Document:

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Prepared by, and after recording
return to:
Vanessa G. Morris, Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road
Atlanta, Georgia 30326

                        MULTIFAMILY DEED TO SECURE DEBT,
                               ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

                      (GEORGIA - REVISION DATE 11-01-2000)

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                                                        FHLMC Loan No. 002697238

                        MULTIFAMILY DEED TO SECURE DEBT,
                               ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT
                      (GEORGIA - REVISION DATE 11-01-2000)

         THIS MULTIFAMILY DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY
AGREEMENT (the "INSTRUMENT") is made as of the ____ day of ______________, 2002,
between ROBERTS PROPERTIES RESIDENTIAL, L.P, a limited partnership organized and
existing under the laws of the State of Georgia, whose address is 8010 Roswell
Road, Suite 120, Atlanta, GA 30350, as grantor ( "BORROWER"), and PRIMARY
CAPITAL ADVISORS LC, a limited liability company organized and existing under
the laws of State of Georgia, whose address is 2060 Mt. Paran Road, Suite 101,
Atlanta, GA 30327, as grantee ("LENDER").

         Borrower is indebted to Lender in the principal amount of Ten Million
and No/100 Dollars ($10,000,000.00), as evidenced by Borrower's Multifamily Note
payable to Lender, dated as of the date of this Instrument, and maturing on
December 1, 2012.

         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 grants, conveys and assigns to Lender and Lender's successors and
assigns, with power of sale, the Mortgaged Property, including the Land located
in Fulton County, State of Georgia and described in Exhibit A attached to this
Instrument. To have and to hold the Mortgaged Property unto Lender and Lender's
successors and assigns forever. As used in this Instrument, the term "Mortgaged
Property" is synonymous with the term "Secured Property," and the term "lien" is
synonymous with the term "security interest and title."

         Borrower covenants that Borrower is lawfully seized of the Mortgaged
Property and has the right, power and authority to grant, convey and assign the
Mortgaged Property, that the Mortgaged Property is unencumbered, and 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.

                                                                          PAGE 1

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COVENANTS.  Borrower and Lender covenant and agree as follows:

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

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

         (b)      "COLLATERAL AGREEMENT" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for the
Mortgaged Property, establishing a fund to assure 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,

                                                                          PAGE 2

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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.

         (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.

                                                                          PAGE 3

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         (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 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;

                                                                          PAGE 4

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                  (3)      the Fixtures;

                  (4)      the Personalty;

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

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

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

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

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

                  (10)     all Rents and Leases;

                                                                          PAGE 5

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                  (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 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).

                                                                          PAGE 6

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         (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 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

                                                                          PAGE 7

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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 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

                                                                          PAGE 8

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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

                                                                          PAGE 9

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

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

         (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

                                                                         PAGE 10

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

         (b)      Until 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

                                                                         PAGE 11

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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.

         (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.

                                                                         PAGE 12

<PAGE>

         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 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

                                                                         PAGE 13

<PAGE>

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 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

                                                                         PAGE 14

<PAGE>

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 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

                                                                         PAGE 15

<PAGE>

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:

                  (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;

                                                                         PAGE 16

<PAGE>

                  (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; and

                                                                         PAGE 17

<PAGE>

                  (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

                                                                         PAGE 18

<PAGE>

Event of Default exists, Lender may exercise any rights Lender may have with
respect to Imposition Deposits without regard to whether Impositions are then
due and payable. Lender shall have no liability to Borrower for failing to pay
any Impositions to the extent that any Event of Default has occurred and is
continuing, insufficient Imposition Deposits are held by Lender at the time an
Imposition becomes due and payable or Borrower has failed to provide Lender with
bills and premium notices as provided above.

         (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

                                                                         PAGE 19

<PAGE>

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.

         (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

                                                                         PAGE 20

<PAGE>

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, 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

                                                                         PAGE 21

<PAGE>

                           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

                  (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

                                                                         PAGE 22

<PAGE>

                           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 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

                                                                         PAGE 23

<PAGE>

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;

                  (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.

                                                                         PAGE 24

<PAGE>

         (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 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:

                                                                         PAGE 25

<PAGE>

                  (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.

         19.      PROPERTY AND LIABILITY INSURANCE.

                                                                         PAGE 26

<PAGE>

         (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

                                                                         PAGE 27

<PAGE>

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

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

                                                                         PAGE 28

<PAGE>

with any Condemnation. This power of attorney is coupled with an interest and
therefore is irrevocable. However, nothing contained in this Section 20 shall
require Lender to incur any expense or take any action. Borrower hereby
transfers and assigns to Lender all right, title and interest of Borrower in and
to any award or payment with respect to (i) any Condemnation, or any conveyance
in lieu of Condemnation, and (ii) any damage to the Mortgaged Property caused by
governmental action that does not result in a Condemnation.

