Document:

EXHIBIT 10.6

                               OPERATING AGREEMENT
                                       OF
                                CRIT-NC III, LLC

         This Operating Agreement (this "Agreement") is made as of March 6, 2001
by and between  CRIT-NC  III,  LLC, a Delaware  limited  liability  company (the
"Company"),  and CRIT  Special  II,  Inc.,  a  Virginia  corporation  (the "Sole
Member").

                                    RECITALS

         The Company  was  organized  as a Delaware  limited  liability  company
pursuant to a Certificate  of Formation  filed on March 5, 2001.  The Company is
owned by the Sole Member and has no intention of admitting additional members.

                                    ARTICLE I
                    DEFINITIONS, PURPOSE AND GENERAL MATTERS

         1.1  PURPOSE.  The  purpose  of the  Company is to engage in any lawful
activity. Without limiting the scope of the foregoing, the Company is authorized
(a)  to  acquire  from  Cornerstone   Realty  Income  Trust,  Inc.,  a  Virginia
corporation,  those certain parcels of real property listed on Exhibit A hereto,
together with all improvements located thereon (collectively, the "Properties");
and (b) to own, hold, sell, assign, transfer,  operate, lease, mortgage,  pledge
and otherwise deal with the Properties.

         1.2  OPERATING  NAMES.  The Company may operate  under its own name and
under such assumed names as it deems appropriate or convenient.

         1.3  QUALIFICATIONS  IN OTHER  JURISDICTIONS.  If required by law,  the
Company  shall  promptly  qualify  or  register  to  transact  business  in  all
jurisdictions  in which it  transacts  business as a foreign  limited  liability
company.

         1.4 LIMITED  LIABILITY.  No member or manager of the  Company  shall be
personally obligated for any debt, obligation or liability of the Company solely
by reason of being a member or acting as a manager, except as may be required by
applicable  law.  Such  limited  liability  shall  exist to the  maximum  extent
permitted by the Delaware Limited Liability Company Act, as it may be amended or
replaced from time to time (the "Act").  As of the date of this  Agreement,  the
Act is set forth in sections  18-101  through  -1109 of Title 6 of the  Delaware
Code.

         1.5 STATUS OF  AGREEMENT.  This  Agreement  is  intended  to serve as a
"limited liability company agreement" within the meaning of the Act.

<PAGE>

                                   ARTICLE II
                                   MEMBERSHIP

         2.1  ADMISSION OF  ADDITIONAL  MEMBERS.  The Company  shall not admit a
member in addition to the Sole Member unless all of the  following  requirements
are satisfied: (a) the Sole Member grants prior written consent to the admission
of the additional  member;  (b) the Company and the Sole Member amend or replace
this Agreement as may be necessary or appropriate  for the purpose of addressing
any issues  raised by joint or multiple  ownership of the Company;  and (c) each
person or entity who seeks to be admitted  as a member of the  Company  executes
the  current  Operating  Agreement  of the  Company,  as amended or  replaced in
accordance  with  the  preceding   clause  ,  and  makes  any  required  capital
contributions to the Company in full.

         2.2 RESIGNATION.  The Sole Member shall not resign or withdraw from the
Company,  except by operation of law or by  transferring  its entire interest in
the Company in accordance with this Agreement.

                                   ARTICLE III
          MANAGEMENT, PROHIBITED ACTIVITIES AND SEPARATENESS COVENANTS

         3.1  APPOINTMENT  OF MANAGER.  The Company shall be managed by a single
manager (the "Manager").  The Manager may be a person or an entity.  The initial
Manager of the  Company  shall be the Sole  Member,  who shall not resign as the
Manager unless a qualified  replacement Manager has agreed to become the Manager
upon such resignation.

         3.2 TERM OF  MANAGER.  The  Manager's  term  shall  continue  until the
Manager's  resignation,  termination by operation of law or death (as applicable
for the then current Manager),  or removal by the Company.  The Company shall be
entitled,  in its sole discretion,  to remove or replace the Manager at any time
and for any reason.

