10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-52566

CORNERSTONE CORE PROPERTIES

REIT, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	73-1721791
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1920 MAIN STREET, SUITE 400, IRVINE, CA	92614
(Address of principal executive offices)	(Zip Code)

949-852-1007

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨     (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     ¨   Yes     x   No

As of November 13, 2012 we had 23,028,285 shares issued and outstanding.

PART I — FINANCIAL INFORMATION

FORM 10-Q

Cornerstone Core Properties REIT, Inc.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (unaudited)	3
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2012 (unaudited) and 2011 (unaudited)	4
	Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2012 (unaudited) and 2011 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2012 (unaudited) and 2011 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45
SIGNATURES		46
EX-31.1
EX-31.2
EX-32.1

2

CORNERSTONE CORE PROPERTIES REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	4,789,000		$	17,388,000
Investments in real estate:
Land		11,733,000			11,733,000
Buildings and improvements, net		32,355,000			33,330,000
Intangible lease assets, net		44,000			83,000
Net real estate (Note 4)		44,132,000			45,146,000
Notes receivable, net (Note 8)		908,000			908,000
Receivable from related party (Note 10)		—			—
Deferred costs and deposits		370,000			27,000
Deferred financing costs, net		628,000			91,000
Tenant and other receivables, net		730,000			567,000
Restricted cash		379,000			—
Prepaid and other assets, net		2,107,000			625,000
Assets held in variable interest entity:
Land		3,031,000			—
Buildings and improvements, net		20,848,000			—
Furniture and fixtures, net		2,222,000			—
Intangible lease assets, net		2,121,000			—
Certificate of need		3,757,000			—
Total assets held in variable interest entity		31,979,000			—
Assets of variable interest entity held for sale		4,168,000			5,372,000
Total assets	$	90,190,000		$	70,124,000
LIABILITIES AND EQUITY
Notes payable	$	21,990,000		$	21,070,000
Accounts payable and accrued liabilities		1,342,000			785,000
Payable to related parties		12,000			20,000
Prepaid rent, security deposits and deferred revenue		1,244,000			460,000
Intangible lease liabilities, net		11,000			44,000
Liabilities held in variable interest entity:
Loan payable		22,300,000			—
Total liabilities held in variable interest entity		22,300,000			—
Liabilities of variable interest entity held for sale		2,260,000			2,119,000
Total liabilities		49,159,000			24,498,000
Commitments and contingencies (Note 16)
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2012 and December 31, 2011		—			—
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,028,285 shares issued and outstanding at September 30, 2012 and December 31, 2011 respectively		23,000			23,000
Additional paid-in capital		117,226,000			116,238,000
Accumulated deficit		(74,135,000	)		(68,748,000	)
Total stockholders’ equity		43,114,000			47,513,000
Noncontrolling interests		(2,083,000	)		(1,887,000	)
Total equity		41,031,000			45,626,000
Total liabilities and equity	$	90,190,000		$	70,124,000

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3

CORNERSTONE CORE PROPERTIES REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Rental revenues	$	1,259,000		$	849,000		$	2,911,000		$	2,640,000
Tenant reimbursements and other income		250,000			204,000			672,000			669,000
Interest income from notes receivable		13,000			102,000			40,000			366,000
		1,522,000			1,155,000			3,623,000			3,675,000
Expenses:
Property operating and maintenance		380,000			427,000			1,173,000			1,246,000
General and administrative		757,000			713,000			2,489,000			2,083,000
Asset management fees		240,000			388,000			662,000			1,215,000
Real estate acquisition costs		737,000			—			737,000			—
Depreciation and amortization		524,000			384,000			1,294,000			1,457,000
Reserve for excess advisor obligation		—			—			988,000			—
Impairment of note receivable		—			—			—			1,650,000
Impairment of real estate		—			425,000			—			23,644,000
		2,638,000			2,337,000			7,343,000			31,295,000
Operating loss		(1,116,000	)		(1,182,000	)		(3,720,000	)		(27,620,000	)
Interest expense		299,000			408,000			733,000			1,019,000
Loss from continuing operations		(1,415,000	)		(1,590,000	)		(4,453,000	)		(28,639,000	)
Discontinued operations:
(Loss) income before impairments		(156,000	)		259,000			(581,000	)		777,000
Impairment of real estate asset held for sale		—			(153,000	)		(1,140,000	)		(19,333,000	)
(Loss) income from discontinued operations		(156,000	)		106,000			(1,721,000	)		(18,556,000	)
Net loss		(1,571,000	)		(1,484,000	)		(6,174,000	)		(47,195,000	)
Noncontrolling interest’s share in losses		(258,000	)		(352,000	)		(787,000	)		(404,000	)
Net loss applicable to common shares	$	(1,313,000	)	$	(1,132,000	)	$	(5,387,000	)	$	(46,791,000	)
Basic and diluted (loss) income per common share
Continuing operations	$	(0.06	)	$	(0.07	)	$	(0.19	)	$	(1.24	)
Discontinued operations		—			0.02			(0.04	)		(0.79	)
Net loss applicable to common shares	$	(0.06	)	$	(0.05	)	$	(0.23	)	$	(2.03	)
Weighted average shares used to calculate basic and diluted net loss per common share		23,028,284			23,028,284			23,028,284			23,032,894
Distributions declared per common share	$	—		$	0.02		$	—		$	0.04

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

4

CORNERSTONE CORE PROPERTIES REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)

	Common Stock
	Number of Shares		Common Stock Par Value		Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance — December 31, 2011		23,028,285	$	23,000	$	116,238,000	$	(68,748,000	)	$	47,513,000		$	(1,887,000	)	$	45,626,000
Redeemed shares		—		—		—		—			—			—			—
Dividends declared		—		—		—		—			—			—			—
Reduction of excess offering costs		—		—		988,000		—			988,000			—			988,000
Noncontrolling interest contribution		—		—		—		—			—			591,000			591,000
Net loss		—		—		—		(5,387,000	)		(5,387,000	)		(787,000	)		(6,174,000	)
Balance — September 30, 2012		23,028,285	$	23,000	$	117,226,000	$	(74,135,000	)	$	43,114,000		$	(2,083,000	)	$	41,031,000

	Common Stock
	Number of Shares			Common Stock Par Value		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance — December 31, 2010		23,074,381		$	23,000	$	117,520,000		$	(16,690,000	)	$	100,853,000		$	117,000		$	100,970,000
Redeemed shares		(46,096	)		—		(369,000	)		—			(369,000	)		—			(369,000	)
Dividends declared		—			—		(922,000	)		—			(922,000	)		(9,000	)		(931,000	)
Net loss		—			—		—			(46,791,000	)		(46,791,000	)		(404,000	)		(47,195,000	)
Balance — September 30, 2011		23,028,285		$	23,000	$	116,229,000		$	(63,481,000	)	$	52,771,000		$	(296,000	)	$	52,475,000

5

CORNERSTONE CORE PROPERTIES REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)  

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities
Net loss	$	(6,174,000	)	$	(47,195,000	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of deferred financing costs		99,000			357,000
Depreciation and amortization		1,294,000			2,043,000
Straight-line rents and amortization of acquired above (below) market leases, net		(264,000	)		(171,000	)
Reserve for excess advisor obligation		988,000			—
Impairment of note receivable		—			1,650,000
Impairment of real estate		1,140,000			42,977,000
Provision for bad debt		(19,000	)		(2,000	)
Change in operating assets and liabilities:
Tenant and other receivables		95,000			62,000
Prepaids and other assets		(1,590,000	)		179,000
Restricted cash		(379,000	)		—
Accounts payable and accrued liabilities		708,000			325,000
Payable to related parties, net		(9,000	)		(6,000	)
Prepaid rent, security deposit and deferred revenues		(42,000	)		(280,000	)
Net cash used in operating activities		(4,153,000	)		(61,000	)
Cash flows from investing activities
Real estate acquisitions		(32,100,000	)		—
Real estate improvements		(54,000	)		(509,000	)
Acquired cash of VIE		—			236,000
Real estate disposition		—			9,130,000
Acquisition deposits		(348,000	)		—
Notes receivable proceeds		—			150,000
Notes receivable disbursements to affiliated parties (See Note 9)		—			(318,000	)
Net cash (used in) provided by investing activities		(32,502,000	)		8,689,000
Cash flows from financing activities
Redeemed shares		—			(369,000	)
Proceeds from issuance notes payable		37,000,000			—
Repayment of notes payable		(13,780,000	)		(8,873,000	)
Security deposit refunded/received, net		826,000			—
Offering costs		—			(12,000	)
Distributions paid to stockholders		—			(611,000	)
Distributions paid to noncontrolling interest		—			(9,000	)
Noncontrolling interest contribution		591,000			—
Deferred financing costs		(636,000	)		(329,000	)
Net cash provided by (used in) financing activities		24,001,000			(10,203,000	)
Net decrease in cash and cash equivalents		(12,654,000	)		(1,575,000	)
Cash and cash equivalents - beginning of period		17,483,000			2,014,000
Cash and cash equivalents - end of period (including cash of VIE)		4,829,000			439,000
Cash and cash equivalents of VIE – end of period (see Note 17)		(40,000	)		—
Cash and cash equivalents – end of period	$	4,789,000		$	439,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	728,000		$	760,000
Supplemental disclosure of non-cash financing and investing activities:
Accrual for distribution declared	$	—		$	468,000
Accrued leasing commissions	$	—		$	18,000
Deferred loan origination fees	$	—		$	54,000
Accrued real estate improvements	$	—		$	43,000
Payable to related party	$	—		$	3,000
Reduction of excess offering costs	$	988,000		$	—
Elimination of note receivable from related party through consolidation of variable interest entity (See Note 9)
Assets acquired	$	—		$	10,069,000
Liabilities assumed	$	—		$	1,806,000
Elimination of note receivable	$	—		$	8,263,000

6

CORNERSTONE CORE PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(Unaudited)

1. Organization

Cornerstone Core Properties REIT, Inc., a Maryland Corporation, was formed on October 22, 2004 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate. As used in this report, the “Company”, “we”, “us” and “our” refer to Cornerstone Core Properties REIT, Inc. and its consolidated subsidiaries except where the context otherwise requires. Subject to certain restrictions and limitations, our business is managed pursuant to an advisory agreement (the “Advisory Agreement”) by an affiliate, Cornerstone Realty Advisors, LLC (the “Advisor”); a Delaware limited liability company that was formed on November 30, 2004.

Cornerstone Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership, was formed on November 30, 2004. At September 30, 2012, we owned a 99.88% general partner interest in the Operating Partnership while the Advisor owned a 0.12% limited partnership interest. We conduct substantially all of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements. These financial statements include consolidation of variable interest entities (see Note 11). All intercompany accounts and transactions have been eliminated in consolidation.

Cornerstone Healthcare Partners LLC (“CHP LLC”), a Delaware limited liability company, was formed on June 11, 2012. At September 30, 2012, we owned a 95% interest in CHP LLC and Cornerstone Healthcare Real Estate Fund, Inc. (“CHREF”), an affiliate of the Advisor owned approximately 5%. During the third quarter of 2012, CHP LLC acquired, through various wholly-owned subsidiaries, four skilled-nursing and assisted-living properties (see Notes 5 and 11).

2. Public Offerings and Strategic Alternatives

On January 6, 2006, we commenced an initial public offering of a minimum of 125,000 shares and a maximum of 55,400,000 shares of our common stock, consisting of 44,400,000 shares for sale to the public (the “Primary Offering”) and 11,000,000 shares for issuance pursuant to our distribution reinvestment plan. We stopped making offers under our initial public offering on June 1, 2009 upon raising gross offering proceeds of approximately $172.7 million from the sale of approximately 21.7 million shares, including shares sold under the distribution reinvestment plan. On June 10, 2009, we commenced a follow-on offering of up to 77,350,000 shares of our common stock, consisting of 56,250,000 shares for sale to the public (the “Follow-On Offering”) and 21,100,000 shares for sale pursuant to our dividend reinvestment plan. The Primary Offering and Follow-On Offering are collectively referred to as the “Offerings.” We retained Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of our Advisor, to serve as the dealer manager for the Offerings. PCC was responsible for marketing our shares being offered pursuant to the Offerings.

As of September 30, 2012, we had raised $167.1 million of gross proceeds from the sale of 20.9 million shares of our common stock in our Primary and Follow-On Offerings which were used to fund operations, assist in acquiring the initial thirteen properties, four of which were sold during 2011, and pay for distributions. Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of each lease. Our growth depends, in part, on our ability to increase rental income and other earned income from leases by increasing rental rates, occupancy levels, controlling operating and other expenses. Our operations are impacted by our success in executing our repositioning strategy, property-specific, market-specific, general economic and other conditions.

Effective November 23, 2010, we stopped soliciting and accepting offers to purchase shares of our stock under our Follow-on Offering. On June 10, 2012, that offering expired.

Suspension of Distribution Reinvestment Plan - Our Offerings included a distribution reinvestment plan under which our stockholders could elect to have all or a portion of their distributions reinvested in additional shares of our common stock. We suspended our distribution reinvestment plan effective December 14, 2010. All distributions paid after December 14, 2010 have been and will be made in cash.

Distributions - Effective December 1, 2010, our board of directors reduced distributions on our common stock to an annualized rate of $0.08 per share (1% based on a share price of $8.00), from the prior annualized rate of $0.48 per share (6% based on a share price of $8.00), in order to preserve capital that may be needed for capital improvements, debt repayment or other corporate purposes including operations. Distributions at this $0.08 per share rate were declared for the first and second quarters of 2011. In June 2011, the board of directors decided, based on the financial position of the Company, to suspend the declaration of further distributions and to defer the payment of the second quarter 2011 distribution until our financial position improved. In the fourth quarter of 2011, we used a portion of the proceeds from the sale of properties in Arizona to pay the deferred second quarter 2011 distributions. No distributions have been declared or paid for periods after June 30, 2011. The rate and frequency of distributions is subject to the discretion of our board of directors and may change from time to time based on our operating results and cash flow. We can make no assurance when and if distributions will recommence.

7

Stock Repurchase Program - Our board of directors approved an amendment to our stock repurchase program to suspend repurchases under the program effective December 31, 2010. We can make no assurances as to whether and on what terms repurchases will resume. The share redemption program may be amended, resumed, suspended again, or terminated at any time.

Strategic Repositioning Commencing in June 2011, together with our Advisor, we embarked upon an evaluation of options and repositioning that we believed could enhance shareholder value.

The initial steps of this “repositioning” strategy involved the sale of certain industrial properties (Goldenwest, Mack Deer Valley, Pinnacle Park and 2111 South Industrial Park). Proceeds from those sales transactions were used to “de-lever” the Company’s balance sheet by paying down certain short term and other higher cost debt, extending maturities and renegotiating lower interest rates on other loan obligations.

During the second and third quarters of 2012, the board of directors, in consultation with the Advisor, approved the reinvestment of the remaining proceeds from these 2011 property dispositions into four healthcare real property assets and acquired an option to purchase a fifth healthcare property. Diversification into healthcare real estate assets is expected to be accretive to the earnings and shareholder value of the combined portfolio. Such healthcare acquisitions were made through a joint venture with an affiliate of the Advisor and involved interim seller and/or long term third party lender financing. The Company intends to refinance such interim borrowings with long term financing. In the interest of further diversification of risk and to attract new capital partners, the Company may, in the future, reduce its ownership interest in the healthcare joint venture.

Healthcare-related properties include a wide variety of properties, including senior housing facilities, medical office buildings, and skilled nursing facilities. Senior housing facilities include independent living facilities, assisted living facilities and memory and other continuing care retirement communities. Each of these caters to different segments of the elderly population. Services provided by operators or tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Medical office buildings (“MOBs”) typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital ancillary service space, and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms. While these facilities are similar to commercial office buildings, they require more systems to accommodate special requirements. MOBs are typically multi-tenant properties leased to multiple healthcare providers (hospitals and physician practices) although there is a trend towards net leases to doctors and hospitals. Skilled Nursing Facilities (“SNFs”) offer nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Sub-acute care services are provided to residents beyond room and board. Certain skilled nursing facilities provide some services on an outpatient basis. Skilled nursing services provided in these facilities and primarily paid for either by private sources or through the Medicare and Medicaid programs. SNFs are typically leased to single-tenant operators under net lease structures.

The Advisor has reported to the Company that it believes the outlook for the Company raising new property level joint venture equity capital to support its growth and further diversify both operator and healthcare property sector risk is currently favorable. Based in part on this advice, the board of directors continues to evaluate the repositioning strategy while pursuing other growth initiatives that lower capital costs and enables us to reduce or improve our ability to cover our general and administrative costs over a broader base of assets.

For the remainder of 2012 and in early 2013, the board of directors has requested that the Advisor raise new property level joint venture equity capital while management continues to evaluate opportunities for repositioning and growth and secures long term debt for recent and any future acquisitions.

3. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with generally accepted accounting principles of the United States of America (“GAAP”) and in conjunction with the rules and regulations of the SEC. Certain amounts have been reclassified for prior periods to conform to current period presentation. Assets sold or held for sale and associated liabilities have been reclassified on the condensed consolidated balance sheets and the related operating results reclassified from continuing to discontinued operations on the condensed consolidated income statements. Additionally certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying financial information reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2011 Annual Report on Form 10-K as filed with the SEC. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

8

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2011. Except as discussed in the “Summary of Significant Accounting Policies”, for the quarter and nine months ended September 30, 2012, there have been no material changes to such accounting policies.

Restricted Cash

Restricted cash represents cash held in interest bearing accounts related to impound reserve accounts for property taxes, insurance and capital improvements or commitments as required under the terms of mortgage loan agreements. Based on the intended use of the restricted cash, we have classified changes in restricted cash within the statements of cash flows as operating or investing activities.

Fair Value of Financial Instruments and Fair Value Measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value.

Fair value represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820, Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability.

Financial assets and liabilities recorded at fair value on the condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.  Quoted prices in active markets for identical instruments.

Level 2.  Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3.  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified according to the lowest level input that is significant to their valuation. A financial instrument that has a significant unobservable input along with significant observable inputs may still be classified as a Level 3 instrument.

We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets, when such information is available, or appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.

Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, notes receivable, certain other assets, deferred costs and deposits, payable to related parties, prepaid rent, security deposits and deferred revenue, and notes payable. With the exception of notes receivable and notes payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.

As of September 30, 2012 and December 31, 2011, the fair value of notes receivable was $0.9 million and $0.9 million, compared to the carrying value of $0.9 million and $0.9 million, respectively. The fair value of notes receivable was estimated by discounting the expected cash flows at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we discounted the expected cash flows using a rate of 10.00%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes receivable are classified as Level 3 assets within the fair value hierarchy.

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As of September 30, 2012 and December 31, 2011, the fair value of notes payable was $44.7 million and $21.3 million compared to the carrying value of $44.3 million and $21.1 million, respectively. The fair value of notes payable is estimated by discounting the contractual cash payments at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we utilized discount rates ranging from 3.5% to 5.0%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes payable are classified as Level 3 assets within the fair value hierarchy.

As a result of our ongoing analysis for potential impairment of our investments in real estate and to value properties classified as held for sale, we were required to adjust the carrying value of certain assets to their estimated fair values, less selling costs, during the first quarter of 2012 (see Note 4). No impairments were recorded during the three months ended September 30, 2012.

The following table summarizes the asset measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Net Losses for the Nine Months Ended September 30, 2012
Variable interest entity held for sale	$	3,760,000	$	—	$	3,760,000	$	—	$	(1,140,000	)

The variable interest entity held for sale measured at fair value during the first quarter of 2012 was deemed to be a Level 2 asset as we have received a formal offer for the property. We do not believe that this asset was a Level 1 asset as of the valuation date as a purchase and sale agreement had not been signed, giving the potential buyer the right to opt out of the transaction at its discretion.

At September 30, 2012 and December 31, 2011, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

Variable Interest Entity Accounting

The Company analyzes its contractual and/or other interests to determine whether such interests constitute an interest in a variable interest entity (“VIE”) in accordance with ASC 810, Consolidation (“ASC 810”), and, if so, whether the Company is the primary beneficiary. If the Company is determined to be the primary beneficiary of a VIE, it must consolidate the VIE. A VIE is an entity with insufficient equity investment or in which the equity investors lack some of the characteristics of a controlling financial interest. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, including, but not limited to, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE (see Note 5).

Real Estate Purchase Price Allocation

We allocate the purchase price of our properties in accordance with ASC 805. Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, buildings, site improvements, furniture & fixtures and intangible lease assets or liabilities including in-place leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation of our assets is being charged to expense on a straight-line basis over the assigned useful lives. The value of the building and improvements are depreciated over estimated useful lives of 15 to 39 years. The value of the furniture & fixtures are depreciated over estimated useful lives of five years.

The estimated fair value of land is based on recent comparable transactions. The fair value of buildings, site improvements and equipment is estimated to be the cost to replace the assets, with appropriate adjustments to account for the age and condition of the assets.

In-place lease values are calculated based on management’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at estimated market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related costs.

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We amortize the value of in-place leases and above and below market leases over the initial term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the tenant improvements, intangible lease assets or liabilities and the in-place lease value will be immediately charged to expense or recorded as income, as appropriate.

In an effort to control the rapidly escalating costs of health care, the state of Oregon has implemented a certificate of need (“CON”) program pertaining to skilled-nursing facilities. This program requires that a CON is obtained from the state prior to opening such facility. We valued the CON assets related to our Fernhill and Sheridan facilities using an income approach. As the CON does not expire and can be sold independently of the facilities, we determined that these assets have indefinite useful lives and consequently are not being amortized.

Reclassification

Assets sold or held for sale and their associated liabilities have been reclassified on the condensed consolidated balance sheets and operating results have been reclassified from continuing to discontinued operations.

Recently Issued Accounting Pronouncements

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments in this update provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years and interim periods beginning after September 15, 2012. The Company does not expect the adoption of ASU 2012-02 on January 1, 2013 to have an impact on its consolidated financial position or results of operations.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amendments in this update result in additional fair value measurement and disclosure requirements within U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The Company’s adoption of ASU 2011-04 on January 1, 2012 did not have a significant impact on its consolidated financial condition, results of operations, and/or its disclosures.

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4. Investments in Real Estate

As of September 30, 2012, our portfolio consisted of thirteen purchased properties which were approximately 83.9% leased. The following table provides summary information regarding our properties.

Property (1)	Location	Date Purchased	Square Footage		Purchase Price		Debt			Sept 30 2012 %  Leased
Industrial:
Shoemaker Industrial Buildings	Santa Fe Springs, CA	June 30, 2006		18,921	$	2,400,000	$	—			75.7	%
20100 Western Avenue	Torrance, CA	December 1, 2006		116,433		19,650,000		8,900,000			100.0	%
Marathon Center	Tampa Bay, FL	April 2, 2007		52,020		4,450,000		—			37.6	%
Orlando Small Bay Portfolio:
Carter Commerce Center	Winter Garden, FL	November 15, 2007		49,125							64.9	%
Goldenrod Commerce Center	Orlando, FL	November 15, 2007		78,646							83.0	%
Hanging Moss Commerce Center	Orlando, FL	November 15, 2007		94,200							82.5	%
Monroe South Commerce Center	Sanford, FL	November 15, 2007		172,500							68.6	%
				394,471		37,128,000		6,589,000			74.3	%
Monroe North Commerce Center	Sanford, FL	April 17, 2008		181,348		14,275,000		6,501,000			97.3	%
1830 Santa Fe	Santa Ana, CA	August 5, 2010		12,200		1,315,000		—			100.0	%
Subtotal Industrial:				775,393		79,218,000		21,990,000
Healthcare:
Sheridan Care Center	Sheridan, OR	August 3, 2012		13,912		4,100,000		2,800,000			100.0	%
Fern Hill Care Center	Portland, OR	August 3, 2012		13,344		4,500,000		3,000,000	(2)		100.0	%
Farmington Square	Medford, OR	September 14, 2012		32,557		8,500,000		5,800,000	(2)		100.0	%
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012		53,826		15,000,000		10,700,000	(2)		100.0	%
Subtotal Healthcare:				113,639		32,100.000		22,300,000	(2)		100.0	%
Total				889,032	$	111,318,000	$	44,290,000			83.9	%

(1) The table excludes Sherburne Commons, a variable interest entity (“VIE”) for which we became the primary beneficiary and began consolidating its financial results as of June 30, 2011. As of October 19, 2011, Sherburne Commons was classified as held for sale (see Notes 9 and 11).

(2) Represents healthcare properties with single tenant leases which we report as 100% occupied from our (landlord’s) perspective. These properties were acquired in the third quarter of 2012 (see Note 5).

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As of September 30, 2012, our adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities, including the CHP LLC acquisitions, were as follows:

	Land		Buildings and Improvements			Furniture and Fixture			Acquired Above- Market Leases			In-Place Lease Value			Certificate of Need		Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	55,135,000		$	2,269,000		$	1,401,000		$	3,321,000		$	3,757,000	$	(620,000	)
Less: accumulated depreciation and amortization		—		(1,932,000	)		(47,000	)		(1,377,000	)		(1,180,000	)		—		609,000
Net investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	53,203,000		$	2,222,000		$	24,000		$	2,141,000		$	3,757,000	$	(11,000	)

As of December 31, 2011, adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities were as follows:

	Land		Buildings and Improvements			Acquired Above- Market Leases			In-Place Lease Value			Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	34,180,000		$	1,401,000		$	1,181,000		$	(620,000	)
Less: accumulated depreciation and amortization		—		(850,000	)		(1,365,000	)		(1,134,000	)		576,000
Net investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	33,330,000		$	36,000		$	47,000		$	(44,000	)

Depreciation expense associated with buildings and improvements, including real estate held for sale, for the three months ended September 30, 2012 and 2011 was $0.4 million and $0.3 million, respectively. Depreciation expense for the nine months ended September 30, 2012 and 2011 was $1.1 million and $1.7 million, respectively. We are required to make subjective assessments as to the useful lives of our depreciable assets. In making such assessments, we consider each asset’s expected period of future economic benefit to estimate the appropriate useful lives.

Net amortization expense associated with the intangible lease assets and liabilities, including those associated with real estate held for sale, for the three months ended September 30, 2012 and 2011 was $21,000 and $9,000, respectively. Net amortization expense for the nine months ended September 30, 2012 and 2011 was $25,000 and $102,000, respectively. Estimated net amortization expense for October 1, 2012 through December 31, 2012 and for each of the five following years ended December 31 is as follows:

	Amortization of Intangible Lease Assets
October 1, 2012 to December 31, 2012	$	48,000
2013	$	213,000
2014	$	203,000
2015	$	200,000
2016	$	195,000
2017 and thereafter	$	1,295,000

The estimated useful lives of intangible lease assets range from approximately one month to four years. As of September 30, 2012, the weighted-average amortization periods for in-place leases, acquired above-market leases and acquired below-market leases were 11.2 years, 2.1 years and 0.3 years, respectively.

Impairments

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we regularly conduct comprehensive reviews of our real estate assets for impairment. ASC 360 requires that asset values be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable.

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The intended use of an asset, either held for sale or held and used, can significantly impact how impairment is measured. If an asset is intended to be held and used, the impairment analysis is based on a two-step test.

The first test measures estimated expected future cash flows (undiscounted and without interest charges) over the holding period, including a residual value, against the carrying value of the property. If the asset fails that test, the asset’s carrying value is compared to the estimated fair value from a market-participant standpoint, with the excess of the asset’s carrying value over the estimated fair value recognized as an impairment charge to earnings.

If an asset is intended to be sold, the asset is recorded at the lower of its carrying amount, or fair value net of estimated selling costs.

We recorded no impairment charges related to properties held and used for the nine months ended September 30, 2012 and 2011.

Real Estate Held for Sale

In the fourth quarter of 2011, we reclassified Nantucket Acquisition LLC, a VIE for which we are the primary beneficiary, to real estate held for sale. The financial results for this property have been reclassified to discontinued operations for all periods presented (see Note 17). In October 2012, we listed the 20100 Western Avenue (“Western Avenue”) property for sale. Therefore, in the fourth quarter of 2012, we will reclassify Western Avenue’s financial results for all periods presented to discontinued operations (See Note 19).

When assets are classified as held for sale, they are recorded at the lower of carrying value or the estimated fair value of the asset, net of estimated selling costs. Accordingly, we assessed Sherburne Commons, the property owned by Nantucket Acquisition LLC, to determine whether its carrying value exceeded its estimated fair value, net of estimated selling costs, as of September 30, 2012. We estimated fair value, net of estimated selling costs, for Sherburne Commons based on a formal offer to acquire the property received from an independent third party. Consequently, we recorded an impairment charge of $1.1 million in the first quarter of 2012. The property was deemed to be a Level 2 asset as our estimate of fair value was based on a non-binding purchase offer. We do not believe that this asset was a Level 1 asset as a purchase and sale agreement had not been signed as of the valuation date, giving the potential buyer the right to opt out of the transaction at its discretion (see Note 3).

Leasing Commissions

Leasing commissions are capitalized at cost and amortized on a straight-line basis over the related lease term. As of September 30, 2012 and December 31, 2011, the balance of capitalized leasing commissions was $1.8 million and $0.4 million, respectively. Amortization expense for the three months ended September 30, 2012 and 2011 was $51,000 and $28,000, respectively. Amortization expense for the nine months ended September 30, 2012 and 2011 was $118,000 and $92,000 respectively.

5. Business Combinations

In the third quarter of 2012, we acquired through CHP LLC, an interest in four healthcare properties. CHREF, an affiliate of the Advisor, owns a 5% interest in CHP LLC. As CHP LLC’s equity holders have voting rights disproportionate to their economic interests in the entity, CHP LLC is considered to be a VIE. As we are the primary beneficiary of the VIE, we have consolidated the operations of the VIE beginning in the third quarter of 2012 (see Note 11).

Portland, Oregon Properties (Sheridan and Fernhill)

On August 3, 2012, through CHP LLC we acquired two skilled nursing facilities located in the Portland, Oregon metropolitan area for a purchase price of $8.6 million in cash. 411 SE Sheridan Road (“Sheridan”), located approximately fifty miles southwest of Portland in Sheridan, Oregon, is a 51-bed intermediate care facility with a current occupancy of approximately 81%. This 13,912 square foot single-story facility was constructed in multiple phases between 1960 and 1970. 5737 NE 37^th Avenue (“Fernhill”) located in Portland, Oregon, is a 13,344 square foot, originally constructed to be a 51-bed facility with current occupancy of approximately 72%. The facility was built in 1960 and has obtained approval to expand to 63 beds. The operator of the Sheridan and Fernhill properties has served in that capacity since 2005, and has over twenty years of experience operating skilled nursing facilities in the Pacific Northwest. Upon the closing of the acquisitions, the existing operator is continuing to operate the properties under new long-term, triple-net leases. Including the Sheridan and Fernhill properties, the operator manages four skilled nursing facilities in Oregon. We acquired our interest in these properties subject to a secured loan with the seller in the aggregate amount of approximately $5.8 million secured by security interests in Sheridan and Fernhill. On September 14, 2012, we repaid the entire principal balance of the seller loan with proceeds from a loan from General Electric Capital Corporation which is secured, in part, by the Sheridan and Fernhill properties (see Note 15).

Medford, Oregon

On September 14, 2012, through CHP LLC, we acquired Farmington Square Medford, a memory care facility with 52 units and 71 licensed beds located within the Medford, Oregon city limits, for a purchase price of $8.5 million in cash. The facility, consisting of four separate wood-framed, single-story buildings totaling 32,557 square feet, was constructed in phases between 1990 and 1997 and currently operates at approximately 90% occupancy. The operator of the Medford Facility has served in that capacity since 1991, and has over twenty years of experience operating senior-living facilities in the Pacific Northwest. The manager of the facility is continuing to operate the facility under a new long-term, triple-net lease. The acquisition was funded from a loan from an unaffiliated third party lender.

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Galveston, Texas

On September 14, 2012, through CHP LLC, we acquired Friendship Haven Healthcare and Rehabilitation Center, a skilled-nursing facility with 150 licensed beds located in Galveston County, Texas, for a purchase price of $15.0 million. The facility, a single-story, 53,826 square foot wood-frame building, was constructed in 1997 and currently operates at 90% occupancy. The manager of the Galveston Facility has served in that capacity since February 2012, and has over twenty years of experience operating senior-living facilities in Texas and Louisiana. The licensed operator is continuing to operate the Galveston facility under a new long-term, triple-net lease. Including the Galveston Facility, the manager manages fifteen skilled-nursing facilities in Texas. The acquisition was funded from a loan from an unaffiliated third party lender.

The following summary provides the allocation of the acquired assets and liabilities of the Sheridan, Portland, Medford, and Galveston properties (the “Third Quarter 2012 Acquisitions”) as of the respective dates of acquisition. We have accounted for the acquisitions as business combinations under U.S. GAAP. Under business combination accounting, the assets and liabilities of acquired properties are recorded as of the acquisition date, at their respective fair values, and consolidated in our financial statements. The following sets forth the preliminary allocation of the purchase prices of the acquired properties as well as the associated acquisitions costs, which have been expensed as incurred. These allocations are subject to change as we finalize our analysis.

	Sheridan		Portland		Medford		Galveston		Total
Land	$	156,000	$	826,000	$	954,000	$	1,095,000	$	3,031,000
Buildings & improvements		1,343,000		1,244,000		6,353,000		11,101,000		20,041,000
Site improvements		74,000		45,000		233,000		509,000		861,000
Furniture & fixtures		223,000		350,000		434,000		1,263,000		2,270,000
In-place leases		283,000		299,000		526,000		1,032,000		2,140,000
Certificate of need		2,021,000		1,736,000		—		—		3,757,000
Real estate acquisitions	$	4,100,000	$	4,500,000	$	8,500,000	$	15,000,000	$	32,100,000
Real estate acquisition costs	$	109,000	$	109,000	$	297,000	$	222,000	$	737,000

The Company recorded revenues and net income for the three and nine months ended September 30, 2012 of approximately $0.3 million related to the Third Quarter 2012 Acquisitions. The following unaudited pro forma information for the three and nine months ended September 30, 2012 and 2011 has been prepared to reflect the incremental effect of the properties acquired during the third quarter of 2012 as if all such transactions took place on January 1, 2011. For the three and nine months ended September 30, 2012, acquisition-related costs of $0.7 million and $0.7 million, respectively, were excluded from pro forma net loss.

	Three Months ended September 30,						Nine Months ended September 30,
	2012			2011			2012			2011
Revenues	$	2,065,000		$	1,936,000		$	5,707,000		$	6,019,000
Net loss from continuing operations	$	(376,000	)	$	(1,088,000	)	$	(2,423,000	)	$	(27,869,000	)
Basic and diluted net loss per common share from continuing operations	$	(0.02	)	$	(0.05	)	$	(0.11	)	$	(1.21	)

6. Allowance for Doubtful Accounts

Allowance for doubtful accounts was $0.2 million as of September 30, 2012 and December 31, 2011.

7. Concentration of Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily notes receivable and the note receivable from related party. Refer to Notes 8 and 9 with regard to credit risk evaluation of notes receivable and the note receivable from related party, respectively. Our cash is generally invested in investment-grade short-term instruments.

On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act” that implements significant changes to the regulation of the financial services industry, including provisions that made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000, and provided unlimited federal deposit insurance until January 1, 2013, for non-interest bearing demand transaction accounts at all insured depository institutions. As of September 30, 2012, we had cash accounts in excess of FDIC-insured limits. However, we do not believe the risk associated with this excess is significant.

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Concentrations of credit risk also arise when a number of tenants or obligors related to one investment are engaged in similar business activities or activities in the same geographic regions, have similar economic features that would cause their ability to meet contractual obligations, including those of the Company, to be similarly affected by changes in economic conditions. We regularly monitor our portfolio to assess potential concentration risk.

As of September 30, 2012, excluding the VIE, we owned three properties in the state of California, six properties in the state of Florida three properties in the state of Oregon and one property in the state of Texas. Accordingly, there is a geographic concentration of risk subject to economic conditions in these states.

8. Notes Receivable

In May 2008, we agreed to loan up to $10.0 million at an interest rate of 10% per year to two real estate operating companies, Servant Investments, LLC (“SI”) for approximately $6.0 million and Servant Healthcare Investments, LLC (“SHI”) for approximately $4.0 million (collectively “Servant”). In May 2010, the combined loan commitments were reduced to $8.75 million with the commitment reduction impacting SI only. SI’s revised loan commitment was $4.7 million. The loans were scheduled to mature on May 19, 2013. At the time the loans were negotiated, Servant was a sub-advisor in an alliance with the managing member of our Advisor.

On a quarterly basis, we evaluate the collectability of our notes receivable. Our evaluation of collectability involves judgment, estimates, and a review of the underlying collateral and borrower’s business models and future cash flows from operations. During the third quarter of 2009, we concluded that the collectability of the SI note could not be reasonably assured. Therefore, we recorded a reserve of $4.7 million against the note balance. For the three and nine months ended September 30, 2011 and 2010, no interest income related to the SI note receivable was recorded. As of September 30, 2012 and December 31, 2011, the SI note receivable had a net balance of $0. It is our policy to recognize interest income on the reserved loan on a cash basis.

In the second quarter of 2011, after evaluating the expected effects of changes in SHI’s business prospects, including the uncertainty surrounding the realization of the fees pursuant to a sub-advisory agreement, we concluded that it was probable that we would be unable to collect all amounts due according to the terms of the SHI note and consequently, we recorded a note receivable impairment of $1.7 million against the balance of that note.

In December 2011, the notes receivable were restructured to provide for the combined settlement of the notes in the amount of $2.5 million of which $1.5 million was received from Servant in December 2011. The remaining $1.0 million is payable pursuant to a promissory note from SHI which provides for interest at a fixed rate of 5.00% per annum. A principal payment of $0.7 million, plus any accrued and unpaid interest, is due on December 22, 2013 and the remaining balance of $0.3 million, plus any accrued and unpaid interest, is due on December 22, 2014. The note receivable was recorded at its present value of $0.9 million on our consolidated balance sheet as of December 31, 2011.

The following table reconciles notes receivable from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012		2011
Balance at January 1,	$	908,000	$	4,000,000
Additions:
Additions to notes receivable		—		—
Deductions:
Notes receivable repayments		—		(150,000	)
Notes receivable impairments		—		(1,650,000	)
Balance at September 30,	$	908,000	$	2,200,000

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As of September 30, 2012 and December 31, 2011, the SHI note receivable had a balance of $0.9 million. For the nine months ended September 30 2012 and 2011, interest income related to the note receivable was $40,000 and $0.3 million, respectively and the collection is current. We determined that Servant is not a variable interest entity and there is no requirement to include this entity in our condensed consolidated balance sheets and condensed consolidated statements of operations.

9. Note Receivable from Related Party

On December 14, 2009, we made a participating first mortgage loan commitment of $8.0 million to Nantucket Acquisition LLC (“Nantucket Acquisition”), a Delaware limited liability company owned and managed by Cornerstone Ventures Inc., an affiliate of our Advisor. The loan was made in connection with Nantucket Acquisition’s purchase of a 60-unit senior-living community, Sherburne Commons Residences, LLC (“Sherburne Commons”), located on the island of Nantucket, MA. The loan matures on January 1, 2015, with no option to extend and bears interest at a fixed rate of 8.0% for the term of the loan. Interest is payable monthly with the principal balance due at maturity. Under the terms of the loan, we are entitled to receive additional interest in the form of a 40% participation in the appreciation in value of the property, which is calculated based on the net sales proceeds if the property is sold, or the property’s appraised value, less ordinary disposition costs, if the property has not been sold by the time the loan matures. Prepayment of the loan is not permitted without our consent and the loan is not assumable.

Leasing activity at Sherburne Commons has been lower than originally anticipated and to preserve cash flow for operating requirements, Nantucket Acquisition suspended interest payments to us beginning in the first quarter of 2011. Consequently, we began recognizing interest income on a cash basis as of the first quarter of 2011. For the three months ended September 30, 2012 and 2011, interest income recognized on the note was $0. For the nine months ended September 30, 2012 and 2011, interest income recognized on the note was $0 and $55,000, respectively.

During 2011 and in the first half of 2012, the loan balance was increased by $0.5 million and $0.3 million, respectively, to provide funds for Sherburne Commons’ operating shortfalls. It is anticipated that additional disbursements to Nantucket Acquisitions may be required while efforts are made to dispose of the property.

Nantucket Acquisition is considered a variable interest entity for which we are the primary beneficiary due to our enhanced ability to direct the activities of the VIE. Consequently, we have consolidated the operations of the VIE as of June 30, 2011 and, accordingly, eliminated the note receivable from related party in consolidation (see Note 11).

On a quarterly basis, we evaluate the collectability of our note receivable from Nantucket Acquisition. Our evaluation of collectability involves judgment, estimates, and a review of the underlying collateral and Nantucket Acquisition’s business models and future cash flows from operations. For the three months ended September 30, 2011 and 2012, we recorded no impairment charge attributed to the VIE held for sale (see Note 11). For the nine months ended September 30, 2012 and 2011, we recorded impairment changes of $1.1 million and $0, respectively.

The following table reconciles the note receivable from Nantucket Acquisition from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012			2011
Balance at January 1,	$	—		$	8,000,000
Additions:
Additions to note receivable from related party		435,000			318,000
Deductions:
Repayments of note receivable from related party		—			—
Elimination of balance in consolidation of VIE		(435,000	)		(8,318,000	)
Balance at September 30	$	—		$	—

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10. Receivable from Related Party

The receivable from related party consists of the “excess organization and offering costs” reimbursed to the Advisor related to our Follow-on Offering. Our Follow-on Offering was terminated on June 10, 2012. Pursuant to the Advisory Agreement with our Advisor, within 60 days after the end of the month in which our Follow-on Offering terminated, our Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our Advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit set forth in the advisory agreement. Therefore, we recorded a receivable of approximately $1.0 million for which we then reserved the full amount based on our analysis of collectability (see Note 14).

11. Consolidation of Variable Interest Entity

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

In compliance with ASC 810, Consolidation, we continuously analyze and reconsider our initial determination of VIE status to determine whether we are the primary beneficiary by considering, among other things, whether we have the power to direct the activities of the VIE that most significantly impact its economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. We also consider whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.

Nantucket Acquisition

As of September 30, 2012, we had a variable interest in a VIE in the form of a note receivable from Nantucket Acquisition in the amount of $9.0 million (see Note 9).

As a result of our issuing a notice of default with respect to the note, we determined that we were the primary beneficiary of the VIE. Therefore, we consolidated the operations of the VIE beginning June 30, 2011. Assets of the VIE may only be used to settle obligations of the VIE and creditors of the VIE have no recourse to the general credit of the Company. As of October 19, 2011, the Sherburne Commons property was reclassified to real estate held for sale (See Note 4). Consequently, the related assets and liabilities of the property are classified as assets of variable interest entity held for sale and liabilities of variable interest entity held for sale on our condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011. Operating results for the property have been reclassified to discontinued operations on our condensed consolidated statement of operations for the nine months ended September 30, 2012.

Because the Sherburne Commons property was reclassified to held for sale in the fourth quarter of 2011, the real estate is recorded at the lower of carrying value or the estimated fair value of the asset, net of estimated selling costs. Since June 30, 2011, leasing activity has been lower than originally anticipated and we continue to provide funds to meet Sherburne Commons’ operating shortfalls. As a result, we reduced our cash flow forecasts for purposes of determining whether the property was impaired. As a result of expected reduced leasing activity which reduced our cash flow forecasts for Sherburne Commons, we were required to adjust the property to its estimated fair value, net of estimated selling costs resulting in an impairment charge of $4.8 million, which is classified in discontinued operations as impairment of real estate sold and asset held for sale on our consolidated statement of operations for the year ended December 31, 2011.

Since the fourth quarter of 2011, the Sherburne Commons property has been actively marketed to prospective third-party buyers. In the second quarter of 2012, we received a formal offer from an independent third party to acquire the property. Based upon this evidence and management’s plan to sell the property, we determined that the offer, less estimated selling costs, approximates fair value. Consequently, we recorded an impairment charge of $1.1 million in the first quarter of 2012. As of the valuation date, our property interest was deemed to be a Level 2 asset as our estimate of fair value was based on a non-binding purchase offer. We do not believe that this asset was a Level 1 asset as a purchase and sale agreement had not been signed as of the valuation date, giving the potential buyer the right to opt out of the transaction at its discretion.

Cornerstone Healthcare Partners LLC

On June 11, 2012, we formed CHP LLC, a Delaware limited liability company, with CHREF, an affiliate of the Advisor. The entity was formed to purchase healthcare related properties as part of the Company’s repositioning strategy (see Note 5). At September 30, 2012, we owned a 95% interest in CHP LLC and CHREF owned a 5% interest in the entity. As the equity holders are related parties and have voting rights that are disproportionate to their economic interests in CHP LLC, we determined that entity is a VIE. As we have control over the entity, along with the right to receive a majority of the expected residual returns and the obligation to absorb a majority of the expected losses of the entity, we determined that we were the primary beneficiary of the VIE. Consequently, we have consolidated the operations of the VIE.

As of September 30, 2012, the Company has not provided, and is not required to provide, financial support to the VIE except for the services provided to the VIE in its capacity as manager. There are no arrangements requiring the Company to provide additional financial support to the VIE, including circumstances in which the VIE could be exposed to further losses. The properties that were purchased through the VIE are mortgaged by a secured loan (see Note 15). This loan is secured by the healthcare properties purchased through the VIE and has no recourse to our general credit.

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12. Payable to Related Parties

Payable to related parties at September 30, 2012 and December 31, 2011 consists of expense reimbursements payable to the Advisor.

13. Equity

Common Stock

Our articles of incorporation authorize 290,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. As of September 30, 2012 and December 31, 2011, we had cumulatively issued 20.9 million shares of common stock for a total of $167.1 million of gross proceeds, exclusive of shares issued under our distribution reinvestment plan. On November 23, 2010, we stopped making and accepting offers to purchase shares of our stock and on June 10, 2012, it expired (see Note 2).

Distributions

Distributions paid to stockholders for the three months ended September 30, 2012 and 2011 were $0. Distributions paid to stockholders for the nine months ended September 30, 2012 and 2011 were $0 and $0.5 million, respectively, all of which was paid in cash. Total cash distributions paid for the six months ended June 30, 2011 were 100% funded from cash provided by operating activities.

We adopted a distribution reinvestment plan that allows our stockholders to have their distributions invested in additional shares of our common stock. As of September 30, 2012 and December 31, 2011, 2.3 million shares had been issued under the distribution reinvestment plan. On November 23, 2010, our board of directors suspended the distribution reinvestment plan indefinitely effective December 14, 2010. As a result, distributions were paid entirely in cash after December 14, 2010. Commencing with the April 2011 distributions, the board of directors elected to pay distributions on a quarterly basis. However, due to cash constraints, the board of directors elected to defer the second quarter 2011 distribution payment until the Company’s cash position improved. The second quarter distribution of $0.5 million was paid in the fourth quarter of 2011. We cannot provide any assurance as to if or when we will resume our distribution reinvestment plan.

The following table shows the distributions declared during the nine months ended September 30, 2012 and 2011:

	Distributions Declared (2)						Cash Flows Provided by (Used in) Operating
Period	Cash		Reinvested		Total		Activities
First quarter 2011 (1)	$	454,000	$	—	$	454,000	$	481,000
Second quarter 2011 (1)	$	468,000	$	—	$	468,000	$	(219,000	)
Third quarter 2011	$	—	$	—	$	—	$	(323,000	)
First quarter 2012	$	—	$	—	$	—	$	(800,000	)
Second quarter 2012	$	—	$	—	$	—	$	(953,000	)
Third quarter 2012	$	—	$	—	$	—	$	(2,400,000	)

(1) 100% of the distributions declared during the nine months ended September 30, 2011 represented a return of capital for federal income tax purposes.

(2) In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds.

The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis, if any. The amount, rate, frequency of distributions will depend on operating results and cash flow, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant. No distributions have been declared for periods after June 30, 2011.

From our inception in October 2004 through September 30, 2012, we declared aggregate distributions of $32.8 million. Our cumulative net loss and cumulative net cash provided by operating activities during the same period were $74.1 million and $0.5 million, respectively.

Stock Repurchase Program

On November 23, 2010, our board of directors concluded that we would not have sufficient funds available to us to continue funding share repurchases. Accordingly, our board of directors suspended repurchases under the program effective December 31, 2010. In January 2011, repurchases of 46,096 shares due to the death of a shareholder that were requested in 2010, prior to the suspension of the stock repurchase program were funded. Our board of directors has the authority to resume, suspend again, or terminate the share redemption program at any time upon 30 days written notice to our stockholders. Our board of directors may modify our stock repurchase program so that we can repurchase stock using the proceeds from the sale of our real estate investments or other sources. We can make no assurance as to when and on what terms repurchases will resume.

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During the nine months ended September 30, 2012, we did not repurchase any shares pursuant to our stock repurchase program. We have received requests to repurchase 14,528 shares during the three months ended September 30, 2012. However, due to the current suspension of the stock repurchase program, we were not able to fulfill any of these requests.

During the nine months ended September 30, 2011, we repurchased shares pursuant to our stock repurchase program as follows:

Period	Total Number of Shares Redeemed		Average Price Paid per Share
January 2011 (1)	46,096		$7.99
February 2011		—	$	—
March 2011		—	$	—
April 2011		—	$	—
May 2011		—	$	—
June 2011		—	$	—
July 2011		—	$	—
August 2011		—	$	—
September 2011		—	$	—
		46,096

(1) In January 2011, share repurchases due to the death of a shareholder that were requested prior to the suspension of the stock repurchase program were fulfilled under the program.

Employee and Director Incentive Stock Plan

We have adopted an Employee and Director Incentive Stock Plan (the “Plan”) which provides for the grant of awards to directors, full-time employees, and other eligible participants that provide services to us. We have no employees, and we do not intend to grant awards under the Plan to persons who are not directors. Awards granted under the Plan may consist of nonqualified stock options, incentive stock options, restricted stock, share appreciation rights, and distribution equivalent rights. The term of the Plan is ten years. The total number of shares of common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of stock at any time.