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

         21.      TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.
[RIGHT TO UNLIMITED TRANSFERS -- WITH LENDER APPROVAL].

         (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;

                                                                         PAGE 29

<PAGE>

                  (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 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;

                                                                         PAGE 30

<PAGE>

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

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

                  (2)      the absence of any Event of Default;

                  (3)      the transferee meets all of the eligibility, credit,
                           management and other standards (including 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 at the time of the proposed
                           Transfer to the approval of borrowers in connection
                           with the origination or purchase of similar mortgages
                           on multifamily properties;

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

                  (5)      in the case of a Transfer of all or any part of the
                           Mortgaged Property, (A) the execution by the
                           transferee 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

                                                                         PAGE 31

<PAGE>

                           transferee comply with any provisions of this
                           Instrument or any other Loan Document which
                           previously may have been waived by Lender, and (B) if
                           a guaranty has been executed and delivered in
                           connection with the Note, this Instrument or any of
                           the other Loan Documents, the transferee causes one
                           or more individuals or entities acceptable to Lender
                           to execute and deliver to Lender a guaranty in a form
                           acceptable to Lender;

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

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

                           (A)      a review fee in the amount of $3,000.00;

                           (B)      a transfer fee in an amount equal to 1% of
                                    the unpaid principal balance of the
                                    Indebtedness immediately before the
                                    applicable 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

                                                                         PAGE 32

<PAGE>

report or information provided to Lender during the term of the Indebtedness, or
(C) any request for Lender's consent to any proposed action, including a request
for disbursement of funds under any Collateral Agreement;

         (e)      any Event of Default under Section 21;

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

         (g)      any failure by Borrower to perform any of its obligations
under this Instrument (other than those specified in Sections 22(a) through
(f)), as and when required, which continues for a period of 30 days after notice
of such failure by Lender to Borrower. 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

                                                                         PAGE 33

<PAGE>

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 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

                                                                         PAGE 34

<PAGE>

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 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

                                                                         PAGE 35

<PAGE>

Borrower against the enforcement of any right or remedy of Lender under the Loan
Documents; and (vi) any additional facts requested by Lender.

         30.      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

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

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

         31.      NOTICE.

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

                                                                         PAGE 36

<PAGE>

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

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

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

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

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

         36.      RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

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

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

                                                                         PAGE 37

<PAGE>

         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; provided, however, that in the event
of a Transfer, any or some or all of the Modifications to Instrument set forth
in Exhibit B (if any) may be modified or rendered void by Lender at Lender's
option by notice to Borrower/transferee.

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

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

         40.      DISCLOSURE OF INFORMATION. Lender may furnish information
regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including 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

                                                                         PAGE 38

<PAGE>

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 invoke the power of
sale granted in this Instrument (and Borrower appoints Lender as Borrower's
agent and attorney-in-fact to exercise such power of sale in the name and on
behalf of Borrower) and any other remedies permitted by Georgia law or provided
in this Instrument or in any other Loan Document. Borrower acknowledges that the
power of sale granted in this Instrument may be exercised by Lender without
prior judicial hearing. Lender shall be entitled to collect all costs and
expenses incurred in pursuing such remedies, including reasonable attorneys'
fees, costs of documentary evidence, abstracts and title reports.

         Lender may sell and dispose of the Mortgaged Property at public
auction, at the usual place for conducting sales at the courthouse in the county
where all or any part of the Mortgaged Property is located, to the highest
bidder for cash, first advertising the time, terms and place of such sale by
publishing a notice of sale once a week for four consecutive weeks (without
regard to the actual number of days) in a newspaper in which sheriff's
advertisements are published in such county, all other notice being waived by
Borrower; and Lender may thereupon execute and deliver to the purchaser a
sufficient instrument of conveyance of the Mortgaged Property in fee simple,
which may contain recitals as to the happening of the default upon which the
execution of the power of sale granted by this Section depends. The recitals in
the instrument of conveyance shall be presumptive evidence that Lender duly
complied with all preliminary acts prerequisite to the sale and instrument of
conveyance. Borrower constitutes and appoints Lender as Borrower's agent and
attorney-in-fact to make such recitals, sale and conveyance. Borrower ratifies
all of Lender's acts, as such attorney-in-fact, and Borrower agrees that such
recitals shall be binding and conclusive upon Borrower and that the conveyance
to be made by Lender (and in the event of a deed in lieu of foreclosure, then as
to such conveyance) shall be effectual to bar all

                                                                         PAGE 39

<PAGE>

right, title and interest, equity of redemption, including all statutory
redemption, homestead, dower, curtsey and all other exemptions of Borrower, or
its successors in interest, in and to the Mortgaged Property.

         The Mortgaged Property may be sold in one parcel and as an entirety, or
in such parcels, manner or order as Lender, in its discretion, may elect, and
one or more exercises of the powers granted in this Section shall not extinguish
or exhaust the power unless the entire Mortgaged Property is sold or the
Indebtedness is paid in full, and Lender shall collect the proceeds of such
sale, applying such proceeds as provided in this Section. In the event of a
deficiency, Borrower shall immediately on demand from Lender pay such deficiency
to Lender, subject to the provisions of the Note limiting Borrower's personal
liability for payment of the Indebtedness. Borrower acknowledges that Lender may
bid for and purchase the Mortgaged Property at any foreclosure sale and shall be
entitled to apply all or any part of the Indebtedness as a credit to the
purchase price. Borrower covenants and agrees that Lender shall apply the
proceeds of the sale in the following order: (a) to all reasonable costs and
expenses of the sale, including reasonable attorneys' fees and costs of title
evidence; (b) to the Indebtedness in such order as Lender, in Lender's
discretion, directs; and (c) the excess, if any, to the person or persons
legally entitled to the excess. The power and agency granted in this Section 43
are coupled with an interest, are irrevocable by death or otherwise and are in
addition to the remedies for collection of the Indebtedness as provided by law.

