Document:

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                                                                 EXHIBIT 10.2

                                MULTIFAMILY NOTE
                                  (MULTISTATE)

US $___________________________                                  March 22, 2000

       FOR VALUE RECEIVED, the undersigned ("BORROWER") jointly and severally
(if more than one) promises to pay to the order of GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation, the principal sum of
______________________________________________________________________
__________________________ Dollars (US $____________________), with interest on
the unpaid principal balance at the annual rate of __________________ percent
(____%).

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

       2. ADDRESS FOR PAYMENT. All payments due under this Note shall be payable
at c/o GMAC Commercial Mortgage Corporation, 650 Dresher Road, P.O. Box 1015,
Horsham, Pennsylvania 19044-8015, or such other place as may be designated by
written notice to Borrower from or on behalf of Lender.

       3. PAYMENT OF PRINCIPAL AND INTEREST. Principal and interest shall be
paid as follows:

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

       (b) Consecutive monthly installments of principal and interest, each in
the amount of_________________________________________________________________
Dollars (US $__________________________), shall be payable on the first day of
each month beginning on March 1, 2000, until the entire unpaid principal balance
evidenced by this Note is fully paid. Any accrued interest remaining past due
for 30 days or more shall be added to and become part of the unpaid principal
balance and shall bear interest at the rate or rates specified in this Note, and
any reference below to "accrued interest" shall refer to accrued interest which
has not become part of the unpaid principal balance. Any remaining principal and
interest

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shall be due and payable on February 1, 2007, or on any earlier date on which
the unpaid principal balance of this Note becomes due and payable, by
acceleration or otherwise (the "MATURITY DATE"). The unpaid principal balance
shall continue to bear interest after the Maturity Date at the Default Rate set
forth in this Note until and including the date on which it is paid in full.

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

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

       5. SECURITY. The Indebtedness is secured, among other things, by a
multifamily mortgage, deed to secure debt or deed of trust dated as of the date
of this Note (the "SECURITY INSTRUMENT"), and reference is made to the Security
Instrument for other rights of Lender as to collateral for the Indebtedness.

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

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

       8. DEFAULT RATE. So long as (a) any monthly installment under this Note
remains

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

        9. LIMITS ON PERSONAL LIABILITY.

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

       (b) Borrower shall be personally liable to Lender for the repayment of a
portion of the Indebtedness equal to zero percent (0%) of the unpaid principal
balance of this Note, plus any other amounts for which Borrower has personal
liability under this Paragraph 9.

       (c) In addition to Borrower's personal liability under Paragraph 9(b),
Borrower shall be personally liable to Lender for the repayment of a further
portion of the Indebtedness equal to any loss or damage suffered by Lender as a
result of (1) failure of Borrower to pay to

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Lender upon demand after an Event of Default all Rents to which Lender is
entitled under Section 3(a) of the Security Instrument and the amount of all
security deposits collected by Borrower from tenants then in residence; (2)
failure of Borrower to apply all insurance proceeds and condemnation proceeds as
required by the Security Instrument; or (3) failure of Borrower to comply with
Section 14(d) or (e) of the Security Instrument relating to the delivery of
books and records, statements, schedules and reports.

       (d) For purposes of determining Borrower's personal liability under
Paragraph 9(b) and Paragraph 9(c), all payments made by Borrower or any
guarantor of this Note with respect to the Indebtedness and all amounts received
by Lender from the enforcement of its rights under the Security Instrument shall
be applied first to the portion of the Indebtedness for which Borrower has no
personal liability.

       (e) Borrower shall become personally liable to Lender for the repayment
of all of the Indebtedness upon the occurrence of any of the following Events of
Default: (1) Borrower's acquisition of any property or operation of any business
not permitted by Section 33 of the Security Instrument; (2) a Transfer
(including, but not limited to, a lien or encumbrance) that is an Event of
Default under Section 21 of the Security Instrument, other than a Transfer
consisting solely of the involuntary removal or involuntary withdrawal of a
general partner in a limited partnership or a manager in a limited liability
company; or (3) fraud or written material misrepresentation by Borrower or any
officer, director, partner, member or employee of Borrower in connection with
the application for or creation of the Indebtedness or any request for any
action or consent by Lender.

       (f) In addition to any personal liability for the Indebtedness, Borrower
shall be personally liable to Lender for (1) the performance of all of
Borrower's obligations under Section 18 of the Security Instrument (relating to
environmental matters); (2) the costs of any audit under Section 14(d) of the
Security Instrument; and (3) any costs and expenses incurred by Lender in
connection with the collection of any amount for which Borrower is personally
liable under this Paragraph 9, including fees and out of pocket expenses of
attorneys and expert witnesses and the costs of conducting any independent audit
of Borrower's books and records to determine the amount for which Borrower has
personal liability.

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

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                             PAGE  4

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       10. VOLUNTARY AND INVOLUNTARY PREPAYMENTS.

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

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

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

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

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

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

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

       (e) Borrower recognizes that any prepayment of the unpaid principal
balance of this

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                             PAGE  5

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

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

       11. COSTS AND EXPENSES. Borrower shall pay all expenses and costs,
including fees and out-of-pocket expenses of attorneys and expert witnesses and
costs of investigation, incurred by Lender as a result of any default under this
Note or in connection with efforts to collect any amount due under this Note, or
to enforce the provisions of any of the other Loan Documents, including those
incurred in post-judgment collection efforts and in any bankruptcy proceeding
(including any action for relief from the automatic stay of any bankruptcy
proceeding) or judicial or non-judicial foreclosure proceeding.

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

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

       14. LOAN CHARGES. If any applicable law limiting the amount of interest
or other charges permitted to be collected from Borrower in connection with the
Loan is interpreted so that any interest or other charge provided for in any
Loan Document, whether considered separately or together with other charges
provided for in any other Loan Document, violates that law, and Borrower is
entitled to the benefit of that law, that interest or charge is hereby reduced
to the extent necessary to eliminate that violation. The amounts, if any,
previously

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paid to Lender in excess of the permitted amounts shall be applied by Lender to
reduce the unpaid principal balance of this Note. For the purpose of determining
whether any applicable law limiting the amount of interest or other charges
permitted to be collected from Borrower has been violated, all Indebtedness that
constitutes interest, as well as all other charges made in connection with the
Indebtedness that constitute interest, shall be deemed to be allocated and
spread ratably over the stated term of the Note. Unless otherwise required by
applicable law, such allocation and spreading shall be effected in such a manner
that the rate of interest so computed is uniform throughout the stated term of
the Note.

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

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

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

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

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

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

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

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                             PAGE  7
NTMUFR02.WP

<PAGE>   8

 COMPETENT LEGAL COUNSEL.

       ATTACHED SCHEDULES. THE FOLLOWING SCHEDULES ARE ATTACHED TO THIS NOTE:

       |X|      SCHEDULE A PREPAYMENT PREMIUM (REQUIRED)
       ---
       |X|      SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE
       ---

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                             PAGE  8

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

                             BORROWER:

WITNESS:

                             SUNRISE PARAMUS ASSISTED LIVING LIMITED
                             PARTNERSHIP, a New Jersey limited partnership

                                       By:    SUNRISE ASSISTED LIVING
                                              INVESTMENTS, INC., a Virginia
                                              corporation, General Partner

                                       By:         _______________________(SEAL)
                                                   James S. Pope
                                                   Vice President

Print Name

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

PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION, WITHOUT RECOURSE

This ___ day of January, 2000.

GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation

By:         ___________________________(SEAL)
            Philip Brooks
            Vice President

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                             PAGE  9

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                                   SCHEDULE A

                               PREPAYMENT PREMIUM

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

       (a) If the prepayment is made between the date of this Note and the date
that is seventy-eight (78) months after the first day of the first calendar
month following the date of this Note (the "YIELD MAINTENANCE PERIOD"), the
prepayment premium shall be the greater of:

       (i)    1.0% of the unpaid principal balance of this Note; or

       (ii)   the product obtained by multiplying:

              (A)    the amount of principal being prepaid,

                     by

              (B)    the excess (if any) of the Monthly Note Rate over the
                     Assumed Reinvestment Rate,

                     by

              (C)    the Present Value Factor.

              For purposes of subparagraph (ii), the following definitions shall
              apply:

              MONTHLY NOTE RATE: one-twelfth (1/12) of the annual interest rate
              of the Note, expressed as a decimal calculated to five digits.

              PREPAYMENT DATE: in the case of a voluntary prepayment, the date
              on which the prepayment is made; in any other case, the date on
              which Lender accelerates the unpaid principal balance of the Note.

              ASSUMED REINVESTMENT RATE: one-twelfth (1/12) of the yield rate as
              of the date 5 Business Days before the Prepayment Date, on the
              ______% U.S. Treasury Security due ______________________, as
              reported in The Wall Street Journal, expressed as a decimal
              calculated to five digits. In the event that no yield is published
              on the applicable date for the Treasury Security used to determine
              the Assumed Reinvestment Rate, Lender, in its discretion, shall
              select the non-callable Treasury Security maturing in the same
              year as the Treasury Security

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              specified above with the lowest yield published in The Wall Street
              Journal as of the applicable date. If the publication of such
              yield rates in The Wall Street Journal is discontinued for any
              reason, Lender shall select a security with a comparable rate and
              term to the Treasury Security used to determine the Assumed
              Reinvestment Rate. The selection of an alternate security pursuant
              to this Paragraph shall be made in Lender's discretion.

              PRESENT VALUE FACTOR: the factor that discounts to present value
              the costs resulting to Lender from the difference in interest
              rates during the months remaining in the Yield Maintenance Period,
              using the Assumed Reinvestment Rate as the discount rate, with
              monthly compounding, expressed numerically as follows:

                                   Install Equation Editor and double-
                                   click here to view equation.

              n   = number of months remaining in Yield Maintenance Period

              ARR = Assumed Reinvestment Rate

       (b) If the prepayment is made after the expiration of the Yield
Maintenance Period but more than 180 days before the Maturity Date, the
prepayment premium shall be 1.0% of the unpaid principal balance of this Note.

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                                   SCHEDULE B

                        MODIFICATIONS TO MULTIFAMILY NOTE

        1. Section 9(c) of the Multifamily Note is amended to add the
           following Subsection (4):

       (4) Failure by Borrower to pay the amount of any hazard or other
insurance premiums in accordance with the terms of the Security Instrument.

