation Instruments evidencing the Advances being repaid.

                                       10
<PAGE>

                  (d) Application of Release Price. The Release Price shall be
applied first against the Variable Advances Outstanding until there are no
further Variable Advances Outstanding, then against the prepayment of Fixed
Advances Outstanding, so long as the prepayment is permitted under the
applicable Fixed Facility Note. If, on the date Borrower pays the Release Price,
Variable Advances are Outstanding but not then due and payable, Lender shall
hold the Release Price in an interest-bearing account as additional Collateral,
until the next date on which Variable Advances are due and payable, at which
time Lender shall apply the appropriate portion of the Release Price to such
Variable Advances.

         SECTION 3.05. Right to Substitute Collateral.

         Subject to the terms, conditions and limitations of this Section 3.05,
Borrower shall have the right to add one or more Multifamily Residential
Properties to the Collateral Pool in substitution of one or more Mortgaged
Properties then in the Collateral Pool ("Substitute Mortgaged Property").

         SECTION 3.06. Procedure for Substituting Collateral.

                  (a) Request. Borrower may deliver to Lender a Substitution
Request to add one or more Multifamily Residential Properties in substitution of
one or more Mortgaged Properties then in the Collateral Pool. Each Substitution
Request shall be accompanied by

                           (i) the information required by the DUS Guide
Underwriting Requirements and any additional information Lender may reasonably
request; and (ii) a statement whether the addition of the Substitute Mortgaged
Property will occur simultaneously with the release of the Release Property and,
if not, the proposed date on which the Substitute Mortgaged Property will be
added to the Collateral Pool which, in no event, shall be a date which is more
than 90 days after the proposed date of the release of the Release Property.

                  (b) Underwriting. Borrower may add any Substitute Mortgaged
Property provided that, after the substitution, the Coverage and LTV Tests are
satisfied. Lender shall make underwriting determinations as to the Aggregate
Debt Service Coverage Ratio and the Aggregate Loan to Value Ratio immediately
prior to and immediately after giving effect to the proposed substitution, and
the Valuation and the Net Operating Income for both the Substitute Mortgaged
Property and the Release Property. Notwithstanding anything to the contrary
contained herein, underwriting determinations with respect to the proposed
Substitute Mortgaged Property shall be made on the basis of a Valuation and
otherwise in accordance with the DUS Guide Underwriting Requirements. Within 30
days after receipt of (i) the Substitution Request and (ii) all reports,
certificates and documents required under the DUS Guide, including a zoning
analysis undertaken in accordance with Section 206 of Part III of the DUS Guide,
Lender shall notify Borrower whether Lender shall consent to Substitution
Request. If Lender consents, it shall set forth the Aggregate Debt Service
Coverage Ratio and the Aggregate Loan to Value Ratio which it estimates shall
result from the substitution of the Substitute Mortgaged Property into the
Collateral Pool. Within 30 days after receipt of Lender's consent notice,
Borrower shall notify Lender whether it elects to cause such substitution to
occur. If Borrower fails to respond

                                       11
<PAGE>

within the period of 30 days, it shall be conclusively deemed to have elected
not to cause the proposed substitution to occur.

                  (c) Closing. If Lender consents to the Substitution Request,
Borrower timely elects to cause such substitution to occur and all conditions
precedent contained in Section 6.06 and all General Conditions contained in
Section 6.01 are satisfied, Lender shall permit the Substitute Mortgaged
Property to be substituted into the Collateral Pool in replacement of the
Release Property, at a closing to be held at offices designated by Lender on a
Closing Date selected by Lender, and occurring

                           (i) if the addition of the Substitute Mortgaged
Property and the release of the Release Property are to occur simultaneously,
within 30 days after Lender's receipt of Borrower's election (or on such other
date as Borrower and Lender may agree); or

                           (ii) if the addition of the Substitute Mortgaged
Property is to occur subsequent to the release of the Release Property, within
90 days after the release of the Release Property.

If, in the case of clause (ii) of this paragraph, the addition of the Substitute
Mortgaged Property to the Collateral Pool does not occur within 90 days or such
longer period as approved by Lender, in its sole discretion, after the release
of the Release Property, then Borrower shall have waived its right to substitute
such Release Property with the Substitute Mortgaged Property, the Release Price
shall be determined pursuant to Section 3.04(c) and Borrower shall comply with
the requirement contained in Section 3.04(d). Such Release Price, or the
applicable portion thereof, shall be immediately due and payable by Borrower to
Lender to reduce the Advances Outstanding as required by, and in the manner
contained in, Section 3.04(d).

                  (d) Restriction on Borrowings. If the addition of the
Substitute Mortgaged Property and the release of the Release Property does not
occur simultaneously then, until the addition of the Substitute Mortgaged
Property, the aggregate unpaid principal balance of Advances Outstanding shall
not exceed the amount of the then-existing Commitment minus the Allocable
Facility Amount of the Release Property, unless Borrower has delivered
additional Collateral reasonably acceptable to Lender in an amount at least
equal to such Allocable Facility Amount. If the aggregate unpaid principal
balance of Advances Outstanding exceeds such amount (and satisfactory additional
Collateral has not been delivered by Borrower to Lender), Borrower shall pay
such excess as a condition precedent to the addition of a Substitute Mortgaged
Property. Notwithstanding the foregoing, in no event shall the value of the
additional Collateral exceed 15% of the principal balance of the Advances
Outstanding. Any payment received by Lender under this Section shall be applied
against Advances Outstanding in the manner prescribed for Release Prices
pursuant to Section 3.04(d). The additional Collateral shall be released to
Borrower upon the addition of the applicable Substitute Mortgaged Property to
the Collateral Pool.

                                       12
<PAGE>

                                    ARTICLE 4

                          EXPANSION OF CREDIT FACILITY

         SECTION 4.01. Right to Increase Commitment.

         Subject to the terms, conditions and limitations of this Article,
Borrower shall have the right, during the Fixed Facility Availability Period, to
increase the Fixed Facility Commitment and, during the Variable Facility Advance
Period, to increase the Variable Facility Commitment. Either Commitment may be
increased by the addition of Collateral to the Collateral Pool and/or increases
in the value of the Mortgaged Properties. Borrower's right to increase the
Commitment is subject to the following limitations:

                  (a) Maximum Amount of Increase in Commitment. The maximum
amount by which the Commitment may be increased is $40,000,000.

                  (b) Minimum Request. Each Request for an increase in the
Commitment shall be in the minimum amount of $5,000,000.

                  (c) Terms and Conditions. The terms and conditions of this
Agreement shall apply to any increase in the Commitment closed prior to the
First Anniversary. Thereafter, the Variable Facility Fee, Fixed Facility Fee and
Standby Fee applicable to any increase in the Commitment shall be mutually
agreed upon by Lender and Borrower; provided, however, that if Borrower incurs a
Standby Fee, then the Variable Facility Fee and Fixed Facility Fee shall,
subject to the provisions of Section 10.01 of this Agreement, remain unchanged
for so long as the Commitment is outstanding and the Standby Fee is paid.

         SECTION 4.02. Procedure for Obtaining Increases in Commitment.

                  (a) Request. To obtain an increase in the Commitment, Borrower
shall deliver an Expansion Request to Lender. Each Expansion Request shall
include the following:

                           (i) The total amount of the proposed increase;

                           (ii) A designation of the increase as being part of
the Fixed Facility Commitment and/or the Variable Facility Commitment;

                           (iii) A request that Lender inform Borrower of any
change in the Geographical Diversification Requirements; and

                           (iv) If the increase in the Commitment is to close
after the date one year after the date hereof, a request that Lender inform
Borrower of the Fixed Facility Fee and/or the Variable Facility Fee to apply to
Advances drawn from such increase in the Commitment.

                  (b) Closing. If all conditions precedent contained in Section
6.07 and all General Conditions contained in Section 6.01 are satisfied, Lender
shall permit the Expansion

                                       13
<PAGE>

Request to occur, at a closing to be held at offices designated by Lender on a
Closing Date selected by Lender, and occurring not less than fifteen (15)
Business Days after Lender's receipt of the Expansion Request (or on such other
date as Borrower and Lender may agree).

                                    ARTICLE 5

                            TERMINATION OF FACILITIES

         SECTION 5.01. Right to Complete or Partial Termination of Facilities.

         Subject to the terms and conditions of this Article, Borrower shall
have the right to permanently reduce the Variable Facility Commitment and/or the
Fixed Facility Commitment.

         SECTION 5.02. Procedure for Complete or Partial Termination of
Facilities.

                  (a) Request. To permanently reduce the Variable Facility
Commitment or the Fixed Facility Commitment, Borrower shall deliver a Facility
Termination Request to Lender. A permanent reduction of the Variable Facility
Commitment to $0 shall be referred to as a "Complete Variable Facility
Termination." A permanent reduction of the Fixed Facility Commitment to $0 shall
be referred to as a "Complete Fixed Facility Termination." The Facility
Termination Request shall include the following:

                           (i) The proposed amount of the reduction in the
Variable Facility Commitment and/or Fixed Facility Commitment; and

                           (ii) Unless there is a Complete Variable Facility
Termination or a Complete Fixed Facility Termination, a designation by Borrower
of any Variable Advances which will be prepaid and/or any Fixed Advances which
will be prepaid or defeased.

Any release of Collateral, whether or not made in connection with a Facility
Termination Request, must comply with all conditions to a release which are
contained in Article 6.

                  (b) Closing. If all conditions precedent contained in Section
6.09 and all General Conditions contained in Section 6.01 are satisfied, Lender
shall reduce the Variable Facility Commitment or Fixed Facility Commitment, as
the case may be, to the amount designated by Borrower, at a closing to be held
at offices designated by Lender on a Closing Date selected by Lender, within
thirty (30) Business Days after Lender's receipt of the Facility Termination
Request (or on such other date as Borrower and Lender may agree), by executing
and delivering the Facility Termination Document evidencing the reduction in the
Facility Commitment.

         SECTION 5.03. Right to Terminate Credit Facility.

         Subject to the terms and conditions of this Article, Borrower shall
have the right to terminate this Agreement and the Credit Facility and receive a
release of all of the Collateral.

                                       14
<PAGE>

         SECTION 5.04. Procedure for Terminating Credit Facility.

                  (a) Request. To terminate this Agreement and the Credit
Facility, Borrower shall deliver a Credit Facility Termination Request to
Lender.

                  (b) Closing. If all conditions precedent contained in Section
6.10 are satisfied, this Agreement shall terminate, and Lender shall cause all
of the Collateral to be released, at a closing to be held at offices designated
by Lender on a Closing Date selected by Lender, within 30 Business Days after
Lender's receipt of the Credit Facility Termination Request (or on such other
date as Borrower and Lender may agree), by executing and delivering, and causing
all applicable parties to execute and deliver, all at the sole cost and expense
of Borrower, the Credit Facility Termination Documents.

                                    ARTICLE 6

                      CONDITIONS PRECEDENT TO ALL REQUESTS

         SECTION 6.01. Conditions Applicable to All Requests.

         The obligation of Lender to close the transaction requested in a
Request (other than a Credit Facility Termination Request made pursuant to
Section 5.04) shall be subject to the following general conditions precedent
("General Conditions") in addition to any other conditions precedent contained
in this Agreement:

                  (a) Compliance with Debt Service Coverage Ratio. The Aggregate
Debt Service Coverage Ratio shall be not less than 1.45:1.0.

                  (b) Compliance with Loan to Value Ratio. The Aggregate Loan to
Value Ratio shall not be greater than 70%.

                  (c) Geographical Diversification; Compliance with
Concentration Test.

                           (i) The Mortgaged Properties in the Collateral Pool
shall comply with the Geographical Diversification Requirements.

                           (ii) (a) If the Collateral Pool consists of four (4)
Mortgaged Properties, the Valuation of any one Mortgaged Property shall not
exceed 33 1/3% of the aggregate Valuations of all Mortgaged Properties, and (b)
if the Collateral Pool consists of five (5) or more Mortgaged Properties, the
Valuation of any one Mortgaged Property shall not exceed 25% of the aggregate
Valuations of all Mortgaged Properties.

                  (d) Payment of Expenses. The payment by Borrower of Lender's
and Fannie Mae's reasonable fees and expenses payable in accordance with this
Agreement, including, but not limited to, the legal fees and expenses contained
in Section 10.04.

                                       15
<PAGE>

                  (e) No Material Adverse Change. Except in connection with a
Credit Facility Termination Request, there has been no material adverse change
in the financial condition, business or prospects of Borrower or Sunrise or in
the physical condition, operating performance or value of any of the Mortgaged
Properties since the date of the most recent Compliance Certificate (or, with
respect to the conditions precedent to the Initial Advance, from the condition,
business or prospects reflected in the financial statements, reports and other
information obtained by Lender during its review of Borrower and Sunrise and the
Initial Mortgaged Properties).

                  (f) No Default. Except in connection with a Credit Facility
Termination Request, there shall exist no Event of Default or Potential Event of
Default on the Closing Date for the Request and, after giving effect to the
transaction requested in the Request, no Event of Default or Potential Event of
Default shall have occurred.

                  (g) No Insolvency. Receipt by Lender on the Closing Date for
the Request of evidence satisfactory to Lender that neither the Borrower nor
Sunrise is insolvent (within the meaning of any applicable federal or state laws
relating to bankruptcy or fraudulent transfers) or will be rendered insolvent by
the transactions contemplated by the Loan Documents, including the making of a
Future Advance, or, after giving effect to such transactions, will be left with
an unreasonably small capital with which to engage in its business or
undertakings, or will have intended to incur, or believe that it has incurred,
debts beyond its ability to pay such debts as they mature or will have intended
to hinder, delay or defraud any existing or future creditor.

                  (h) No Untrue Statements. The Loan Documents shall not contain
any untrue or misleading statement of a material fact and shall not fail to
state a material fact necessary to make the information contained therein not
misleading.

                  (i) Representations and Warranties. Except in connection with
a Credit Facility Termination Request, all representations and warranties made
by Borrower and Sunrise in the Loan Documents shall be true and correct in all
material respects on the Closing Date for the Request with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date for the Request.

                  (j) No Condemnation or Casualty. Except in connection with a
Credit Facility Termination Request or a Release Request, there shall not be
pending or threatened any condemnation or other taking, whether direct or
indirect, against any Mortgaged Property (other than a Mortgaged Property
subject to a Release Request) and there shall not have occurred any casualty to
any improvements located on any Mortgaged Property (other than a Mortgaged
Property subject to a Release Request), which casualty would have a material
adverse effect on the continued operations of such Mortgaged Property.

                  (k) Delivery of Closing Documents. The receipt by Lender of
the following, each dated as of the Closing Date for the Request, in form and
substance satisfactory to Lender in all respects:

                           (i) The Loan Documents;

                                       16
<PAGE>

                           (ii) A Compliance Certificate;

                           (iii) An Organizational Certificate; and

                           (iv) Such other documents, instruments, approvals
(and, if requested by Lender, certified duplicates of executed copies thereof)
and opinions as Lender may reasonably request.

                  (l) Covenants. Except in connection with a Credit Facility
Termination Request, Borrower is in full compliance with each of the covenants
contained in Articles 8 and 9 of this Agreement, without giving effect to any
notice and cure rights of Borrower.

         SECTION 6.02. Conditions Precedent to Initial Advance.

         The obligation of Lender to make the Initial Advance is subject to the
following conditions precedent:

                  (a) Receipt by Lender of the fully executed Advance Request;

                  (b) Delivery to the Title Company, for filing and/or recording
in all applicable jurisdictions, of all applicable Loan Documents required by
Lender, including a duly executed and delivered original of the Variable
Facility Note, a Fixed Facility Note, the Guaranty, the Initial Security
Instruments covering the Initial Mortgaged Properties and UCC-1 Financing
Statements covering the portion of the Collateral comprised of personal
property, and other appropriate instruments, in form and substance satisfactory
to Lender and in form proper for recordation, as may be necessary in the opinion
of Lender to perfect the Liens created by the applicable Security Instruments
and any other Loan Documents creating a Lien in favor of Lender, and the payment
of all taxes, fees and other charges payable in connection with such execution,
delivery, recording and filing;

                  (c) The receipt by Lender of the first installment of Variable
Facility Fee and the entire Discount payable by Borrower pursuant to Section
1.04; and

                  (d) Receipt by Lender of the Initial Origination Fee pursuant
to Section 10.02(a) and the Initial Due Diligence Fee pursuant to Section
10.03(a).

         SECTION 6.03. Conditions Precedent to Future Advances.

         The obligation of Lender to make a requested Future Advance is subject
to the following conditions precedent:

                  (a) Except in connection with a Rollover Variable Advance,
receipt by Lender of the fully executed Advance Request;

                  (b) Except in connection with a Rollover Variable Advance,
delivery by Lender to Borrower of the Rate Form for the Future Advance;

                                       17
<PAGE>

                  (c) Except in connection with a Rollover Variable Advance,
after giving effect to the requested Future Advance, the Coverage and LTV Tests
will be satisfied;

                  (d) If the Future Advance is being made pursuant to Section
2.04(c), the Advances Outstanding shall not exceed the Borrowing-Up Limitation;

                  (e) If the Advance is a Fixed Advance, delivery of a Fixed
Facility Note, duly executed by Borrower, in the amount and reflecting all of
the terms of the Fixed Advance;

                  (f) If the Advance is a Variable Advance, delivery of the
Advance Confirmation Instrument, duly executed by Borrower;

                  (g) Except in connection with a Rollover Variable Advance, for
any Title Insurance Policy not containing a Revolving Credit Endorsement, the
receipt by Lender of an endorsement to the Title Insurance Policy, amending the
effective date of the Title Insurance Policy to the Closing Date increasing the
limits of liability by the amount of the Future Advance and showing no
additional exceptions to coverage other than the exceptions shown on the Initial
Closing Date and other exceptions approved by Lender;

                  (h) If the Advance is a Variable Advance, the receipt by
Lender of the first installment of Variable Facility Fee for the Variable
Advance and the entire Discount for the Variable Advance payable by Borrower
pursuant to Section 1.04;

                  (i) No material adverse change in the financial condition of
Borrower or Sunrise has occurred between the respective dates of the financial
statements which were most recently furnished to Lender relating to such
entities;

                  (j) No Governmental Approval not already obtained or made is
required for the execution and delivery of the documents to be delivered in
connection with the Future Advance; and

                  (k) Borrower is not under any cease or desist order or other
orders of a similar nature, temporary or permanent of any Governmental Authority
which would have the effect of preventing or hindering performance of the terms
and provisions of the Agreement or any other Loan Documents, nor are there any
proceedings presently in progress or, to its knowledge, contemplated which, if
successful, would lead to the issuance of any such order.