         If the Mortgaged Property is sold pursuant to this Section 43,
Borrower, or any person holding possession of the Mortgaged Property through
Borrower, shall surrender possession of the Mortgaged Property to the purchaser
at such sale on demand. If possession is not surrendered on demand, Borrower or
such person shall be a tenant holding over and may be dispossessed in accordance
with Georgia law.

         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.      BORROWER'S WAIVER OF CERTAIN RIGHTS. To the fullest extent
permitted by law, Borrower agrees that Borrower will not at any time insist
upon, plead, claim or take the benefit or advantage of any present or future law
providing for any appraisement, valuation, stay, extension or redemption,
homestead, moratorium, reinstatement, marshalling or forbearance, and Borrower,
for Borrower, Borrower's heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming any interest in the Mortgaged
Property, to the fullest extent permitted by law, waives and releases all rights
of redemption, valuation, appraisement, stay of execution, reinstatement
(including all rights under O.C.G.A. Section 44-

                                                                         PAGE 40

<PAGE>

14-85), notice of intention to mature or declare due the whole of the
Indebtedness, and all rights to a marshaling of assets of Borrower, including
the Mortgaged Property.

         46.      DEED TO SECURE DEBT. This conveyance is to be construed under
the existing laws of the State of Georgia as a deed passing title, and not as a
mortgage, and is intended to secure the payment of the Indebtedness.

         47.      ASSUMPTION NOT A NOVATION. Lender's acceptance of an
assumption of the obligations of this Instrument and the Note, and the release
of Borrower pursuant to Section 21, shall not constitute a novation and shall
not affect the priority of the lien created by this Instrument.

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

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

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

                  [X]      Exhibit B         Modifications to Instrument

                            {Signatures on next page}

                                                                         PAGE 41

<PAGE>

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

Signed, sealed, and delivered                BORROWER:
in the presence of:
                                             ROBERTS PROPERTIES RESIDENTIAL,
 /s/ Kevin L. Colin                          L.P., a Georgia limited partnership
------------------------------------
Unofficial Witness
                                             By: ROBERTS REALTY INVESTORS,
 /s/ Elizabeth A. Hill                           INC., a Georgia corporation
------------------------------------             Its General Partner
Notary Public

Commission expiry: January 2, 2005               By: /s/ Charles S. Roberts
[Affix notarial seal]                                ---------------------------
                                                 Name:  Charles S. Roberts
                                                 Title: President

                                                        [Corporate Seal]

                                                                         PAGE 42

<PAGE>

                                    EXHIBIT A

                            [DESCRIPTION OF THE LAND]

                                                                        PAGE A-1

<PAGE>

                                    EXHIBIT B

                           MODIFICATIONS TO INSTRUMENT

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

1.       Section 7 of this Instrument is modified to add the following
         subsection:

         "(f)     Notwithstanding the provisions of subsection 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 fire, hazard or other insurance premiums, taxes,
                  water and sewer charges, assessments or other charges.
                  Borrower must provide Lender with proof of payment of all such
                  Impositions for which Lender is not collecting Imposition
                  Deposits on or before the date such Impositions are due or on
                  the date this Instrument requires such Impositions to be paid.
                  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 any other time in Lender's discretion, Lender
                  may require Borrower to deposit with Lender the Imposition
                  Deposits as provided in subsection 7(a)."

2.       Whenever reference is made in this Instrument or any of the Loan
         Documents to the payment of "reasonable attorney's fees" or words of
         similar import, the same shall mean and refer to the payment of actual
         attorney's fees incurred based upon the attorney's normal hourly rates
         and the number of hours worked, and not the attorney's fees statutorily
         defined in O.C.G.A. Section 13-1-11.

3.       The following words appearing in Section 14(b)(4) are hereby deleted:
         "within 120 days after the end of each fiscal year of Borrower, and at
         any other"; and the following words are hereby inserted and substituted
         therefor: "at any".

4.       The following words are hereby inserted in Section 14(e), after
         "demand": "true and correct copies, certified by Borrower's general
         partner's or Borrower's chief financial officer, of".

                                                                        PAGE B-1

<PAGE>

5.       The following words are hereby inserted in Section 14(b)(7), after the
         beginning words to that Section ("upon Lender's request"): "at any time
         when an Event of Default exists".