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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE                           PAGE  B-1

<PAGE>   13

                                LIMITED GUARANTY
                                  (MULTISTATE)

       This Limited Guaranty ("GUARANTY") is entered into as of 22nd day of
March, 2000, by the undersigned person(s) (the "GUARANTOR" whether one or more),
for the benefit of_________________________________________________________
_____________________________________________________________, and/or any
subsequent holder of the Note (the "LENDER").

                                    RECITALS

       A. ____________________________________________________________ (the
"BORROWER") has requested that Lender make a loan to Borrower in the amount of
$________________________________(the "LOAN"). The Loan will be evidenced by a
Multifamily Note from Borrower to Lender dated as of the date of this Guaranty
(the "NOTE"). The Note will be secured by a Multifamily Mortgage, Deed of Trust,
or Deed to Secure Debt dated the same date as the Note (the "SECURITY
INSTRUMENT"), encumbering the real property described in the Security Instrument
(the "PROPERTY").

       B. As a condition to making the Loan to Borrower, Lender requires that
the Guarantor execute this Guaranty.

       NOW, THEREFORE, in order to induce Lender to make the Loan to Borrower,
and in consideration thereof, Guarantor agrees as follows:

       1. "Indebtedness" and other capitalized terms used but not defined in
this Guaranty shall have the meanings assigned to them in the Security
Instrument.

       2. Guarantor hereby absolutely, unconditionally and irrevocably
guarantees to Lender the full and prompt payment when due, whether at maturity
or earlier, by reason of acceleration or otherwise, and at all times thereafter,
and the full and prompt performance when due, of all of the following:

              (a)    A portion of the Indebtedness equal to _________ percent
                     (______%) of the _________________ principal balance of the
                     Note (the "BASE GUARANTY").

              (b)    In addition to the Base Guaranty, all other amounts for
                     which Borrower is personally liable under Paragraphs 9(c)
                     through 9(f) of the Note.

              (c)    The payment and performance of all of Borrower's
                     obligations under Section 18 of the Security Instrument.

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                              PAGE 1

<PAGE>   14

      (d)    The entire Indebtedness, in the event that (i) Borrower
             voluntarily files for bankruptcy protection under the
             United States Bankruptcy Code or voluntarily becomes
             subject to any reorganization, receivership, insolvency
             proceeding or other similar proceeding pursuant to any
             other federal or state law affecting debtor and creditor
             rights, or (ii) an order for relief is entered against
             Borrower in any involuntary bankruptcy filing by any
             creditor of Borrower (other than Lender) pursuant to the
             United States Bankruptcy Code or other federal or state law
             affecting debtor and creditor rights.

      (e)    All costs and expenses, including reasonable fees and out
             of pocket expenses of attorneys and expert witnesses,
             incurred by Lender in enforcing its rights under this
             Guaranty.

For purposes of determining Guarantor's liability under this Guaranty, all
payments made by Borrower with respect to the Indebtedness and all amounts
received by Lender from the enforcement of its rights under the Security
Instrument shall be applied first to the portion of the Indebtedness for which
neither Borrower nor Guarantor has personal liability.

       3. The obligations of Guarantor under this Guaranty shall survive any
foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu
of foreclosure, and any release of record of the Security Instrument, and, in
addition, the obligations of Guarantor relating to Borrower's obligations under
Section 18 of the Security Instrument shall survive any repayment or discharge
of the Indebtedness.

       4. Guarantor's obligations under this Guaranty constitute an
unconditional guaranty of payment and not merely a guaranty of collection.

       5. The obligations of Guarantor under this Guaranty shall be performed
without demand by Lender and shall be unconditional irrespective of the
genuineness, validity, regularity or enforceability of the Note, the Security
Instrument, or any other Loan Document, and without regard to any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor. Guarantor hereby waives the benefit of all principles
or provisions of law, statutory or otherwise, which are or might be in conflict
with the terms of this Guaranty and agrees that Guarantor's obligations shall
not be affected by any circumstances, whether or not referred to in this
Guaranty, which might otherwise constitute a legal or equitable discharge of a
surety or a guarantor. Guarantor hereby waives the benefits of any right of
discharge under any and all statutes or other laws relating to guarantors or
sureties and any other rights of sureties and guarantors thereunder. Without
limiting the generality of the foregoing, Guarantor hereby waives, to the
fullest extent permitted by law, diligence in collecting the Indebtedness,
presentment, demand for payment, protest, all notices with respect to the Note
and this Guaranty which may be required by statute, rule of law or otherwise to
preserve Lender's rights against Guarantor under this Guaranty, including, but
not limited to, notice of acceptance, notice of any amendment of the Loan
Documents, notice of the occurrence of any default or Event of Default, notice
of intent to accelerate, notice of acceleration, notice of dishonor, notice of
foreclosure, notice of protest, and notice of the incurring by Borrower

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                              PAGE 2

<PAGE>   15

of any obligation or indebtedness. Guarantor also waives, to the fullest extent
permitted by law, all rights to require Lender to (a) proceed against Borrower
or any other guarantor of Borrower's payment or performance with respect to the
Indebtedness (an "OTHER GUARANTOR") (b) if Borrower or any Other Guarantor is a
partnership, proceed against any general partner of Borrower or the Other
Guarantor, (c) proceed against or exhaust any collateral held by Lender to
secure the repayment of the Indebtedness, or (d) pursue any other remedy it may
now or hereafter have against Borrower, or, if Borrower is a partnership, any
general partner of Borrower.

       6. At any time or from time to time and any number of times, without
notice to Guarantor and without affecting the liability of Guarantor, (a) the
time for payment of the principal of or interest on the Indebtedness may be
extended or the Indebtedness may be renewed in whole or in part; (b) the time
for Borrower's performance of or compliance with any covenant or agreement
contained in the Note, the Security Instrument or any other Loan Document,
whether presently existing or hereinafter entered into, may be extended or such
performance or compliance may be waived; (c) the maturity of the Indebtedness
may be accelerated as provided in the Note, the Security Instrument, or any
other Loan Document; (d) the Note, the Security Instrument, or any other Loan
Document may be modified or amended by Lender and Borrower in any respect,
including, but not limited to, an increase in the principal amount; and (e) any
security for the Indebtedness may be modified, exchanged, surrendered or
otherwise dealt with or additional security may be pledged or mortgaged for the
Indebtedness.

       7. If more than one person executes this Guaranty, the obligations of
those persons under this Guaranty shall be joint and several. Lender, in its
sole and absolute discretion, may (a) bring suit against Guarantor, or any one
or more of the persons constituting Guarantor, and any Other Guarantor, jointly
and severally, or against any one or more of them; (b) compromise or settle with
any one or more of the persons constituting Guarantor for such consideration as
Lender may deem proper; (c) release one or more of the persons constituting
Guarantor, or any Other Guarantor, from liability; and (d) otherwise deal with
Guarantor and any Other Guarantor, or any one or more of them, in any manner,
and no such action shall impair the rights of Lender to collect from Guarantor
any amount guaranteed by Guarantor under this Guaranty. Nothing contained in
this paragraph shall in any way affect or impair the rights or obligations of
Guarantor with respect to any Other Guarantor.

       8. Any indebtedness of Borrower held by Guarantor now or in the future is
and shall be subordinated to the Indebtedness and any such indebtedness of
Borrower shall be collected, enforced and received by Guarantor, as trustee for
Lender, but without reducing or affecting in any manner the liability of
Guarantor under the other provisions of this Guaranty.

       9. Guarantor shall have no right of, and hereby waives any claim for,
subrogation or reimbursement against Borrower or any general partner of Borrower
by reason of any payment by Guarantor under this Guaranty, whether such right or
claim arises at law or in equity or under any contract or statute, until the
Indebtedness has been paid in full and there has expired the maximum

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                              PAGE 3

<PAGE>   16
possible period thereafter during which any payment made by Borrower to Lender
with respect to the Indebtedness could be deemed a preference under the United
States Bankruptcy Code.

       10. If any payment by Borrower is held to constitute a preference under
any applicable bankruptcy, insolvency, or similar laws, or if for any other
reason Lender is required to refund any sums to Borrower, such refund shall not
constitute a release of any liability of Guarantor under this Guaranty. It is
the intention of Lender and Guarantor that Guarantor's obligations under this
Guaranty shall not be discharged except by Guarantor's performance of such
obligations and then only to the extent of such performance.

       11. Guarantor shall from time to time, upon request by Lender, deliver to
Lender such financial statements as Lender may reasonably require.

       12. Lender may assign its rights under this Guaranty in whole or in part
and upon any such assignment, all the terms and provisions of this Guaranty
shall inure to the benefit of such assignee to the extent so assigned. The terms
used to designate any of the parties herein shall be deemed to include the
heirs, legal representatives, successors and assigns of such parties; and the
term "LENDER" shall include, in addition to Lender, any lawful owner, holder or
pledgee of the Note.

       13. This Guaranty and the other Loan Documents represent the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements. There are no unwritten oral
agreements between the parties. All prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Guaranty and the other Loan Documents. Guarantor acknowledges that it
has received copies of the Note and all other Loan Documents. Neither this
Guaranty nor any of its provisions may be waived, modified, amended, discharged,
or terminated except by an agreement in writing signed by the party against
which the enforcement of the waiver, modification, amendment, discharge, or
termination is sought, and then only to the extent set forth in that agreement.

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

       15. GUARANTOR AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY
WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS GUARANTY OR THE RELATIONSHIP
BETWEEN THE PARTIES AS GUARANTOR AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY
AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE
EXTENT THAT ANY SUCH

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                              PAGE 4

<PAGE>   17
RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COMPETENT LEGAL COUNSEL.