As of September 30, 2012, we had granted to our independent, non-employee directors nonqualified stock options to purchase an aggregate of 80,000 shares of common stock at an exercise price of $8.00 per share. Of these shares, 15,000 shares lapsed and were canceled on November 8, 2008 due to the resignation of one director from the board of directors on August 6, 2008. On April 6 and July 3, 2012, an additional 20,000 and 5,000 shares, respectively, lapsed and were canceled due to the resignation of two additional members from the board of directors.

Outstanding stock options became immediately exercisable on the grant date, were issued with a ten-year life, and have no intrinsic value as of September 30, 2012. We recorded compensation expense for non-employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. No stock options were exercised during the nine months ended September 30, 2012 and 2011. We did not incur any non-cash compensation expense for the nine months ended September 30, 2012 and 2011.

In connection with the registration of the shares in our Follow-On Offering, we suspended the issuance of options to our independent, non-employee directors under the Plan, and we do not expect to issue additional options to our independent, non-employee directors. As of June 10, 2012, our Follow-on Offering was terminated (see Note 2).

Our equity compensation plan information as of September 30, 2012 and December 31, 2011 is as follows:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders		40,000	$	8.00		See footnote	(1)
Equity compensation plans not approved by security holders		—		—		—
Total		40,000	$	8.00		See footnote	(1)

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(1) Our Employee and Director Incentive Stock Plan was approved by our security holders and provides that the total number of shares issuable under the plan is a number of shares equal to ten percent (10%) of our outstanding common stock. The maximum number of shares that may be granted under the plan with respect to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code is 5,000,000. As of September 30, 2012 and December 31, 2011, there were 23,028,285 shares of our common stock issued and outstanding.

14. Related Party Transactions

Our company has no employees. Our Advisor is primarily responsible for managing our business affairs and carrying out the directives of our board of directors. We have an Advisory Agreement with the Advisor and a dealer manager agreement with PCC which entitle the Advisor and PCC to specified fees upon the provision of certain services with regard to the Offerings and investment of funds in real estate projects, among other services, as well as reimbursement for organizational and offering costs incurred by the Advisor and PCC, on our behalf and reimbursement of certain other reimbursable costs and expenses incurred by the Advisor in providing services to us.

Advisory Agreement

Under the terms of the Advisory Agreement, the Advisor will use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors. The Advisory Agreement calls for the Advisor to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties.

Organizational and Offering Costs. Organizational and offering costs of our Offerings have been paid by the Advisor on our behalf and have been reimbursed to the Advisor from the proceeds of our Offerings. Organizational and offering costs consist of all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with our Offerings, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to, (i) amounts to reimburse the Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of the Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the offering of our shares; (iii) the costs of conducting our training and education meetings; (iv) the costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses.

As of September 30, 2012 and December 31, 2011, the Advisor and its affiliates had incurred on our behalf organizational and offering costs totaling $5.6 million, including $0.1 million of organizational costs that were expensed and $5.5 million of offering costs which reduced net proceeds of our Offerings. Of this amount, $4.4 million reduced the net proceeds of our Primary Offering and $1.1 million reduced the net proceeds of our Follow-On Offering.

On June 10, 2012, our Follow-on Offering was terminated. Our Advisory Agreement provides for reimbursement to the Advisor for organizational and offering costs in excess of 3.5% of the gross proceeds from our Primary Offering and Follow-On Offering. Under the Advisory Agreement, within 60 days after the end of the month in which our Follow-on Offering terminated, the Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our Advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit. Consequently, in the second quarter of 2012, we recorded a receivable from the Advisor for $1.0 million reflecting the excess reimbursement. The repayment by the Advisor is scheduled to occur in quarterly payments over a 24 month period commencing January 1, 2013. However, as a result of our evaluation of various factors related to collectability of this receivable, we recorded a reserve for the full amount of the receivable as of June 30, 2012 and no change has been made to the reserve as of September 30, 2012.

Acquisition Fees and Expenses. The Advisory Agreement requires us to pay to the Advisor acquisition fees in an amount equal to 2.0% of the gross proceeds from our Offerings. We have paid the acquisition fees upon receipt of the gross proceeds from our Primary Offering and Follow-On Offering (excluding gross proceeds related to sales pursuant to our distribution reinvestment plan). However, if the Advisory Agreement is terminated or not renewed, the Advisor must return acquisition fees not yet allocated to one of our investments. In addition, we are required to reimburse the Advisor for direct costs the Advisor incurs and amounts the Advisor pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. For the nine months ended September 30, 2012 and 2011, the Advisor earned acquisition fees of $0.4 million and $0, respectively. On July 31, 2012, we executed an amendment to the terms of the Advisory Agreement to provide for payment of an Advisor acquisition fee in an amount not to exceed 2% of the contract purchase price, as defined, for new property acquisitions.

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Asset Management Fees and Expenses. Prior to October 1, 2011, the Advisory Agreement required us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the “Average Invested Assets” (as defined in the Advisory Agreement). On August 31, 2011, we amended the Advisory Agreement to provide that, beginning on October 1, 2011, the asset management fee payable by us to our Advisor shall be reduced to a monthly rate of one-twelfth of 0.75% of our Average Invested Assets, as defined above. On July 31, 2012, we executed an amendment to the terms of the Advisory Agreement to provide for a Property Management and Leasing Fee payable to the Advisor if the Advisor provides such services with respect to new property acquisitions. The amount of the Property Management and Leasing Fee is to be market-based and in no case may exceed 3% of monthly gross revenue, as defined, and 2.5% of rent as defined. For the three months ended September 30, 2012 and 2011, the Advisor earned $0.2 million and $0.4 million, respectively, of asset management fees which were expensed and included in asset management fees and expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, the Advisor earned $0.7 million and $1.2 million, respectively, of asset management fees which were expensed and included in asset management fees and expenses in our condensed consolidated statements of operations.

In addition, we reimburse the Advisor for the direct and indirect costs and expenses incurred by the Advisor in providing asset management services to us, including personnel and related employment costs related to providing asset management services on our behalf. These fees and expenses are in addition to management fees that we pay to third-party property managers. For the three months ended September 30, 2012 and 2011, the Advisor was reimbursed $58,000 and $44,000, respectively, of such direct and indirect costs and expenses incurred on our behalf, which are included in asset management fees and expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, the Advisor was reimbursed $138,000 and $129,000, respectively, of such direct and indirect costs and expenses incurred on our behalf, which are included in asset management fees and expenses in our condensed consolidated statements of operations.

Operating Expenses. The Advisory Agreement provides for reimbursement of the Advisor’s direct and indirect costs of providing administrative and management services to us. For the three months ended September 30, 2012 and 2011, $0.3 million and $0.2 million of such costs, respectively, were reimbursed and are included in general and administrative expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011 $1.0 million and $0.7 million of such costs, respectively, were reimbursed and are included in general and administrative expenses in our condensed consolidated statements of operations.

Pursuant to provisions contained in our charter and in our Advisory Agreement, the Advisor shall reimburse us by the amount by which the total operating expenses paid or incurred by us, in any four consecutive fiscal quarters, exceeds the greater of 2% of our average invested assets or 25% of our net income, calculated in the manner set forth in our charter, (the “Excess Amount” unless a majority of the board of directors (including a majority of the independent directors) has made a finding that, based on unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified (collectively, this limitation is the “2%/25% Test”).

As previously disclosed, for each of the fiscal quarters ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012 our board of directors conditioned its findings that such Excess Amounts for such quarters were justified upon the Advisor agreeing to carry over such Excess Amounts and include them in total operating expenses in subsequent periods for purposes of the 2%/25% Test. The board of directors including the independent directors of the Company have unanimously resolved to permanently waive the Advisor’s reimbursement obligation with respect to amounts due for excess resulting from the six-fiscal quarters ended September 30, 2011, which amount totals $3.2 million.

The Company’s board of directors, including all of the independent directors, reached their decision to waive the Advisor’s reimbursement obligation because such expenses were justified as unusual and non-recurring, including those due to unforeseeable conditions, namely the small asset base due to the suspension in November 2010 and subsequent termination in June 2012 of the Follow-On Offering. This negatively affected the Company’s growth and extended the start-up phase of the Company. Additionally, we were negatively impacted by the extended economic national recession that adversely impacted the industrial and residential real estate markets resulting in lower rental rates, occupancy rates and operating results in 2009, 2010 and 2011. In 2011, four of our industrial properties were sold primarily to pay down and/or restructure terms on current maturities of debt. These dispositions further negatively impacted the Company’s operating results and reduced the average invested assets measure, which is used in the 2%/25% test.

For the four-fiscal-quarter period ended September 30, 2012, our total operating expenses again exceeded the greater of 2% of our average invested assets and 25% of our net income. We incurred operating expenses of approximately $4.2 million and incurred an Excess Amount of approximately $2.3 million during the four-fiscal-quarters ended September 30, 2012. Our board of directors, including a majority of our independent directors, has determined that this Excess Amount is justified because of unusual and non-recurring factors such as our small size (for a public reporting company) and the costs of repositioning of our real estate investments. However, notwithstanding such justification, and as a condition to such justification, the Advisor has again agreed that the Excess Amount the four-fiscal-quarter period ended September 30, 2012 shall be carried over and included in total operating expenses in subsequent periods, with any waiver dependent on our Advisor’s satisfactory progress with respect to executing the strategic alternative to be chosen by the independent directors.

The Advisor has informed us that based on current conditions and the Company’s forecast, it believes that the Company’s projected operating expenses are likely to exceed the 2%/25% test while the Company and Advisor pursue the repositioning strategy and growth in assets under management. Accordingly, the board of directors has determined and the Advisor has concurred that any Excess Amounts in future quarters shall be carried over and included I the total operating expense for such subsequent periods, with any future waiver or adjustments dependent upon the Advisor satisfactorily continued progress with respect to accelerating growth and executing the strategic repositioning andcost containment initiatives. The board of directors will continue to monitor the appropriateness of the expenses and the Advisor’s fees and consider options to reduce the Company’s expense structure.

Property Management and Leasing Fees and Expenses. The Advisory Agreement provides that if we retain our Advisor or an affiliate to manage and lease some of our properties, we will pay a market-based property management fee or property leasing fee, which may include reimbursement of our Advisor’s or affiliate’s personnel costs and other costs of managing the properties. For the three months ended September 30, 2012 and 2011, the Advisor earned approximately $2,000 and $2,000, respectively, of such property management fees. For the nine months ended September 30, 2012 and 2011, the Advisor earned $7,000 and $13,000, respectively, of such property management fees. On July 31, 2012, we executed a Property Management and Leasing Agreement with the Advisor pursuant to which it will perform property management and leasing services with respect to our healthcare properties. This agreement stipulates that when the Advisor identifies tenants and negotiates a lease on our behalf for the healthcare properties, we will pay to the Advisor a market based leasing fee. For the three months ended September 30, 2012, the Advisor earned approximately $1.0 million of leasing fees. For the nine months ended September 30, 2012, the Advisor earned $1.0 million of leasing fees. No leasing fees were earned in 2011. These costs are included in property operating and maintenance expenses in our condensed consolidated statements of operations.

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Disposition Fee. Prior to the second amendment to the Advisory Agreement executed on November 11, 2011, the Advisory Agreement provided that if the Advisor or its affiliates provide a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors) in connection with the sale of one or more properties, we will pay the Advisor or such affiliate a disposition fee up to 3% of the sales price of such property or properties upon closing. This disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by us for each property shall not exceed an amount equal to the lesser of (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property. Subsequent to November 11, 2011, the disposition fee was reduced from an amount up to 3% of the sales price of properties sold to an amount up to 1% of the sales price of properties sold if the Advisor or its affiliates provide a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors).We will pay the disposition fees for a property at the time the property is sold. For the three and nine months ended September 30, 2012 and 2011, the Advisor did not earn any disposition fees.

Subordinated Participation Provisions. The Advisor is entitled to receive a subordinated participation upon the sale of our properties, listing of our common stock or termination of the Advisor, as follows:

• After stockholders have received cumulative distributions equal to $8.00 per share (less any returns of capital) plus cumulative, non-compounded annual returns on net invested capital, the Advisor will be paid a subordinated participation in net sale proceeds ranging from a low of 5% of net sales proceeds provided investors have earned annualized returns of 6% to a high of 15% of net sales proceeds if investors have earned annualized returns of 10% or more.

• Upon termination of the Advisory Agreement, the Advisor will receive the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the appraised value of our assets minus our liabilities on the date the Advisory Agreement is terminated plus total distributions (other than stock distributions) paid prior to termination of the Advisory Agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the appraised value of our assets minus our liabilities plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

• In the event we list our stock for trading, the Advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds. This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

Dealer Manager Agreement

PCC, as dealer manager, was entitled to receive sales commissions of up to 7% of gross proceeds from sales in our Offerings. PCC was also entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the Offerings. The dealer manager was also entitled to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the gross proceeds from sales in the Offerings. For the nine months ended September 30, 2012 and 2011, our dealer manager earned no sales commissions or dealer manager fees. Dealer manager fees and sales commissions paid to PCC are a cost of capital raised and, as such, are included as a reduction of additional paid-in capital in the accompanying condensed consolidated balance sheets. Our Follow-on Offering was terminated on June 10, 2012 (see Note 2).

15. Notes Payable

We have total debt obligations of $44.3 million that will mature in 2014 and 2017. In connection with our notes payable, we incurred financing costs totaling $0.9 million, as of September 30, 2012 and December 31, 2011, respectively. These financing costs have been capitalized and are being amortized over the life of their respective financing agreements. For the three months ended September 30, 2012 and 2011, $27,000 and $156,000, respectively, of deferred financing costs were amortized and included in interest expense in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, $99,000 and $357,000, respectively, of deferred financing costs were amortized and included in interest expense in our condensed consolidated statements of operations.

HSH Nordbank AG

We amended our credit agreement with HSH Nordbank AG, New York Branch (“HSH Nordbank”) in a series of amendments extending the credit facility maturity date from September 20, 2010 to December 16, 2011. As a part of these amendments, we made a principal reduction payment and paid extension fees.

The July 2011 amendment to this credit agreement extended the maturity date from September 30, 2011 to December 16, 2011 and increased the margin spread over LIBOR (London Interbank Offered Rate) from a range of 350 to 375 basis points to a fixed 375 basis points from June 1, 2011 to September 30, 2011 and to 400 basis points from October 1, 2011 to the maturity date. Additionally, this amendment eliminated our requirement to make principal reduction payments of $0.3 million in July, August, and September of 2011, respectively. In connection with this extension and the sale of the Goldenwest property (see Note 17), we made a principal payment of $7.8 million.

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On November 28, 2011, this loan was repaid in its entirety with a portion of the proceeds from the sale of the Mack Deer Valley and Pinnacle Park Business Center properties.

Wells Fargo Bank, National Association

On November 13, 2007, we entered into a loan agreement with Wells Fargo, successor-by-merger to Wachovia Bank, N.A., to facilitate the acquisition of properties during our offering period. The terms of the loan agreement provided for a borrowing amount of up to $22.4 million, which was reduced to $15.9 million as of November 30, 2009, at an interest rate of 140 basis points over one-month LIBOR, secured by specified real estate properties. The loan agreement had a maturity date of November 13, 2010, and provided for prepayment without penalty. Through a series of amendments executed through June 30, 2011, we extended the maturity date from November 13, 2010 to August 13, 2011.

On August 12, 2011, the loan agreement was amended to extend the maturity to February 13, 2012. In connection with this amendment, the 2111 South Industrial Park property and Shoemaker Industrial Buildings were added to the loan collateral, and we made a principal payment of $0.5 million. The terms of the amended loan provide for two one-year extensions, subject to meeting certain loan-to-value and debt service coverage ratios and require monthly principal payments. Interest on the amended loan increased to 300 basis points over one-month LIBOR with a 150 basis point LIBOR floor.

On December 22, 2011, in connection with the sale of the 2111 South Industrial Park property (see Note 17), we made a principal payment of approximately $0.9 million.

On February 13, 2012, we amended our loan agreement with Wells Fargo, extending the maturity date from February 13, 2012 to February 13, 2014. In connection with this amendment, we made a principal payment of $7.5 million and paid fees and expenses totaling approximately $65,000. The interest rate on the amended loan decreased from 300 basis points over one-month LIBOR to 200 basis points over one-month LIBOR, with the one-month LIBOR floor remaining fixed at 150 basis points. Any amounts repaid under the loan agreement may not be re-borrowed. All other terms of the loan agreement remain in full force and effect.

As of September 30, 2012 and December 31, 2011, we had net borrowings of approximately $6.6 million and $14.4 million under the loan agreement, respectively. The weighted-average interest rate for the nine months ended September 30, 2012 and the year ended December 31, 2011 was 3.71% and 2.54%, respectively. During the three months ended September 30, 2012 and 2011, we incurred $59,000 and $51,000 of interest expense, respectively, related to this loan agreement. During the nine months ended September 30, 2012 and 2011, we incurred $0.2 million and $0.3 million of interest expense, respectively, related to this loan agreement.

The loan agreement contains various reporting covenants, including providing periodic balance sheets, statements of income and expenses of borrower and each guarantor, statements of income and expenses and changes in financial position of each secured property and cash flow statements of the borrower and each guarantor. As of September 30, 2012, we were in compliance with all financial covenants.

The principal payments due on the Wells Fargo loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	90,000
2013	$	360,000
2014	$	6,139,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

Transamerica Life Insurance Company

In connection with our acquisition of Monroe North Commerce Center, on April 17, 2008, we entered into an assumption and amendment of note, mortgage and other loan documents (the “Loan Assumption Agreement”) with Transamerica Life Insurance Company (“Transamerica”). Pursuant to the Loan Assumption Agreement, we assumed the outstanding principal balance of $7.4 million on the Transamerica secured mortgage loan. The loan matures on November 1, 2014 and bears interest at a fixed rate of 5.89% per annum. As of September 30, 2012 and December 31, 2011, we have an outstanding balance of $6.5 million and $6.7 million, respectively, under this Loan Assumption Agreement. This Loan Assumption Agreement contains various reporting covenants including an annual income statement, rent roll, operating budget and narrative summary of leasing prospects for vacant spaces. As of September 30, 2012, we were in compliance with all reporting covenants. The monthly principal and interest payment on this loan is $50,370. During the three months ended September 30, 2012 and 2011, we incurred $96,000 and $99,000 of interest expense, respectively, related to this Loan Assumption Agreement. During the nine months ended September 30, 2012 and 2011, we incurred $0.3 million and $0.3 million of interest expense, respectively, related to this loan agreement. The principal payments due on the Loan Assumption Agreement for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

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Year	Principal Amount
October 1, 2012 to December 31, 2012	$	37,000
2013	$	230,000
2014	$	6,234,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

Seller Loan

We acquired our interest in the Fernhill and Sheridan properties subject to a secured loan. On August 1, 2012, we entered into a loan agreement with the sellers, Sheridan Care Center LLC, Sheridan Properties LLC, Fernhill Estates LLC, and Fernhill Properties LLC, for a loan (the “Seller Loan”) in the aggregate amount of approximately $5.8 million secured by security interests in the Fernhill and Sheridan properties. The Seller Loan, which bears interest fixed at 5.0%, matures on March 15, 2013, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan agreement will become due. The Seller Loan was interest-only and could be voluntarily prepaid in its entirety prior to the maturity date without penalty. Interest payments on the Seller Loan are due monthly. The principal balance of the Seller Loan was paid off in full on September 14, 2012 with the proceeds of the GE Healthcare Loan. During the three and nine months ended September 30, 2012, we incurred $23,000 of interest expense related to this Seller Loan.

General Electric Capital Corporation – Healthcare Properties

In connection with our acquisition of the Medford and Galveston facilities, on September 13, 2012, we entered into a loan agreement with General Electric Capital Corporation (“GE Healthcare Loan”) for a loan in the aggregate amount of approximately $16.5 million secured by security interests in the Medford Facility and Galveston Facility. Additionally, we used part of the loan proceeds to repay the entire principal balance of the Seller Loan of $5.8 million. Consequently, the GE Healthcare Loan is secured, in part, by the Portland Properties. The loan bears interest at LIBOR, with a floor of 50 basis points, plus a spread of 4.50%, and matures on September 12, 2017, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan agreement will become due. The GE Healthcare Loan is interest-only for the first twelve months (known as the “lockout period”) and a combination of principal and interest thereafter. The loan may be voluntarily prepaid during lockout period provided the borrower pays a penalty equal to the sum of the LIBOR Breakage Amount, as defined in the, GE Healthcare Loan Agreement and two percent of the outstanding balance of the loan. The GE Healthcare Loan may be prepaid with no penalty after the expiration of the lockout period. Interest payments on the GE Healthcare Loan are due monthly. After the lockout period, principal and interest payments are due on monthly based on a 25 year amortization schedule. As of September 30, 2012, we were in compliance with all covenants. The monthly payment on this GE Healthcare Loan is approximately $90,000. During the three and nine months ended September 30, 2012, we incurred $66,000 of interest expense related to this loan agreement. The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	93,000
2014	$	384,000
2015	$	408,000
2016	$	430,000
2017 and thereafter	$	20,985,000

General Electric Capital Corporation – Western Property

On September 7, 2012, through a wholly-owned subsidiary, we entered into a loan agreement (the “Western Loan”) with General Electric Capital Corporation for a loan in the aggregate amount of approximately $8.9 million, net of certain lender holdbacks, secured by a security interest in the 20100 Western Avenue property. The Western Loan, which bears interest at LIBOR plus 4.30%, with a LIBOR floor of 0.25%, matures on September 30, 2014, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan will become due. The Company has the option to extend the term of the loan for one additional 12-month period. The Western Loan is interest only through November 1, 2013, at which time it begins amortizing over a 30-year period. The Western Loan may be voluntarily prepaid in its entirety during the first year of the loan term subject to a prepayment penalty equal to the Spread Maintenance Amount, as defined in the loan agreement, plus the LIBOR Breakage Amount, as defined in the loan agreement. Subsequent to the first year of the loan term, the loan may be voluntarily prepaid in its entirety subject to a prepayment penalty equal to the Libor Breakage Amount. We paid certain customary financing fees from the proceeds of the Western Loan, and an exit fee of $96,200 is payable to the lender upon the earlier of the maturity of the loan or repayment of the Western Loan in full. In connection with this loan, we entered into an interest swap agreement. The fair value and any change in fair value are considered immaterial. As of September 30, 2012, we were in compliance with all reporting covenants. The monthly payment on this Western Loan is approximately $34,000. During the three and nine months ended September 30, 2012, we incurred $28,000 of interest expense related to this loan agreement. The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

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Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	—
2014	$	8,900,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

16. Commitments and Contingencies

We monitor our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our consolidated financial condition, results of operations or cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial condition, results of operations, and cash flows. We are also subject to contingent losses related to notes receivable as further described in Notes 8 and 9. We are not presently subject to any material litigation nor, to our knowledge, any material litigation threatened against us which, if determined unfavorably to us, would have a material effect on our consolidated financial statements.

17. Discontinued Operations

Divestitures

In accordance with FASB ASC 360, Property, Plant & Equipment, we report results of operations from real estate assets that meet the definition of a component of an entity that have been sold, or meet the criteria to be classified as held for sale, as discontinued operations.

On June 14, 2011, one of our wholly-owned subsidiaries sold the Goldenwest property to Westminster Redevelopment Agency, a non-related party, for a purchase price of $9.4 million. Approximately $7.8 million in proceeds from the sale were used to pay down a portion of the HSH Nordbank credit facility. The operations of Goldenwest are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

On November 28, 2011, two of our wholly-owned subsidiaries sold the Mack Deer Valley and Pinnacle Park Business Center properties to a non-related party for a purchase price of $23.9 million. The proceeds were used, in part, to pay down the entire balance of the HSH Nordbank credit facility. The operations of these properties are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

On December 22, 2011, our wholly-owned subsidiary sold the 2111 South Industrial Park property for a purchase price of $0.9 million. A loss on sale of $29,000 was recognized in the fourth quarter of 2011. The proceeds were used to pay down the Wells Fargo loan. The operations of this property are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

Assets of Variable Interest Entity Held for Sale

In the fourth quarter of 2011, our board of directors authorized us to actively market the Sherburne Commons property, a VIE that we began consolidating on June 30, 2011 (see Note 11).

The assets and liabilities of properties for which we have initiated plans to sell, but have not yet sold as of September 30, 2012 and December 31, 2011 have been classified as assets of variable interest entity held for sale and liabilities of variable interest entity held for sale on the accompanying condensed consolidated balance sheets. As of September 30, 2012 and December 31, 2011, this represents the assets and liabilities of the Sherburne Commons property. The results of operations for the variable interest entity held for sale are presented in discontinued operations on the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2012.

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The following is a summary of the components of (loss) income from discontinued operations for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Rental revenues, tenant reimbursements and other income	$	577,000		$	1,316,000	$	1,522,000		$	3,065,000
Operating expenses and real estate taxes		733,000			947,000		2,103,000			1,702,000
Depreciation and amortization		—			110,000		—			586,000
Impairment of real estate		—			153,000		1,140,000			19,333,000
Income (loss) from discontinued operation	$	(156,000	)	$	106,000	$	(1,721,000	)	$	(18,556,000	)

FASB ASC 360 requires that assets classified as held for sale be carried at the lesser of their carrying amount or estimated fair value, less estimated selling costs. Accordingly, we recorded an impairment charge of $1.1 million in the first quarter of 2012 to record the Sherburne Commons property at its estimated fair value; less estimated selling costs (see Notes 4 and 11).

The following table presents balance sheet information for the properties classified as held for sale as of September 30, 2012 and December 31, 2011.

	September 30, 2012		December 31, 2011
Assets of variable interest entity held for sale:
Cash and cash equivalents	$	40,000	$	95,000
Investments in real estate, net		3,905,000		5,045,000
Accounts receivable, inventory and other assets		223,000		232,000
Assets of variable interest entity held for sale	$	4,168,000	$	5,372,000
Liabilities of variable interest entity held for sale:
Note payable	$	1,332,000	$	1,332,000
Loan payable		131,000		127,000
Accounts payable and accrued liabilities		408,000		373,000
Intangible lease liabilities, net		145,000		145,000
Interest payable		244,000		142,000
Liabilities of variable interest entity held for sale	$	2,260,000	$	2,119,000

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18. Segment Reporting

As of September 30, 2012, we operate in two business segments for management and internal financial reporting purposes: industrial and healthcare. Prior to the third quarter of 2012, we operated only in the industrial business segment. These operating segments are the segments for which separate financial information is available and for which operating results are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. Our healthcare segment consists of the four skilled-nursing and assisted-living properties acquired in the third quarter of 2012 (see Note 4). These properties are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our industrial segment consists of nine multi-tenant industrial properties offering a combination of warehouse and office space adaptable to a broad range of tenants and uses typically catering to local and regional businesses.

We evaluate performance of the combined properties based on net operating income (“NOI”). NOI is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, tenant reimbursements and other income less property operating and maintenance expenses. NOI excludes interest income from notes receivable, general and administrative expense, asset management fees and expenses, real estate acquisition costs, depreciation and amortization, impairments, interest income, interest expense, and income from discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI.

	Three Months Ended September 30, 2012							Three Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	961,000	$	298,000	$	1,259,000		$	849,000	$	—	$	849,000
Tenant reimbursements and other income		226,000		24,000		250,000			204,000		—		204,000
	$	1,187,000	$	322,000	$	1,509,000		$	1,053,000	$		$	1,053,000
Property operating and maintenance		347,000		33,000		380,000			427,000		—		427,000
Net operating income	$	840,000	$	289,000	$	1,129,000		$	626,000	$	—	$	626,000
Interest income from notes receivable						(13,000	)						(102,000	)
General and administrative expenses						757,000							713,000
Asset management fees and expenses						240,000							388,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						524,000							384,000
Interest expense						299,000							408,000
Impairment of real estate						—							425,000
Loss (income) from discontinued operation						156,000							(106,000	)
Net loss					$	(1,571,000	)					$	(1,484,000	)
Net loss attributable to  noncontrolling interests						(258,000	)						(352,000	)
Net loss attributable to common stockholders					$	(1,313,000	)					$	(1,132,000	)

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	Nine Months Ended September 30, 2012							Nine Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	2,613,000	$	298,000	$	2,911,000		$	2,640,000	$	—	$	2,640,000
Tenant reimbursements and other income		649,000		23,000		672,000			669,000		—		669,000
	$	3,262,000	$	321,000	$	3,583,000		$	3,309,000	$	—	$	3,309,000
Property operating and maintenance expenses		1,141,000		32,000		1,173,000			1,246,000		—		1,246,000
Net operating income	$	2,121,000	$	289,000	$	2,410,000		$	2,063,000	$	—	$	2,063,000
Interest income from notes receivable						(40,000	)						(366,000	)
General and administrative expenses						2,489,000							2,083,000
Asset management fees and expenses						662,000							1,215,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						1,294,000							1,457,000
Reserve for advisor obligation						988,000							—
Interest expense						733,000							1,019,000
Impairment of notes receivable						—							1,650,000
Impairment of real estate						1,140,000							23,644,000
Loss from discontinued operation						581,000							18,556,000
Net loss					$	(6,174,000	)					$	(47,195,000	)
Net loss attributable to noncontrolling interests						(787,000	)						(404,000	)
Net loss attributable to common stockholders					$	(5,387,000	)					$	(46,791,000	)

The following table reconciles NOI from net loss for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net loss	$	(1,571,000	)	$	(1,484,000	)	$	(6,174,000	)	$	(47,195,000	)
Interest income from notes receivable		(13,000	)		(102,000	)		(40,000	)		(366,000	)
General and administrative		757,000			713,000			2,489,000			2,083,000
Asset management fees and expenses		240,000			388,000			662,000			1,215,000
Real estate acquisition costs		737,000			—			737,000			—
Depreciation and amortization		524,000			384,000			1,294,000			1,457,000
Reserve for excess advisor obligation		—			—			988,000			—
Interest expense		299,000			408,000			733,000			1,019,000
Impairment of notes receivable		—			—			—			1,650,000
Impairment of real estate		—			425,000			—			23,644,000
Loss from discontinued operations		156,000			(106,000	)		1,721,000			18,556,000
Net operating income	$	1,129,000		$	626,000		$	2,410,000		$	2,063,000

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19. Subsequent Events

Sale of Western Avenue Property

On October 9, 2012, our board of directors authorized us to actively market the Western Avenue property for sale. Commencing in the fourth quarter of 2012, the assets and liabilities of this property will be classified as real estate held for sale and liabilities associated with real estate held for sale on the accompanying condensed consolidated balance sheets and the results of operations will be presented in discontinued operations on the accompanying condensed consolidated statements of operations for all periods presented.

Nantucket Property PSA execution

On November 12, 2012, we, through our VIE, executed a purchase and sale agreement (the “ Nantucket Sale Agreement”) for the sale of the Nantucket Property, by the Northbridge Communities LLC (“Nantucket Buyer”) a non-related party, for a purchase price of approximately $4.0 million. Except with respect to specific contingencies, the Nantucket Buyer does not have the right to terminate the Nantucket Sale Agreement without our consent.

The disposition is anticipated to be completed in the first quarter of 2013. Although most contingencies have been satisfied and we expect to close in accordance with the terms of the Nantucket Sale Agreement, there can be no assurance that remaining contingencies will be satisfied or that events will not arise that could prevent us from disposing the property.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our financial statements and notes thereto contained elsewhere in this report. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements should be read in light of the risks identified in Part II, Item 1A herein and Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission (the “SEC”).

Overview

We were incorporated on October 22, 2004 for the purpose of engaging in the business of investing in and owning commercial real estate. As of September 30, 2012, we had raised $167.1 million of gross proceeds from the sale of 20.9 million shares of our common stock in our initial and follow-on public offerings and had acquired thirteen industrial properties, four of which were sold during 2011. In third quarter of 2012, we acquired four healthcare related properties.

Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of each lease. Our growth depends, in part, on our ability to increase rental income and other earned income from leases by increasing rental rates and occupancy levels and controlling operating and other expenses. Our operations are impacted by property-specific, market-specific, general economic and other conditions.

On November 23, 2010, we stopped soliciting and accepting offers to purchase shares of our stock while our board of directors evaluates strategic alternatives to maximize value and we subsequently informed our investors of several decisions made by the board of directors for the health of our REIT.

Suspension of Distribution Reinvestment Plan. We suspended our distribution reinvestment plan effective December 14, 2010. All distributions paid after December 14, 2010 have been and will be made in cash.

Distributions. Effective December 1, 2010, our board of directors resolved to reduce distributions on our common stock to an annualized rate of $0.08 per share (1% based on a share price of $8.00), from the prior annualized rate of $0.48 per share (6% based on a share price of $8.00), in order to preserve capital that may be needed for capital improvements, debt repayment or other corporate purposes. Distributions at this rate were declared for the first and second quarters of 2011. In June 2011, the board of directors decided, based on the financial position of the Company, to suspend the declaration of further distributions and to defer the payment of the second quarter 2011 distribution until the financial position improved. In the fourth quarter of 2011, we sold the Arizona properties and paid the second quarter distributions. No distributions have been declared for periods after June 30, 2011. The rate and frequency of distributions is subject to the discretion of our board of directors and may change from time to time based on our operating results and cash flow. We can make no assurance when and if distributions will recommence.

Stock Repurchase Program. After careful consideration of the proceeds that were available from our distribution reinvestment plan in 2010, and an assessment of our expected capital expenditures, tenant improvement costs and other costs and obligations related to our investments, our board of directors concluded that we did not have sufficient funds available to prudently fund any stock repurchases during 2011. Accordingly, our board of directors approved an amendment to our stock repurchase program to suspend repurchases under the program effective December 31, 2010. We can make no assurances as to whether and on what terms repurchases will resume. The share repurchase program may be amended, resumed, suspended again, or terminated at any time.

Our board of directors continues to evaluate and implement strategic alternatives to reposition our Company and enhance shareholders’ value. Specifically, we sold the Goldenwest property in June 2011 for gross proceeds of $9.4 million and made a principal payment of $7.8 million on the HSH Nordbank credit facility. Additionally, we sold the Mack Deer Valley and Pinnacle Park Business Center properties in November 2011 for gross proceeds of approximately $23.9 million. The net proceeds were used, in part, to pay down the remaining balance of the HSH Nordbank credit facility. In December 2011, we sold the 2111 South Industrial Park property for gross proceeds of $0.9 million. The proceeds were used to pay down the Wells Fargo loan. Furthermore, in February 2012, we amended our loan agreement with Wells Fargo. The amendment, executed upon our making a $7.5 million principal payment, extended the maturity date of the loan from February 13, 2012 to February 13, 2014 and reduced the interest rate from 300 basis points over one-month LIBOR to 200 basis points over one-month LIBOR, with the LIBOR floor remaining fixed at 150 basis points. We are continuing to pursue options for repaying our debt, including asset sales.

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Market Outlook — Real Estate and Real Estate Finance Markets

Beginning in 2010, and continuing through 2011 and into 2012, significant and widespread concerns about credit risk and access to capital experienced during 2009 began to subside. However, uncertainties created by a sluggish U.S. economy and global economic problems have depressed real estate demand. Increased trade volume in 2010 spurred some increase in leasing activity in select west coast industrial markets. However, if economic uncertainty persists, we may continue to experience significant vacancies and expect to be required to reduce rental rates on occupied space.

Despite recent positive economic indicators, both the national and most global economies have experienced continued volatility throughout 2011 and 2012. These conditions, combined with stagnant business activity and low consumer confidence, have resulted in a challenging operating environment.

As a result of the decline in general economic conditions, the U.S. commercial real estate industry has experienced deteriorating fundamentals across most major property types and most geographic markets. These market conditions have and may continue to have a significant impact on our industrial real estate investments. In addition, these market conditions have impacted our tenants’ businesses, which makes it more difficult for them to meet current lease obligations and places pressure on them to negotiate favorable lease terms upon renewal in order for their businesses to remain viable. Increases in rental concessions given to retain tenants and maintain our occupancy level, which are vital to the continued success of our portfolio, have resulted in lower current cash flows from operations. Projected future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to retain tenants who are up for renewal or to sign new tenants, could result in additional decreases in cash flows from operations.

Until market conditions are more stable, we expect to continue to limit capital expenditures, focusing on those capital expenditures that preserve value and/or generate rental revenue. However, if we experience an increase in vacancies, we may have to make capital investments to re-lease properties and pay leasing commissions.

Strategic Repositioning

Commencing in June 2011, together with our Advisor, we embarked upon an evaluation of options and repositioning that we believed could enhance shareholder value.

The initial steps of this “repositioning” strategy involved the sale of certain industrial properties (Goldenwest, Mack Deer Valley, Pinnacle Park and 2111 South Industrial Park). Proceeds from those sales transactions were used to “de-lever” the Company’s balance sheet by paying down certain short term and other higher cost debt, extending maturities and renegotiating lower interest rates on other loan obligations.

During the second and third quarters of 2012, the board of directors, in consultation with the Advisor, approved the reinvestment of the remaining proceeds from these 2011 property dispositions into four healthcare real property assets and acquired an option to purchase a fifth health care property. Diversification into healthcare real estate assets is expected to be accretive to the earnings and shareholder value of the combined portfolio. Such healthcare acquisitions were made through a joint venture with an affiliate of the Advisor and involved interim seller and/or third party lender financing. The Company intends to refinance such interim borrowings with long term financing. In the interest of further diversification of risk and to attract new capital partners, the Company may, in the future, reduce its ownership interest in the healthcare joint venture.

Healthcare-related properties include a wide variety of properties, including senior housing facilities, medical office buildings (“MOBs”), and skilled nursing facilities (“SNFs”). Senior housing facilities include independent living facilities, assisted living facilities and memory and other continuing care retirement communities. Each of these caters to different segments of the elderly population. Services provided by operators or tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. MOBs typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital ancillary service space, and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms. While these facilities are similar to commercial office buildings, they require more systems to accommodate special requirements. MOBs are typically multi-tenant properties leased to multiple healthcare providers (hospitals and physician practices) although there is a trend towards net leases to doctors and hospitals. SNFs offer nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Sub-acute care services are provided to residents beyond room and board. Certain skilled nursing facilities provide some services on an outpatient basis. Skilled nursing services provided in these facilities are primarily paid for either by private sources or through the Medicare and Medicaid programs. SNFs are typically leased to single-tenant operators under net lease structures.

The Advisor has reported to us that it believes the outlook for us raising new property level joint venture equity capital to support our growth and further diversify both operator and healthcare property sector risk may currently be favorable.

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Based in part on this advice, the board of directors continues to evaluate the repositioning strategy while pursuing other growth initiatives that lower capital costs and enable us to reduce or improve our ability to cover our general and administrative costs over a broader base of assets.

For the remainder of 2012 and in early 2013, the board of directors has requested that the Advisor raise new property level joint venture equity capital while management continues to evaluate opportunities for repositioning and growth and attempts to secure long term debt at favorable rates for recent and any future acquisitions.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.

Results of Operations

As of September 30, 2012, we owned thirteen properties consisting of nine industrial and four healthcare properties which were purchased in the third quarter of 2012. In January 2011, we owned thirteen industrial properties of which four were subsequently sold. In June 2011, we sold the Goldenwest property for gross proceeds of $9.4 million. In November 2011, we sold the Mack Deer Valley and Pinnacle Park Business Center properties for gross proceeds of $23.9 million. In December 2011, we sold the 2111 South Industrial Park property for gross proceeds of $0.9 million.

In October 2011, we reclassified the Sherburne Commons property as held for sale (see Note 11) and the results of its operations have been reported in discontinued operations for all periods presented.

Three months ended September 30, 2012 and 2011

	Three Months Ended September  30,									%
	2012			2011			$ Change			Change
Rental revenues, tenant reimbursements & other income	$	1,509,000		$	1,053,000		$	456,000			43.3	%
Property operating and maintenance		(380,000	)		(427,000	)		47,000			(11.0	)%
Net operating income (1)		1,129,000			626,000			503,000			80.4	%
Interest income from notes receivable		13,000			102,000			(89,000	)		(87.3	)%
General and administrative		(757,000	)		(713,000	)		(44,000	)		6.2	%
Asset management fees and expenses		(240,000	)		(388,000	)		148,000			(38.1	)%
Real estate acquisition costs		(737,000	)		—			(737,000	)		0.0	%
Depreciation and amortization		(524,000	)		(384,000	)		(140,000	)		36.5	%
Interest expense		(299,000	)		(408,000	)		109,000			(26.7	)%
Impairment of real estate		—			(425,000	)		425,000			(100.0	)%
Loss from continuing operations		(1,415,000	)		(1,590,000	)		175,000			(11.0	)%
Loss from discontinued operations		(156,000	)		106,000			(262,000	)		(247.2	)%
Net loss		(1,571,000	)		(1,484,000	)		(87,000	)		5.9	%
Noncontrolling interests’ share in losses		(258,000	)		(352,000	)		94,000			(26.7	)%
Net loss applicable to common shares	$	(1,313,000	)	$	(1,132,000	)	$	(181,000	)		16.0	%

(1) Net operating income (“NOI”) is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, tenant reimbursements and other income less property operating and maintenance expenses. NOI excludes interest income from notes receivable, general and administrative expense, asset management fees and expenses, real estate acquisition costs, depreciation and amortization, impairments, interest income, interest expense, and income from discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI. See Note 18 for a summary table reconciling NOI from net loss.

Rental revenues, tenant reimbursements and other income increased to $1.5 million for the three months ended September 30, 2012 from $1.1 million for the three months ended September 30, 2011. The increase is primarily due to increased overall occupancy rates and approximately $0.3 million related to the acquisition of the new healthcare properties offset by lower average lease rental rates and longer lease-up periods for vacant industrial space as a result of the current economic environment.

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Property operating and maintenance expense was comparable at $0.4 million for the three months ended September 30, 2012 and September 30, 2011.

Interest income from notes receivable decreased to $13,000 for the three months ended September 30, 2012 from $0.1 million for the three months ended September 30, 2011 primarily due to the lower outstanding balance for the Servant Healthcare Investments, LLC note resulting in less interest income in 2012 compared to approximately $0.1 million in interest income for the three months ended September 30, 2011.

General and administrative expenses increased to $0.8 million for the three months ended September 30, 2012 from $0.7 million for the three months ended September 30, 2011. The increase is primarily due to higher professional fees, board meetings, allocations and regulatory filing costs.

Asset management fees decreased to $0.2 million for the three months ended September 30, 2012 from $0.4 million for the three months ended September 30, 2011. The lower asset management fees are primarily due to the sale of four properties in 2011 combined with a reduction in the annual asset management fee basis from 1.0% to 0.75% of the Average Invested Assets (as defined in the Advisory Agreement) partially offset by the fees associated with the four healthcare acquisitions.

Real estate acquisition costs consisted primarily of fees paid to our Advisor for the acquisition of the healthcare properties and acquisition costs paid directly to third-parties. Real estate acquisition costs increased to $0.7 million for the three months ended September 30, 2012 compared $0 for the three months ended September 30, 2011.

Depreciation and amortization increased to $0.5 million for the three months ended September 30, 2012 from $0.4 million for the three months ended September 30, 2011 primarily due to the newly acquired healthcare properties and lease commission amortization related to the second and third quarter net leases offset by the property impairments recorded in the second quarter of 2011.

Impairment of real estate was $0 for three months ended September 30, 2012 compared to $0.4 million for the three months ended September 30, 2011. The charge during 2011 was a result of our assumption of shorter hold periods for each property used in our impairment testing brought about by our board of directors’ reevaluation of strategic alternatives to maximize shareholder value. These alternatives include potentially selling additional properties to repay debt as it becomes due.

Interest expense decreased to $0.3 million for the three months ended September 30, 2012 from $0.4 million for the three months ended September 30, 2011. The decrease is primarily due to lowering the overall outstanding principal balance of our debt obligations as a result of the $13.1 million pay-off of the HSH Nordbank credit facility in 2011 and principal repayments on the Wells Fargo loan of $1.5 million during 2011 and $7.5 million during the first quarter of 2012, partially offset by the new General Electric (“GE”) loans for the healthcare properties and Western Avenue property refinancing, increasing interest rates during 2011 as a result of the HSH Nordbank and Wells Fargo Bank note extensions and the related amortization of deferred financing costs associated with each extension.

The loss from discontinued operations represents the results of operations for properties sold and/or classified as held for sale in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment. Additionally, all prior periods presented for these properties were reclassified to discontinued operations for presentation purposes. During 2011, we sold our Goldenwest, Mack Deer Valley, Pinnacle Park Business Center, and 2111 South Industrial Park properties to third parties and Nantucket Acquisition, LLC, our VIE as held for sale. The loss from discontinued operations was $0.2 million for the three months ended September 30, 2012 compared to income from discontinued operations of $0.1 million for the three months ended September 30, 2011.

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Nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,									%
	2012			2011			$ Change			Change
Rental revenues, tenant reimbursements & other income	$	3,583,000		$	3,309,000		$	274,000			8.3	%
Property operating and maintenance		(1,173,000	)		(1,246,000	)		73,000			(5.9	)%
Net operating income (1)		2,410,000			2,063,000			347,000			16.8	%
Interest income from notes receivable		40,000			366,000			(326,000	)		(89.1	)%
General and administrative		(2,489,000	)		(2,083,000	)		(406,000	)		19.5	%
Asset management fees and expenses		(662,000	)		(1,215,000	)		553,000			(45.5	)%
Real estate acquisition costs		(737,000	)		—			(737,000	)		0.0	%
Depreciation and amortization		(1,294,000	)		(1,457,000	)		163,000			(11.2	)%
Reserve for excess advisor obligation		(988,000	)		—			(988,000	)		0.0	%
Interest expense		(733,000	)		(1,019,000	)		286,000			(28.1	)%
Impairment of notes receivable		—			(1,650,000	)		1,650,000			(100.0	)%
Impairment of real estate		—			(23,644,000	)		23,644,000			(100.0	)%
Loss from continuing operations		(4,453,000	)		(28,639,000	)		24,186,000			(84.5	)%
Loss from discontinued operations		(1,721,000	)		(18,556,000	)		16,835,000			(90.7	)%
Net loss		(6,174,000	)		(47,195,000	)		41,021,000			(86.9	)%
Noncontrolling interests’ share in losses		(787,000	)		(404,000	)		(383,000	)		94.8	%
Net loss applicable to common shares	$	(5,387,000	)	$	(46,791,000	)	$	41,404,000			(88.5	)%

(1) Net operating income (“NOI”) is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, tenant reimbursements and other income less property operating and maintenance expenses. NOI excludes interest income from notes receivable, general and administrative expense, asset management fees and expenses, real estate acquisition costs, depreciation and amortization, impairments, interest income, interest expense, and income from discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI. See Note 18 for a summary table reconciling NOI from net loss.

Rental revenues, tenant reimbursements and other income increased to $3.6 million for the nine months ended September 30, 2012 from $3.3 million for the nine months ended September 30, 2011. The increase is primarily due to higher occupancy rates and approximately $0.3 million from the four new healthcare properties offset lower average lease rental rates and longer lease-up periods for vacant industrial space as a result of the current economic environment.

Property operating and maintenance expense was comparable at $1.2 million for the nine months ended September 30, 2012 and for the nine months ended September 30, 2011.

Interest income from notes receivable decreased to $40,000 for the nine months ended September 30, 2012 from $0.4 million for the nine months ended September 30, 2011 primarily due to the lower outstanding balance for the Servant Healthcare Investments, LLC note (see Note 8) resulting in less interest income and non-payment of interest on the Nantucket Acquisition LLC loan in 2012.

General and administrative expenses increased to $2.5 million for the nine months ended September 30, 2012 from $2.1 million for the nine months ended September 30, 2011. The increase is primarily due to increased legal fees, board expenses, professional fees, allocations, and regulatory filing costs.

Asset management fees decreased to $0.7 million for the nine months ended September 30, 2012 from $1.2 million for the nine months ended September 30, 2011. The lower asset management fees are attributed to the sale of four properties in 2011 combined with a reduction in the annual asset management fee basis from 1.0% to 0.75% of the Average Invested Assets (as defined in the Advisory Agreement) offset by the four acquisitions in the third quarter of 2012.

Real estate acquisition costs consisted primarily of fees paid to our Advisor for the acquisition of the healthcare properties and acquisition costs paid directly to third-parties. Real estate acquisition costs increased to $0.7 million for the nine months ended September 30, 2012 compared $0 for the nine months ended September 30, 2011.

Depreciation and amortization decreased to $1.3 million for the nine months ended September 30, 2012 from $1.5 million for the nine months ended September 30, 2011 largely due to property impairments recorded in the second quarter of 2011 offset by higher lease commission and the new healthcare properties.

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Reserve for excess advisor obligation represents the organizational and offering costs incurred in excess of 3.5% of the gross proceeds from our and Follow-on Offering. Prior to June 10, 2012, approximately $1.0 million was reimbursed to the Advisor in excess of 3.5% of the gross proceeds of our Follow-on Offering. Consistent with the limitations set forth in our charter, the Advisory Agreement provides that the Advisor will repay to the Company the excess (the “Excess Reimbursement”). Consequently, in the second quarter of 2012, we recorded a receivable from the Advisor of $1.0 million reflecting the Excess Reimbursement. As a result of our evaluation of the receivable’s collectability, we reserved for the full amount of the receivable as of June 30, 2012.

Impairment of note receivable decreased to $0 for nine months ended September 30, 2012 compared to $1.7 million for the nine months ended September 30, 2011. The decrease relates to the Servant Healthcare note receivable which was determined to be impaired due to events arising in the second quarter of 2011 and settled in the forbearance agreement in December 22, 2011.