         3.3  AUTHORITY OF MANAGER.  The Manager shall have the authority to act
on behalf of the Company to the maximum  extent  permitted  by the Act.  Without
limiting the scope of the  foregoing,  the Manager  shall be entitled to appoint
any officers of the Company (the  "Officers")  and to establish  the  authority,
duties, terms and compensation (if any) of the Officers. The parties acknowledge
and agree that the Officers also may hold offices in corporations, including but
not limited to corporations affiliated with the Sole Member.

         3.4 EXPENSES AND  REIMBURSEMENT.  The Company shall be responsible  for
all expenses, costs and liabilities arising from the management, organization or
operation of the Company in accordance with this Agreement ("Company Expenses").
The Manager and the Officers shall be entitled to receive  prompt  reimbursement
from the Company to the extent,  if any,  that they incur any Company  Expenses,
unless such Company  Expenses arose from a violation of this Agreement,  willful
misconduct or knowing violation of criminal law.

         3.5 MANAGEMENT  COMPENSATION.  No salary or other compensation shall be
paid to the Manager for the Manager's actions on behalf of the Company.

                                       2
<PAGE>

         3.6 CERTAIN PROHIBITED ACTIVITIES. Notwithstanding any provision hereof
to the contrary, the following shall govern:

                  (a) The  indebtedness  of the Company  shall consist only of a
first lien  mortgage on the  Properties  arising  from  financing by First Union
National  Bank (the  "Mortgage"),  any other  indebtedness  permitted  under the
Mortgage,  and normal trade accounts payable in the ordinary course of business.
For so long as any obligation  secured by the Mortgage  remains  outstanding and
not paid in  full,  the  Company  shall  not  incur,  assume,  or  guaranty  any
indebtedness not permitted hereunder.

                  (b) The Company  shall not  consolidate  or merge with or into
any other entity, or convey or transfer its properties and assets  substantially
as an entirety to any entity, unless:

                           (i)   the   entity   that   is   formed   upon   such
consolidation,  that survives  such merger (if other than the Company),  or that
acquires by  conveyance  or transfer  the  properties  and assets of the Company
substantially  as an entirety,  shall:  (A) be organized and existing  under the
laws of the United  States of America or any State or the  District of Columbia,
(B) include in its  organizational  documents the same  limitations set forth in
this  Article II and in Section  2.4 hereof  (Separateness  Covenants),  and (C)
expressly  assume the due and timely  performance of the Company's  obligations;
and

                           (ii)   immediately   after  giving   effect  to  such
transaction,  no  default  or event of  default  will  have  occurred  under any
agreement to which the Company is a party.

                  (c) For so  long as any  obligation  secured  by the  Mortgage
remains  outstanding  and not paid in full,  the Company  shall not  voluntarily
commence a case with respect to itself, as debtor,  under the Federal Bankruptcy
Code or any similar  federal or state statute  without the unanimous  consent of
the Sole Member's Board of Directors.  For so long as any obligation  secured by
the Mortgage remains  outstanding and not paid in full, no material amendment to
this Company  Agreement may be made without the prior  approval of the mortgagee
holding the Mortgage.

         3.7 SEPARATENESS COVENANTS. Notwithstanding any provision hereof to the
contrary,  the following shall govern:  For so long as any obligation secured by
the Mortgage remains  outstanding and not paid in full, in order to preserve and
ensure the Company's  separate and distinct  identity,  in addition to the other
provisions  set forth in this Company  Agreement,  the Company shall conduct its
affairs in accordance with the following provisions:

                  (a) It shall  establish  and maintain an office  through which
its business shall be conducted separate and apart from those of the Sole Member
and any affiliate and it shall  allocate  fairly and reasonably any overhead for
shared office space.

                  (b) It shall  maintain  separate  records and books of account
from those of the Sole Member and any affiliate.

                                       3
<PAGE>

                  (c) All actions by the Company shall be authorized by the Sole
Member,  who shall observe all  necessary  formalities  in connection  with such
authorization.