       ATTACHED EXHIBIT. The following Exhibit is attached to this Guaranty:

       |__|   Exhibit A    Modifications to Guaranty

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

                        [SIGNATURES AND ACKNOWLEDGMENTS]

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                              PAGE 5

<PAGE>   18
                                    EXHIBIT A

                            MODIFICATIONS TO GUARANTY

The following modifications are made to the text of the Guaranty that precedes
this Exhibit:

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LIMITED GUARANTY (FREDDIE MAC) - MULTISTATE                            PAGE A-1<PAGE>   1
                                                                   EXHIBIT 10.3

                             MULTIFAMILY MORTGAGE,
                              ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

         THIS MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(the "INSTRUMENT") is made as of the 22nd day of March, 2000, between
____________________________________________________________________
_____________________________ a _____________________________________________
organized and existing under the laws of ____________________________________,
whose address is_____________________________________________________________
_________________________________________________, as mortgagor
("BORROWER"), and ___________________________________________________________, a
__________________________________________ organized and existing under the
laws of _____________________________________________, whose address is
____________________________________________________________________________
_____________________, as mortgagee ("LENDER").

         Borrower is indebted to Lender in the principal amount of
$________________, as evidenced by Borrower's Multifamily Note payable to
Lender, dated as of the date of this Instrument, and maturing on
_________________, _____.

         TO SECURE TO LENDER the repayment of the Indebtedness, and all
renewals, extensions and modifications of the Indebtedness, and the performance
of the covenants and agreements of Borrower contained in the Loan Documents,
Borrower mortgages, warrants, grants, conveys and assigns to Lender the
Mortgaged Property, including the Land located in_______________________________
County, State of New Jersey and described in Exhibit A attached to this
Instrument.

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

COVENANTS.  Borrower and Lender covenant and agree as follows:

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 1

<PAGE>   2

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

         (b)      "COLLATERAL AGREEMENT" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for
the Mortgaged Property, establishing a fund to assure the completion of repairs
or improvements specified in that agreement, or assuring reduction of the
outstanding principal balance of the Indebtedness if the occupancy of or income
from the Mortgaged Property does not increase to a level specified in that
agreement, or any other agreement or agreements between Borrower and Lender
which provide for the establishment of any other fund, reserve or account.

         (c)      "CONTROLLING ENTITY" means an entity which owns, directly or
indirectly through one or more intermediaries, (A) a general partnership
interest or more than 50% of the limited partnership interests in Borrower (if
Borrower is a partnership or joint venture), (B) a manager's interest in
Borrower or more than 50% of the ownership or membership interests in Borrower
(if Borrower is a limited liability company), or (C) more than 50% of any class
of voting stock of Borrower (if Borrower is a corporation).

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

         (e)      "EVENT OF DEFAULT" means the occurrence of any event listed
in Section 22.

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 2

<PAGE>   3

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

         (i)      "HAZARDOUS MATERIALS LAWS" means all federal, state, and
local laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that
relate to Hazardous Materials and apply to Borrower or to the Mortgaged
Property. Hazardous Materials Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the
Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, and their state
analogs.

         (j)      "IMPOSITIONS" and "IMPOSITION DEPOSITS" are defined in
Section 7(a).

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

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

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

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 3

<PAGE>   4

corporation), and all modifications, extensions or renewals.

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

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

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

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

                  (1)      the Land;

                  (2)      the Improvements;

                  (3)      the Fixtures;

                  (4)      the Personalty;

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

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

                  (7)      all awards, payments and other compensation made or
                           to be made by any municipal, state or federal
                           authority with respect to the Land, the
                           Improvements, the Fixtures, the Personalty or any
                           other part of the Mortgaged Property, including any
                           awards or settlements resulting from

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 4

<PAGE>   5

                           condemnation proceedings or the total or partial
                           taking of the Land, the Improvements, the Fixtures,
                           the Personalty or any other part of the Mortgaged
                           Property under the power of eminent domain or
                           otherwise and including any conveyance in lieu
                           thereof;

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

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

                  (10)     all Rents and Leases;

                  (11)     all earnings, royalties, accounts receivable, issues
                           and profits from the Land, the Improvements or any
                           other part of the Mortgaged Property, and all
                           undisbursed proceeds of the loan secured by this
                           Instrument and, if Borrower is a cooperative housing
                           corporation, maintenance charges or assessments
                           payable by shareholders or residents;

                  (12)     all Imposition Deposits;

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

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

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

         (t)      "NOTE" means the Multifamily Note described on page 1 of this
Instrument, including all schedules, riders, allonges and addenda, as such
Multifamily Note may be amended from time to time.

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

         (v)      "PERSONALTY" means all furniture, furnishings, equipment,
machinery, building materials, appliances, goods, supplies, tools, books,
records (whether in written or electronic

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 5

<PAGE>   6

form), computer equipment (hardware and software) and other tangible personal
property (other than Fixtures) which are used now or in the future in
connection with the ownership, management or operation of the Land or the
Improvements or are located on the Land or in the Improvements, and any
operating agreements relating to the Land or the Improvements, and any surveys,
plans and specifications and contracts for architectural, engineering and
construction services relating to the Land or the Improvements and all other
intangible property and rights relating to the operation of, or used in
connection with, the Land or the Improvements, including all governmental
permits relating to any activities on the Land.

         (w)      "PROPERTY JURISDICTION" is defined in Section 30(a).

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

         (y)      "TAXES" means all taxes, assessments, vault rentals and other
charges, if any, general, special or otherwise, including all assessments for
schools, public betterments and general or local improvements, which are
levied, assessed or imposed by any public authority or quasi-public authority,
and which, if not paid, will become a lien, on the Land or the Improvements.

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

         2.       UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument
is also a security agreement under the Uniform Commercial Code for any of the
Mortgaged Property which, under applicable law, may be subject to a security
interest under the Uniform Commercial Code, whether acquired now or in the
future, and all products and cash and non-cash proceeds thereof (collectively,
"UCC COLLATERAL"), and Borrower hereby

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 6

<PAGE>   7

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

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

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

         (b)      After the occurrence of an Event of Default, Borrower
authorizes Lender to collect, sue for and compromise Rents and directs each
tenant of the Mortgaged Property to pay all Rents to, or as directed by,
Lender. However, until the occurrence of an Event of Default, Lender hereby
grants to Borrower a revocable license to collect and receive all Rents, to
hold all Rents in trust for the benefit of Lender and to apply all Rents to pay
the installments of interest and principal then due and payable under the Note
and the other amounts then due and payable under the other Loan Documents,
including Imposition Deposits, and to pay the current costs and expenses of
managing, operating and maintaining the Mortgaged Property, including
utilities, Taxes and insurance premiums (to the extent not included in
Imposition Deposits), tenant improvements and other capital expenditures. So
long as no Event of Default

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 7

<PAGE>   8

has occurred and is continuing, the Rents remaining after application pursuant
to the preceding sentence may be retained by Borrower free and clear of, and
released from, Lender's rights with respect to Rents under this Instrument.
From and after the occurrence of an Event of Default, and without the necessity
of Lender entering upon and taking and maintaining control of the Mortgaged
Property directly, or by a receiver, Borrower's license to collect Rents shall
automatically terminate and Lender shall without notice be entitled to all
Rents as they become due and payable, including Rents then due and unpaid.
Borrower shall pay to Lender upon demand all Rents to which Lender is entitled.
At any time on or after the date of Lender's demand for Rents, Lender may give,
and Borrower hereby irrevocably authorizes Lender to give, notice to all
tenants of the Mortgaged Property instructing them to pay all Rents to Lender,
no tenant shall be obligated to inquire further as to the occurrence or
continuance of an Event of Default, and no tenant shall be obligated to pay to
Borrower any amounts which are actually paid to Lender in response to such a
notice. Any such notice by Lender shall be delivered to each tenant personally,
by mail or by delivering such demand to each rental unit. Borrower shall not
interfere with and shall cooperate with Lender's collection of such Rents.

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

         (d)      If an Event of Default has occurred and is continuing, Lender
may, regardless of the adequacy of Lender's security or the solvency of
Borrower and even in the absence of waste, enter upon and take and maintain
full control of the Mortgaged Property in order to perform all acts that Lender
in its discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3(a),
protecting the Mortgaged Property or the security of this Instrument, or for
such other purposes as Lender in its discretion may deem necessary or
desirable. Alternatively, if an Event of Default has occurred and is
continuing, regardless of the adequacy of Lender's security, without regard to
Borrower's solvency and without the necessity of giving prior notice (oral or
written) to Borrower, Lender may apply to any court having jurisdiction for the
appointment of a receiver for the Mortgaged Property to take any or all of the
actions set forth in the preceding sentence. If Lender elects to seek the
appointment of a receiver for the Mortgaged Property at any time after an Event
of Default has occurred and is continuing, Borrower, by its execution of this
Instrument, expressly consents

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 8

<PAGE>   9

to the appointment of such receiver, including the appointment of a receiver ex
parte if permitted by applicable law. Lender or the receiver, as the case may
be, shall be entitled to receive a reasonable fee for managing the Mortgaged
Property. Immediately upon appointment of a receiver or immediately upon the
Lender's entering upon and taking possession and control of the Mortgaged
Property, Borrower shall surrender possession of the Mortgaged Property to
Lender or the receiver, as the case may be, and shall deliver to Lender or the
receiver, as the case may be, all documents, records (including records on
electronic or magnetic media), accounts, surveys, plans, and specifications
relating to the Mortgaged Property and all security deposits and prepaid Rents.
In the event Lender takes possession and control of the Mortgaged Property,
Lender may exclude Borrower and its representatives from the Mortgaged
Property. Borrower acknowledges and agrees that the exercise by Lender of any
of the rights conferred under this Section 3 shall not be construed to make
Lender a mortgagee-in-possession of the Mortgaged Property so long as Lender
has not itself entered into actual possession of the Land and Improvements.

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

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

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

         4.       ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED

PROPERTY.

         (a)      As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all of
Borrower's right, title and interest in, to and under the Leases, including
Borrower's right, power and authority to modify the terms of any such Lease, or
extend or terminate any such Lease. It is the intention of Borrower to
establish a present, absolute and irrevocable transfer and assignment to Lender
of all of Borrower's right, title and interest in, to and under the Leases.
Borrower and Lender intend this assignment of the Leases to be immediately
effective and to constitute an absolute present assignment and not an
assignment for additional security only. For purposes of giving effect to this
absolute assignment of the Leases, and for no other purpose, the Leases shall
not be

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                           PAGE 9

<PAGE>   10

deemed to be a part of the "Mortgaged Property" as that term is defined in
Section 1(s). However, if this present, absolute and unconditional assignment
of the Leases is not enforceable by its terms under the laws of the Property
Jurisdiction, then the Leases shall be included as a part of the Mortgaged
Property and it is the intention of the Borrower that in this circumstance this
Instrument create and perfect a lien on the Leases in favor of Lender, which
lien shall be effective as of the date of this Instrument.