Impairment of real estate decreased to $0 for nine months ended September 30, 2012 compared to $23.6 million for the nine months ended September 30, 2011. The charge during 2011 was a result of our assumption of shorter hold periods for each property used in our impairment testing brought about by our board of directors’ evaluation of strategic alternatives to maximize shareholder value. These alternatives include potentially selling additional properties to repay debt as it becomes due.

Interest expense decreased during the nine months ended September 30, 2012 from $0.7 million compared to $1.0 million for the nine months ended September 30, 2011. The decrease is primarily due to lowering the overall outstanding principal balance of our debt obligations as a result of the $13.1 million pay-off of the HSH Nordbank credit facility in 2011 and principal repayments on the Wells Fargo Bank loan of $1.5 million during 2011 and $7.5 million during the second quarter of 2012, partially offset by GE debt financing of the new acquired healthcare properties, GE refinancing of the Western property, increasing interest rates during 2011 as a result of the HSH Nordbank and Wells Fargo Bank note extensions and related amortization of deferred financing costs associated with each extension.

The loss from discontinued operations represents the results of operations for properties sold and/or classified as held for sale in accordance with ASC 360, Property, Plant and Equipment. Additionally, operations for all prior periods presented for these properties were reclassified to discontinued operations for presentation purposes. During 2011, we sold our Goldenwest, Mack Deer Valley, Pinnacle Park Business Center, and 2111 South Industrial Park properties to third parties and classified our VIE as held for sale. The loss from discontinued operations was $1.7 million for the nine months ended September 30, 2012 compared to loss from discontinued operations of $18.6 million for the nine months ended September 30, 2011. The change is primarily due to 2012 losses incurred by our VIE compared to income reported by our sold Arizona properties in 2011. Additionally the second quarter of 2011 included $19.3 million of impairments of real estate impairment compared to 2012 where we recorded $1.1 million of impairments of real estate.

Liquidity and Capital Resources

On November 23, 2010, our board of directors made a decision to stop making or accepting offers to purchase shares of our stock in our Follow-on Offering while evaluating strategic alternatives to maximize value and preserve our capital. On June 10, 2012, our Follow-on Offering was terminated. Going forward, we expect our primary sources of cash to be rental revenues, tenant reimbursements and interest income. In addition, we may increase cash through the sale of additional properties or borrowing against currently-owned properties. We expect our primary uses of cash to be for the repayment of principal on notes payable, funding of future acquisitions, payment of tenant improvements and leasing commissions, operating expenses, interest expense on outstanding indebtedness, advances to our VIE to fund operating shortfalls, and cash distributions. Operating expenses are expected to exceed operating revenues over the next twelve months. We plan to fund this operating shortfall from available cash and the net proceeds from property sales and asset refinancings.

As of September 30, 2012, we had approximately $4.8 million in cash and cash equivalents on hand. Our liquidity will increase if cash from operations exceeds expenses, additional shares are offered, we receive net proceeds from the sale of a property or if refinancing results in excess loan proceeds and decrease as proceeds are expended in connection with the acquisitions, operation of properties and advances to our VIE. Based on current conditions, we believe that we have sufficient capital resources for the next twelve months.

Credit Facilities and Loan Agreements

As of September 30, 2012, we had total debt obligations of $44.3 million that mature in February and November of 2014. Of this amount, $22.3 million was outstanding on a loan agreement with General Electrical Captial Corporation (“GE”) for healthcare properties, $8.9 million was outstanding on a separate loan agreement with GE for an industrial property, $6.6 million was outstanding on a loan agreement with Wells Fargo and $6.5 million was outstanding on a loan agreement with Transamerica Life Insurance Company.

On November 28, 2011, the HSH Nordbank credit facility was repaid in its entirety with proceeds from the sale of the Mack Deer Valley and Pinnacle Park Business Center properties (see Notes 15 and 17).

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In February 2012, we amended our loan agreement with Wells Fargo to extend the maturity date to February 13, 2014. In connection with this amendment, we made a principal payment of $7.5 million, reducing the outstanding principal amount of our obligations under the loan agreement from $14.3 million to $6.8 million as of February 13, 2012, and paid fees and expenses totaling approximately $65,000. The interest rate on the amended loan decreased from 300 basis points over one-month LIBOR to 200 basis points over one-month LIBOR, with the one-month LIBOR floor remaining fixed at 150 basis points. Any amounts repaid under the loan agreement may not be re-borrowed. All other terms of the loan agreement remain in full force and effect.

Short-Term Liquidity Requirements

In addition to the capital requirements for recurring capital expenditures, tenant improvements and leasing commissions, we may incur expenditures for future acquisitions and/or renovations of our existing properties, such as increasing the size of the properties by developing additional rentable square feet and/or making the space more appealing to potential industrial tenants.

We sold three properties in the fourth quarter of 2011 and currently have one property listed for sale to monetize our interest in the VIE, and we amended our loan agreement with Wells Fargo in February 2012. We continue to pursue options for repaying our debt obligations, including asset sales. We believe that our cash and cash equivalents totaling $4.8 million as of September 30, 2012 will allow us to meet our obligations during the twelve months ending September 30, 2013. We expect to fund our short-term liquidity requirements primarily from available cash and future net property sales proceeds.

In recent years, financial markets have experienced unusual volatility and uncertainty and liquidity has tightened in all financial markets, including the debt and equity markets. Our ability to repay or refinance debt could be adversely affected by an inability to secure financing at reasonable terms, if at all.

Distributions

Effective December 1, 2010, our board of directors resolved to reduce distributions on our common stock to an annualized rate of $0.08 per share (1% based on a share price of $8.00), from the prior annualized rate of $0.48 per share (6% based on a share price of $8.00), in order to preserve capital that may be needed for capital improvements, debt repayment or other corporate purposes. Distributions at this rate were declared for the first and second quarters of 2011. In June 2011, the board decided, based on the financial position of the Company, to suspend the declaration of further distributions and to defer the payment of the second quarter 2011 distribution, which was paid in December 2011. No distributions have been declared for periods after June 30, 2011. The rate and frequency of distributions is subject to the discretion of our board of directors and may change from time to time based on our operating results and cash flow. We can make no assurance when and if distributions will recommence.  

The following table shows the distributions declared during the nine months ended September 30, 2012 and 2011:

	Distributions Declared (2)						Cash Flows Provided by (Used in) Operating
Period	Cash		Reinvested		Total		Activities
First quarter 2011 (1)	$	454,000	$	—	$	454,000	$	481,000
Second quarter 2011 (1)	$	468,000	$	—	$	468,000	$	(219,000	)
Third quarter 2011	$	—	$	—	$	—	$	(323,000	)
First quarter 2012	$	—	$	—	$	—	$	(800,000	)
Second quarter 2012	$	—	$	—	$	—	$	(953,000	)
Third quarter 2012	$	—	$	—	$	—	$	(2,400,000	)

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(1)	100% of the distributions declared during the nine months ended June 30, 2011 represented a return of capital for federal income tax purposes.
(2)	In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds.

From our inception in October 2004 through September 30, 2012, we declared aggregate distributions of $32.8 million. Our cumulative net loss and cumulative net cash provided by operating activities during the same period were $74.1 million and $0.5 million, respectively.

Organization and offering costs

As of September 30, 2012, our Advisor and its affiliates had incurred on our behalf organizational and offering costs totaling $5.6 million, including $0.1 million of organizational costs that were expensed and $5.5 million of offering costs which reduced the net proceeds of our combined offerings. Of this amount, $4.4 million reduced the net proceeds of our initial public offering and $1.1 million reduced the net proceeds of our Follow-on Offering.

On June 10, 2012, our Follow-on Offering was terminated. Under the Advisory Agreement, within 60 days after the end of the month in which our Follow-on Offering terminated, the Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit. Consequently, in the second quarter of 2012, we recorded a receivable from the Advisor for $1.0 million reflecting the Excess Reimbursement. As a result of our evaluation of various factors related to collectability of this receivable, we recorded a reserve for the full amount of the receivable as of June 30, 2012.

Funds from Operations and Modified Funds from Operations

Funds from operations (“FFO”) is a non-GAAP supplemental financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by the accounting principles generally accepted in the United States of America (“GAAP”), and gains or losses from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, noncontrolling interests and subsidiaries.

NAREIT recently issued updated reporting guidance that directs companies, for their computation of NAREIT FFO, to exclude impairments of depreciable real estate when write-downs are driven by measurable decreases in the fair value of real estate holdings. Previously, the Company’s calculation of FFO (consistent with NAREIT’s previous guidance) did not exclude impairments of, or related to, depreciable real estate. Consistent with this current NAREIT reporting guidance, the Company has restated its 2011 FFO amount.

Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-cash and non-operating items included in FFO, as defined. Therefore, we use modified funds from operations (“MFFO”), which excludes from FFO real estate acquisition costs, amortization of above- or below-market rents, and non-cash amounts related to straight-line rents and impairment charges to further evaluate our operating performance. We compute MFFO in accordance with the definition suggested by the Investment Program Association (the “IPA”), the trade association for direct investment programs (including non-traded REITs). However, certain adjustments included in the IPA’s definition are not applicable to us and are therefore not included in the foregoing definition.

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We believe that MFFO is an important supplemental measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating changes. Accordingly, we believe that MFFO can be a useful metric to assist management, investors and analysts in assessing the sustainability of our operating performance. As explained below, management’s evaluation of our operating performance excludes these items in the calculation based on the following considerations:

• Real estate acquisition costs. In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs to acquire the investment from the operations derived from the investment. These acquisition costs have been funded from the proceeds of our initial public offering and other financing sources and not from operations. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties. Real estate acquisition costs include those paid to our Advisor and to third parties.

• Adjustments for amortization of above- or below-market rents. Similar to depreciation and amortization of other real estate-related assets that are excluded from FFO, GAAP implicitly assumes that the value of lease assets diminishes predictably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the operating performance of our real estate.

• Adjustments for straight-line rents. Under GAAP, rental income recognition can be significantly different from underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the economic impact of our lease terms and presents results in a manner more consistent with management’s analysis of our operating performance.

• Impairment charges. Impairment charges relate to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and the specific performance of the holding, which may not be directly attributable to our current operating performance. As these losses relate to underlying long-term assets and liabilities, excluding real estate, where we are not speculating or trading assets, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated losses. In particular, because GAAP impairment charges are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe MFFO provides useful supplemental information related to the sustainability of rental rates, occupancy and other core operating fundamentals.

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FFO and MFFO should not be considered as an alternative to net income (loss) or as an indication of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and MFFO should be reviewed along with other GAAP measurements. Our FFO and MFFO, as presented, may not be comparable to amounts calculated by other REITs. The following is reconciliation from net loss applicable to common shares, the most direct comparable financial measure calculated and presented with GAAP, to FFO and MFFO for the three and nine months ended September 30, 2012 and 2011:

	Three months ended						Nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Net loss applicable to common shares	$	(1,313,000	)	$	(1,132,000	)	$	(5,387,000	)	$	(46,791,000	)
Adjustments:
Depreciation and amortization of real estate assets:
Continuing operations		524,000			384,000			1,294,000			1,457,000
Discontinued operations		—			110,000			—			586,000
Impairment of real estate assets:
Continuing operations		—			425,000			—			23,644,000
Discontinued operations		—			153,000			1,140,000			19,333,000
Noncontrolling interests’ share in losses		(258,000	)		(352,000	)		(787,000	)		(404,000	)
Noncontrolling interests ‘share in FFO		245,000			—			773,000			—
FFO applicable to common shares	$	(802,000	)	$	(412,000	)	$	(2,967,000	)	$	(2,175,000	)
Adjustments:
Amortization of (below-) above-market rents		(7,000	)		(6,000	)		(20,000	)		(137,000	)
Straight-line rents		(205,000	)		(31,000	)		(244,000	)		(34,000	)
Reserve for excess advisor obligation		—			—			988,000			—
Impairment of note receivable		—			—			—			1,650,000
Amortization of deferred financing costs		27,000			156,000			99,000			357,000
Real estate acquisition costs		737,000			—			737,000			—
Modified funds from operations (MMFO) applicable to common shares	$	(250,000	)	$	(293,000	)	$	(1,407,000	)	$	(339,000	)
Weighted-average number of common shares
Outstanding - basic and diluted		23,028,284			23,028,284			23,028,284			23,032,894
FFO per weighted average common shares	$	(0.03	)	$	(0.02	)	$	(0.13	)	$	(0.09	)
MFFO per weighted average common shares	$	(0.01	)	$	(0.01	)	$	(0.06	)	$	(0.01	)

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 Contractual Obligations

The following table reflects our contractual obligations as of September 30, 2012:

	Payment due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Notes payable (1)	$	44,290,000	$	568,000	$	22,625,000	$	21,097,000	$	—
Interest expense related to long-term debt (2)	$	7,339,000	$	2,125,000	$	4,207,000	$	1,007,000	$	—
Below-market ground lease (3)(4)	$	3,609,000	$	—	$	5,000	$	39,000	$	3,565,000

(1)	This represents the sum of loan agreements with Wells Fargo Bank, National Association, Transamerica Life Insurance Company and General Electric Capital Corporation.
(2)	Interest expense related to the loan agreement with Wells Fargo Bank, National Association is calculated based on the loan balance outstanding at September 30, 2012, one-month LIBOR at September 30, 2012, with a 150 basis point LIBOR floor, plus a margin of 200 basis points. Interest expense related to the loan agreement with Transamerica Life Insurance Company is based on a fixed rate of 5.89% per annum. Interest expense related to the loan agreement with General Electric Capital Corporation related to the acquisition of healthcare properties is based on three-month LIBOR, with a floor of 50 basis points, a spread or margin of 4.50%. Interest expense related to the loan agreement with General Electric Capital Corporation related to the financing of the 20100 Western Avenue property is based on three-month LIBOR, with a 25 basis point floor, plus a margin of 430 basis points.
(3)	The below-market ground lease relates to the Sherburne Commons property, a VIE for which we were deemed to be the primary beneficiary and began consolidating as of June 30, 2011. As of October 19, 2011, the Sherburne Commons property met the requirements for reclassification to real estate held for sale. Consequently, at September 30, 2012, the related assets and liabilities of the VIE are classified as assets of variable interest entity held for sale and liabilities of variable interest entity held for sale, respectively, on our condensed consolidated balance sheets.
(4)	The below-market ground lease is a 50-year lease expiring in 2059 relating to land on which the Sherburne Commons senior housing facility is located. The land is leased from the town of Nantucket, Massachusetts with lease payments totaling $1 per year for years one through four, one-half of one percent of operating revenues, as defined in the ground lease, for years five through seven, and one percent of operating revenues, as defined in the ground lease, thereafter.

Subsequent Event

See Note 19 of financial statement footnotes.  

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. We invest our cash and cash equivalents in government-backed securities and FDIC-insured savings accounts which, by their nature, are subject to interest rate fluctuations. However, we believe that the primary market risk to which we will be exposed is interest rate risk related to our variable-rate loan agreement.

We borrow funds and make investments with a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed-rate debt or fixed-rate notes receivable unless such instruments mature or are otherwise terminated and/or need to be refinanced. However, interest rate changes will affect the fair value of our fixed-rate instruments. Conversely, changes in interest rates on variable-rate debt and investments would change our future earnings and cash flows, but not significantly affect the fair value of those instruments.

As of September 30, 2012, we had borrowings outstanding of $37.8 million under our variable-rate loan agreement. An increase in the variable interest rate on the loan agreement constitutes a market risk as a change in rates would increase or decrease interest expense incurred and therefore cash flows available for distribution to shareholders. Based on the debt outstanding as of September 30 2012, a one percent (1%) change in interest rates related to the variable-rate debt would result in a change in interest expense of approximately $378,000 per year, or $0.003 per common share on a basic and diluted basis.

In addition to changes in interest rates, the value of our real estate is subject to fluctuations based on changes in the real estate capital markets, market rental rates for office space, local, regional and national economic conditions and changes in the creditworthiness of tenants. All of these factors may also affect our ability to refinance our debt, if necessary.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, including our Chief Executive Officer (Principal Executive Officer) and our Interim Chief Financial Officer (Principal Financial Officer), to allow timely decisions regarding required disclosure. Our Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer) have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A. Risk Factors

The following risk factors supplement the risks disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2011.

We have paid, and may in the future, pay distributions from sources other than cash provided from operations.

Until our investments in real estate generate operating cash flow sufficient to make distributions to stockholders, we may pay a substantial portion of our distributions from the proceeds of our offerings or from borrowings in anticipation of future cash flow. To the extent that we use offering proceeds to fund distributions to stockholders, the amount of cash available for investment in properties will be reduced. The distributions paid for the four quarters ended September 30, 2012 were approximately $0.5 million. This entire amount was paid in cash to stockholders. For the four quarters ended September 30, 2012 net cash used in operating activities and funds from operations (“FFO”) applicable to common shares were approximately $5.8 million and a loss of $4.0 million respectively. Accordingly, for the four quarters ended September 30, 2012, total distributions exceeded cash flow from operations and FFO for the same period. We used offering proceeds to pay cash distributions in excess of cash flow from operations during the four quarters ended September 30, 2012.

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Any adverse changes in the financial health of our Advisor or its affiliates or our relationship with them could hinder our operating performance and the return on your investment. We may have difficulty finding a qualified successor advisor, and any successor advisor may not be as well suited to manage us. These potential changes could result in a significant disruption of our business and may adversely affect the value of your investment in us.

We are dependent on our Advisor to manage our operations and our portfolio of real estate assets. Our Advisor depends upon the fees and other compensation that it receives from us in connection with the purchase, financing, leasing and management and sale of our properties to conduct its operations. To date, the fees we pay to our Advisor have been inadequate to cover its operating expenses. To cover its operational shortfalls, our Advisor has relied on cash raised in private offerings of its sole member. If our Advisor is unable to secure additional capital, it may become unable to meet its obligations and we might be required to find alternative service providers, which could result in a significant disruption of our business and may adversely affect the value of your investment in us.

Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face.

Our board of directors determines our major policies, including our policies regarding investment, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors is currently engaged in a process of evaluating strategic alternatives to maximize value for our stockholders. As a result of this process, or otherwise, our board of directors may determine that it is in the best interest of the company to amend or revise certain of our major policies. Our board of directors may amend or revise these policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face.

We may not be able to execute on our repositioning strategy.

In connection with the execution of our repositioning strategy, we face a number of risks and uncertainties, including:

· Ability to sell certain existing industrial properties on favorable terms to us;

· Availability to acquire sufficient health care properties on favorable terms to us;

· Completion of sufficient due diligence in connection with the additional proposed healthcare investments and negotiation of favorable lease and/or operating arrangements with the operators of such facilities;

· Availability of financing on satisfactory terms and conditions to replace our maturing loan obligations and to partially fund new real estate investments;

· Regulatory environment uncertainty due to the phased implementation of the Patient Protection and Affordable Care Act (commonly called “Obamacare”) and its impact upon healthcare facility operator reimbursement and;

· Success of the operators of the facilities we may acquire as we are dependent on their performance

Should the execution of the repositioning strategy not be successful or take longer or be more expensive to execute than anticipated, then our results of operations will be harmed, our Advisor may not be able to reimburse us for any excess operating expenses incurred on our behalf and our organizations costs and to otherwise provide sponsor services to us. Also, any such failure or delays in implementation or disruption to our business will further delay or prevent the restoration of distributions to common stockholders and the stock repurchase program. If we are not successful with our repositioning strategy, we may be forced to pursue an alternative strategy including liquidating our real estate portfolio or merging with another company.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) We did not sell any equity securities that were not registered under the Securities Act of 1933 during the period covered by this Form 10-Q.

(b) Not applicable.

(c) During the nine months ended September 30, 2012, we redeemed no shares pursuant to our stock repurchase program, which has been suspended since December 31, 2010.

On November 23, 2010, our board of directors concluded that we would not have sufficient funds available to us to fund redemptions for the foreseeable future. Accordingly, our board of directors approved an amendment to our stock repurchase program to suspend redemptions under the program effective December 31, 2010. We can make no assurance as to when and on what terms redemptions will resume. The share redemption program may be amended, resumed, suspended again, or terminated at any time based in part on our cash and debt position. Our board has the authority to terminate the program at any time upon 30 days written notice to our stockholders.

During the nine months ended September 30, 2012, we received requests to have an aggregate of 31,164 shares redeemed pursuant to our stock repurchase program. However, due to the current suspension of the stock repurchase program, we were not able to fulfill any of these requests.

Item 5. Other Information

On November 12, 2012, we, through a consolidated variable interest entity, executed a purchase and sale agreement (the “Nantucket Sale Agreement”) for the sale of the Sherburne Commons property, by Northbridge Communities LLC (“Buyer”), a third party, for a purchase price of approximately $4.0 million. Except with respect to specific contingencies, the Buyer does not have the right to terminate the Nantucket Sale Agreement without our consent.

The sale of Sherburne Commons is anticipated to close in the first quarter of 2013. Although most contingencies have been satisfied, there can be no assurance that remaining contingencies will be satisfied or that events will not arise that could delay or prevent us from selling the property.

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Item 6. Exhibits

Ex.	Description
3.1	Amendment and Restatement of Articles of Incorporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2006).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 23, 2005 (“Post-Effective Amendment No. 1”)).
4.1	Subscription Agreement (incorporated by reference to Appendix A to the prospectus included on Post-Effective Amendment No. 2 to the Registration Statement on Form S-11 (No. 333-155640) filed on April 16, 2010 (“Post-Effective Amendment No. 2”)).
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-11 (No. 333-121238) filed on December 14, 2004).
4.3	Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix B to the prospectus dated April 16, 2010 included on Post-Effective Amendment No. 2).
10.1	Purchase and sale agreement effective April 10, 2012 and assigned to Buyer on September 11, 2012 between CHP Portland LLC (“Buyer”) and Sheridan Care Center LLC, Sheridan Properties LLC, Fernhill Estates LLC, Fernhill Properties LLC, and Pacific Gardens Estates LLC.
10.2	Purchase and sale agreement effective June 1, 2012 and assigned to Buyer on September 11, 2012 between CHP Medford 1, LLC (“Buyer”) and Monterey Village.
10.3	Purchase and sale agreement effective June 1, 2012 and assigned to Buyer on September 11, 2012 between CHP Friendswood SNF, LLC (“Buyer”) and Friendswood Realty, LP.
10.4	Lease agreement between CHP Portland, LLC and Sheridan Care Center LLC, Fernhill Estates LLC, and Pacific Gardens Estates LLC dated August 3, 2012.
10.5	Lease agreement between CHP Medford 1, LLC and RSL Medford, LLC dated September 14, 2012.
10.6	Lease agreement between CHP Friendswood SNF, LLC and Mason Friendswood OP, LLC dated September 14, 2012.
10.7	Loan agreement between General Electric Capital Corporation and CHP Portland, LLC, CHP Medford 1, LLC, and CHP Friendswood SNF, LLC dated September 13, 2012.
10.8	Loan agreement between COP-Western Ave., LLC and General Electric Capital Corporation dated as of September 7, 2012, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 13, 2012.
10.9	Cornerstone Healthcare Partners LLC operating agreement dated June 11, 2012.
10.10	Purchase and sale agreement effective November 12, 2012 by and between Nantucket Acquisition LLC and Northbridge Communities LLC.
31.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	The following information from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 14^th day of November 2012.

CORNERSTONE CORE PROPERTIES REIT, INC.
By:	/s/ Kent Eikanas
	Kent Eikanas
	President / Chief Operating Officer
By:	/s/ Timothy C. Collins
	Timothy C. Collins
	Chief Financial Officer and Treasurer
	(Principal Financial Officer )

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EX-10.1

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made and entered into as of this 10th day of April, 2012 (the “Effective Date”), by and among the following parties:

SELLER:	Sheridan Care Center LLC, dba Sheridan Care Center;
	Sheridan Properties LLC;
	Fernhill Estates LLC, dba Fernhill Estates;
	Fernhill Properties LLC;
and	Pacific Gardens Estates LLC, dba Pacific Health and Rehabilitation (“Pacific Gardens”).
BUYER:	Cornerstone Healthcare Real Estate Fund, Inc., a Maryland corporation, or its assigns.

RECITALS

A. By document dated January 31, 2012, Healthcare Retirement Solutions LLC as Buyer and Dover Management, Inc., the representative and agent of Sellers, entered into a Letter of Intent.

B. This Purchase and Sale Agreement replaces the obligations of the parties, if any, provided in the Letter of Intent.

C. It is understood that the actual Sellers will be Sheridan Care Center LLC, dba Sheridan Care Center as the operational entity, and Sheridan Properties LLC as to the real property located in Sheridan, Oregon, and Fernhill Estates LLC, dba Fernhill Estates as the operating entity and Fernhill Properties LLC as the property owner of the facility located in Portland, Oregon, and Pacific Gardens as to the operating entity located in Tigard, Oregon (the “Tigard Facility”).

D. Pacific Gardens does not currently own the Tigard Facility, but Pacific Gardens has an option to purchase the Tigard Facility (the “Tigard Option”) pursuant to that certain Option Agreement (the “Tigard Option Agreement”), dated April 1, 2010, by and between Tigard Investment Group, LLC (the “Tigard Owner”), as optionor, and Pacific Gardens, as optionee. At the Closing, Pacific Gardens will assign the Tigard Option to Buyer and will obtain all consents required from the Tigard Owner in order to assign the Tigard Option to Buyer and allow Buyer to simultaneously exercise and close on the Tigard Property upon such assignment. Provided Pacific Gardens satisfies the requirements in the prior sentence, Buyer will immediately exercise the Tigard Option and acquire the Tigard Facility concurrently with the Closing under this Agreement. The consideration to Seller for the acquisition of the Tigard Option is the difference between the appraised value of the Tigard Facility and the $3,060,000 purchase price which Buyer will be obligated to pay the Tigard Owner for the Tigard Facility pursuant to the terms of the Tigard Option Agreement. The $3,060,000 that Buyer is obligated to pay the Tigard Owner shall be deducted from the Purchase Price that Buyer has to pay to Seller pursuant to this Agreement.

E. Operational Sellers in this Agreement are Sheridan Care Center LLC, dba Sheridan Care Center, Fernhill Estates LLC, dba Fernhill Estates, and Pacific Gardens. Real property Sellers in this Agreement are Sheridan Properties LLC and Fernhill Properties LLC.

F. The parties intend this Agreement to be the definitive agreement contemplated by the Letter of Intent.

Therefore, in consideration of the mutual representations, warranties and promises of the parties, the parties enter into the following:

AGREEMENT

1.           Purchase and Sale. On the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall purchase from Seller its interest in the following, which are hereinafter referred to collectively as the “Property”:

(a)          The improvements located on the Real Property, consisting of three (3) skilled nursing facilities as described in Schedule 1(a) attached hereto (singularly a “Facility” and collectively, the “Facilities”), owned by Seller, and all right, title and interest of Seller in and to the items described in this paragraph one (a) through (f) herein;

(b)          All of the real estate on which each Facility is situated, together with all tenements, easements, appurtenances, privileges, rights of way, and other rights incident thereto, all building and improvements and any parking lot to such Facility located thereon situated in the State of Oregon, which is described in Exhibit A attached hereto and made a part hereof by this reference (collectively, the “Real Property”);

(c)          All of the tangible personal property, inventory, equipment, machinery, supplies including drugs and other supplies, spare parts, furniture, furnishings, warranty claims, contracts, including but not limited to supply contracts, contracts rights, intellectual property (except for trademarks and service marks of Dover Management or a related entity using the name “Dover”), including but not limited to patents, trade secrets, and all rights and title to the names under which each Facility operates, mailing lists, customer lists, vendor lists, resident files, books and records owned by the Seller, who may retain copies of same, and shall have reasonable access to such books and records after the Closing as required for paying taxes and responding to legal inquiry, as such personal property is described in Schedule 1(c) attached hereto (collectively, the “Personal Property”);

(d)          All transferable licenses, permits, certifications, assignable guaranties and warranties in favor of Seller, approvals or authorizations and all assignable intangible property not enumerated herein which is used by the Seller in connection with each Facility, and all other assets whether tangible or intangible; provided, that Seller shall retain all licenses required to be retained by Seller in order to operate the current business within each Facility;

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(e)          All trade names or other names commonly used to identify each Facility and all goodwill associated therewith, excluding any name containing “Dover”, which shall remain the sole property of Seller. The intent of the parties is to transfer to Buyer only such names and goodwill associated with each Facility itself and not with Seller or any affiliate of Seller, so as to avoid any interference with the unrelated business activities of Seller;

(f)          All telephone numbers used in connection with the operation of each Facility, and to the extent not described above, all goodwill of Seller associated with each Facility (the items described in clauses (e) and (f) above are collectively referred to as “Intangibles”).

2.           Excluded Assets. Seller’s cash, investment securities, bank account(s) and accounts receivable, and deposits attributable and relating to the operation of each Facility, and Seller’s corporate minute books and corporate tax returns, partnership records, and other corporate and partnership records shall be excluded from the Property sold by Seller to Buyer hereunder as well as Seller’s real property not identified in Schedule 1(a) (the “Excluded Assets”).

3.           Purchase Price; Deposits. The following shall apply with respect to the Purchase Price of the Property:

(a)          The purchase price (the “Purchase Price”) payable by Buyer to Seller for the Property is Sixteen Million Eight Hundred Thousand Dollars ($16,800,000).

(b)          The Purchase Price as allocated to each Facility by Seller is set forth on Schedule 3 attached hereto and made a part hereof.

(c)          Within three (3) business days after this Agreement is fully executed by the parties, Buyer shall deposit the sum of One Hundred Thousand Dollars ($100,000) as an earnest money deposit (“Initial Deposit”) with Lawyers Title Company, 4100 Newport Place Drive, Suite 120, Newport Beach, California 92660, Attention: Debi Calmelat (“Title Company” or “Escrow Agent”), and Escrow Agent will deposit it into an interest-bearing account with the interest for the benefit of Buyer. In addition, if Buyer has not terminated this Agreement on or before the expiration of the Due Diligence Period (defined below), then Buyer shall deposit with Escrow Agent an additional non-refundable, except as otherwise expressly provided herein, One Hundred Thousand Dollars ($100,000) (“Non-Refundable Additional Deposit”) within three (3) business days following the expiration of the Due Diligence Period (the Initial Deposit, Non-Refundable Additional Deposit and (if applicable) the Non-Refundable Extension Deposit (or applicable portion thereof), as defined below, are collectively referred to as the “Deposits”). Interest earned on the Deposits shall be paid to the party entitled to such amount as provided in this Agreement.

(d)          At Closing, the Deposits shall be credited against the Purchase Price and Buyer shall deposit the balance of the Purchase Price in Cash to the Escrow Agent.

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(e)          Buyer shall not assume or pay, and Seller shall continue to be responsible for, any and all debts, obligations and liabilities of any kind or nature, fixed or contingent, known or unknown, of Seller not expressly assumed by Buyer in this Agreement. Specifically, without limiting the foregoing, Buyer shall not assume any obligation, liability, cost, expense, claim, action, suit or proceeding pending as of the Closing, nor shall Buyer assume or be responsible for any subsequent claim, action, suit or proceeding arising out of or relating to any such other event occurring, with respect to the manner in which Seller conducted its business at the Facilities. In addition, Buyer shall not assume successor liability obligations to Medicare, Medicaid, HMO or any other third party payer programs or be responsible for recoupment’s, fines, or penalties required to be paid to such parties as a result of the operation of the Facilities by Seller or Seller’s operating entity (“Operator”).

(f)          Each party shall have the right to allocate the Purchase Price in accordance with their own accounting standards, but neither party’s allocation of the Purchase Price shall be binding on the other party to this Agreement. Buyer shall provide Seller with copies of all final appraisals relating to the property purchased by Buyer pursuant to this Agreement. Such appraisals shall be provided within five (5) days of receipt by Buyer.

4.           Closing. The closing of the purchase and sale transactions pursuant to this Agreement (“Closing”) shall occur on or before June 29, 2012 (“Closing Date”); provided, Buyer may unilaterally extend the Closing Date through and including July 29, 2012 by making a non-refundable payment (subject to the provisions of Section 13(b)(ii) herein) to Escrow Agent, of One Hundred Thousand Dollars ($100,000) (“Non-Refundable Extension Deposit”). The Non-Refundable Extension Deposit shall be applicable to the Purchase Price or, if this transaction does not close on or before the Closing Date, as extended, then the Non-Refundable Extension Deposit shall be applied as dictated by the terms of this Agreement regarding the Deposit. The Closing shall take place through Seller’s delivery of one or more Warranty deeds in the form attached hereto marked Exhibit 4, and Buyer’s delivery of cash or immediately available funds through an escrow agreement (the “Escrow”) to be established with the Escrow Agent pursuant to form escrow instructions which shall be modified to be consistent with the terms and provisions of this Agreement, and which shall be mutually agreed upon by the parties hereto.

5.           Conveyance. Title to each Facility shall be conveyed to Buyer by a Warranty Deed in substantially the same form as Exhibit 4 and bill of sale in form agreed to by the parties prior to the end of the Due Diligence Period, as defined herein. Fee simple indefeasible title to the Real Property, and marketable title to the Personal Property, shall be conveyed from Seller to Buyer or Buyer’s nominee in “AS-IS, WHERE-IS” condition, free and clear of all liens, charges, easements and encumbrances of any kind, other than:

(a)          Liens for real estate taxes or assessments not yet due and payable;

(b)          The standard printed exceptions included in the Title Commitments, as defined in Section 14(a) herein; unless objected to in writing by Buyer during the Due Diligence Period;

(c)          Such exceptions that appear in the Title Commitments and that are either waived or approved by Buyer in writing pursuant to Section 14(b) herein;

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(d)          Liens or encumbrances caused by the actions of Buyer but not those caused by the actions of Seller; and

(e)          Those matters identified as Permitted Exceptions on the attached Exhibit B.

The items described in this Section 5 are sometimes collectively referred to as the “Permitted Exceptions.”

6.           Buyer’s Due Diligence.

(a)          Buyer shall have seventy-five (75) days from the period commencing from the date Buyer notifies Seller that it has received the requested Due Diligence material required to complete Buyer’s Due Diligence (the “Due Diligence Period”)., Seller shall permit the officers, employees, directors, agents, consultants, attorneys, accountants, lenders, appraisers, architects, investors and engineers designated by Buyer and representatives of Buyer (collectively, the “Buyer’s Consultants”) access to, and entry upon the Real Property and each Facility to perform its normal and customary due diligence, including, without limitation, the following (collectively, the “Due Diligence Items”):

(i)          Review of vendor contracts (“Contracts”) and leases (“Leases”) to which each Facility (or the Seller, on behalf of such Facility) are a party, as set forth on Schedule 8.6 attached hereto;

(ii)         Obtain an environmental investigation (including a Phase 1 Environmental Audit);

(iii)        Inspection of the physical structure of each Facility;

(iv)        Review of current Title Commitments, as defined in Section 14 herein, and underlying documents referenced therein;

(v)         Review of ALTA Surveys, as defined in Section 14 herein, for each Facility;

(vi)        Inspection of the books and records of each Facility and that portion of the Seller’s books and records which pertain to the Facilities;

(vii)       Review of the Due Diligence Items, as described in Schedule 6(a)(vii) attached hereto, to be provided by Seller within five (5) business days following the Effective Date;

(viii)      Complete such other inspections or investigations as Buyer may reasonably require relating to the ownership, operation or maintenance of the Facilities;

(ix)         View resident files, agreements, and any other documentation regarding the residents of the Facilities, which review shall in all events be subject to all applicable laws, rules and regulations concerning the review of medical records and other types of patient records; and

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(x)          Review files maintained by the State of Oregon relating to the Facilities; and

(xi)         Review all drawings, plans and specifications and all engineering reports for the Facilities in the possession of or readily available to Seller; and

(xii)        Seller will furnish copies of all environmental reports, property condition reports, appraisals, title reports and ALTA Surveys (or surveys) that it currently has in its possession.

(xiii)       Review copies of currently effective written employment manuals or written employment policies and/or procedures have been provided to or for employees.

Notwithstanding the foregoing provisions of this Subsection, in the event Seller fails to deliver all Due Diligence Items listed in Schedule 6(a)(vii) on or before the time set forth in Subsection (a)(vii) above, then the Due Diligence Period shall be deemed extended on a day-to-day basis until Seller completes such delivery of the Due Diligence Items to Buyer.

(b)          Buyer agrees and acknowledges that: (i) Buyer will not disclose the Due Diligence Items and/or the contents thereof or any other materials received from Seller pursuant to this Agreement (the “Property Information”) or any of the provisions, terms or conditions thereof, or any information disclosed therein or thereby, to any party outside of Buyer’s organization, other than Buyer’s Consultants; (ii) the Property Information is delivered to Buyer solely as an accommodation to Buyer; (iii) Seller has not undertaken any independent investigation as to the truth, accuracy or completeness of any matters set out in or disclosed by the Property Information; and(iv) except as expressly contained in this Agreement, Seller has not made and does not make any warranties or representations of any kind or nature regarding the truth, accuracy or completeness of the information set out in or disclosed by the Property Information.

(c)          All due diligence activities of Buyer at the Facilities shall be scheduled with Seller upon two (2) business days prior notice. Reviews, inspections and investigations at the Facilities shall be conducted by Buyer in such manner so as not to disrupt the operation of the Facilities.

(d)          Buyer may, at its sole cost, obtain third party engineering and physical condition reports and Phase I Environmental Audits covering each Facility, certified to Buyer, prepared by an engineering and/or environmental consultants acceptable to Buyer; provided, no inspection by Buyer’s Consultants shall involve the taking of samples or other physically invasive procedures (such as a Phase II environmental audit) without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed, and Buyer shall provide copies of all final reports (except for appraisals or attorney-client communications) received from such third parties (the “Third Party Reports”) to Seller within ten (10) days of Buyer receiving the Third Party Reports. Notwithstanding anything to the contrary contained in this Agreement, Buyer shall indemnify, defend (with counsel acceptable to Seller) and hold Seller and its employees and agents, and each of them, harmless from and against any and all losses, claims, damages and liabilities, without limitation, attorneys’ fees incurred in connection therewith) arising out of or resulting from Buyer’s exercise of its right of inspection as provided for in this Section 6; provided, however, such indemnification shall not extend to matters merely discovered by Buyer and/ or the acts or omissions of Seller or any third party, except for the acts or omissions of Buyer’s Consultants. The indemnification obligation of Buyer under this Section 6 shall survive the Closing or earlier termination of this Agreement for a period of twelve (12) months. Following any audit or inspection as provided for herein, Buyer shall return the Real Property and the Facilities to the condition in which they existed immediately prior to such audit or inspection.

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(e)          On or before 5:00 p.m. (Pacific Time) on the last day of the Due Diligence Period, Buyer shall provide Seller with copies of all Third Party Reports and provide Seller with notice that:

(i)          The inspections and audits are not acceptable to Buyer in its sole and absolute discretion and Buyer terminates this Agreement, and in such event, neither party shall have any further rights and obligations under this Agreement, except the obligations which expressly survive the termination of this Agreement; or

(ii)          Provide Seller with written notice that the inspections and audits are acceptable to Buyer in its sole and absolute discretion.

(f)          If this Agreement is terminated prior to Closing, Buyer shall promptly return to Seller or destroy all copies of the Due Diligence items.

7.           Prorations; Closing Costs; Possession; Post Closing Assistance.

(a)          There will be no prorations at the Closing since Seller shall remain responsible for all taxes, costs and expenses relating to the Facilities following the Closing pursuant to the Post Closing Lease (as defined in Section 12(a)(v)).

(b)          Seller shall pay any state, county and local transfer taxes arising out of the transfer of the Real Property.

(c)          Seller shall pay the cost of the standard owner’s title insurance policy, as described in this Agreement (excluding any survey exception or deletion of coverage). Buyer shall pay the cost of any lender’s policy for Buyer’s lender, any title endorsements requested by Buyer and its lender and the cost of updating or obtaining new Surveys. Seller shall pay all fees of Escrow Agent. All other costs associated with title and survey matters shall be paid in accordance with custom and practice of the County in which each Facility is located.

(d)          Buyer and Seller shall each pay their own attorney’s fees. Buyer shall pay for all costs of review of the Due Diligence Items and its additional due diligence inspection costs including, without limitation, the cost of any environmental reports.

(e)          On the Closing Date, Seller shall retain possession of the Facilities pursuant to the Post Closing Lease.

(f)          Buyer shall bear all costs of financing its acquisition of the Real Property, except Seller shall be responsible for any repairs to the Facilities or reserves for repairs to the Facilities required by Buyer’s lender or the United States Department of Housing and Urban Development (“HUD”).

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8.           Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer that:

(a)          Legality.

(i)          Organization, Corporate Powers, Etc. Each Seller entity is duly organized, validly existing and in good standing under the laws of the State of Oregon. Seller has full power, authority and legal right (A) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document, as defined herein, to which it is a party, (B) to transfer good, indefeasible title to the Property to Buyer free and clear of all liens, claims and encumbrances except for Permitted Exceptions (as defined in Section 5 hereof), and (C) to carry out the transactions contemplated hereby and by such other instruments to be carried out by such party.

(ii)         Due Authorization, Etc. This Agreement and the Closing Documents (collectively the “Transaction Documents”) have been, and each instrument provided for herein or therein to which Seller is a party will be, when executed and delivered as contemplated hereby authorized, executed and delivered by Seller and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of Seller and enforceable in accordance with their terms.

(iii)        Governmental Approvals. To the best of Seller’s knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Seller is a party or for the validity or enforceability thereof against such party other than the recording or filing for recordation of the Oregon form Warranty Deeds in substantially the same form as Exhibit 4 (collectively, the “Deed”) which recordings shall be accomplished at Closing.

(iv)        Other Rights. No right of first refusal, option or preferential purchase or other similar rights are held by any person with respect to any portion of the Property.

(v)         No Litigation. Except as set forth on Schedule 8(a)(v) attached hereto, neither Seller nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Seller’s actual knowledge, no such actions or proceedings are threatened, against Seller before or by any court, arbitrator, administrative agency or other governmental authority, which (A) individually or in the aggregate, are expected, in the reasonable judgment of Seller, to materially and adversely affect Seller’s ability to carry out any of the transactions contemplated by any of the Transaction Documents or (B) otherwise involve any portion of the Property including, without limitation, the Facilities.

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(vi)        No Conflicts. Neither the execution and delivery of the Transaction Documents to which Seller is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (A) a breach or violation of (1) any material law or governmental rule or regulation applicable to Seller now in effect, (2) any provision of any of Seller’s organizational documents, (3) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Seller, or (4) any material agreement or instrument to which Seller is a party or by which Seller or its respective properties are bound; (B) the acceleration of any obligations of Seller; or (C) the creation of any lien, claim or encumbrance upon any properties or assets of Seller.

(b)          Property.

As of the Effective Date and the Closing Date, except as set forth on Schedule 8(b):

(i)          Seller has no actual knowledge of and has not received any notice of outstanding deficiencies or work orders of any authority having jurisdiction over any portion of the Property;

(ii)         Seller has no actual knowledge of and has not received any notice of any claim, requirement or demand of any licensing or certifying agency supervising or having authority over any Facility to rework or redesign it in any material respect or to provide additional furniture, fixtures, equipment or inventory so as to conform to or comply with any law which has not been fully satisfied;

(iii)        Seller has not received any notice from any governmental authority of any material violation of any law applicable to any portion of the Real Property or to the Facilities;

(c)          Condemnation. There is no pending or, to the actual knowledge of Seller, threatened condemnation or similar proceeding or assessment affecting the Real Property, nor, to the actual knowledge of Seller, is any such proceeding or assessment contemplated by any governmental authority.

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(d)          Hazardous Substances. Except as disclosed on Schedule 8(d) (and as disclosed to Buyer during the Due Diligence Period), and to Seller’s actual knowledge, there has been no production, storage, manufacture, voluntary or involuntary transmission, use, generation, treatment, handling, transport, release, dumping, discharge, spillage, leakage or disposal at, on, in, under or about the Real Property of any Hazardous Substances by Seller, or any affiliate or agent thereof, except in strict compliance with all applicable Laws. To Seller’s actual knowledge there are no Hazardous Substances at, on, in, under or about the Real Property in violation of any Law, and to Seller’s actual knowledge, there is no proceeding or inquiry by any federal, state or local governmental agency with respect thereto. For purposes of this Agreement, “Hazardous Substances” shall mean any hazardous or toxic substances, materials or wastes, including, without limitation, those substances, materials and wastes listed in the United States Department of Transportation Table (49 CFR 172.1 01) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302 and amendments thereto) or such substances, materials and wastes which are or become regulated under any applicable local, state or federal law (collectively, “Laws”), including, without limitation, any material, waste or substance which is (i) a hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. § 6901 et seq.); (ii) a pollutant or contaminant or hazardous substance as defined in the Comprehensive Environmental Response. Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); (iii) a hazardous substance pursuant to § 311 of the Clean Water Act (33 U.S.C. § 1251, et seq., 33 U.S.C. § 1321) or otherwise listed pursuant to § 307 of the Clean Water Act (33 U.S.C. § 1317); (iv) a hazardous waste pursuant to § 1004 of the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.); (v) polychlorinated biphenyls (PCBs) as defined in the Federal Toxic Substance Control Act, as amended (15 U.S.C. § 2501 et seq.); (vi) hydrocarbons, petroleum and petroleum products; (vii) asbestos; (viii) formaldehyde or medical or biohazardous waste; (ix) radioactive substances; (x) flammables and explosives; (xi) any state statutory counterparts to those federal statutes listed herein; or (vii) any other substance, waste or material which could presently or at any time in the future require remediation at the behest of any governmental agency. Any reference in this definition to Laws shall include all rules and regulations which have been promulgated with respect to such Laws.

(e)          Brokers. Other than Lee Blake of JCH Consulting Group, Inc. located at 1777 NW Rimrock Road, Bend, Oregon 97701 (“Broker”), neither Seller nor Buyer has dealt with any broker or finder in connection with the transactions contemplated hereby. Seller shall be responsible for payment of a real estate brokerage commission to Broker pursuant to a separate agreement between the Seller entities and/or Dover Management, Inc. and Broker. Each party represents and warrants to the other party that it has not dealt with any other broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby. Each party agrees to indemnify, protect, defend, protect and hold the other party harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from such indemnifying party’s breach of the foregoing representation. The provisions of this Section 8(e) shall survive the Closing or earlier termination of this Agreement for a period of twelve (12) months.

(f)          Leases and Contracts. Schedule 8(f) is a list of all Leases and Contracts relating to the Facilities to which Seller is a party or by which Seller may be bound. Seller has made or will promptly make available to Buyer true, complete and accurate copies of all Leases and Contracts including, without limitation, any modifications thereto. All of the Leases and Contracts are in full force and effect without claim of material default there under, and, except as may be set forth on Schedule 8(f).

(g)          Financial Statements. Schedule 8(g) contains (i) the unaudited balance sheets of the Operating entities for the last three (3) fiscal years ending prior to the date of this Agreement and the unaudited balance sheets of the past three (3) fiscal quarters completed prior to the date of this Agreement and (ii) the related consolidated statements of income, results of operations, changes in members’ equity and changes in financial position with respect to each such period for each operating entity as compared with the immediately prior period (collectively, the “Financial Statements”). The Financial Statements taken as a whole (A) fairly present the financial condition and results of operation of the Operators for the periods indicated, (B) are true, accurate, correct and complete in all material respects, and (C) except as stated in Schedule 8(g) (or in the notes to the Financial Statements) have been prepared in accordance with the Operator’s tax basis reporting, as consistently applied. Except as disclosed in Schedule 8(g), or otherwise disclosed in writing to Buyer, to Seller’s actual knowledge neither Seller, as to any Facility, nor any Facility is obligated for or subject to any material liabilities, contingent or absolute, and whether or not such liabilities would be disclosed in accordance with tax basis reporting, and Schedule 8(g) sets forth all notes payable, other long term indebtedness and, to Seller’s actual knowledge, all other liabilities to which the Facilities and the Real Property are or at Closing (and following Closing) will be subject, other than new indebtedness obtained by Buyer in connection with its purchase of the Property. Seller has received no notice of default under any such instrument.

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(h)          Interests in Competitors, Suppliers and Customers. Other than the Operator entities and except as set forth on Schedule 8(h), or in Schedule 1(a) as constituting a part of the Facilities, neither Seller nor any of its members has any interest in any property used in the operation of, or holds an interest in, any competitor, supplier or customer of Seller or the Facilities within a five (5) mile radius of the Seller entities as further provided in paragraph 24 of this Agreement.

(i)          No Foreign Persons. Neither Seller nor its members is a foreign person within the meaning of Sections 897 or 1445 of the Code, nor is Seller a U.S. Real Property Holding Company within the meaning of Section 897 of the Code.

(j)          Licensure. As of the date hereof, except as set forth on Schedule 8(j) attached hereto, there is no action pending or, to the actual knowledge of Seller, recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate the Facilities, or certification of the Facilities, or any material action of any other type with regard to licensure or certification. Each Facility is, to the actual knowledge of Seller, operating and functioning as a skilled nursing facility without any waivers from a governmental agency affecting each Facility except as set forth in Schedule 8(j), and is fully licensed for a skilled nursing facility, as applicable, by the State of Oregon for the number of beds and licensure category set forth in Schedule 1(a) hereto. Schedule 8(j) attached hereto contains a complete and accurate list of all life safety code waivers or other waivers affecting each Facility. Provided, however, that it is understood that the Sheridan Care Center LLC, dba Sheridan Care Center and Sheridan Properties LLC is an intermediate care nursing facility.

(k)          Regulatory Compliance.

(i)          To Seller’s actual knowledge, Seller or the Operator has duly and timely filed all reports and other items required to be filed (collectively, the “Reports”) with respect to any cost based or other form of reimbursement program or any other third party payor (including without limitation, Medicare, Medicaid, medically indigent assistance, Blue Cross, Blue Shield, any health maintenance, preferred provider, independent practice or other healthcare related organizations, peer review organizations, or other healthcare providers or payors) (collectively, “Payors”) and have timely paid all amounts shown to be due thereon. At the time of filing, to Seller’s actual knowledge, each Report was true, accurate and complete. To Seller’s actual knowledge, all rights and obligations of the Facilities or Seller under such Reports are accurately reflected or provided for in the Financial Statements.