                  (d) It  shall  not  commingle  assets  with  those of the Sole
Member or any affiliate.

                  (e) It shall conduct its own business in its own name.

                  (f) It shall maintain financial  statements  separate from the
Sole Member and any affiliate.

                  (g) It  shall  pay  any  liabilities  out of  its  own  funds,
including  salaries  of any  employees,  not  funds  of the Sole  Member  or any
affiliate.

                  (h) It shall  maintain an arm's length  relationship  with the
Sole Member and any affiliate.

                  (i) It shall not  guarantee or become  obligated for the debts
of any other person or entity (including, without limitation, the Sole Member or
any affiliate)  and shall not hold out its credit as being  available to satisfy
the obligations of others.

                  (j) It shall use stationery, invoices and checks separate from
the Sole Member and any affiliate.

                  (k) It shall not  pledge  its  assets  for the  benefit of any
other person or entity (including,  without  limitation,  the Sole Member or any
affiliate).

                  (l) It shall hold  itself out as an entity  separate  from the
Sole Member and any affiliate.

                  (m) It shall not make any loans or advances to any third party
(including, without limitation, any affiliate).

                  (n) It shall comply with its obligations  under the agreements
and instruments evidencing the Mortgage.

         3.8  DEFINITIONS.  For purpose of this Article III, the following terms
shall have the indicated meanings:

                  (a) "affiliate"  means,  with respect to a specified person or
entity:

                           (i) any  person  or  entity  directly  or  indirectly
owning,  controlling  or holding with power to vote ten percent (10%) or more of
the outstanding voting securities or interests of the specified entity;

                           (ii) any person or entity ten  percent  (10%) or more
of whose  outstanding  voting securities or interests are directly or indirectly
owned, controlled or held with power to vote by the specified person or entity;

                                       4
<PAGE>

                           (iii) any  person or entity  directly  or  indirectly
controlling,  controlled by or under common control with the specified person or
entity;

                           (iv)  any   officer,   director  or  partner  of  the
specified person or entity;

                           (v) if the specified  person or entity is an officer,
director or partner,  any company for which the specified  person or entity acts
in any such capacity; and

                           (vi) any close  relative  or spouse of the  specified
person.

                  (b) "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the  management  and policies of a
person or entity, whether through ownership of voting securities, by contract or
otherwise.

                  (c)  "person or  entity"  means any  individual,  corporation,
partnership,  limited liability company, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization,
government or any agency or political subdivision thereof.

                                   ARTICLE IV
                            CAPITAL AND DISTRIBUTIONS

         4.1 CAPITAL CONTRIBUTIONS.  The Sole Member has made an initial capital
contribution to the Company, and shall be entitled,  in its sole discretion,  to
make  additional  capital   contributions  to  the  Company.  All  such  capital
contributions  are shown on Exhibit B to this Agreement,  which shall be amended
as necessary from time to time.

         4.2 LOANS.  Any loans from the Sole Member to the Company shall be made
on commercially  reasonable  terms and  conditions,  and shall not be considered
capital contributions.

         4.3 DISTRIBUTIONS.  The Company shall make annual  distributions of any
cash amounts  that,  in the  reasonable  determination  of the Manager,  are not
necessary for the  Company's  operations,  expenses or reserves.  The Manager is
entitled to authorize  more frequent  distributions  of such cash amounts in the
Manager's sole discretion.

                                    ARTICLE V
                              TRANSFER OF INTEREST

         5.1  RESTRICTION.  The Sole Member shall be prohibited  from assigning,
selling, exchanging or otherwise transferring its interest in the Company unless
all of the following  requirements are satisfied:  (a) the proposed  transaction
would apply to the entire  interest of the Sole Member in the  Company;  (b) the
proposed   transaction  would  involve  one  transferee;   (c)  the  prospective
transferee  tenders full payment of the required  purchase  price and executes a
counterpart signature page to this Agreement as a member of the Company; and (d)
the Company  receives an opinion  from its legal  counsel,  satisfactory  to the
Company in form and

                                       5
<PAGE>

substance,  confirming  that the  proposed  transaction  would not  violate  any
federal or state securities laws or any other applicable laws.