         (b)      Until Lender gives notice to Borrower of Lender's exercise of
its rights under this Section 4, Borrower shall have all rights, power and
authority granted to Borrower under any Lease (except as otherwise limited by
this Section or any other provision of this Instrument), including the right,
power and authority to modify the terms of any Lease or extend or terminate any
Lease. Upon the occurrence of an Event of Default, the permission given to
Borrower pursuant to the preceding sentence to exercise all rights, power and
authority under Leases shall automatically terminate. Borrower shall comply
with and observe Borrower's obligations under all Leases, including Borrower's
obligations pertaining to the maintenance and disposition of tenant security
deposits.

         (c)      Borrower acknowledges and agrees that the exercise by Lender,
either directly or by a receiver, of any of the rights conferred under this
Section 4 shall not be construed to make Lender a mortgagee-in-possession of
the Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements. The acceptance by Lender of the
assignment of the Leases pursuant to Section 4(a) shall not at any time or in
any event obligate Lender to take any action under this Instrument or to expend
any money or to incur any expenses. Lender shall not be liable in any way for
any injury or damage to person or property sustained by any person or persons,
firm or corporation in or about the Mortgaged Property. Prior to Lender's
actual entry into and taking possession of the Mortgaged Property, Lender shall
not (i) be obligated to perform any of the terms, covenants and conditions
contained in any Lease (or otherwise have any obligation with respect to any
Lease); (ii) be obligated to appear in or defend any action or proceeding
relating to the Lease or the Mortgaged Property; or (iii) be responsible for
the operation, control, care, management or repair of the Mortgaged Property or
any portion of the Mortgaged Property. The execution of this Instrument by
Borrower shall constitute conclusive evidence that all responsibility for the
operation, control, care, management and repair of the Mortgaged Property is
and shall be that of Borrower, prior to such actual entry and taking of
possession.

         (d)      Upon delivery of notice by Lender to Borrower of Lender's
exercise of Lender's rights under this Section 4 at any time after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, by
a receiver, or by any other manner or proceeding permitted by the laws of the
Property Jurisdiction, Lender immediately shall have all rights, powers and
authority granted to Borrower under any Lease, including the right, power and
authority to modify the terms of any such Lease, or extend or terminate any
such Lease.

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 10

<PAGE>   11

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

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

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

         5.       PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS;
PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due in accordance
with the terms of the Note and the other Loan Documents and shall perform,
observe and comply with all other provisions of the Note and the other Loan
Documents. Borrower shall pay a prepayment premium in connection with certain
prepayments of the Indebtedness, including a payment made after Lender's
exercise of any right of acceleration of the Indebtedness, as provided in the
Note.

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

         7.       DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

         (a)      Borrower shall deposit with Lender on the day monthly
installments of principal or interest, or both, are due under the Note (or on
another day designated in writing by

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 11

<PAGE>   12

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

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

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

         (d)      If at any time the amount of the Imposition Deposits held by
Lender for payment of a specific Imposition exceeds the amount reasonably
deemed necessary by Lender plus one-sixth of such estimate, the excess shall be
credited against future installments of Imposition

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 12

<PAGE>   13

Deposits. If at any time the amount of the Imposition Deposits held by Lender
for payment of a specific Imposition is less than the amount reasonably
estimated by Lender to be necessary plus one-sixth of such estimate, Borrower
shall pay to Lender the amount of the deficiency within 15 days after notice
from Lender.

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

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

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

         10.      COMPLIANCE WITH LAWS. Borrower shall comply with all laws,
ordinances, regulations and requirements of any Governmental Authority and all
recorded lawful covenants and agreements relating to or affecting the Mortgaged
Property, including all laws, ordinances, regulations, requirements and
covenants pertaining to health and safety, construction of improvements on the
Mortgaged Property, fair housing, zoning and land use, and Leases. Borrower
also shall comply with all applicable laws that pertain to the maintenance and
disposition of tenant security deposits. Borrower shall at all times maintain
records sufficient to demonstrate compliance with the provisions of this
Section 10. Borrower shall take appropriate measures to prevent, and shall not
engage in or knowingly permit, any illegal activities at the Mortgaged Property
that could endanger tenants or visitors, result in damage to the Mortgaged
Property, result in forfeiture of the Mortgaged Property, or otherwise
materially impair the lien created by this Instrument or Lender's interest in
the Mortgaged Property. Borrower represents and warrants to Lender that no
portion of the Mortgaged Property has been or will be purchased with the
proceeds of any illegal activity.

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 13

<PAGE>   14

acquiesce in a change in the zoning classification of the Mortgaged Property,
or (d) establish any condominium or cooperative regime with respect to the
Mortgaged Property.

         12.      PROTECTION OF LENDER'S SECURITY.

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

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

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

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

         14.      BOOKS AND RECORDS; FINANCIAL REPORTING.

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 14

<PAGE>   15

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

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

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

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

                  (5)      upon Lender's request, quarterly income and expense
                           statements for the Mortgaged Property;

                  (6)      upon Lender's request at any time when an Event of
                           Default has occurred and is continuing, monthly
                           income and expense statements for the Mortgaged
                           Property;

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 15

<PAGE>   16

                           and

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

         (c)      Each of the statements, schedules and reports required by
Section 14(b) shall be certified to be complete and accurate by an individual
having authority to bind Borrower, and shall be in such form and contain such
detail as Lender may reasonably require. Lender also may require that any
statements, schedules or reports be audited at Borrower's expense by
independent certified public accountants acceptable to Lender.

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

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

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

         15.      TAXES; OPERATING EXPENSES.

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

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

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

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<PAGE>   17

Event of Default has occurred and is continuing, insufficient Imposition
Deposits are held by Lender at the time an Imposition becomes due and payable
or Borrower has failed to provide Lender with bills and premium notices as
provided above.

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

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

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

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

         18.      ENVIRONMENTAL HAZARDS.

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<PAGE>   18

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

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

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

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

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

The matters described in clauses (1) through (4) above are referred to
collectively in this Section 18 as "PROHIBITED ACTIVITIES OR CONDITIONS".

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

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

         (d)      If an O&M Program has been established with respect to
Hazardous Materials,

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 18

<PAGE>   19

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

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

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

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

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

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

                  (5)      no event has occurred with respect to the Mortgaged
                           Property that constitutes, or with the passing of
                           time or the giving of notice would constitute,
                           noncompliance with the terms of any Environmental
                           Permit;

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 19

<PAGE>   20

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

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

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

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

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

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

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

         (g)      Borrower shall pay promptly the costs of any environmental
inspections, tests or audits ("ENVIRONMENTAL INSPECTIONS") required by Lender
in connection with any foreclosure or deed in lieu of foreclosure, or as a
condition of Lender's consent to any Transfer under Section 21, or required by
Lender following a reasonable determination by Lender that Prohibited
Activities or Conditions may exist. Any such costs incurred by Lender
(including the fees and out-of-pocket costs of attorneys and technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) which Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12. The results of
all Environmental Inspections made by Lender shall at all times remain the
property of Lender and Lender shall have no obligation to disclose or otherwise
make available to Borrower or any other party such results or any other
information obtained by Lender in connection with its Environmental
Inspections. Lender hereby reserves the right, and Borrower hereby expressly
authorizes Lender, to make available to any party, including any prospective
bidder at a foreclosure sale of the Mortgaged Property, the results of any

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 20

<PAGE>   21

Environmental Inspections made by Lender with respect to the Mortgaged
Property. Borrower consents to Lender notifying any party (either as part of a
notice of sale or otherwise) of the results of any of Lender's Environmental
Inspections. Borrower acknowledges that Lender cannot control or otherwise
assure the truthfulness or accuracy of the results of any of its Environmental
Inspections and that the release of such results to prospective bidders at a
foreclosure sale of the Mortgaged Property may have a material and adverse
effect upon the amount which a party may bid at such sale. Borrower agrees that
Lender shall have no liability whatsoever as a result of delivering the results
of any of its Environmental Inspections to any third party, and Borrower hereby
releases and forever discharges Lender from any and all claims, damages, or
causes of action, arising out of, connected with or incidental to the results
of, the delivery of any of Lender's Environmental Inspections.

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

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

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 21

<PAGE>   22

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

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

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

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

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

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

         (m)      Borrower's obligation to indemnify the Indemnitees shall not
be limited or impaired by any of the following, or by any failure of Borrower
or any guarantor to receive notice of or consideration for any of the
following:

                  (1)      any amendment or modification of any Loan Document;

                  (2)      any extensions of time for performance required by
                           any Loan Document;

                  (3)      any provision in any of the Loan Documents limiting
                           Lender's recourse to property securing the
                           Indebtedness, or limiting the personal liability of
                           Borrower or any other party for payment of all or
                           any part of the Indebtedness;

                  (4)      the accuracy or inaccuracy of any representations
                           and warranties made by Borrower under this
                           Instrument or any other Loan Document;

                  (5)      the release of Borrower or any other person, by
                           Lender or by operation of law, from performance of
                           any obligation under any Loan Document;

                  (6)      the release or substitution in whole or in part of
                           any security for the

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 22

<PAGE>   23

                           Indebtedness; and

                  (7)      Lender's failure to properly perfect any lien or
                           security interest given as security for the
                           Indebtedness.

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

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

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

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

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 23

<PAGE>   24

         19.      PROPERTY AND LIABILITY INSURANCE.

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

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

         (c)      Borrower shall maintain at all times commercial general
liability insurance, workers' compensation insurance and such other liability,
errors and omissions and fidelity insurance coverages as Lender may from time
to time require.