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(ii)         Except as set forth in Schedule 8(k) attached hereto, (a) to Seller’s actual knowledge neither Seller nor, to Seller’s actual knowledge, the Operator, is delinquent in the payment of any amount due under any of the Reports for the Facilities, (b) except as to an Internal Revenue Service dispute relating to fiscal year 2005 there are no written or threatened proposals by any Payors for collection of amounts for which Seller or any Facility could be liable, (c) there are no current or pending claims, assessments, notice, proposal to assess or audits of Seller or Operator of any Facility with respect to any of the Reports, and, to Seller’s actual knowledge, no such claims, assessments, notices, or proposals to assess or audit are threatened, and (d) neither Seller nor Operator has executed any presently effective waiver or extension of the statute of limitations for the collection or assessment of any amount due under or in connection with any of the Reports with respect to any Facility.

(iii)        Except as set forth in Schedule 8(k) attached hereto, neither Seller nor the Operator has received an unsatisfied notice of failure to comply with all applicable Laws, settlement agreements, and other agreements with any state or federal governmental body relating to or regarding any Facility (including all applicable environmental, health and safety requirements), and Seller or the Operator has and maintains all permits, licenses, authorizations, registrations, approvals and consents of governmental authorities and all health facility licenses, accreditations, Medicaid, Medicare and other Payor certifications necessary for its activities and business including the operation of each Facility as currently conducted. Provided, however, that Seller’s, Sheridan Care Center LLC, dba Sheridan Care Center and Sheridan Properties LLC is not yet licensed for Medicare. An amendment and modification to the Sheridan license to include such licensure for Medicare is currently pending but has not yet been approved. Each health facility license, Medicaid and Medicare and other Payor certifications, Medicaid provider agreement and other agreements with any Payors is in full force and effect without any waivers of any kind (except as disclosed in Schedule 8(k)) and has not been amended or otherwise modified, rescinded or revoked or assigned nor, to Seller’s actual knowledge, (a) is there any threatened termination, modification, recession, revocation or assignment thereof, (b) no condition exists nor has any event occurred which, in itself or with the giving of notice, lapse of time or both would result in the suspension, revocation, termination, impairment, forfeiture, or non-renewal of any governmental consent applicable to Seller or to any Facility or of any participation or eligibility to participate in any Medicare, Medicaid, or other Payor program and (c) there is no claim that any such governmental consent, participation or contract is not in full force and effect.

(l)          Regulatory Surveys. Seller has delivered to Buyer, in the manner required pursuant to the terms of this Agreement, complete and accurate copies of the survey or inspection reports made by any governmental authority with respect to each Facility during the calendar years 2009, 2010, 2011 and year-to-date 2012 which are in Seller’s possession. To the best of Seller’s knowledge, after diligent investigation, and except as shown on Schedule 8(l), all exceptions, deficiencies, violations, plans of correction or other indications of lack of compliance in such reports or have been fully corrected and there are no bans or limitations in effect, pending or threatened with respect to admissions to any Facility nor any licensure curtailments in effect, pending or threatened with respect to any Facility. Seller shall continue to deliver all such surveys, inspection reports as and when same are received and/or filed as the case may be prior to the Closing.

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(m)          Licensed Bed/Current Rate Schedule. As of the Effective Date, Schedule 8(m) sets forth (i) the number of licensed beds and the number of operating beds in each Facility, (ii) the current standard private rates charged by each Facility to all of its residents, and (iii) the number of beds or units presently occupied in, and the occupancy percentage at, each Facility, including the current rates charged by each Facility for each such occupied bed or unit. Neither Seller nor any Operator has any life care arrangement in effect with any current or future resident (“life care arrangement” is defined as a prepaid obligation to care for a person for the life of the person).

(n)          Operations. Each Facility is reasonably and adequately equipped and each Facility includes sufficient and adequate numbers of furniture, furnishings, equipment, consumable inventory, and supplies to operate such Facility as each is presently operated by Seller. Personal Property used to operate each Facility and to be conveyed to Buyer is free and clear of liens, security interests, encumbrances, leases and restrictions of every kind and description, except for Permitted Encumbrances and any liens, security interests and encumbrances to be released at Closing.

(o)          No Misstatements, Etc. To the best of Seller’s knowledge, neither the representations and warranties of Seller stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor the Due Diligence Items or any certificate or instrument furnished or to be furnished to Buyer by Seller in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

(p)          Supplementation of Schedules; Change in Representations and Warranties. Seller shall have the continuing right and obligation to supplement and amend the Schedules herein on a regular basis including, without limitation, Schedule 8(g), and Seller’s warranties and representations required hereunder, as necessary or appropriate (i) in order to make any representation or warranty not misleading due to events, circumstances or the passage of time or (ii) with respect to any matter hereafter arising or discovered up to and including the Closing Date, but Buyer shall not be deemed to have approved such supplemental Schedules unless Buyer expressly acknowledges approval of same in writing. In the event Seller amends any such Schedules, or Buyer or Seller gains actual knowledge prior to the Closing that any representation or warranty made by the other party contained in this Section 8 is otherwise untrue or inaccurate, such party shall, within five (5) days after gaining such actual knowledge but in any event prior to the Closing, provide the other party with written notice of such inaccuracy, whereupon the noticed party shall promptly commence, and use its best efforts to prosecute to completion, the cure of such matter, to the extent any such matter is curable. If any such matter is not curable within reason and is material, in Buyer’s reasonable business judgment, Buyer shall have the right to terminate this Agreement upon written notice to Seller within five (5) business days of receipt or delivery of such notice, as applicable, on the same basis as set forth in Section 13(a) if during the Due Diligence Period and in Section 13(b)(i)(i) herein if after expiration of the Due Diligence Period.

(q)          Survival of Representations and Warranties; Updates. The representations and warranties of Seller in this Agreement shall not be merged with the Deeds at the Closing and shall survive the Closing for the period of two (2) years (see paragraph 16(a) of this Agreement); provided, Seller understands and agrees that the Post Closing Lease, shall provide for a lengthier period of survival with respect to certain matters referenced therein.

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For purposes of this Agreement, the phrase “to Seller’s actual knowledge” or words of similar import shall mean the actual knowledge of Don R. Bybee, Kent Emry and the general partner or President, as applicable, of each entity comprising Seller, and any written notice received by Seller relating to the matters set forth in the applicable representations and warranties.

9.           Representations and Warranties of Buyer.

(a)          Buyer hereby warrants and represents to Seller that:

(i)          Organization, Corporate Powers, Etc. Buyer is a limited liability company, validly existing and in good standing under the laws of the State of Delaware and in each other state or jurisdiction in which the nature of its business requires the same except where a failure to be so qualified does not have a material adverse effect on the business, properties, condition (financial or otherwise) or operations of that person. Buyer has full power, authority and legal right (a) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document to which it is a party, and (b) to carry out the transactions contemplated hereby and by such other instruments to be carried out by Buyer pursuant to the Transaction Documents.

(ii)         Due Authorization, Etc. The Transaction Documents have been, and each instrument provided for herein or therein to which Buyer is a party will be, when executed and delivered as contemplated hereby, duly authorized, executed and delivered by Buyer and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of the Buyer enforceable in accordance with their terms.

(iii)        Governmental Approvals. To Buyer’s actual knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Buyer is a party or for the validity or enforceability thereof against such party.

(iv)        No Litigation. Neither Buyer nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Buyer’s actual knowledge, no such actions or proceedings are threatened, against Buyer before or by any court, arbitrator, administrative agency or other governmental authority, which individually or in the aggregate, are expected, in the reasonable judgment of Buyer, to materially and adversely affect Buyer’s ability to carry out any of the transactions contemplated by any of the Transaction Documents.

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(v)         No Conflicts. Neither the execution and delivery of the Transaction Documents to which Buyer is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (a) a breach or violation of (1) any material law or governmental rule or regulation applicable to Buyer now in effect, (2) any provision of any Buyer’s organizational documents, (3) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Buyer, or (4) any material agreement or instrument to which Buyer is a party or by which Buyer or its respective properties are bound; (b) the acceleration of any obligations of Buyer; or (c) the creation of any lien, claim or encumbrance upon any properties or assets of Buyer.

(vi)        No Misstatements, Etc. To the best of Buyer’s knowledge, neither the representations and warranties of Buyer stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor any certificate or instrument furnished or to be furnished to Seller by Buyer in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

(vii)       Survival of Representations and Warranties; Updates. The representations and warranties of Buyer in this Agreement shall not be merged with the Deeds at the Closing and shall survive the Closing for the period of one (1) year.

(b)          No Knowledge of Misrepresentation or Breach. Based upon Buyer’s due diligence review, Buyer has no actual knowledge of any misrepresentation or breach of warranty by Seller, other than as set forth in writing by Buyer to Seller on or before the Closing Date.

10.          Covenants of Seller. Seller covenants with respect to the Facilities as follows:

(a)          Pre-Closing. Between the date of this Agreement and the Closing Date, except as contemplated by this Agreement or with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

(i)          Seller shall use its best efforts to cause the Operator to operate the Facilities diligently, in accordance with the Operator’s obligations under its lease or other arrangement with Seller, and only in the ordinary course of business.

(ii)         Seller shall use its best efforts to prevent the Operator from making any material change in the operation of any Facility, and shall prevent the Operator from selling or agreeing to sell any items of machinery, equipment or other assets of any Facility, or otherwise entering into any agreement affecting any Facility, except in the ordinary course of business;

(iii)        Seller shall use its best efforts to prevent the Operator from entering into any Lease or Contract or commitment affecting any Facility, except for Leases or Contracts entered into in the ordinary course of business;

(iv)        During normal business hours and consistent with Section 6(b) herein, Seller shall provide Buyer or its designated representative with access to the Facilities upon prior notification and coordination with Seller and the Operator; provided, Buyer shall not materially interfere with the operation of any Facility. At such times Seller and the Operator shall permit Buyer to inspect the books and records of each Facility;

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(v)         Within five (5) business days following the execution of this Agreement by the parties, Seller has delivered to Buyer all of the due diligence items described on the Due Diligence List attached hereto as Schedule 6(a)(vii) (the “Due Diligence Items”) which are in Seller’s possession or control. All Due Diligence Items which have not previously been delivered are identified as the Unavailable Items (“Unavailable Items”). If any of the Unavailable Items become available to Seller, Seller shall within five (5) days of receiving such items, deliver such items to Buyer. If Buyer requests additional items not included on Schedule 6(a)(vii), in writing delivered by Buyer to Seller, Seller shall use its best efforts to provide such information within five (5) days of receipt of the request; and provided further, Seller shall continue to cause Operator to deliver to Buyer following the expiration of the Due Diligence Period, financial reports showing among other things information necessary to determine EBITDAR (defined below) for each of the facilities for the trailing twelve (12) month annualized operations for the period ending February 28, 2012. The term “EBITDAR” means “earnings before interest, taxes, depreciation, amortization and rent and reserves (reserves meaning additions to capital reserves).”

(vi)        Seller shall use its best efforts to prevent the Operator from moving residents from any Facility, except (a) to any other Facility which is owned by Seller and constitutes part of the Property as defined herein, (b) for health treatment purposes or otherwise at the request of the resident, family member or other guardian or (c) upon court order or the request of any governmental authority having jurisdiction over such Facility;

(vii)       Seller shall use commercially reasonable efforts to cause the Operator to retain the services and goodwill of the employees of the Operator until the Closing;

(viii)      Seller shall maintain in force, or shall cause the Operator to maintain in force, the existing hazard and liability insurance policies, or comparable coverage, for each Facility as are in effect as of the date of this Agreement;

(ix)         Seller shall, and shall cause the Operator, to file all returns, reports and filings of any kind or nature, including but not limited to, cost reports referred to in this Agreement, required to be filed by Seller or the Operator on a timely basis and shall timely pay all taxes or other obligations and liabilities or recoupments which are due and payable with respect to each Facility in the ordinary course of business with respect to the periods Seller or Operator operated each Facility;

(x)          Seller shall cause the Operator (a) to maintain all required operating licenses in good standing, (b) to operate each Facility in accordance with its current business practices and (c) to promptly notify Buyer in writing of any notices of material violations or investigations received from any applicable governmental authority;

(xi)         Seller shall use commercially reasonable efforts to cause the Operator to make all customary repairs, maintenance and replacements required to maintain each Facility in substantially the same condition as on the date of Buyer’s inspection thereof, ordinary wear and tear excepted;

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(xii)        Seller shall promptly notify Buyer in writing of any Material Adverse Change, as defined herein, of which Seller becomes aware in the condition or prospects of the Facilities including, without limitation, sending Buyer copies of all surveys and inspection reports of all governmental agencies received after the date hereof and prior to Closing, promptly following receipt thereof by the Operator. For purposes of this Agreement, a “Material Adverse Change” shall mean: (a) a decrease in the consolidated adjusted rolling twelve (12) month EBITDAR of the facilities to less than Two Million One Hundred Ninety-Seven Thousand Dollars ($2,197,000) or (b) loss of licensure, or (c) loss of Medicaid or Medicare (except Sheridan) participation, or (d) any adverse action by a governmental agency which, with the passage of time, would reasonably be expected to materially affect in a negative manner licensure at any Facility, or any adverse action in any Facility which would reasonably be expected to materially affect in a negative manner such Facility’s participation or eligibility to participate in any Medicare, Medicaid, or other Payor program, unless appropriate corrective action has been taken by the Operator, in the ordinary course of business, or (e) failure to settle with the appropriate governmental authority, or to satisfy on or before the Closing (either directly with such governmental authority or by funds escrowed by Seller for such purposes) all claims for reimbursements, recoupments, taxes, fines or penalties which may be due to any governmental authority having jurisdiction over any Facility, or (f) the occurrence of a title or survey defect occurring after the date of this Agreement which would reasonably be expected to adversely affect the ability of Buyer to operate the skilled nursing home/assisted living facility at its respective Facility or to obtain financing for such Facility, or (g) the commencement of any third party litigation which interferes with Seller’s ability to close the transactions contemplated by this Agreement, or (viii) any damage, destruction or condemnation affecting any Facility in which the estimate of damage exceeds $100,000 per Facility and such damage or destruction has not been repaired, or Buyer as not otherwise waived such condition prior to Closing. In the event of any occurrence described in clause (d) above, Operator shall deliver a copy of the Plan of Correction or otherwise notify Buyer in writing of the planned action, and such Plan of Correction or other corrective action which has been approved by the applicable regulatory agency or agencies.

(xiii)       Seller agrees to cause the Operator to remedy any compliance deficiency cited in any written notice from, or in any settlement agreement or other Plan of Correction or other agreement with, any state or federal governmental body, or in the event of state or federal proceedings against Operator or any Facility, or receipt by the Operator of such notice prior to the Closing Date, of any condition which would affect the truth or accuracy of any representations or warranties set forth in this Agreement by Seller; provided, however, in the event a physical plant deficiency is cited which Seller has insufficient time to remedy before the Closing Date, in accordance with the approval of the appropriate state or federal agency, then the same shall be deemed remedied when the costs of correcting said Seller identified deficiency (based upon reasonable estimates from established vendors selected by Seller and Buyer and approved by Seller and by Buyer, in its sole and absolute discretion) shall be held back in the Escrow at the Closing and not released to Seller until either the obligation to remedy the plan deficiency has been assumed by Seller as Lessee under the leaseback agreement between Seller as Lessee and Buyer as Lessor or such deficiency has been corrected by Seller; and, provided further, a non-physical plant deficiency which cannot be remedied prior to the Closing, in accordance with the approval of the appropriate state or federal agency, will be deemed to be remedied for purposes of this Section if Operator develops a Plan of Correction addressing the deficiency(ies) and such Plan of Correction is approved by the applicable State agency. Seller shall use its best efforts to remedy any such deficiency subsequent to the Closing which is to be remedied as a result of a Plan of Correction filed by Seller or Operator prior to the Closing or assumed by Seller as Lessee after Closing, and Buyer shall cooperate with such efforts by Seller; provided, Seller shall bear all costs associated with such remedy. In the event any such Plan of Correction agreed to by Seller and Operator prior to the Closing is not approved by the applicable State agency subsequent to Closing, Seller shall promptly use its best efforts, and shall cause Operator to use its best efforts, to amend the Plan of Correction in such a manner that is necessary to obtain acceptance by the State of the amended Plan of Correction as soon as practicable after submittal. Notwithstanding any other provision of this Agreement, the obligation of Seller pursuant to this Subsection 10(a)(xiii) shall survive the Closing for such period of time as is necessary to remedy such deficiency.

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(xiv)      Seller shall, at its cost and on or before Closing, obtain releases of financing statements and tax and judgment liens affecting or relating to each Facility which have been filed or recorded with the Office of the Oregon Secretary of State and the appropriate County Recorder’s Office.

(xv)       Seller shall promptly comply with any notices of violations received relating to each Facility and shall deliver to Buyer a copy of any such notice received and evidence of compliance with such notice.

(b)          Closing. On or before the Closing Date, Seller shall deliver the following documents to Escrow Agent relating to the Facilities (“Closing Documents”):

(i)          One (1) original executed Warranty Deed in substantially the same form as Exhibit 4 for each Facility, in recordable form;

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

(iii)        Two (2) original executed counterparts of the bill of sale for the Personal Property (“Bill of Sale”), an assignment of Seller’s interest in the Contracts and Leases (“Assignment of Contracts and Leases”), and other instruments of transfer and conveyance in form and substance to be agreed upon prior to the expiration of the Due Diligence Period transferring and assigning to Buyer the Real Property, Personal Property and the Intangibles to be transferred as provided herein with respect to the Facilities (“Instruments of Assignment”);

(iv)        One (1) original executed certificate executed by Seller confirming that to Seller’s actual knowledge on the Closing Date Seller’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Seller’s Confirmation”);

(v)         All contractor’s and manufacturer’s guaranties and warranties, if any, in Seller’s possession relating to each Facility (collectively, the “Warranties”), which delivery will be made by leaving such materials at such Facility; and

(vi)        Two (2) original executed counterparts of each of the FIRPTA Certificate, escrow agreements and other documents required by the Title Company in connection with the transactions contemplated by this Agreement (collectively, the “Title Company Documents”).

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(c)          Pacific Gardens Option. Seller and Buyer shall cooperate in good faith and use commercially reasonable efforts to cause the following events to occur concurrently with the Closing: (i) the assignment of the Tigard Option to Buyer; (ii) the Tigard Owner’s consent to such assignment of the Tigard Option; (iii) Buyer’s exercise of the Tigard Option, and (iv) the closing on the Tigard Facility resulting in Buyer obtaining fee title to the Tigard Facility.

(i)          Seller shall be responsible for obtaining all consents required from Tigard Owner in order to accomplish all of the events set forth in Section 10(c).

(ii)         Except for Buyer’s obligations under this Section 10(c), Seller hereby agrees to indemnify, protect, defend and hold harmless Buyer and its officers, directors, members, shareholders and tenants harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of Buyer’s failure to perform any obligation under the Tigard Option Agreement, Buyer’s default on any obligation under the Tigard Option Agreement or the assignment of the Tigard Option to Buyer.

(iii)        At the Closing, Seller and Buyer shall enter into an assignment of the Tigard Closing, including, but not limited to, the consent for such assignment from the Tigard Owner, in such form reasonably approved by Seller, Buyer and Tigard Owner during the Due Diligence Period.

(iv)        Buyer shall exercise the Tigard Option concurrently with the Closing under this Agreement in order to facilitate the concurrent closing under the Tigard Option Agreement in which the Tigard Owner shall deed fee title to the Tigard Property to Buyer.

(v)         Seller and Buyer agree that all amounts that Buyer will be required to pay for the Tigard Property and other costs associated with the closing on the Tigard Property (except for Buyer’s attorneys’ fees) pursuant to the Tigard Option Agreement will come from the Purchase Price that Buyer pays pursuant to this Agreement and the parties agree to instruct Escrow Agent to transfer such amount to the escrow for the closing under the Tigard Option Agreement.

(vi)        The parties intend for Buyer to obtain fee title to the Tigard Property at the Closing under this Agreement without Buyer having to pay any additional amount over and above what Buyer is required to pay under this Agreement for the Property. The parties acknowledge that the difference between the appraised value for the Tigard Facility and the price Buyer has to pay for the Tigard Facility pursuant to the terms of the Tigard Option Agreement shall be deemed consideration paid to Seller for the Tigard Option.

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11.          Covenants of Buyer. Buyer hereby covenants as follows:

(a)          Pre-Closing. Between the date hereof and the Closing Date, except as contemplated by this Agreement or with the consent of Seller, Buyer agrees that Buyer shall not take any action inconsistent with its obligations under this Agreement or which could hinder or delay the consummation of the transaction contemplated by this Agreement. Between the date hereof and the Closing Date, Buyer agrees that Buyer shall not (i) make any commitments to any governmental authority, (ii) enter into any agreement or contract with any governmental authority or third parties, or (iii) alter, amend, terminate or purport to terminate in any way any governmental approval or permit affecting the Real Property, Personal Property or any Facility, which would be binding upon Seller, any Real Property Owner, any Facility or Personal Property after any termination of this Agreement.

(b)          Closing. On or before the Closing Date, Buyer shall deposit the following with Escrow Agent:

(i)          The Purchase Price in accordance with the requirements of this Agreement;

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

(iii)        Two (2) original executed counterparts of each of the Instruments of Assignment requiring Buyer’s signature;

(iv)        One (1) original executed certificate executed by Buyer confirming that Buyer’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Buyer’s Confirmation”); and

(v)         Two (2) original executed counterparts of each of the Title Company Documents requiring Buyer’s signature.

12.          Conditions to Closing.

(a)          Conditions to Buyer’s Obligations. All obligations of Buyer under this Agreement are subject to the reasonable satisfaction and fulfillment, prior to the Closing Date, of each of the following conditions. Anyone or more of such conditions may be waived in writing by Buyer.

(i)          Seller’s Representations, Warranties and Covenants. Seller’s representations, warranties and covenants contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein, shall be true at the date hereof and as of the Closing Date as though such representations, warranties and covenants were then again made, except to the extent that (a) Seller has provided to Buyer, prior to the Closing, with supplemental Schedules in accordance with Section 8(q) herein or (b) Buyer has discovered, or has been provided with written notice from Seller, that a representation is untrue or inaccurate, and Buyer nevertheless elects to close the transaction in the manner provided in Section 8(q) herein despite such inaccuracy, whereupon it will have waived any right of recourse or damages against Seller resulting from such inaccuracy.

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(ii)         Seller’s Performance. Seller shall have performed all of its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

(iii)        Damage and Condemnation. Prior to the Closing Date, no portion of any Facility shall have been damaged or destroyed by fire or other casualty where the estimate of damage to such Facility exceeds 20% of the Purchase Price allocated to such Facility, or proceedings be commenced or threatened to take or condemn any material part of the Real Property or improvements comprising a Facility by any public or quasi-public authority under the power of eminent domain. A proceeding shall be deemed to be “material” if such condemnation or taking (a) relates to the material taking or closing of any right of access to any Real Property or Facility, (b) cause the Real Property or Facility to become non-conforming with then current legal requirements governing such Real Property or Facility, (c) results in the loss of parking that is material to the operation of such Facility, or (d) result in the loss of value in excess of 20% of the Purchase Price allocated to such Facility, in Buyer’s reasonable judgment. If such Facility shall have been so damaged or destroyed, Seller shall deliver prompt written notice of such condemnation, damage or destruction to Buyer. In the event Buyer waives this condition, by written notice to Seller within fifteen (15) business days of receipt of notice of such proceeding, and the Closing occurs, Seller shall assign to Buyer all its right to any insurance proceeds in connection therewith. If proceedings shall be so commenced or threatened to take or condemn the Real Property or any Facility or portion thereof prior to Closing, and if Buyer waives this condition and the Closing occurs, Seller shall pay or assign to Buyer all Seller’s right to the proceeds of any condemnation award in connection thereof.

(iv)        Absence of Litigation. No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Buyer, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of any Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect any Facility or the business or prospects of any Facility.

(v)         Form of Post Closing Lease. Prior to the expiration of the Due Diligence Period, Seller and Buyer shall have agreed upon the form of the post closing lease (the “Post Closing Lease”) between Buyer, as landlord, and Seller, as tenant, incorporating in the business terms set forth in Exhibit D attached hereto.

(vi)        No Material Adverse Change. No Material Adverse Change shall have occurred in any Facility.

(vii)       Removal of Personal Property Liens. Seller shall have removed (or shall have sufficient payoff or other documents to remove such liens at Closing) all personal property liens which are related to the Facilities and the Facilities at Closing shall be free and clear of all liens, claims and encumbrances other than Permitted Exceptions.

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(viii)      Title Insurance Policies. Title Company shall be prepared to issue the (a) Owners Title Insurance Policy for each Facility as of the Closing Date, with coverage in the amount of the allocable portion of the Purchase Price for such Facility, insuring Buyer as owner of such Facility subject only to the Permitted Exceptions, and (b) ALTA Title Insurance Policy for each Facility as of the Closing Date, with coverage in the amount of the allocable portion of Buyer’s loan from Buyer’s lender (“Lender”), insuring Lender’s lien against each Facility subject only to such exceptions as may be approved by Lender, and with such endorsements as may be required by Lender.

(b)          Conditions to Seller’s Obligations. All obligations of Seller under this Agreement are subject to the fulfillment, prior to the Closing Date, of each of the following conditions. Anyone or more of such conditions may be waived by Seller in writing.

(i)          Buyer’s Representations, Warranties and Covenants. Buyer’s representations, warranties and covenants contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein shall be true at the date hereof and as of the Closing Date as though such representations, warranties and covenants were then again made.

(ii)         Buyer’s Performance. Buyer shall have performed its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

(iii)        Absence of Litigation. No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Seller, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of any Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect any Facility or the business or prospects of any Facility.

(iv)        No Actions. There shall be no action pending or recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate any Facility or the certification of any Facility, or any action of any other type with regard to licensure or certification or with respect to Medicare and Medicaid provider billing agreements necessary to operate any Facility.

(v)         Form of Post Closing Lease. Prior to the expiration of the Due Diligence Period, Seller and Buyer shall have agreed upon the form of the Post Closing Lease.

13.          Termination; Defaults.

(a)          Termination For Failure of Condition. Either party may terminate this Agreement for non-satisfaction or failure of a condition to the obligation of either party to consummate the transaction contemplated by this Agreement (including, without limitation, Buyer’s election to disapprove the condition of the title or Surveys pursuant to Section 14 herein), unless such matter has been satisfied or waived by the date specified in this Agreement or by the Closing Date (as same may be extended by the parties to allow the parties to satisfy or waive conditions to close in the manner provided in this Agreement). In the event of such a termination, Escrow Agent shall promptly return (i) to Buyer, all funds of Buyer in its possession (and Seller shall return to Buyer any portion of the Extension Deposit that may have been released to Seller), including the Deposit and all interest accrued thereon, and (ii) to Seller and Buyer, all documents deposited by them respectively, which are then held by Escrow Agent. Thereafter, neither party shall have any continuing obligation or liability to the other party except for any such matters that expressly survive the Closing or termination of this Agreement, as provided herein. The provisions of this Section 13(a) are intended to apply only in the event of a failure of condition, as set forth herein, which is not the result of a default by either party, but which shall not apply in the event the non-terminating party is in default of its obligations under this Agreement.

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(b)          Termination For Cause.

(i)          If the Agreement is terminated by Seller because Buyer fails to consummate the Closing as a result of a default by Buyer under this Agreement, Seller’s sole and exclusive remedy prior to the Closing Date shall be to terminate this Agreement by giving written notice of termination to Buyer and Escrow Agent, whereupon (a) Escrow Agent shall promptly release to Seller the Deposit, and all interest accrued thereon, (b) Escrow Agent shall return to Buyer and Seller all documents deposited by them respectively, which are then held by Escrow Agent, (c) the parties shall be released and relieved of all obligations to each other under this Agreement, except for provisions that expressly survive termination as provided herein, (d) Buyer shall return to Seller all documents received by it during the course of its Due Diligence and (e) Buyer shall have no further right to purchase the Property or legal or equitable claims against Seller (except for any breach by Seller of provisions that survive termination) and/or the Property. Buyer shall have no liability to Seller under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Buyer acknowledges that the provisions of this Subsection are a material part of the consideration being given to Seller for entering into this Agreement and that Seller would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Seller against Buyer or by Buyer against Seller commenced after the Closing Date, Seller and Buyer expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. The parties acknowledge and agree that Seller’s actual damages as a result of Buyer’s default would be difficult or impossible to ascertain and that the deliveries and payments provided for in clause (a) herein constitute reasonable compensation for its actual damages. Promptly following Escrow Agent’s receipt of written notice from Seller that this Agreement has been terminated because of a default by Buyer, Escrow Agent shall cancel the Escrow created for this transaction. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13(b)(i) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

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(ii)         If this Agreement is terminated by Buyer because (i) Seller has defaulted in the performance of its obligations under this Agreement or (ii) Seller otherwise refuses to consummate the Closing, after Buyer has (A) timely met, and continues to meet, all of Buyer’s obligations under this Agreement and (B) waived or accepted all conditions of Buyer to the Closing, then unless Buyer has defaulted in its obligations under this Agreement, Buyer’s sole and exclusive remedies prior to the Closing Date shall be either: (1) to terminate this Agreement by giving written notice of termination to Seller and Escrow Agent and pursue any and all remedies for Buyer’s out-of-pocket costs (including attorneys’ fees and court costs), attributable to the termination of this Agreement, provided however, that Seller shall have no liability to Buyer under any circumstances for any speculative, consequential or punitive damages, whereupon (a) Escrow Agent shall promptly return to Buyer the Deposit, and all interest accrued thereon, (b) Escrow Agent shall return to Seller and Buyer all documents deposited by them respectively, which are then held by Escrow Agent, (c) Buyer shall have no further right to purchase the Property or legal or equitable claims against Seller (except for any breach by Seller of provisions that survive termination) and/or the Property; and (d) Buyer shall return to Seller all documents received by it during the course of its Due Diligence, or (2) to pursue the remedy of specific performance of Seller’s obligation to perform its obligations under this Agreement, provided, (a) any such suit for specific performance is filed within forty-five (45) days after the then scheduled Closing Date, and (b) Buyer is ready, willing and able to consummate the Closing as required herein. Seller shall have no liability to Buyer under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Seller acknowledges that the provisions of this Subsection are a material part of the consideration being given to Buyer for entering into this Agreement and that Buyer would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Buyer against Seller or by Seller against Buyer commenced after the Closing Date, Buyer and Seller expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13.2(b) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

(c)          General.

(i)          Upon any termination of this Agreement, Buyer shall return to Seller all of the Due Diligence Items received by Buyer from Seller including all copies thereof prepared by Seller or Buyer; and

(ii)         In the event a party elects to terminate this Agreement such party shall deliver a notice of termination to the other party.

14.         Surveys and Title Commitments.

(a)          Seller has previously ordered separate title commitments (“Title Commitments”) covering the Real Property and each Facility dated prior to the date of this Agreement, together with legible copies of any and all instruments referred to in the Title Commitments as constituting exceptions to title of the Real Property. Immediately upon execution and delivery of this Agreement, Seller shall order updates of the Title Commitments, together with legible copies of any and all instruments (“Title Documents”) referred to in the Title Commitments as constituting exceptions to title and shall deliver all such documents to Buyer along with all other Due Diligence Items.

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(b)          Seller shall have delivered to Buyer a copy of the existing boundary line and/or as built surveys, if any, in Seller’s possession for each Facility (“Surveys”) in accordance with Section 10(a)(v) herein. Buyer shall be responsible for obtaining an update of the Surveys or new Surveys, at Buyer’s sole cost (“New Surveys”). On or before ten (10) business days following receipt of the updated Title Commitments, Title Documents and Surveys, Buyer shall notify Seller and the Title Company (“Buyer’s Title Notice”) of any objections which Buyer may have to the Title Commitments and/or Surveys. If Buyer objects to any matters (other than the Permitted Exceptions, as defined herein) which, in Buyer’s determination, might adversely affect the ability of Buyer to operate any of the Facilities, Seller shall use its reasonable business efforts to cure same, but shall not be obligated to cure matters other than to obtain the release (at Closing) of the existing mortgage and other monetary liens caused by Seller which may be released by payment of the mortgage payoff or lien amount from Seller’s Closing proceeds (collectively, “Monetary Liens”). If Seller delivers written notice to Buyer (“Seller’s Title Notice”), on or before ten (10) business days following receipt of the Buyer’s Title Notice, that Seller is unable or unwilling to cure such objections, or if, for any reason, Seller is unable to convey title in accordance with the requirements of this Agreement, Buyer shall have an additional period of three (3) business days following its receipt of Seller’s Title Notice in which to deliver written notice to Seller (“Buyer’s Second Title Notice”) either (i) to waive such objections (in which event the items objected to and uncured shall be deemed Permitted Exceptions) and to accept such title in the condition that Seller is able to convey, or (ii) terminate this Agreement by written notice to Seller. Failure of Buyer to deliver Buyer’s Second Title Notice shall be deemed to constitute Buyer’s disapproval of the state of title hereunder, whereupon Escrow Agent shall promptly return (i) to Buyer, all funds of Buyer in its possession (and Seller shall return to Buyer any portion of the Extension Deposit that may have been released to Seller), including the Deposit and all interest accrued thereon, and (ii) to Seller and Buyer, all documents deposited by them, respectively, which are then held by Escrow Agent. Thereafter, neither party shall have any continuing obligation nor liability to the other party except for any such matters that expressly survive the Closing or termination of this Agreement, as provided herein. Buyer shall, promptly following the execution of this Agreement, commence to use its best efforts to obtain the New Surveys as soon as practicable. Notwithstanding the foregoing provisions of this Subsection (b), Buyer shall have the right to object, promptly upon learning of any such new matters during the Due Diligence Period, to any matters raised in the New Surveys which were not addressed in the Surveys, and the parties shall cooperate with the Title Company, during the Due Diligence Period and as promptly as possible following the delivery of Buyer’s objections to such new matters in the New Surveys, to resolve any such matters to Buyer’s satisfaction. The Due Diligence Period shall not be extended for resolution of any such matters in the New Surveys.

15.         Cooperation. Following the execution of this Agreement, Buyer and Seller agree that if any event should occur, either within or without the knowledge or control of Buyer or Seller, which would prevent fulfillment of the conditions to the obligations of any party hereto to consummate the transaction contemplated by this Agreement, each such party shall use reasonably commercial efforts to cure or to cause the cure of the same as expeditiously as possible. In addition, each party shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any applications, requests, or actions which are or may be reasonable and necessary to obtain the consent of any governmental instrumentality or any third party or to accomplish the transaction contemplated by this Agreement.

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16.          Indemnification.

(a)          Indemnification Provisions.

(i)          Subject to the limitation on damages contained in Section 13.2(b) hereof, Seller hereby agrees to indemnify, protect, defend and hold harmless Buyer and its officers, directors, members, shareholders, tenants, successors and assigns, harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any breach of or inaccuracy in the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Seller contained in this Agreement or in any certificate or document delivered by Seller pursuant to any of the provisions of this Agreement, unless Seller cures such matter in the manner provided in Section 8(p) herein or (B) the failure to discharge any federal, state or local tax liability, or to pay any other assessments, recoupments, claims, fines, penalties or other amounts or liabilities accrued or payable with respect to any activities of Seller prior to the Closing Date (whether brought before or after the Closing Date), or (C) any obligation which is expressly the responsibility of Seller under this Agreement, or (D) any amounts required to cure citation violations issued by any state or federal health or human services authority on any Facility relating to any period prior to the Closing Date (whether brought before or after the Closing Dates), or (E) any claim by any employee of Seller (whether brought before or after the Closing Date), or (F) the existence against the Real Property of any mechanic’s or materialmen’s claims resulting from the action or inaction of Seller or anyone acting under authority of Seller, or (G) any other cost, claim or liability arising out of or relating to events (other than as a result of the actions of Buyer or Buyer’s Consultants) or Seller’s ownership, operation or use of any Facility. Any amount due under the aforesaid indemnity shall be due and payable by Seller within 30 days after demand thereof. Seller shall have the right to contest any such claims, liabilities or obligations as provided herein.

(ii)         Subject to the limitation on damages contained in Section 13(b)(1) hereof, Buyer hereby agrees to indemnify, protect, defend and hold harmless Seller and its officers, directors, members, shareholders and tenants harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any breach of or inaccuracy in the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Buyer contained in this Agreement or in any certificate or document delivered by Buyer pursuant to any of the provisions of this Agreement, unless Buyer cures such matter in the manner provided in Section 8(p) herein, (B) the failure to discharge any federal, state, or local tax liability, or to pay monetary liens or other assessments, recoupments, claims, fines, penalties, or other amounts or liabilities accrued or payable with respect to any activities of Buyer following the Closing Date, or (C) the existence against the Real Property of any mechanic’s or materialmen’s claims arising from actions of Buyer or Buyer’s Consultants, or (D) any obligation which is expressly the responsibility of Buyer under this Agreement. Any amount due under the aforesaid indemnity shall be due and payable by Buyer within thirty (30) days after demand therefor. Buyer shall have the right to contest any such claims, liabilities or obligations as provided herein.

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(iii)        The parties intend that all indemnification claims be made as promptly as practicable by the party seeking indemnification (the “Indemnified Party”). Whenever any claim shall arise for indemnification hereunder, the Indemnifying Party shall promptly notify the party from whom indemnification is sought (the “Indemnitor”) of the claim, and the facts constituting the basis for such claim (the “Indemnification Claim”). Failure to notify the Indemnitor will not relieve the Indemnitor of any liability that it may have to the Indemnified Party, except to the extent the defense of such action is materially and irrevocably prejudiced by the Indemnified Party’s failure to give such notice.

(iv)        An Indemnitor shall have the right to defend against an Indemnification Claim, with counsel of its choice reasonably satisfactory to the Indemnified Party, if (a) within fifteen (15) days following the receipt of notice of the Indemnification Claim the Indemnitor notifies the Indemnified Party in writing that the Indemnitor will indemnify the Indemnified Party from and against the entirety of any damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (b) the Indemnitor provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnitor will have the financial resources to defend against the Indemnification Claim and pay, in cash, all damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (c) the Indemnification Claim involves only money damages and does not seek an injunction or other equitable relief, (d) settlement of, or an adverse judgment with respect to, the Indemnification Claim is not in the good faith judgment of the Indemnified Party likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (e) the Indemnitor continuously conducts the defense of the Indemnification Claim actively and diligently.

(v)         So long as the Indemnitor is conducting the defense of the Indemnification Claim in accordance with Section 16(a)(iv), then (a) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Indemnification Claim, (b) the Indemnified Party shall not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnitor (not to be withheld unreasonably), and (c) the Indemnitor will not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed, provided that it will not be deemed to be unreasonable for an Indemnified Party to withhold its consent with respect to (1) any breach of any law, order or permit, (2) any violation of the rights of any person, or (3) any matter which Indemnified Party believes could have a material adverse effect on any other actions to which the Indemnified Party or its Affiliates are party or to which Indemnified Party has a good faith belief it may become party. Notwithstanding the foregoing provisions of this Subsection (v), if Indemnified Party refuses its consent to any of the matters set forth in clauses (1) through (3) above, the indemnity amount shall be determined as if such consent had been given and Indemnitor shall pay over to the Indemnified Party such amount and be absolved from any further obligation as to that particular claim; Indemnified Party may then resolve the claim in the manner it sees fit without further recourse against Indemnitor.

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(vi)        Each party hereby consents to the non-exclusive jurisdiction of any governmental body, arbitrator, or mediator in which an action is brought against any Indemnified Party for purposes of any Indemnification Claim that an Indemnified Party may have under this Agreement with respect to such action or the matters alleged therein, and agrees that process may be served on such party with respect to such claim anywhere in the world, provided however, that any venue relating to any claim or proceeding arising out of this Agreement or any other agreement between Sellers and Buyer shall be the State of Oregon and the laws of the State of Oregon shall apply.

(b)          Insurance Proceeds. In determining the amount of damages for which either party is entitled to assert an Indemnification Claim, the amount of any such claims or damages shall be determined after deducting therefrom the amount of any insurance coverage or proceeds or other third party recoveries received by such other party in respect of such damages. If an indemnification payment is received by the Indemnified Party in respect of any damages and the Indemnified Party later receives insurance proceeds or other third party recoveries in respect of such damages, the Indemnified Party shall immediately pay to the Indemnifying Party a sum equal to the lesser of the actual amount of net insurance proceeds or other third party recoveries (remaining after recovery costs and expenses) or the actual amount of the indemnification payment previously paid by or on behalf of the Indemnified Party.

(c)          No Incidental, Consequential and Certain Other Damages. An Indemnitor shall not be liable to an Indemnified Party for incidental, consequential, enhanced, punitive or special damages unless such damages are included in a third-party claim and such Indemnified Party is liable to the third party claimant for such damages.

(d)          Indemnification if Negligence of Indemnity; No Waiver of Rights or Remedies.

UNLESS OTHERWISE PROVIDED HEREIN, THE INDEMNIFICATION PROVIDED IN THIS SECTION 16 WILL BE APPLICABLE WHETHER OR NOT THE SOLE, JOINT, OR CONTRIBUTORY NEGLIGENCE OF THE INDEMNIFIED PARTY IS ALLEGED OR PROVEN. THE PARTIES AGREE THE PRECEDING SENTENCE IS COMMERCIALLY CONSPICUOUS. Each Indemnified Party’s rights and remedies set forth in this Agreement shall survive the Closing or other termination of this Agreement, shall not be deemed waived by such Indemnified Party’s consummation of the Closing of the sale transactions (unless the Indemnified Party has knowledge of the existence of an Indemnification Claim at Closing and decides to proceed with Closing) and will be effective regardless of any inspection or investigation conducted by or on behalf of such Indemnified Party or by its directors, officers, employees, or representatives or at any time (unless such inspection or investigation reveals the existence of an Indemnified Claim and such party proceeds with Closing), whether before or after the Closing Date.

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(e)          Other Indemnification Provisions. A claim for any matter not involving a third party may be asserted by notice to the Party from whom indemnification is sought.

17.          Dispute Resolution. In any dispute arising out of this Agreement the parties shall proceed as follows:

(a)          Mandatory Mediation. In the event there is any dispute between the parties to this Agreement relating in any way to this Agreement, the parties must mediate such dispute before commencement of any legal action. No party to this Agreement can bring legal action against another party to this Agreement without first participating in mediation, unless one party refuses to submit to mediation and legal action is brought to specifically enforce this mandatory mediation provision of this Agreement. If the parties cannot agree upon the person to act as the mediator, then the U.S. Arbitration and Mediation Service of Portland, Oregon shall select a person to act as the mediator. The mediator’s charges and expenses shall be split by the parties on a 50/50 basis. The mediation fees and costs do not include each party’s attorney fees and costs. Each party shall be responsible for his or her own attorney fees and costs at mediation. Those costs may not be assessed against the other party if the other party is the prevailing party. If the dispute cannot be resolved at mediation either party may then proceed to arbitration as provided in Section 17(b) of this Agreement.

(b)          Arbitration. In the event any disagreement, difference or controversy shall arise between or among the parties relating to or arising out of or under this Agreement, including any tort claims, and the parties to the controversy cannot mutually agree upon the resolution thereof, and the mediation provided for herein does not provide a resolution, then such disagreement, difference or controversy shall be determined by arbitration under the rules of the U.S. Arbitration and Mediation Service of Portland, Oregon. Any award made by the arbitrator shall be final, binding and conclusive upon the parties to the arbitration and those claiming under them. The arbitrator shall have no power to make any award inconsistent with or contrary to the terms and provisions of this Agreement. The cost and expenses of any arbitration shall be paid by the parties on a 50/50 basis. Any party to the arbitration may file any final arbitrator award as a judgment in the Circuit Court of the State of Oregon for Marion County and in the appropriate court in any other county of the State of Oregon or any other state where any party to the arbitration maintains such party’s residence, principal place of business or real property.

18.          Notices. Any notice, request for consent or approval, election or other communication provided for or required by this Agreement shall be in writing and shall be delivered by hand, by air courier service, postage prepaid (certified with return receipt requested), fax transmission or electronic transmission followed by delivery of the hard copy of such communication by air courier service or mail as aforesaid, addressed to the person to whom such notice is intended to be given at such address as such person may have previously furnished in writing to the such party’s last known address. Until receipt of written notice to the contrary, the parties’ addresses for notices shall be:

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To Buyer:
	Cornerstone Healthcare Real Estate Fund, Inc.
	1920 Main Street, Suite 400
	Irvine, CA  92614
	Attention:  Kent Eikanas
	Phone:  949-812-4335
	Email:  KEikanas@crefunds.com
With a Copy to:
	DLA Piper LLP (US)
	2000 University Avenue
	East Palo Alto, CA  94303
	Attention:  James E. Anderson, Esq.
	Phone:  650-833-2078
	Email:  Jim.Anderson@dlapiper.com
To Sellers:
	Sheridan Care Center LLC, dba Sheridan Care Center, or Sheridan Properties LLC, or Fernhill Estates LLC, dba Fernhill Estates, or Fernhill Properties LLC, or Pacific Gardens Estates LLC,
	dba Pacific Health and Rehabilitation
	c/o Dover Management, Inc.
	850 Promontory Place SE
	Salem OR  97302
	Attention: Don Bybee and Kent Emry
	Phone: 503-585-0200
	Email: donbybee@gmail.com
	kent@dovermgmt.com
With a Copy to:	Dakavia Management Corporation
	c/o Kent Emry
	4676 Commercial Street SE, #358
	Salem OR  97302-1902
	Phone:
	E-mail: kent@dovermgmt.com
With a Copy to	Garrett Hemann Robertson P.C.
Seller’s Counsel:	PO Box 749
	Salem OR  97308
	Phone: 503-581-1501
	Email: ejamieson@ghrlawyers.com

19.         Sole Agreement. This Agreement constitutes the entire understanding between the parties with respect to the transactions contemplated herein, and all prior or contemporaneous oral agreements, understandings representations and statement, and all prior written agreements, understandings, letters of intent and proposals are merged into this Agreement. Neither this Agreement nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

30

20.         Assignment; Successors. Neither party shall assign this Agreement without the prior written consent of the other; provided, however, Buyer may assign all of its rights, title, liability, interest and obligation pursuant to this Agreement to one or more entities owned, controlled by or under common control with Buyer. Subject to the limitations on assignment set forth above, all the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the heirs, successors and assigns of the parties hereto.

21.         Severability. Should any one or more of the provisions of this Agreement be determined to be invalid, unlawful or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and each such provision shall be valid and remain in full force and effect.

22.         Risk of Loss. Until the Closing Date, Seller shall bear the risk of loss for the Facilities. From and after the Closing Date, the risk of loss of the Facilities shall be governed by the Post Closing Lease.

23.         Holidays. If any date herein set forth for the performance of any obligations by Seller or Buyer or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday or legal holiday. As used herein, the term “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed in the State of Oregon for observance thereof.

24.         Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall be deemed to constitute one and the same instrument. Facsimile signature pages or electronically transmitted signature pages shall constitute original counterparts for all purposes.

25.         Covenant Not to Compete; Non-Solicitation of Employees. For a period of three (3) years following the Closing Date, Seller, Don Bybee, individually, and Kent Emry, individually, agree (a) not to own, manage, lease or operate a long term skilled nursing home facility which is located within a five (5) mile radius of any Facility and (b) not to solicit the transfer of patients or residents of any Facility to any long term care skilled nursing home facility or assisted living facility which is managed, leased or operated by any entity owned and/or controlled by any of Seller or such individual within a five (5) mile radius of any Facility.

26.         Confidentiality. The provisions of the Confidentiality Agreement attached hereto as Exhibit C and executed by the parties either prior to the date of this Agreement are hereby incorporated by this reference and the parties hereto agree to comply with the terms thereof.

27.         Exhibits and Schedules. To the extent that one or more Exhibits or Schedules are not attached to this Agreement at the time this Agreement is executed, Seller and Buyer agree that this Agreement is not rendered unenforceable by reason of such fact. Seller shall provide such exhibits to Buyer during the Due Diligence Period as promptly as possible in order to allow the parties to agree upon such Exhibits and Schedules and to afford Buyer adequate time in which to complete its due diligence review prior to the expiration of the Due Diligence Period.

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28.         Prevailing Party. Subject to the limitations as otherwise set forth in this Agreement, if an action shall be brought on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the prevailing party shall be entitled to recover from the other party, as part of the prevailing party’s costs, reasonable attorney’s fees, the amount of which shall be fixed by the court and shall be made a part of any judgment rendered.

29.         Time is of the Essence. Time is of the essence of this Agreement.

30.         Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon.

31.         Seller’s Tax Deferred Exchange. Seller may desire to effect a tax-deferred exchange with respect to its disposition of all or a portion of the Property (“Seller’s Exchange”) pursuant to Section 1031 of the Internal Revenue Code. Seller’s Exchange will be structured by Seller at its sole cost and expense and Buyer will have no obligation to acquire or enter into the chain of title to any property other than the Property. Buyer’s sole obligation in connection with Seller’s Exchange shall be to review and execute certain documentation necessary in order to effectuate Seller’s Exchange in accordance with the foregoing and the applicable rules governing such exchanges. Buyer’s cooperation with Seller’s Exchange shall not affect or diminish Buyer’s rights under this Agreement, delay the closing of this Agreement or be construed as Buyer’s warranty that Seller’s Exchange in fact complies with Section 1031 of the Internal Revenue Code. Buyer shall have the right to review and reasonably approve any documents to be executed by Buyer in connection with Seller’s Exchange. Acceptance of title to the Property from Seller’s designated intermediary shall not modify Seller’s representations, warranties and covenants to Buyer under this Agreement or the survival thereof pursuant to this Agreement. The Warranty Deed and all closing documents shall run directly between Seller and Buyer. Seller shall indemnify and hold Buyer harmless from and against any and all claims, liabilities, losses, damages, costs and expenses (including reasonable attorneys’ fees but excluding costs incurred to review the exchange documents) arising from Seller’s Exchange (other than what would have been applicable under this Agreement without Seller’s Exchange) which indemnification obligation shall survive the Close of Escrow. Seller is relying solely upon the advice and counsel of professionals of Seller’s choice in structuring, executing and consummating Seller’s Exchange.