         SECTION 6.04. Conditions Precedent to Addition of an Additional
Mortgaged Property to the Collateral Pool.

         The addition of an Additional Mortgaged Property to the Collateral Pool
on the applicable Closing Date is subject to the satisfaction of the following
conditions precedent:

                  (a) If the addition of an Additional Mortgaged Property is
completed prior to the date one year after the date of the Initial Closing,
satisfaction of the Coverage and LTV Tests after giving effect to the addition
of the Additional Mortgaged Property;

                                       18
<PAGE>

                  (b) If the addition of an Additional Mortgaged Property to the
Collateral Pool closes on or after the date one year after the Initial Closing,
(i) the Additional Mortgaged Property has a Debt Service Coverage Ratio of at
least l45% and a Loan-to-Value Ratio of not more than 70%, in each case based on
the underwriting performed pursuant to Section 3.02(b), and (ii) satisfaction of
the Coverage and LTV Tests after giving effect to the addition of the Additional
Mortgaged Property;

                  (c) Receipt by the Lender of all legal fees and expenses
payable by the Borrower in connection with the Collateral Additional Request
pursuant to Section 10.03(b);

                  (d) Delivery to the Title Company, with fully executed
instructions directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Addition Loan Documents required by Lender,
including duly executed and delivered original copies of any Security
Instruments and UCC-1 Financing Statements covering the portion of the
Additional Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to Lender and in form
proper for recordation, as may be necessary in the opinion of Lender to perfect
the Lien created by the applicable additional Security Instrument, and any other
addition Loan Document creating a Lien in favor of Lender, and the payment of
all taxes, fees and other charges payable in connection with such execution,
delivery, recording and filing;

                  (e) If required by Lender, amendments to the Notes and the
Security Instruments, reflecting the addition of any Additional Borrower and/or
the Additional Mortgaged Property to the Collateral Pool and, as to any Security
Instrument so amended, the receipt by Lender of an endorsement to the Title
Insurance Policy insuring the Security Instrument, amending the effective date
of the Title Insurance Policy to the Closing Date and showing no additional
exceptions to coverage other than the exceptions shown on the Initial Closing
Date and other exceptions approved by Lender; and

                  (f) If the Title Insurance Policy for the Additional Mortgaged
Property contains a tie-in Endorsement, an endorsement to each other Title
Insurance Policy containing a tie-in Endorsement, adding a reference to the
Additional Mortgaged Property.

         SECTION 6.05. Conditions Precedent to Release of Property from the
Collateral Pool.

         The obligation of Lender to release a Property from the Collateral Pool
by executing and delivering the Release Documents on the Closing Date is subject
to the satisfaction of the following conditions precedent on or before the
Closing Date:

                  (a) Immediately after giving effect to the requested release,
the Coverage and LTV Tests will be satisfied;

                  (b) Receipt by Lender of the Release Price;

                                       19
<PAGE>

                  (c) Receipt by Lender on the Closing Date of one or more
counterparts of each Release Document, dated as of the Closing Date, signed by
each of the parties (other than Lender) who is a party to such Release Document;

                  (d) If required by Lender, amendments to the Notes and the
Security Instruments, reflecting the release of the Release Property from the
Collateral Pool and, as to any Security Instrument so amended, the receipt by
Lender of an endorsement to the Title Insurance Policy insuring the Security
Instrument, amending the effective date of the Title Insurance Policy to the
Closing Date and showing no additional exceptions to coverage other than the
exceptions shown on the Initial Closing Date and other exceptions approved by
Lender;

                  (e) If Lender determines the Release Property to be one phase
of a project, and one or more other phases of the project are Mortgaged
Properties which will remain in the Collateral Pool ("Remaining Mortgaged
Properties"), Lender must determine that the Remaining Mortgaged Properties can
be operated separately from the Release Property and any other phases of the
project which are not Mortgaged Properties and whether any cross use agreements
or easements are necessary. In making this determination, Lender shall evaluate
whether the Remaining Mortgaged Properties comply with the terms of Sections 203
and 208 of Part III of the DUS Guide;

                  (f) Receipt by Lender of endorsements to the tie-in
endorsements of the Title Insurance Policies, if deemed necessary by Lender, to
reflect the release;

                  (g) Receipt by Lender on the Closing Date of a Confirmation of
Obligations, dated as of the Closing Date, signed by Borrower and Sunrise,
pursuant to which Borrower and Sunrise confirm their obligations under the Loan
Documents; and

                  (h) The remaining Mortgaged Properties in the Collateral Pool
shall satisfy the Geographical Diversification Requirements.

         SECTION 6.06. Conditions Precedent to Substitution of a Substitute
Mortgaged Property into the Collateral Pool.

         The substitution of a Substitute Mortgaged Property into the Collateral
Pool is subject to the satisfaction of the following conditions precedent:

                  (a) If the addition of a Substituted Mortgaged Property is
completed prior to the date one year after the date of the Initial Closing,
satisfaction of the Coverage and LTV Tests after giving effect to the addition
of the Substituted Mortgaged Property;

                  (b) If the addition of a Substituted Mortgaged Property to the
Collateral Pool closes after the date one year after the Initial Closing, (i)
the Substituted Mortgaged Property has a Debt Service Coverage Ratio of at least
l45% and a Loan-to-Value Ratio of not more than 70%, in each case based on the
underwriting performed pursuant to Section 3.02(b), and (ii) satisfaction of the
Coverage and LTV Tests after giving effect to the addition of the Substituted
Mortgaged Property;

                                       20
<PAGE>

                  (c) Receipt by the Lender of all legal fees and expenses
payable by the Borrower in connection with the Substitution Request pursuant to
Section 10.03(b);

                  (d) Receipt by Lender of the Substitution Fee;

                  (e) Delivery to the Title Company, with fully executed
instructions directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Substitution Loan Documents required by Lender,
including duly executed and delivered original copies of any Security
Instruments and UCC-1 Financing Statements covering the portion of the
Substitute Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to Lender and in form
proper for recordation, as may be necessary in the opinion of Lender to perfect
the Lien created by the applicable additional Security Instrument, and any other
Substitution Loan Document creating a Lien in favor of Lender, and the payment
of all taxes, fees and other charges payable in connection with such execution,
delivery, recording and filing;

                  (f) If required by Lender, amendments to the Notes and the
Security Instruments, reflecting the addition of the Substitute Mortgaged
Property to the Collateral Pool and, as to any Security Instrument so amended,
the receipt by Lender of an endorsement to the Title Insurance Policy insuring
the Security Instrument, amending the effective date of the Title Insurance
Policy to the Closing Date and showing no additional exceptions to coverage
other than Permitted Liens;

                  (g) If the Title Insurance Policy for the Substitute Mortgaged
Property contains a tie-in endorsement, and endorsement to each other Title
Insurance Policy containing a tie-in endorsement, adding a reference to the
Substitute Mortgaged Property; and

                  (h) Delivery to Lender of additional Collateral or the
repayment of Advances Outstanding to the extent required pursuant to Section
3.04(d).

         SECTION 6.07. Conditions Precedent to Increase in Commitment.

         The right of Borrower to increase the Commitment is subject to the
satisfaction of the following conditions precedent on or before the Closing
Date:

                  (a) The Coverage and LTV Tests will be satisfied;

                  (b) Receipt by Lender of the Expansion Origination Fee;

                  (c) Receipt by Lender of fully executed original copies of all
Expansion Loan Documents, each of which shall be in full force and effect, and
in form and substance satisfactory to Lender in all respects; and

                  (d) If determined necessary by Lender, Borrower's agreement to
such Geographical Diversification Requirements as Lender may determine.

                                       21
<PAGE>

         SECTION 6.08. Conditions Precedent to Conversion.

         The conversion of all or a portion of the Variable Facility Commitment
to the Fixed Facility Commitment is subject to the satisfaction of the following
conditions precedent on or before the Closing Date:

                  (a) After giving effect to the requested conversion, the
Coverage and LTV Tests will be satisfied;

                  (b) Prepayment by Borrower in full of any Variable Advances
Outstanding which Borrower has designated for payment, together with any
associated prepayment premiums and other amounts due with respect to the
prepayment of such Variable Advances;

                  (c) Receipt by Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date and showing no additional exceptions to coverage other than the
exceptions shown on the Initial Closing Date and other exceptions approved by
Lender; and

                  (d) Receipt by Lender of one or more counterparts of each
Conversion Document, dated as of the Closing Date, signed by each of the parties
(other than Lender) to such Conversion Document.

         SECTION 6.09. Conditions Precedent to Complete or Partial Termination
of Facilities.

         The right of Borrower to reduce the Facility Commitment and the
obligation of Lender to execute the Facility Termination Document, are subject
to the satisfaction of the following conditions precedent on or before the
Closing Date:

                  (a) Payment by Borrower in full of all of the Variable
Advances Outstanding and Fixed Advances Outstanding, as the case may be,
required to reduce the aggregate unpaid principal balance of all Variable
Advances Outstanding and Fixed Advances Outstanding, as the case may be, to not
greater than the reduced Variable Facility Commitment and Fixed Facility
Commitment, as the case may be, including any associated prepayment premiums or
other amounts due under the Notes (but if Borrower is not required to prepay all
of the Variable Advances or Fixed Advances Outstanding, as the case may be,
Borrower shall have the right to select which of the Variable Advances or Fixed
Advances, as the case may be, shall be repaid);

                  (b) Receipt by Lender of the Facility Termination Fee; and

                  (c) Receipt by Lender on the Closing Date of one or more
counterparts of the Facility Termination Document, dated as of the Closing Date,
signed by each of the parties (other than Lender) who is a party to such
Facility Termination Document.

                                       22
<PAGE>

         SECTION 6.10. Conditions Precedent to Termination of Credit Facility.

         The right of Borrower to terminate this Agreement and the Credit
Facility and to receive a release of all of the Collateral from the Collateral
Pool and Lender's obligation to execute and deliver the Credit Facility
Termination Documents on the Closing Date are subject to the following
conditions precedent:

                  (a) Payment by Borrower in full of all of the Notes
Outstanding on the Closing Date, including any associated prepayment premiums or
other amounts due under the Notes and all other amounts owing by Borrower to
Lender under this Agreement;

                  (b) Defeasance by Borrower, if necessary, in accordance with
the provisions of this Agreement, with respect to all Fixed Facility Notes
Outstanding on the Closing Date; and

                  (c) Receipt by Lender of the Credit Facility Termination Fee.

         SECTION 6.11. Delivery of Closing Documents Relating to Advance
Request, Addition Request or Expansion Request.

         With respect to the closing of an Advance Request, an Addition Request
or an Expansion Request, it shall be a condition precedent that Lender receives
each of the following, each dated as of the Closing Date for the Request, in
form and substance satisfactory to Lender in all respects:

                  (a) Loan Documents. Fully executed original copies of each
Loan Document required to be executed in connection with the Request, duly
executed and delivered by the parties thereto (other than Lender), each of which
shall be in full force and effect.

                  (b) Opinion. Favorable opinions of counsel to Borrower and
Sunrise, as to the due organization and qualification of Borrower and Sunrise,
the due authorization, execution, delivery and enforceability of each Loan
Document executed in connection with the Request and such other matters as
Lender may reasonably require.

         SECTION 6.12. Delivery of Property-Related Documents.

         With respect to each of the Initial Mortgaged Properties or an
Additional Mortgaged Property, it shall be a condition precedent that Lender
receive each of the following, each dated as of the Closing Date for the Initial
Advance or an Additional Mortgaged Property, as the case may be, in form and
substance satisfactory to Lender in all respects:

                  (a) A favorable opinion of local counsel to Borrower or Lender
as to the enforceability of the Security Instrument, and any other Loan
Documents, executed in connection with the Request.

                  (b) A commitment for the Title Insurance Policy applicable to
the Mortgaged Property and a pro forma Title Insurance Policy based on the
Commitment.

                                       23
<PAGE>

                  (c) The Insurance Policy (or a certified copy of the Insurance
Policy) applicable to the Mortgaged Property.

                  (d) The Survey applicable to the Mortgaged Property.

                  (e) Evidence satisfactory to Lender of compliance of the
Mortgaged Property with property laws as required by Sections 205 and 206 of
Part III of the DUS Guide.

                  (f) An Appraisal of the Mortgaged Property.

                  (g) A Replacement Reserve Agreement, providing for the
establishment of a replacement reserve account, to be pledged to Lender, in
which the owner shall (unless waived by Lender) periodically deposit amounts for
replacements for improvements at the Mortgaged Property and as additional
security for Borrower's obligations under the Loan Documents.

                  (h) A Completion/Repair and Security Agreement, together with
required escrows, on the standard form required by the DUS Guide.

                  (i) An Assignment of Management Agreement, on the standard
form required by the DUS Guide.

                  (j) An Assignment of Leases and Rents, if Lender determines
one to be necessary or desirable, provided that the provisions of any such
assignment shall be substantively identical to those in the Security Instrument
covering the Collateral, with such modifications as may be necessitated by
applicable state or local law.

                                   ARTICLE 7

                         REPRESENTATIONS AND WARRANTIES

         SECTION 7.01. Representations and Warranties of Borrower.

         The representations and warranties of Borrower are contained in the
Certificate of Borrower, the form of which is attached to this Agreement as
Exhibit D.

         SECTION 7.02. Representations and Warranties of Lender.

         Lender hereby represents and warrants to Borrower as follows:

                  (a) Due Organization. Lender is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota.

                  (b) Power and Authority. Lender has the requisite power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement.

                  (c) Due Authorization. The execution and delivery by Lender of
this Agreement, and the consummation by it of the transactions contemplated
thereby, and the

                                       24
<PAGE>

performance by it of its obligations thereunder, have been duly and validly
authorized by all necessary action and proceedings by it or on its behalf.

                                    ARTICLE 8

                        AFFIRMATIVE COVENANTS OF BORROWER

         Borrower agrees and covenants with Lender that, at all times during the
Term of this Agreement:

         SECTION 8.01. Compliance with Agreements.

         Borrower shall comply with all the terms and conditions of each Loan
Document to which it is a party or by which it is bound; provided, however, that
Borrower's failure to comply with such terms and conditions shall not be an
Event of Default until the expiration of the applicable notice and cure periods,
if any, specified in the applicable Loan Document.

         SECTION 8.02. Maintenance of Existence.

         Borrower shall maintain its existence and continue to be a [limited
partnership] [corporation] [limited liability company] organized under the laws
of the state of its organization. Borrower shall continue to be duly qualified
to do business in each jurisdiction in which such qualification is necessary to
the conduct of its business and where the failure to be so qualified would
adversely affect the validity of, the enforceability of, or the ability to
perform, its obligations under this Agreement or any other Loan Document.

         SECTION 8.03. Financial Statements; Accountants' Reports; Other
Information.

         Borrower shall keep and maintain at all times complete and accurate
books of accounts and records in sufficient detail to correctly reflect (x) all
of Borrower's financial transactions and assets and (y) the results of the
operation of each Mortgaged Property and copies of all written contracts, Leases
and other instruments which affect each Mortgaged Property (including all bills,
invoices and contracts for electrical service, gas service, water and sewer
service, waste management service, telephone service and management services).
In addition, Borrower shall furnish, or cause to be furnished, to Lender:

                  (a) Annual Financial Statements. As soon as available, and in
any event within 120 days after the close of its fiscal year during the Term of
this Agreement, the audited balance sheet of Sunrise as of the end of such
fiscal year, the audited statement of income, equity and retained earnings of
Sunrise for such fiscal year and the audited statement of cash flows of Sunrise
for such fiscal year, all in a form substantially similar to the financial
statements of Sunrise delivered to Lender prior to the Initial Closing Date,
prepared in accordance with GAAP, consistently applied, and accompanied by a
certificate of Sunrise's independent certified public accountants to the effect
that such financial statements have been prepared in accordance with GAAP,
consistently applied, and that such financial statements fairly present the
results of its operations and financial condition for the periods and dates
indicated, with such certification to

                                       25
<PAGE>

be free of exceptions and qualifications as to the scope of the audit or as to
the going concern nature of the business. As soon as available, and in any event
within 120 days after the close of its fiscal year during the Term of this
Agreement, the unaudited balance sheet of the Borrower as of the end of such
fiscal year, the unaudited statement of income, equity and retained earnings of
Borrower for such fiscal year and the unaudited statement of cash flows for
Borrower for such fiscal year, accompanied by a certificate of the Chief
Financial Officer of Sunrise stating that such financial statements have been
prepared in accordance with GAAP, consistently applied, and fairly present the
results of its operations and financial condition for the periods and dates
indicated subject to year end adjustments in accordance with GAAP.

                  (b) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after each of the first three fiscal quarters of
each fiscal year during the Term of this Agreement, the unaudited balance sheet
of Borrower and Sunrise as of the end of such fiscal quarter, the unaudited
statement of income and retained earnings of Borrower and Sunrise and the
unaudited statement of cash flows of Borrower and Sunrise for the portion of the
fiscal year ended with the last day of such quarter, all in reasonable detail
and stating in comparative form the respective figures for the corresponding
date and period in the previous fiscal year, accompanied by a certificate of the
Chief Financial Officer of Sunrise stating that such financial statements have
been prepared in accordance with GAAP, consistently applied, and fairly present
the results of its operations and financial condition for the periods and dates
indicated subject to year end adjustments in accordance with GAAP.