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

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

         (f)      In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to Lender. Borrower hereby authorizes and
appoints Lender as attorney-in-fact for Borrower to make proof of loss, to
adjust and compromise any claims under policies of property damage insurance,
to appear in and prosecute any action arising from such property damage
insurance policies, to collect and receive the proceeds of property damage
insurance, and to deduct from such proceeds Lender's expenses incurred in the

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 24

<PAGE>   25

collection of such proceeds. This power of attorney is coupled with an interest
and therefore is irrevocable. However, nothing contained in this Section 19
shall require Lender to incur any expense or take any action. Lender may, at
Lender's option, (1) hold the balance of such proceeds to be used to reimburse
Borrower for the cost of restoring and repairing the Mortgaged Property to the
equivalent of its original condition or to a condition approved by Lender (the
"RESTORATION"), or (2) apply the balance of such proceeds to the payment of the
Indebtedness, whether or not then due. To the extent Lender determines to apply
insurance proceeds to Restoration, Lender shall do so in accordance with
Lender's then-current policies relating to the restoration of casualty damage
on similar multifamily properties.

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

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

         20.      CONDEMNATION.

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 25

<PAGE>   26

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

         21.      TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.
[NO RIGHT TO TRANSFER]

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

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

                  (2)      if Borrower is a limited partnership, a Transfer of
                           (A) any general partnership interest, or (B) limited
                           partnership interests in Borrower that would cause
                           the Initial Owners of Borrower to own less than 51%
                           of all limited partnership interests in Borrower;

                  (3)      if Borrower is a general partnership or a joint
                           venture, a Transfer of any general partnership or
                           joint venture interest in Borrower;

                  (4)      if Borrower is a limited liability company, a
                           Transfer of (A) any membership interest in Borrower
                           which would cause the Initial Owners to own less
                           than 51% of all the membership interests in
                           Borrower, or (B) any membership or other interest of
                           a manager in Borrower;

                  (5)      if Borrower is a corporation, (A) the Transfer of
                           any voting stock in Borrower which would cause the
                           Initial Owners to own less than 51% of any class of
                           voting stock in Borrower or (B) if the outstanding
                           voting stock in Borrower is held by 100 or more
                           shareholders, one or more transfers by a single
                           transferor within a 12-month period affecting an
                           aggregate of 5% or more of that stock;

                  (6)      if Borrower is a trust, (A) a Transfer of any
                           beneficial interest in Borrower which would cause
                           the Initial Owners to own less than 51% of all the
                           beneficial interests in Borrower, or (B) the
                           termination or revocation of the trust, or (C) the
                           removal, appointment or substitution

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 26

<PAGE>   27

                           of a trustee of Borrower; and

                  (7)      a Transfer of any interest in a Controlling Entity
                           which, if such Controlling Entity were Borrower,
                           would result in an Event of Default under any of
                           Sections 21(a)(1) through (6) above.

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

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

                  (1)      a Transfer to which Lender has consented;

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

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

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

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

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

         (c)      Lender may consent, in its discretion, to a Transfer that
would otherwise violate this Section 21 if, prior to the Transfer, Borrower has
satisfied each of the following requirements:

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 27

<PAGE>   28

                  (2)      the Mortgaged Property and the transferee meet all
                           of the eligibility, credit, management and other
                           standards (including but not limited to any
                           standards with respect to previous relationships
                           between Lender and the transferee and the
                           organization of the transferee) customarily applied
                           by Lender to the approval of borrowers and
                           properties in connection with the origination or
                           purchase of similar mortgages on multifamily
                           properties;

                  (3)      the absence of any Event of Default;

                  (4)      the execution of an assumption agreement that is
                           acceptable to Lender and that, among other things,
                           requires the transferee to perform all obligations
                           of Borrower set forth in the Note, this Instrument
                           and any other Loan Documents, 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; and

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

                           (A)      a review fee in the amount of

                                    $________________;

                           (B)      a transfer fee in an amount equal to _____%
                                    of the unpaid principal balance of the
                                    Indebtedness immediately before the
                                    Transfer; and

                           (C)      the amount of Lender's out-of-pocket costs
                                    (including reasonable attorneys' fees)
                                    incurred in reviewing the Transfer request.

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

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

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

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

         (d)      fraud or material misrepresentation or material omission by
Borrower, any of its officers, directors, trustees, general partners or
managers or any guarantor in connection with (A) the application for or
creation of the Indebtedness, (B) any financial statement, rent roll, or other
report or information provided to Lender during the term of the Indebtedness,
or (C) any

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<PAGE>   29

request for Lender's consent to any proposed action, including a request for
disbursement of funds under any Collateral Agreement;

         (e)      any Event of Default under Section 21;

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

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

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

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

         (j)      Borrower voluntarily files for bankruptcy protection under
the United States Bankruptcy Code or voluntarily becomes subject to any
reorganization, receivership, insolvency proceeding or other similar proceeding
pursuant to any other federal or state law affecting debtor and creditor
rights, or an involuntary case is commenced against Borrower by any creditor
(other than Lender) of Borrower pursuant to the United States Bankruptcy Code
or other federal or state law affecting debtor and creditor rights and is not
dismissed or discharged within 60 days after filing.

         23.      REMEDIES CUMULATIVE. Each right and remedy provided in this
Instrument is distinct from all other rights or remedies under this Instrument
or any other Loan Document or afforded by applicable law, and each shall be
cumulative and may be exercised concurrently, independently, or successively,
in any order.

         24.      FORBEARANCE.

         (a)      Lender may (but shall not be obligated to) agree with
Borrower, from time to time, and without giving notice to, or obtaining the
consent of, or having any effect upon the

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<PAGE>   30

obligations of, any guarantor or other third party obligor, to take any of the
following actions: extend the time for payment of all or any part of the
Indebtedness; reduce the payments due under this Instrument, the Note, or any
other Loan Document; release anyone liable for the payment of any amounts under
this Instrument, the Note, or any other Loan Document; accept a renewal of the
Note; modify the terms and time of payment of the Indebtedness; join in any
extension or subordination agreement; release any Mortgaged Property; take or
release other or additional security; modify the rate of interest or period of
amortization of the Note or change the amount of the monthly installments
payable under the Note; and otherwise modify this Instrument, the Note, or any
other Loan Document.

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

         25.      LOAN CHARGES. If any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower is
interpreted so that any charge provided for in any Loan Document, whether
considered separately or together with other charges levied in connection with
any other Loan Document, violates that law, and Borrower is entitled to the
benefit of that law, that charge is hereby reduced to the extent necessary to
eliminate that violation. The amounts, if any, previously paid to Lender in
excess of the permitted amounts shall be applied by Lender to reduce the
principal of the Indebtedness. For the purpose of determining whether any
applicable law limiting the amount of interest or other charges permitted to be
collected from Borrower has been violated, all Indebtedness which constitutes
interest, as well as all other charges levied in connection with the
Indebtedness which constitute interest, shall be deemed to be allocated and
spread over the stated term of the Note. Unless otherwise required by
applicable law, such allocation and spreading shall be effected in such a
manner that the rate of interest so computed is uniform throughout the stated
term of the Note.

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

         27.      WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interests in the Mortgaged Property held by Lender or by any
other party, Lender shall have the right to determine the order in which any or
all of the Mortgaged Property shall

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 30

<PAGE>   31

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

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

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

         30.      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.
         (a)      This Instrument, and any Loan Document which does not itself
expressly identify the law that is to apply to it, shall be governed by the
laws of the jurisdiction in which the Land is located (the "PROPERTY
JURISDICTION").

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 31

<PAGE>   32

         31.      NOTICE.

         (a)      All notices, demands and other communications ("notice")
under or concerning this Instrument shall be in writing. Each notice shall be
addressed to the intended recipient at its address set forth in this
Instrument, and shall be deemed given on the earliest to occur of (1) the date
when the notice is received by the addressee; (2) the first Business Day after
the notice is delivered to a recognized overnight courier service, with
arrangements made for payment of charges for next Business Day delivery; or (3)
the third Business Day after the notice is deposited in the United States mail
with postage prepaid, certified mail, return receipt requested. As used in this
Section 31, the term "Business Day" means any day other than a Saturday, a
Sunday or any other day on which Lender is not open for business.

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

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

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

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

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

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

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 32

<PAGE>   33

several.

         36.      RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

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

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

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

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

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

         40.      DISCLOSURE OF INFORMATION. Lender may furnish information

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 33

<PAGE>   34

regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including but not
limited to any right of privacy.

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

         42.      SUBROGATION. If, and to the extent that, the proceeds of the
loan evidenced by the Note are used to pay, satisfy or discharge any obligation
of Borrower for the payment of money that is secured by a pre-existing
mortgage, deed of trust or other lien encumbering the Mortgaged Property (a
"PRIOR LIEN"), such loan proceeds shall be deemed to have been advanced by
Lender at Borrower's request, and Lender shall automatically, and without
further action on its part, be subrogated to the rights, including lien
priority, of the owner or holder of the obligation secured by the Prior Lien,
whether or not the Prior Lien is released.

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

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

         45.      NO CLAIM OF CREDIT FOR TAXES. Borrower will not make or claim
credit on or deduction from the principal or interest on the sums secured by
this Instrument by reason of any municipal or governmental taxes, assessments
or charges assessed upon the Mortgaged Property, or claim any deduction from
the taxable value of the Mortgaged Property by reason of this Instrument.

         46.      WAIVER OF TRIAL BY JURY.  BORROWER AND LENDER EACH (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 34

<PAGE>   35

TO ANY ISSUE ARISING OUT OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE
PARTIES AS BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B)
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT
ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE
BENEFIT OF COMPETENT LEGAL COUNSEL.

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

                  | X |    Exhibit A        Description of the Land (required).

                  | _ |    Exhibit B        Modifications to Instrument

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

                        [SIGNATURES AND ACKNOWLEDGMENTS]

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                          PAGE 35

<PAGE>   36

                                   EXHIBIT A

                           [DESCRIPTION OF THE LAND]

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE A-1

<PAGE>   37

                                   EXHIBIT B

                          MODIFICATIONS TO INSTRUMENT

The following modifications are made to the text of the Instrument that
precedes this Exhibit:

1.       Item (15) in the definition of "MORTGAGED PROPERTY" in this Instrument
         is deleted in its entirety and replaced with the following new Item
         (15) in the definition of "MORTGAGED PROPERTY":

                  all names under or by which any of the above Mortgaged
                  Property may be operated or known, and all trademarks, trade
                  names, and goodwill relating to any of the Mortgaged
                  Property; provided, however, that the name "Sunrise" and/or
                  associated trademark rights are not assigned to Lender,
                  subject to Section 50 hereof.