[Signatures on Following Pages]

32

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement by parties legally entitled to do so as of the day and year first set forth above.

“SELLER”:
SHERIDAN CARE CENTER LLC, dba
SHERIDAN CARE CENTER
By:	/s/ Don Bybee
	Don Bybee, Member Manager	(date)
By:	/s/ Kent Emry
	Kent Emry, Member Manager	(date)
SHERIDAN PROPERTIES LLC
By:	/s/ Don Bybee
	Don Bybee, Member Manager	(date)
By:	/s/ Kent Embry
	Kent Emry, Member Manager	(date)
FERNHILL ESTATES LLC, dba
FERNHILL ESTATES
By:	/s/ Don Bybee
	Don Bybee, Member Manager	(date)
By:	/s/ Kent Emry
	Kent Emry, Member Manager	(date)
FERNHILL PROPERTIES LLC
By:	/s/ Don Bybee
	Don Bybee, Member Manager	(date)
By:	/s/ Kent Emry
	Kent Emry, Member Manager	(date)
PACIFIC GARDENS ESTATES LLC,
dba PACIFIC HEALTH AND REHABILITATION
By:	/s/ Don Bybee
	Don Bybee, Member Manager	(date)

33

By:	/s/ Kent Emry
	Kent Emry, Member Manager	(date)

“BUYER”:
Cornerstone Healthcare Real Estate Fund, Inc., a Maryland corporation
By:	Terry G. Roussel
Its:	Manager

34

LIST OF EXHIBITS

A.	Legal Descriptions of Real Property
B.	Permitted Exceptions
C.	Confidentiality Agreement
D.	Lease Terms

LIST OF SCHEDULES

Schedule l(a)	List of Facility, Operator(s)
Schedule 1(c)	Personal Property
Schedule 1(g)	Capital Improvements
Schedule 3	Allocation of Purchase Price
Schedule 8(a)(v)	Claims, Litigation
Schedule 8(b)	Violations
Schedule 8(d)	Hazardous Substances
Schedule 8(f)	Leases and Contracts
Schedule 8(g)	Financial Reports
Schedule 8(h)	Interests in Suppliers, etc.
Schedule 8(j)	Matters relating to Licensure
Schedule 8(k)	Matters relating to Reports and Reimbursements
Schedule 8(l)	Surveys, Cost Reports, Private Rates, Census and Licensed Beds
Schedule 8(m)	Occupied Beds; Rates
Schedule 10(a)(v)	Due Diligence Items

EXHIBIT A

LEGAL DESCRIPTION

[To be Provided by Title Company]

EXHIBIT B

PERMITTED EXCEPTIONS

[To be Determined]

EXHIBIT C

CONFIDENTIALITY AGREEMENT

[To be Supplied by Parties]

EXHIBIT D

LEASE TERMS

[To be Supplied by Parties]

SCHEDULE 1 (a)

FACILITY; LICENSED BEDS

Facility Licensed Nursing Beds

SCHEDULE 10(a)(v)

DUE DILIGENCE MATERIALS

S-1

EXHIBIT 4

After recording, return to

Grantee

c/o James E. Anderson

DLA Piper LLP

2000 University Avenue

East Palo Alto CA  94303

Until a change is requested, all tax statements shall be sent to the following address:

____________________

____________________

________________

STATUTORY WARRANTY DEED

(ORS 93.850)

______________________________, whose address is 850 Promontory Place SE, Salem, Oregon 97302, Grantor, conveys and warrants to _____________________________, whose address is _______________________________, Grantee, the following described real property situated in _______________ County, State of Oregon, free of encumbrances except as specifically set forth herein:

See Exhibit A attached hereto and made a part hereof by this reference:

The true consideration for this conveyance is $_________________.

SUBJECT TO:

1.           Proceedings by a public agency which may result in taxes or assessments or notices of such proceedings, whether or not shown by the records of such agency or by the public records.

2.          Easements, liens, encumbrances, interests, or claims thereof which are not shown by the public records; any facts, rights, interest, or claims which are not shown by the public records but which could be ascertained by an inspection of the land or by making inquiry of persons in possession thereof.

3.          Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose and which are not shown by the public records.

4.          The rights of the public in and to that portion of the herein described property lying within the limits of public roads, streets, highways, or right-of ways.

S-2

5.          Unpatented mining claims; reservations or exceptions in patents or in acts authorizing the issuance thereof; water rights, claims or title to water, whether or not shown by the public records.

BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON TRANSFERRING FEE TITLE SHOULD INQUIRE ABOUT THE PERSON’S RIGHTS, IF ANY, UNDER ORS 195.300, 195.301 AND 195.305 TO 195.336 AND SECTIONS 5 TO 11, CHAPTER 424, OREGON LAWS 2007, SECTIONS 2 TO 9 AND 17, CHAPTER 855, OREGON LAWS 2009, AND SECTIONS 2 TO 7, CHAPTER 8, OREGON LAWS 2010. THIS INSTRUMENT DOES NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY THAT THE UNIT OF LAND BEING TRANSFERRED IS A LAWFULLY ESTABLISHED LOT OR PARCEL, AS DEFINED IN ORS 92.010 OR 215.010, TO VERIFY THE APPROVED USES OF THE LOT OR PARCEL, TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST FARMING OR FOREST PRACTICES, AS DEFINED IN ORS 30.930, AND TO INQUIRE ABOUT THE RIGHTS OF NEIGHBORING PROPERTY OWNERS, IF ANY, UNDER ORS 195.300, 195.301 AND 195.305 TO 195.336 AND SECTIONS 5 TO 11, CHAPTER 424, OREGON LAWS 2007, SECTIONS 2 TO 9 AND 17, CHAPTER 855, OREGON LAWS 2009, AND SECTIONS 2 TO 7, CHAPTER 8, OREGON LAWS 2010.

DATED this ____ day of _____________________, 2012.

GRANTOR:
By:
	Don Bybee, Member Manager
By:
	Kent Emry, Member Manager

S-3

STATE OF OREGON	)
	) ss.
County of Marion	)

This instrument was acknowledged before me on the           day of                                           , 2012, by Donald Bybee as Member Manager of                                                                                       , on behalf of which this instrument was executed.

NOTARY PUBLIC FOR OREGON

My Commission Expires:

STATE OF OREGON	)
	) ss.
County of Marion	)

This instrument was acknowledged before me on the           day of                                           , 2012, by Kent Emry as Member Manager of                                                                                       , on behalf of which this instrument was executed.

NOTARY PUBLIC FOR OREGON

My Commission Expires:

S-4

EX-10.2

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made and entered into as of this 25^th day of May, 2012 (the “Effective Date”), by and among MONTEREY VILLAGE, an Oregon limited partnership (“Seller”), and CORNERSTONE HEALTHCARE REAL ESTATE FUND, INC., a Maryland corporation, or its permitted assignee (“Buyer”).

1.          Purchase and Sale. On the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall purchase from Seller its interest in the following, which are hereinafter referred to collectively as the “Property”:

(a)          One (1) memory care facility as described in Schedule 1(a) attached hereto (“Facility”), owned by Seller, and all right, title and interest of Seller in and to the items described in (a) through (f) herein;

(b)          All of the real estate on which the Facility is situated, together with all tenements, easements, appurtenances, privileges, rights of way, and other rights incident thereto, all building and improvements and any parking lot located thereon situated in the State of Oregon (the “State”), which is described in Exhibit A attached hereto and made a part hereof by this reference (collectively, the “Real Property”);

(c)          All of the tangible personal property, inventory, equipment, machinery, supplies including drugs and other supplies, spare parts, furniture, furnishings, warranty claims, contracts, including but not limited to supply contracts, contracts rights, and intellectual property (except for trademarks and service marks of Seller or a related entity using the names “Farmington Square Medford” and “Memory Care Facility”), including but not limited to patents, trade secrets, and all rights and title to the names under which the Facility operate, mailing lists, customer lists, vendor lists, resident files, books and records owned by the Seller, who may retain copies of same, and shall have reasonable access to such books and records after the Closing as required for paying taxes and responding to legal inquiry, as such personal property is described in Schedule 1(c) attached hereto (collectively, the “Personal Property”);

(d)          All transferable licenses, permits, certifications, assignable guaranties and warranties in favor of Seller, approvals or authorizations and all assignable intangible property not enumerated herein which is used by the Seller in connection with the Facility, and all other assets whether tangible or intangible;

(e)          All trade names or other names commonly used to identify the Facility and all goodwill associated therewith, excluding any name containing “Farmington Square Medford,” “Memory Care Facility,” or “Monterey Village” which shall remain the sole property of Seller. The intent of the parties is to transfer to Buyer only such names and goodwill associated with the Facility itself and not with Seller or any affiliate of Seller, so as to avoid any interference with the unrelated business activities of Seller; and

(f)          All telephone numbers used in connection with the operation of the Facility, and to the extent not described above, all goodwill of Seller associated with the Facility (the items described in clauses (e) and (f) above are collectively referred to as “Intangibles”).

2.          Excluded Assets. The following assets are excluded from the Property sold by Seller to Buyer hereunder (the “Excluded Assets”): Seller’s cash, investment securities, bank account(s) and accounts receivable, and deposits attributable and relating to the operation of Seller’s Facility (but not resident trust accounts and prepaid rent under resident agreements); equipment currently leased by Seller or Operator and listed on Schedule 2 attached hereto (even if used in the operation of the Facility); Seller’s corporate minute books and corporate tax returns, partnership records, and other corporate and partnership records; and Seller’s real property not identified in Schedule 1(a); Seller’s management agreement with Radiant Senior Living, Inc. (the “Operator”); and all licenses used by Seller to operate the Facility and to receive payments from Payors (defined in Section 8(k) below).

3.          Purchase Price; Deposits. The following shall apply with respect to the Purchase Price of the Property:

(a)          The purchase price (the “Purchase Price”) payable by Buyer to Seller for the Property is Eight Million Five Hundred Thousands Dollars ($8,500,000) in cash, which shall be allocated for tax purposes among the assets that comprise the Property as set forth on Schedule 3 to this Agreement.

(b)          Buyer has deposited the sum of Twenty Five Thousand Dollars ($25,000) as an earnest money deposit (“Initial Deposit”) with Lawyers Title Company, 4100 Newport Place Drive, Suite 120, Newport Beach, California 92660, Attention: Debi Calmelat (“Title Company” or “Escrow Agent”) and Escrow Agent has deposited it into an interest-bearing account with the interest for the benefit of Buyer. Within two (2) business days after this Agreement is fully executed by the parties, Buyer shall deposit an additional sum of Twenty Five Thousand Dollars ($25,000) as a second deposit (“Second Deposit”) with Escrow Agent and Escrow Agent will deposit it into an interest-bearing account along with the Initial Deposit with the interest for the benefit of Buyer. In addition, if Buyer has not terminated this Agreement on or before the expiration of the Due Diligence Period (defined below), then (i) Buyer shall deposit with Escrow Agent an additional Fifty Thousand Dollars ($50,000) (“Additional Deposit”) within three (3) business days following the expiration of the Due Diligence Period, and (ii) the Initial Deposit, the Second Deposit and the Additional Deposit shall be nonrefundable except as otherwise provided in Section 13(b)(i). The Initial Deposit, the Second Deposit, the Additional Deposit and (if applicable) the Extension Deposit (or applicable portion thereof), as defined below, are collectively referred to as the “Deposit”. Interest earned on the Deposit shall be paid to the party entitled to such amount as provided in this Agreement.

(c)          At Closing, the Deposit shall be credited against the Purchase Price and Buyer shall deposit the balance of the Purchase Price in Cash to the Escrow Agent.

(d)          Buyer shall not assume or pay, and Seller shall continue to be responsible for, any and all debts, obligations and liabilities of any kind or nature, fixed or contingent, known or unknown, of Seller not expressly assumed by Buyer in this Agreement. Specifically, without limiting the foregoing, Buyer shall not assume any obligation, liability, cost, expense, claim, action, suit or proceeding pending as of the Closing, nor shall Buyer assume or be responsible for any subsequent claim, action, suit or proceeding arising out of or relating to any such other event occurring, with respect to the manner in which Seller conducted its business at the Facility, on or prior to the date of the Closing Date. In addition, Buyer shall not assume successor liability obligations to Medicare, Medicaid, HMO or any other third party payer programs or be responsible for recoupments, fines, or penalties required to be paid to such parties as a result of the operation of the Facility prior to the Closing Date by Seller or the Operator.

2

4.          Closing. The closing of the purchase and sale transactions pursuant to this Agreement (“Closing”) shall occur on or before the later of (a) July 31, 2012, or (b) thirty (30) days following the expiration of the Due Diligence Period (“Closing Date”); provided, Buyer may unilaterally extend the Closing Date for thirty (30) days by making a non-refundable payment (subject to the provisions of Section 13(b)(ii) herein) to Escrow Agent, of One Hundred Thousand Dollars ($100,000) (“Extension Deposit”). The Extension Deposit shall be applicable to the Purchase Price or, if this transaction does not close on or before the Closing Date, as extended, then the Extension Deposit shall be applied as dictated by the terms of this Agreement regarding the Deposit. The Closing shall take place through Seller’s delivery of a warranty deed and Buyer’s delivery of cash or immediately available funds through an escrow agreement (the “Escrow”) to be established with the Escrow Agent pursuant to form escrow instructions which shall be modified to be consistent with the terms and provisions of this Agreement, and which shall be mutually agreed upon by the parties hereto.

5.          Conveyance. Title to the Facility shall be conveyed to Buyer by a warranty deed and bill of sale in form agreed to by the parties prior to the end of the Due Diligence Period, as defined herein. Fee simple indefeasible title to the Real Property, and marketable title to the Personal Property, shall be conveyed from Seller to Buyer or Buyer’s permitted assignee in “AS-IS, WHERE-IS” condition, free and clear of all liens, charges, easements and encumbrances of any kind, other than:

(a)          Liens for real estate taxes or assessments not yet due and payable;

(b)          The standard printed exceptions included in the Title Commitment, as defined in Section 14(a) herein; unless objected to in writing by Buyer during the Due Diligence Period;

(c)          Such exceptions that appear in the PTR (as defined in Section 14(a)) and that are either waived or approved by Buyer pursuant to Section 14(b) herein;

(d)          Liens or encumbrances caused by the actions of Buyer but not those caused by the actions of Seller; and

(e)          Those matters identified as permitted exceptions on the attached Exhibit B.

The items described in this Section 5 are sometimes collectively referred to as the “Permitted Exceptions.”

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6.          Buyer’s Due Diligence.

(a)          Subject to extension as provided below in this Section 6, Buyer shall have ninety (90) days from the Effective Date to complete Buyers Due Diligence (the “Due Diligence Period”), and, subject to the requirements of Section 6(c), Seller shall permit the officers, employees, directors, agents, consultants, attorneys, accountants, lenders, appraisers, architects, investors and engineers designated by Buyer and representatives of Buyer (collectively, the “Buyer’s Consultants”) access to, and entry upon the Real Property and the Facility to perform its normal and customary due diligence, including, without limitation, the following (collectively, the “Due Diligence Items”):

(i)          Review of vendor contracts (“Contracts”) and leases (“Leases”) to which the Facility (or the Seller, on behalf of the Facility) are a party, as set forth on Schedule 8(f) attached hereto;

(ii)         Conduct environmental investigations (including a Phase 1 Environmental Audit);

(iii)        Inspection of the physical structure of the Facility;

(iv)        Review of current Title Commitment, as defined in Section 14 herein, and underlying documents referenced therein;

(v)         Review of Surveys, as defined in Section 14 herein, for the Facility;

(vi)        Inspection of the books and records of the Facility and that portion of the Seller’s books and records which pertain to the Facility;

(vii)       Review of the items described in Schedule 6(a)(vii) attached hereto, which are in Seller’s possession or control, to be provided by Seller within ten (10) business days following the Effective Date;

(viii)      Conduct such other inspections or investigations as Buyer may reasonably require relating to the ownership, operation or maintenance of the Facility;

(ix)         Review of resident files, agreements, and any other documentation regarding the residents of the Facility, which review shall in all events be subject to all applicable laws, rules and regulations concerning the review of medical records and other types of patient records; and

(x)          Review of files maintained by the State relating to the Facility; and

(xi)         Review of all drawings, plans and specifications and all engineering reports for the Facility in the possession of, or readily available to, Seller; and

(xii)        Review of all environmental reports, property condition reports, appraisals, title reports and ALTA Surveys (or surveys) that Seller currently has in its possession.

(xiii)       Review copies of currently effective written employment manuals or written employment policies and/or procedures have been provided to or for employees.

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Notwithstanding the foregoing provisions of this Subsection, in the event Seller fails to deliver all Due Diligence Items listed in Schedule 6(a)(vii) that are in Seller’s possession or control on or before the time set forth in Subsection (a)(vii) above, then Buyer give Seller written notice of such failure and the Due Diligence Period shall be deemed extended on a day-to-day basis until Seller completes such delivery of the Due Diligence Items to Buyer; provided, however, that in no event shall the Due Diligence Period be extended beyond the one hundred twentieth (120^th) day after the Effective Date).

(b)          Buyer agrees and acknowledges that: (i) Buyer will not disclose the Due Diligence Items or any other materials received from Seller pursuant to this Agreement (the “Property Information”) or any of the provisions, terms or conditions thereof, or any information disclosed therein or thereby, to any party outside of Buyer’s organization, other than Buyer’s Consultants; (ii) the Property Information is delivered to Buyer solely as an accommodation to Buyer; (iii) Seller has not undertaken any independent investigation as to the truth, accuracy or completeness of any matters set out in or disclosed by the Property Information; and (iv) except as expressly contained in this Agreement, Seller has not made and does not make any warranties or representations of any kind or nature regarding the truth, accuracy or completeness of the information set out in or disclosed by the Property Information. The Property Information is “Confidential Information” as the term is defined in the Confidentiality Agreement referenced in Section 25 of this Agreement and shall be protected and, if the transaction contemplated by this Agreement does not close for any reason, all documents containing Property Information shall be returned to Seller or destroyed in accordance with its terms.

(c)          All due diligence activities of Buyer at the Facility shall be scheduled with Seller upon two (2) business days prior notice. Reviews, inspections and investigations at the Facility shall be conducted by Buyer in such manner so as not to disrupt the operation of the Facility.

(d)          Buyer may, at its sole cost, obtain third party engineering and physical condition reports and Phase I Environmental Audits covering the Facility, certified to Buyer, prepared by an engineering and/or environmental consultants acceptable to Buyer; provided, no inspection by Buyer’s Consultants shall involve the taking of samples or other physically invasive procedures (such as a Phase II environmental audit) without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained in this Agreement, Buyer shall indemnify, defend (with counsel acceptable to Seller) and hold Seller and its employees and agents, and each of them, harmless from and against any and all losses, claims, damages and liabilities, without limitation, attorneys’ fees incurred in connection therewith) arising out of or resulting from Buyer’ or Buyer’s Consultant’s exercise of its right of inspection as provided for in this Section 6; provided, however, such indemnification shall not extend to matters merely discovered by Buyer and/ or the acts or omissions of Seller or any third party. The indemnification obligation of Buyer under this Section 6 shall survive the termination of this Agreement for a period of two (2) years. Following any audit or inspection as provided for herein, Buyer shall immediately and without demand return the Real Property and Facility to the condition in which they existed immediately prior to such audit or inspection so as not to interfere with the operation of the Facility.

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(e)          If the results of the foregoing inspections and audits are not acceptable to Buyer in its sole and absolute discretion, Buyer may, upon notice to Seller given on or before 5:00 p.m. (Pacific Time) on the last day of the Due Diligence Period, terminate this Agreement, and in such event, neither party shall have any further rights and obligations under this Agreement, except for obligations which expressly survive the termination of this Agreement. Failure of Buyer to deliver written notice of approval prior to 5:00 p.m. (Pacific Time) on the last day of the Due Diligence Period shall be deemed to constitute Buyer’s disapproval of the matters described in this Section 6(a). If this Agreement shall be terminated prior to Closing for any reason, upon Seller’s request, Buyer shall promptly return or destroy all copies of the Due Diligence Items, all electronic copies of all Due Diligence Items and all summaries and notes prepared by referencing any Due Diligence Items.

7.          Prorations; Closing Costs; Possession.

(a)          There will be no prorations at the Closing since RSL Medford, LLC, an Oregon limited liability company (“RSL Medford”), an affiliate of Seller, shall remain responsible for all taxes, costs and expenses relating to the Facility following the Closing pursuant to that certain lease agreement between Buyer, as landlord, and RSL Medford, as tenant, in the form attached hereto as Exhibit D (the “Post-Closing Lease”). Seller and RSL Medford will be allowed to enter into a separate agreement relating to proration of taxes, costs and expenses relating to the Facility since RSL Medford will be responsible for all such costs after the Closing in accordance with the Post-Closing Lease.

(b)          Seller shall pay any state, county and local transfer taxes arising out of the transfer of the Real Property.

(c)          Seller shall pay the cost of the standard owner’s title insurance policy, as described in this Agreement (excluding any survey exception or deletion of standard exceptions to coverage). Buyer shall pay the cost of any lender’s policy for Buyer’s lender, extended coverage on said owner’s policy, any title endorsements requested by Buyer and its lender, and the cost of updating or obtaining new Surveys. Seller and Buyer shall each pay 50% of all fees of Escrow Agent. All other costs associated with title and survey matters shall be paid in accordance with Jackson County, Oregon custom and practice.

(d)          Buyer and Seller shall each pay their own attorney’s fees. Buyer shall pay for all costs of review of the Due Diligence Items and all of its due diligence inspection costs including, without limitation, the cost of any environmental reports.

(e)          On the Closing Date, RSL Medford shall obtain possession of the Facility pursuant to the Post-Closing Lease.

(f)          Buyer shall bear all costs of financing its acquisition of the Real Property, including, without limitation, all repairs to the Facility or reserves for repairs to the Facility required by Buyer’s lender or the United States Department of Housing and Urban Development (“HUD”); provided, however, that if capital expenditure to repair the Real Property are required by Buyer’s lender or HUD as a condition of Buyer’s acquisition financing, then Seller shall reimburse Buyer the cost of such capital expenditure to a maximum amount of $40,000.

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8.          Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer that:

(a)          Legality.

(i)          Organization, Corporate Powers, Etc. Seller is duly organized, validly existing and in good standing under the laws of the State of Oregon. Seller has full power, authority and legal right (A) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document, as defined herein, to which it is a party, (B) to transfer good, indefeasible title to the Property to Buyer free and clear of all liens, claims and encumbrances except for Permitted Exceptions (as defined in Section 5 hereof), and (C) to carry out the transactions contemplated hereby and by such other instruments to be carried out by such party.

(ii)         Due Authorization, Etc. This Agreement and the Closing Documents (collectively the “Transaction Documents”) have been, and each instrument provided for herein or therein to which Seller is a party will be, when executed and delivered as contemplated hereby authorized, executed and delivered by Seller and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of Seller and enforceable in accordance with their terms.

(iii)        Governmental Approvals. To the best of Seller’s knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Seller is a party or for the validity or enforceability thereof against such party other than the recording or filing for recordation of the Oregon form of full warranty deed (the “Deed”) which recordings shall be accomplished at Closing.

(iv)        Other Rights. No right of first refusal, option or preferential purchase or other similar rights are held by any person with respect to any portion of the Property.

(v)         No Litigation. Except as set forth on Schedule 8(a)(v) attached hereto, neither Seller nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Seller’s actual knowledge, no such actions or proceedings are threatened, against Seller before or by any court, arbitrator, administrative agency or other governmental authority, which (A) individually or in the aggregate, are expected, in the reasonable judgment of Seller, to materially and adversely affect Seller’s ability to carry out any of the transactions contemplated by any of the Transaction Documents or (B) otherwise involve any portion of the Property including, without limitation, the Facility.

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(vi)        No Conflicts. Neither the execution and delivery of the Transaction Documents to which Seller is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (A) a breach or violation of (1) any material law or governmental rule or regulation applicable to Seller now in effect, (2) any provision of any of Seller’s organizational documents, (3) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Seller, or (4) any material agreement or instrument to which Seller is a party or by which Seller or its respective properties are bound; (B) the acceleration of any obligations of Seller; or (C) the creation of any lien, claim or encumbrance upon any properties or assets of Seller.

(b)          Property.

As of the Effective Date and the Closing Date, except as set forth on Schedule 8(b):

(i)          Seller has no actual knowledge of, and has not received any notice of, outstanding deficiencies or work orders of any authority having jurisdiction over any portion of the Property;

(ii)         Seller has no actual knowledge of, and has not received any notice of, any claim, requirement or demand of any licensing or certifying agency supervising or having authority over the Facility to rework or redesign it in any material respect or to provide additional furniture, fixtures, equipment or inventory so as to conform to or comply with any law which has not been fully satisfied;

(iii)        Seller has not received any notice from any governmental authority of any material violation of any law applicable to any portion of the Real Property or to the Facility;

(c)          Condemnation. There is no pending or, to the actual knowledge of Seller, threatened condemnation or similar proceeding or assessment affecting the Real Property, nor, to the actual knowledge of Seller, is any such proceeding or assessment contemplated by any governmental authority.

(d)          Hazardous Substances. Other than the generation, handling and disposal of medical or biohazardous waste in the ordinary course of the operation of the Facility and in accordance with all Laws, and except as disclosed on Schedule 8(d), to Seller’s actual knowledge, there has been no production, storage, manufacture, voluntary or involuntary transmission, use, generation, treatment, handling, transport, release, dumping, discharge, spillage, leakage or disposal at, on, in, under or about the Real Property of any Hazardous Substances by Seller, or any affiliate or agent thereof, except in strict compliance with all applicable Laws. To Seller’s actual knowledge there are no Hazardous Substances at, on, in, under or about the Real Property in violation of any Law, and to Seller’s actual knowledge, there is no proceeding or inquiry by any federal, state or local governmental agency with respect thereto. For purposes of this Agreement, “Hazardous Substances” shall mean any hazardous or toxic substances, materials or wastes, including, without limitation, those substances, materials and wastes listed in the United States Department of Transportation Table (49 CFR 172.1 01) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302 and amendments thereto) or such substances, materials and wastes which are or become regulated under any applicable local, state or federal law (collectively, “Laws”), including, without limitation, any material, waste or substance which is (i) a hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. § 6901 et seq.); (ii) a pollutant or contaminant or hazardous substance as defined in the Comprehensive Environmental Response. Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); (iii) a hazardous substance pursuant to § 311 of the Clean Water Act (33 U.S.C. § 1251, et seq., 33 U.S.C. § 1321) or otherwise listed pursuant to § 307 of the Clean Water Act (33 U.S.C. § 1317); (iv) a hazardous waste pursuant to § 1004 of the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.); (v) polychlorinated biphenyls (PCBs) as defined in the Federal Toxic Substance Control Act, as amended (15 U.S.C. § 2501 et seq.); (vi) hydrocarbons, petroleum and petroleum products; (vii) asbestos; (viii) formaldehyde or medical or biohazardous waste; (ix) radioactive substances; (x) flammables and explosives; (xi) any state statutory counterparts to those federal statutes listed herein; or (vii) any other substance, waste or material which, to Seller’s actual knowledge, could presently or at any time in the future require remediation at the behest of any governmental agency. Any reference in this definition to Laws shall include all rules and regulations which have been promulgated with respect to such Laws.

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(e)          Brokers. Each party represents and warrants to the other party that it has not dealt with any other broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby. Each party agrees to indemnify, protect, defend, protect and hold the other party harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from such indemnifying party’s breach of the foregoing representation. The provisions of this Section 8(e) shall survive the Closing or earlier termination of this Agreement for a period of twelve (12) months.

(f)          Leases and Contracts. Schedule 8(f) is a list of all Leases and Contracts relating to the Facility to which Seller is a party or by which Seller may be bound. Seller has made or will promptly make available to Buyer true, complete and accurate copies of all Leases and Contracts including, without limitation, any modifications thereto. All of the Leases and Contracts are in full force and effect without claim of material default there under, and, except as may be set forth on Schedule 8(f).

(g)          Financial Statements. Schedule 8(g) contains (i) the balance sheets for the Facility for the last three (3) fiscal years ending prior to the date of this Agreement (audited if available and unaudited to the extent audited statements are not available) and the unaudited balance sheets for each of the past three (3) fiscal quarters completed prior to the date of this Agreement and (ii) the related consolidated statements of income, results of operations, changes in members’ equity and changes in financial position with respect to each such period as compared with the immediately prior period (collectively, the “Financial Statements”). To Seller’s actual knowledge, the Financial Statements taken as a whole (A) fairly present the financial condition and results of operation of the Facility for the periods indicated, (B) are true, accurate, correct and complete in all material respects, and (C) except as stated in Schedule 8(g) (or in the notes to the Financial Statements) have been prepared in accordance with the Seller’s modified tax basis reporting, as consistently applied. Except as disclosed in Schedule 8(g), or otherwise disclosed in writing to Buyer, to Seller’s actual knowledge neither Seller, as to the Facility, nor the Facility is obligated for or subject to any material liabilities, contingent or absolute, and whether or not such liabilities would be disclosed in accordance with tax basis reporting, and Schedule 8(g) sets forth all notes payable, other long term indebtedness and, to Seller’s actual knowledge, all other liabilities to which the Facility and the Real Property are or at Closing (and following Closing) will be subject, other than new indebtedness obtained by Buyer in connection with its purchase of the Property. Seller has received no notice of default under any such instrument.

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(h)          Interests in Competitors, Suppliers and Customers. Other than the Operator entities and the owners and operators of the Barnett Woods facility in Medford, Oregon and the Pioneer Village facility in Jacksonville, Oregon, and except as set forth on Schedule 8(h), or in Schedule 1(a) as constituting a part of the Facility, neither Seller nor any of its general partners has any interest in any property used in the operation of, or holds an interest in, any competitor, supplier or customer of Seller or the Facility.

(i)          No Foreign Persons. Neither Seller nor its general partners or limited partners are foreign persons within the meaning of Sections 897 or 1445 of the Code, nor is Seller a U.S. Real Property Holding Company within the meaning of Section 897 of the Code.

(j)          Licensure. As of the date hereof, except as set forth on Schedule 8(j) attached hereto, there is no action pending or, to the actual knowledge of Seller, recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate the Facility, or certification of the Facility, or any material action of any other type with regard to licensure or certification. The Facility is operating and functioning as a memory care facility without any waivers from a governmental agency affecting the Facility except as set forth in Schedule 8(j), and is fully licensed for a memory care facility, as applicable, by the State for the number of beds and licensure category set forth in Schedule 1(a) hereto. Schedule 8(j) attached hereto contains a complete and accurate list of all life safety code waivers or other waivers affecting the Facility.

(k)          Regulatory Compliance.

(i)          Seller or the Operator has duly and timely filed all reports and other items required to be filed (collectively, the “Reports”) with respect to the Facility in connection with any cost based or other form of reimbursement program or any other third party payor (including without limitation, Medicare, Medicaid, medically indigent assistance, Blue Cross, Blue Shield, any health maintenance, preferred provider, independent practice or other healthcare related organizations, peer review organizations, or other healthcare providers or payors) (collectively, “Payors”) and have timely paid all amounts shown to be due thereon. At the time of filing, to Seller’s actual knowledge, each Report was true, accurate and complete. To Seller’s actual knowledge, all rights and obligations of the Facility or Seller under such Reports are accurately reflected or provided for in the Financial Statements.

(ii)         Except as set forth in Schedule 8(k) attached hereto, (A) neither Seller nor, to Seller’s actual knowledge, the Operator is delinquent in the payment of any amount due under any of the Reports for the Facility, (B) there are no written or threatened proposals by any Payors for collection of amounts for which Seller or the Facility could be liable, (D) there are no current or pending claims, assessments, notice, proposal to assess or audits of Seller or Operator or the Facility with respect to any of the Reports, and, to Seller’s actual knowledge, no such claims, assessments, notices, or proposals to assess or audit are threatened, and (D) neither Seller nor Operator has executed any presently effective waiver or extension of the statute of limitations for the collection or assessment of any amount due under or in connection with any of the Reports with respect to the Facility.

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(iii)        Except as set forth in Schedule 8(k) attached hereto, neither Seller nor the Operator has received notice of failure to comply with all applicable Laws, settlement agreements, and other agreements with any state or federal governmental body relating to or regarding the Facility (including all applicable environmental, health and safety requirements), and Seller or the Operator has and maintains all permits, licenses, authorizations, registrations, approvals and consents of governmental authorities and all health facility licenses, accreditations, Medicaid, Medicare and other Payor certifications necessary for its activities and business including the operation of the Facility as currently conducted. Each health facility license, Medicaid and Medicare and other Payor certifications, Medicaid provider agreement and other agreements with any Payors is in full force and effect without any waivers of any kind (except as disclosed in Schedule 8(k)) and has not been amended or otherwise modified, rescinded or revoked or assigned nor, to Seller’s actual knowledge, (A) is there any threatened termination, modification, recession, revocation or assignment thereof, (B) no condition exists nor has any event occurred which, in itself or with the giving of notice, lapse of time or both would result in the suspension, revocation, termination, impairment, forfeiture, or non-renewal of any governmental consent applicable to Seller or to the Facility or of any participation or eligibility to participate in any Medicare, Medicaid, or other Payor program and (C) there is no claim that any such governmental consent, participation or contract is not in full force and effect.

(l)          Regulatory Surveys. Seller shall deliver to Buyer, in the manner required pursuant to the terms of this Agreement, complete and accurate copies of the survey or inspection reports made by any governmental authority with respect to the Facility during the calendar years 2009, 2010, 2011 and year-to-date 2012. To the Seller’s actual knowledge and except as shown on Schedule 8(l), all exceptions, deficiencies, violations, plans of correction or other indications of lack of compliance in such reports have been fully corrected and there are no bans or limitations in effect, pending or threatened with respect to admissions to the Facility nor any licensure curtailments in effect, pending or threatened with respect to the Facility. Seller shall continue to deliver all such surveys, inspection reports as and when same are received and/or filed as the case may be prior to the Closing.

(m)          Licensed Bed/Current Rate Schedule. As of the Effective Date, Schedule 8(m) sets forth (i) the number of licensed beds and the number of operating beds in the Facility, (ii) the current standard private rates charged by the Facility to all of its residents, and (iii) the number of beds or units presently occupied in, and the occupancy percentage at, the Facility, including the current rates charged by the Facility for each such occupied bed or unit. Neither Seller nor any Operator has any life care arrangement in effect with any current or future resident of the Facility.

(n)          Operations. The Facility is reasonably and adequately equipped and the Facility includes sufficient and adequate numbers of furniture, furnishings, equipment, consumable inventory, and supplies to operate such Facility as each is presently operated by Seller. Personal Property to be conveyed to Buyer pursuant to this Agreement is free and clear of liens, security interests, encumbrances, leases and restrictions of every kind and description, except for Permitted Encumbrances and any liens, security interests and encumbrances to be released at Closing.

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(o)          No Misstatements, Etc. To Seller’s actual knowledge, neither the representations and warranties of Seller stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor the Due Diligence Items or any certificate or instrument furnished or to be furnished to Buyer by Seller in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

(p)          Supplementation of Schedules; Change in Representations and Warranties. Seller shall have the continuing right and obligation to supplement and amend the Schedules herein on a regular basis including, without limitation, Schedule 8(g), and Seller’s warranties and representations required hereunder, as necessary or appropriate (i) in order to make any representation or warranty not misleading due to events, circumstances or the passage of time or (ii) with respect to any matter hereafter arising or discovered up to and including the Closing Date, but Buyer shall not be deemed to have approved such supplemental Schedules unless Buyer expressly acknowledges approval of same in writing. In the event Seller amends any such Schedules, or Buyer or Seller gains actual knowledge prior to the Closing that any representation or warranty made by the other party contained in this Section 8 is otherwise untrue or inaccurate, such party shall, within five (5) days after gaining such actual knowledge but in any event prior to the Closing, provide the other party with written notice of such inaccuracy, whereupon the noticed party shall promptly commence, and use its best efforts to prosecute to completion, the cure of such matter, to the extent any such matter is curable. If any such matter is not curable within reason and is material, in Buyer’s reasonable business judgment, Buyer shall have the right to terminate this Agreement upon written notice to Seller within five (5) business days of receipt or delivery of such notice, as applicable, on the same basis as set forth in Section 13(a) if during the Due Diligence Period and in Section 13(b)(i)(i) herein if after expiration of the Due Diligence Period.

(q)          Survival of Representations and Warranties; Updates. The representations and warranties of Seller in this Agreement shall not be merged with the Deed at the Closing and shall survive the Closing for the period of two (2) years; provided, Seller understands and agrees that the Post-Closing Lease shall provide for a lengthier period of survival with respect to certain matters referenced therein.

For purposes of this Agreement, the phrase “to Seller’s actual knowledge,” “actual knowledge of Seller,” or words of similar import shall mean the current, actual knowledge, without inquiry, of Jeffrey L. Chamberlain, manager of Excelsior Development Company, LLC, general partner of the entity comprising Seller.

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9.          Representations and Warranties of Buyer. Buyer hereby warrants and represents to Seller that:

(a)          Organization, Corporate Powers, Etc. Buyer is a limited liability company, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing in each other state or jurisdiction in which the nature of its business requires the same except where a failure to be so qualified does not have a material adverse effect on the business, properties, condition (financial or otherwise) or operations of that person. Buyer has full power, authority and legal right (i) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document to which it is a party, and (ii) to carry out the transactions contemplated hereby and by such other instruments to be carried out by Buyer pursuant to the Transaction Documents.

(b)          Due Authorization, Etc. The Transaction Documents have been, and each instrument provided for herein or therein to which Buyer is a party will be, when executed and delivered as contemplated hereby, duly authorized, executed and delivered by Buyer and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of the Buyer enforceable in accordance with their terms.

(c)          Governmental Approvals. To Buyer’s actual knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Buyer is a party or for the validity or enforceability thereof against such party.

(d)          No Litigation. Except as set forth on Schedule 8(a)(v) attached hereto, neither Buyer nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Buyer’s actual knowledge, no such actions or proceedings are threatened, against Buyer before or by any court, arbitrator, administrative agency or other governmental authority, which individually or in the aggregate, are expected, in the reasonable judgment of Buyer, to materially and adversely affect Buyer’s ability to carry out any of the transactions contemplated by any of the Transaction Documents.

(e)          No Conflicts. Neither the execution and delivery of the Transaction Documents to which Buyer is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (i) a breach or violation of (A) any material law or governmental rule or regulation applicable to Buyer now in effect, (B) any provision of any Buyer’s organizational documents, (C) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Buyer, or (D) any material agreement or instrument to which Buyer is a party or by which Buyer or its respective properties are bound; (ii) the acceleration of any obligations of Buyer; or (iii) the creation of any lien, claim or encumbrance upon any properties or assets of Buyer.

(f)          No Misstatements, Etc. To Buyer’s actual knowledge, neither the representations and warranties of Buyer stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor any certificate or instrument furnished or to be furnished to Seller by Buyer in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

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(g)          Survival of Representations and Warranties; Updates. The representations and warranties of Buyer in this Agreement shall not be merged with the Deed at the Closing and shall survive the Closing for the period of two (2) years.

For purposes of this Agreement, the phrase “to Buyer’s actual knowledge,” “actual knowledge of Buyer,” or words of similar import shall mean the current, actual knowledge, without inquiry, of Kent Eikanas.

10.         Covenants of Seller. Seller covenants with respect to the Facility as follows:

(a)          Pre-Closing. Between the date of this Agreement and the Closing Date, except as contemplated by this Agreement or with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

(i)          Seller shall use commercially-reasonable efforts to cause the Operator to operate the Facility diligently, in accordance with the Operator’s obligations under its lease or other arrangement with Seller, and only in the ordinary course of business.

(ii)         Seller shall use commercially-reasonable efforts to prevent the Operator from making any material change in the operation of the Facility, and shall prevent the Operator from selling or agreeing to sell any items of machinery, equipment or other assets of the Facility, or otherwise entering into any agreement affecting the Facility, except in the ordinary course of business;

(iii)        Seller shall use its commercially-reasonable efforts to prevent the Operator from entering into any Lease or Contract or commitment affecting the Facility, except for Leases or Contracts entered into in the ordinary course of business;

(iv)        During normal business hours, and subject to the requirements of Section 6(c) herein, Seller shall provide Buyer and Buyer’s Consultants with access to the Facility upon prior notification and coordination with Seller and the Operator; provided, Buyer shall not materially interfere with the operation of the Facility. At such times Seller and the Operator shall permit Buyer to inspect the books and records of the Facility;

(v)         Within five (5) business days following the execution of this Agreement by the parties, Seller shall deliver to Buyer the due diligence items described on the Due Diligence List attached hereto as Schedule 6(a)(vii) (the “Due Diligence Items”); provided, in the event certain Due Diligence Items (“Unavailable Items”) are not readily accessible to Seller, Seller may identify the Unavailable Items by written notice to Buyer within such five (5) business day period and shall use commercially-reasonable efforts to deliver all Unavailable Items to Buyer as promptly as possible, but in no event more than ten (10) business days following the execution of this Agreement. If Buyer requests additional items not included on Schedule 6(a)(vii), it will do so by written request delivered by Seller and Seller will use its best efforts to provide such information within five (5) business days within receipt of the request; and, provided further, Seller shall continue to cause Operator to deliver to Buyer, following the expiration of the Due Diligence Period, financial reports showing, among other things, the EBITDAR (defined below) for the Facility for the trailing twelve (12) month annualized operations for the period ending April 30, 2012. The term “EBITDAR” means “earnings before interest, taxes, depreciation, amortization and rent and reserves (reserves meaning additions to capital reserves).”

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(vi)        Seller shall use its best efforts to prevent the Operator from moving residents from the Facility, except (a) to any other Facility which is owned by Seller and constitutes part of the Property as defined herein, (b) for health treatment purposes or otherwise at the request of the resident, family member or other guardian or (c) upon court order or the request of any governmental authority having jurisdiction over the Facility;

(vii)       Seller shall use commercially-reasonable efforts to cause the Operator to retain the services and goodwill of the employees of the Operator until the Closing;

(viii)      Seller shall maintain in force, or shall cause the Operator to maintain in force, the existing hazard and liability insurance policies, or comparable coverage, for the Facility as are in effect as of the date of this Agreement;

(ix)         Seller shall, and shall cause the Operator, to file all returns, reports and filings of any kind or nature, including but not limited to, cost reports referred to in this Agreement, required to be filed by Seller or the Operator on a timely basis and shall timely pay all taxes or other obligations and liabilities or recoupments which are due and payable with respect to the Facility in the ordinary course of business with respect to the periods Seller or Operator operated the Facility;

(x)          Seller shall cause the Operator (a) to maintain all required operating licenses in good standing, (b) to operate the Facility in accordance with its current business practices and (c) to promptly notify Buyer in writing of any notices of material violations or investigations received from any applicable governmental authority;

(xi)         Seller shall use commercially-reasonable efforts to cause the Operator to make all customary repairs, maintenance and replacements required to maintain the Facility in substantially the same condition as on the date of Buyer’s inspection thereof, ordinary wear and tear excepted;

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(xii)        Seller shall promptly notify Buyer in writing of any Material Adverse Change, as defined herein, of which Seller becomes aware in the condition or prospects of the Facility including, without limitation, sending Buyer copies of all surveys and inspection reports of all governmental agencies received after the date hereof and prior to Closing, promptly following receipt thereof by the Operator. For purposes of this Agreement, a “Material Adverse Change” shall mean: (i) a decrease in the adjusted rolling twelve (12) month annualized EBITDAR to less than Eight Hundred Fifty-Eight Thousand Dollars ($858,000) or (ii) loss of licensure, or (iii) loss of Medicaid or Medicare participation, or (iv) any adverse action by a governmental agency which, with the passage of time, would reasonably be expected to materially affect in a negative manner licensure at the Facility, or any adverse action in the Facility which would reasonably be expected to materially affect in a negative manner such Facility’s participation or eligibility to participate in any Medicare, Medicaid, or other Payor program, unless appropriate corrective action has been taken by the Operator, in the ordinary course of business, or (v) failure to settle with the appropriate governmental authority, or to satisfy on or before the Closing (either directly with such governmental authority or by funds escrowed by Seller for such purposes) all claims for reimbursements, recoupments, taxes, fines or penalties which may be due to any governmental authority having jurisdiction over the Facility, or (vi) the occurrence of a title or survey defect occurring after the date of this Agreement which would reasonably be expected to adversely affect the ability of Buyer to operate the memory care facility at the Facility or to obtain financing to acquire the Property from Seller, or (vii) the commencement of any third party litigation which interferes with Seller’s ability to close the transactions contemplated by this Agreement, or (viii) any damage, destruction or condemnation affecting the Facility in which the estimate of damage exceeds $100,000 per Facility and such damage or destruction has not been repaired, or Buyer as not otherwise waived such condition prior to Closing. In the event of any occurrence described in clause (iv) above, Operator shall deliver a copy of the Plan of Correction or otherwise notify Buyer in writing of the planned action, and such Plan of Correction or other corrective action which has been approved by the applicable regulatory agency or agencies, and upon the applicable regulatory agency or agencies providing a notice of Substantial Compliance relating to such Plan of Correction, the condition shall no longer constitute a Material Adverse Change.

(xiii)       Seller shall use commercially-reasonable efforts to cause the Operator to remedy any compliance deficiency cited in any written notice from, or in any settlement agreement or other Plan of Correction or other agreement with, any state or federal governmental body, or, in the event of state or federal proceedings against Operator or the Facility or receipt by the Operator of such notice prior to the Closing Date, of any condition which would affect the truth or accuracy of any representations or warranties set forth in this Agreement by Seller; provided, however, in the event a physical plant deficiency is cited which Seller has insufficient time to remedy before the Closing Date, in accordance with the approval of the appropriate state or federal agency, then the same shall be deemed remedied when the costs of correcting said deficiency (based upon reasonable estimates from established vendors selected by Seller and Buyer and approved by Seller and by Buyer, in the exercise of their respective absolute discretion) shall be held back in the Escrow at the Closing and not released to Seller until such deficiency is corrected by Seller; and, provided further, a non-physical plant deficiency which cannot be remedied prior to the Closing, in accordance with the approval of the appropriate state or federal agency, will be deemed to be remedied for purposes of this Section if Operator or Seller develops a Plan of Correction addressing the deficiency(ies) and such Plan of Correction is approved by the applicable State agency. Seller shall use its best efforts to remedy any such deficiency subsequent to the Closing which is to be remedied as a result of a Plan of Correction filed by Seller or Operator prior to the Closing, and Buyer shall cooperate with such efforts by Seller; provided, Seller shall bear all costs associated with such remedy. In the event any such Plan of Correction agreed to by Seller and Operator prior to the Closing is not approved by the applicable State agency subsequent to Closing, Seller shall promptly use commercially-reasonable efforts, and shall cause Operator to use its best efforts, to amend the Plan of Correction in such a manner that is necessary to obtain acceptance by the State of the amended Plan of Correction as soon as practicable after submittal. Notwithstanding any other provision of this Agreement, the obligation of Seller pursuant to this Subsection 9(a)(xiii) shall survive the Closing for such period of time as is necessary to remedy such deficiency.

(xiv)      Seller shall, at its cost and on or before Closing, obtain releases of financing statements and tax and judgment liens affecting or relating to the Facility which have been filed or recorded in the State with the Office of the Oregon Secretary of State and the appropriate County Recorder’s Office.

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(xv)       Seller shall promptly comply with any notices of violations received relating to the Facility and shall deliver to Buyer a copy of any such notice received and evidence of compliance with such notice.

(b)          Closing. On or before the Closing Date, Seller shall deliver the following documents to Escrow Agent relating to the Facility (“Closing Documents”):

(i)          One (1) original executed Deed for the Real Property, in recordable form;

(ii)         Two (2) original executed counterparts from RSL Medford of the Post-Closing Lease ;

(iii)        Two (2) original executed counterparts of the bill of sale for the Personal Property (“Bill of Sale”), an assignment of Seller’s interest in the Contracts and Leases (“Assignment of Contracts and Leases”), and other instruments of transfer and conveyance in form and substance to be agreed upon prior to the expiration of the Due Diligence Period transferring and assigning to Buyer the Real Property, Personal Property and the Intangibles to be transferred as provided herein with respect to the Facility (“Instruments of Assignment”);

(iv)        One (1) original executed certificate executed by Seller confirming that Seller’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Seller’s Confirmation”);

(v)         All transferable contractor’s and manufacturer’s guaranties and warranties, if any, in Seller’s possession relating to the Facility (collectively, the “Warranties”), which delivery will be made by leaving such materials at the Facility; and

(vi)        Two (2) original executed counterparts of each of the FIRPTA Certificate, escrow agreements and other documents required by the Title Company in connection with the transactions contemplated by this Agreement (collectively, the “Title Company Documents”).

11.         Covenants of Buyer. Buyer hereby covenants as follows:

(a)          Pre-Closing. Between the date hereof and the Closing Date, except as contemplated by this Agreement or with the consent of Seller, Buyer agrees that Buyer shall not take any action inconsistent with its obligations under this Agreement or which could hinder or delay the consummation of the transaction contemplated by this Agreement. Between the date hereof and the Closing Date, Buyer agrees that Buyer shall not (i) make any commitments to any governmental authority, (ii) enter into any agreement or contract with any governmental authority or third parties, (iii) alter, amend, terminate or purport to terminate in any way any governmental approval or permit affecting the Real Property, Personal Property or Facility, which would be binding upon Seller, any Real Property Owner, the Facility or Personal Property after any termination of this Agreement, or (iv) make any press release or public announcement regarding the transaction contemplated by this Agreement.