                  (c) Quarterly Property Statements. As soon as available, and
in any event within 45 days after each Calendar Quarter, a statement of income
and expenses of each Mortgaged Property accompanied by a certificate of the
Chief Financial Officer of Sunrise to the effect that each such statement of
income and expenses fairly, accurately and completely presents the operations of
each such Mortgaged Property for the period indicated.

                  (d) Annual Property Statements. On an annual basis within 45
days after the close of its fiscal year, an annual statement of income and
expenses of each Mortgaged Property accompanied by a certificate of the Chief
Financial Officer of Sunrise to the effect that each such statement of income
and expenses fairly, accurately and completely presents the operations of each
such Mortgaged Property for the period indicated.

                  (e) Updated Rent Rolls. Upon Lender's request (but not more
frequently than quarterly), a current Rent Roll for each Mortgaged Property,
showing the name of each tenant, and for each tenant, the space occupied, the
lease expiration date, the rent payable, the rent paid and any other information
requested by Lender and accompanied by a certificate of the Chief Financial
Officer of Sunrise to the effect that each such Rent Roll fairly, accurately and
completely presents the information required therein.

                  (f) Security Deposit Information. Upon Lender's request, an
accounting of all security deposits held in connection with any Lease of any
part of any Mortgaged Property, including the name and identification number of
the accounts in which such security deposits are held,

                                       26
<PAGE>

the name and address of the financial institutions in which such security
deposits are held and the name and telephone number of the person to contact at
such financial institution, along with any authority or release necessary for
Lender to access information regarding such accounts.

                  (g) Accountants' Reports; Other Reports. Promptly upon receipt
thereof: (i) copies of any reports or management letters submitted to Borrower
by its independent certified public accountants in connection with the
examination of its financial statements made by such accountants (except for
reports otherwise provided pursuant to subsection (a) above); provided, however,
that Borrower shall only be required to deliver such reports and management
letters to the extent that they relate to Borrower or any Mortgaged Property;
and (ii) all schedules, financial statements or other similar reports delivered
by Borrower pursuant to the Loan Documents or requested by Lender with respect
to Borrower's business affairs or condition (financial or otherwise) or any of
the Mortgaged Properties.

                  (h) Annual Budgets. Prior to the start of its fiscal year, an
annual budget for each Mortgaged Property for such fiscal year, setting forth an
estimate of all of the costs and expenses, including capital expenses, of
maintaining and operating each Mortgaged Property.

                  (i) Federal Tax Returns. Within 30 days of filing, the Federal
Tax Return of Sunrise and the Borrower.

         SECTION 8.04. Access to Records; Discussions With Officers and
Accountants.

         To the extent permitted by law and in addition to the applicable
requirements of the Security Instruments, Borrower shall permit Lender to:

                  (a) inspect, make copies and abstracts of such of Borrower's
books and records as may relate to the Obligations or any Mortgaged Property;

                  (b) discuss Borrower's affairs, finances and accounts with
Sunrise's Senior Management and senior accounting staff and discuss matters
relating to the conditions, operations or maintenance of the Mortgaged
Properties with such personnel and the Executive Directors of such Mortgaged
Properties; and

                  (c) receive any other information that Lender deems reasonably
necessary or relevant in connection with any Advance, any Loan Document or the
Obligations.

Notwithstanding the foregoing, prior to an Event of Default or Potential Event
of Default and in the absence of an emergency, all inspections shall be
conducted at reasonable times during normal business hours upon reasonable
notice to Sunrise.

         SECTION 8.05. Certificate of Compliance.

         Borrower shall deliver to Lender concurrently with the delivery of the
financial statements and/or reports required by Section 8.03 (a) and (b) a
certificate signed by the Chief Financial Officer of Sunrise (i) setting forth
in reasonable detail the calculations required to

                                       27
<PAGE>

establish whether Borrower and Sunrise were in compliance with the requirements
of Article 8 of this Agreement on the date of such financial statements, and
(ii) stating that, to the best knowledge of such individual following reasonable
inquiry, no Event of Default or Potential Event of Default has occurred, or if
an Event of Default or Potential Event of Default has occurred, specifying the
nature thereof in reasonable detail and the action Borrower is taking or
proposes to take. Any certificate required by this Section shall run directly to
and be for the benefit of Lender and Fannie Mae.

         SECTION 8.06. Maintain Licenses.

         Borrower shall procure and maintain in full force and effect all
licenses, Permits, charters and registrations which are material to the conduct
of its business and shall abide by and satisfy all terms and conditions of all
such licenses, Permits, charters and registrations.

         SECTION 8.07. Inform Lender of Material Events.

         Borrower shall promptly inform Lender in writing of any of the
following (and shall deliver to Lender copies of any related written
communications, complaints, orders, judgments and other documents relating to
the following) of which Borrower has actual knowledge:

                  (a) Defaults. The occurrence of any Event of Default or any
Potential Event of Default under this Agreement or any other Loan Document;

                  (b) Regulatory Proceedings. The commencement of any rulemaking
or disciplinary proceeding or the promulgation of any proposed or final rule
which would have, or may reasonably be expected to have, a Material Adverse
Effect; the receipt of notice from any Governmental Authority having
jurisdiction over Borrower or Sunrise that (A) any license, Permit, charter,
membership or registration material to the conduct of Borrower's or Sunrise's
business or the Mortgaged Properties has been suspended or revoked or (B)
Borrower or Sunrise has been required to cease and desist any practice,
procedure or policy employed by Borrower or Sunrise in the conduct of its
business, and such cessation would have, or may reasonably be expected to have,
a Material Adverse Effect;

                  (c) Bankruptcy Proceedings. The commencement of any
proceedings by or against Borrower or Sunrise under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law now or hereafter in
effect or of any proceeding in which a receiver, liquidator, trustee or other
similar official is sought to be appointed for it;

                  (d) Environmental Claim. The receipt from any Governmental
Authority or other Person of any notice of violation, claim, demand, abatement,
order or other order or direction (conditional or otherwise) for any damage,
including personal injury (including sickness, disease or death), tangible or
intangible property damage, contribution, indemnity, indirect or consequential
damages, damage to the environment, pollution, contamination or other adverse
effects on the environment, removal, cleanup or remedial action or for fines,
penalties or restrictions, resulting from or based upon (i) the existence or
occurrence, or the alleged existence or occurrence, of a Hazardous Substance
Activity or (ii) the violation, or alleged violation, of any

                                       28
<PAGE>

Hazardous Materials Laws in connection with any Mortgaged Property or any of the
other assets of Borrower;

                  (e) Material Adverse Effects. The occurrence of any act,
omission, change or event (including the commencement or threat of any
proceedings by or against Borrower or Sunrise in any Federal, state or local
court, or before any Governmental Authority, or before any arbitrator), which
has, or would have, a Material Adverse Effect, subsequent to the date of the
most recent audited financial statements of Borrower or Sunrise delivered to
Lender pursuant to Section 8.03;

                  (f) Accounting Changes. Any material change in Borrower's or
Sunrise's accounting policies or financial reporting practices; and

                  (g) Legal and Regulatory Status. The occurrence of any act,
omission, change or event, including any Governmental Approval, the result of
which is to change or alter in any way the legal or regulatory status of
Borrower.

         SECTION 8.08. Compliance with Applicable Laws.

         Borrower shall comply in all material respects with all Applicable Laws
now or hereafter affecting any Mortgaged Property or any part of any Mortgaged
Property or requiring any alterations, repairs or improvements to any Mortgaged
Property. Borrower shall procure and continuously maintain in full force and
effect, and shall abide by and satisfy all material terms and conditions of all
Permits.

         SECTION 8.09. Alterations to the Mortgaged Properties.

         Except as otherwise provided in the Loan Documents, Borrower shall have
the right to undertake any alteration, improvement, demolition, removal or
construction (collectively, "Alterations") to the Mortgaged Property which it
owns without the prior consent of Lender; provided, however, that in any case,
no such Alteration shall be made to any Mortgaged Property without the prior
written consent of Lender if (i) such Alteration could reasonably be expected to
adversely affect the value of such Mortgaged Property or its operation as a
multifamily housing facility in substantially the same manner in which it is
being operated on the date such property became Collateral, (ii) the
construction of such Alteration could reasonably be expected to result in
interference to the occupancy of tenants of such Mortgaged Property such that
tenants in occupancy with respect to ten percent (10%) or more of the Resident
Agreements would be permitted to terminate their Resident Agreements or to abate
the payment of all or any portion of their rent, or (iii) such Alteration will
be completed in more than 12 months from the date of commencement.
Notwithstanding the foregoing, Borrower must obtain Lender's prior written
consent to construct Alterations with respect to the Mortgaged Property (i)
costing in excess of $500,000 or (ii) having a material effect on the use or
operation of such Mortgaged Property; provided, however, that the preceding
requirements shall not be applicable to Alterations made, conducted or
undertaken by Borrower as part of Borrower's routine maintenance and repair of
the Mortgaged Properties as required by the Loan Documents.

                                       29
<PAGE>

         SECTION 8.10. Loan Document Taxes.

         If any tax, assessment or Imposition (other than a franchise tax or
excise tax imposed on or measured by, the net income or capital (including
branch profits tax) of Lender (or any transferee or assignee thereof, including
a participation holder)) ("Loan Document Taxes") is levied, assessed or charged
by the United States, or any State in the United States, or any political
subdivision or taxing authority thereof or therein upon any of the Loan
Documents or the obligations secured thereby, the interest of Lender in the
Mortgaged Properties, or Lender by reason of or as holder of the Loan Documents,
Borrower shall pay all such Loan Document Taxes to, for, or on account of Lender
(or provide funds to Lender for such payment, as the case may be) as they become
due and payable and shall promptly furnish proof of such payment to Lender, as
applicable. In the event of passage of any law or regulation permitting,
authorizing or requiring such Loan Document Taxes to be levied, assessed or
charged, which law or regulation in the opinion of counsel to Lender may
prohibit Borrower from paying the Loan Document Taxes to or for Lender, Borrower
shall enter into such further instruments as may be permitted by law to obligate
Borrower to pay such Loan Document Taxes.

         SECTION 8.11. Further Assurances.

         Borrower, at the request of Lender, shall execute and deliver and, if
necessary, file or record such statements, documents, agreements, UCC financing
and continuation statements and such other instruments and take such further
action as Lender from time to time may request as reasonably necessary,
desirable or proper to carry out more effectively the purposes of this Agreement
or any of the other Loan Documents or to subject the Collateral to the lien and
security interests of the Loan Documents or to evidence, perfect or otherwise
implement, to assure the lien and security interests intended by the terms of
the Loan Documents or in order to exercise or enforce its rights under the Loan
Documents.

         SECTION 8.12. Transfer of Ownership Interest of Borrower and Sunrise.

                  (a) Prohibition on Transfers. Subject to paragraph (b) of this
Section, neither the Borrower nor Sunrise shall cause or permit a Transfer or a
Change of Control.

                  (b) Permitted Transfers. Notwithstanding the provisions of
paragraph (a) of this Section, the following Transfers are permitted without the
consent of Lender:

                           (i) A Transfer that occurs by inheritance, devise, or
bequest or by operation of law upon the death of a natural person who is the
owner of a direct or indirect ownership interest in Borrower or Sunrise .

                           (ii) A Transfer to trusts established for the benefit
of the transferor and/or immediate family members for estate planning purposes.

                           (iii) A Transfer of member interests by the limited
partners of Borrower or stock of Sunrise; provided, however, that no Change in
Control occurs as the result of such Transfer.

                                       30
<PAGE>

                           (iv) The issuance by Borrower or Sunrise of
additional member interests or stock, as the case may be, and the subsequent
Transfer of such interest; provided, however, that no Change in Control occurs
as the result of such Transfer.

                           (v) A merger with or acquisition of another entity by
Borrower or Sunrise, provided that (A) Borrower or Sunrise, as the case may be,
is the surviving entity after such merger or acquisition, (B) no Change in
Control occurs, and (C) such merger or acquisition does not result in an Event
of Default, as such terms are defined in this Agreement.

                           (vi) A Transfer of a Mortgaged Property to a wholly
owned Affiliate of Sunrise, so long as such entity meets the requirements of a
"Borrower" under this Agreement, makes the representations and warranties made
by the Borrower under this Agreement, and executes such documents as Lender may
reasonably require to evidence such entity's obligations under the Loan
Documents.

                           (vii) A Joint Venture Transfer.

                           (viii) A Transfer of interests in Sunrise on public
stock exchanges, provided no Change of Control occurs.

                  (c) Consent to Prohibited Transfers. Lender may, in its sole
and absolute discretion, consent to a Transfer that would otherwise violate this
Section if, prior to the Transfer, Borrower or Sunrise, as the case may be, has
satisfied each of the following requirements:

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

                           (ii) the absence of any Event of Default;

                           (iii) 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 Borrower or Sunrise, as the case may be, in
connection with the origination or purchase of similar mortgages, deeds of trust
or deeds to secure debt on multifamily properties;

                           (iv) in the case of a Transfer of direct or indirect
ownership interests in Borrower or Sunrise, as the case may be, if transferor or
any other person has obligations under any Loan Documents, the execution by the
transferee of one or more individuals or entities acceptable to Lender of an
assumption agreement 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;

                                       31
<PAGE>

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

                                    (A) a transfer fee equal to 1 percent of the
                  Commitment immediately prior to the transfer.

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

         SECTION 8.13. Transfer of Ownership of Mortgaged Property.

                  (a) Prohibition on Transfers. Subject to paragraph (b) of this
Section, neither Borrower nor Sunrise shall cause or permit a Transfer of a
Mortgaged Property.

                  (b) Permitted Transfers. Notwithstanding provision (a) of this
Section, the following Transfers of a Mortgaged Property by Borrower or Sunrise
are permitted without the consent of Lender:

                           (i) The grant of a leasehold interest in individual
dwelling units or commercial spaces in accordance with the Security Instrument.

                           (ii) A sale or other disposition of obsolete or worn
out personal property having a value of less than $50,000 in any Calendar Year
per Mortgaged Property or having a value of $50,000 or more if it is
contemporaneously replaced by comparable personal property of equal or greater
value which is free and clear of liens, encumbrances and security interests
other than those created by the Loan Documents.

                           (iii) The creation of a mechanic's or materialmen's
lien or judgment lien against a Mortgaged Property which is released of record
or otherwise remedied to Lender's satisfaction within 30 days of the date of
creation.

                           (iv) The grant of an easement if, prior to the
granting of the easement, Borrower causes to be submitted to Lender all
information required by Lender to evaluate the easement, and if Lender consents
to such easement based upon Lender's determination that the easement will not
materially affect the operation of the Mortgaged Property or Lender's interest
in the Mortgaged Property and Borrower pays to Lender, on demand, all reasonable
costs and expenses incurred by Lender in connection with reviewing Borrower's
request. Lender shall not unreasonably withhold its consent to or withhold its
agreement to subordinate the lien of a Security Instrument to (A) the grant of a
utility easement serving a Mortgaged Property to a publicly operated utility, or
(B) the grant of an easement related to expansion or widening of roadways,
provided that any such easement is in form and substance reasonably acceptable
to Lender and does not materially and adversely affect the access, use or
marketability of a Mortgaged Property.

                                       32
<PAGE>

         SECTION 8.14. Change in Senior Management.

         Borrower shall give Lender notice if Paul J. Klaassen is no longer a
member of Senior Management or the board of directors of Sunrise.

         SECTION 8.15. Date-Down Endorsements.

         At any time and from time to time, a Lender may obtain an endorsement
to each Title Insurance Policy containing a Revolving Credit Endorsement,
amending the effective date of the Title Insurance Policy to the date of the
title search performed in connection with the endorsement. Borrower shall pay
for the cost and expenses incurred by Lender to the Title Company in obtaining
such endorsement, provided that, for each Title Insurance Policy, it shall not
be liable to pay for more than one such endorsement in any consecutive 12 month
period.

         SECTION 8.16. Ownership of Mortgaged Properties.

         Borrower shall be the sole owner of each of the Mortgaged Properties
free and clear of any Liens other than Permitted Liens.

         SECTION 8.17. Compliance with Net Worth Test.

         Sunrise shall at all times maintain its Net Worth so that it is not
less than $275,000,000.

         SECTION 8.18. Compliance with Liquidity Test.

         Sunrise shall not permit at any time its Liquidity to be less than
$15,000,000.

         SECTION 8.19. Facility Balancing.

         If the Borrower fails to meet the Coverage and LTV Tests then, within
45 days of Lender's notice to Borrower of such failure, the Borrower shall (i)
add Additional Mortgaged Properties to the Collateral Pool in accordance with
Article 3 so that after such addition the Coverage and LTV Tests are met, or
(ii) prepay Advances Outstanding in an amount sufficient to cause the Borrower
to be in compliance with the Coverage and LTV Tests. Any prepayments made
pursuant to the preceding sentence shall be applied first against the Variable
Advances Outstanding in the sequence specified by Borrower until there are no
further Variable Advances Outstanding then against the prepayment of Fixed
Advances Outstanding so long as the prepayment is permitted under the applicable
Fixed Facility Note. If no prepayment is permitted under the applicable Fixed
Facility Note, such prepayment amount shall be held by Lender (or its appointed
collateral agent) as Substitute Cash Collateral in accordance with a security
agreement and other documents in form and substance acceptable to Lender. Any
Substitute Cash Collateral remaining will be returned to the Borrower on the
earlier of the date when the Coverage and LTV Tests are again met (calculated
using the definition of "Facility Debt Service" set forth in paragraph (b) of
such definition) or the Termination Date. If on the date the Borrower pays any
amounts required by this Section, Variable Advances are Outstanding but are not
then due and payable, Lender shall hold such amounts (which amounts shall bear
interest at a rate determined by Lender) as additional collateral until the next
date on the Variable Advances

                                       33
<PAGE>

are due and payable at which time Lender shall apply the appropriate portion of
such prepayment to such Variable Advances.

                                    ARTICLE 9

                         NEGATIVE COVENANTS OF BORROWER

         Borrower agrees and covenants with Lender that, at all times during the
Term of this Agreement:

         SECTION 9.01. Other Activities.