         5.2  EFFECT  OF  TRANSFER.  If the Sole  Member  transfers  its  entire
interest in the Company in accordance with this  Agreement,  such transfer shall
operate, upon completion,  as the complete resignation or withdrawal of the Sole
Member from the Company.

         5.3 RELATED  MATTERS.  Any transaction  that is subject to this Article
and that fails in any way to comply with its provisions shall be ineffective and
void.

                                   ARTICLE VI
                                   TAX MATTERS

         6.1 TAX  CLASSIFICATION.  The Company shall be disregarded as an entity
separate from the Sole Member for federal income tax purposes in accordance with
the Internal Revenue Code of 1986, as amended, and section  301.7701-3(b)(1)(ii)
of the Treasury Regulations thereunder (or any successor provisions thereof).

         6.2 TAX FILINGS. The Company shall make such filings as may be required
to  maintain  its tax  classification  as a  disregarded  entity  for income tax
purposes.  The  Company  may  obtain a federal  tax  identification  number  for
business  purposes,  and such action  shall not be  construed as a change to the
Company's tax classification as a disregarded entity.

                                   ARTICLE VII
                        INDEMNIFICATION AND REIMBURSEMENT

         7.1 DEFINITIONS.  As used in this Article,  the term "Affiliate"  shall
refer to the Sole Member,  the Manager (if  different  from the Sole Member) and
the Officers, and each employee,  director and officer of the Sole Member or the
Manager.

         7.2 INDEMNIFICATION. The Company shall indemnify each Affiliate against
any and all claims,  liabilities,  costs and expenses (including but not limited
to reasonable  legal fees and costs)  arising  directly or  indirectly  from any
suit,  action,  investigation or other  proceeding  (whether formal or informal)
that (a) is brought or threatened against an Affiliate;  and (b) is based on the
acts or omissions of such  Affiliate on behalf of the Company,  unless such acts
or omissions violated this Agreement, constituted willful misconduct or resulted
from a knowing  violation of criminal  law. The Company shall have no obligation
to indemnify an Affiliate to the extent,  if any, that the Affiliate is entitled
to be indemnified by another source, such as, without  limitation,  an insurance
company.

         7.3 REIMBURSEMENT. If an Affiliate incurs or pays any indemnified cost,
the  Company  shall  reimburse  the  Affiliate  for  the  full  amount  of  such
indemnified  cost.  Such  reimbursement  shall be due promptly after the Company
receives (a) a written  request for  reimbursement  from the Affiliate;  (b) all
information necessary to establish the nature and amount of the indemnified cost
that was incurred or paid by the Affiliate;  and (c) a written  agreement by the
Affiliate to repay such  reimbursement  if the Company  subsequently  determines

                                       6
<PAGE>

that the  Affiliate  was not  entitled to  indemnification  or if the  Affiliate
subsequently  receives  reimbursement  from  another  source,  such as,  without
limitation, an insurance company.

                                  ARTICLE VIII
                                   DISSOLUTION

         8.1  EVENTS  OF  DISSOLUTION.  The  Company  shall  dissolve  upon  the
occurrence of any of the following  events:  (a) the written  instruction of the
Sole Member; or (b) any event requiring dissolution under the Act.

         8.2 WINDING UP OF AFFAIRS.  Upon the  dissolution  of the Company,  the
Manager shall wind up the affairs of the Company.  The Manager  shall  determine
the time,  place,  manner and other terms of any sales  involving  the Company's
assets, with due regard to the activity and the condition of the Company and the
relevant market and economic conditions.