6.       New sections 21(b)(7) and 21(b)(8) are added to the Security Instrument
         as follows:

         "(7) A Transfer of fee simple title to the Mortgaged Property to
         Roberts Realty Investors, Inc. (the "REIT"), provided that each of the
         following requirements has been satisfied:

                  (A)      Borrower has provided Lender with at least 30 days
                           prior written notice of the proposed Transfer, which
                           notice shall be accompanied by a non-refundable
                           review fee in the amount of $3,000;

                  (B)      No other Transfer has occurred, and the REIT is at
                           the time of the proposed Transfer a Georgia
                           corporation in good standing and a self-administered
                           real estate investment trust;

                  (C)      the absence of any Event of Default;

                  (D)      the execution by the REIT of an assumption agreement
                           that is acceptable to Lender and that requires the
                           REIT to perform all obligations of Borrower set forth
                           in the Note, this Instrument and any other Loan
                           Documents, and to comply with all of the provisions
                           of this Instrument or the other Loan Documents (but
                           which does not impose upon the REIT any greater
                           obligations or liabilities than are imposed upon the
                           Borrower named herein as set forth in the Loan
                           Documents);

                  (E)      Borrower has delivered to Lender a commitment from
                           the title insurance company that issued the title
                           insurance policy insuring this Instrument to endorse
                           such title insurance policy and update and continue
                           the coverage provided thereby to the date of the
                           recording of the deed transferring title to the
                           Mortgaged Property to the REIT, with no additional
                           exceptions to insurance coverage; and the original of
                           such endorsement is delivered to Lender promptly
                           following the recording of such deed; and

                  (F)      Lender has been paid or reimbursed by Borrower for
                           all of Lender's out-of-pocket costs (including title
                           search and title insurance charges, recording charges
                           and reasonable fees and expenses of Lender's legal
                           counsel) incurred in connection with the Transfer
                           request and Transfer. No separate

                                                                        PAGE B-2

<PAGE>

                           transfer fee shall be payable in connection with the
                           Transfer described in this Section 21(b)(7).

         (8)      A Transfer of publicly traded shares or other publicly traded
                  units of ownership in the REIT or a Controlling Entity; or a
                  Transfer (which shall include an exchange for shares or other
                  units of ownership in the REIT) of limited partnership
                  interests in Borrower. No Transfer described in this Section
                  21(b)(8) shall be subject to the conditions or requirements of
                  Section 21(c)."

7.       Section 33 (Single Asset Borrower) of this Instrument is deleted in its
         entirety.

                                                                        PAGE B-3<PAGE>
                                                        FHLMC Loan No. 002697238

                         REPLACEMENT RESERVE AGREEMENT
                           (REVISION DATE 08-01-2002)

         This REPLACEMENT RESERVE AGREEMENT ("Agreement") is made and entered
into, to be effective as of this ____ day of ______________________, 2002, by
and between ROBERTS PROPERTIES RESIDENTIAL, L.P., a limited partnership
organized and existing under the laws of the State of Georgia ("Borrower"), and
PRIMARY CAPITAL ADVISORS LC, a limited liability company organized and existing
under the laws of State of Georgia ("Lender") and its successors and assigns.

                               W I T N E S S E T H:

         WHEREAS, Lender has agreed to make and Borrower has agreed to accept
the Loan, which is to be evidenced by the Note and secured by the Security
Instrument encumbering the Land and the Improvements. The Land is described on
Exhibit "A" attached to this Agreement; and

         WHEREAS, as a condition of making the Loan, Lender is requiring
Borrower to establish the Replacement Reserve Fund for the funding of Capital
Replacements throughout the Loan term.

         NOW, THEREFORE, for and in consideration of the Loan, the mutual
promises and covenants herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower agree as follows:

1.       Definitions. The following terms used in this Agreement shall have the
         meanings set forth below in this Section 1. Any term used in this
         Agreement and not defined shall have the meaning given to that term in
         the Security Instrument.

         (a)      "Capital Replacement" means the replacement of those items
                  listed on Exhibit "B" of this Agreement and such other
                  replacements of equipment, major components or capital systems
                  related to the Improvements as may be approved in writing or
                  required by Lender.

         (b)      "Disbursement Period" means the interval between disbursements
                  from the Replacement Reserve Fund, which interval shall be no
                  shorter than once a month.

         (c)      "Improvements" means the buildings, Personal Property and
                  improvements situated upon the Land, currently constituting a
                  multifamily apartment project known as Highland Park
                  Apartments.

                                                                          PAGE 1

<PAGE>

         (d)      "Initial Deposit" means the amount of Zero Dollars ($0.00)
                  made as of the date of this Agreement.

         (e)      "Inspection Fee" means a fee for performing any inspection
                  required by this Agreement in an amount not to exceed Five
                  Hundred and No/100 Dollars ($500.00) per inspection.

         (f)      "Investment Fee" means a one time fee for establishing the
                  Replacement Reserve Fund in the amount of Two Hundred Fifty
                  and No/100 Dollars ($250.00).

         (g)      "Loan" means the loan from Lender to Borrower in the original
                  principal amount of Ten Million and No/100 Dollars
                  ($10,000,000.00), as evidenced by the Note and secured by the
                  Security Instrument.

         (h)      "Minimum Disbursement Request Amount" means Two Thousand and
                  No/100 Dollars ($2,000.00).

         (i)      "Monthly Deposit" means the amount of Three Thousand One
                  Hundred Two and No/100 Dollars ($3,102.00) per month to be
                  deposited into the Replacement Reserve Fund in accordance with
                  this Agreement.

         (j)      "Property" means the Land and Improvements.

         (k)      "Replacement Reserve Deposit" means the Initial Deposit, the
                  Monthly Deposit and/or the Revised Monthly Deposit, as
                  appropriate.