2.       Subsection 4(f) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 4(f):

                  (f)      Borrower shall not lease any portion of the
                           Mortgaged Property for non-residential use for a
                           rental of more than $15,000 per annum (a "Material
                           Lease") except with the prior written consent of
                           Lender and Lender's prior written approval of the
                           Lease agreement.  Borrower shall not modify the
                           terms of, or extend or terminate, any Material Lease
                           for non-residential use (including any Material
                           Lease in existence on the date of this Instrument)
                           without the prior written consent of Lender.
                           Borrower shall, without request by Lender, deliver
                           an executed copy of each non-residential Lease to
                           Lender promptly after such Lease is signed.   All
                           non-residential Leases, including renewals or
                           extensions of existing Leases, shall specifically
                           provide that (1) such Leases are subordinate to the
                           lien of this Instrument; (2) the tenant shall attorn
                           to Lender and any purchaser at a foreclosure sale,
                           such attornment to be self-executing and effective
                           upon acquisition of title to the Mortgaged Property
                           by any purchaser at a foreclosure sale or by Lender
                           in any manner; (3) the tenant agrees to execute such
                           further evidences of attornment as Lender or any
                           purchaser at a foreclosure sale may from time to
                           time request; (4) the Lease shall not be terminated
                           by foreclosure or any other transfer of the
                           Mortgaged Property; (5) after a foreclosure sale of
                           the Mortgaged Property, Lender or any other
                           purchaser at such foreclosure sale may, at Lender's
                           or such purchaser's option, accept or terminate such
                           Lease; and (6) the tenant shall, upon receipt after
                           the occurrence of an Event of Default of a written
                           request from Lender, pay all Rents payable under the
                           Lease to Lender.

3.       Subsection 4(g) of the Instrument is deleted in its entirety and
         replaced with the following

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-1

<PAGE>   38

         new Subsection 4(g):

                  (g)      Borrower shall not receive or accept Rent under any
                           Lease (whether residential or non-residential) for
                           more than two months in advance, except for
                           Community Fees pursuant to the Resident Agreement
                           for units in the Improvements approved by Lender.

4.       Section 7 of the Instrument is supplemented and modified by adding the
         following new Subsection (f):

         (f)      Notwithstanding the provisions of Subparagraph 7(a), the
         Lender will not require Borrower to deposit with Lender amounts
         sufficient to accumulate with Lender the entire sum required to pay
         the hazard or other insurance premiums. At least annually, the
         Borrower must provide Lender with proof of payment of all such
         Impositions for which Lender is not collecting Imposition Deposits. In
         the event that Borrower does not timely pay any of the Impositions, or
         fails to provide Lender with proof of such payment, or at the any
         other time in Lender's discretion, Lender may require Borrower to
         deposit with Lender the Imposition Deposits as provided in
         Subparagraph 7(a).

5.       Subsection 18(b) of the Instrument is deleted in its entirety and
         replaced with the following new Section 18(b):

                  (b)      Prohibited Activities and Conditions shall not
                           include the safe and lawful use and storage of
                           quantities of (1) pre-packaged supplies, cleaning
                           materials and petroleum products customarily used in
                           the operation and maintenance of comparable
                           multifamily properties, (2) cleaning materials,
                           personal grooming items and other items sold in
                           pre-packaged containers for consumer use and used by
                           tenants and occupants of residential dwelling units
                           in the Mortgaged Property; (3) petroleum products
                           used in the operation and maintenance of motor
                           vehicles from time to time located on the Mortgaged
                           Property's parking areas, and (4) medical products
                           or devices or medical waste, so long as all of the
                           foregoing are used, stored, handled, transported and
                           disposed of in compliance with Hazardous Materials
                           Laws.

6.       Section 18(n) of the Instrument is amended by the addition of the
         following language at the end of such Subsection:

                  Borrower shall not be obligated to indemnify Lender for any
                  matter (i) first occurring after Lender acquires the
                  Mortgaged Property and (ii) caused by the acts or omissions
                  of the Lender.

7.       Section 19(g) of the Instrument is amended by the addition of the
         following language at

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-2

<PAGE>   39

         the end of such Subsection:

                  Lender shall make such proceeds or awards available to
                  Borrower for repair and reconstruction of the Mortgaged
                  Property if such proceeds or awards are less than or equal to
                  one hundred thousand dollars ($100,000.00) on a per
                  occurrence basis unless an Event of Default has occurred and
                  is continuing.

8.       Section 21(b) of the Instrument is supplemented and modified by adding
         the following new Subsection (7):

                  (7)      A Transfer of limited partnership interests in the
                           limited partnership constituting Borrower to an
                           entity in which Sunrise Assisted Living, Inc. holds
                           an ownership interest equal to or greater than
                           eighty percent (80%), provided the terms and
                           conditions set forth in (A) - (C) have been
                           satisfied:

                           (A)      Borrower must provide Lender with prior
                                    written notice of the proposed Transfer.

                           (B)      At the time of the proposed Transfer, there
                                    must not exist any Event of Default.

                           (C)      Lender shall not be entitled to collect a
                                    transfer fee, review fee or expenses as a
                                    result of these transfers.

9.       Section 21(b) of the Instrument is supplemented and modified by adding
         the following new Subsection (8):

                  (8)      The Transfer of shares in Sunrise Assisted Living,
                           Inc., a Delaware corporation, on any publicly traded
                           exchange.

10.      Section 21 of the Instrument is supplemented and modified by adding
         the following new Subsection (d):

                  (d)      Borrower shall be permitted to substitute collateral
                           property (the "Substituted Property") for the
                           Mortgaged Property (the "Substitution") no more than
                           one time in every twelve month period during the
                           term of the loan evidenced by the Note (the "Loan")
                           so long as:

                           (1)      At the time of Substitution, no Event of
                                    Default (which remains uncured within any
                                    applicable cure period) shall exist under
                                    the Loan Documents;

                           (2)      Not less than sixty (60) days prior to the
                                    requested Substitution,

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-3

<PAGE>   40

                                    Borrower shall deliver to Lender written
                                    notice of the requested Substitution, which
                                    shall include a detailed description of the
                                    Substituted Property and a non-refundable
                                    application fee in an amount equal to ten
                                    (10) basis points multiplied by the unpaid
                                    principal balance of the Loan;

                           (3)      The Substituted Property shall have been
                                    constructed and completed no more than two
                                    years prior to the construction and
                                    completion of the Mortgaged Property;

                           (4)      The Substituted Property shall be one or
                                    two independent or assisted living
                                    communities which together are comparable
                                    in size and configuration to the Mortgaged
                                    Property;

                           (5)      The loan to value ratio with respect to the
                                    Substituted Property at the time of the
                                    proposed Substitution is not greater than
                                    the lesser of (A) the loan to value ratio
                                    of the Mortgaged Property which exists as
                                    of the date hereof, or (B) the then current
                                    loan to value ratio of the Mortgaged
                                    Property at the time of any such
                                    Substitution based on an MAI appraisal
                                    (prepared by an appraiser acceptable to
                                    Lender and paid for by Borrower) at the
                                    time of any such Substitution. (As used
                                    herein, "loan to value ratio" means the
                                    ratio of (1) the outstanding principal
                                    balance of the Loan to (2) the value of the
                                    Substituted Property as determined by
                                    Lender in its discretion, expressed as a
                                    percentage);

                           (6)      Lender shall have received an environmental
                                    report on the Substituted Property showing
                                    that no Phase II environmental report is
                                    required;

                           (7)      Lender shall have received an engineering
                                    report on the Substituted Property showing
                                    that there are at least thirty (30) years
                                    of useful life remaining with respect to
                                    the Substituted Property;

                           (8)      Lender shall have received a new currently
                                    dated mortgagee's title insurance policy in
                                    the form and containing the exceptions and
                                    endorsements acceptable to Lender according
                                    to its standards for title insurance
                                    policies in place at the time of the
                                    Substitution, insuring the first lien
                                    mortgage in favor of Lender encumbering the
                                    Substituted Property;

                           (9)      Lender shall have received a currently
                                    dated survey of the Substituted Property,
                                    acceptable to Lender in accordance with its
                                    standards and requirements for surveys in
                                    place at the time of the

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-4

<PAGE>   41

                                    Substitution;

                           (10)     The physical condition, location and other
                                    aspects of the Substituted Property,
                                    including, but not limited to, the market
                                    for the Substituted Property, shall be
                                    substantially comparable to the Mortgaged
                                    Property as determined by Lender in its
                                    commercially reasonable discretion;

                           (11)     If the Substitution is approved, (A)
                                    Borrower shall have executed and delivered
                                    to Lender for recordation an amendment to
                                    the Mortgage in form and substance
                                    acceptable to Lender in its discretion,
                                    substituting the Substituted Property for
                                    the Mortgaged Property; and (B) Borrower
                                    shall have executed and delivered such
                                    additional documentation, including without
                                    limitation new Uniform Commercial Code
                                    Financing Statements, as Lender may
                                    reasonably require to grant Lender a
                                    perfected first lien and security interest
                                    in the Substituted Property and to
                                    otherwise implement the Substitution in
                                    accordance with the terms hereof;

                           (12)     The appraised value of the Substituted
                                    Property shall be equal to or greater than
                                    the greater of (A) the appraised value of
                                    the Mortgaged Property which exists as of
                                    the date of the closing of the Loan; or (B)
                                    the appraised value of the Mortgaged
                                    Property at the time of the Substitution
                                    based on the MAI appraisal described in
                                    Subsection 21(d)(5) above;

                           (13)     The Debt Service Coverage Ratio (defined
                                    below), as determined by Lender, for the
                                    Substituted Property shall not be less than
                                    the greater of (A) the Debt Service
                                    Coverage Ratio for the Mortgaged Property
                                    which exists as of the date hereof or (B)
                                    the Debt Service Coverage Ratio for the
                                    Mortgaged Property at the time of
                                    Substitution; and

                           (14)     Lender shall have received the amount of
                                    Lender's actual out-of-pocket costs
                                    (including, without limitation,
                                    commercially reasonable attorneys' fees and
                                    actual disbursements and the costs of
                                    engineering reports, appraisals and
                                    environmental reports) incurred in
                                    reviewing the Substitution request and
                                    implementing the Substitution.