         Borrower shall not:

                  (a) amend its Organizational Documents in any material respect
without the prior written consent of Lender;

                  (b) dissolve or liquidate in whole or in part;

                  (c) except as otherwise provided in this Agreement, without
the prior written consent of Lender, merge or consolidate with any Person; or

                  (d) use, or permit to be used, any Mortgaged Property for any
uses or purposes other than as a Multifamily Residential Property and ancillary
uses consistent with Multifamily Residential Properties.

         SECTION 9.02. Liens.

         Borrower shall not create, incur, assume or suffer to exist any Lien on
any Mortgaged Property or any part of any Mortgaged Property, except the
Permitted Liens.

         SECTION 9.03. Indebtedness.

         Borrower shall not incur or be obligated at any time with respect to
any Indebtedness (other than Advances, Indebtedness having aggregate payments of
up to $75,000 per Calendar Year for personal property leases and title retention
agreements and unsecured loans from Sunrise) in connection with any of the
Mortgaged Properties.

         SECTION 9.04. Principal Place of Business.

         Borrower shall not change its principal place of business or the
location of its books and records, each as set forth in Borrower's Certificate,
without first giving 30 days' prior written notice to Lender.

                                       34
<PAGE>

         SECTION 9.05. Condominiums.

         Borrower shall not submit any Mortgaged Property to a condominium
regime during the Term of this Agreement.

         SECTION 9.06. Restrictions on Partnership Distributions.

         Neither Borrower nor Sunrise shall make any distributions of any nature
or kind whatsoever to the owners of its Ownership Interests as such if, at the
time of such distribution, a Potential Event of Default or an Event of Default
has occurred and remains uncured.

                                   ARTICLE 10

                                      FEES

         SECTION 10.01. Standby Fee.

         Borrower shall pay the Standby Fee to Lender for the period from the
date of this Agreement to the end of the Term of this Agreement. The Standby Fee
shall be payable monthly, in arrears, on the first Business Day following the
end of the month, except that the Standby Fee for the last month during the Term
of this Agreement shall be paid on the last day of the Term of this Agreement.
If Borrower pays the Standby Fee, no Commitment shall be reduced or terminated
as a result of Borrower's failure to borrow any or all of such Commitment and no
fee maintenance shall be due in respect of such Commitment unless Borrower fails
to borrow any or all of such Commitment for 24 consecutive months, at which time
the unused portion of the Commitment shall be terminated and all fees, including
the Facility Termination Fee, shall be due at such time.

         SECTION 10.02. Origination Fee.

                  (a) Initial Origination Fee. Borrower shall pay to Lender an
origination fee equal to $450,000 (which is equal to the product obtained by
multiplying (i) the Commitment as of the date of this Agreement ($60,000,000) by
(ii) .75%).

                  (b) Expansion Origination Fee. Upon the closing of an
Expansion Request under Article 4, Borrower shall pay to Lender an origination
fee ("Expansion Origination Fee") equal to the product obtained by multiplying
(i) the increase in the Commitment made on the Closing Date for the Expansion
Request by (ii) .75%.

         SECTION 10.03. Due Diligence Fees.

                  (a) Initial Due Diligence Fees. Borrower shall pay to Lender
due diligence fees ("Initial Due Diligence Fees") with respect to the Initial
Mortgaged Properties in an amount equal to $21,500 for each Mortgaged Property.

         Borrower has previously paid to Lender a portion of the Initial Due
Diligence Fees and shall pay the remainder of the Initial Due Diligence Fees to
Lender on the Initial Closing Date.

                                       35
<PAGE>

Any portion of the Initial Due Diligence Fee paid to Lender not actually used by
Lender to cover reasonable due diligence expenses shall be promptly refunded to
Borrower.

                  (b) Additional Due Diligence Fees for Additional Collateral.
Borrower shall pay to Lender additional due diligence fees (the "Additional
Collateral Due Diligence Fees") with respect to each Additional Mortgaged
Property in an amount equal to $21,500. The Additional Collateral Due Diligence
Fees shall be paid together with any Additional Request or Substitution Request.

         SECTION 10.04. Legal Fees and Expenses.

                  (a) Initial Legal Fees. Borrower shall pay, or reimburse
Lender for, all out-of-pocket legal fees and expenses incurred by Lender and by
Fannie Mae in connection with the preparation, review and negotiation of this
Agreement and any other Loan Documents executed on the date of this Agreement.

                  (b) Fees and Expenses Associated with Requests. Borrower shall
pay, or reimburse Lender for, all reasonable costs and expenses incurred by
Lender, including the out-of-pocket legal fees and expenses incurred by Lender
in connection with the preparation, review and negotiation of all documents,
instruments and certificates to be executed and delivered in connection with
each Request, the performance by Lender of any of its obligations with respect
to the Request, the satisfaction of all conditions precedent to Borrower's
rights or Lender's obligations with respect to the Request, and all transactions
related to any of the foregoing, including the cost of title insurance premiums
and applicable recordation and transfer taxes and charges and all other
reasonable costs and expenses in connection with a Request. The obligations of
Borrower under this subsection shall be absolute and unconditional, regardless
of whether the transaction requested in the Request actually occurs. Borrower
shall pay such costs and expenses to Lender on the Closing Date for the Request,
or, as the case may be, after demand by Lender when Lender determines that such
Request will not close.

         SECTION 10.05. Failure to Close any Request.

         If Borrower makes a Request and fails to close on the Request for any
reason other than the default by Lender, then Borrower shall pay to Lender and
Fannie Mae all actual damages incurred by Lender and Fannie Mae in connection
with the failure to close.

                                   ARTICLE 11

                                EVENTS OF DEFAULT

         SECTION 11.01. Events of Default.

         Each of the following events shall constitute an "Event of Default"
under this Agreement, whatever the reason for such event and whether it shall be
voluntary or involuntary, or within or without the control of Borrower or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any Governmental Authority:

                                       36
<PAGE>

                  (a) the occurrence of a default under any Loan Document beyond
the cure period, if any, set forth therein; or

                  (b) the failure by Borrower to pay when due any amount payable
by Borrower under any Note, any Mortgage, this Agreement or any other Loan
Document, including any fees, costs or expenses; or

                  (c) the failure by Borrower to perform or observe any covenant
contained in Sections 8.01 through 8.17 or Sections 9.01 through 9.06 for 30
days after receipt of notice of such failure by Borrower from Lender, provided
that such period shall be extended for up to 30 additional days if Borrower, in
the discretion of Lender, is diligently pursuing a cure of such default within
30 days after receipt of notice from Lender; or

                  (d) any warranty, representation or other written statement
made by or on behalf of Borrower or Sunrise contained in this Agreement, any
other Loan Document or in any instrument furnished in compliance with or in
reference to any of the foregoing, is false or misleading in any material
respect on any date when made or deemed made; or

                  (e) (i) Borrower or Sunrise shall (A) commence a voluntary
case under the Federal bankruptcy laws (as now or hereafter in effect), (B) file
a petition seeking to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up
or composition or adjustment of debts, (C) consent to or fail to contest in a
timely and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws, (D) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of a substantial part of its property, domestic or foreign, (E) admit in
writing its inability to pay, or generally not be paying, its debts as they
become due, (F) make a general assignment for the benefit of creditors, (G)
assert that Borrower or Sunrise (solely with respect to the Guaranty) has no
liability or obligations under this Agreement or any other Loan Document to
which it is a party; or (H) take any action for the purpose of effecting any of
the foregoing; or (ii) a case or other proceeding shall be commenced against
Borrower or Sunrise in any court of competent jurisdiction seeking (A) relief
under the Federal bankruptcy laws (as now or hereafter in effect) or under any
other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding upon or composition or adjustment of debts, or (B) the
appointment of a trustee, receiver, custodian, liquidator or the like of
Borrower or Sunrise , or of all or a substantial part of the property, domestic
or foreign, of Borrower or Sunrise and any such case or proceeding shall
continue undismissed or unstayed for a period of 60 consecutive calendar days,
or any order granting the relief requested in any such case or proceeding
against Borrower or Sunrise (including an order for relief under such Federal
bankruptcy laws) shall be entered; or

                  (f) if any provision of this Agreement or any other Loan
Document or the lien and security interest purported to be created hereunder or
under any Loan Document shall at any time for any reason cease to be valid and
binding in accordance with its terms on Borrower or Sunrise, or shall be
declared to be null and void, or the validity or enforceability hereof or

                                       37
<PAGE>

thereof or the validity or priority of the lien and security interest created
hereunder or under any other Loan Document shall be contested by Borrower or
Sunrise seeking to establish the invalidity or unenforceability hereof or
thereof, or Borrower or Sunrise (only with respect to the Guaranty) shall deny
that it has any further liability or obligation hereunder or thereunder; or

                  (g) (i) the execution by Borrower of a chattel mortgage or
other security agreement requiring payments, in the aggregate, of more than
$75,000 per Calendar Year on any materials, fixtures or articles used in the
construction or operation of the improvements located on any Mortgaged Property
or on articles of personal property located therein, or (ii) if any such
materials, fixtures or articles having a cost, in the aggregate, of more than
$75,000 in any Calendar Year are purchased pursuant to any conditional sales
contract or other security agreement or otherwise so that the Ownership thereof
will not vest unconditionally in Borrower free from encumbrances, or (iii) if
Borrower does not furnish to Lender upon request the contracts, bills of sale,
statements, receipted vouchers and agreements, or any of them, under which
Borrower claim title to such materials, fixtures, or articles; or

                  (h) the failure by Borrower to comply with any requirement of
any Governmental Authority within 30 days after written notice of such
requirement shall have been given to Borrower by such Governmental Authority;
provided that, if action is commenced and diligently pursued by Borrower within
such 30 days, then Borrower shall have an additional 30 days to comply with such
requirement; or

                  (i) a dissolution or liquidation for any reason (whether
voluntary or involuntary) of Borrower or Sunrise; or

                  (j) any judgment against Borrower or Sunrise, any attachment
or other levy against any portion of Borrower's or Sunrise's assets with respect
to a claim or claims in an amount in excess of $100,000 in the aggregate remains
unpaid, unstayed on appeal undischarged, unbonded, not fully insured or
undismissed for a period of 60 days; or

                  (k) the failure by Borrower or Sunrise to perform or observe
any material term, covenant, condition or agreement hereunder, other than as
contained in subsections (a) through (j) above, or in any other Loan Document,
within 30 days after receipt of notice from Lender identifying such failure,
provided such period shall be extended for up to 30 additional days if Borrower,
in the discretion of Lender, is diligently pursuing a cure of such default
within 30 days after receipt of notice from Lender.

                                   ARTICLE 12

                                    REMEDIES

         SECTION 12.01. Remedies; Waivers.

         Upon the occurrence of an Event of Default, Lender may do any one or
more of the following (without presentment, protest or notice of protest, all of
which are expressly waived by Borrower):

                                       38
<PAGE>

                  (a) by written notice to Borrower, to be effective upon
dispatch, terminate the Commitment and declare the principal of, and interest
on, the Advances and all other sums owing by Borrower to Lender under any of the
Loan Documents forthwith due and payable, whereupon the Commitment will
terminate and the principal of, and interest on, the Advances and all other sums
owing by Borrower to Lender under any of the Loan Documents will become
forthwith due and payable.

                  (b) Lender shall have the right to pursue any other remedies
available to it under any of the Loan Documents.

                  (c) Lender shall have the right to pursue all remedies
available to it at law or in equity, including obtaining specific performance
and injunctive relief.

         SECTION 12.02. Waivers; Rescission of Declaration.

         Lender shall have the right, to be exercised in its complete
discretion, to waive any breach hereunder (including the occurrence of an Event
of Default), by a writing setting forth the terms, conditions, and extent of
such waiver signed by Lender and delivered to Borrower. Unless such writing
expressly provides to the contrary, any waiver so granted shall extend only to
the specific event or occurrence which gave rise to the waiver and not to any
other similar event or occurrence which occurs subsequent to the date of such
waiver.

         SECTION 12.03. Lender's Right to Protect Collateral and Perform
Covenants and Other Obligations.

         If Borrower or Sunrise fails to perform the covenants and agreements
contained in this Agreement or any of the other Loan Documents, then Lender at
Lender's option may make such appearances, disburse such sums and take such
action as Lender deems necessary, in its sole discretion, to protect Lender's
interest, including (i) disbursement of reasonable attorneys' fees, (ii) entry
upon the Mortgaged Property to make repairs and replacements, (iii) procurement
of satisfactory insurance as provided in Section 5 of the Security Instrument
encumbering the Mortgaged Property, and (iv) if the Security Instrument is on a
leasehold, exercise of any option to renew or extend the ground lease on behalf
of Borrower and the curing of any default of Borrower in the terms and
conditions of the ground lease. Any amounts disbursed by Lender pursuant to this
Section, with interest thereon, shall become additional indebtedness of Borrower
secured by the Loan Documents. Unless Borrower and Lender agree to other terms
of payment, such amounts shall be immediately due and payable and shall bear
interest from the date of disbursement at the weighted average, as determined by
Lender, of the interest rates in effect from time to time for each Advance
unless collection from Borrower of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law. Nothing
contained in this Section shall require Lender to incur any expense or take any
action hereunder.

                                       39
<PAGE>

         SECTION 12.04. No Remedy Exclusive.

         Unless otherwise expressly provided, no remedy herein conferred upon or
reserved is intended to be exclusive of any other available remedy, but each
remedy shall be cumulative and shall be in addition to other remedies given
under the Loan Documents or existing at law or in equity.

         SECTION 12.05. No Waiver.

         No delay or omission to exercise any right or power accruing under any
Loan Document upon the happening of any Event of Default or Potential Event of
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient.

         SECTION 12.06. No Notice.

         To entitle Lender to exercise any remedy reserved to Lender in this
Article, it shall not be necessary to give any notice, other than such notice as
may be required under the applicable provisions of this Agreement or any of the
other Loan Documents.

                                   ARTICLE 13

                              RIGHTS OF FANNIE MAE

         SECTION 13.01. Special Pool Purchase Contract.

         Borrower acknowledges that Fannie Mae is entering into an agreement
with Lender ("Special Pool Purchase Contract"), pursuant to which, inter alia,
(i) Lender shall agree to assign all of its rights under this Agreement to
Fannie Mae, (ii) Fannie Mae shall accept the assignment of the rights, (iii)
subject to the terms, limitations and conditions contained in the Special Pool
Purchase Contract, Fannie Mae shall agree to purchase a 100% participation
interest in each Advance issued under this Agreement by issuing to Lender an
MBS, in the amount and for a term equal to the Advance purchased and backed by
an interest in the Fixed Facility Note or the Variable Facility Note, as the
case may be, and the Collateral Pool securing the Notes, (iv) Lender shall agree
to assign to Fannie Mae all of Lender's interest in the Notes and Collateral
Pool securing the Notes, and (v) Lender shall agree to service the loans
evidenced by the Notes.

         SECTION 13.02. Assignment of Rights.

         Borrower acknowledges and consents to the assignment to Fannie Mae of
all of the rights of Lender under this Agreement and all other Loan Documents,
including the right and power to make all decisions on the part of Lender to be
made under this Agreement and the other Loan Documents, but Fannie Mae, by
virtue of this assignment, shall not be obligated to perform the obligations of
Lender under this Agreement or the other Loan Documents.

                                       40
<PAGE>

         SECTION 13.03. Release of Collateral.

         Borrower hereby acknowledges that, after the assignment of Loan
Documents contemplated in Section 13.02, Lender shall not have the right or
power to effect a release of any Collateral pursuant to Article 6. Borrower
acknowledges that the Security Instruments provide for the release of the
Collateral under Articles 3 and 5. Accordingly, Borrower shall not look to
Lender for performance of any obligations contained in Articles 3 and 5, but
shall look solely to the party secured by the Collateral to be released for such
performance. Lender represents and warrants to Borrower that the party secured
by the Collateral shall be subject to the release provisions contained in
Articles 3 and 5 by virtue of the release provisions in each Security
Instrument.

         SECTION 13.04. Replacement of Lender.

         At the request of Fannie Mae, Borrower and Lender shall agree to the
assumption by another lender designated by Fannie Mae (which lender shall meet
Fannie Mae's then current standards for lenders for credit facilities of the
type and size of the credit facility evidenced by this Agreement), of all of the
obligations of Lender under this Agreement and the other Loan Documents, and/or
any related servicing obligations, and, at Fannie Mae's option, the concurrent
release of Lender from its obligations under this Agreement and the other Loan
Documents, and/or any related servicing obligations, and shall execute all
releases, modifications and other documents which Fannie Mae determines are
necessary or desirable to effect such assumption.

         SECTION 13.05. Fannie Mae and Lender Fees and Expenses.

         Borrower agree that any provision providing for the payment of fees,
costs or expenses incurred or charged by Lender pursuant to this Agreement shall
be deemed to provide for Borrower's payment of all reasonable fees, costs and
expenses incurred or charged by Lender or Fannie Mae in connection with the
matter for which fees, costs or expenses are payable.

         SECTION 13.06. Third-Party Beneficiary.

         Borrower hereby acknowledge and agree that Fannie Mae is a third party
beneficiary of all of the representations, warranties and covenants made by
Borrower to, and all rights under this Agreement conferred upon, Lender, and, by
virtue of its status as third-party beneficiary and/or assignee of Lender's
rights under this Agreement, Fannie Mae shall have the right to enforce all of
the provisions of this Agreement against Borrower.

                                   ARTICLE 14

              INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES

         SECTION 14.01. Insurance and Real Estate Taxes.

         Borrower shall (unless waived by Lender by separate agreement)
establish funds for taxes, insurance premiums and certain other charges for each
Mortgaged Property in accordance with Section 7(a) of the Security Instrument
for each Mortgaged Property.

                                       41
<PAGE>

         SECTION 14.02. Replacement Reserves.