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(b)          Closing. On or before the Closing Date, Buyer shall deposit the following with Escrow Agent:

(i)          The Purchase Price in accordance with the requirements of this Agreement;

(ii)         Two (2) original executed counterparts of the Post-Closing Lease in form and substance to be agreed upon by Buyer and RSL Medford prior to the expiration of the Due Diligence Period;

(iii)        Two (2) original executed counterparts of each of the Instruments of Assignment requiring Buyer’s signature;

(iv)        One (1) original executed certificate executed by Buyer confirming that Buyer’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Buyer’s Confirmation”); and

(v)         Two (2) original executed counterparts of each of the Title Company Documents requiring Buyer’s signature.

12.         Conditions to Closing.

(a)          Conditions to Buyer’s Obligations. All obligations of Buyer under this Agreement are subject to the reasonable satisfaction and fulfillment, prior to the Closing Date (unless an earlier date for satisfaction and fulfillment is specified in the condition), of each of the following conditions. Anyone or more of such conditions may be waived in writing by Buyer.

(i)          Seller’s Representations and Warranties. Seller’s representations and warranties contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein, shall be true in all material respects as of the Effective Date and as of the Closing Date as though such representations and warranties were then again made, except to the extent that prior to the expiration of the Due Diligence Period (i) Seller has provided to Buyer with written notice that Seller has just become aware that a representation is untrue or inaccurate, or (ii) Buyer has discovered that a representation is untrue or inaccurate, and Buyer nevertheless elects to waive Buyer’s due diligence contingency and close the transaction despite such inaccuracy, whereupon Buyer will have waived any right of recourse or damages against Seller resulting from such inaccuracy.

(ii)         Seller’s Performance. Seller shall have performed in all material respects all of its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

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(iii)        Damage and Condemnation. Prior to the Closing Date, no portion of the Facility shall have been damaged or destroyed by fire or other casualty where the estimate of damage to such Facility exceeds 10% of the Purchase Price allocated to such Facility, or proceedings be commenced or threatened to take or condemn any material part of the Real Property or improvements comprising a Facility by any public or quasi-public authority under the power of eminent domain. A proceeding shall be deemed to be “material” if such condemnation or taking (i) relates to the material taking or closing of any right of access to the Real Property or Facility, (ii) cause the Real Property or Facility to become non-conforming with then current legal requirements governing such Real Property or Facility, (iii) results in the loss of parking that is material to the operation of such Facility, or (iv) result in the loss of value in excess of 10% of the Purchase Price for the Property, in Buyer’s reasonable judgment. If such Facility shall have been so damaged or destroyed, Seller shall deliver prompt written notice of such condemnation, damage or destruction to Buyer. In the event Buyer waives this condition, by written notice to Seller within fifteen (15) business days of receipt of notice of such proceeding, and the Closing occurs, Seller shall assign to Buyer all its right to any insurance proceeds in connection therewith. If proceedings shall be so commenced or threatened to take or condemn the Real Property or the Facility or portion thereof prior to Closing, and if Buyer waives this condition and the Closing occurs, Seller shall pay or assign to Buyer all Seller’s right to the proceeds of any condemnation award in connection thereof.

(iv)        Absence of Litigation.          No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Buyer, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of the Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect the Facility or the business or prospects of the Facility.

(v)         No Material Adverse Change. No unresolved Material Adverse Change shall have occurred in the Facility.

(vi)        Removal of Personal Property Liens. Seller shall have removed (or shall have sufficient payoff or other documents to remove such liens at Closing) all personal property liens which are related to the Personal Property, and at Closing shall be free and clear of all liens, claims and encumbrances other than Permitted Exceptions.

(vii)       Title Insurance Policies. Title Company shall be prepared to issue the (i) Owners Title Insurance Policy for the Real Property as of the Closing Date, with coverage in the amount of the allocable portion of the Purchase Price for the Real Property, insuring Buyer as owner of the Real Property subject only to the Permitted Exceptions, and (ii) ALTA Title Insurance Policy for the Real Property as of the Closing Date, with coverage in the amount of Buyer’s loan from Buyer’s lender (“Lender”), insuring Lender’s lien against the Real Property subject only to such exceptions as may be approved by Lender, and with such endorsements as may be required by Lender.

(viii)      Post-Closing Lease. Prior to the expiration of the Due Diligence Period, Buyer and RSL Medford shall have negotiated and approved in writing the form of the Post-Closing Lease.

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(b)          Conditions to Seller’s Obligations. All obligations of Seller under this Agreement are subject to the fulfillment, prior to the Closing Date (unless an earlier date for satisfaction and fulfillment is specified in the condition), of each of the following conditions. Anyone or more of such conditions may be waived by Seller in writing.

(i)          Buyer’s Representations and Warranties. Buyer’s representations and warranties contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein shall be true in all material respects as of the Effective Date at the date hereof and as of the Closing Date as though such representations and warranties were then again made.

(ii)         Buyer’s Performance. Buyer shall have performed in all material respects its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

(iii)        Absence of Litigation. No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Seller, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of the Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect the Facility or the business or prospects of the Facility.

(iv)        No Actions. There shall be no action pending or recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate the Facility or the certification of the Facility, or any action of any other type with regard to licensure or certification or with respect to Medicare and Medicaid provider billing agreements necessary to operate the Facility.

(v)         Post-Closing Lease. Prior to the expiration of the Due Diligence Period, Buyer and RSL Medford shall have negotiated and approved in writing the form of the Post-Closing Lease.

13.         Termination; Defaults; Disposition of Deposit.

(a)          Termination for Failure of Condition. Either party may, by delivering written notice to the other party, terminate this Agreement for non-satisfaction or failure of a condition to the obligation of either party to consummate the transaction contemplated by this Agreement (including, without limitation, Buyer’s election to disapprove the condition of the title or Surveys pursuant to Section 14 herein), unless such matter has been satisfied or waived by the date specified in this Agreement or, if no other date is specified, by the Closing Date (as the Closing Date may be extended by the parties to allow the parties to satisfy or waive conditions to close in the manner provided in this Agreement).

(i)          In the event of such a termination before the expiration of the Due Diligence Period or a failure of a condition to Buyer’s obligations set forth in Section 12(a) at any time prior to the Closing, Escrow Agent shall promptly (A) return to Buyer, all funds of Buyer in its possession (and Seller shall return to Buyer any portion of the Deposit that may have been released to Seller), including the Deposit and all interest accrued thereon, and (B) return to Seller and Buyer, all documents deposited by them respectively, which are then held by Escrow Agent.

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(ii)         In the event of such a termination after the expiration of the Due Diligence Period and such termination is the result of a failure of a condition to Seller’s obligations set forth in Section 12(b), Escrow Agent shall promptly (A) return to Seller all funds of Seller in its possession, (B) release to Seller the Deposit, together with all interest accrued thereon, and (C) return to Seller and Buyer, all documents deposited by them respectively, which are then held by Escrow Agent.

Thereafter, neither party shall have any continuing obligation or liability to the other party except for any such matters that expressly survive the Closing or termination of this Agreement, as provided herein. The provisions of this Section 13(a) are intended to apply only in the event of a failure of condition, as set forth herein, which is not the result of a default by either party, but which shall not apply in the event the non-terminating party is in default of its obligations under this Agreement.

(b)          Termination for Cause.

(i)          If the Agreement is terminated by Seller because Buyer fails to consummate the Closing as a result of a default by Buyer under this Agreement, Seller’s sole and exclusive remedy prior to the Closing Date shall be to terminate this Agreement by giving written notice of termination to Buyer and Escrow Agent, whereupon (A) Escrow Agent shall promptly release to Seller the Deposit (to the extent not previously released to Seller), and all interest accrued thereon, (B) Escrow Agent shall return to Buyer and Seller all documents deposited by them respectively, which are then held by Escrow Agent, (C) the parties shall be released and relieved of all obligations to each other under this Agreement, except for provisions that expressly survive termination as provided herein, (D) Buyer shall return to Seller all documents received by it during the course of its Due Diligence and (E) Buyer shall have no further right to purchase the Property or legal or equitable claims against Seller (except for any breach by Seller of provisions that survive termination) and/or the Property. Buyer shall have no liability to Seller under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Buyer acknowledges that the provisions of this Subsection are a material part of the consideration being given to Seller for entering into this Agreement and that Seller would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Seller against Buyer or by Buyer against Seller commenced after the Closing Date, Seller and Buyer expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. The parties acknowledge and agree that Seller’s actual damages as a result of Buyer’s default would be difficult or impossible to ascertain and that the deliveries and payments provided for in clause (A) herein constitute reasonable compensation for its actual damages. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13(b)(i) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

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(ii)         If this Agreement is terminated by Buyer because Seller has defaulted in the performance of a material obligation under this Agreement, Buyer’s sole and exclusive remedies prior to the Closing Date shall be either: (A) to terminate this Agreement by giving written notice of termination to Seller and Escrow Agent stating with reasonable specificity the basis for the termination, and pursue any and all remedies for Buyer’s out-of-pocket costs (including attorneys’ fees and court costs), attributable to the termination of this Agreement, excluding any speculative or punitive damages, whereupon (i) Escrow Agent shall promptly return to Buyer the Deposit, and all interest accrued thereon, and (ii) Escrow Agent shall return to Seller and Buyer all documents deposited by them respectively, which are then held by Escrow Agent; or (B) to pursue the remedy of specific performance of Seller’s obligation to perform its obligations under this Agreement and all attorneys’ fees and costs in connection with such specific performance action as Buyer’s exclusive remedy; provided, if Buyer elects the remedy in this subheading (B) and specific performance remedy is not available, then Buyer shall be allowed to seek the remedy in subheading (A) of this Section. Seller shall have no liability to Buyer under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Seller acknowledges that the provisions of this Subsection are a material part of the consideration being given to Buyer for entering into this Agreement and that Buyer would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Buyer against Seller or by Seller against Buyer commenced after the Closing Date, Buyer and Seller expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13.2(b) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

(c)          General. In the event a party elects to terminate this Agreement such party shall deliver a notice of termination to the other party.

14.         Surveys and Title Commitment.

(a)          Buyer has previously obtained a preliminary title report (the “PTR”) covering the Real Property dated prior to the date of this Agreement, together with legible copies of any and all instruments referred to in the PTR as constituting exceptions to title of the Real Property (“Title Documents”).

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(b)          Seller has delivered to Buyer a copy of the existing surveys, if any, in Seller’s possession for the Facility (“Surveys”) in accordance with Section 10(a)(v) herein. Buyer shall be responsible for obtaining an update of the Surveys or new Surveys, at Buyer’s sole cost (“New Surveys”). On or before thirty (30) days prior to the expiration of the Due Diligence Period, Buyer shall notify Seller and the Title Company (“Buyer’s Title Notice”) of any objections which Buyer may have to the PTR and/or Surveys. If Buyer timely objects to any matters (other than the Permitted Exceptions, as defined herein) which, in Buyer’s determination, might adversely affect the ability of Buyer to operate any of the Facility, Seller shall use its reasonable business efforts to cure the same, but shall not be obligated to cure matters other than to obtain the release (at Closing) of the existing mortgage and other monetary liens caused by Seller which may be released by payment of the mortgage payoff or lien amount from Seller’s Closing proceeds (collectively, “Monetary Liens”). If Buyer fails to timely deliver Buyer’s Title Notice to Seller, or if Buyer’s Title Notice does not identify all exceptions to which Buyer objects, then any exceptions not objected to by Buyer (except for Monetary Liens) shall be deemed Permitted Exceptions. If Seller delivers written notice to Buyer (“Seller’s Title Notice”), on or before the expiration of the Due Diligence Period that Seller is willing to remove any exceptions objected to by Buyer, then Seller shall be obligated to remove such exceptions on or prior to the Closing and such exceptions shall not be Permitted Exceptions. If Seller does not provide Buyer with Seller’s Title Notice or Seller’s Title Notice does not provide for Seller’s agreement to remove all exceptions objected to by Buyer, then Buyer shall have the right to terminate this Agreement prior to expiration of the Due Diligence Period or waive Buyer’s objection to any exceptions Seller has not agreed to remove with such exceptions becoming Permitted Exceptions upon Buyer waiving its due diligence contingency. Buyer shall, promptly following the execution of this Agreement, commence to use its best efforts to obtain the New Surveys as soon as practicable. Notwithstanding the foregoing provisions of this Subsection (b), Buyer shall have the right to object, promptly upon learning of any such new matters during the Due Diligence Period, to any matters raised in the New Surveys which were not addressed in the Surveys, and the parties shall cooperate with the Title Company, during the Due Diligence Period and as promptly as possible following the delivery of Buyer’s objections to such new matters in the New Surveys, to resolve any such matters to Buyer’s satisfaction. The Due Diligence Period shall not be extended for resolution of any such matters in the New Surveys.

15.         Cooperation. Following the execution of this Agreement, Buyer and Seller agree that if any event should occur, either within or without the knowledge or control of Buyer or Seller, which would prevent fulfillment of the conditions to the obligations of any party hereto to consummate the transaction contemplated by this Agreement, each such party shall use commercially-reasonable efforts to cure or to cause the cure of the same as expeditiously as possible. In addition, each party shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any applications, requests, or actions which are or may be reasonable and necessary to obtain the consent of any governmental instrumentality or any third party or to accomplish the transaction contemplated by this Agreement.

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16.         Indemnification.

(a)          Indemnification Provisions.

(i)          Subject to the limitation on damages contained in Section 13(b)(ii) hereof and Buyer’s indemnification below, Seller hereby agrees to indemnify, protect, defend and hold harmless Buyer and its officers, directors members shareholders tenants, successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any material breach of, or material inaccuracy in, the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Seller contained in this Agreement or in any certificate or document delivered by Seller pursuant to any of the provisions of this Agreement, unless Seller cures such matter in the manner provided in Section 8(p) herein or (B) the failure to discharge any federal, state or local tax liability, or to pay any other assessments, recoupments, claims, fines, penalties or other amounts or liabilities accrued or payable with respect to any activities of Seller prior to the Closing Date (whether brought before or after the Closing Date), or (C) any obligation which is expressly the responsibility of Seller under this Agreement, or (D) any amounts required to cure citation violations issued by any state or federal health or human services authority on the Facility relating to any period prior to the Closing Date (whether brought before or after the Closing Dates), or (E) any claim by any employee of Seller relating to any period of employment prior to the Closing Date (whether brought before or after the Closing Date), or (F) the existence against the Real Property of any mechanic’s or materialmen’s claims resulting from the action or inaction of Seller or anyone acting under authority of Seller (but not including Buyer, or Buyer’s Consultants and agents), or (G) any other cost, claim or liability arising out of or relating to events (other than as a result of the actions of Buyer or Buyer’s Consultants) or Seller’s ownership, operation or use of the Facility prior to the Closing Date. Any amount due under the aforesaid indemnity shall be due and payable by Seller within 30 days after demand thereof. Seller shall have the right to contest any such claims, liabilities or obligations as provided herein.

(ii)         Subject to the limitation on damages contained in Section 13(b)(i) hereof and Seller’s indemnification above, Buyer hereby agrees to indemnify, protect, defend and hold harmless Seller and its officers, directors, members, shareholders and tenants harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any material breach of, or material inaccuracy in, the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Buyer contained in this Agreement or in any certificate or document delivered by Buyer pursuant to any of the provisions of this Agreement, unless Buyer cures such matter in the manner provided in Section 8(p) herein, or (B) the existence against the Property of any mechanic’s or materialmen’s claims arising from actions of Buyer or Buyer’s Consultants prior to the Closing, or (C) any obligation which is expressly the responsibility of Buyer under this Agreement. Any amount due under the aforesaid indemnity shall be due and payable by Buyer within thirty (30) days after demand therefor. Buyer shall have the right to contest any such claims, liabilities or obligations as provided herein or any other cost, claim or liability arising out of or relating to events or Buyer’s ownership, operation or use of the Facility after the Closing Date.

(iii)        The parties intend that all indemnification claims be made as promptly as practicable by the party seeking indemnification (the “Indemnified Party”). Whenever any claim shall arise for indemnification hereunder, the Indemnifying Party shall promptly notify the party from whom indemnification is sought (the “Indemnitor”) of the claim, and the facts constituting the basis for such claim (the “Indemnification Claim”). Failure to notify the Indemnitor will not relieve the Indemnitor of any liability that it may have to the Indemnified Party, except to the extent the defense of such action is materially and irrevocably prejudiced by the Indemnified Party’s failure to give such notice.

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(iv)        An Indemnitor shall have the right to defend against an Indemnification Claim arising out of a third-party claim or demand, with counsel of its choice reasonably satisfactory to the Indemnified Party, if (a) within fifteen (15) days following the receipt of notice of the Indemnification Claim the Indemnitor notifies the Indemnified Party in writing that the Indemnitor will indemnify the Indemnified Party from and against the entirety of any damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (b) the Indemnitor provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnitor will have the financial resources to defend against the Indemnification Claim and pay, in cash, all damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (c) the Indemnification Claim involves only money damages and does not seek an injunction or other equitable relief, (d) settlement of, or an adverse judgment with respect to, the Indemnification Claim is not in the good faith judgment of the Indemnified Party likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (e) the Indemnitor continuously conducts the defense of the Indemnification Claim actively and diligently.

(v)         So long as the Indemnitor is conducting the defense of the Indemnification Claim in accordance with Section 16(a)(iv), then (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Indemnification Claim, (B) the Indemnified Party shall not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnitor (not to be withheld unreasonably), and (C) the Indemnitor will not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed, provided that it will not be deemed to be unreasonable for an Indemnified Party to withhold its consent with respect to (i) any breach of any law, order or permit, (ii) any violation of the rights of any person, or (iii) any matter which Indemnified Party believes could have a material adverse effect on any other actions to which the Indemnified Party or its Affiliates are party or to which Indemnified Party has a good faith belief it may become party. Notwithstanding the foregoing provisions of this Subsection (v), if Indemnified Party refuses its consent to any of the matters set forth in clauses (i) through (iii) above, the indemnity amount shall be determined as if such consent had been given and Indemnitor shall pay over to the Indemnified Party such amount and be absolved from any further obligation as to that particular claim; Indemnified Party may then resolve the claim in the manner it sees fit without further recourse against Indemnitor.

(vi)        Each party hereby consents to the non-exclusive jurisdiction of any governmental body, arbitrator, or mediator in which an action is brought against any Indemnified Party for purposes of any Indemnification Claim that an Indemnified Party may have under this Agreement with respect to such action or the matters alleged therein, and agrees that process may be served on such party with respect to such claim anywhere in the world, provided however, that any venue relating to any claim or proceeding arising out of this Agreement or any other agreement between Seller and Buyer shall be the State and the laws of the State shall apply.

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(b)          Insurance Proceeds. In determining the amount of damages for which either party is entitled to assert an Indemnification Claim, the amount of any such claims or damages shall be determined after deducting therefrom the amount of any insurance coverage or proceeds or other third party recoveries received by such other party in respect of such damages. If an indemnification payment is received by the Indemnified Party in respect of any damages and the Indemnified Party later receives insurance proceeds or other third party recoveries in respect of such damages, the Indemnified Party shall immediately pay to the Indemnifying Party a sum equal to the lesser of the actual amount of net insurance proceeds or other third party recoveries (remaining after recovery costs and expenses) or the actual amount of the indemnification payment previously paid by or on behalf of the Indemnified Party.

(c)          No Incidental, Consequential and Certain Other Damages. An Indemnitor shall not be liable to an Indemnified Party for incidental, consequential, enhanced, punitive or special damages unless such damages are included in a third-party claim and such Indemnified Party is liable to the third party claimant for such damages.

(d)          Survival of Indemnities; No Waiver of Rights or Remedies. Each Indemnified Party’s rights and remedies set forth in this Agreement shall survive the Closing or other termination of this Agreement for a period of two (2) years, shall not be deemed waived by such Indemnified Party’s consummation of the Closing of the sale transactions (unless the Indemnified Party has knowledge of the existence of an Indemnification Claim at Closing and decides to proceed with Closing) and will be effective regardless of any inspection or investigation conducted by or on behalf of such Indemnified Party or by its directors, officers, employees, or representatives or at any time (unless such inspection or investigation reveals the existence of an Indemnified Claim and such party proceeds with Closing), whether before or after the Closing Date.

(e)          Other Indemnification Provisions. A claim for any matter not involving a third party may be asserted by notice to the Party from whom indemnification is sought.

(f)          Dispute Resolution. Any dispute arising out of or relating to claims for indemnification pursuant to this Section 16 or any other dispute hereunder, shall be resolved in accordance with the procedures specified herein, which shall be the sole and exclusive procedure for the resolution of any such disputes.

17.         Notices. Any notice, request for consent or approval, election or other communication provided for or required by this Agreement shall be in writing and shall be delivered by hand, by air courier service, postage prepaid (certified with return receipt requested), fax transmission or electronic transmission followed by delivery of the hard copy of such communication by air courier service or mail as aforesaid, addressed to the person to whom such notice is intended to be given at such address as such person may have previously furnished in writing to the such party’s last known address. Until receipt of written notice to the contrary, the parties’ addresses for notices shall be:

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To Buyer:	Cornerstone Healthcare Real Estate Fund, Inc. c/o Cornerstone Healthcare Properties 1920 Main Street, Suite 400 Irvine, CA  92614 Attention:  Kent Eikanas Phone:  (949) 812-4335 Email:  KEikanas@crefunds.com
With a Copy to:	DLA Piper LLP (US) 2000 University Avenue East Palo Alto, CA  94303 Attention:  James E. Anderson, Esq. Phone:  (650) 833-2078 Email:  Jim.Anderson@dlapiper.com
To Seller:	Monterey Village, LP 10220 SW Greenberg Road, Suite 201 Portland, OR  97223 Attention:  Jeffrey L. Chamberlain Phone: (503) 595-2810 Email: jchamberlain@farmingtoncenters.com
With a Copy to:	Black Helterline LLP 805 SW Broadway, Suite 1900 Portland, OR 97205 Attention: Remi A. Baptiste, Esq. Phone: (503) 224-5560 E-mail: rab@bhlaw.com
With a Copy to:	Mr. Donald Turcke 349 Windsor Avenue Medford, OR 97504 Phone: (541) 773-1512 Email: dturcke@aol.com
With a Copy to:	Brophy Schmor Gerking 201 W Main Ste 5 PO Box 128 Medford OR  97501 Attention: Douglass H Schmor, Esq. Phone: (541) 772-7123 Email: dschmor@brophylegal.com

18.         Sole Agreement. This Agreement constitutes the entire understanding between the parties with respect to the transactions contemplated herein, and all prior or contemporaneous oral agreements, understandings representations and statement, and all prior written agreements, understandings, letters of intent and proposals are merged into this Agreement. Neither this Agreement nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

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19.         Assignment; Successors. Neither party shall assign this Agreement without the prior written consent of the other; provided, however, Buyer may assign all of its rights, title, liability, interest and obligation pursuant to this Agreement to one or more entities owned, controlled by or under common control with Buyer. No assignment by Buyer shall relieve Buyer of its obligations under this Agreement. Subject to the limitations on assignment set forth above, all the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the heirs, successors and assigns of the parties hereto.

20.         Severability. Should any one or more of the provisions of this Agreement be determined to be invalid, unlawful or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and each such provision shall be valid and remain in full force and effect.

21.         Risk of Loss. Until the Closing Date, Seller shall bear the risk of loss for the Facility and after the Closing Date, the risk of loss of the Facility shall be borne by Buyer, except as such risk may be allocated to RSL Medford under the terms of the Post-Closing Lease.

22.         Holidays. If any date herein set forth for the performance of any obligations by Seller or Buyer or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday or legal holiday. As used herein, the term “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed in the State for observance thereof.

23.         Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall be deemed to constitute one and the same instrument. Facsimile signature pages or electronically transmitted signature pages shall constitute original counterparts for all purposes.

24.         Covenant Not to Compete; Non-Solicitation of Employees. For a period of three (3) years following the Closing Date, Seller agrees (i) not to own, manage, lease or operate a long term memory care facility which is located within a ten (10) mile radius of the Facility and (ii) not to solicit the transfer of patients or residents of any of the Facility to any long term care memory care facility which is managed, leased or operated by any entity owned and/or controlled by any of Seller or such individual within a ten (10) mile radius of the Facility.

25.         Confidentiality. The provisions of the Confidentiality Agreement attached hereto as Exhibit C and executed by the parties prior to the date of this Agreement are hereby incorporated by this reference and the parties hereto agree to comply with the terms thereof. Notwithstanding any provision in the letter of intent executed by the parties in furtherance of the transaction the terms of the Confidentiality Agreement shall not survive the consummation of the transactions contemplated by this Agreement, but will survive the termination of this Agreement prior to the Closing.

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26.         Exhibits and Schedules. To the extent that one or more Exhibits or Schedules are not attached to this Agreement at the time this Agreement is executed, Seller and Buyer agree that this Agreement is not rendered unenforceable by reason of such fact. Seller shall provide such exhibits to Buyer during the Due Diligence Period as promptly as possible in order to allow the parties to agree upon such Exhibits and Schedules and to afford Buyer adequate time in which to complete its due diligence review prior to the expiration of the Due Diligence Period.

27.         Prevailing Party. Subject to the limitations as otherwise set forth in this Agreement, if an action shall be brought on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the prevailing party shall be entitled to recover from the other party, as part of the prevailing party’s costs, reasonable attorney’s fees, the amount of which shall be fixed by the court and shall be made a part of any judgment rendered.

28.         Time is of the Essence. Time is of the essence of this Agreement.

29.         Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon.

30.         Binding Arbitration. In the event of any claim or controversy arising out of this Agreement, the transactions contemplated by it, relating to interpretation of any term or provision contained in it, or arising out of the parties’ relationship, such claim or controversy shall be resolved by arbitration. Arbitration shall be in accordance with the then effective Arbitration Rules of Arbitration Service of Portland, Inc., subject to the following modifications. In the event the parties cannot agree upon an arbitrator, Seller shall select one arbitrator and Buyer shall select one arbitrator, and the arbitrators so selected shall choose an umpire. The arbitration shall then be heard by that umpire alone. If the arbitrator (or umpire) can reasonably do so, the hearing shall be conducted within six months after first written notice of a claim and intent to arbitrate is received from the party demanding arbitration, unless the arbitrator (or umpire) for good cause grants a continuance. The arbitrator’s (or umpire’s) award shall issue no later than 30 days after close of the arbitration proceeding. The arbitrator (or umpire) shall have no authority to award punitive damages or any other damages not measured by the prevailing party’s actual damages. The prevailing party (as that term is defined by Oregon statutes and the decisions of Oregon appellate courts) in any arbitration proceeding shall recover from the losing party reasonable costs of arbitration, including reasonable expert witness fees and reasonable attorneys’ fees. Any award of the arbitrator (or umpire) may be reduced to judgment and filed as provided under ORS 36.600 et seq. The arbitration hearing shall take place in Portland, Oregon. In the event either party commences an action based on this Agreement, or the interpretation of any term or provision contained in it, the foregoing arbitration clause shall constitute a bar or defense thereto.

[Signatures on Following Pages]

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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement by parties legally entitled to do so as of the day and year first set forth above.

“SELLER”:
MONTEREY VILLAGE,
an Oregon limited partnership
By:	EXCELSIOR DEVELOPMENT COMPANY, LLC,
	an Oregon limited liability company, its general partner
	By:	/s/ Jeff Chamberlin
	Its:	Managing Manager
“BUYER”:
CORNERSTONE HEALTHCARE REAL ESTATE FUND, INC., a Maryland corporation
By:	Terry G. Roussel
Its:	President

Acknowledged:

“ESCROW AGENT”

LAWYERS TITLE COMPANY

By:

Its:

Date:                                                      , 2012

LIST OF EXHIBITS

A. Legal Descriptions of Real Property

B. Permitted Exceptions

C. Confidentiality Agreement

D. Form of Post-Closing Lease

LIST OF SCHEDULES

Schedule l(a)	List of Facility, Operator(s)
Schedule 1(c)	Personal Property
Schedule 2	List of Leases on Personal Property
Schedule 3	Allocation of Purchase Price
Schedule 6(a)(vii)	Due Diligence Items
Schedule 8(a)(v)	Claims, Litigation
Schedule 8(b)	Violations
Schedule 8(d)	Hazardous Substances
Schedule 8(f)	Leases and Contracts
Schedule 8(g)	Financial Statements
Schedule 8(h)	Interests in Suppliers, etc.
Schedule 8(j)	Matters relating to Licensure
Schedule 8(k)	Matters relating to Reports and Reimbursements
Schedule 8(l)	Surveys, Cost Reports, Private Rates, Census and Licensed Beds
Schedule 8(m)	Occupied Beds; Rates

EXHIBIT A

LEGAL DESCRIPTION

[See Attached]

EXHIBIT B

PERMITTED EXCEPTIONS

[To be Determined]

EXHIBIT C

CONFIDENTIALITY AGREEMENT

[To be Supplied by Parties]

EXHIBIT D

FORM OF POST-CLOSING LEASE

[To be Supplied by Parties]

SCHEDULE 8(m) – OCCUPIED BEDS, RATES

EX-10.3

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made and entered into as of this 1^st day of June, 2012 (the “Effective Date”), by and among FRIENDSWOOD REALTY, LP, a Texas limited partnership (“Seller”) and CORNERSTONE HEALTHCARE REAL ESTATE FUND, INC., a Maryland corporation, or its assignee (“Buyer”).

1.          Purchase and Sale. On the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall purchase from Seller its interest in the following, which are hereinafter referred to collectively as the “Property”:

(a)          The improvements located on the Real Property, consisting of one (1) skilled nursing facility as described in Schedule 1(a) attached hereto (“Facility”), owned by Seller, and all right, title and interest of Seller in and to the items described in (a) through (f) herein;

(b)          All of the real estate on which the Facility is situated, together with all tenements, easements, appurtenances, privileges, rights of way, and other rights incident thereto, all building and improvements and any parking lot to the Facility located thereon situated in the State of Texas (the “State”), which is described in Exhibit A attached hereto and made a part hereof by this reference (collectively, the “Real Property”);

(c)          All of the tangible personal property, inventory, equipment, machinery, supplies including drugs and other supplies, spare parts, furniture, furnishings, warranty claims, and contracts owned by Seller, including but not limited to supply contracts, contracts rights, intellectual property (except for trademarks and service marks of “Friendship Haven Healthcare & Rehabilitation Center” or a related entity using the names “Friendship Haven Healthcare & Rehabilitation Center”), including but not limited to patents, trade secrets, and all rights and title to the names under which the Facility operates, mailing lists, customer lists, vendor lists, resident files (to the extent allowed by law), books and records owned by the Seller, who may retain copies of same, and shall have reasonable access to such books and records after the Closing as required for paying taxes and responding to legal inquiry, as such personal property is described in Schedule 1(c) attached hereto (collectively, the “Personal Property”);

(d)          All transferable licenses, permits, certifications, assignable guaranties and warranties in favor of Seller, approvals or authorizations and all assignable intangible property not enumerated herein which is used by the Seller in connection with the Facility, and all other assets owned by Seller and used in connection with the Facility whether tangible or intangible; provided, that Seller shall retain all licenses required to be retained by Seller in order to operate the current business within the Facility;

(e)          All trade names or other names commonly used to identify the Facility and all goodwill associated therewith, excluding any name containing “Friendship Haven Healthcare & Rehabilitation Center”, which shall remain the sole property of Seller. The intent of the parties is to transfer to Buyer only such names and goodwill associated with the Facility itself and not with Seller or any affiliate of Seller, so as to avoid any interference with the unrelated business activities of Seller; and

(f)          All telephone numbers used in connection with the operation of the Facility, and to the extent not described above, all goodwill of Seller associated with the Facility (the items described in clauses (e) and (f) above are collectively referred to as “Intangibles”).

2.          Excluded Assets. Seller’s cash, investment securities, bank account(s) and accounts receivable, and deposits attributable and relating to the operation of Seller’s Facility, and Seller’s corporate minute books and corporate tax returns, partnership records, and other corporate and partnership records shall be excluded from the Facility sold by Seller to Buyer hereunder as well as Seller’s real property not identified in Schedule 1(a) (the “Excluded Assets”).

3.          Purchase Price; Deposits. The following shall apply with respect to the Purchase Price of the Property:

(a)          The purchase price (the “Purchase Price”) payable by Buyer to Seller for the Facility is Fifteen Million and 00/100 Dollars ($15,000,000.00).

(b)          The Purchase Price as allocated to the Facility by Seller is set forth on Schedule 3 attached hereto and made a part hereof.

(c)          Within two (2) business days after this Agreement is fully executed by the parties, Buyer shall deposit the sum of Twenty-Five Thousand and 00/100 Dollars ($25,000.00) as an earnest money deposit (“Initial Deposit”) with Lawyers Title Company at its office at 4100 Newport Place Drive, Suite 120, Newport Beach, California 92660, Attention: Debi Calmelat, (“Title Company” or “Escrow Agent”) and Escrow Agent will deposit it into an interest-bearing account with the interest for the benefit of Buyer. In addition, if Buyer has not terminated this Agreement on or before the expiration of the Due Diligence Period (defined below), then Buyer shall deposit with Escrow Agent an additional Twenty-Five Thousand and 00/100 Dollars ($25,000.00) (“Additional Deposit”) within three (3) business days following the expiration of the Due Diligence Period (the Initial Deposit, Additional Deposit and (if applicable) the Extension Deposit (or applicable portion thereof), as defined below, are collectively referred to as the “Deposits”). Interest earned on the Deposit shall be paid to the party entitled to such amount as provided in this Agreement.

(d)          At Closing, the Deposit shall be credited against the Purchase Price and Buyer shall deposit the balance of the Purchase Price in Cash to the Escrow Agent.

(e)          Buyer shall not assume or pay, and Seller shall continue to be responsible for, any and all debts, obligations and liabilities of any kind or nature, fixed or contingent, known or unknown, of Seller not expressly assumed by Buyer in this Agreement. Specifically, without limiting the foregoing, Buyer shall not assume any obligation, liability, cost, expense, claim, action, suit or proceeding pending as of the Closing, nor shall Buyer assume or be responsible for any subsequent claim, action, suit or proceeding arising out of or relating to any such other event occurring, with respect to the manner in which Seller conducted its business at the Facility, on or prior to the date of the Closing Date. In addition, Buyer shall not assume successor liability obligations to Medicare, Medicaid, HMO or any other third party payer programs or be responsible for recoupment’s, fines, or penalties required to be paid to such parties as a result of the operation of the Facility prior to the Closing Date by Seller or Seller’s operating entity (“Operator”)

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4.          Closing. The closing of the purchase and sale transactions pursuant to this Agreement (“Closing”) shall occur on the date which is the later of (“Closing Date”): (i) August 31, 2012, or (ii) thirty (30) days after the expiration of the Due Diligence Period; provided, Buyer may unilaterally extend the Closing Date for up to thirty (30) days by making a non-refundable payment (subject to the provisions of Section 13(b)(ii) herein) to Escrow Agent, of One Hundred Thousand and 00/100 Dollars ($100,000.00) (“Extension Deposit”). The Extension Deposit shall be applicable to the Purchase Price or, if this transaction does not close on or before the Closing Date, as extended, then the Extension Deposit shall be applied as dictated by the terms of this Agreement regarding the Deposit. The Closing shall take place through Seller’s delivery of a special warranty deed and Buyer’s delivery of cash or immediately available funds through an escrow agreement (the “Escrow”) to be established with the Escrow Agent pursuant to form escrow instructions which shall be modified to be consistent with the terms and provisions of this Agreement, and which shall be mutually agreed upon by the parties hereto.

5.          Conveyance. Title to the Facility shall be conveyed to Buyer by a special warranty deed and bill of sale in form agreed to by the parties prior to the end of the Due Diligence Period, as defined herein. Fee simple indefeasible title to the Real Property, and marketable title to the Personal Property, shall be conveyed from Seller to Buyer or Buyer’s nominee in “AS-IS, WHERE-IS” condition, free and clear of all liens, charges, easements and encumbrances of any kind, other than:

(a)          Liens for real estate taxes or assessments not yet due and payable;

(b)          The standard printed exceptions included in the PTR, as defined in Section 14(a) herein; unless objected to in writing by Buyer during the Due Diligence Period;

(c)          Such exceptions that appear in the PTR and that are either waived or approved by Buyer in writing pursuant to Section 14(b) herein;

(d)          Liens or encumbrances caused by the actions of Buyer but not those caused by the actions of Seller; and

(e)          Those matters identified as Permitted Exceptions on the attached Exhibit B.

The items described in this Section 5 are sometimes collectively referred to as the “Permitted Exceptions.”

6.          Buyer’s Due Diligence.

(a)          Buyer shall have ninety (90) days from the period commencing from the date Buyer notifies Seller that it has received the requested Due Diligence materials required to complete Buyers Due Diligence (the “Due Diligence Period”), Seller shall permit the officers, employees, directors, agents, consultants, attorneys, accountants, lenders, appraisers, architects, investors and engineers designated by Buyer and representatives of Buyer (collectively, the “Buyer’s Consultants”) access to, and entry upon the Real Property and the Facility to perform its normal and customary due diligence, including, without limitation, the following (collectively, the “Due Diligence Items”):

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(i)          Review of vendor contracts (“Contracts”) and leases (“Leases”) to which the Facility (or the Seller, on behalf of the Facility) are a party, as set forth on Schedule 8.6 attached hereto;

(ii)         Conduct environmental investigations (including a Phase 1 Environmental Audit);

(iii)        Inspection of the physical structure of the Facility;

(iv)        Review of PTR, as defined in Section 14 herein, and underlying documents referenced therein;

(v)         Review of ALTA Surveys, as defined in Section 14 herein, for the Facility;

(vi)        Inspection of the books and records of the Facility and that portion of the Seller’s books and records which pertain to the Facility;

(vii)       Review of the Due Diligence Items, as described in Schedule 6(a)(vii) attached hereto, to be provided by Seller within five (5) business days following the Effective Date;

(viii)      Conduct such other inspections or investigations as Buyer may reasonably require relating to the ownership, operation or maintenance of the Facility;

(ix)         Review of resident files, agreements, and any other documentation regarding the residents of the Facility, which review shall in all events be subject to all applicable laws, rules and regulations concerning the review of medical records and other types of patient records; and

(x)          Review of files maintained by the State and/or the Texas Department of Aging and Disability Services (“DADS”) relating to the Facility; and

(xi)         Review of all drawings, plans and specifications and all engineering reports for the Facility in the possession of or readily available to Seller; and

(xii)        Seller will furnish copies of all environmental reports, property condition reports, appraisals, title reports and ALTA Surveys (or surveys) that it currently has in its possession.

(xiii)       Review copies of currently effective written employment manuals or written employment policies and/or procedures have been provided to or for employees.

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Notwithstanding the foregoing provisions of this Subsection, in the event Seller fails to deliver all Due Diligence Items listed in Schedule 6(a)(vii) on or before the time set forth in Subsection (a)(vii) above, then the Due Diligence Period shall be deemed extended on a day-to-day basis until Seller completes such delivery of the Due Diligence Items to Buyer.

(b)          Buyer agrees and acknowledges that: (i) Buyer will not disclose the Due Diligence Items or any other materials received from Seller pursuant to this Agreement (the “Property Information”) or any of the provisions, terms or conditions thereof, or any information disclosed therein or thereby, to any party outside of Buyer’s organization, other than Buyer’s Consultants; (ii) the Property Information is delivered to Buyer solely as an accommodation to Buyer; (iii) Seller has not undertaken any independent investigation as to the truth, accuracy or completeness of any matters set out in or disclosed by the Property Information; and(iv) except as expressly contained in this Agreement, Seller has not made and does not make any warranties or representations of any kind or nature regarding the truth, accuracy or completeness of the information set out in or disclosed by the Property Information.

(c)          All due diligence activities of Buyer at the Facility shall be scheduled with Seller upon two (2) business days prior notice. Reviews, inspections and investigations at the Facility shall be conducted by Buyer in such manner so as not to disrupt the operation of the Facility.

(d)          Buyer may obtain third party engineering and physical condition reports and Phase I Environmental Audits covering the Facility, certified to Buyer, prepared by an engineering and/or environmental consultants acceptable to Buyer; provided, no inspection by Buyer’s Consultants shall involve the taking of samples or other physically invasive procedures (such as a Phase II environmental audit) without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained in this Agreement, Buyer shall indemnify, defend (with counsel acceptable to Seller) and hold Seller and its managers, officers, partners, employees and agents, and each of them, harmless from and against any and all losses, claims, damages and liabilities, (including without limitation, attorneys’ fees incurred in connection therewith) arising out of or resulting from Buyer’ or Buyer’s Consultant’s exercise of its right of inspection as provided for in this Section 6; provided, however, such indemnification shall not extend to matters merely discovered by Buyer and/ or the acts or omissions of Seller or any third party. The indemnification obligation of Buyer under this Section 6 shall survive the termination of this Agreement for a period of twelve (12) months. Following any audit or inspection as provided for herein, Buyer shall return the Real Property and Facility to the condition in which they existed immediately prior to such audit or inspection.

(e)          If the results of the foregoing inspections and audits are not acceptable to Buyer in its sole and absolute discretion, Buyer may, upon written notice to Seller given on or before 5:00 p.m. (Pacific Time) on the last day of the Due Diligence Period, terminate this Agreement, and in such event, neither party shall have any further rights and obligations under this Agreement, except for obligations which expressly survive the termination of this Agreement. Failure of Buyer to deliver written notice of approval prior to 5:00 p.m. (Pacific Time) on the last day of the Due Diligence Period shall be deemed to constitute Buyer’s disapproval of the matters described in Section 6(a). If this Agreement shall be terminated prior to Closing, Buyer shall promptly return or destroy all copies of the Due Diligence Items and deliver any reports concerning the Property to Seller.

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(f)          During the Due Diligence Period, Buyer shall obtain, at Buyer’s election, a third party inspection report with respect to the Facility (the “Inspection Report”). If the Inspection Report recommends any critical repairs (the “Critical Repairs”) be made to the Facility, Buyer shall provide Seller with written notice of the same prior to the expiration of the Due Diligence Period, and the Critical Repairs shall be listed on a new Schedule 6(f) to be attached to the Agreement. Seller shall notify Buyer of the estimated cost of making the Critical Repairs. So long as the total cost of all Critical Repairs does not exceed One Hundred Thousand and No/100 Dollars ($100,000.00), Seller shall make all Critical Repairs listed in the Inspection Report to the Facility, at Seller’s sole cost and expense, within six months following the Closing. Upon completion of the Critical Repairs, Seller shall deliver to Buyer a completion letter or similar notice documenting the completion of the Critical Repairs (the “Critical Repair Completion Notice”) executed by Seller and Seller’s contractor and/or architect who performed and/or supervised the construction of the Critical Repairs. If the estimated total cost of all Critical Repairs listed on the Inspection Report exceeds $100,000.00, Buyer shall have the option of (i) waiving the requirement that the Critical Repairs be made or (ii) terminating this Agreement, in which case the Deposits shall be returned to Buyer, Buyer shall promptly return or destroy all copies of the Due Diligence Items and deliver any reports concerning the Property to Seller, and the parties shall have no further obligation to the other except those agreements that specifically survive termination of this Agreement, including the Confidentiality Agreement.

7.          Prorations; Closing Costs; Possession; Post Closing Assistance.

(a)          There will be no prorations at the Closing since Seller shall remain responsible for all taxes, costs and expenses relating to the Facility following the Closing pursuant to the Post Closing Lease (as defined in Section 12(a)(v)).

(b)          Seller shall pay any state, county and local transfer taxes arising out of the transfer of the Real Property.

(c)          Seller shall pay the cost of the standard owner’s title insurance policy, as described in this Agreement (excluding any survey exception or deletion of coverage). Buyer shall pay the cost of any lender’s policy for Buyer’s lender, any title endorsements requested by Buyer and its lender and the cost of updating or obtaining new Surveys. Seller shall pay all fees of Escrow Agent. All other costs associated with title and survey matters shall be paid in accordance with Galveston County (and local) custom and practice.

(d)          Buyer and Seller shall each pay their own attorney’s fees. Buyer shall pay for all costs of review of the Due Diligence Items and its additional due diligence inspection costs including, without limitation, the cost of any environmental reports.

(e)          On the Closing Date, Seller shall retain possession of the Facility pursuant to the Post Closing Lease.

(f)          Buyer shall bear all costs of financing its acquisition of the Property.

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8.          Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer that:

(a)          Legality.

(i)          Organization, Corporate Powers, Etc. Seller is duly organized, validly existing and in good standing under the laws of the State of Texas Seller has full power, authority and legal right (A) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document, as defined herein, to which it is a party, (B) to transfer good, indefeasible title to the Property to Buyer free and clear of all liens, claims and encumbrances except for Permitted Exceptions (as defined in Section 5 hereof) and liens to be released at Closing, and (C) to carry out the transactions contemplated hereby and by such other instruments to be carried out by such party.

(ii)         Due Authorization, Etc. This Agreement and the Closing Documents (collectively the “Transaction Documents”) have been, and each instrument provided for herein or therein to which Seller is a party will be, when executed and delivered as contemplated hereby authorized, executed and delivered by Seller and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of Seller and enforceable in accordance with their terms.

(iii)        Governmental Approvals. To Seller’s actual knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Seller is a party or for the validity or enforceability thereof against such party other than the recording or filing for recordation of the Texas form Special Warranty Deed (the “Deed”) which recording shall be accomplished at Closing.

(iv)        Other Rights. No right of first refusal, option or preferential purchase or other similar rights are held by any person with respect to any portion of the Property.

(v)         No Litigation. Except as set forth on Schedule 8(a)(v) attached hereto, neither Seller nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Seller’s actual knowledge, no such actions or proceedings are threatened, against Seller before or by any court, arbitrator, administrative agency or other governmental authority, which (A) individually or in the aggregate, are expected, in the reasonable judgment of Seller, to materially and adversely affect Seller’s ability to carry out any of the transactions contemplated by any of the Transaction Documents or (B) otherwise involve any portion of the Property including, without limitation, the Facility.

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(vi)        No Conflicts. Neither the execution and delivery of the Transaction Documents to which Seller is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (A) a breach or violation of (1) any material law or governmental rule or regulation applicable to Seller now in effect, (2) any provision of any of Seller’s organizational documents, (3) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Seller, or (4) any material agreement or instrument to which Seller is a party or by which Seller or its respective properties are bound; or (B) the creation of any lien, claim or encumbrance upon any properties or assets of Seller.

(b)          Property.

As of the Effective Date and the Closing Date, except as set forth on Schedule 8(b):

(i)          Seller has no actual knowledge of and has not received any notice of outstanding deficiencies or work orders of any authority having jurisdiction over any portion of the Property;

(ii)         Seller has no actual knowledge of and has not received any notice of any claim, requirement or demand of any licensing or certifying agency supervising or having authority over the Facility to rework or redesign it in any material respect or to provide additional furniture, fixtures, equipment or inventory so as to conform to or comply with any law which has not been fully satisfied;

(iii)        Seller has not received any notice from any governmental authority of any material violation of any law applicable to any portion of the Real Property or to the Facility;

(c)          Condemnation. There is no pending or, to the actual knowledge of Seller, threatened condemnation or similar proceeding or assessment affecting the Real Property, nor, to the actual knowledge of Seller, is any such proceeding or assessment contemplated by any governmental authority.

(d)          Hazardous Substances. Except as disclosed on Schedule 8(d), to Seller’s actual knowledge, there has been no production, storage, manufacture, voluntary or involuntary transmission, use, generation, treatment, handling, transport, release, dumping, discharge, spillage, leakage or disposal at, on, in, under or about the Real Property of any Hazardous Substances by Seller, or any affiliate or agent thereof, except in strict compliance with all applicable Laws. To Seller’s actual knowledge there are no Hazardous Substances at, on, in, under or about the Real Property in violation of any Law, and to Seller’s actual knowledge, there is no proceeding or inquiry by any federal, state or local governmental agency with respect thereto. For purposes of this Agreement, “Hazardous Substances” shall mean any hazardous or toxic substances, materials or wastes, including, without limitation, those substances, materials and wastes listed in the United States Department of Transportation Table (49 CFR 172.1 01) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302 and amendments thereto) or such substances, materials and wastes which are or become regulated under any applicable local, state or federal law (collectively, “Laws”), including, without limitation, any material, waste or substance which is (i) a hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. § 6901 et seq.); (ii) a pollutant or contaminant or hazardous substance as defined in the Comprehensive Environmental Response. Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); (iii) a hazardous substance pursuant to § 311 of the Clean Water Act (33 U.S.C. § 1251, et seq., 33 U.S.C. § 1321) or otherwise listed pursuant to § 307 of the Clean Water Act (33 U.S.C. § 1317); (iv) a hazardous waste pursuant to § 1004 of the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.); (v) polychlorinated biphenyls (PCBs) as defined in the Federal Toxic Substance Control Act, as amended (15 U.S.C. § 2501 et seq.); (vi) hydrocarbons, petroleum and petroleum products; (vii) asbestos; (viii) formaldehyde or medical or biohazardous waste; (ix) radioactive substances; (x) flammables and explosives; (xi) any state statutory counterparts to those federal statutes listed herein; or (vii) any other substance, waste or material which could presently or at any time in the future require remediation at the behest of any governmental agency. Any reference in this definition to Laws shall include all rules and regulations which have been promulgated with respect to such Laws.

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(e)          Brokers. Neither Seller nor Buyer has dealt with any broker or finder in connection with the transactions contemplated hereby. Each party represents and warrants to the other party that it has not dealt with any other broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby. Each party agrees to indemnify, protect, defend, protect and hold the other party harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from such indemnifying party’s breach of the foregoing representation. The provisions of this Section 8(e) shall survive the Closing or earlier termination of this Agreement for a period of twelve (12) months.