                           In the event of a substitution of collateral
                           pursuant to the foregoing, no transfer fee shall be
                           payable. Lender shall be entitled to a review fee of
                           $7,000.00, together with reimbursement of its
                           reasonable costs and expenses (including actual
                           attorneys' fees) in connection with such

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-5

<PAGE>   42

                           substitution of collateral. As used herein, "Debt
                           Service Coverage Ratio" means a ratio in which the
                           first number is the sum of net pre-tax income of the
                           Borrower from normal operations of the Mortgaged
                           Property or the Substituted Property (as the case
                           may be) as set forth in the financial statements
                           provided to Lender (without deduction for actual
                           management fees or management expense incurred or
                           paid in connection with the operation of the
                           Mortgaged Property), calculated based upon the
                           preceding twelve (12) months, plus interest expense
                           or lease expense to the extent deducted in
                           determining net income and non-cash expenses or
                           allowances for depreciation and amortization of the
                           Mortgaged Property or the Substituted Property (as
                           the case may be) for said period, less an assumed 5%
                           management fee for said period, and the second
                           number is the sum of the principal amounts due (even
                           if not paid) on the Loan (but which shall not
                           include that portion associated with the balloon
                           payment of the Loan) for the applicable period plus
                           the interest amount due on the Loan for the
                           applicable period. In calculating "net income", any
                           extraordinary income and extraordinary expense shall
                           be excluded.

11.      Section 33 of the Instrument is deleted in its entirety and replaced
         with the following new Section 33:

                  33.      SINGLE ASSET BORROWER AND LIMITATION ON UNSECURED
                  INDEBTEDNESS. Until the Indebtedness is paid in full,Borrower
(a) shall not acquire any real or personal property other than the Mortgaged
Property and personal property related to the operation and maintenance of the
Mortgaged Property; (b) shall not operate any business other than the
management and operation of the Mortgaged Property; and (c) shall not maintain
its assets in a way difficult to segregate and identify. Sunrise Assisted
Living, Inc., a Delaware corporation ("Guarantor") or an affiliate of the
Guarantor may provide unsecured financing to Borrower. The Borrower may obtain
purchase money financing in an amount not to exceed $75,000 for the purpose of
purchasing equipment for the Mortgaged Property and a vehicle to be used solely
in connection with the operation of the Mortgaged Property. Such financing
shall not result in any lien or encumbrance on the Mortgaged Property.

12.      Section 14(b) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 14(b):

                           (b)      Throughout the term of the Loan, Borrower
                                    shall provide Lender or cause to be
                                    provided to Lender, the following financial
                                    statements and information:

                                    (1)     Within one hundred twenty (120)
                                            days after the end of the fiscal
                                            years of the Borrower, Sunrise
                                            Assisted Living, Inc., a Delaware
                                            corporation ("Guarantor") and
                                            Sunrise Assisted

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-6

<PAGE>   43

                                            Living Management, Inc., a Virginia
                                            corporation ("Manager"), unaudited
                                            (internally prepared in accordance
                                            with GAAP) financial statements of
                                            Borrower and Guarantor and
                                            financial statements of Manager
                                            reviewed by a nationally recognized
                                            accounting firm or independent
                                            certified public accountant
                                            acceptable to Lender. All such
                                            statements shall be prepared in
                                            accordance with GAAP. Borrower's,
                                            Guarantor's and Manager's financial
                                            statements hereunder shall include
                                            a balance sheet and a statement of
                                            income and expenses for the year
                                            then ended, certified by an officer
                                            of Borrower, Guarantor and Manager,
                                            respectively, to be true and
                                            correct. As used herein, the term
                                            "GAAP" means generally accepted
                                            accounting principles, consistently
                                            applied, as promulgated by the
                                            American Institute of Certified
                                            Public Accountants.

                                    (2)     Within forty-five (45) days of the
                                            end of each calendar quarter (other
                                            than fiscal year end), unaudited,
                                            internally prepared financial
                                            statements of Guarantor and of
                                            Manager, respectively, prepared in
                                            accordance with GAAP and including
                                            a balance sheet and statement of
                                            income and expenses for the quarter
                                            then ended, certified by an officer
                                            of Guarantor and Manager,
                                            respectively, to be true and
                                            correct.

                                    (3)     Within forty-five (45) days of the
                                            end of each calendar quarter,
                                            quarterly financial operating
                                            statements of the operations of the
                                            Mortgaged Property, prepared in
                                            accordance with GAAP, which such
                                            statements shall include a balance
                                            sheet and statement of income and
                                            expenses for the quarter then
                                            ended, certified by an officer of
                                            the Borrower or Manager to be true
                                            and correct.

                                    (4)     Within five (5) days of receipt,
                                            any and all written notices from
                                            any and all licensing and/or
                                            certifying agencies that the
                                            applicable Mortgaged Property
                                            license and/or permits are being
                                            downgraded to a substandard
                                            category, revoked, or suspended or
                                            that any such action is pending.

                                    (5)     Within forty-five (45) days of the
                                            end of each calendar quarter, a
                                            certificate of an officer of the
                                            Borrower, Guarantor and Manager,
                                            respectively, confirming compliance
                                            with the covenants and requirements
                                            set forth above.

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-7

<PAGE>   44

13.      Section 14(c) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 14(c):

                           (c)      The Lender reserves the right to require
                                    that the annual financial statements of the
                                    Borrower, Guarantor and Manager be audited
                                    and prepared by a nationally recognized
                                    accounting firm or independent certified
                                    public accountant acceptable to Lender if
                                    (i) an Event of Default exists under the
                                    Loan Documents or (ii) if Lender has
                                    reasonable grounds to believe that the
                                    unaudited financial statements do not
                                    accurately represent the financial
                                    condition of the Borrower, Guarantor or
                                    Manager, as the case may be.

14.      Section 14(d) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 14(d):

                           (d)      In the event Lender in good faith believes
                                    that there has been a material adverse
                                    change in operations or financial
                                    conditions of Borrower, Guarantor or
                                    Manager, the Lender shall have the right to
                                    require such other financial information of
                                    Borrower, Guarantor, Manager and/or the
                                    Mortgaged Property, as the case may be, in
                                    such form and at such other times
                                    (including monthly or more frequently) as
                                    Lender shall deem necessary, and Borrower
                                    agrees promptly to provide or to cause to
                                    be provided, such information to Lender.
                                    The content of such other financial
                                    information shall not in any case be a
                                    cause to declare an Event of Default under
                                    the Loan Documents in the absence of any
                                    other Event of Default under the Loan
                                    Documents.  Lender may from time to time
                                    reasonably request such further financial
                                    information as Lender deems advisable for
                                    administration of the Loan.

15.      Section 14(e) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 14(e):

                           (e)      Borrower shall furnish, together with the
                                    foregoing financial statements and at any
                                    other time upon Lender's request, (i) a
                                    current rent and/or resident contract roll
                                    for the Mortgaged Property, and (ii) a
                                    monthly property management report.

16.      Section 14(f) of the Instrument is deleted in its entirety and
         replaced with the following new Subsection 14(f):

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-8

<PAGE>   45

                           (f)      In addition, upon Lender's request, Lender
                                    shall receive written authorization as
                                    necessary to obtain a credit report for
                                    each principal whose ownership interest in
                                    Borrower is 10% or more.  At Lender's
                                    request, such Borrower's principal shall
                                    submit to Lender such financial statements
                                    and credit report authorizations as Lender
                                    may reasonably require.

17.      Section 14 of the Instrument is supplemented and modified by adding
         the following new Subsection (g):

                           (g)      Borrower shall keep full and accurate books
                                    and records and permit Lender at all
                                    reasonable times and with reasonable notice
                                    to inspect such books and records for the
                                    purpose of determining the correctness of
                                    any statements delivered to Lender.

18.      Section 40 of the Instrument is deleted in its entirety and replaced
         with the following new Subsection 40:

         40.      DISCLOSURE OF INFORMATION. Lender may furnish information
regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including but not
limited to any right of privacy; provided, however, that Lender and any such
third parties shall continue to treat such information as confidential and
shall not make such information public or unnecessarily disseminate such
information except to parties with an existing or prospective interest in the
Indebtedness or (in the case of a database) as part of a dissemination of
aggregate information about multiple properties such that the Borrower and the
Mortgaged Property cannot be identified by the recipient of such information.

19.      Section 43 of the Instrument is deleted in its entirety and replaced
         with the following new Subsection 43:

         43.      ACCELERATION; REMEDIES. At any time during the existence of
an Event of Default, Lender, at Lender's option, may (i) declare the
Indebtedness to be immediately due and payable without further demand and (ii)
invoke any rights and remedies permitted by the laws of the state where the
Mortgaged Property is located or as provided in this Instrument or in any other
Loan Document. Lender shall be entitled to collect all costs and expenses
incurred in pursuing such remedies, including actual attorneys' fees computed
on an hourly basis, and costs of documentary evidence, abstracts and title
reports.

20. A new Section 47 to the Instrument is added as follows:

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-9

<PAGE>   46

         47.      SENIOR HOUSING.

         (a)      The Mortgaged Property will be used as an independent and
                  assisted living facility (the "Intended Use").

         (b)      ADDITIONAL DEFINITIONS.

                           (1)      The term "Mortgaged Property" shall also
                                    include, where applicable, payments
                                    received from occupants, payment of second
                                    party charges added to base rental income,
                                    base and/or additional meal sales, payments
                                    received from commercial operations located
                                    on the Mortgaged Property or provided as a
                                    service to the occupants of the Mortgaged
                                    Property, rental from guest suites,
                                    seasonal lease charges, rental payment
                                    under furniture leases, income from laundry
                                    service, and fees from any and all other
                                    services provided to third parties in
                                    connection with the Mortgaged Property,
                                    together with the following items: licenses
                                    and contracts, all rights to payments from
                                    Medicare or Medicaid programs or similar
                                    federal, state or local programs or
                                    agencies and rights to payment from
                                    residents or private insurers, arising from
                                    the operation of the Mortgaged Property,
                                    whether as a community residential,
                                    independent living, adult congregate care,
                                    assisted living or skilled nursing care
                                    facility, all personal property acquired by
                                    Borrower after the date of this Instrument
                                    in connection with the ownership and
                                    operation of the Mortgaged Property as such
                                    a facility, utility deposits, unearned
                                    premiums, accrued, accruing or to accrue
                                    under insurance policies obtained by the
                                    Borrower now or in the future and all
                                    proceeds of any conversion of the Mortgaged
                                    Property or any part of it including
                                    replacements and additions thereto.