         Borrower shall execute a Replacement Reserve Agreement for the
Mortgaged Property which they own and shall (unless waived by Lender by separate
agreement) make all deposits for replacement reserves in accordance with the
terms of the Replacement Reserve Agreement.

                                   ARTICLE 15

                       PERSONAL LIABILITY OF THE BORROWER

         SECTION 15.01. Personal Liability of the Borrower.

                  (a) Full Recourse. The Borrower is and shall remain personally
liable to the Lender for the payment and performance of all Obligations
throughout the term of this Agreement.

                  (b) Transfer Not Release. No Transfer by any Person of its
Ownership Interests in the Borrower shall release the Borrower from liability
under this Article, this Agreement or any other Loan Document, unless the Lender
shall have approved the Transfer and shall have expressly released the Borrower
in connection with the Transfer.

                  (c) Miscellaneous. The Lender may exercise its rights against
the Borrower personally without regard to whether the 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 the
Lender under the Loan Documents or applicable law. For purposes of this Article,
the term "Mortgaged Property" shall not include any funds that (1) have been
applied by the Borrower as required or permitted by the Loan Documents prior to
the occurrence of an Event of Default, or (2) are owned by the Borrower and
which the Borrower was unable to apply as required or permitted by the Loan
Documents because of a bankruptcy, receivership, or similar judicial proceeding.

                                   ARTICLE 16

                              INTENTIONALLY OMITTED

                                   ARTICLE 17
                            MISCELLANEOUS PROVISIONS

         SECTION 17.01. Counterparts.

         To facilitate execution, this Agreement may be executed in any number
of counterparts. It shall not be necessary that the signatures of, or on behalf
of, each party, or that the signatures of all persons required to bind any
party, appear on each counterpart, but it shall be sufficient that the signature
of, or on behalf of, each party, appear on one or more counterparts. All

                                       42
<PAGE>

counterparts shall collectively constitute a single agreement. It shall not be
necessary in making proof of this Agreement to produce or account for more than
the number of counterparts containing the respective signatures of, or on behalf
of, all of the parties hereto.

         SECTION 17.02. Amendments, Changes and Modifications.

         This Agreement may be amended, changed, modified, altered or terminated
only by written instrument or written instruments signed by all of the parties
hereto.

         SECTION 17.03. Payment of Costs, Fees and Expenses.

         Borrower shall pay, on demand, all reasonable fees, costs, charges or
expenses (including the fees and expenses of attorneys, accountants and other
experts) incurred by Lender in connection with:

                  (a) Any amendment, consent or waiver to this Agreement or any
of the Loan Documents (whether or not any such amendments, consents or waivers
are entered into).

                  (b) Defending or participating in any litigation arising from
actions by third parties and brought against or involving Lender with respect to
(i) any Mortgaged Property, (ii) any event, act, condition or circumstance in
connection with any Mortgaged Property or (iii) the relationship between Lender
and Borrower and Sunrise in connection with this Agreement or any of the
transactions contemplated by this Agreement.

                  (c) The administration or enforcement of, or preservation of
rights or remedies under, this Agreement or any other Loan Documents or in
connection with the foreclosure upon, sale of or other disposition of any
Collateral granted pursuant to the Loan Documents.

                  (d) Any disclosure documents, including fees payable to any
rating agencies, including the reasonable fees and expenses of Lender's
attorneys and accountants.

Borrower shall also pay, on demand, any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution, delivery, filing, recordation, performance or enforcement of any of
the Loan Documents or the Advances. However, Borrower will not be obligated to
pay any franchise, excise, estate, inheritance, income, excess profits or
similar tax on Lender. Any attorneys' fees and expenses payable by Borrower
pursuant to this Section shall be recoverable separately from and in addition to
any other amount included in such judgment, and such obligation is intended to
be severable from the other provisions of this Agreement and to survive and not
be merged into any such judgment. Any amounts payable by Borrower pursuant to
this Section, with interest thereon if not paid when due, shall become
additional indebtedness of Borrower secured by the Loan Documents. Such amounts
shall bear interest from the date such amounts are due until paid in full at the
weighted average, as determined by Lender, of the interest rates in effect from
time to time for each Advance unless collection from Borrower of interest at
such rate would be contrary to applicable law, in which event such amounts shall
bear interest at the highest rate which may be

                                       43
<PAGE>

collected from Borrower under applicable law. The provisions of this Section are
cumulative with, and do not exclude the application and benefit to Lender of,
any provision of any other Loan Document relating to any of the matters covered
by this Section.

         SECTION 17.04. Payment Procedure.

         All payments to be made to Lender pursuant to this Agreement or any of
the Loan Documents shall be made in lawful currency of the United States of
America and in immediately available funds by wire transfer to an account
designated by Lender before 2:00 p.m. (Washington, D.C. time) on the date when
due.

         SECTION 17.05. Payments on Business Days.

         In any case in which the date of payment to Lender or the expiration of
any time period hereunder occurs on a day which is not a Business Day, then such
payment or expiration of such time period need not occur on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the day of maturity or expiration of such period, except that interest
shall continue to accrue for the period after such date to the next Business
Day.

         SECTION 17.06. Choice of Law; Consent to Jurisdiction; Waiver of Jury
Trial.

         NOTWITHSTANDING ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR ANY OF
THE OTHER LOAN DOCUMENTS TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND
RIGHTS AND OBLIGATIONS OF THE BORROWER UNDER THE NOTES, AND THE BORROWER AND
SUNRISE UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY, INTERPRETED,
CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE
DISTRICT OF COLUMBIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE OF
LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO
(1) THE CREATION, PERFECTION AND FORECLOSURE OF LIENS AND SECURITY INTERESTS,
AND ENFORCEMENT OF THE RIGHTS AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES,
WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE
MORTGAGED PROPERTY IS LOCATED, (2) THE PERFECTION, THE EFFECT OF PERFECTION AND
NON-PERFECTION AND FORECLOSURE OF SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER
THAN DEPOSIT ACCOUNTS), WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE
JURISDICTION DETERMINED BY THE CHOICE OF LAW PROVISIONS OF THE DISTRICT OF
COLUMBIA UNIFORM COMMERCIAL CODE AND (3) THE PERFECTION, THE EFFECT OF
PERFECTION AND NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS, WHICH MATTERS
SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE DEPOSIT ACCOUNT
IS LOCATED. BORROWER AND SUNRISE AGREE THAT ANY CONTROVERSY ARISING UNDER OR IN
RELATION TO THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER LOAN DOCUMENT SHALL
BE, EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN DISTRICT

                                       44
<PAGE>

OF COLUMBIA. THE LOCAL AND FEDERAL COURTS AND AUTHORITIES WITH JURISDICTION IN
DISTRICT OF COLUMBIA SHALL, EXCEPT AS OTHERWISE PROVIDED HEREIN, HAVE
JURISDICTION OVER ALL CONTROVERSIES WHICH MAY ARISE UNDER OR IN RELATION TO THE
LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES RELATING TO THE EXECUTION,
JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH THE NOTES, THE SECURITY
DOCUMENTS OR ANY OTHER ISSUE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH
ANY OF THE LOAN DOCUMENTS. THE BORROWER AND SUNRISE IRREVOCABLY CONSENTS TO
SERVICE, JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY LITIGATION ARISING FROM
THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS, AND WAIVES
ANY OTHER VENUE TO WHICH IT MIGHT BE ENTITLED BY VIRTUE OF DOMICILE, HABITUAL
RESIDENCE OR OTHERWISE. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT LENDER
FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST
BORROWER AND SUNRISE AND AGAINST THE COLLATERAL IN ANY OTHER JURISDICTION.
INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER
JURISDICTION SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED
HEREIN THAT THE LAWS OF DISTRICT OF COLUMBIA SHALL GOVERN THE RIGHTS AND
OBLIGATIONS OF BORROWER AND SUNRISE AND LENDER AS PROVIDED HEREIN OR THE
SUBMISSION HEREIN BY BORROWER AND SUNRISE TO PERSONAL JURISDICTION WITHIN
DISTRICT OF COLUMBIA THE BORROWER AND SUNRISE (I) COVENANT AND AGREE NOT TO
ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN
DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A JURY TRIAL WOULD OTHERWISE ACCRUE. FURTHER, THE BORROWER AND SUNRISE HEREBY
CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING, BUT NOT LIMITED
TO, LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO THE BORROWER
AND SUNRISE THAT LENDER WILL NOT SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION.
THE FOREGOING PROVISIONS WERE KNOWINGLY, WILLINGLY AND VOLUNTARILY AGREED TO BY
BORROWER AND SUNRISE UPON CONSULTATION WITH INDEPENDENT LEGAL COUNSEL SELECTED
BY BORROWER'S AND SUNRISE'S FREE WILL.

         SECTION 17.07. Severability.

         In the event any provision of this Agreement or in any other Loan
Document shall be held invalid, illegal or unenforceable in any jurisdiction,
such provision will be severable from the remainder hereof as to such
jurisdiction and the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired in any jurisdiction.

                                       45
<PAGE>

         SECTION 17.08. Notices.

                  (a) Manner of Giving Notice. Each notice, direction,
certificate or other communication hereunder (in this Section referred to
collectively as "notices" and singly as a "notice") which any party is required
or permitted to give to the other party pursuant to this Agreement shall be in
writing and shall be deemed to have been duly and sufficiently given if:

                           (i) personally delivered with proof of delivery
thereof (any notice so delivered shall be deemed to have been received at the
time so delivered);

                           (ii) sent by Federal Express (or other similar
overnight courier) designating morning delivery (any notice so delivered shall
be deemed to have been received on the Business Day it is delivered by the
courier);

                           (iii) sent by telecopier or facsimile machine which
automatically generates a transmission report that states the date and time of
the transmission, the length of the document transmitted, and the telephone
number of the recipient's telecopier or facsimile machine (to be confirmed with
a copy thereof sent in accordance with paragraphs (1) or (2) above within two
Business Days) (any notice so delivered shall be deemed to have been received
(i) on the date of transmission, if so transmitted before 5:00 p.m. (local time
of the recipient) on a Business Day, or (ii) on the next Business Day, if so
transmitted on or after 5:00 p.m. (local time of the recipient) on a Business
Day or if transmitted on a day other than a Business Day);

addressed to the parties as follows:

         As to Borrower:   c/o Sunrise Assisted Living, Inc.
                           7902 Westpark Drive
                           McLean, Virginia 22102
                           Attention: James S. Pope, Executive Vice President
                           Telecopy No.: (703) 744-1645

                           c/o Sunrise Assisted Living, Inc.
                           7902 Westpark Drive
                           McLean, Virginia 22102
                           Attention: Legal Department
                           Telecopy No.: (703) 744-1885

         with a copy to:   Watt, Tieder, Hoffar & Fitzgerald, L.L.P.
                           7929 Westpark Drive
                           Suite 400
                           McLean, Virginia 22102
                           Attention: Wayne G. Tatusko, Esq.
                           Telecopy No.: (703) 356-5388

         As to Lender:     Glaser Financial Group, Inc.
                           2550 University Avenue West
                           St. Paul, Minnesota 55114
                           Attention: David Williams
                           Telecopy No.: (651) 644-0923

                                       46
<PAGE>

         As to Fannie Mae: Fannie Mae
                           3939 Wisconsin Avenue, N.W.
                           Washington, D.C. 20016-2899
                           Attention: Vice President for Multifamily Asset
                                      Management
                           Telecopy No.: (202) 752-5016

         with a copy to:   Arter & Hadden LLP
                           1801 K Street, N.W.
                           Suite 400K
                           Washington, D.C. 20006
                           Attention: Lawrence H. Gesner, Esquire
                           Telecopy No.: (202) 857-0172

                  (b) Change of Notice Address. Any party may, by notice given
pursuant to this Section, change the person or persons and/or address or
addresses, or designate an additional person or persons or an additional address
or addresses, for its notices, but notice of a change of address shall only be
effective upon receipt. Each party agrees that it shall not refuse or reject
delivery of any notice given hereunder, that it shall acknowledge, in writing,
receipt of the same upon request by the other party and that any notice rejected
or refused by it shall be deemed for all purposes of this Agreement 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, the courier
service or facsimile.

         SECTION 17.09. Further Assurances and Corrective Instruments.

                  (a) Further Assurances. To the extent permitted by law, the
parties hereto agree that they shall, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as Lender or Borrower may
request and as may be required in the opinion of Lender or its counsel to
effectuate the intention of or facilitate the performance of this Agreement or
any Loan Document.

                  (b) Further Documentation. Without limiting the generality of
subsection (a), in the event any further documentation or information is
required by Lender to correct patent mistakes in the Loan Documents, materials
relating to the Title Insurance Policies or the funding of the Advances,
Borrower shall provide, or cause to be provided to Lender, at their cost and
expense, such documentation or information. Borrower shall execute and deliver
to Lender such documentation, including any amendments, corrections, deletions
or additions to the Notes, the Security Instruments or the other Loan Documents
as is reasonably required by Lender and at reasonable cost to the Borrower.

                                       47
<PAGE>

                  (c) Compliance with Investor Requirements. Without limiting
the generality of subsection (a), Borrower shall do anything necessary to comply
with the reasonable requirements of Lender to enable Lender to sell the MBS
backed by an Advance.

         SECTION 17.10. Term of this Agreement.

         This Agreement shall continue in effect until the Credit Facility
Termination Date.

         SECTION 17.11. Assignments; Third-Party Rights.

         No Borrower shall assign this Agreement, or delegate any of its
obligations hereunder, without the prior written consent of Lender. Lender may
assign its rights and obligations under this Agreement separately or together,
without Borrower's consent, only to Fannie Mae, but may not delegate its
obligations under this Agreement unless required to do so pursuant to Section
13.04.

         SECTION 17.12. Headings.

         Article and Section headings used herein are for convenience of
reference only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.

         SECTION 17.13. General Interpretive Principles.

         For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, (i) the terms defined in Appendix I
and elsewhere in this Agreement have the meanings assigned to them in this
Agreement and include the plural as well as the singular, and the use of any
gender herein shall be deemed to include the other genders; (ii) accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP; (iii) references herein to "Articles," "Sections,"
"subsections," "paragraphs" and other subdivisions without reference to a
document are to designated Articles, Sections, subsections, paragraphs and other
subdivisions of this Agreement; (iv) a reference to a subsection without further
reference to a Section is a reference to such subsection as contained in the
same Section in which the reference appears, and this rule shall also apply to
paragraphs and other subdivisions; (v) a reference to an Exhibit or a Schedule
without a further reference to the document to which the Exhibit or Schedule is
attached is a reference to an Exhibit or Schedule to this Agreement; (vi) the
words "herein," "hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular provision; and (vii) the
word "including" means "including, but not limited to."

         SECTION 17.14. Interpretation.

         The parties hereto acknowledge that each party and their respective
counsel have participated in the drafting and revision of this Agreement and the
Loan Documents. Accordingly, the parties agree that any rule of construction
which disfavors the drafting party

                                       48
<PAGE>

shall not apply in the interpretation of this Agreement and the Loan Documents
or any amendment or supplement or exhibit hereto or thereto.

         SECTION 17.15. Standards for Decisions, Etc.

         Unless otherwise provided herein, if Lender's approval is required for
any matter hereunder, such approval may be granted or withheld in Lender's sole
and absolute discretion. Unless otherwise provided herein, if Lender's
designation, determination, selection, estimate, action or decision is required,
permitted or contemplated hereunder, such designation, determination, selection,
estimate, action or decision shall be made in Lender's sole and absolute
discretion.

         SECTION 17.16. Decisions in Writing.

         Any approval, designation, determination, selection, action or decision
of Lender or Borrower must be in writing to be effective.

         SECTION 17.17. Requests.

         The Borrower may submit up to a total of 10 Requests per Calendar Year,
provided (i) that Future Advance Requests shall not count against such limit and
(ii) all Requests given by Borrower on any day shall count as one (1) Request.

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

                                       49
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                       Borrower

                                       SUNRISE RIVERSIDE ASSISTED LIVING, L.P.,
                                       a California limited partnership

                                       By:  Sunrise Assisted Living Investments,
                                            Inc., General Partner

                                            By: /s/ James S. Pope
                                                --------------------------------
                                                James S. Pope, Vice President

                                       SUNRISE PARMA ASSISTED LIVING, L.L.C., a
                                       Virginia limited liability company

                                       By:  Sunrise Assisted Living Investments,
                                            Inc., Sole Member

                                            By: /s/ James S. Pope
                                                --------------------------------
                                                James S. Pope, Vice President

                                       SUNRISE WILTON ASSISTED LIVING, L.L.C., a
                                       Connecticut limited liability company

                                       By:  Sunrise Development, Inc., Sole
                                            Member

                                            By: /s/ James S. Pope
                                                --------------------------------
                                                James S. Pope, Vice President

                                       50
<PAGE>

                                       SUNRISE WALL ASSISTED LIVING, L.L.C., a
                                       New Jersey limited liability company

                                       By:  Sunrise Development, Inc., Sole
                                            Member

                                            By: /s/ James S. Pope
                                                --------------------------------
                                                James S. Pope, Vice President

                                       SUNRISE WESTON ASSISTED LIVING, Limited
                                       Partnership, a Massachusetts limited
                                       partnership

                                       By:  Sunrise Assisted Living Investments,
                                            Inc., General Partner

                                            By: /s/ James S. Pope
                                                --------------------------------
                                                James S. Pope, Vice President

                                       Lender

                                       GLASER FINANCIAL GROUP, INC., a Minnesota
                                       corporation

                                       By: /s/ David A. Williams
                                           -------------------------------------
                                       Name: David A. Williams
                                             -----------------------------------
                                       Title: Executive Vice President
                                              ----------------------------------

                                       51
<PAGE>

                                   APPENDIX I
                                   DEFINITIONS

For all purposes of the Agreement, the following terms shall have the respective
meanings set forth below:

                  "Acquiring Person" means a "person" or "group of persons"
         within the meaning of Sections 13(d) and 14(d) of the Securities
         Exchange Act of 1934, as amended.