         8.3 FINAL  DISTRIBUTIONS.  Upon the  dissolution  of the  Company,  and
subject to the  requirements of the Act, the Manager shall distribute the assets
of the Company in the following order of priority:

                  (a) first, to any creditors of the Company;

                  (b)  second,  to  known  and  reasonably  estimated  costs  of
dissolution and winding up;

                  (c) third, to any reserves  established by the Manager, in the
sole discretion thereof, for contingent liabilities of the Company; and

                  (d) fourth, to the Sole Member.

         8.4 FILING OF CERTIFICATE OF CANCELLATION.  Following the winding up of
the Company,  the Manager  shall be  responsible  for filing,  if  necessary,  a
Certificate of Cancellation on behalf of the Company with the Delaware Secretary
of State,  together with any other  documents  required to terminate the Company
and its legal existence.

                                   ARTICLE IX
                                 ADMINISTRATION

         9.1 OFFICES.  The Company's  initial  registered  office and registered
agent shall be as designated in its Certificate of Formation.  The Manager shall
be entitled to change such designations from time to time, in the Manager's sole
discretion, subject to any requirements of the Act.

         9.2  INFORMATION  AND  RECORDS.  The Company  shall keep  accurate  and
complete   information  and  records  at  its  principal  office  (the  "Company
Records").

                                       7
<PAGE>

         9.3  INSPECTION.  Upon prior  notice to the Company of at least two (2)
business  days,  any  designated  representative  of the  Sole  Member  shall be
entitled,  during normal  business  hours, to inspect the Company Records and to
copy them at the expense of the Sole Member.

                                    ARTICLE X
                            MISCELLANEOUS PROVISIONS

         10.1 GOVERNING LAW. The laws of the State of Delaware  (without  regard
to those laws  involving  choice of law) shall  govern  this  Agreement  and all
matters relating to its interpretation or enforcement.

         10.2 OTHER AGREEMENTS.  Any prior operating  agreements with respect to
the Company,  whether oral or written, have been merged and integrated into this
Agreement and are superseded by this Agreement.

         10.3  MODIFICATIONS AND WAIVERS.  Modifications of this Agreement shall
not be binding, valid or enforceable unless they are approved in writing by each
of the parties.  Any  modification  or waiver of a provision  in this  Agreement
shall be limited to that  provision  and the occasion on which it occurred,  and
shall not be  construed  as a  modification  or waiver with respect to any other
provision or occasion.

         10.4  ENFORCEABLE  PROVISIONS.  All  provisions  in this  Agreement are
severable and each valid and  enforceable  provision  shall remain in full force
and effect,  regardless  of any  judicial  or other  official  declaration  that
certain provisions are invalid or unenforceable.

         10.5  CAPTIONS  AND  HEADINGS.  Captions  and headings are used in this
Agreement  for  convenience  only and shall not  affect  its  interpretation  or
enforcement.   Terms  such  as  "hereof,"   "hereby,"   "hereto,"  "herein"  and
"hereunder"  shall be deemed to refer to this Agreement as a whole,  rather than
to any particular provision.

         10.6 SUCCESSORS.  This Agreement shall be binding upon, and enforceable
against,  the parties and all of their  permitted  assignees  and  successors in
title or interest.

         10.7 EXCLUSION OF THIRD PARTY  BENEFIT.  This Agreement is not intended
for the  benefit of any  person or entity  who is not a party to this  Agreement
(such as, without limitation,  a creditor of the Company or of the Sole Member),
and no such  person or entity  shall  have any  rights in  connection  with this
Agreement, whether for enforcement or otherwise.

         10.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original,  and all of which shall  constitute,  when
taken together, a single instrument.