         (l)      "Replacement Reserve Fund" means the account established
                  pursuant to this Agreement to defray the costs of Capital
                  Replacements.

         (m)      "Review Period" means the period ending 120 months after the
                  first monthly payment date.

         (n)      "Revised Monthly Deposit" means the amount per month that
                  Lender determines Borrower must deposit in the Replacement
                  Reserve Fund during any Subsequent Review Period.

         (o)      "Security Instrument" means the mortgage, deed of trust, deed
                  to secure debt, or other similar security instrument
                  encumbering the Property and securing Borrower's performance
                  of its Loan obligations.

         (p)      "Subsequent Review Period" means the period of 120 months
                  commencing either (i) at the termination of the Review Period
                  or (ii) at the termination of a prior

                                                                          PAGE 2

<PAGE>

                  Subsequent Review Period. There may be more than one
                  Subsequent Review Period.

2.       Replacement Reserve Fund

         (a)      Establishment; Funding.

                  (i)      Upon the closing of the Loan, the parties shall
                           establish the Replacement Reserve Fund and, if
                           required by Lender, Borrower shall pay the Initial
                           Deposit to Lender for deposit into the Replacement
                           Reserve Fund.

                  (ii)     Commencing on the date the first installment of
                           principal and/or interest is due under the Note and
                           continuing on the same day of each successive month
                           until the end of the Review Period, Borrower shall
                           pay the Monthly Deposit to Lender for deposit into
                           the Replacement Reserve Fund, together with its
                           regular monthly payments of principal and interest as
                           required by the Note and Security Instrument.

                  (iii)    Prior to the end of the Review Period, Lender will
                           assess the physical condition of the Property. Lender
                           may adjust the Monthly Deposit at the termination of
                           the Review Period to reflect Lender's determination
                           of the condition of the Property. Upon written notice
                           from Lender or Loan Servicer, Borrower shall begin
                           paying the Revised Monthly Deposit on the first
                           monthly payment date of the Subsequent Review Period
                           and shall continue paying the Revised Monthly Deposit
                           until Lender further adjusts the Replacement Reserve
                           Deposit during a Subsequent Review Period, if
                           applicable. If Lender does not provide Borrower with
                           written notice of a Revised Monthly Deposit, Borrower
                           shall continue to pay the Monthly Deposit or the
                           Revised Monthly Deposit then in effect.

         (b)      Investment of Deposits.  Borrower and Lender agree that Lender
                  shall hold all moneys deposited into the Replacement Reserve
                  Fund in an interest bearing account, and any interest earned
                  on such moneys shall be added to the principal balance of the
                  Replacement Reserve Fund and disbursed in accordance with the
                  provisions of this Agreement. Borrower acknowledges and agrees
                  that it shall not have the right to direct Lender as to any
                  specific investment of moneys in the Replacement Reserve Fund.
                  Lender shall not be responsible for any losses resulting from
                  investment of moneys in the Replacement Reserve Fund or for
                  obtaining any specific level or percentage of earnings on such
                  investment. Lender shall be entitled to deduct the Investment
                  Fee from the Replacement Reserve Fund for establishing the
                  Replacement Reserve.

                                                                          PAGE 3

<PAGE>

         (c)      Use. Subject to the pledge and security interest and other
                  rights of Lender set forth in this Agreement, the Replacement
                  Reserve Fund shall be maintained for the payment of the costs
                  of the Capital Replacements identified on Exhibit B.

         (d)      Deferral of Deposits. Notwithstanding subsections 2(a) through
                  (c) above, Lender defers its right to require Borrower to make
                  the Replacement Reserve Deposit. However, at the end of the
                  Review Period or any Subsequent Review Period, Lender reserves
                  the right to require that Borrower begin making the
                  Replacement Reserve Deposit if Lender reasonably determines
                  that the physical condition of the Property warrants that
                  Borrower begin making such deposit. Lender's determination to
                  require such deposit shall not depend on the existence of any
                  of the events set forth in subsection (e) below.

         (e)      Reinstatement of Deposits. Notwithstanding subsection 2(d)
                  above, Lender reserves the right to require at any time, upon
                  written notice to Borrower, that Borrower begin making the
                  Replacement Reserve Deposit if Lender reasonably determines
                  that any of the following events have occurred:

                  (i)      Borrower's default under the Note, Security
                           Instrument, or any other document delivered in
                           connection with the Loan, or

                  (ii)     the occurrence of a Transfer which is prohibited
                           under the terms of the Security Instrument or which
                           requires Lender's consent, or

                  (iii)    Borrower's failure to maintain the Property in a
                           satisfactory manner and/or in accordance with the
                           requirements of the Security Instrument.

3.       Performance of Capital Replacements; Disbursements.

         (a)      Requests for Disbursement.  Lender shall disburse funds from
                  the Replacement Reserve Fund, in its sole discretion,as
                  follows:

                  (i)      Borrower's Request. If Borrower determines, at any
                           time or from time to time, that a Capital Replacement
                           is necessary or desirable, Borrower shall perform
                           such Capital Replacement and request from Lender, in
                           writing, reimbursement for such Capital Replacement.
                           Borrower's request for reimbursement shall include
                           (A) a detailed description of the Capital Replacement
                           performed, together with evidence, satisfactory to
                           Lender, that the cost of such Capital Replacement has
                           been paid and (B) lien waivers from each contractor
                           and material supplier supplying labor or materials
                           for such Capital Replacement, if required by Lender.