                  "Addition Loan Documents" means the Security Instrument
         covering an Additional Mortgaged Property and any other documents,
         instruments or certificates required by Lender in connection with the
         addition of the Additional Mortgaged Property to the Collateral Pool
         pursuant to Article 3.

                  "Addition Request" means a written request, substantially in
         the form of Exhibit M to the Agreement, to add Additional Mortgaged
         Properties to the Collateral Pool as set forth in Section 3.02(a).

                  "Additional Borrower" means the owner of an Additional
         Mortgaged Property, which entity becomes a Borrower under the Agreement
         and the applicable Loan Documents.

                  "Additional Collateral Due Diligence Fees" means the due
         diligence fees paid by Borrower to Lender with respect to each
         Additional Mortgaged Property.

                  "Additional Mortgaged Property" means each Multifamily
         Residential Property owned by any Borrower or Additional Borrower
         (either in fee simple or as tenant under a ground lease meeting all of
         the requirements of the DUS Guide) and added to the Collateral Pool
         after the Initial Closing Date pursuant to Article 3.

                  "Advance" means a Variable Advance (including a Rollover
         Variable Advance) or a Fixed Advance.

                  "Advance Confirmation Instrument" means the written
         instrument, substantially in the form of Exhibit K to the Agreement,
         issued by Borrower to Lender to confirming Borrower's obligation to
         repay Variable Advances pursuant to Section 2.02.

                  "Advance Request" means a written request, substantially in
         the form of Exhibit L to the Agreement, for an Advance made pursuant to
         Section 2.04.

                  "Affiliate" means, as applied to any Person, any other Person
         directly or indirectly controlling, controlled by, or under common
         control with, that Person. For the purposes of this definition,
         "control" (including with correlative meanings, the terms
         "controlling," "controlled by" and "under common control with"), as
         applied to any Person, means the possession, directly or indirectly, of
         the power to direct or cause the direction of the management (other
         than property management) and policies of that Person, whether

                                       52
<PAGE>

         through the ownership of voting securities, partnership interests or by
         contract or otherwise.

                  "Aggregate Debt Service Coverage Ratio" means, for any
         specified date, the ratio (expressed as a percentage) of--

                  (a)      the aggregate of the Net Operating Income for the
                           Mortgaged Properties

                                       to

                  (b)      the Facility Debt Service on the specified date.

                  "Aggregate Loan to Value Ratio" means, for any specified date,
         the ratio (expressed as a percentage) of--

                  (a)      the Advances Outstanding on the specified date,

                                       to

                  (b)      the aggregate of the Valuations most recently
                           obtained prior to the specified date for all of the
                           Mortgaged Properties.

                  "Agreement" means the Master Credit Facility Agreement, as it
         may be amended, supplemented or otherwise modified from time to time,
         including all Recitals and Exhibits to the Agreement, each of which is
         hereby incorporated into the Agreement by this reference.

                  "Allocable Facility Amount" means the portion of the Credit
         Facility allocated to a particular Mortgaged Property by Lender in
         accordance with the Agreement. The Allocable Facility Amount for each
         Mortgaged Property shall equal the then current Aggregate Loan to Value
         Ratio multiplied by the then current Valuation of such Mortgaged
         Property.

                  "Amortization Period" means the period of 25 years.

                  "Applicable Law" means (a) all applicable provisions of all
         constitutions, statutes, rules, regulations and orders of all
         governmental bodies, all Governmental Approvals and all orders,
         judgments and decrees of all courts and arbitrators, (b) all zoning,
         building, environmental and other laws, ordinances, rules, regulations
         and restrictions of any Governmental Authority affecting the ownership,
         management, use, operation, maintenance or repair of any Mortgaged
         Property, including the Americans with Disabilities Act (if
         applicable), the Fair Housing Amendment Act of 1988 and Hazardous
         Materials Laws (as defined in the Security Instrument), (c) any
         building permits or any conditions, easements, rights-of-way,
         covenants, restrictions of record or any recorded or unrecorded
         agreement affecting or concerning any Mortgaged Property including
         planned development permits, condominium declarations, and reciprocal
         easement and regulatory

                                       53
<PAGE>

         agreements with any Governmental Authority, (d) all laws, ordinances,
         rules and regulations, whether in the form of rent control, rent
         stabilization or otherwise, that limit or impose conditions on the
         amount of rent that may be collected from the units of any Mortgaged
         Property, and (e) requirements of insurance companies or similar
         organizations, affecting the operation or use of any Mortgaged Property
         or the consummation of the transactions to be effected by the Agreement
         or any of the other Loan Documents.

                  "Appraisal" means an appraisal of Multifamily Residential
         Property conforming to the requirements of Chapter 5 of Part III of the
         DUS Guide and accepted by Lender.

                  "Appraised Value" means the value set forth in an Appraisal.

                  "Borrower" means, individually and collectively, Sunrise
         Riverside Assisted Living, L.P., a California limited partnership,
         Sunrise Parma Assisted Living, L.L.C., a Virginia limited liability
         company, Sunrise Wilton Assisted Living, L.L.C., a Connecticut limited
         liability company, Sunrise Wall Assisted Living, L.L.C., a New Jersey
         limited liability company, Sunrise Weston Assisted Living, L.P., a
         Massachusetts limited partnership, and any Additional Borrower becoming
         a party to the Agreement and any other Loan Documents, but excluding
         any party which was a Borrower and any and all Mortgaged Properties
         owned by such Borrower have been released from the Collateral Pool.

                  "Borrowing Up Limitation" means the lesser of (a) the amount
         that would result in an Aggregate Loan to Value Ratio of 70%, or (b)
         the amount that would result in (i) an Aggregate Debt Service Coverage
         Ratio of 1.15 for the portion of the Commitment (including the portion
         of any additional Advances to be made pursuant to Section 2.04(c)) that
         comprises the Variable Facility Commitment (using a prorated portion of
         the Net Operating Income and using the Facility Debt Service for only
         the Variable Facility Commitment in making such determination of the
         Debt Service Coverage Ratio, provided such amount shall not exceed 103%
         of the amount that would result using the calculations set forth in
         (ii) below), and (ii) a Debt Service Coverage Ratio of 1.45 for the
         portion of the Commitment (including the portion of any additional
         Advances to be made pursuant to Section 2.04(c)) that comprises the
         Fixed Facility Commitment (using a prorated portion of the Net
         Operating Income and using the Facility Debt Service for only the Fixed
         Facility Commitment in making such determination of Debt Service
         Coverage Ratio).

                  "Business Day" means a day on which Fannie Mae is open for
         business.

                  "Calendar Quarter" means, with respect to any year, any of the
         following three month periods: (a) January-February-March; (b)
         April-May-June; (c) July-August-September; and (d)
         October-November-December.

                  "Calendar Year" means the 12-month period from the first day
         of January to and including the last day of December, and each 12-month
         period thereafter.

                                       54
<PAGE>

                  "Cap Rate" means, for each Mortgaged Property, a
         capitalization rate reasonably selected by Lender for use in
         determining the Valuations, as disclosed to Borrower from time to time.

                  "Cash Equivalents" means:

                  (a)      securities issued or fully guaranteed or insured by
                           the United States Government or any agency thereof
                           and backed by the full faith and credit of the United
                           States having maturities of not more than twelve (12)
                           months from the date of acquisition.

                  (b)      certificates of deposit, time deposits, demand
                           deposits, eurodollar time deposits, repurchase
                           agreements, reverse repurchase agreements, or
                           bankers' acceptances, having in each case a term of
                           not more than twelve (12) months, issued by any
                           commercial bank having membership in the FDIC, or by
                           any U.S. commercial lender (or any branch or agency
                           of a non-U.S. bank licensed to conduct business in
                           the U.S.) having combined capital and surplus of not
                           less than $100,000,000 whose short-term securities
                           are rated at least A-1 by Standard & Poor's
                           Corporation or P-1 by Moody's Investors Service,
                           Inc.; and

                  (c)      commercial paper of an issuer rated at least A-1 by
                           Standard & Poor's Corporation or P-1 by Moody's
                           Investors Service, Inc. and in either case having a
                           term of not more than twelve (12) months.

                  "Change of Control" means the earliest to occur of: the date
         on which (a) an Acquiring Person becomes (by acquisition,
         consolidation, merger or otherwise), directly or indirectly, the
         beneficial owner of more than 40% of the total ownership interest of
         Borrower or Sunrise, as the case may be, then outstanding, or (b) Paul
         J. Klaassen ceases to be the chairman of the board of directors of
         Sunrise.

                  "Chief Financial Officer" means the chief financial officer of
         Sunrise or any other person with responsibility for any of the
         functions typically performed in a corporation by the chief financial
         officer.

                  "Closing Date" means the Initial Closing Date and each date
         after the Initial Closing Date on which the funding or other
         transaction requested in a Request is required to take place.

                  "Collateral" means the Mortgaged Properties and other
         collateral from time to time or at any time encumbered by the Security
         Instruments, or any other property securing Borrower's obligations
         under the Loan Documents.

                  "Collateral Pool" means all of the Collateral.

                  "Commitment" means, at any time, the sum of the Fixed Facility
         Commitment and the Variable Facility Commitment.

                                       55
<PAGE>

                  "Complete Fixed Facility Termination" shall have the meaning
         set forth in Section 5.02(a).

                  "Complete Variable Facility Termination" shall have the
         meaning set forth in Section 5.02(a).

                  "Compliance Certificate" means a certificate of Borrower
         substantially in the form of Exhibit F to the Agreement.

                  "Conversion Amendment" means the Master Credit Facility
         Conversion Amendment, substantially in the form of Exhibit I to the
         Agreement, reflecting the conversion of all or any portion of the
         Variable Facility Commitment to the Fixed Facility Commitment as set
         forth in Section 1.08(b).

                  "Conversion Documents" means the Conversion Amendment,
         together with an amendment to each Security Document and other
         applicable Loan Documents, in form and substance satisfactory to
         Lender, reflecting the change in the Fixed Facility Commitment and the
         Variable Facility Commitment pursuant to Section 1.08.

                  "Conversion Request" means a written request, substantially in
         the form of Exhibit H to the Agreement, to convert all or any portion
         of the Variable Facility Commitment to the Fixed Facility Commitment
         pursuant to Section 1.08.

                  "Coupon Rate" means, with respect to a Variable Advance, the
         imputed interest rate determined by Lender pursuant to Section 1.05(a)
         and, with respect to a Fixed Advance, the interest rate determined by
         Lender pursuant to Section 1.05(b).

                  "Coverage and LTV Tests" mean, for any specified date, each of
         the following financial tests:

                           (a) The Aggregate Debt Service Coverage Ratio is not
         less than 1.45:1.0.

                           (b) The Aggregate Loan to Value Ratio does not exceed
         70%.

                  "Credit Facility" means the Fixed Facility and the Variable
         Facility.

                  "Credit Facility Termination Documents" means the instruments
         releasing the Security Instruments as lien on the Mortgaged Properties,
         UCC-3 Termination Statements terminating the UCC-1 Financing Statements
         on the Mortgaged Properties, and such other documents and instruments
         necessary to evidence the release of the Collateral from any lien
         securing the Obligations, and the Notes, all in connection with the
         termination of the Agreement and the Credit Facility pursuant to
         Article V.

                                       56
<PAGE>

                  "Credit Facility Termination Request" means a written request,
         substantially in the form of Exhibit R to the Agreement, to terminate
         the Agreement and the Credit Facility pursuant to Section 5.04(a).

                  "Debt Service Coverage Ratio" means -

                  (a)      For any Mortgaged Property, for any specified date,
                           the ratio (expressed as a percentage) of --

                           (ii)     the aggregate of the Net Operating Income
                                    for the preceding 12 month period for the
                                    subject Mortgaged Property

                                       to

                           (iii)    the Facility Debt Service on the specified
                                    date, assuming, for the purpose of
                                    calculating the Facility Debt Service for
                                    this definition, that Advances Outstanding
                                    shall be the Allocable Facility Amount for
                                    the subject Mortgaged Property.

                  (b)      For purposes of determining the Initial Commitment
                           Amount or the Borrowing Up Limitation, for any
                           specified date, the ratio (expressed in decimal form)
                           of --

                           (iv)     the applicable portion of Net Operating
                                    Income for the preceding 12 month period

                                       to

                           (v)      the applicable Facility Debt Service on the
                                    specified date, as described in the
                                    definitions of Initial Commitment Amount or
                                    Borrowing Up Limitation, as applicable.

                  "Discount" means, with respect to any Variable Advance, an
         amount equal to the excess of --

                  (i)      the face amount of the MBS backed by the Variable
                           Advance, over

                  (ii)     the Price of the MBS backed by the Variable Advance.

                  "DUS Guide" means the Fannie Mae Multifamily Delegated
         Underwriting and Servicing (DUS) Guide, as such Guide may be amended
         from time to time, including exhibits to the DUS Guide and amendments
         in the form of Lender Memos, Guide Updates and Guide Announcements
         (and, if such Guide is no longer used by Fannie Mae, the term "DUS
         Guide" as used in the Agreement means the Fannie Mae Multifamily
         Negotiated Transactions (NT) Guide, as such Guide may be amended from
         time to time, including amendments in the form of Lender Memos, Guide
         Updates and Guide Announcements). All references to specific articles
         and sections of, and exhibits to, the

                                       57
<PAGE>

         DUS Guide shall be deemed references to such articles, sections and
         exhibits as they may be amended, modified, updated, superseded,
         supplemented or replaced from time to time.

                  "DUS Guide Underwriting Requirements" means the overall
         underwriting requirements for Multifamily Residential Properties as set
         forth in the DUS Guide.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended from time to time.

                  "Event of Default" means any event defined to be an "Event of
         Default" under Article 11.

                  "Expansion" means an increase in the Commitment made in
         accordance with Article 4.

                  "Expansion Loan Documents" means amendments to the Variable
         Facility Note or the Fixed Facility Notes, as the case may be,
         increasing the amount of such Note to the amount of the Commitment, as
         expanded in accordance with Article 4 and amendments to the Security
         Instruments, increasing the amount secured by such Security Instruments
         to the amount of the Commitment.

                  "Expansion Request" means a written request, substantially in
         the form of Exhibit O to the Agreement, to obtain an Expansion pursuant
         to Section 4.02.

                  "Facility Debt Service" means -

                  (c)      For use in determining the initial Commitment amount,
                           the sum of the amount of interest and principal
                           amortization that would be payable during the 12
                           month period immediately succeeding the Initial
                           Closing Date, with respect to the full amount of the
                           initial Commitment, except that, for these purposes:

                           (vi)     the initial amount of the Variable Facility
                                    Commitment shall be deemed to require level
                                    monthly payments of principal and interest
                                    (at an interest rate equal to (A) the Three
                                    Month LIBOR rate plus (B) the Variable
                                    Facility Fee plus (C) 300 basis points) in
                                    an amount necessary to fully amortize the
                                    original principal amount of the Variable
                                    Facility Commitment over the Amortization
                                    Period, with such amortization deemed to
                                    commence on the first day of the 12 month
                                    period; and

                           (vii)    the initial amount of the Fixed Facility
                                    Commitment shall be deemed to require level
                                    monthly payments of principal and interest
                                    (at an interest rate equal to (A) the base
                                    United States Treasury Index Rate for
                                    securities having a maturity substantially
                                    similar to the maturity of the Fixed Advance
                                    plus (B) the anticipated investor spread (as
                                    determined by the Lender) for MBS having
                                    similar

                                       58
<PAGE>

                                    characteristics as the MBS to be issued in
                                    connection with the Fixed Facility
                                    Commitment plus (C) the Fixed Facility Fee)
                                    in an amount necessary to fully amortize the
                                    original principal amount of the Fixed
                                    Facility Commitment over the Amortization
                                    Period, with such amortization to commence
                                    on the first day of the 12 month period.

                                    The interest rates described in this clause
                                    (a) determined as of the Initial Closing
                                    Date are hereinafter referred to as the
                                    "Underwriting Rates."

                  (d)      For use in determining (i) whether Borrower may
                           obtain Advances based on increases in the Aggregate
                           Loan to Value Ratio or Debt Service Coverage Ratios
                           in accordance with Section 2.04(c) of the Agreement,
                           as of any specified date, and (ii) the additional
                           borrowing capacity created by the addition of
                           Additional Mortgaged Properties (whether pursuant to
                           Section 3.2 of the Agreement or in connection with an
                           Expansion pursuant to Article 4 of the Agreement),
                           the sum of:

                           (viii)   the amount of interest and principal
                                    amortization, during the 12 month period
                                    immediately succeeding the specified date,
                                    with respect to the Advances Outstanding on
                                    the specified date and Advances to be
                                    obtained pursuant to Section 2.04(c), except
                                    that, for these purposes:

                  (A)      each Variable Advance Outstanding or to be obtained
                           pursuant to Section 2.04(c) shall be deemed to
                           require level monthly payments of principal and
                           interest at a rate equal to the greater of (A) the
                           highest Underwriting Rate utilized to obtain any
                           advance pursuant to Section 2.04(c) during the Term
                           of the Agreement and (B) the rate that would apply to
                           such Variable Advance if the Underwriting Rates were
                           being determined on the date of calculation, in an
                           amount necessary to fully amortize the original
                           principal amount of the Variable Advance over the
                           Amortization Period, with such amortization deemed to
                           commence on the first day of the 12 month period; and

                  (B)      each Fixed Advance Outstanding shall require level
                           monthly payments of principal and interest (at the
                           Coupon Rate for the Fixed Advance) in an amount
                           necessary to fully amortize the original principal
                           amount of the Fixed Advance over the Amortization
                           Period, with such amortization to commence on the
                           first day of the 12 month period; and

                  (C)      each Fixed Advance to be obtained pursuant to Section
                           2.04(c) shall be deemed to require level monthly
                           payments of principal and interest at a rate equal to
                           the estimated Coupon Rate for such

                                       59
<PAGE>

                           Fixed Advance in an amount necessary to fully
                           amortize the original principal amount of such Fixed
                           Advance over the Amortization Period, with such
                           amortization deemed to commence on the first day of
                           the 12 month period; and

                           (ix)     the amount of the Standby Fees payable to
                                    Lender pursuant to Section 11.01 during such
                                    12 month period (assuming, for these
                                    purposes, that the Advances Outstanding
                                    throughout the 12 month period are always
                                    equal to the amount of Advances Outstanding
                                    on the specified date).