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<PAGE>

WITNESS the following signatures:

COMPANY:                            CRIT-NC III, LLC
                                    a Delaware limited liability company

                                    By:  CRIT Special II, Inc.
                                    Its: Sole Member

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

SOLE MEMBER:                        CRIT Special II, Inc.
                                    a Virginia corporation

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

                                       9
<PAGE>

                                    Exhibit A

                              (List of Properties)

The Properties consist of those real properties,  together with all improvements
thereon, that are located at the following addresses:

         Highland Hills Apartments
         180 BPW Club Road
         Carrboro, North Carolina  27510
<PAGE>

                                    Exhibit B

                             Capital Contribution(s)

<TABLE>
<CAPTION>
Name and Address                               Amount of                  Type of                  Date of
of Member                                 Capital Contribution         Contribution             Contribution
---------                                 --------------------         -------------            ------------
<S>                                             <C>                        <C>                  <C>
CRIT Special II, Inc.                           $100.00                    Cash                 March 6, 2001
306 East Main Street
Richmond, Virginia  23219
</TABLE>EXHIBIT 10.7

                          PROPERTY MANAGEMENT AGREEMENT

         This  Agreement (the  "Agreement")  is made as of March 23, 2001 by and
between CRIT-NC III, LLC, a Delaware  limited  liability  company (the "Owner"),
and  Cornerstone  Realty  Income  Trust,  Inc.,  a  Virginia   corporation  (the
"Manager").

                                    RECITALS:

         Owner is the owner of the  apartment  communities  listed on Schedule A
hereto  (collectively,  the "Properties").  Owner has selected Manager to manage
the Properties on the terms and conditions set forth in this Agreement.

         NOW  THEREFORE,  for  good  and  valuable  consideration,  receipt  and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereto  agree as
follows:

     1.  Designation of Property  Manager.  Owner hereby engages  Manager as the
sole and exclusive manager to rent, manage and operate the Properties,  upon the
conditions and for the term and compensation  herein set forth. All or a portion
of the services being performed by Manager may be contracted or subcontracted to
another  property  management  company,  provided  that such  company  agrees in
writing to be bound by the terms of this Agreement.

     2. Term of Agreement.  This Agreement shall be valid for an initial term of
two (2)  years.  In the event  Owner  sells its  interest  in a  Property,  this
Agreement  will  terminate as to such Property upon the date of such sale.  This
Agreement shall renew  automatically  for successive  terms of two (2) years, on
the same terms and  conditions  as set forth in this  Agreement,  unless a party
elects not to renew this  Agreement by  delivering  written  notice to the other
party at least sixty (60) calendar days before the end of any two-year term.

     3.  Acceptance of Engagement.  Manager hereby accepts its engagement as the
manager of the Properties  and agrees to perform all services  necessary for the
care, protection,  maintenance and operation of the Properties. Without limiting
the scope of the foregoing:

         (a)  Manager  shall  collect  all  rents  and  other  income  from  the
Properties,  provided that nothing herein contained shall constitute a guarantee
by Manager of the payment of rent by tenants.

         (b) Manager shall  purchase,  at the expense of Owner,  all  equipment,
tools,   appliances,   materials,   supplies  and  uniforms  necessary  for  the
maintenance or operation of the Properties.

         (c)  Manager  shall  contract  on  behalf  of  Owner  for  water,  gas,
electricity  and other services  necessary for the operation and  maintenance of
the Properties.

<PAGE>

         (d) Manager shall  advertise for the rental of units at the Properties,
the cost of which shall be paid by Owner.

         (e) Manager  shall use all  reasonable  efforts to keep the  Properties
rented by procuring  tenants for the Properties and negotiating and executing on
behalf of Owner all leases for units at the Properties.

         (f) Manager  shall hire,  evaluate,  supervise,  discharge  and pay all
employees or  contractors  necessary  for the  management  and  operation of the
Properties.  Owner agrees that all wages and compensation (and federal and state
unemployment  insurance  and  other  required  charges)  with  respect  to  such
employees and contractors shall be paid from Owner's funds.

         (g) Manager  shall  prepare  and file all  returns and other  documents
(other than promissory  notes,  mortgages,  deeds of trust or other documents or
instruments  which would  encumber the  Properties)  required  under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation.  Manager also shall file returns and reports,  and
pay from  Owner's  funds,  all sums as may be required  from time to time by the
states or localities in which the Properties are located.