                                                                          PAGE 4

<PAGE>

                  (ii)     Lender's Request. If Lender shall reasonably
                           determine at any time or from time to time, that a
                           Capital Replacement is necessary for the proper
                           maintenance of the Property, it shall so notify
                           Borrower, in writing, requesting that Borrower obtain
                           and submit to Lender bids for all labor and materials
                           required in connection with such Capital Replacement.
                           Borrower shall submit such bids and a time schedule
                           for completing each Capital Replacement to Lender
                           within thirty (30) days after Borrower's receipt of
                           Lender's written notice. Borrower shall perform such
                           Capital Replacement and request from Lender, in
                           writing, reimbursement for such Capital Replacement.
                           Borrower's request for reimbursement shall include
                           (A) a detailed description of the Capital Replacement
                           performed, together with evidence, satisfactory to
                           Lender, that the cost of such Capital Replacement has
                           been paid and (B) lien waivers from each contractor
                           and material supplier supplying labor or materials
                           for such Capital Replacement, if required by Lender.

         (b)      Conditions Precedent. Disbursement from the Replacement
                  Reserve Fund shall be made no more frequently than once every
                  Disbursement Period and, except for the final disbursement, no
                  disbursement shall be made in an amount less than the Minimum
                  Disbursement Request Amount. Disbursements shall be made only
                  if the following conditions precedent have been satisfied, as
                  reasonably determined by Lender:

                  (i)      Payment for Capital Replacement. The Capital
                           Replacement has been performed and/or installed on
                           the Property in a good and workmanlike manner with
                           suitable materials (or in the case of a partial
                           disbursement, performed and/or installed on the
                           Property to an acceptable stage) and paid for by
                           Borrower as evidenced by copies of all applicable
                           paid invoices or bills submitted to Lender by
                           Borrower at the time Borrower requests disbursement
                           from the Replacement Reserve Fund.

                  (ii)     No Default. There is no condition, event or act that
                           would constitute a default (with or without notice
                           and/or lapse of time) under this Agreement or any
                           other Loan Document.

                  (iii)    Representations and Warranties. All representations
                           and warranties of Borrower set forth in this
                           Agreement and in the Loan Documents are true in all
                           material respects.

                  (iv)     Continuing Compliance. Borrower is in full compliance
                           with the provisions of this Agreement, the other Loan
                           Documents and any request or demand by Lender
                           permitted hereby.

                                                                          PAGE 5

<PAGE>

                  (v)      No Lien Claim. No lien or claim based on furnishing
                           labor or materials has been filed or asserted against
                           the Property, unless Borrower has properly provided
                           bond or other security against loss in accordance
                           with applicable law.

                  (vi)     Approvals. All licenses, permits, and approvals of
                           governmental authorities required for the Capital
                           Replacement as completed to the applicable stage have
                           been obtained.

                  (vii)    Legal Compliance. The Capital Replacement as
                           completed to the applicable stage does not violate
                           any laws, ordinance, rules or regulations, or
                           building lines or restrictions applicable to the
                           Property.

4.       Right to Complete Capital Replacements. If Borrower abandons or fails
         to proceed diligently to undertake and/or complete any Capital
         Replacement in a timely fashion or is otherwise in default under this
         Agreement for 30 days after written notice of such failure by Lender to
         Borrower, Lender shall have the right (but not the obligation) to enter
         upon the Property and take over and cause the completion of such
         Capital Replacement. However, no such notice or grace period shall
         apply in the case of such failure which could, in Lender's judgment,
         absent immediate exercise by Lender of a right or remedy under this
         Agreement, result in harm to Lender or impairment of the security given
         under the Security Instrument or any other Loan Document. Any contracts
         entered into or indebtedness incurred upon the exercise of such right
         may be in the name of Borrower, and Lender is hereby irrevocably
         appointed the attorney in fact of Borrower, such appointment being
         coupled with an interest, to enter into such contracts, incur such
         obligations, enforce any contracts or agreements made by or on behalf
         of Borrower (including the prosecution and defense of all actions and
         proceedings in connection with the Capital Replacement and the payment,
         settlement or compromise of all bills and claims for materials and work
         performed in connection with the Capital Replacement) and do any and
         all things necessary or proper to complete any Capital Replacement
         including signing Borrower's name to any contracts and documents as may
         be deemed necessary by Lender. In no event shall Lender be required to
         expend its own funds to complete any Capital Replacement, but Lender
         may, in its sole discretion, advance such funds. Any funds advanced
         shall be added to the outstanding balance of the Loan, secured by the
         Security Instrument and payable to Lender by Borrower in accordance
         with the provisions of the Security Instrument pertaining to the
         protection of Lender's security and advances made by Lender. Borrower
         waives any and all claims it may have against Lender for materials
         used, work performed or resultant damage to the Property.