                           (2)      The term "Lease" shall also include any
                                    occupancy agreements pertaining to
                                    occupants of the Mortgaged Property,
                                    including both residential and commercial
                                    agreements and patient admission or
                                    resident care agreements.

                           (3)      The term "Hazardous Materials" shall also
                                    include any medical products or devices,
                                    including, those materials defined as
                                    "medical waste" or "biological waste" under
                                    relevant statutes or regulations pertaining
                                    to hazardous materials law.

         (c)      In addition to those representations and warranties contained
                  in the Instrument, Borrower hereby represents and warrants to
                  Lender as follows:

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                        PAGE B-10

<PAGE>   47

                           (1)      Borrower has obtained (in its own name
                                    and/or in the relevant operator's or
                                    manager's name, if any, and in any event in
                                    the name of the person(s) as required under
                                    all applicable legal requirements) all
                                    licenses, permits, certificates, approvals
                                    or authorizations necessary to use and
                                    operate the Mortgaged Property for its
                                    Intended Use (collectively, the
                                    "Licenses"), and all such Licenses are in
                                    full force and effect. The use being made
                                    of the Mortgaged Property is in conformity
                                    in all respects with the certificate of
                                    occupancy and/or Licenses for such property
                                    and any other restrictions, covenants or
                                    conditions affecting such property. The
                                    Mortgaged Property contains all equipment
                                    necessary to use and operate such property
                                    for its Intended Use.

                           (2)      Borrower and the Mortgaged Property (and
                                    its operation) are in compliance in all
                                    material respects with the applicable
                                    provisions of all laws, statutes,
                                    regulations, ordinances, orders, standards,
                                    restrictions and rules of any federal,
                                    state or local government or
                                    quasi-governmental body, agency, board or
                                    authority having jurisdiction over the
                                    operation of the Mortgaged Property,
                                    including:  (A) health care and fire safety
                                    codes; (B) laws regulating the handling and
                                    disposal of medical or biological waste;
                                    (C) the applicable provisions of all laws,
                                    rules, regulations and published
                                    interpretations thereof to which the
                                    Borrower or the Mortgaged Property is
                                    subject by virtue of its Intended Use; and
                                    (D) all criteria established to classify
                                    the Mortgaged Property as housing for older
                                    persons under Fair Housing Amendments Act
                                    of 1988.

                           (3)      Borrower does not currently participate in
                                    any Medicaid or Medicare programs or any
                                    other third party payors' programs, or
                                    other similar provider payment programs in
                                    connection with the operation of the
                                    Mortgaged Property.

                           (4)      Borrower and the Mortgaged Property are not
                                    subject to any proceeding, suit or
                                    investigation by any federal, state or
                                    local government or quasi-government body,
                                    or agency or any other administrative or
                                    investigative body, and Borrower has
                                    received no notice from any such agency
                                    which may result in the imposition of a
                                    fine, or alternative, interim or final
                                    sanction, would have a material adverse
                                    effect on Borrower or the operation of the
                                    Mortgaged Property, would result in the
                                    appointment of a receiver or manager, would
                                    affect Borrower's ability to accept and/or
                                    retain residents, or would result in the
                                    revocation, transfer, surrender, suspension
                                    or other impairment of any License for the
                                    Mortgaged Property.

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                        PAGE B-11

<PAGE>   48

                           (5)      Neither the execution and delivery of the
                                    Note, the Instrument or any other loan
                                    documents, Borrower's performance
                                    thereunder, the recordation of the
                                    Instrument, nor the exercise of any
                                    remedies by Lender, will adversely affect
                                    the Licenses.

                           (6)      Borrower is not a participant in any
                                    federal program whereby any federal, state
                                    or local government or quasi-governmental
                                    body or agency may have the right to
                                    recover funds by reason of the advance of
                                    federal funds. Borrower has received no
                                    notice of, and is not aware of, any
                                    violation of applicable antitrust laws.

                           (7)      In the event any existing management
                                    agreement is terminated or Lender acquires
                                    the Mortgaged Property through foreclosure
                                    or otherwise, neither Borrower, Lender, any
                                    subsequent manager, nor any subsequent
                                    purchaser (through foreclosure or
                                    otherwise) must obtain a certificate of
                                    need from any applicable state health care
                                    regulatory authority or agency (other than
                                    giving such notice required under the
                                    applicable state law or regulation) prior
                                    to applying for any applicable License,
                                    provided that no service or the unit
                                    compliment is changed.

         (d)      Borrower shall furnish to Lender, within ten (10) days after
                  receipt by Borrower, any operator or any manager, any and all
                  notices from any licensing and/or certifying agency that any
                  License is being downgraded to a substandard category,
                  revoked, or suspended, or that action is pending or being
                  considered.

         (e)      Borrower shall furnish to Lender, within ten (10) days after
                  receipt, a copy of any licensing agency survey or report and
                  any statement of deficiencies, and within the time period
                  required by the particular agency for furnishing a plan of
                  correction, shall furnish to Lender a copy of the plan of
                  correction. Borrower shall correct any deficiency, the curing
                  of which is a condition of continued licensure, by the date
                  required for cure by such agency.

         (f)      Upon Lender's request, Borrower shall furnish to Lender true
                  and correct copies of all residency and resident care
                  agreements.

         (g)      Borrower shall operate in a manner such that all applicable
                  Licenses shall remain in full force and effect.

         (h)      Without the prior written consent of Lender, which may be
                  granted or withheld in its discretion, Borrower shall not,
                  and shall not permit any operator or manager at the Mortgaged
                  Property to, participate in Medicare and Medicaid, or any
                  provider agreement under Medicare and Medicaid, or accept any
                  residents whose ability to reside in the Mortgaged Property
                  requires that Borrower, the Mortgaged Property or

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                        PAGE B-12

<PAGE>   49

                  any operator or manager participate in Medicare, Medicaid or
                  any similar provider program.

         (i)      Borrower shall not, and shall not allow any operator or
                                    manager to: (A) transfer any License to any
                                    location other than the Mortgaged Property,
                                    (B) pledge any License as collateral
                                    security for any other loan or
                                    indebtedness; (C) rescind, withdraw,
                                    modify, or otherwise alter any License if
                                    doing so would have a material affect on
                                                the Mortgaged Property; or (D)
                                    pledge any receivables as collateral
                                    security for any other loan or indebtedness.

         (j)      The Mortgaged Property constitutes but one business
                  enterprise and shall be deemed to be "single asset real
                  estate" for purposes of the provisions of Section 362 of the
                  U.S. Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
                  "Code").

21.      A new Section 48 to the Instrument is added as follows:

         48.      ADDITIONAL DEFAULTS. The following shall also constitute an
                  Event of Default under the Instrument:

         (a)      Borrower's failure within the time deadlines set by any
                  federal, state or local licensing or similar agency, to
                  correct any deficiency that may cause any action by such
                  agency with respect to the Mortgaged Property that may have a
                  material adverse affect on the income or operation of the
                  Mortgaged Property or on Borrower's interest in the Mortgaged
                  Property, including, a termination, revocation or suspension
                  of any applicable License, or a ban on new resident
                  admissions.

         (b)      Borrower's failure to do any of the following without the
                  prior written consent of Lender, to be granted or withheld in
                  its discretion:  (1) operate the Mortgaged Property as its
                  Intended Use; (2) provide facilities and services normally
                  associated with its Intended Use; (3) provide or contract for
                  skilled nursing care for any of the units other than that
                  level of care which Borrower would be permitted to provide or
                  contract for at the Mortgaged Property given its Intended
                  Use, state or local statutes, regulations, orders, standards,
                  rules or restrictions.

         (c)      (1) non-residential space in the Mortgaged Property exceeds
                  ten percent (10%) of the net rental area; (2) the Mortgaged
                  Property is no longer classified as housing for older persons
                  pursuant to the Fair Housing Amendments Act of 1988; (3)
                  Borrower participates, or permits the manager, operator or
                  any resident at the Mortgaged Property to participate in
                  Medicare, Medicaid, or any similar or successor payment
                  provider plan; (4) skilled nursing care is provided; or (5)
                  there is a change in the Intended Use.
         (d)      If Borrower fails to spend $750.00 per unit each three (3)
                  year period (commencing with the closing of the Loan) during
                  the term of the Loan for Capital Replacement

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                        PAGE B-13

<PAGE>   50

                  (as hereinafter defined) or provide proof thereof to Lender
                  by the end of such three (3) year period, such failure shall
                  be an Event of Default under the Loan Documents. "Capital
                  Replacement" shall mean the replacement of furniture, carpet,
                  vinyl flooring, window treatments, roofs, furnace/boilers,
                  air conditioners, ovens/ranges, refrigerators, dishwashers,
                  water heaters and garbage disposals.

22.      A new Section 49 to the Instrument is added as follows:

         49.      LENDER'S RIGHT TO USE TRADE NAME.  Notwithstanding anything
                  contained herein, Borrower agrees that Lender shall have an
                  irrevocable license, coupled with an interest and for which
                  consideration has been paid and received, to use the name
                  "Sunrise" and/or associated trademark rights and trade names
                  relating to any of the Mortgaged Property for a period not to
                  exceed 120 days after the date Lender acquires the Mortgaged
                  Property by foreclosure or deed-in-lieu of foreclosure.

23.      A new Section 50 to the Instrument is added as follows:

         50.      CHANGE OF MANAGEMENT AGENT.   If at any time Borrower chooses
                  to begin having the Property managed by a property manager
                  other than Sunrise Assisted Living Management, Inc, then (a)
                  the management agent selected by Borrower must be reasonably
                  acceptable to Lender, (b) Borrower shall enter into a written
                  management agreement with that agent, which shall be
                  reasonably acceptable in form and substance to Lender, and
                  (c) Borrower shall assign all of its rights under the
                  management agreement to Lender as additional security for the
                  Indebtedness, using a form of assignment acceptable to Lender
                  in form and substance.

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SECURITY INSTRUMENT (FREDDIE MAC) - NEW JERSEY                         PAGE B-14

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