         (h) Manager shall maintain  accurate and complete books of account with
entries for all receipts and  expenditures,  and such books of account  shall be
the property of Owner and shall at all times be open to the inspection of Owner,
or any of its employees or duly authorized agents.

         (i) Manager  shall  deliver to Owner of all  lenders'  annual  property
inspection  letters regarding repairs necessary to avoid mortgage loan defaults.
Manager  shall  deliver  a  detailed  monthly  statement  of  all  receipts  and
disbursements  on or before the 20th day of each month for the preceding  month.
Such  statement  shall show the status of  collections,  shall be  supported  by
cancelled  checks,  vouchers,   duplicate  invoices  and  similar  documentation
covering all items of income and expense,  and shall be kept in Manager's office
and shall be available for inspection by Owner's  representatives  at all times.
Manager also shall deliver a monthly operating  statement showing the income and
expense  for the  month,  for the  year-to-date  and for the  same  month of the
preceding  year.  The cost of performing the  accounting  functions  outlined in
paragraph  (h) and this  paragraph  (i) shall be paid by Owner  pursuant  to the
terms of this Agreement.

         (j)  Manager  shall  deliver  to  Owner  annual  reports  containing  a
composite financial report of the monthly statements provided in accordance with
paragraph  (i),  plus  a  statement  by  Manager  as to  the  operations  of the
Properties during the previous year and recommendations, if any, as to necessary
policy  changes or  improvements  for the  forthcoming  year,  accompanied by an
estimated budget for such items.

         (k)  Manager  shall  deliver to Owner  from time to time,  and at least
semi-annually, a tentative budget of expenses.

         (l)  Manager  shall  deliver to Owner  from time to time,  and at least
annually,  the following schedules with respect to the Properties:  (1) forecast
of rental and occupancy changes;

                                       2
<PAGE>

(2)  review of lease  negotiations;  (3)  annual  analysis  of  leases;  and (4)
schedule of capital improvements and method of financing such improvements.

         (m)  Manager  shall  deliver to Owner,  on a regular  basis,  all forms
necessary  to  operate  and lease  the  Properties  and  manage  the  personnel,
including but not limited to form leases, contracts and management policies.

         (n) During the initial term of this Agreement,  Manager shall supervise
the transition from the former owners of the Properties and shall, to the extent
necessary, implement new management systems with respect to the operation of the
Properties.

     4. Deposits of Rent and Other Income. All sums received from rents,  tenant
security deposits or other deposits on units at the Properties, deposits on keys
and other income from the Properties, shall be deposited as collected by Manager
to the credit of Owner in such bank or banks as may be  designated by Owner from
time to time. Such funds shall be disbursed only in accordance with the terms of
each  particular  lease  and  any  applicable  federal,  state  or  local  laws,
regulations or ordinances.

     5. Insurance.  Owner shall place all insurance policies with respect to the
Properties and their  operation.  Manager shall be included as an insured in the
policies covering general liability,  public liability and workers' compensation
insurance.  In the  event  Manager  is  authorized  by Owner to place  insurance
policies,  the companies,  the general  agents,  the amounts of coverage and the
risks insured shall be subject to the approval of Owner.

     6.  Indemnification.  Owner hereby agrees to indemnify Manager against, and
to hold Manager harmless from, any loss, cost or expense  (including  reasonable
investigative  expenses  and legal fees),  judgment,  award,  settlement,  fine,
penalty and  liability of any kind  incurred by or asserted  against  Manager by
reason of, or in  connection  with,  the  engagement of Manager  hereunder,  the
performance  by Manager of the services  described  herein or the  occurrence or
existence  of any event or  circumstance  which  results  or is  alleged to have
resulted in any death or injury to any person, any destruction of, or damage to,
any of the Properties,  or any suit, action or proceeding  (whether  threatened,
initiated or completed) arising from any of the foregoing.  Notwithstanding  the
preceding,  however,  no such  indemnification  of  Manager  shall be made,  and
Manager shall indemnify  Owner against,  and shall hold Owner harmless from, any
loss  that  a  court  of  competent  jurisdiction  shall  determine,   by  final
adjudication,  to have resulted  from willful  misconduct,  gross  negligence or
fraud by or on the part of Manager.