5.       Inspection. Lender or any representative of Lender may periodically
         inspect any Capital Replacement in process and upon completion during
         normal business hours or at any other reasonable time upon reasonable
         prior written notice to Borrower (except in an emergency, as determined
         by Lender in its discretion or after an Event of Default, in which
         event no

                                                                          PAGE 6

<PAGE>

         such prior notice shall be require). Lender shall be entitled to deduct
         the Inspection Fee from the Replacement Reserve Fund for performing any
         such inspection. If Lender, in its sole discretion, retains a
         professional inspection engineer or other qualified third party to
         inspect any Capital Replacement, Lender also shall be entitled to
         deduct from the Replacement Reserve Fund an amount sufficient to pay
         all reasonable fees and expenses charged by such third party inspector.

6.       Insufficient Account. If Borrower requests disbursement from the
         Replacement Reserve Fund for a Capital Replacement in accordance with
         this Agreement in an amount which exceeds the amount on deposit in the
         Replacement Reserve Fund, Lender shall disburse to Borrower only the
         amount on deposit in the Replacement Reserve Fund. Borrower shall pay
         all additional amounts required in connection with any such Capital
         Replacement from Borrower's own funds.

7.       Security Agreement. Borrower hereby conveys, pledges, transfers and
         grants to Lender a security interest pursuant to the Uniform Commercial
         Code of the Property Jurisdiction or any other applicable law in and to
         all money in the Replacement Reserve Fund, as same may increase or
         decrease from time to time, for the purpose of securing Borrower's
         obligations under this Agreement and to further secure Borrower's
         obligations under the Note, Security Instrument and other Loan
         Documents.

8.       Post Default. If Borrower defaults in the performance of its
         obligations under this Agreement or under the Note, Security Instrument
         or any other Loan Document, after the expiration of any applicable
         notice or cure period, Lender shall have all remedies available to them
         under Article 9 of the Uniform Commercial Code of the Property
         Jurisdiction and under any other applicable law. In addition, Lender
         may retain all money in the Replacement Reserve Fund, including
         interest, and in Lender's discretion, may apply such amounts, without
         restriction and without any specific order of priority, to the payment
         of any and all indebtedness or obligations of Borrower set forth in the
         Note, Security Instrument or any other Loan Document, including, but
         not limited to, principal, interest, taxes, insurance, reasonable
         attorneys' fees and costs (including those of Lender's in-house
         counsel) and disbursements actually incurred and/or repairs to the
         Property.

9.       Termination. If not sooner terminated by written concurrence of the
         parties, this Agreement shall terminate upon the payment in full of the
         Loan and all indebtedness incurred in connection therewith and upon
         such termination, Lender shall pay to Borrower all funds remaining in
         the Replacement Reserve Fund.

10.      No Amendment. Nothing contained in this Agreement shall be construed to
         amend, modify, alter, change or supersede the terms and provisions of
         the Note, Security Instrument or any other Loan Document; and, if there
         is a conflict between the terms and provisions of this Agreement and
         those of the Note, Security Instrument, or any other Loan Document

                                                                          PAGE 7

<PAGE>

         then the terms and provisions of the Note, Security Instrument or such
         other Loan Document shall control.

11.      Release; Indemnity.

         (a)      Release. Borrower covenants and agrees that, in performing any
                  of its duties under this Agreement, none of Lender, any Loan
                  Servicer, or any of their respective agents or employees shall
                  be liable for any losses, claims, damages, liabilities and
                  expenses that may be incurred by any of them as a result of
                  such performance, except that no such party will be released
                  from liability for any losses, claim, damages, liabilities or
                  expenses arising out of the willful misconduct or gross
                  negligence of such party.

         (b)      Indemnity. Borrower hereby agrees to indemnify and hold
                  harmless Lender, Loan Servicer and their respective agents and
                  employees against any and all losses, claims, damages,
                  liabilities and expenses including, without limitation,
                  reasonable attorneys' fees and costs (including those of
                  Lender's in-house counsel) and disbursements, which may be
                  imposed or incurred by any of them in connection with this
                  Agreement except that no such party will be indemnified from
                  liability for any losses, claims, damages, liabilities or
                  expenses arising out of the willful misconduct or gross
                  negligence of such party.

12.      Choice of Law. This Agreement shall be construed and enforced in
         accordance with the laws of the Property Jurisdiction.

13.      Successors and Assigns. Lender may assign its rights and interests
         under this Agreement in whole or in part and upon any such assignment,
         all the terms and provisions of this Agreement 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 also include any lawful owner, holder or
         pledgee of the Note. Reference herein to "person" or "persons" shall be
         deemed to include individuals and entities. Borrower may not assign or
         delegate its rights, interests, or obligations under this Agreement
         without first obtaining Lender's prior written consent.

14.      Attorneys' Fees. In the event that Lender engages the services of an
         attorney at law to enforce the provisions of this Agreement against
         Borrower, then Borrower shall pay all costs of such enforcement,
         including any reasonable attorneys' fees and costs (including those of
         Lender's in-house counsel) and disbursements actually incurred.