                  (e)      For use in determining the Aggregate Debt Service
                           Coverage Ratio for purposes of determining Release
                           Prices pursuant to Section 3.04(c) of the Agreement,
                           for purposes of determining compliance with the
                           Coverage and LTV Tests, and for other ongoing
                           monitoring purposes, as of any specified date, the
                           sum of:

                           (x)      the amount of interest and principal
                                    amortization, during the 12 month period
                                    immediately succeeding the specified date,
                                    with respect to the Advances Outstanding on
                                    the specified date, except that, for these
                                    purposes:

                  (A)      each Variable Advance shall be deemed to require
                           level monthly payments of principal and interest (at
                           the Coupon Rate for such Variable Advance) in an
                           amount necessary to fully amortize the original
                           principal amount of the Variable Advance over the
                           Amortization Period, with such amortization deemed to
                           commence on the first day of the 12 month period; and

                  (B)      each Fixed Advance shall require level monthly
                           payments of principal and interest (at the Coupon
                           Rate for such Fixed Advance) in an amount necessary
                           to fully amortize the original principal amount of
                           the Fixed Advance over the Amortization Period, with
                           such amortization to commence on the first day of the
                           12 month period; and

                           (xi)     the amount of the Standby Fees payable to
                                    Lender pursuant to Section 10.01 during such
                                    12 month period (assuming, for these
                                    purposes, that the Advances Outstanding
                                    throughout the 12 month period are always
                                    equal to the amount of Advances Outstanding
                                    on the specified date).

                  "Facility Termination Document" means the Amendment of the
         Master Credit Facility Agreement, substantially in the form of Exhibit
         Q to the Agreement, evidencing the permanent reduction in the Facility
         Commitment pursuant to Section 5.02.

                                       60
<PAGE>

                  "Facility Termination Fee" means, with respect to a reduction
         in either the Variable Facility Commitment or the Fixed Facility
         Commitment pursuant to Article 5, the sum of

                  (A)      an amount equal to the product obtained by
                           multiplying

                           (1)      the reduction in the Variable Facility
                                    Commitment, by

                           (2)      the Variable Facility Fee, by

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

                                 1 - (1 + r)-(n)
                                 --------------
                                        r

                           [r =     Yield Rate

                           n =      the number of years (counting any partial
                                    year as a full year) remaining between the
                                    Closing Date for the reduction in the
                                    Commitment and the Variable Facility
                                    Termination Date.

         The "Yield Rate" means the rate, determined as of the Initial Closing
         Date, on the U.S. Treasury security having a maturity closest to the
         Variable Facility Termination Date; and

                  (B)      an amount equal to the product obtained by
                           multiplying

                           (1)      the reduction in the Fixed Facility
                                    Commitment, by

                           (2)      the Fixed Facility Fee, by

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

                                 1 - (1 + r)-(n)
                                 ---------------
                                        r

                           [r =     Yield Rate

                           n =      the number of years (counting any partial
                                    year as a full year) remaining between the
                                    Closing Date for the reduction in the
                                    Commitment and the Fixed Facility
                                    Termination Date.

                           The "Yield Rate" means the rate, determined as of the
         Initial Closing Date, on the U.S. Treasury security having a maturity
         closest to the Fixed Facility Termination Date.

                           Notwithstanding the foregoing, if a Facility
         Termination Fee is incurred in connection with the refinancing of a
         Mortgaged Property by Lender, which refinanced loan is purchased by
         Fannie Mae, the Facility Termination Fee shall not exceed 1% of the

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<PAGE>

         reduction in the Variable Facility Commitment or the Fixed Facility
         Commitment, as the case may be.

                  "Facility Termination Request" means a written request,
         substantially in the form of Exhibit P to the Agreement, for a
         permanent reduction in the Variable Facility Commitment or the Fixed
         Facility Commitment pursuant to Section 5.02.

                  "Fannie Mae" means the federally-chartered and
         stockholder-owned corporation organized and existing under the Federal
         National Mortgage Association Charter Act, 12 U.S.C. Section 1716 et
         seq.

                  "Fees" means Additional Collateral Due Diligence Fee, Facility
         Termination Fee, Fixed Facility Fee, Standby Fee, Substitution Fee,
         Variable Facility Fee any and all other fees specified in the
         Agreement.

                  "Fixed Advance" means a loan made by Lender to Borrower under
         the Fixed Facility Commitment.

                  "Fixed Facility" means the agreement of Lender to make Fixed
         Advances to Borrower pursuant to Section 1.01.

                  "Fixed Facility Availability Period" means the period
         beginning on the Initial Closing Date and ending on the date five years
         after the Initial Closing Date.

                  "Fixed Facility Commitment" means $0, plus such amount as
         Borrower may elect to add to the Fixed Facility Commitment in
         accordance with Section 1.08 and Article 4.

                  "Fixed Facility Fee" means (i) 105 basis points for a Fixed
         Advance drawn from the Fixed Facility Commitment in effect during the
         period ending on the date 12 months after the Initial Closing Date
         (whenever such Fixed Advance is made) and (ii) for any Fixed Advance
         drawn from any portion of the Fixed Facility Commitment, increased
         under Article 4 or converted under Section 1.08 from any portion of the
         Variable Commitment after the period ending on the date 12 months after
         the Initial Closing Date, the number of basis points determined at the
         time of such increase by Lender as the Fixed Facility Fee for such
         Fixed Advances.

                  "Fixed Facility Note" means a promissory note, in the form
         attached as Exhibit B to the Agreement, which will be issued by
         Borrower to Lender, concurrently with the funding of each Fixed
         Advance, to evidence Borrower's obligation to repay the Fixed Advance.

                  "Future Advance" means an Advance made after the Initial
         Closing Date.

                  "GAAP" means generally accepted accounting principles in the
         United States in effect from time to time, consistently applied.

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<PAGE>

                  "General Conditions" shall have the meaning set forth in
         Article 6.

                  "Geographical Diversification Requirements" means a
         requirement that (i) if the Collateral Pool consist of two (2) or three
         (3) Mortgaged Properties, such Mortgaged Properties shall be located in
         at least two (2) SMSA's, and (ii) if the Collateral Pool consists of
         four (4) or more Mortgaged Properties, such Mortgaged Properties shall
         be located in at least three (3) SMSA's.

                  "Governmental Approval" means an authorization, permit,
         consent, approval, license, registration or exemption from registration
         or filing with, or report to, any Governmental Authority.

                  "Governmental Authority" means any court, board, agency,
         commission, office or authority of any nature whatsoever for any
         governmental unit (federal, state, county, district, municipal, city or
         otherwise) whether now or hereafter in existence.

                  "Gross Revenues" means, for any specified period, with respect
         to any Multifamily Residential Property, all income (including, without
         limitation, community fees) in respect of such Multifamily Residential
         Property as reflected on the certified operating statement for such
         specified period as adjusted to exclude unusual income (e.g. temporary
         or nonrecurring income), income not allowed under the DUS Guide as
         shown in Section 403.02 of Part III (e.g. interest income, furniture
         income, etc.), and the value of any unreflected concessions.

                  "Guaranty" means that certain Guaranty to be executed by
         Sunrise in the form of Exhibit D to this Agreement.

                  "Impositions" means, with respect to any Mortgaged Property,
         all (1) water and sewer charges which, if not paid, may result in a
         lien on all or any part of the Mortgaged Property, (2) premiums for
         fire and other hazard insurance, rent loss insurance and such other
         insurance as Lender may require under any Security Instrument, (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.

                  "Indebtedness" means, with respect to any Person, as of any
         specified date, without duplication, all:

                           (a) indebtedness of such Person for borrowed money or
         for the deferred purchase price of property or services (other than (i)
         current trade liabilities incurred in the ordinary course of business
         and payable in accordance with customary practices, and (ii) for
         construction of improvements to property, if such person has a
         non-contingent contract to purchase such property);

                           (b) other indebtedness of such Person which is
         evidenced by a note, bond, debenture or similar instrument;

                                       63
<PAGE>

                           (c) obligations of such Person under any lease of
         property, real or personal, the obligations of the lessee in respect of
         which are required by GAAP to be capitalized on a balance sheet of the
         lessee or to be otherwise disclosed as such in a note to such balance
         sheet;

                           (d) obligations of such Person in respect of
         acceptances (as defined in Article 3 of the Uniform Commercial Code of
         the District of Columbia) issued or created for the account of such
         Person;

                           (e) liabilities secured by any Lien on any property
         owned by such Person even though such Person has not assumed or
         otherwise become liable for the payment of such liabilities; and

                           (f) as to any Person ("guaranteeing person"), any
         obligation of (a) the guaranteeing person or (b) another Person
         (including any bank under any letter of credit) to induce the creation
         of a primary obligation (as defined below) with respect to which the
         guaranteeing person has issued a reimbursement, counterindemnity or
         similar obligation, in either case guaranteeing, or in effect
         guaranteeing, any indebtedness, lease, dividend or other obligation
         ("primary obligations") of any third person ("primary obligor") in any
         manner, whether directly or indirectly, including any obligation of the
         guaranteeing person, whether or not contingent, to (1) purchase any
         such primary obligation or any property constituting direct or indirect
         security therefor, (2) advance or supply funds for the purchase or
         payment of any such primary obligation or to maintain working capital
         or equity capital of the primary obligor or otherwise to maintain the
         net worth or solvency of the primary obligor, (3) purchase property,
         securities or services primarily for the purpose of assuring the owner
         of any such primary obligation of the ability of the primary obligor to
         make payment of such primary obligation, or (4) otherwise assure or
         hold harmless the owner of any such primary obligation against loss in
         respect of the primary obligation, provided, however, that the term
         "Contingent Obligation" shall not include endorsements of instruments
         for deposit or collection in the ordinary course of business. The
         amount of any Contingent Obligation of any guaranteeing person shall be
         deemed to be the lesser of (i) an amount equal to the stated or
         determinable amount of the primary obligation in respect of which such
         Contingent Obligation is made and (ii) the maximum amount for which
         such guaranteeing person may be liable pursuant to the terms of the
         instrument embodying such Contingent Obligation, unless such primary
         obligation and the maximum amount for which such guaranteeing person
         may be liable are not stated or determinable, in which case the amount
         of such Contingent Obligation shall be such guaranteeing person's
         maximum reasonably anticipated liability in respect thereof as
         determined by Owner in good faith.

                  "Initial Advance" means the Variable Advance made on the
         Initial Closing Date in the amount of $27,860,000.

                  "Initial Closing Date" means the date of the Agreement.

                                       64
<PAGE>

                  "Initial Commitment Amount" means the lesser of (a) the amount
         that would result in an Aggregate Loan to Value Ratio of 70%, or (b)
         the amount that would result in (i) an Aggregate Debt Service Coverage
         Ratio of 1.15 for the portion of the Commitment that will be the
         Variable Facility Commitment (using a prorated portion of the Net
         Operating Income and using the Facility Debt Service for only the
         Variable Facility Commitment in making such determination of Debt
         Service Coverage Ratio), provided that such amount shall not exceed
         103% of the amount that would result using the calculation set forth in
         (ii) below, and (ii) a Debt Service Coverage Ratio of 1.45 for the
         portion of the Commitment that will be the Fixed Facility Commitment
         (using a prorated portion of the Net Operating Income and using the
         Facility Debt Service for only the Fixed Facility Commitment in making
         such determination of Debt Service Coverage Ratio).

                  "Initial Mortgaged Properties" means the Multifamily
         Residential Properties described on Exhibit A to the Agreement and
         which represent the Multifamily Residential Properties which are made
         part of the Collateral Pool on the Initial Closing Date.

                  "Initial Security Instruments" means the Security Instruments
         covering the Initial Mortgaged Properties.

                  "Initial Valuation" means, when used with reference to
         specified Collateral, the Valuation initially performed for the
         Collateral as of the date on which the Collateral was added to the
         Collateral Pool. The Initial Valuation for each of the Initial
         Mortgaged Properties is as set forth in Exhibit A to the Agreement.

                  "Insurance Policy" means, with respect to a Mortgaged
         Property, the insurance coverage and insurance certificates evidencing
         such insurance required to be maintained pursuant to the Security
         Instrument encumbering the Mortgaged Property.

                  "Internal Revenue Code" means the Internal Revenue Code of
         1986, as amended. Each reference to the Internal Revenue Code shall be
         deemed to include (a) any successor internal revenue law and (b) the
         applicable regulations whether final, temporary or proposed.

                  "Joint Venture Transfer" means, with respect to any Mortgaged
         Property, the transfer of such Mortgaged Property to an entity of which
         at least 20% of the ownership interest in such entity is owned by
         Sunrise and up to 80% of the ownership interest in such entity is owned
         by an investor approved by Lender; provided that (a) such Mortgaged
         Property is refinanced under the Fannie Mae Delegated Underwriting and
         Servicing Program with the Lender being the lender for such transaction
         (in connection with which Lender agrees to use reasonable efforts to
         reduce closing costs and recordation taxes), (b) Sunrise is the sole
         managing member of the entity to which the Mortgaged Property is
         transferred, (c) Sunrise or an Affiliate thereof is the manager of the
         Mortgaged Property to be transferred, (d) the Borrower or Sunrise pays
         a fee equal to 50 basis points multiplied by the Allocable Facility
         Amount of the Mortgaged Property to be transferred and pays all legal
         fees and costs and expenses of Lender and Fannie Mae in

                                       65
<PAGE>

         connection with the transfer and refinance of said Mortgaged Property,
         and (e) Sunrise provides a guaranty of the standard non-recourse
         carveouts under the Delegated Underwriting and Servicing Program. In
         addition, all terms and conditions set forth in the Master Credit
         Facility Agreement relating to the release of properties from the
         Collateral Pool shall apply to any Joint Venture Transfer.

                  "Lease" means, other than a Resident Agreement, any lease, any
         sublease or subsublease, license, concession or other agreement
         (whether written or oral and whether now or hereafter in effect)
         pursuant to which any Person is granted a possessory interest in, or
         right to use or occupy all or any portion of any space in any Mortgaged
         Property, and every modification, amendment or other agreement relating
         to such lease, sublease, subsublease or other agreement entered into in
         connection with such lease, sublease, subsublease or other agreement,
         and every guarantee of the performance and observance of the covenants,
         conditions and agreements to be performed and observed by the other
         party thereto.

                  "Lender" shall have the meaning set forth in the first
         paragraph of the Agreement, but shall refer to any replacement Lender
         if the initial Lender is replaced pursuant to the terms of Section
         13.04.

                  "Lien" means any mortgage, deed of trust, deed to secure debt,
         security interest or other lien or encumbrance (including both
         consensual and non-consensual liens and encumbrances).

                  "Liquidity" means, at any time, the amount of cash and Cash
         Equivalents owned by a Person.

                  "Loan Documents" means the Agreement, the Notes, the Guaranty,
         the Advance Confirmation Instruments, the Security Documents, all
         documents executed by the Borrower or Sunrise pursuant to the General
         Conditions set forth in Article 6 of the Agreement and any other
         documents executed by the Borrower or Sunrise from time to time in
         connection with the Agreement or the transactions contemplated by the
         Agreement.

                  "Loan to Value Ratio " means, for a Mortgaged Property, for
         any specified date, the ratio (expressed as a percentage) of --

                  (a) the Allocable Facility Amount of the subject Mortgaged
                  Property on the specified date,

                                       to

                  (b) the Valuation most recently obtained prior to the
                  specified date for the subject Mortgaged Property.

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<PAGE>

                  "Loan Year" means the 12-month (plus any partial month) period
         from the first day of the first calendar month after the Initial
         Closing Date to and including the last day of the twelfth calendar
         month after the first anniversary of the Initial Closing Date, and each
         12-month period thereafter.

                  "Material Adverse Effect" means, with respect to any
         circumstance, act, condition or event of whatever nature (including any
         adverse written determination in any litigation, arbitration, or
         governmental investigation or proceeding), whether singly or in
         conjunction with any other event or events, act or acts, condition or
         conditions, or circumstance or circumstances, whether or not related, a
         material adverse change in or a materially adverse effect upon any of
         (a) the business, operations, property or condition (financial or
         otherwise) of the Borrower or Sunrise, (b) the present or future
         ability of the Borrower or Sunrise to perform the Obligations for which
         it is liable, (c) the validity, priority, perfection or enforceability
         of the Agreement or any other Loan Document or the rights or remedies
         of Lender under any Loan Document, or (d) the value of, or Lender's
         ability to have recourse against, any Mortgaged Property.

                  "MBS" means a mortgage-backed security issued by Fannie Mae
         which is "backed" by an Advance and has an interest in the Notes and
         the Collateral Pool securing the Notes, which interest permits the
         holder of the MBS to participate in the Notes and the Collateral Pool
         to the extent of such Advance.

                  "MBS Imputed Interest Rate" shall have the meaning set forth
         in Section 1.05(a).

                  "MBS Issue Date" means the date on which an MBS is issued by
         Fannie Mae.

                  "MBS Delivery Date" means the date on which an MBS is
         delivered by Fannie Mae.

                  "MBS Pass-Through Rate" means the interest rate for a Fixed
         Advance as determined by Lender (rounded to three places) payable in
         respect of the Fannie Mae MBS issued pursuant to the MBS Commitment
         backed by the Fixed Advance as determined in accordance with Section
         2.01.

                  "Mortgaged Properties" means, collectively, the Additional
         Mortgaged Properties, the Substitute Mortgaged Properties and the
         Initial Mortgaged Properties, but excluding each Release Property from
         and after the date of its release from the Collateral Pool.

                  "Multifamily Residential Property" means a residential
         property, located in the United States, containing five or more
         dwelling units in which not more than twenty percent (20%) of the net
         rentable area is or will be rented to non-residential tenants, and
         conforming to the requirements of Chapter 2 of Part III of the DUS
         Guide (Property Requirements).