     7. Compensation of Manager for Managing the Properties.  Owner shall pay to
Manager a "Property Management Fee" for management of the Properties pursuant to
this  Agreement in an amount  equal to five  percent  (5%) of the monthly  gross
revenues  from the  Properties.  The  Property  Management  Fee shall be paid to
Manager  on or before  the 10th day of each  month  and shall be based  upon the
income from the  Properties  received by Owner (for such month) by such date. If
additional  income from the Properties is received by Owner after such date, the
sum due to Manager  with  respect  to such  additional  income  shall be paid to
Manager when Manager is paid its fees for the next succeeding month.

                                       3
<PAGE>

     8.  Reimbursement of Expenses.  Owner shall reimburse Manager for Manager's
expenses,  including  salaries and related  overhead  expenses,  associated with
bookkeeping,  accounting  and  financial  reporting  services  pertaining to the
Properties.

     9.  Reserves  for  Capital  Items.  Owner  acknowledges  that the budget of
expenses  prepared  by Manager,  pursuant to  paragraph  3(k),  shall  contain a
category  labeled  "Reserve for Capital  Items." Owner agrees to place rents and
other income in a bank account,  or to permit Manager to transfer  Owner's funds
to such  account,  in  sufficient  amounts to meet the needs  reflected  in such
budget.  Such  funds  shall be  placed  in the  account  on a  monthly  basis as
reflected in the budget.

     10. Cash Flow. Owner  acknowledges  that the budget of expenses prepared by
Manager,  pursuant to paragraph  3(k),  shall  contain a category  labeled "Cash
Flow." Owner agrees, in the event that the budgeted cash flow for the Properties
is negative in any month covered by the budget,  to place  sufficient funds in a
bank account, or to permit Manager to transfer Owner's funds to such account, to
correct  the  budgeted  operating  deficit.  Such funds  shall be placed in such
account at least forty-five (45) calendar days before the budgeted deficit is to
occur.

     11. Power of Attorney. Owner hereby makes, constitutes and appoints Manager
as Owner's true and lawful  attorney-in-fact,  for Owner and in its name,  place
and  stead  and for its use and  benefit,  to  sign,  acknowledge  and  file all
documents and agreements (other than promissory notes, mortgages, deeds of trust
or other documents or instruments which would encumber the Properties) necessary
to perform or effect the duties and  obligations  of Manager  under the terms of
this  Agreement.  The foregoing power of attorney is a special power of attorney
coupled with an interest, and may only be terminated by canceling this Agreement
as provided herein.

     12. Relationship of Parties. The parties agree and acknowledge that Manager
is, and shall operate as, an  independent  contractor  in performing  duties and
services under this  Agreement,  and shall not be deemed an employee or agent of
Owner.

     13. Entire Agreement.  This Agreement  represents the entire  understanding
between the parties hereto with regard to the transactions  described herein and
may only be amended by a written  instrument  signed by the party  against  whom
enforcement is sought.

     14.  Governing Law. This Agreement  shall be construed in accordance  with,
and be governed by, the laws of the Commonwealth of Virginia,  without regard to
any rules or principles thereof regarding choice or conflicts of laws.

                          (next page is signature page)

                                       4
<PAGE>

WITNESS the following signatures:

OWNER:                            CRIT-NC III, LLC
                                  a Delaware limited liability company

                                  By:    CRIT Special II, Inc.
                                         a Virginia corporation

                                  Title: Sole Member

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

MANAGER:                            Cornerstone Realty Income Trust, Inc.
                                    a Virginia corporation

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

                                       5
<PAGE>

                                   SCHEDULE A

                              (List of Properties)

The Properties consist of those real properties,  together with all improvements
thereon, that are located at the following addresses:

         Highland Hills Apartments
         180 BPW Club Road
         Carrboro, North Carolina  27510

                                       6

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