15.      Compliance with Laws; Insurance Requirements.

         (a)      Compliance with Laws. Borrower shall ensure that all Capital
                  Replacements comply with all applicable laws, ordinances,
                  rules and regulations of all

                                                                          PAGE 8

<PAGE>

                  governmental authorities having jurisdiction over the Property
                  and applicable insurance requirements including, without
                  limitation, applicable building codes, special use permits,
                  environmental regulations, and requirements of insurance
                  underwriters.

         (b)      Insurance Requirements. In addition to any insurance required
                  under the Loan Documents, Borrower shall provide or cause to
                  be provided workers' compensation, builder's risk (if required
                  by Lender), and public liability insurance and other insurance
                  required under applicable law in connection with any of the
                  Capital Replacements. All such policies that can be endorsed
                  with standard mortgage clauses making losses payable to Lender
                  or its assigns shall be so endorsed. The originals of such
                  policies shall be deposited with Loan Servicer.

16.      Remedies Cumulative. In the event of Borrower's default under this
         Agreement, Lender may exercise all or any one or more of its rights and
         remedies available under this Agreement, at law or in equity. Such
         rights and remedies shall be cumulative and concurrent, and may be
         enforced separately, successively or together, and Lender's exercise of
         any particular right or remedy shall not in any way prevent Lender from
         exercising any other right or remedy available to Lender. Lender may
         exercise any such remedies from time to time as often as Lender
         chooses.

17.      Determinations by Lender. Unless otherwise provided in this Agreement,
         in any instance where the consent or approval of Lender may be given or
         is required, or where any determination, judgment or decision is to be
         rendered by Lender under this Agreement, the granting, withholding or
         denial of such consent or approval and the rendering of such
         determination, judgment or decision shall be made or exercised by
         Lender (or its designated representative) at its sole and exclusive
         option and in its sole and absolute discretion.

18.      Completion of Capital Replacements. Lender's disbursement of moneys
         from the Replacement Reserve Fund or other acknowledgment of completion
         of any Capital Replacement in a manner satisfactory to Lender shall not
         be deemed a certification by Lender that the Capital Replacement has
         been completed in accordance with applicable building, zoning or other
         codes, ordinances, statutes, laws, regulations or requirements of any
         governmental authority or agency. Borrower shall at all times have the
         sole responsibility for ensuring that all Capital Replacements are
         completed in accordance with all such governmental requirements.

19.      No Agency or Partnership. Nothing contained in this Agreement shall
         constitute Lender as a joint venturer, partner or agent of Borrower, or
         render Lender liable for any debts, obligations, acts, omissions,
         representations or contracts of Borrower.

20.      Entire Agreement. This Agreement and the other Loan Documents represent
         the final agreement between the parties and may not be contradicted by
         evidence of prior,

                                                                          PAGE 9

<PAGE>

         contemporaneous or subsequent oral agreements. There are no oral
         agreements between the parties. All prior or contemporaneous
         agreements, understandings, representations and statements, oral or
         written, are merged into this Agreement and the other Loan Documents.
         Neither this Agreement nor any of its provisions may be waived,
         modified, amended, discharged or terminated except 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 writing; provided, however, that in the event of a
         Transfer requiring Lender's consent under the terms of the Security
         Instrument, one or more or all of the Modifications to Agreement set
         forth in Exhibit C (if any) may be modified or rendered void by Lender
         at Lender's option by notice to Borrower/transferee.

21.      Counterparts. This Agreement may be executed in multiple counterparts,
         each of which shall constitute an original document and all of which
         together shall constitute one agreement.

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

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

         [X]      Exhibit B         Capital Replacements (required)

         [X]      Exhibit C         Modifications to Agreement

                            {Signatures on next page}

                                                                         PAGE 10

<PAGE>

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

                                 BORROWER:

                                 ROBERTS PROPERTIES RESIDENTIAL,
                                 L.P., a Georgia limited partnership

                                 By:      ROBERTS REALTY INVESTORS,
                                          INC., a Georgia corporation
                                          Its General Partner

                                          By: /s/ Charles S. Roberts
                                              ------------------------
                                          Name:  Charles S. Roberts
                                          Title: President

                                               [Corporate Seal]

                                 Taxpayer ID No: 58-2122875

                                 LENDER:

                                 PRIMARY CAPITAL ADVISORS LC

                                 By: /s/ Faron G. Thompson       (Seal)
                                    --------------------------------
                                 Name:  Faron G. Thompson
                                 Title: Managing Director
                                        Commercial Mortgage Banking

                                                                         PAGE 11

<PAGE>

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF THE LAND

                                                                        PAGE A-1

<PAGE>

                                    EXHIBIT B

                              CAPITAL REPLACEMENTS

    Carpet/Vinyl Flooring                            Window Treatments
    Roofs                                            Furnaces/Boilers
    Air Conditioners                                 Ovens/Ranges
    Refrigerators                                    Dishwashers
    Water Heaters                                    Garbage Disposals
    Seal and stripe asphalt pavement                 Resurface pool shell
    Replace pump and filters                         Resurface tennis court

                                                                        PAGE B-1

<PAGE>

                                    EXHIBIT C

                 MODIFICATIONS TO REPLACEMENT RESERVE AGREEMENT

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

1.       No Subsequent Review Period will apply to this transaction.

                                                                        PAGE D-1

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