(f)          Leases and Contracts. Schedule 8(f) is a list of all Leases and Contracts relating to the Facility to which Seller is a party or by which Seller may be bound. Seller has made or will promptly make available to Buyer true, complete and accurate copies of all Leases and Contracts including, without limitation, any modifications thereto. All of the Leases and Contracts are in full force and effect without claim of material default there under, and, except as may be set forth on Schedule 8(f).

(g)          Financial Statements. Schedule 8(g) contains (i) the balance sheets of the Operator for the last three (3) fiscal years ending prior to the date of this Agreement (audited if available and unaudited to the extent audited statements are not available) and the unaudited balance sheets for each of the past three (3) fiscal quarters completed prior to the date of this Agreement and (ii) the related consolidated statements of income, results of operations, changes in members’ equity and changes in financial position with respect to each such period as compared with the immediately prior period (collectively, the “Financial Statements”). The Financial Statements taken as a whole (A) fairly present the financial condition and results of operation of the Operators for the periods indicated, (B) are true, accurate, correct and complete in all material respects, and (C) except as stated in Schedule 8(g) (or in the notes to the Financial Statements) have been prepared in accordance with the Operator’s tax basis reporting, as consistently applied. Except as disclosed in Schedule 8(g), or otherwise disclosed in writing to Buyer, to Seller’s actual knowledge neither Seller, as to the Facility, nor the Facility is obligated for or subject to any material liabilities, contingent or absolute, and whether or not such liabilities would be disclosed in accordance with tax basis reporting, and Schedule 8(g) sets forth all notes payable, other long term indebtedness and, to Seller’s actual knowledge, all other liabilities to which the Facility and the Real Property are or at Closing (and following Closing) will be subject, other than new indebtedness obtained by Buyer in connection with its purchase of the Property. Seller has received no notice of default under any such instrument.

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(h)          Interests in Competitors, Suppliers and Customers. Other than the Operator entities and except as set forth on Schedule 8(h), or in Schedule 1(a) as constituting a part of the Facility, neither Seller nor any of its members has any interest in any property used in the operation of, or holds an interest in, any supplier or customer of Seller or the Facility or any competitor of the Facility which is located within a radius of ten miles.

(i)          No Foreign Persons. Neither Seller nor its members is a foreign person within the meaning of Sections 897 or 1445 of the Code, nor is Seller a U.S. Real Property Holding Company within the meaning of Section 897 of the Code.

(j)          Licensure. As of the date hereof, except as set forth on Schedule 8(j) attached hereto, there is no action pending or, to the actual knowledge of Seller, recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate the Facility, or certification of the Facility, or any material action of any other type with regard to licensure or certification. The Facility is operating and functioning as a skilled nursing facility without any waivers from a governmental agency affecting the Facility except as set forth in Schedule 8(j), and is fully licensed for a skilled nursing facility, as applicable, by the State for the number of beds and licensure category set forth in Schedule 1(a) hereto. Schedule 8(j) attached hereto contains a complete and accurate list of all life safety code waivers or other waivers affecting the Facility.

(k)          Regulatory Compliance.

(i)          Seller or the Operator has duly and timely filed all reports and other items required to be filed (collectively, the “Reports”) with respect to any cost based or other form of reimbursement program or any other third party payor (including without limitation, Medicare, Medicaid, medically indigent assistance, Blue Cross, Blue Shield, any health maintenance, preferred provider, independent practice or other healthcare related organizations, peer review organizations, or other healthcare providers or payors) (collectively, “Payors”) and have timely paid all amounts shown to be due thereon. At the time of filing, to Seller’s actual knowledge, each Report was true, accurate and complete. To Seller’s actual knowledge, all rights and obligations of the Facility or Seller under such Reports are accurately reflected or provided for in the Financial Statements.

(ii)         Except as set forth in Schedule 8(k) attached hereto, (A) neither Seller nor, to Seller’s actual knowledge, the Operator is delinquent in the payment of any amount due under any of the Reports for the Facility, (B) there are no written or threatened proposals by any Payors for collection of amounts for which Seller or the Facility could be liable, (D) there are no current or pending claims, assessments, notice, proposal to assess or audits of Seller or Operator or the Facility with respect to any of the Reports, and, to Seller’s actual knowledge, no such claims, assessments, notices, or proposals to assess or audit are threatened, and (D) neither Seller nor Operator has executed any presently effective waiver or extension of the statute of limitations for the collection or assessment of any amount due under or in connection with any of the Reports with respect to the Facility.

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(iii)        Except as set forth in Schedule 8(k) attached hereto, neither Seller nor the Operator has received notice of failure to comply with all applicable Laws, settlement agreements, and other agreements with any state or federal governmental body relating to or regarding the Facility (including all applicable environmental, health and safety requirements), and Seller or the Operator has and maintains all permits, licenses, authorizations, registrations, approvals and consents of governmental authorities and all health facility licenses, accreditations, Medicaid, Medicare and other Payor certifications necessary for its activities and business including the operation of the Facility as currently conducted. Each health facility license, Medicaid and Medicare and other Payor certifications, Medicaid provider agreement and other agreements with any Payors is in full force and effect without any waivers of any kind (except as disclosed in Schedule 8(k)) and has not been amended or otherwise modified, rescinded or revoked or assigned nor, to Seller’s actual knowledge, (A) is there any threatened termination, modification, recession, revocation or assignment thereof, (B) no condition exists nor has any event occurred which, in itself or with the giving of notice, lapse of time or both would result in the suspension, revocation, termination, impairment, forfeiture, or non-renewal of any governmental consent applicable to Seller or to the Facility or of any participation or eligibility to participate in any Medicare, Medicaid, or other Payor program and (C) there is no claim that any such governmental consent, participation or contract is not in full force and effect.

(l)          Regulatory Surveys. Seller shall deliver to Buyer, in the manner required pursuant to the terms of this Agreement, complete and accurate copies of the survey or inspection reports made by any governmental authority with respect to the Facility during the calendar years 2009, 2010, 2011 and year-to-date 2012. To the best of Seller’s knowledge, after diligent investigation, and except as shown on Schedule 8(l), all exceptions, deficiencies, violations, plans of correction or other indications of lack of compliance in such reports have been fully corrected and there are no bans or limitations in effect, pending or threatened with respect to admissions to the Facility nor any licensure curtailments in effect, pending or threatened with respect to the Facility. Seller shall continue to deliver all such surveys, inspection reports as and when same are received and/or filed as the case may be prior to the Closing.

(m)          Licensed Bed/Current Rate Schedule. As of the Effective Date, Schedule 8(m) sets forth (i) the number of licensed beds and the number of operating beds in the Facility, (ii) the current standard private rates charged by the Facility to all of its residents, and (iii) the number of beds or units presently occupied in, and the occupancy percentage at, the Facility, including the current rates charged by the Facility for each such occupied bed or unit. Neither Seller nor any Operator has any life care arrangement in effect with any current or future resident.

(n)          Operations. The Facility is reasonably and adequately equipped and the Facility includes sufficient and adequate numbers of furniture, furnishings, equipment, consumable inventory, and supplies to operate such Facility as each is presently operated by Seller. Personal Property used to operate Facility and to be conveyed to Buyer is free and clear of liens, security interests, encumbrances, leases and restrictions of every kind and description, except for Permitted Encumbrances and any liens, security interests and encumbrances to be released at Closing.

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(o)          No Misstatements, Etc. To the best of Seller’s knowledge, neither the representations and warranties of Seller stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor the Due Diligence Items or any certificate or instrument furnished or to be furnished to Buyer by Seller in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

(p)          Supplementation of Schedules; Change in Representations and Warranties. Seller shall have the continuing right and obligation to supplement and amend the Schedules herein on a regular basis including, without limitation, Schedule 8(g), and Seller’s warranties and representations required hereunder, as necessary or appropriate (i) in order to make any representation or warranty not misleading due to events, circumstances or the passage of time or (ii) with respect to any matter hereafter arising or discovered up to and including the Closing Date, but Buyer shall not be deemed to have approved such supplemental Schedules unless Buyer expressly acknowledges approval of same in writing. In the event Seller amends any such Schedules, or Buyer or Seller gains actual knowledge prior to the Closing that any representation or warranty made by the other party contained in this Section 8 is otherwise untrue or inaccurate, such party shall, within five (5) days after gaining such actual knowledge but in any event prior to the Closing, provide the other party with written notice of such inaccuracy, whereupon the noticed party shall promptly commence, and use its best efforts to prosecute to completion, the cure of such matter, to the extent any such matter is curable. If any such matter is not curable within reason and is material, in Buyer’s reasonable business judgment, Buyer shall have the right to terminate this Agreement upon written notice to Seller within five (5) business days of receipt or delivery of such notice, as applicable, on the same basis as set forth in Section 13(a) if during the Due Diligence Period and in Section 13(b)(i)(i) herein if after expiration of the Due Diligence Period.

(q)          Survival of Representations and Warranties; Updates. The representations and warranties of Seller in this Agreement shall not be merged with the Deeds at the Closing and shall survive the Closing for the period of three (3) years; provided, Seller understands and agrees that the Post Closing Lease, shall provide for a lengthier period of survival with respect to certain matters referenced therein.

For purposes of this Agreement, the phrase “to Seller’s actual knowledge” or words of similar import shall mean the actual knowledge of the general partner or President, as applicable, of the entity comprising Seller.

9.          Representations and Warranties of Buyer. Buyer hereby warrants and represents to Seller that:

(a)          Organization, Corporate Powers, Etc. Buyer is a limited liability company, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing in each other state or jurisdiction in which the nature of its business requires the same except where a failure to be so qualified does not have a material adverse effect on the business, properties, condition (financial or otherwise) or operations of that person. Buyer has full power, authority and legal right (i) to execute and deliver, and perform and observe the provisions of this Agreement and each Transaction Document to which it is a party, and (ii) to carry out the transactions contemplated hereby and by such other instruments to be carried out by Buyer pursuant to the Transaction Documents.

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(b)          Due Authorization, Etc. The Transaction Documents have been, and each instrument provided for herein or therein to which Buyer is a party will be, when executed and delivered as contemplated hereby, duly authorized, executed and delivered by Buyer and the Transaction Documents constitute, and each such instrument will constitute, when executed and delivered as contemplated hereby, legal, valid and binding obligations of the Buyer enforceable in accordance with their terms.

(c)          Governmental Approvals. To Buyer’s actual knowledge, no consent, approval or other authorization (other than corporate or other organizational consents which have been obtained), or registration, declaration or filing with, any court or governmental agency or commission is required for the due execution and delivery of any of the Transaction Documents to which Buyer is a party or for the validity or enforceability thereof against such party.

(d)          No Litigation. Except as set forth on Schedule 9(a)(iv) attached hereto, neither Buyer nor its registered agent for service of process has been served with summons with respect to any actions or proceedings pending or, to Buyer’s actual knowledge, no such actions or proceedings are threatened, against Buyer before or by any court, arbitrator, administrative agency or other governmental authority, which individually or in the aggregate, are expected, in the reasonable judgment of Buyer, to materially and adversely affect Buyer’s ability to carry out any of the transactions contemplated by any of the Transaction Documents.

(e)          No Conflicts. Neither the execution and delivery of the Transaction Documents to which Buyer is a party, compliance with the provisions thereof, nor the carrying out of the transactions contemplated thereby to be carried out by such party will result in (i) a breach or violation of (A) any material law or governmental rule or regulation applicable to Buyer now in effect, (B) any provision of any Buyer’s organizational documents, (C) any material judgment, settlement agreement, order or decree of any court, arbitrator, administrative agency or other governmental authority binding upon Buyer, or (D) any material agreement or instrument to which Buyer is a party or by which Buyer or its respective properties are bound; (ii) the acceleration of any obligations of Buyer; or (iii) the creation of any lien, claim or encumbrance upon any properties or assets of Buyer.

(f)          No Misstatements, Etc. To the best of Buyer’s knowledge, neither the representations and warranties of Buyer stated in this Agreement, including the Exhibits and the Schedules attached hereto, nor any certificate or instrument furnished or to be furnished to Seller by Buyer in connection with the transactions contemplated hereby, contains or will contain any untrue or misleading statement of a material fact.

(g)          Survival of Representations and Warranties; Updates. The representations and warranties of Buyer in this Agreement shall not be merged with the Deeds at the Closing and shall survive the Closing for the period of three (3) years.

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10.         Covenants of Seller. Seller covenants with respect to the Facility as follows:

(a)          Pre-Closing. Between the date of this Agreement and the Closing Date, except as contemplated by this Agreement or with the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

(i)          Seller shall use its best efforts to cause the Operator to operate the Facility diligently, in accordance with the Operator’s obligations under its lease or other arrangement with Seller, and only in the ordinary course of business.

(ii)         Seller shall use its best efforts to prevent the Operator from making any material change in the operation of the Facility, and shall prevent the Operator from selling or agreeing to sell any items of machinery, equipment or other assets of the Facility, or otherwise entering into any agreement affecting the Facility, except in the ordinary course of business;

(iii)        Seller shall use its best efforts to prevent the Operator from entering into any Lease or Contract or commitment affecting the Facility, except for Leases or Contracts entered into in the ordinary course of business;

(iv)        During normal business hours and consistent with Section 6(c) herein, Seller shall provide Buyer or its designated representative with access to the Facility upon prior notification and coordination with Seller and the Operator; provided, Buyer shall not materially interfere with the operation of the Facility. At such times Seller and the Operator shall permit Buyer to inspect the books and records of the Facility;

(v)         Within five (5) business days following the execution of this Agreement by the parties, Seller shall deliver to Buyer the due diligence items described on the Due Diligence List attached hereto as Schedule 6(a)(vii) (the “Due Diligence Items”); provided, in the event certain Due Diligence Items (“Unavailable Items”) are not readily accessible to Seller, Seller may identify the Unavailable Items by written notice to Buyer within such five (5) business day period and shall use its best efforts to deliver all Unavailable Items to Buyer as promptly as possible, but in no event more than ten (10) business days following the execution of this Agreement. If Buyer requests additional items not included on Schedule 6(a)(vii), it will do so by written request delivered by Seller and Seller will use its best efforts to provide such information within five (5) business days within receipt of the request; and, provided further, Seller shall continue to cause Operator to deliver to Buyer, following the expiration of the Due Diligence Period, financial reports showing, among other things, the EBITDAR (defined below) for the Facility for the trailing twelve (12) month annualized operations for any given period. The term “EBITDAR” means “earnings before interest, taxes, depreciation, amortization and rent and reserves (reserves meaning additions to capital reserves).”

(vi)        Seller shall use its best efforts to prevent the Operator from moving residents from the Facility, except (a) to any other Facility which is owned by Seller and constitutes part of the Property as defined herein, (b) for health treatment purposes or otherwise at the request of the resident, family member or other guardian or (c) upon court order or the request of any governmental authority having jurisdiction over the Facility;

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(vii)       Seller shall use commercially reasonable efforts to cause the Operator to retain the services and goodwill of the employees of the Operator until the Closing;

(viii)      Seller shall maintain in force, or shall cause the Operator to maintain in force, the existing hazard and liability insurance policies, or comparable coverage, for the Facility as are in effect as of the date of this Agreement;

(ix)         Seller shall, and shall cause the Operator, to file all returns, reports and filings of any kind or nature, including but not limited to, cost reports referred to in this Agreement, required to be filed by Seller or the Operator on a timely basis and shall timely pay all taxes or other obligations and liabilities or recoupments which are due and payable with respect to the Facility in the ordinary course of business with respect to the periods Seller or Operator operated the Facility;

(x)          Seller shall cause the Operator (a) to maintain all required operating licenses in good standing, (b) to operate the Facility in accordance with its current business practices and (c) to promptly notify Buyer in writing of any notices of material violations or investigations received from any applicable governmental authority;

(xi)         Seller shall use commercially reasonable efforts to cause the Operator to make all customary repairs, maintenance and replacements required to maintain the Facility in substantially the same condition as on the date of Buyer’s inspection thereof, ordinary wear and tear excepted;

(xii)        Seller shall promptly notify Buyer in writing of any Material Adverse Change, as defined herein, of which Seller becomes aware in the condition or prospects of the Facility including, without limitation, sending Buyer copies of all surveys and inspection reports of all governmental agencies received after the date hereof and prior to Closing, promptly following receipt thereof by the Operator. For purposes of this Agreement, a “Material Adverse Change” shall mean: (i) a decrease in the adjusted rolling twelve (12) month EBITDAR to less than Two Million One Hundred Thousand and 00/100 Dollars ($2,100,000.00), or (ii) loss of licensure, or (iii) loss of Medicaid or Medicare participation, or (iv) any adverse action by a governmental agency which, with the passage of time, would reasonably be expected to materially affect in a negative manner licensure at the Facility, or any adverse action in the Facility which would reasonably be expected to materially affect in a negative manner such Facility’s participation or eligibility to participate in any Medicare, Medicaid, or other Payor program, unless appropriate corrective action has been taken by the Operator, in the ordinary course of business, or (v) failure to settle with the appropriate governmental authority, or to satisfy on or before the Closing (either directly with such governmental authority or by funds escrowed by Seller for such purposes) all claims for reimbursements, recoupments, taxes, fines or penalties which may be due to any governmental authority having jurisdiction over the Facility, or (vi) the occurrence of a title or survey defect occurring after the date of this Agreement which would reasonably be expected to adversely affect the ability of Buyer to operate the skilled nursing home/assisted living facility at its respective Facility or to obtain financing for such Facility, or (vii) the commencement of any third party litigation which interferes with Seller’s ability to close the transactions contemplated by this Agreement, or (viii) any damage, destruction or condemnation affecting the Facility in which the estimate of damage exceeds $100,000 per Facility and such damage or destruction has not been repaired, or Buyer as not otherwise waived such condition prior to Closing. In the event of any occurrence described in clause (iv) above, Operator shall deliver a copy of the Plan of Correction or otherwise notify Buyer in writing of the planned action, and such Plan of Correction or other corrective action which has been approved by the applicable regulatory agency or agencies.

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(xiii)       Seller agrees to cause the Operator to remedy any compliance deficiency cited in any written notice from, or in any settlement agreement or other Plan of Correction or other agreement with, any state or federal governmental body, or in the event of state or federal proceedings against Operator or the Facility, or receipt by the Operator of such notice prior to the Closing Date, of any condition which would affect the truth or accuracy of any representations or warranties set forth in this Agreement by Seller; provided, however, in the event a physical plant deficiency is cited which Seller has insufficient time to remedy before the Closing Date, in accordance with the approval of the appropriate state or federal agency, then the same shall be deemed remedied when the costs of correcting said deficiency (based upon reasonable estimates from established vendors selected by Seller and Buyer and approved by Seller and by Buyer, in its sole and absolute discretion) shall be held back in the Escrow at the Closing and not released to Seller until such deficiency is corrected by Seller; and, provided further, a non-physical plant deficiency which cannot be remedied prior to the Closing, in accordance with the approval of the appropriate state or federal agency, will be deemed to be remedied for purposes of this Section if Operator develops a Plan of Correction addressing the deficiency(ies) and such Plan of Correction is approved by the applicable State agency. Seller shall use its best efforts to remedy any such deficiency subsequent to the Closing which is to be remedied as a result of a Plan of Correction filed by Seller or Operator prior to the Closing, and Buyer shall cooperate with such efforts by Seller; provided, Seller shall bear all costs associated with such remedy. In the event any such Plan of Correction agreed to by Seller and Operator prior to the Closing is not approved by the applicable State agency subsequent to Closing, Seller shall promptly use its best efforts, and shall cause Operator to use its best efforts, to amend the Plan of Correction in such a manner that is necessary to obtain acceptance by the State of the amended Plan of Correction as soon as practicable after submittal. Notwithstanding any other provision of this Agreement, the obligation of Seller pursuant to this Subsection 10(a)(xiii) shall survive the Closing for such period of time as is necessary to remedy such deficiency.

(xiv)      Seller shall, at its cost and on or before Closing, obtain releases of financing statements and tax and judgment liens affecting or relating to the Facility which have been filed or recorded in the State with the Office of the Secretary of State and the appropriate County Recorder’s Office.

(xv)       Seller shall promptly comply with any notices of violations received relating to the Facility and shall deliver to Buyer a copy of any such notice received and evidence of compliance with such notice.

(xvi)      Seller shall complete the Critical Repairs in accordance with Section 6(f) of this Agreement (which repairs are not required to be completed until six months following the Closing).

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(b)          Closing. On or before the Closing Date, Seller shall deliver the following documents to Escrow Agent relating to the Facility (“Closing Documents”):

(i)          One (1) original executed Deed for the Facility, in recordable form;

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

(iii)        Two (2) original executed counterparts of the bill of sale for the Personal Property (“Bill of Sale”), an assignment of Seller’s interest in the Contracts and Leases (“Assignment of Contracts and Leases”), and other instruments of transfer and conveyance in form and substance to be agreed upon prior to the expiration of the Due Diligence Period transferring and assigning to Buyer the Real Property, Personal Property and the Intangibles to be transferred as provided herein with respect to the Facility (“Instruments of Assignment”);

(iv)        One (1) original of the executed Critical Repair Completion Notice, to the extent not previously delivered to Buyer, if such Critical Repairs have been completed but, because the Critical Repairs are not required to be completed until six months following the Closing, delivery of the Critical Repair Completion Notice is not a condition to Closing.

(v)         One (1) original executed certificate executed by Seller confirming that Seller’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Seller’s Confirmation”);

(vi)        All contractor’s and manufacturer’s guaranties and warranties, if any, in Seller’s possession relating to the Facility (collectively, the “Warranties”), which delivery will be made by leaving such materials at the Facility; and

(vii)       Two (2) original executed counterparts of each of the FIRPTA Certificate, escrow agreements and other documents required by the Title Company in connection with the transactions contemplated by this Agreement (collectively, the “Title Company Documents”).

11.         Covenants of Buyer. Buyer hereby covenants as follows:

(a)          Pre-Closing. Between the date hereof and the Closing Date, except as contemplated by this Agreement or with the consent of Seller, Buyer agrees that Buyer shall not take any action inconsistent with its obligations under this Agreement or which could hinder or delay the consummation of the transaction contemplated by this Agreement. Between the date hereof and the Closing Date, Buyer agrees that Buyer shall not (i) make any commitments to any governmental authority, (ii) enter into any agreement or contract with any governmental authority or third parties, or (iii) alter, amend, terminate or purport to terminate in any way any governmental approval or permit affecting the Real Property, Personal Property or Facility, which would be binding upon Seller, any Real Property Owner, the Facility or Personal Property after any termination of this Agreement.

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(b)          Closing. On or before the Closing Date, Buyer shall deposit the following with Escrow Agent:

(i)          The Purchase Price in accordance with the requirements of this Agreement;

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

(iii)        Two (2) original executed counterparts of each of the Instruments of Assignment requiring Buyer’s signature;

(iv)        One (1) original executed certificate executed by Buyer confirming that Buyer’s representations and warranties continue to be true and correct in all material respects, or stating how such representations and warranties are no longer true and correct (“Buyer’s Confirmation”); and

(v)         Two (2) original executed counterparts of each of the Title Company Documents requiring Buyer’s signature.

12.         Conditions to Closing.

(a)          Conditions to Buyer’s Obligations. All obligations of Buyer under this Agreement are subject to the reasonable satisfaction and fulfillment, prior to the Closing Date, of each of the following conditions. Any one or more of such conditions may be waived in writing by Buyer.

(i)          Seller’s Representations, Warranties and Covenants.          Seller’s representations, warranties and covenants contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein, shall be true at the date hereof and as of the Closing Date as though such representations, warranties and covenants were then again made, except to the extent that Buyer has discovered, or Seller has provided Buyer with written notice (the “Supplemental Notice”) prior to Closing that Seller has just become aware, that a representation is untrue or inaccurate, and Buyer nevertheless elects not to terminate this Agreement at the expiration of the Due Diligence Period, or, if the Supplemental Notice is delivered after the Due Diligence Period, Buyer elects to proceed with closing the transaction despite such inaccuracy, whereupon Buyer will be deemed to have waived any right of recourse or damages against Seller resulting from such inaccuracy disclosed in the Supplemental Notice. Upon receipt of a Supplemental Notice from Seller after the expiration of the Due Diligence Period, Buyer shall have the right to (a) terminate this Agreement upon written notice to Seller within five (5) days after receipt of the Supplemental Notice, or (b) elect to proceed with closing the transaction as set forth in this Agreement. If Seller provides Buyer with a Supplemental Notice within ten (10) business days of Closing, then Buyer shall have the right, at its option, upon written notice to Seller and at no cost to Buyer, to extend the Closing Date for up to ten (10) business days in order to analyze and review the issues disclosed in the Supplemental Notice.

(ii)         Seller’s Performance. Seller shall have performed all of its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

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(iii)        Damage and Condemnation. Prior to the Closing Date, no portion of the Facility shall have been damaged or destroyed by fire or other casualty where the estimate of damage to such Facility exceeds 10% of the Purchase Price allocated to such Facility, or proceedings be commenced or threatened to take or condemn any material part of the Real Property or improvements comprising a Facility by any public or quasi-public authority under the power of eminent domain. A proceeding shall be deemed to be “material” if such condemnation or taking (i) relates to the material taking or closing of any right of access to any Real Property or Facility, (ii) cause the Real Property or Facility to become non-conforming with then current legal requirements governing such Real Property or Facility, (iii) results in the loss of parking that is material to the operation of such Facility, or (iv) result in the loss of value in excess of 10% of the Purchase Price allocated to such Facility, in Buyer’s reasonable judgment. If such Facility shall have been so damaged or destroyed, Seller shall deliver prompt written notice of such condemnation, damage or destruction to Buyer. In the event Buyer waives this condition, by written notice to Seller within fifteen (15) business days of receipt of notice of such proceeding, and the Closing occurs, Seller shall assign to Buyer all its right to any insurance proceeds in connection therewith. If proceedings shall be so commenced or threatened to take or condemn the Real Property or the Facility or portion thereof prior to Closing, and if Buyer waives this condition and the Closing occurs, Seller shall pay or assign to Buyer all Seller’s right to the proceeds of any condemnation award in connection thereof.

(iv)        Absence of Litigation.          No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Buyer, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of the Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect the Facility or the business or prospects of the Facility.

(v)         Form of Post Closing Lease. Prior to the expiration of the Due Diligence Period, Seller and Buyer shall have agreed upon the form of the post closing lease (the “Post Closing Lease”) between Buyer, as landlord, and Seller, as tenant, incorporating in the business terms set forth in Exhibit D attached hereto.

(vi)        No Material Adverse Change. No Material Adverse Change shall have occurred in the Facility.

(vii)       Removal of Personal Property Liens. Seller shall have removed (or shall have sufficient payoff or other documents to remove such liens at Closing) all personal property liens which are related to the Facility and the Facility at Closing shall be free and clear of all liens, claims and encumbrances other than Permitted Exceptions.

(viii)      Title Insurance Policies. Title Company shall be prepared to issue the (i) Owners Title Insurance Policy for the Facility as of the Closing Date, with coverage in the amount of the allocable portion of the Purchase Price for the Facility, insuring Buyer as owner of the Facility subject only to the Permitted Exceptions, and (ii) ALTA Title Insurance Policy for each of the Facility as of the Closing Date, with coverage in the amount of the allocable portion of Buyer’s loan from Buyer’s lender (“Lender”), insuring Lender’s lien against the Facility subject only to such exceptions as may be approved by Lender, and with such endorsements as may be required by Lender.

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(ix)         Capital Improvements and Facility Renovations. Prior to the Closing, Seller shall complete, to the reasonable satisfaction of Buyer, the construction of all capital improvements and Facility renovations described in a Property Condition Report, which shall be prepared during the Due Diligence Period.

(b)          Conditions to Seller’s Obligations. All obligations of Seller under this Agreement are subject to the fulfillment, prior to the Closing Date, of each of the following conditions. Anyone or more of such conditions may be waived by Seller in writing.

(i)          Buyer’s Representations, Warranties and Covenants. Buyer’s representations, warranties and covenants contained in this Agreement or in any certificate or document delivered in connection with this Agreement or the transactions contemplated herein shall be true at the date hereof and as of the Closing Date as though such representations, warranties and covenants were then again made.

(ii)         Buyer’s Performance. Buyer shall have performed its obligations and covenants under this Agreement that are to be performed prior to or at Closing.

(iii)        Absence of Litigation. No action or proceeding shall have been instituted, threatened or, in the reasonable opinion of Seller, is likely to be instituted before any court or governmental body or authority the result of which could prevent or make illegal the acquisition by Buyer of the Facility, or the consummation of the transaction contemplated hereby, or which could materially and adversely affect the Facility or the business or prospects of the Facility.

(iv)        No Actions. There shall be no action pending or recommended by the appropriate state or federal agency to revoke, withdraw or suspend any license to operate the Facility or the certification of the Facility, or any action of any other type with regard to licensure or certification or with respect to Medicare and Medicaid provider billing agreements necessary to operate the Facility.

(v)         Form of Post Closing Lease. Prior to the expiration of the Due Diligence Period, Seller and Buyer shall have agreed upon the form of the Post Closing Lease.

13.         Termination; Defaults.

(a)          Termination For Failure of Condition. Either party may terminate this Agreement for non-satisfaction or failure of a condition to the obligation of either party to consummate the transaction contemplated by this Agreement (including, without limitation, Buyer’s election to disapprove the condition of the title or Surveys pursuant to Section 14 herein), unless such matter has been satisfied or waived by the date specified in this Agreement or by the Closing Date (as same may be extended by the parties to allow the parties to satisfy or waive conditions to close in the manner provided in this Agreement). In the event of such a termination, Escrow Agent shall promptly return (i) to Buyer, all funds of Buyer in its possession (and Seller shall return to Buyer any portion of the Extension Deposit that may have been released to Seller), including the Deposit and all interest accrued thereon, and (ii) to Seller and Buyer, all documents deposited by them respectively, which are then held by Escrow Agent. Thereafter, neither party shall have any continuing obligation or liability to the other party except for any such matters that expressly survive the Closing or termination of this Agreement, as provided herein. The provisions of this Section 13(a) are intended to apply only in the event of a failure of condition, as set forth herein, which is not the result of a default by either party, but which shall not apply in the event the non-terminating party is in default of its obligations under this Agreement.

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(b)          Termination For Cause.

(i)          If the Agreement is terminated by Seller because Buyer fails to consummate the Closing as a result of a default by Buyer under this Agreement, Seller’s sole and exclusive remedy prior to the Closing Date shall be to terminate this Agreement by giving written notice of termination to Buyer and Escrow Agent, whereupon (A) Escrow Agent shall promptly release to Seller the Deposit, and all interest accrued thereon, (B) Escrow Agent shall return to Buyer and Seller all documents deposited by them respectively, which are then held by Escrow Agent, (C) the parties shall be released and relieved of all obligations to each other under this Agreement, except for provisions that expressly survive termination as provided herein, (D) Buyer shall return to Seller all documents received by it during the course of its Due Diligence and (E) Buyer shall have no further right to purchase the Property or legal or equitable claims against Seller (except for any breach by Seller of provisions that survive termination) and/or the Property. Buyer shall have no liability to Seller under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Buyer acknowledges that the provisions of this Subsection are a material part of the consideration being given to Seller for entering into this Agreement and that Seller would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Seller against Buyer or by Buyer against Seller commenced after the Closing Date, Seller and Buyer expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. The parties acknowledge and agree that Seller’s actual damages as a result of Buyer’s default would be difficult or impossible to ascertain and that the deliveries and payments provided for in clause (A) herein constitute reasonable compensation for its actual damages. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13(b)(i) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

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(ii)         If this Agreement is terminated by Buyer because Seller has defaulted in the performance of its obligations under this Agreement, Buyer’s sole and exclusive remedies prior to the Closing Date shall be either: (A) to terminate this Agreement by giving written notice of termination to Seller and Escrow Agent and pursue any and all remedies for Buyer’s reasonable out-of-pocket costs (including attorneys’ fees and court costs), attributable to the termination of this Agreement, excluding any speculative or punitive damages, whereupon (i) Escrow Agent shall promptly return to Buyer the Deposit, and all interest accrued thereon, and (ii) Escrow Agent shall return to Seller and Buyer all documents deposited by them respectively, which are then held by Escrow Agent, or (B) to pursue the remedy of specific performance of Seller’s obligation to perform its obligations under this Agreement. Seller shall have no liability to Buyer under any circumstances for any speculative, consequential or punitive damages. Without limiting the other provisions of this Agreement, Seller acknowledges that the provisions of this Subsection are a material part of the consideration being given to Buyer for entering into this Agreement and that Buyer would be unwilling to enter into this Agreement in the absence of the provisions of this Subsection. The provisions of this Subsection shall survive any termination of this Agreement. With respect to any action by Buyer against Seller or by Seller against Buyer commenced after the Closing Date, Buyer and Seller expressly waive any right to any speculative, consequential, punitive or special damages including, without limitation, lost profits. Seller and Buyer acknowledge that they have read and understand the provisions of this Section 13.2(b) and by their initials below agree to be bound by its terms.

Seller’s Initials Buyer’s Initials

(c)          General. In the event a party elects to terminate this Agreement such party shall deliver a notice of termination to the other party.

14.         Surveys and PTR.

(a)          Buyer has previously obtained a preliminary title report (the “PTR”) covering the Real Property and the Facility dated prior to the date of this Agreement, together with legible copies of any and all instruments referred to in the PTR as constituting exceptions to title of the Real Property (the “Title Documents”).

(b)          Seller shall have delivered to Buyer a copy of the existing surveys, if any, in Seller’s possession for the Facility (“Surveys”) in accordance with Section 10(a)(v) herein. Buyer shall be responsible for obtaining an update of the Surveys or new Surveys, at Buyer’s sole cost (“New Surveys”). On or before ten (10) business days prior to the expiration of the Due Diligence Period, Buyer shall notify Seller and the Title Company (“Buyer’s Title Notice”) of any objections which Buyer may have to the PTR and/or Surveys. If Buyer objects to any matters (other than the Permitted Exceptions, as defined herein) which, in Buyer’s determination, might adversely affect the ability of Buyer to operate any of the Facility, Seller shall use its reasonable business efforts to cure same, but shall not be obligated to cure matters other than to obtain the release (at Closing) of the existing mortgage and other monetary liens caused by Seller which may be released by payment of the mortgage payoff or lien amount from Seller’s Closing proceeds (collectively, “Monetary Liens”). If Seller delivers written notice to Buyer (“Seller’s Title Notice”), on or before the expiration of the Due Diligence Period that Seller is willing to remove any exceptions objected to by Buyer, then Seller shall be obligated to remove such exceptions on or prior to the Closing and such exceptions shall not be Permitted Exceptions. If Seller does not provide Buyer with Seller’s Title Notice or Seller’s Title Notice does not provide for Seller’s agreement to remove all exceptions objected to by Buyer, then Buyer shall have the right to terminate this Agreement prior to the expiration of the Due Diligence Period or waive Buyer’s objection to any exceptions Seller has not agreed to remove with such exceptions becoming Permitted Exceptions upon Buyer waiving its due diligence contingency. Buyer shall, promptly following the execution of this Agreement, commence to use its best efforts to obtain the New Surveys as soon as practicable. Notwithstanding the foregoing provisions of this Subsection (b), Buyer shall have the right to object, promptly upon learning of any such new matters during the Due Diligence Period, to any matters raised in the New Surveys which were not addressed in the Surveys, and the parties shall cooperate with the Title Company, during the Due Diligence Period and as promptly as possible following the delivery of Buyer’s objections to such new matters in the New Surveys, to resolve any such matters to Buyer’s satisfaction. The Due Diligence Period shall not be extended for resolution of any such matters in the New Surveys.

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15.         Cooperation. Following the execution of this Agreement, Buyer and Seller agree that if any event should occur, either within or without the knowledge or control of Buyer or Seller, which would prevent fulfillment of the conditions to the obligations of any party hereto to consummate the transaction contemplated by this Agreement, each such party shall use reasonably commercial efforts to cure or to cause the cure of the same as expeditiously as possible. In addition, each party shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any applications, requests, or actions which are or may be reasonable and necessary to obtain the consent of any governmental instrumentality or any third party or to accomplish the transaction contemplated by this Agreement.

16.         Indemnification.

(a)          Indemnification Provisions.

(i)          Subject to the limitation on damages contained in Section 13(b)(ii) hereof, Seller hereby agrees to indemnify, protect, defend and hold harmless Buyer and its officers, directors members shareholders tenants, successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any breach of or inaccuracy in the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Seller contained in this Agreement or in any certificate or document delivered by Seller pursuant to any of the provisions of this Agreement, unless Seller cures such matter in the manner provided in Section 8(p) herein or (B) the failure to discharge any federal, state or local tax liability, or to pay any other assessments, recoupments, claims, fines, penalties or other amounts or liabilities accrued or payable with respect to any activities of Seller prior to the Closing Date (whether brought before or after the Closing Date), or (C) any obligation which is expressly the responsibility of Seller under this Agreement, or (D) any amounts required to cure citation violations issued by any state or federal health or human services authority on the Facility relating to any period prior to the Closing Date (whether brought before or after the Closing Dates), or (E) any claim by any employee of Seller relating to any period of employment prior to the Closing Date (whether brought before or after the Closing Date), or (F) the existence against the Real Property of any mechanic’s or materialmen’s claims resulting from the action or inaction of Seller or anyone acting under authority of Seller, or (G) any other cost, claim or liability arising out of or relating to events (other than as a result of the actions of Buyer or Buyer’s Consultants) or Seller’s ownership, operation or use of the Facility prior to the Closing Date. Any amount due under the aforesaid indemnity shall be due and payable by Seller within 30 days after demand thereof. Seller shall have the right to contest any such claims, liabilities or obligations as provided herein.

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(ii)         Subject to the limitation on damages contained in Section 13(b)(i) hereof, Buyer hereby agrees to indemnify, protect, defend and hold harmless Seller and its officers, directors, members, shareholders and tenants harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys’ fees, costs and expenses) which any of them may suffer as a result of: (A) any breach of or inaccuracy in the representations and warranties, or breach, non-fulfillment or default in the performance of any of the conditions, covenants and agreements, of Buyer contained in this Agreement or in any certificate or document delivered by Buyer pursuant to any of the provisions of this Agreement, unless Buyer cures such matter in the manner provided in Section 8(p) herein, or (B) the existence against the Real Property of any mechanic’s or materialmen’s claims arising from actions of Buyer or Buyer’s Consultants prior to the Closing, or (C) any obligation which is expressly the responsibility of Buyer under this Agreement. Any amount due under the aforesaid indemnity shall be due and payable by Buyer within thirty (30) days after demand therefor. Buyer shall have the right to contest any such claims, liabilities or obligations as provided herein, or any other cost, claim or liability arising out of or relating to events or Buyer's ownership, operation or use of the Facility after the Closing Date.

(iii)        The parties intend that all indemnification claims be made as promptly as practicable by the party seeking indemnification (the “Indemnified Party”). Whenever any claim shall arise for indemnification hereunder, the Indemnifying Party shall promptly notify the party from whom indemnification is sought (the “Indemnitor”) of the claim, and the facts constituting the basis for such claim (the “Indemnification Claim”). Failure to notify the Indemnitor will not relieve the Indemnitor of any liability that it may have to the Indemnified Party, except to the extent the defense of such action is materially and irrevocably prejudiced by the Indemnified Party’s failure to give such notice.

(iv)        An Indemnitor shall have the right to defend against an Indemnification Claim, with counsel of its choice reasonably satisfactory to the Indemnified Party, if (a) within fifteen (15) days following the receipt of notice of the Indemnification Claim the Indemnitor notifies the Indemnified Party in writing that the Indemnitor will indemnify the Indemnified Party from and against the entirety of any damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (b) the Indemnitor provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnitor will have the financial resources to defend against the Indemnification Claim and pay, in cash, all damages the Indemnified Party may suffer resulting from, relating to, arising out of, or attributable to the Indemnification Claim, (c) the Indemnification Claim involves only money damages and does not seek an injunction or other equitable relief, (d) settlement of, or an adverse judgment with respect to, the Indemnification Claim is not in the good faith judgment of the Indemnified Party likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (e) the Indemnitor continuously conducts the defense of the Indemnification Claim actively and diligently.

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(v)         So long as the Indemnitor is conducting the defense of the Indemnification Claim in accordance with Section 16(a)(iv), then (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Indemnification Claim, (B) the Indemnified Party shall not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnitor (not to be withheld unreasonably), and (C) the Indemnitor will not consent to the entry of any order or finalization of any tentative settlement, the only condition of which is the consent of the Indemnified Party thereto, with respect to the Indemnification Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed, provided that it will not be deemed to be unreasonable for an Indemnified Party to withhold its consent with respect to (i) any breach of any law, order or permit, (ii) any violation of the rights of any person, or (iii) any matter which Indemnified Party believes could have a material adverse effect on any other actions to which the Indemnified Party or its Affiliates are party or to which Indemnified Party has a good faith belief it may become party. Notwithstanding the foregoing provisions of this Subsection (v), if Indemnified Party refuses its consent to any of the matters set forth in clauses (i) through (iii) above, the indemnity amount shall be determined as if such consent had been given and Indemnitor shall pay over to the Indemnified Party such amount and be absolved from any further obligation as to that particular claim; Indemnified Party may then resolve the claim in the manner it sees fit without further recourse against Indemnitor.

(vi)        Each party hereby consents to the non-exclusive jurisdiction of any governmental body, arbitrator, or mediator in which an action is brought against any Indemnified Party for purposes of any Indemnification Claim that an Indemnified Party may have under this Agreement with respect to such action or the matters alleged therein, and agrees that process may be served on such party with respect to such claim anywhere in the world, provided however, that any venue relating to any claim or proceeding arising out of this Agreement or any other agreement between Seller and Buyer shall be the State and the laws of the State shall apply.

(b)          Insurance Proceeds. In determining the amount of damages for which either party is entitled to assert an Indemnification Claim, the amount of any such claims or damages shall be determined after deducting therefrom the amount of any insurance coverage or proceeds or other third party recoveries received by such other party in respect of such damages. If an indemnification payment is received by the Indemnified Party in respect of any damages and the Indemnified Party later receives insurance proceeds or other third party recoveries in respect of such damages, the Indemnified Party shall immediately pay to the Indemnifying Party a sum equal to the lesser of the actual amount of net insurance proceeds or other third party recoveries (remaining after recovery costs and expenses) or the actual amount of the indemnification payment previously paid by or on behalf of the Indemnified Party.

(c)          No Incidental, Consequential and Certain Other Damages. An Indemnitor shall not be liable to an Indemnified Party for incidental, consequential, enhanced, punitive or special damages unless such damages are included in a third-party claim and such Indemnified Party is liable to the third party claimant for such damages.

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(d)          Indemnification if Negligence of Indemnity; No Waiver of Rights or Remedies.

UNLESS OTHERWISE PROVIDED HEREIN, THE INDEMNIFICATION PROVIDED IN THIS SECTION 16 WILL BE APPLICABLE WHETHER OR NOT THE SOLE, JOINT, OR CONTRIBUTORY NEGLIGENCE OF THE INDEMNIFIED PARTY IS ALLEGED OR PROVEN. THE PARTIES AGREE THE PRECEDING SENTENCE IS COMMERCIALLY CONSPICUOUS. Each Indemnified Party’s rights and remedies set forth in this Agreement shall survive the Closing or other termination of this Agreement, shall not be deemed waived by such Indemnified Party’s consummation of the Closing of the sale transactions (unless the Indemnified Party has knowledge of the existence of an Indemnification Claim at Closing and decides to proceed with Closing)and will be effective regardless of any inspection or investigation conducted by or on behalf of such Indemnified Party or by its directors, officers, employees, or representatives or at any time (unless such inspection or investigation reveals the existence of an Indemnified Claim and such party proceeds with Closing), whether before or after the Closing Date.

(e)          Other Indemnification Provisions. A claim for any matter not involving a third party may be asserted by notice to the Party from whom indemnification is sought.

(f)          Dispute Resolution. Any dispute arising out of or relating to claims for indemnification pursuant to this Article 16 or any other dispute hereunder, shall be resolved in accordance with the procedures specified herein, which shall be the sole and exclusive procedure for the resolution of any such disputes.

17.         Notices. Any notice, request for consent or approval, election or other communication provided for or required by this Agreement shall be in writing and shall be delivered by hand, by air courier service, postage prepaid (certified with return receipt requested), fax transmission or electronic transmission followed by delivery of the hard copy of such communication by air courier service or mail as aforesaid, addressed to the person to whom such notice is intended to be given at such address as such person may have previously furnished in writing to the such party’s last known address. Until receipt of written notice to the contrary, the parties’ addresses for notices shall be:

To Buyer:
	Healthcare Retirement Solutions, LLC
	c/o Cornerstone Healthcare Properties
	1920 Main Street, Suite 400
	Irvine, CA  92614
	Attention:  Kent Eikanas
	Phone:  (949) 812-4335
	Email:  KEikanas@crefunds.com

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With a Copy to:
	DLA Piper LLP (US)
	2000 University Avenue
	East Palo Alto, CA  94303
	Attention:  James E. Anderson, Esq.
	Phone:  (650) 833-2078
	Email:  Jim.Anderson@dlapiper.com
To Any Seller:	Friendswood Realty, LP
	4949 Westgrove
	Suite 200
	Dallas, Texas  75248
	Attention:  M. Craig Kelly
	Phone:  469-341-2720
	Email: mcraigkelly@aol.com
With a Copy to:	Underwood Law Firm, P.C.
	Attention:  Sharon White
	P.O. Box 9158
	Amarillo, Texas  79105
	Phone:  806-376-5613
	Email: Sharon.White@uwlaw.com

18.         Sole Agreement. This Agreement constitutes the entire understanding between the parties with respect to the transactions contemplated herein, and all prior or contemporaneous oral agreements, understandings representations and statement, and all prior written agreements, understandings, letters of intent and proposals are merged into this Agreement. Neither this Agreement nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

19.         Assignment; Successors. Neither party shall assign this Agreement without the prior written consent of the other; provided, however, Buyer may assign all of its rights, title, liability, interest and obligation pursuant to this Agreement to one or more entities owned, controlled by or under common control with Buyer. Subject to the limitations on assignment set forth above, all the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the heirs, successors and assigns of the parties hereto.

20.         Severability. Should any one or more of the provisions of this Agreement be determined to be invalid, unlawful or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and each such provision shall be valid and remain in full force and effect.

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21.         Risk of Loss. Until the Closing Date, Seller shall bear the risk of loss for the Facility and after the Closing Date, the risk of loss of the Facility shall be governed by the Post Closing Lease.

22.         Holidays. If any date herein set forth for the performance of any obligations by Seller or Buyer or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday or legal holiday. As used herein, the term “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed in the State for observance thereof.

23.         Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall be deemed to constitute one and the same instrument. Facsimile signature pages or electronically transmitted signature pages shall constitute original counterparts for all purposes.

24.         Covenant Not to Compete; Non-Solicitation of Employees. For a period of three (3) years following the Closing Date, Seller agrees (i) not to own, manage, lease or operate a long term skilled nursing home facility which is located within a ten (10) mile radius of the Facility and (ii) not to solicit the transfer of patients or residents of any of the Facility to any long term care skilled nursing home facility or assisted living facility which is managed, leased or operated by any entity owned and/or controlled by any of Seller within a ten (10) mile radius of the Facility.

25.         Confidentiality. The provisions of the Confidentiality Agreement attached hereto as Exhibit C and executed by the parties either prior to the date of this Agreement are hereby incorporated by this reference and the parties hereto agree to comply with the terms thereof.

26.         Exhibits and Schedules. To the extent that one or more Exhibits or Schedules are not attached to this Agreement at the time this Agreement is executed, Seller and Buyer agree that this Agreement is not rendered unenforceable by reason of such fact. Seller shall provide such exhibits to Buyer during the Due Diligence Period as promptly as possible in order to allow the parties to agree upon such Exhibits and Schedules and to afford Buyer adequate time in which to complete its due diligence review prior to the expiration of the Due Diligence Period.

27.         Prevailing Party. Subject to the limitations as otherwise set forth in this Agreement, if an action shall be brought on account of any breach of or to enforce or interpret any of the terms, covenants or conditions of this Agreement, the prevailing party shall be entitled to recover from the other party, as part of the prevailing party’s costs, reasonable attorney’s fees, the amount of which shall be fixed by the court and shall be made a part of any judgment rendered.

28.         Time is of the Essence. Time is of the essence of this Agreement.

29.         Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State.

[Signatures on Following Pages]

28

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement by parties legally entitled to do so as of the day and year first set forth above.