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<PAGE>

                  "Net Operating Income" means, for any specified period, with
         respect to any Multifamily Residential Property, the Gross Revenues
         during such period less the aggregate Operating Expenses during such
         period. If a Mortgaged Property is not in the Collateral Pool for the
         entire specified period, the Net Operating Income for the Mortgaged
         Property for the time within the specified period during which the
         Mortgaged Property was in the Collateral Pool shall be the Mortgaged
         Property's actual Gross Revenues for each full Calendar Quarter the
         Mortgaged Property was part of the Collateral Pool and the Mortgaged
         Property's pro forma net operating income determined by Lender in
         accordance with the underwriting procedures set forth in Chapter 4 of
         Part III of the DUS Guide (Determination of Loan Amount) for each full
         Calendar Quarter during the specified period that the Mortgaged
         Property was not part of the Collateral Pool less the aggregate
         Operating Expenses during such period.

                  "Net Worth" means, as of any specified date, for any Person,
         the excess of the Person's assets over the Person's liabilities,
         determined in accordance with GAAP, on a consolidated basis, provided
         that all real property shall be valued on an undepreciated basis.

                  "Note" means any Fixed Facility Note or the Variable Facility
         Note.

                  "Obligations" means the aggregate of the obligations of
         Borrower and Sunrise under the Agreement and the other Loan Documents.

                  "Operating Expenses" means, for any period, with respect to
         any Multifamily Residential Property, all expenses in respect of the
         Multifamily Residential Property, as determined by Lender based on the
         certified operating statement for such specified period as adjusted to
         provide for the following: (i) all appropriate types of expenses,
         including a management fee and deposits to the Replacement Reserves
         (whether funded or not), are included in the total operating expense
         figure; (ii) upward adjustments to individual line item expenses to
         reflect market norms or actual costs and correct any unusually low
         expense items, which could not be replicated by a different owner or
         manager (e.g., a market rate management fee will be included regardless
         of whether or not a management fee is charged, market rate payroll will
         be included regardless of whether shared payroll provides for
         economies, etc.); and (iii) downward adjustments to individual line
         item expenses to reflect unique or aberrant costs (e.g., non-recurring
         capital costs, non-operating borrower expenses, etc.).

                  "Organizational Certificate" means, collectively, certificates
         from Borrower and Sunrise to Lender, in the form of Exhibits G-1 and
         G-2 to the Agreement, certifying as to certain organizational matters
         with respect to Borrower and Sunrise .

                  "Organizational Documents" means all certificates, instruments
         and other documents pursuant to which an organization is organized or
         operates, including but not limited to, (i) with respect to a
         corporation, its articles of incorporation and bylaws, (ii) with
         respect to a limited partnership, its limited partnership certificate
         and partnership agreement, (iii) with respect to a general partnership
         or

                                       68
<PAGE>

         joint venture, its partnership or joint venture agreement and (iv) with
         respect to a limited liability company, its articles of organization
         and operating agreement.

                  "Outstanding" means, when used in connection with promissory
         notes, other debt instruments or Advances, for a specified date,
         promissory notes or other debt instruments which have been issued, or
         Advances which have been made, but have not been repaid in full as of
         the specified date.

                  "Ownership Interests" means, with respect to any entity, any
         ownership interests in the entity and any economic rights (such as a
         right to distributions, net cash flow or net income) to which the owner
         of such ownership interests is entitled.

                  "PBGC" means the Pension Benefit Guaranty Corporation or any
         entity succeeding to any or all of its functions under ERISA.

                  "Permits" means all permits and accreditations, or similar
         licenses or approvals issued and/or required by an applicable
         Governmental Authority or any Applicable Law in connection with the
         ownership, use, occupancy, leasing, management, operation, repair,
         maintenance or rehabilitation of any Mortgaged Property or any
         Borrower's business.

                  "Permitted Liens" means, with respect to a Mortgaged Property,
         (i) the exceptions to title to the Mortgaged Property set forth in the
         Title Insurance Policy for the Mortgaged Property which are approved by
         Lender, (ii) the Security Instrument encumbering the Mortgaged
         Property, (iii) Liens for personal property leases and title retention
         agreements having aggregate payments of up to $75,000 per Calendar
         Year, and (iv) any other Liens approved by Lender.

                  "Person" means an individual, an estate, a trust, a
         corporation, a partnership, a limited liability company or any other
         organization or entity (whether governmental or private).

                  "Potential Event of Default" means any event which, with the
         giving of notice or the passage of time, or both, would constitute an
         Event of Default.

                  "Price" means, with respect to an Advance, the proceeds of the
         sale of the MBS backed by the Advance.

                  "Property" means any estate or interest in any kind of
         property or asset, whether real, personal or mixed, and whether
         tangible or intangible.

                  "Rate Form" means the completed and executed document from
         Borrower to Lender pursuant to Section 2.01(b), substantially in the
         form of Exhibit J to the Agreement, specifying the terms and conditions
         of the MBS to be issued for the requested Advance.

                                       69
<PAGE>

                  "Rate Setting Date" shall have the meaning set forth in
         Section 2.01(b).

                  "Release Documents" mean instruments releasing the applicable
         Security Instrument as a Lien on the Release Property, and UCC-3
         Termination Statements terminating the UCC-1 Financing Statements, and
         such other documents and instruments to evidence the release of the
         Release Property from the Collateral Pool.

                  "Release Property" means the Mortgaged Property to be released
         pursuant to Section 3.04.

                  "Release Price" shall have the meaning set forth in Section
         3.04(c).

                  "Release Request" means a written request, substantially in
         the form of Exhibit M to the Agreement, to obtain a release of
         Collateral from the Collateral Pool pursuant to Section 3.04(a).

                  "Rent Roll" means, with respect to any Multifamily Residential
         Property, a rent roll prepared and certified by the owner of the
         Multifamily Residential Property, on Fannie Mae Form 4243, as set forth
         in Exhibit III-3 of the DUS Guide, or on another form approved by
         Lender and containing substantially the same information as Form 4243
         requires.

                  "Replacement Reserve Agreement" means a Replacement Reserve
         and Security Agreement, reasonably required by Lender, and completed in
         accordance with the requirements of the DUS Guide.

                  "Request" means an Advance Request, an Addition Request, an
         Expansion Request, a Substitution Request, a Release Request, a
         Conversion Request, a Credit Facility Termination Request, or a
         Facility Termination Request.

                  "Resident Agreement" means a written agreement for occupancy
         of a portion of a Mortgaged Property by an individual senior resident.

                  "Rollover Variable Advance" means a Variable Advance made
         solely to refinance an existing Variable Advance on the maturity date
         of such Variable Advance.

                  "Security" means a "security" as set forth in Section 2(1) of
         the Securities Act of 1933, as amended.

                  "Security Documents" means the Security Instruments, the
         Replacement Reserve Agreements and any other documents executed by
         Borrower and Sunrise from time to time to secure any of Borrower's and
         Sunrise's obligations under the Loan Documents.

                  "Security Instrument" means, for each Mortgaged Property, a
         separate Multifamily Mortgage, Deed of Trust or Deed to Secure Debt,
         Assignment of Leases and Rents and Security Agreement given by a
         Borrower to or for the benefit of Lender to

                                       70
<PAGE>

         secure the obligations of Borrower under the Loan Documents. With
         respect to each Mortgaged Property owned by a Borrower, the Security
         Instrument shall be substantially in the form published by Fannie Mae
         for use in the state in which the Mortgaged Property is located. If the
         Collateral Pool includes any Mortgaged Properties located in the State
         of California, "Security Instrument" shall include any additional
         Multifamily Mortgage, Deed of Trust or Deed to Secure Debt, Assignment
         of Leases and Rents and Security Agreement given by a Borrower to or
         for the benefit of Lender to secure the obligations of Borrower under
         the Loan Documents deemed desirable by Lender. The amount secured by
         the Security Instrument shall be equal to the Commitment in effect from
         time to time.

                  "Senior Management" means (i) the Chief Executive Officer,
         Chairman of the Board, President, Chief Financial Officer and Chief
         Operating Officer of Sunrise, and (ii) any other individuals with
         responsibility for any of the functions typically performed in a
         corporation by the officers described in clause (i).

                  "Single-Purpose" means, with respect to a Person which is any
         form of partnership or corporation or limited liability company, that
         such Person at all times since its formation:

                  (i)      has been a duly formed and existing partnership,
                           corporation or limited liability company, as the case
                           may be;

                  (ii)     has been duly qualified in each jurisdiction in which
                           such qualification was at such time necessary for the
                           conduct of its business;

                  (iii)    has complied with the provisions of its
                           organizational documents and the laws of its
                           jurisdiction of formation in all respects;

                  (iv)     has observed all customary formalities regarding its
                           partnership or corporate existence, as the case may
                           be;

                  (v)      has accurately maintained its financial statements,
                           accounting records and other partnership or corporate
                           documents separate from those of any other Person;

                  (vi)     has not commingled its assets or funds with those of
                           any other Person;

                  (vii)    has identified itself in all dealings with secured
                           creditors (other than trade creditors in the ordinary
                           course of business and creditors for the construction
                           of improvements to property on which such Person has
                           a non-contingent contract to purchase such property)
                           under its own name and as a separate and distinct
                           entity;

                  (viii)   commencing on the Initial Closing Date, is and has
                           been adequately capitalized in light of its
                           contemplated business operations;

                                       71
<PAGE>

                  (ix)     commencing on the Initial Closing Date, has not
                           assumed, guaranteed or become obligated for the
                           liabilities of any other Person (except in connection
                           with the Credit Facility or the endorsement of
                           negotiable instruments in the ordinary course of
                           business) or held out its credit as being available
                           to satisfy the obligations of any other Person;

                  (x)      has not acquired obligations or securities of any
                           other Person;

                  (xi)     in relation to a Borrower, except for loans made in
                           the ordinary course of business to Affiliates, has
                           not made loans or advances to any other Person;

                  (xii)    has not entered into and was not a party to any
                           transaction with any Affiliate of such Person, except
                           in the ordinary course of business and on terms which
                           are no less favorable to such Person than would be
                           obtained in a comparable arm's-length transaction
                           with an unrelated third Party;

                  (xiii)   has had no employees;

                  (xiv)    has allocated fairly and reasonably any overhead for
                           shared office space; and

                  (xv)     has not engaged in a non-exempt prohibited
                           transaction described in Section 406 of ERISA or
                           Section 4975 of the Internal Revenue Code.

                  "SMSA" means a "standard metropolitan statistical area," as
         defined from time to time by the United States Office of Management and
         Budget.

                  "Standby Fee" means, for any month, an amount equal to the
         product obtained by multiplying: (i) 1/12, by (ii) 12.5 basis points,
         by (iii) the Unused Capacity for such month.

                  "Subsidiary" means, when used with reference to a specified
         Person, (i) any Person that, directly or indirectly, through one or
         more intermediaries, is controlled by the specified Person, (ii) any
         Person of which the specified Person is, directly or indirectly, the
         owner of more than 50% of any voting class of Ownership Interests or
         (iii) any Person (A) which is a partnership and (B) of which the
         specified Person is a general partner and owns more than 50% of the
         partnership interests.

                  "Substitute Mortgaged Property" means each Multifamily
         Residential Property owned by Borrower (either in fee simple or as
         tenant under a ground lease meeting all of the requirements of the DUS
         Guide) and added to the Collateral Pool after the Initial Closing Date
         in connection with a substitution of Collateral as permitted by Section
         3.05.

                  "Substitution Fee" means, with respect to any substitution
         effected in accordance with Section 3.05, a fee equal to 50 basis
         points multiplied by the Allocable Facility Amount of the Substitute
         Mortgage Property added to the Collateral Pool.

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                  "Sunrise" means Sunrise Assisted Living, Inc., a Delaware
         corporation.

                  "Surveys" means the as-built surveys of the Mortgaged
         Properties prepared in accordance with the requirements of Part III,
         Section 113 of the DUS Guide, or otherwise approved by Lender.

                  "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 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 Mortgaged Properties.

                  "Term of this Agreement" shall be determined as provided in
         Section 17.10.

                  "Termination Date" means, at any time during which Fixed
         Advances are Outstanding, the latest maturity date for any Fixed
         Advance Outstanding, and, at any time during which Fixed Advances are
         not Outstanding, the Variable Facility Termination Date.

                  "Three-Month LIBOR" means the London interbank offered rate
         for three-month U.S. dollar deposits, as such rate is reported in The
         Wall Street Journal. In the event that a rate is not published for
         Three-Month LIBOR, then the nearest equivalent duration London
         interbank offered rate for U.S. Dollar deposits shall be selected at
         Lender's reasonable discretion. If the publication of Three-Month LIBOR
         is discontinued, Lender shall determine such rate from another
         equivalent source selected by Lender in its reasonable discretion.

                  "Title Company" means First American Title Insurance Company.

                  "Title Insurance Policies" means the mortgagee's policies of
         title insurance issued by the Title Company from time to time relating
         to each of the Security Instruments, conforming to the requirements of
         Part III, Section 111 of the DUS Guide, together with such
         endorsements, coinsurance, reinsurance and direct access agreements
         with respect to such policies as Lender may, from time to time,
         consider necessary or appropriate, whether or not required by the DUS
         Guide, including variable credit endorsements, if available, and tie-in
         Endorsements, if available, and with a limit of liability under the
         policy (subject to the limitations contained in Sections 6(a)(i) and
         6(a)(iii) of the Stipulations and Conditions of the policy) equal to
         the Commitment.

                  "Transfer" means --

                  (1) as used with respect to ownership interests in Borrower or
         Sunrise means (i) a sale, assignment, pledge, transfer or other
         disposition of any ownership interest in Borrower or Sunrise, or (ii)
         the issuance or other creation of new ownership interests in Borrower
         or Sunrise or in any entity that has a direct or indirect ownership
         interest in Borrower or Sunrise, or (iii) a merger or consolidation of
         Borrower, as the case may be, into another entity or of another entity
         into Borrower as the case may be, or (iv) the reconstitution of
         Borrower from one type of entity to another type of entity, or (v) the

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         amendment, modification or any other change in the governing instrument
         or instruments of Borrower or Sunrise which has the effect of changing
         the relative powers, rights, privileges, voting rights or economic
         interests of the ownership interests in Borrower or Sunrise.

                  (2) as used with respect to ownership interests in a Mortgaged
         Property means (i) a sale, assignment, lease, pledge, transfer or other
         disposition (whether voluntary or by operation of law) of, or the
         granting or creating of a lien, encumbrance or security interest in,
         any estate, rights, title or interest in a Mortgaged Property, or any
         portion thereof. Transfer does not include a conveyance of a Mortgaged
         Property at a judicial or non-judicial foreclosure sale under any
         security instrument or the Mortgaged Property becoming part of a
         bankruptcy estate by operation of law under the United States
         Bankruptcy Code.

                  "Unused Capacity" means, for any month, the sum of the daily
         average during such month of the undrawn amount of the Commitment
         available under Article I of the Agreement for the making of Advances,
         without regard to any unclosed Requests or to the fact that a Request
         must satisfy conditions precedent.

                  "Valuation" means, for any specified date, with respect to a
         Multifamily Residential Property, (a) if an Appraisal of the
         Multifamily Residential Property was more recently obtained than a Cap
         Rate for the Multifamily Residential Property, the Appraised Value of
         such Multifamily Residential Property, or (b) if a Cap Rate for the
         Multifamily Residential Property was more recently obtained than an
         Appraisal of the Multifamily Residential Property, the value derived by
         dividing--

                  (i) the Net Operating Income of such Multifamily Residential
         Property, by

                  (ii) the most recent Cap Rate determined by Lender.

         Notwithstanding the foregoing, any Valuation for a Multifamily
         Residential Property calculated for a date occurring before the first
         anniversary of the date on which the Multifamily Residential Property
         becomes a part of the Collateral Pool shall equal the Appraised Value
         of such Multifamily Residential Property, unless Lender determines that
         changed market or property conditions warrant that the value be
         determined as set forth in the preceding sentence.

                  "Variable Advance" means a loan made by Lender to Borrower
         under the Variable Facility Commitment.

                  "Variable Facility" means the agreement of Lender to make
         Variable Advances to Borrower pursuant to Section 1.01.

                  "Variable Facility Availability Period" means the period
         beginning on the Initial Closing Date and ending on the 30th day before
         the Variable Facility Termination Date.

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                  "Variable Facility Commitment" means an aggregate amount of
         $60,000,000, which shall be evidenced by the Variable Facility Note in
         the form attached hereto as Exhibit C, plus such amount as Borrower may
         elect to add to the Variable Facility Commitment in accordance with
         Article 4, less such amount as Borrower may elect to convert from the
         Variable Facility Commitment to the Fixed Facility Commitment in
         accordance with Section 1.08, and less such amount by which Borrower
         may elect to reduce the Variable Facility Commitment in accordance with
         Article V.

                  "Variable Facility Fee" means (i) 120 basis points per annum
         for a Variable Advance drawn from the Variable Facility Commitment
         initially available under the Agreement, (ii) if the Variable Facility
         Termination Date is extended pursuant to Section 1.07, for any Variable
         Advance drawn from any portion of the Variable Commitment after the
         original Variable Facility Availability Period, the number of basis
         points per annum determined by Lender as the Variable Facility Fee for
         such period, which fee shall be set by Lender not less than 30 days
         prior to the commencement of such period, and (iii) for any Variable
         Advance drawn from any portion of the Variable Facility Commitment
         increased under Article 4, the number of basis points per annum
         determined at the time of such increase by Lender as the Variable
         Facility Fee for such Variable Advance.

                  "Variable Facility Note" means, individually and collectively,
         promissory notes, each in the form attached as Exhibit C to the
         Agreement, which have been issued by Borrower to Lender to evidence
         Borrower's obligation to repay Variable Advances.

                  "Variable Facility Termination Date" means the date five years
         after the Initial Closing Date unless extended pursuant to Section
         1.07.

                                       75

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