“SELLER”:
FRIENDSWOOD REALTY, LP,
a Texas limited partnership
By:  Friendswood GP, LLC, a Texas limited
liability company
By:	/s/ M. Craig Kelly
	M. Craig Kelly, President
“BUYER”:
HEALTHCARE RETIREMENT SOLUTIONS, LLC, a Delaware limited liability company
By:	/s/ Terry G. Roussel
Its:	President

LIST OF EXHIBITS

A. Legal Descriptions of Real Property

B. Permitted Exceptions

C. Confidentiality Agreement

D. Lease Terms

LIST OF SCHEDULES

Schedule l(a)	List of Facility, Operator(s)
Schedule 1(c)	Personal Property
Schedule 3	Allocation of Purchase Price
Schedule 6(f)	Critical Repairs
Schedule 8(a)(v)	Claims, Litigation
Schedule 8(b)	Violations
Schedule 8(d)	Hazardous Substances
Schedule 8(f)	Leases and Contracts
Schedule 8(g)	Financial Reports
Schedule 8(h)	Interests in Suppliers, etc.
Schedule 8(j)	Matters relating to Licensure
Schedule 8(k)	Matters relating to Reports and Reimbursements
Schedule 8(l)	Surveys, Cost Reports, Private Rates, Census and Licensed Beds
Schedule 8(m)	Occupied Beds; Rates
Schedule 10(a)(v)	Due Diligence Items

EXHIBIT A

LEGAL DESCRIPTION

[To be Provided by Title Company]

EXHIBIT B

PERMITTED EXCEPTIONS

[To be Determined]

EXHIBIT C

CONFIDENTIALITY AGREEMENT

[To be Supplied by Parties]

EXHIBIT D

LEASE TERMS

[To be Supplied by Parties]

SCHEDULE 1 (a)

FACILITY; LICENSED BEDS

Facility	Licensed Nursing Beds
Friendship Haven Healthcare &
Rehabilitation Center	150
1500 Sunset Drive
Friendswood, TX

SCHEDULE 10(a)(v)

DUE DILIGENCE MATERIALS

S-1

EX-10.4

LEASE

Between

CHP PORTLAND, LLC,

a Delaware limited liability company,

as Landlord,

and

SHERIDAN CARE CENTER LLC,

an Oregon limited liability company,

dba Sheridan Care Center,

and

FERNHILL ESTATES LLC,

an Oregon limited liability company,

dba Fernhill Estates,

and

PACIFIC GARDENS ESTATES LLC,

an Oregon limited liability company,

dba Pacific Health and Rehabilitation,

collectively, as Tenant

Date of Lease: As of August 3, 2012

Table of Contents

		Page
1.	Fundamental Lease Provisions; Definitions	1
2.	Premises	6
3.	No Merger of Title	6
4.	Renewal Options	6
5.	Use; Licensing Requirements and Operating Covenants	7
6.	Rent	10
7.	Net Lease; True Lease	11
8.	Condition	12
9.	Liens	13
10.	Repairs and Maintenance	13
11.	Compliance With Laws	16
12.	Access to Premises	17
13.	Waiver of Subrogation	17
14.	Damage; Destruction	17
15.	Condemnation	20
16.	Assignment and Subletting	21
17.	Alterations	22
18.	Signs	23
19.	Surrender	23
20.	Subordination of Lease; Mortgage Reserves	24
21.	Tenant’s Obligation to Discharge Liens	25
22.	Utilities	25
23.	Tenant Default	25
24.	HUD Loan Requirements	30

Table of Contents

(continued)

		Page
25.	Rent Payments	34
26.	Holdover	34
27.	Notices	35
28.	Indemnity	35
29.	Tenant to Comply with Matters of Record	36
30.	Taxes	37
31.	Insurance	38
32.	Landlord Exculpation	40
33.	Landlord’s Title	41
34.	Quiet Enjoyment	41
35.	Broker	41
36.	Transfer of Title	41
37.	Management Agreements	42
38.	Hazardous Materials	42
39.	Estoppel Certificate	46
40.	Notice of Lease	47
41.	Miscellaneous	47

ii

LIST OF SCHEDULES AND EXHIBITS

Schedule 1	Base Rent Schedule
Exhibit A	Legal Description of Premises
Exhibit B	Permitted Encumbrances
Exhibit C	Approved Management Agreement

iii

LEASE

This Lease (this “Lease”) is made on the Date of Lease specified below, between the Landlord and the Tenant specified below.

1. Fundamental Lease Provisions; Definitions.

1.1           Fundamental Lease Provisions. The following list sets out certain fundamental provisions pertaining to this Lease:

(a)          Date of Lease. As of August ___, 2012.

(b)          Landlord. CHP Portland, LLC, a Delaware limited liability company (“Landlord”).

Landlord notice address:	CHP Portland, LLC
	c/o Cornerstone Real Estate Funds
	1920 Main Street, Suite 400
	Irvine, California  92614
	Attn:  Kent Eikanas
	Email:  KEikanas@crefunds.com
	Phone:  (949) 812-4335
	Fax:  (949) 250-0592
with copy to:	DLA Piper LLP (US)
	2000 University Avenue
	East Palo Alto, California 94303
	Attn:  James E. Anderson, Esq.
	Email:  jim.anderson@dlapiper.com
	Phone:  (650) 833-2078
	Fax:  (650) 687-1158

(c)          Tenant. Sheridan Care Center LLC, an Oregon limited liability company, dba Sheridan Care Center (“Sheridan”), Fernhill Estates LLC, an Oregon limited liability company, dba Fernhill Estates (“Fernhill”), and Pacific Gardens Estates LLC, an Oregon limited liability company, dba Pacific Health and Rehabilitation (“Pacific” and collectively with Sheridan and Fernhill, “Tenant”).

Tenant notice address:	c/o Dakavia Management Corporation
	4676 Commercial Street SE, #358
	Salem, Oregon 97302-1902
	Attn:  Kent Emry
	Email:  Kemry@dakavia.com
	Phone:  (503) 689-1808
	Fax:  (866) 501-9708

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with copy to:	Eric W. Jamieson
	c/o Garrett Hemann Robertson P.C.
	1011 Commercial Street NE
	P O Box 749
	Salem, Oregon 97308
	Email:  ejamieson@ghrlawyers.com
	Phone:  (503) 581-1501
	Fax:  (503) 581-5891

1.2           Definitions. The following list sets out certain definitions used in this Lease:

(a)          “Adverse Healthcare Event”. The occurrence of any of the following at any Facility: any termination or suspension placed upon Tenant or the Healthcare Use of any portion of a Facility, the operation of the Healthcare Business conducted within a Facility or the ability to admit residents or patients for a period in excess of thirty (30) days or if the certification or licensure of any portion of the Property under any Legal Requirements is revoked, or suspended or materially limited for a period in excess of thirty (30) days, including, without limitation, (i) termination of provider agreements without Landlord's consent; or (ii) failure to maintain Tenant's qualifications for licenses, permits, certifications and any other healthcare requirement necessary to continue to operate a Facility for its Healthcare Use.

(b)          “Approved Management Agreement.” That certain management agreement for the Premises by and between Tenant and Manager attached hereto as Exhibit C.

(c)          “AR Lender.” A third party institutional lender providing an AR Loan or AR Financing (as defined below in Section 1.2(c)) to Tenant.

(d)          “AR Loan or AR Financing.” A loan obtained by Tenant from a third party institutional lender secured by the accounts receivable from Tenant’s business operations within any Facility.

(e)          “AR Loan Documents.” All loan documents entered into by Tenant and/or AR Lender evidencing an AR Loan or AR Financing.

(f)          “Base Rent” (See Section 6). The amounts set forth on Schedule 1 hereto for the respective periods specified thereon.

(g)          “Broker.” Neither Landlord nor Tenant used a broker in connection with this Lease.

(h)          “C&C Threshold Repair Amount.” Fifty Thousand Dollars ($50,000).

(i)          “Capital Reserve Deposits.” The deposits required to be made by Tenant in the amount of Four Hundred Fifty Dollars ($450) per bed annually.

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(j)          “Date of Rent Commencement.” Rent (Base Rent and Additional Rent) for the Fernhill Facility and the Sheridan Facility shall commence upon the closing of the Fernhill Facility and the Sheridan Facility, whereby fee to the Fernhill Facility and Sheridan Facility is vested in Landlord, which is anticipated to occur on August 1, 2012, and rent (Base Rent and Additional Rent) for the Pacific Facility shall commence upon the closing of the Pacific Facility, whereby fee to the Pacific Facility is vested in Landlord, which is anticipated to occur on or before March 15, 2013.

(k)          “EBITDAR.” Earnings before interest, taxes, depreciation, amortization and Rent.

(l)          “Exhibits.” All Exhibits and Schedules to this Lease are incorporated herein by this reference.

(m)          “Facilities.” Collectively, the Fernhill Facility, the Pacific Facility and the Sheridan Facility.

(n)          “Facility.” Any of the individual Facilities.

(o)          “Fernhill Facility.” The skilled nursing facility located at 5737 NE 37th Avenue, Portland, Oregon, and commonly referred to as Fernhill Manor.

(p)          “FF&E.” All furnishings, furniture, fixtures, and equipment owned by Landlord and used in or about the Premises, but expressly excluding any personal property owned by the residents of the Premises.

(q)          “FHA.” The Federal Housing Administration.

(r)          “Healthcare Business.” The business of operating each Facility for its respective Healthcare Use.

(s)          “Healthcare Use.” The use of the Fernhill Facility, the Pacific Facility and/or the Sheridan Facility as intermediate nursing care facilities, or as skilled nursing facilities or other statutory or regulatory approved long-term care use approved by Landlord in its sole and absolute discretion.

(t)          “HUD.” The United States Department of Housing and Urban Development.

(u)          “HUD Lender.” A Lender providing a HUD Loan to Landlord on the Premises.

(v)         “HUD Loan.” A new loan secured by the Premises from a Lender insured by HUD.

(w)          “HUD Loan Documents.” The Loan Documents evidencing a HUD Loan on the Premises.

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(x)          “HUD Program Requirements.” All applicable statutes and regulations, including all amendments to such statutes and regulations, as they become effective, and all applicable requirements in HUD handbooks, notices and mortgagee letters that apply to the Premises and all requirements by HUD that Tenant’s AR Lender subordinate to HUD Loan in accordance with this Lease, including all updates and changes to such handbooks, notices and mortgagee letters that apply to the Premises, except that changes subject to notice and comment rulemaking shall become effective upon completion of the rulemaking process. (Accounts Receivable lender inter creditor)

(y)          “Late Charge.” Five percent (5%) of the amount past due.

(z)          “Laws.” As defined below in Section 11.1.

(aa)         “Lease Default Rate.” The lower of (a) fourteen percent (14%) per annum, or (b) the highest rate permitted to be contracted for under applicable Law.

(bb)         “Lease Deposit.” The Lease Deposit shall be in the amount of Four Hundred Twenty Thousand Dollars ($420,000). The Lease Deposit shall be paid as follows: (i) on the Date of Rent Commencement, a deposit shall be made by Tenant to Landlord in the amount of One Hundred Forty-three Thousand Three Hundred Thirty-three and 34/100 Dollars ($143,333.34); and (ii) at or before the time Landlord acquires the vested title in the Pacific Facility, Tenant shall pay the additional amount necessary to increase the Lease Deposit to a total of Four Hundred Twenty Thousand Dollars ($420,000).

(cc)         “Legal Requirements.” As defined below in Section 11.1.

(dd)         “Lender.” Any institutional entity that makes a loan or loans (such loan or loans collectively referred to herein as the “Loan”) to Landlord which is secured by a mortgage, deed of trust or similar instrument (the “Mortgage”) with respect to the Premises and of which Tenant is advised in writing by Landlord, and which may be insured by HUD pursuant to Sections 232 and 223(f) of the National Housing Act, as amended. Any such Loan may be evidenced by one or more promissory notes (collectively referred to herein as the “Note”).

(ee)         “Loan Documents.” Collectively, the Note, the Mortgage and all other documents entered into in connection with the Loan by Landlord and/or Tenant, including, but not limited to, the Regulatory Agreement for a HUD Loan.

(ff)         “Management Agreement.” The management agreement between Tenant and the manager of the Facilities attached hereto as Schedule C.

(gg)         “Manager.” The manager of the Facilities pursuant to the Management Agreement, which from the date of rent commencement will be Dakavia Management Corporation, an Oregon corporation, under the Approved Management Agreement.

(hh)         “Minimum Licensed Beds.” Sixty-three (63) licensed beds at the Fernhill Facility for skilled nursing care, one hundred twelve (112) licensed beds at the Pacific Facility for skilled nursing care, and fifty-one (51) licensed beds at the Sheridan Facility for intermediate nursing care and/or skilled nursing care.

4

(ii)         “Minimum Rent Coverage.” For any trailing twelve (12) month period, a ratio of EBITDAR to all Base Rent of not less than 1.3 to 1.0, based on the amounts set forth on Schedule 1 attached hereto.

(jj)          “Pacific Facility.” The skilled nursing facility located at 14145 SW 105th Street, Tigard, Oregon 97224, and commonly referred to as Pacific Health and Rehabilitation.

(kk)         “Payment of Base Rent.” As set forth in Section 6.1, Base Rent shall be paid by wire or Automatic Clearing House (ACH) transfer to the account set forth in the rent direction letter from Landlord to Tenant delivered concurrently with the execution and delivery of this Lease.

(ll)         “Permitted Encumbrances.” All taxes (as defined in Section 30), Legal Requirements (as defined in Section 11), the Mortgage and associated encumbrances in favor of the Lender, any matters consented to by Landlord, Tenant and Lender in writing, those covenants, restrictions, reservations, liens, conditions, encroachments, easements, encumbrances and other matters of title that affect the Premises as of the date hereof (including, without limitation, those listed on Exhibit B hereto) or which arise due to the acts or omissions of Tenant with Landlord’s written consent, or due to the acts or omissions of Landlord with Tenant’s written consent, after the date hereof.

(mm)         “Premises.” That certain lot or parcel of real estate which is described on Exhibit A hereto, together with the Facilities and all improvements now or hereinafter situated on said property (together with all right, title and interest of Landlord in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems used in connection with said property, and all other carpeting, appliances and other fixtures and equipment attached or appurtenant to said property), and all rights, easements, rights of way, and other appurtenances thereto.

(nn)         “Regulatory Agreement.” Collectively, the Regulatory Agreement with Landlord and the Regulatory Agreement with Tenant.

(oo)         “Regulatory Agreement with Landlord.” That certain Regulatory Agreement to be entered into between HUD and Landlord relating to the Premises.

(pp)         “Regulatory Agreement with Tenant.” That certain Regulatory Agreement to be entered into between HUD and Tenant relating to the Premises.

(qq)         “Renewal Option(s).” The Tenant shall have the following Renewal Option (herein so called) to extend the Term of this Lease for up to a total of one (1) Extension Period (herein so called) of five (5) years each upon the same terms and conditions as are set forth in this Lease (except as otherwise expressly set forth herein), and for the Base Rent set forth on Schedule 1 hereto.

(rr)         “Required Advance Notice to Exercise Renewal Options.” Notice to exercise a renewal option shall be provided no earlier than fifteen (15) months and no later than nine (9) months prior to the expiration of the then-current Term. (See Section 4).

5

(ss)         “Sheridan Facility.” The intermediate care nursing facility located at 411 SE Sheridan Road, Sheridan, Oregon, and commonly referred to as Sheridan Care Center.

(tt)         “State.” The State of Oregon.

(uu)         “Term.” The term of this Lease shall commence on the Date of Rent Commencement, and shall expire on the 31st day of July following the fifteenth (15th) anniversary of the Date of Rent Commencement; all subject to all terms and conditions of this Lease. One Hundred Eight days prior to termination of this Lease, Landlord shall identify and give Tenant notice of the name of the State-approved replacement tenant or operator which is licensed to provide skilled nursing care and intermediate nursing care in the State of Oregon. Tenant shall cooperate with Landlord in the transition to a new tenant.

(vv)         “Threshold Repair Amount.” Twenty-Five Thousand Dollars ($25,000).

2.          Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the Term and on the conditions herein provided, the Premises, subject, however, to the Permitted Encumbrances.

3.          No Merger of Title. There shall be no merger of this Lease nor of the leasehold estate created hereby with the fee estate in or ownership of the Premises by reason of the fact that the same entity may acquire or hold or own (i) this Lease or the leasehold estate created hereby or any interest therein and (ii) the fee estate or ownership of any of the Premises or any interest therein. No such merger shall occur unless and until all persons having any interest in (x) this Lease and the leasehold estate created hereby, and (y) the fee estate in the Premises including, without limitation, Lender’s interest therein, shall join in a written, recorded instrument effecting such merger.

4.          Renewal Options. Tenant has the Renewal Options, and may extend the Term of this Lease for each of the Extension Periods, upon all of the terms set forth in this Lease with the Base Rent in the amounts specified on Schedule 1 hereto for the respective Extension Periods. The Term of this Lease shall be extended if Tenant provides Landlord written notice of Tenant’s exercise of the Renewal Option in accordance with the Required Advance Notice to Exercise Renewal Options. Notwithstanding the foregoing, if (a) Tenant is in default beyond the applicable cure period on the date of giving Landlord notice of Tenant’s exercise of the Renewal Option, or (b) Landlord has previously given Tenant two (2) or more notices of default under this Lease during the previous twelve (12) month period, Tenant shall have no right to extend the Term and this Lease shall expire at the end of the existing Term.

6

5.          Use; Licensing Requirements and Operating Covenants.

5.1           Use. Tenant may use the Premises for the Healthcare Use and for no other use or purpose. Tenant’s use of the Premises must be in accordance with all applicable Laws, including, without limitation, applicable zoning and land use Laws. In no event shall the Premises be used for any purpose which shall violate any of the provisions of any Permitted Encumbrance or any covenants, restrictions or agreements hereafter created by or consented to by Tenant applicable to the Premises; provided, however, that this sentence shall not apply with respect to any Permitted Encumbrance in effect on the Date of Rent Commencement so long as (i) the title insurance policy obtained by Landlord in connection with its purchase of the Premises (and the simultaneously issued Lender’s policy of title insurance) contains affirmative insurance against any loss arising due to a violation of such Permitted Encumbrance or if such affirmative title insurance is subsequently provided to Landlord and Lender at Tenant’s cost with respect to such Permitted Encumbrance on terms and conditions satisfactory to Landlord and Lender in their sole discretion, and (ii) violation of such Permitted Encumbrance could not result in Landlord or Lender suffering (A) any criminal liability, penalty or sanction, (B) any civil liability, penalty or sanction for which Tenant has not made provisions reasonably acceptable to Landlord and Lender, or (C) defeasance or loss of priority of its interest in the Premises; provided, further, however, that TENANT SHALL NONETHELESS BE OBLIGATED TO INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD, LENDER AND ALL OTHER INDEMNIFIED PARTIES, FROM ANY AND ALL LOSSES, LIABILITIES, PENALTIES, ACTIONS, SUITS, CLAIMS, DEMANDS, JUDGMENTS, DAMAGES, COSTS OR EXPENSES SUFFERED AS A RESULT OF THE VIOLATION OF ANY SUCH PERMITTED ENCUMBRANCE BY TENANT. Tenant agrees that with respect to the Permitted Encumbrances and any covenants, restrictions or agreements hereafter created by or consented to by Tenant, Tenant shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Landlord. Notwithstanding the foregoing, Tenant shall not use, occupy or permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance or waste.

5.2           Licensing Requirements. During the term of this Lease, the Premises shall be licensed by Tenant for not less than the Minimum Licensed Beds. However, it is understood that Tenant is expected to use fewer than the current minimum licensed beds in the facility(ies). Tenant shall at all times maintain in good standing and full force a probationary or non-probationary license issued by the State and any other governmental agencies permitting the operation within the Pacific Facility and the Fernhill Facility as a skilled nursing facility of no less than the Minimum Licensed Beds for such Facilities and within the Sheridan Facility as an intermediate nursing facility of no less than the Minimum Licensed Beds for such Facility (subject to any reduction in the number of licensed beds required by any governmental authority, solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) and shall at all times maintain in good standing and full force a provider agreement pursuant to which the Premises shall be entitled to participate in the Medicaid reimbursement program, and when applicable Medicare reimbursement program in order to receive reimbursement for the services provided at the Premises. Except as otherwise specifically provided herein no reduction in the number of licensed beds shall entitle Tenant to any reduction or adjustment of the Base Rent or Additional Rent payable hereunder, which shall be and continue to be payable by Tenant in the full amount set forth herein notwithstanding any such reduction in the number of licensed beds. Tenant shall, within five (5) business days following its receipt thereof, provide Landlord with a copy of any notice from the Department of Health and Human Services or any federal, state or municipal governmental agency, authority and/or court regarding any reduction in the number of licensed beds and Landlord shall have the right, but not the obligation, to contest, by appropriate legal or administrative proceedings, any such reduction. In the event Tenant temporarily or permanently loses the right or licensure to operate a skilled nursing facility and/or intermediate nursing facility described herein, then Tenant may obtain a substitute tenant approved by the State of Oregon to operate the facility(ies) subject to the consent of the Landlord which consent shall be in Landlord’s sole and absolute discretion.

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5.3           Operating Covenants.

(a)          Financial Reporting.

(i)          Within forty-five (45) days after the end of each of its fiscal years, Tenant shall furnish to Landlord full and complete unaudited financial statements of the operations of the Facilities for such annual fiscal period which shall be compiled by an independent Certified Public Accountant and such financial statements shall present fairly the financial condition of Tenant, and which shall contain a statement of capital changes, balance sheet and detailed income and expense statement (collectively called “Financial Statements”) as of the end of the fiscal year. Tenant shall also furnish to Landlord a copy of its cost report within ten (10) days after filing thereof. Each such cost report shall be certified as being true and correct by an officer of Tenant.

(ii)         Tenant shall also furnish to Landlord and to Lender copies of all financial statements for the Facilities for the preceding calendar month by the thirtieth (30th) day following the last day of said month.

(iii)        Within thirty (30) days after the date for filing Tenant’s tax return (as the same may be extended), Tenant shall furnish (and cause its auditor to be permitted to furnish) to Tenant and to Lender a copy of the tax return for Tenant for said year, certified by an officer of Tenant to be true, correct and complete.

(iv)        At least twenty-five (25) days prior to the commencement of Tenant's fiscal year, Tenant shall provide Landlord with an annual budget covering the operations of the Facilities including any proposed capital expenditures for the forthcoming fiscal year. Tenant shall also provide Landlord with such other information with respect to Tenant or the operations of the Facilities as Landlord may reasonably request from time to time. Tenant acknowledges that Landlord's receipt of the budgets shall not constitute nor be deemed an assumption of any obligation or liability of Landlord in connection with Tenant's business or operations, nor shall Landlord be deemed to be involved in Tenant's business or operations in any manner other than as Landlord under this Lease.

(v)         In addition to the above financial statements, Tenant shall also provide to Landlord such other financial statement(s) or information relating to its operation as required by Landlord or Landlord’s Lender which is customarily maintained by Tenant, which shall be furnished to Landlord and to Lender not later than the date same are required under the Loan Documents, provided that in the event of a conflict between the dates required under this Lease for deliveries and the reasonable dates under any Loan Documents for such deliveries, then the dates for deliveries set forth in the Loan Documents shall control.

8

(vi)        Tenant shall keep and maintain or cause to be kept and maintained at all times at the offices of the Manager, or such other place as Landlord and/or Landlord's Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect the results of the operations of the Property and to provide the financial statements required to be provided under this Section 5.3 and copies of all written contracts, correspondence, reports in connection with Landlord's loan, if any, and other documents affecting the Facilities. Landlord and Landlord's Lender and its designated agents shall have the right to inspect and copy, at their expense, any of the foregoing. Additionally, Tenant acknowledges that Landlord's Lender shall have the right to audit such records, and Tenant shall reasonably cooperate with such audit(s). The costs and expenses of the audit shall be paid by Tenant if the audit discloses a monetary variance in any financial information or computation equal to or greater than the greater of: (a) five percent (5%) of gross revenue which variance was a result of Tenant’s malfeasance or gross negligence; or (b) Twenty-Five Thousand Dollars ($25,000.00) more than any computation submitted by Tenant if such variance resulted in a substantial detriment to Landlord.

(b)          Regulatory Reporting. Tenant shall deliver to Landlord copies of all regulatory survey’s conducted by the State or any Federal agency, Reports of Contract (“ROCs”), Plans of Corrections (“POCs”) and Substantial Compliance notices within three (3) days of receiving or preparing.

(c)          Minimum Rent Coverage. Tenant shall maintain on a monthly basis the Minimum Rent Coverage. If Tenant fails to maintain the Minimum Rent Coverage, then Tenant shall deposit on a monthly basis with Landlord an additional Lease Deposit equal to five percent (5%) of the monthly revenue that Tenant derives from the business operated from the Premises. The funding of such additional Lease Deposit shall continue until the earlier of (i) the Lease Deposit equaling six (6) months of the then Base Rent payable under this Lease, or (ii) Tenant coming back into compliance with the Minimum Rent Coverage. Additional Lease Deposits funded pursuant to this Section 5.3(c) shall be held by Landlord until the end of the Term.

(d)          Occupancy. On a rolling three (3) month basis, Tenant shall maintain an occupancy level of not less than eighty-five percent (85%) of the occupancy level existing on the Date of this Lease. As of the Date of this Lease, Tenant represents and warrants to Landlord that there are not less 35 residents in the Fernhill Facility, 58 residents in the Pacific Facility, and 34 residents in the Sheridan Facility.

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6.          Rent.

6.1           Payment of Base Rent. Commencing as of the Date of Rent Commencement, Tenant shall pay Base Rent to Landlord, or to Lender if directed by Landlord in writing, at the business address of Landlord or Lender, as the case may be, specified herein, or at such other address as Landlord or Lender, as the case may be, shall from time to time designate by written notice to Tenant. The Base Rent shall be due and payable in the amounts set forth on Schedule 1 hereto, which Schedule 1 is incorporated herein by this reference. Tenant shall commence paying Base Rent on the Date of Rent Commencement (which Date of Rent Commencement is not required to occur on the first day of a month), and to the extent that the Date of Rent Commencement does not fall on the first day of a calendar month, then Base Rent for the calendar month in which the Date of Rent Commencement occurs shall be prorated based on the number of days in the calendar month in which the Date of Rent Commencement occurs. Other than payment of Base Rent on the Date of Rent Commencement (to the extent that the Date of Rent Commencement does not occur on the first day of a calendar month), Base Rent shall be due and payable on the first day of each month (or if such first day is not a business day, the first business day of each month) during the Term (each such date being referred to herein as a “Due Date”). Notwithstanding the foregoing, from the Date of Rent Commencement until Tenant is notified otherwise by Landlord and Lender, Base Rent shall be paid by wire or Automatic Clearing House (ACH) transfer to the account specified in the rent direction letter from Landlord to Tenant.

6.2           Partial Months. Any Base Rent paid for a partial period of occupancy shall be allocated to such partial period. The foregoing notwithstanding, Tenant’s obligation to pay insurance charges pursuant to Section 31 of this Lease, taxes pursuant to Section 30 of this Lease, and all other Additional Rent shall commence upon the Date of Rent Commencement.

6.3           Payment of Additional Rent. Commencing as of the Date of Rent Commencement, all taxes, costs, expenses, and other amounts which Tenant is required to pay pursuant to this Lease (other than Base Rent), including, but not limited to insurance required pursuant to Section 31 of this Lease together with every fine, penalty, interest and cost which may be added for non-payment or late payment thereof, shall constitute additional obligations hereunder (“Additional Rent”). All Additional Rent shall be paid directly by Tenant to the party to whom such Additional Rent is due. If Tenant shall fail to pay any such Additional Rent or any other sum due hereunder when the same shall become due (and if no due date is specified, then such amounts shall be payable within ten (10) business days following written notice of demand therefor), Landlord shall have all rights, powers and remedies with respect thereto as are provided herein or by Law in the case of non-payment of any Base Rent and shall, except as expressly provided herein, have the right, not sooner than ten (10) days after notice to Tenant (except in the event of an emergency, as reasonably determined by Landlord, in which case prior notice shall not be necessary) of its intent to do so, to pay the same on behalf of Tenant, and Tenant shall repay such amounts to Landlord on demand. Tenant shall pay to Landlord interest at the Lease Default Rate on all overdue Additional Rent and other sums due hereunder, in each case paid by Landlord or Lender on behalf of Tenant, from the date of payment by Landlord or Lender until repaid by Tenant.

6.4           Late Payments. . If any installment of Base Rent, Additional Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee by the due date therefor, then Tenant shall pay to Landlord the Late Charge calculated off of the past due amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay such amount. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the Late Charge, any Base Rent, Additional Rent or other amounts owing hereunder which are not paid within five (5) days of the date that they are due shall thereafter bear interest until paid at the Lease Default Rate.

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6.5           Lease Deposit. The Lease Deposit shall be deposited by Tenant with Landlord in accordance with Section 1.2(bb) of this Lease. The Lease Deposit shall serve as security for the payment and performance of the obligations, covenants, conditions and agreements contained herein. The Lease Deposit shall not constitute an advance payment of any amounts owed by Tenant under this Lease, nor a measure of damages to which Landlord shall be entitled upon a breach of this Lease by Tenant or upon termination of this Lease nor any other limitation on Landlord’s damages or other rights under this Lease nor as a payment of liquidated damages. Landlord may, without prejudice to any other remedy, use the Lease Deposit to the extent necessary to remedy any default which has lapsed beyond the applicable notice and cure period in the payment of Base Rent or Additional Rent or to satisfy any other obligation of Tenant hereunder and to remedy any Event of Default hereunder. In the event that any portion of the Lease Deposit is used by Landlord as set forth herein, Tenant shall promptly, on demand, restore the Lease Deposit to its original amount. Landlord shall keep the Lease Deposit separate from its own funds in a separately segregated, interest bearing account. The Lease Deposit shall not be a limitation on Landlord’s damages or other rights under this Lease, or a payment of liquidated damages, or an advance payment of the Base Rent. Landlord shall return the unused portion of the Lease Deposit to Tenant within thirty (30) days after the end of the Term. If Landlord transfers its interest in the Premises during the Term, Landlord shall assign the Lease Deposit to the transferee who shall become obligated to Tenant for its return pursuant to the terms of this Lease, and thereafter Landlord shall have no further liability for its return, provided assignee shall assume such obligations in writing.

7.          Net Lease; True Lease.

7.1           Net Lease. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and Base Rent, Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events, and the obligations of Tenant hereunder shall continue during the Term, unless the requirement to pay or perform the same shall have been terminated pursuant to the provisions of Section 14.4 or Section 15. This is an absolutely net lease and Base Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice or demand, and without setoff, counterclaim, recoupment, abatement, suspension, reduction or defense. This Lease is the absolute and unconditional obligation of Tenant, and the obligations of Tenant under this Lease shall not be affected by any interference with Tenant’s use of any of the Premises for any reason, including, but not limited to, the following: (i) any damage to or destruction of any of the Premises by any cause whatsoever (except as otherwise expressly provided in Section 14.4), (ii) any Condemnation (except as otherwise expressly provided in Section 15), (iii) the prohibition, limitation or restriction of Tenant’s use of any of the Premises, (iv) Tenant’s acquisition of ownership of any of the Premises other than pursuant to an express provision of this Lease, (v) any default on the part of Landlord under this Lease or under any other agreement, (vi) any latent or other defect in, or any theft or loss of any of the Premises, (vii) any violation of Section 34 by Landlord (provided, that this Section 7.1(vii) shall not limit Tenant’s rights, if any, to seek injunctive relief against Landlord for violation of said Section 34), or (viii) any other cause, whether similar or dissimilar to the foregoing, any present or future Law to the contrary notwithstanding. Except as otherwise set forth herein, all costs and expenses (other than depreciation, interest on and amortization of debt incurred by Landlord, and costs incurred by Landlord in financing or refinancing the Premises) and other obligations of every kind and nature whatsoever relating to the Premises and the appurtenances thereto and the use and occupancy thereof which may arise or become due and payable with respect to the period which ends on the expiration or earlier termination of the Term in accordance with the provisions hereof (whether or not the same shall become payable during the Term or thereafter) shall be paid and performed by Tenant. Tenant shall pay all expenses related to the maintenance and repair of the Premises, and taxes and insurance costs. This Lease shall not terminate and Tenant shall not have any right to terminate this Lease (except as otherwise expressly provided in this Lease), or to abate Base Rent or Additional Rent during the Term.

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7.2           True Lease. Landlord and Tenant agree that this Lease is a true lease and does not represent a financing arrangement. Each party shall reflect the transaction represented hereby in all applicable books, records and reports (including income tax filings) in a manner consistent with “true lease” treatment rather than “financing” treatment.

7.3           No Termination of Lease. Tenant shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court.

8.          Condition. Tenant acknowledges that it or one of its affiliates owned and occupied the Premises immediately prior to the commencement of the Term. Accordingly, Tenant is fully familiar with the physical condition of the Premises as of the date hereof, and that Landlord makes no representation or warranty express or implied, with respect to same, except as expressly set forth herein. EXCEPT FOR LANDLORD’S COVENANT OF QUIET ENJOYMENT SET FORTH IN SECTION 34 AND ANY OTHER REPRESENTATIONS EXPRESSLY SET FORTH HEREIN, LANDLORD MAKES NO AND EXPRESSLY HEREBY DENIES ANY REPRESENTATIONS OR WARRANTIES REGARDING THE CONDITION OR SUITABILITY OF THE PREMISES TO THE EXTENT PERMITTED BY LAWS, AND TENANT WAIVES ANY RIGHT OR REMEDY OTHERWISE ACCRUING TO TENANT ON ACCOUNT OF THE CONDITION OR SUITABILITY OF THE PREMISES, OR (EXCEPT WITH RESPECT TO LANDLORD’S WARRANTY SET FORTH IN SECTION 34) TITLE TO THE PREMISES, AND TENANT AGREES THAT IT TAKES THE PREMISES “AS IS,” WITHOUT ANY SUCH REPRESENTATION OR WARRANTY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. Tenant has examined the Premises and title to the Premises, and has found all of the same satisfactory for all purposes.

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9.          Liens. Tenant shall not, directly or indirectly, create, or permit to be created or to remain, and shall remove and discharge (including, without limitation, by any statutory bonding procedure or any other bonding procedure reasonably satisfactory to Landlord and Lender which shall be sufficient to prevent any loss of the Landlord’s or Lender’s interest in the Premises) within thirty (30) days after obtaining knowledge thereof any mortgage, lien, encumbrance or other charge on the Premises or the leasehold estate created hereby or any Base Rent or Additional Rent payable hereunder which arises for any reason, other than: the Landlord’s Mortgage (and any assignment of leases or rents collateral thereto); the Permitted Encumbrances or which subsequently arise with the prior written consent of Landlord and Lender; and any mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Landlord or those claiming by, through or under Landlord (other than Tenant). Landlord shall not be liable for any labor, services or materials furnished to Tenant or to any party holding any portion of the Premises through or under Tenant and no mechanic’s or other liens for any such labor, services or materials shall attach to the Premises or the leasehold estate created hereby.

10.         Repairs and Maintenance.

10.1         Tenant’s Repair and Maintenance Obligations. Tenant shall keep, maintain and repair, at its sole cost and expense, the Premises, including, without limitation, the roof walls, footings, foundations, HVAC, mechanical and electrical equipment and systems in or serving the Premises and structural and nonstructural components and systems of the Premises, parking areas, sidewalks, roadways and landscaping in safe and good condition and repair, and shall make all repairs and replacements (substantially equivalent in quality and workmanship to the original work) of every kind and nature, whether foreseen or unforeseen, which may be required to be made, in order to keep and maintain the Premises in good repair and condition, except for ordinary wear and tear and (other than for any Restoration required by the terms of this Lease) any damage to the Premises by any Major Condemnation of the Premises. Tenant shall prevent deferred maintenance from accumulating at the Premises. Landlord shall have the right to enter the Premises at reasonable times and upon reasonable notice to Tenant to perform annual inspections of the Premises to ensure that the Premises are maintained in good working order and that the Premises are free from maintenance issues and any other issues which would decrease the value of the Premises once returned to Landlord at the end of the Term. Tenant shall do or cause others to do all shoring of the Premises or of the foundations and walls of the Facilities and every other act necessary or appropriate for the preservation and safety thereof (including, without limitation, any repairs required by Law as contemplated by Section 11), by reason or in connection with any excavation or other building operation upon the Premises, and Landlord shall have no obligation to do so. Landlord shall not be required to make any repair, replacement, maintenance or other work whatsoever, or to maintain the Premises in any way. Nothing in the preceding sentence shall be deemed to preclude Tenant from being entitled to insurance proceeds or awards for any taking to the extent provided in this Lease. Tenant shall, in all events, make all repairs, replacements and perform maintenance and other work for which it is responsible hereunder, in a good, proper and workmanlike manner. Without limiting the generality of the foregoing, Tenant shall be responsible for the performance of all maintenance and repairs of the Facilities.

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10.2         Encroachments and Non-Compliance Issues. If all or any part of any Facility shall encroach upon any property, street or right-of-way adjoining or adjacent to the Premises, or shall violate the agreements or conditions affecting the Premises or any part thereof or shall violate any Laws or Legal Requirements, or shall hinder, obstruct or impair any easement or right-of-way to which the Premises is subject, then, promptly after written request of Landlord (unless such encroachment, violation of any agreements or conditions of record, hindrance, obstruction or impairment (a) existed or was constructed prior to the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement; (b) is a Permitted Encumbrance in existence as of the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement, or (c) subsequently arises with the prior written consent of Landlord and Lender, and Landlord and Lender have obtained, at Tenant’s cost, affirmative title insurance coverage against any loss arising due to any such matter on terms and conditions satisfactory to Landlord and Lender in their sole discretion, provided that this clause (c) shall not relieve Tenant from any liability for the removal, remedying, repair or replacement of any such encroachment, violation, hindrance, obstruction or impairment to the extent that the same exists) or of any person affected thereby, Tenant shall, at its sole expense, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting therefrom, or (ii) make such changes, including alterations to such Facility (subject, however, to Tenant’s maintenance and repair obligations in Section 10.1) and take such other action as shall be necessary to remove or eliminate such encroachments, violations, hindrances, obstructions or impairments, provided that, if Landlord’s or Lender’s consent is required for such changes pursuant to this Lease, Landlord’s or Lender’s consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall have no liability for and shall not be required to take any action to remove or eliminate any Permitted Encumbrance in existence as of the Date of Rent Commencement that constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement.

10.3         Tenant’s Failure to Perform. If Tenant shall be in default under any of the provisions of this Section 10, Landlord may, after thirty (30) days written notice to Tenant and failure of Tenant to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days but Tenant has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Tenant. If an emergency exists, Landlord shall use reasonable efforts to notify Tenant of the situation by phone or other available communication before taking any such action to cure such default. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) so incurred, together with interest at the Lease Default Rate from the date of payment or incurring of the expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

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10.4         Inspection Prior to Expiration of Term. One (1) year prior to the expiration of the Term of this Lease, Tenant shall at its own expense cause the Premises to be inspected, the results of which shall be made available to Landlord and Lender not less than eleven (11) months prior to the end of the Term, to determine whether the condition of the Premises complies with the requirements of this Lease. In addition to any document or information which Tenant is expressly required to deliver pursuant to this Lease, Tenant will also deliver to Landlord, promptly upon request, information with reasonably available to Tenant with respect to the Premises reasonably (both as to content and frequency) requested by Lender pursuant to the Mortgage or other documents evidencing or securing the Loan; provided that this shall not increase the obligations of Tenant to deliver environmental reports beyond that required in Section 38. Neither Landlord nor Lender shall request such information more than annually unless a change in circumstances after the Rent Commencement Date makes it reasonable to request information more frequently.

10.5         Lender Required Repairs. Tenant shall be responsible for any repairs to the Facilities or reserves for repairs to the Facilities required by Lender in accordance with the Loan Documents. Landlord shall provide a copy of Loan Documents to Tenant upon receipt of the Loan Documents by Landlord.

10.6         Life Safety Repairs. Tenant shall make such repairs and replacements relating to items covered by temporary life safety code waivers if such temporary life safety code waivers are not continued or are otherwise removed and shall correct any deficiencies or violations previously covered by such waivers, at Tenant’s sole cost, within the time periods required by applicable governmental authorities.

10.7         Capital Reserve Deposits. Tenant shall be required to make Capital Reserve Deposits and shall make monthly deposits with Landlord, in an amount equal to one-twelfth (1/12) (or such greater amount as may be reasonably required by Lender) of the Capital Reserve Deposit to fund future anticipated capital expenditures. The Capital Reserve Deposits shall be due and payable on the first (1st) day of each month as Additional Rent. The Capital Reserve Deposits shall not bear interest, unless interest on the Capital Reserve Deposits is paid to Landlord by Lender. The Capital Reserve Deposits shall be held by Landlord and/or Lender and shall be used to pay the capital expenditures as they become due and payable. If the amount of Tenant’s payments made under this Section 10.7 shall be less than the total amount due or otherwise required, then Tenant shall pay the full deficiency at the time the qualifying capital expenditure is made. Tenant shall provide all capital expenditure draw requests to Landlord in writing along with receipts and or invoices documenting the amount of the capital expenditure to be reimbursed by Landlord. Upon receipt of such receipts, invoices and/or additional documentation reasonably requested by Landlord, Landlord shall reimburse Tenant for such costs up to the amount of Capital Reserve Deposits made by Tenant and then being held by Landlord and/or Lender.

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11.         Compliance With Laws.

11.1         Tenant’s Obligations. During the Term, Tenant shall comply with all Laws and Legal Requirements relating to the Premises. As used herein, (i) the term “Laws” shall mean all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Tenant, Landlord or the Premises or which are due to take effect after expiration of the Term), and (ii) the term “Legal Requirements” shall mean all Laws and all covenants, restrictions and conditions now or in the future of record which may be applicable to Tenant, Landlord (with respect to the Premises) or to all or any part of or interest in the Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Premises.

11.2         Tenant’s Right to Contest. Notwithstanding anything herein to the contrary, after prior written notice to Landlord, Tenant, at Tenant’s own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Law or Legal Requirement, the applicability of any Law or Legal Requirement to Tenant or the Premises or any alleged violation of any Law or Legal Requirement, provided that (i) Tenant is not in default of any of the provisions of this Lease, which default has lapsed beyond any applicable notice and cure period; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Tenant is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the Premises, nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (iv) Tenant shall promptly upon final determination thereof comply with any such Law or Legal Requirement determined to be valid or applicable or cure any violation of any Law or Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Law or Legal Requirement against Tenant or the Premises; and (vi) Tenant shall furnish such security as may be required in the proceeding to insure compliance with such Law or Legal Requirement, together with all interest and penalties payable in connection therewith. Landlord may apply any such security, as necessary to cause compliance with such Law or Legal Requirement at any time when, in the reasonable judgment of Landlord, the validity, applicability or violation of such Law or Legal Requirement is finally established or the Premises (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost.

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12.         Access to Premises.

12.1         Access Rights. Upon reasonable notice to Tenant, Landlord and Lender and their respective employees, contractors, agents and representatives may enter upon the Premises to (i) show the Premises to purchasers and potential purchasers, and to mortgagees and potential mortgagees, or (ii) for the purpose of inspecting the Premises or performing any work which Landlord is permitted to perform under this Lease; provided, that, for purposes of subpart (ii) of this sentence, Landlord and Lender shall not be required to give notice prior to entry onto the Premises in the event of an emergency situation. Upon reasonable notice to Tenant, during the six (6) months preceding the expiration or earlier termination of this Lease, Landlord also may enter onto the Premises to show the Premises to persons wishing to rent the same, at reasonable times and accompanied by a representative of Tenant. No such entry shall constitute an eviction of Tenant but any such entry shall be done by Landlord in such reasonable manner as to minimize any disruption of Tenant’s business operations. Provided, however, that neither Landlord nor Lender shall enter the Premises as described above or stay on the Premises in a manner which unreasonably disrupts Tenant’s activities and operations of Tenant’s business on the Premises nor in violation of any Law.

12.2         Lender Meetings. Upon request of Lender, Tenant will arrange for meetings between such Lender (or its representatives) and a representative of Tenant designated by Tenant to discuss operations at the Premises; provided, that Tenant shall not be obligated to arrange for such meetings more than once in each calendar quarter. If allowed by the Lender, such meetings may be by telephone, email or other electronic method as may be reasonable under the circumstances and in view of the meeting cost.

12.3         Lender’s Rights under Mortgage. Further, to the extent allowed by Law, Tenant hereby agrees to the licenses and other rights to enter onto the Premises which are granted to Lender under the Mortgage. Provided, however, that Tenant shall not be required to obtain from any occupant of the Premises a waiver of any Law relating to the occupant’s privacy or notice prior to inspection.

13.         Waiver of Subrogation. To the extent allowed by Law, notwithstanding anything in this Lease to the contrary, Landlord and Tenant each waive any rights of action for negligence against the other party, which may arise during the Term for damage to the Premises or to the property therein resulting from any fire or other casualty, but only to the extent covered by insurance or to the extent the same would have been covered by the insurance had Tenant maintained the insurance to be maintained under this Lease.

14.         Damage; Destruction.

14.1         In the event of any damage to or destruction of the Premises by fire, the elements or other casualty during the Term (a “Casualty”), Tenant shall give Landlord and Lender, if any, prompt written notice thereof. Tenant shall adjust, collect and compromise any and all claims covered by insurance.

14.2         In the event of any such Casualty (whether or not insured against) the Term shall continue and there shall be no abatement or reduction of Base Rent, Additional Rent or of any other sums payable by Tenant hereunder.

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14.3         All proceeds of any insurance required to be carried hereunder less any and all expenses of Landlord or Lender in collecting such proceeds, if any (the “Net Proceeds”) shall be delivered to Tenant to apply in accordance with the terms of this Lease if (i) the estimated cost of restoring or repairing the Premises to as nearly as possible to its value, condition, character, utility and useful life immediately before such Condemnation or Casualty, but in any event assuming the Premises have been maintained in accordance with the requirements of Section 10 (such restoration or repair of the Premises, whether in connection with a Condemnation or a Casualty, as the context requires, herein called a “Restoration”), shall be the C&C Threshold Repair Amount or less, (ii) no Event of Default or Disqualifying Default (as hereinafter defined) has occurred and is continuing, and (iii) the long-term unsecured debt of Tenant is rated at least BBB by Standard & Poor’s Ratings Services, a division of the McGraw Hill Companies, Inc. (“S&P”) and at least Baa2 by Moody’s Investors Service, Inc. (“Moody’s”) (the “Minimum Rating”). In all other events the Net Proceeds shall be delivered to a trustee which shall be a federally insured bank or other financial institution, selected by Landlord and Tenant and reasonably satisfactory to Lender (the “Trustee”) to be held and disbursed in accordance with the provisions of Section 14.5; provided, however, that if at the time of the delivery of the Net Proceeds a Mortgage is in existence, the Lender or the servicer of the Loan may act as Trustee without the consent of either Landlord or Tenant. As used herein, a “Disqualifying Default” shall mean and include (i) any uncured failure to make any payment of Base Rent when due hereunder, and (ii) the occurrence of any event or condition described in subparts (vi) or (vii) of Section 23.1 hereof without regard to any notice or lapse of time set forth in such subparts which may be required for such events or conditions to mature into an Event of Default

14.4         Tenant shall, whether or not the Net Proceeds of such insurance are sufficient for the purpose or delivered to Tenant, promptly complete the Restoration of the Improvements damaged by any such Casualty in compliance with all requirements set forth in this Lease and all Legal Requirements, and such Restoration shall be completed in such a manner as not to impair the market value or usefulness of the Premises for use in Tenant’s ordinary course of business, all at Tenant’s sole cost and expense. Tenant shall notify Landlord in writing of the estimated cost thereof (the “Restoration Cost”). Landlord and its agents, employees and contractors shall have the right to enter the Premises for the purpose of assessing and adjusting the amount of the Restoration Cost, and Landlord shall have the right in its reasonable discretion to reasonably approve the amount of the Restoration Cost. Tenant shall not have any right to abate the payment of Fixed Rent or Additional Rent as a result of any Casualty. Notwithstanding anything to the contrary, unless if otherwise provided in the Loan Documents, all insurance proceeds shall be utilized for payment of the Restoration Costs or deposited in the Capital Reserve and the Capital Reserves may be utilized to pay all or portion of the restoration costs if the insurance proceeds are not sufficient to do so.

14.5         Net Proceeds held by the Trustee shall be invested in accordance with prudent investment standards adopted by the Landlord, Lender and Tenant from time to time, and shall be disbursed from time to time in accordance with the following conditions:

(a)          Before commencing the Restoration the architects, general contractor(s), and plans and specifications for the Restoration shall be approved by Landlord and Lender, which approval shall not be unreasonably withheld or delayed; and which approval shall be granted to the extent that the plans and specifications depict a Restoration which is substantially similar to the improvements and equipment which existed prior to the occurrence of the Casualty or Taking, whichever is applicable, or, if any Facility was under construction prior thereto, which depict a Restoration to the condition to which such Facility was to have been constructed.

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(b)          At the time of any requested disbursement, no Event of Default or Disqualifying Default shall exist and no mechanics’ or materialmen’s liens shall have been filed and remain undischarged or unbonded, with the exception of any mechanics’ or materialmen’s liens caused by Landlord.

(c)          Disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (A) satisfactory evidence, including architects’ certificates of the stage of completion, of the estimated costs of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (B) partial releases of liens, if the same are obtainable or, if such partial releases are not obtainable, endorsements to Landlord’s and Lender’s title insurance policies showing no exceptions for mechanics’ or materialmen’s or any similar liens, and (C) other reasonable evidence of cost and payment so that Landlord can verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of mechanics’ lien claims.

(d)          Each request for disbursement shall be accompanied by a certificate of Tenant or its architect describing the work, materials or other costs or expenses for which payment is requested, stating the cost incurred in connection therewith and stating that Tenant has not previously received payment for such work or expense and the certificate to be delivered by Tenant upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

(e)          The Trustee may retain ten percent (10%) of the Net Proceeds until the Restoration is at least eighty percent (80%) complete and five percent (5%) of the Net Proceeds thereafter, which amount may continue to be held as retainage until the completion of all punch list items following substantial completion of the Restoration.

(f)          At all times the undisbursed balance of the Net Proceeds held by Trustee plus any funds contributed thereto by Tenant, at its option, shall be not less than the cost of completing the Restoration, free and clear of all liens.

(g)          In addition, before commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by an independent architect mutually agreed upon by the parties in their reasonable discretion, exceeds the amount of the Net Proceeds available for such Restoration, the amount of such excess shall (i) be paid by Tenant to the Trustee to be added to the Net Proceeds, (ii) be secured by Tenant by posting a payment bond or other security in form and in the amount of such excess, as satisfactory to Landlord, (iii) be secured by Tenant by providing Landlord with an irrevocable letter of credit (“Letter of Credit”) in a form satisfactory to Landlord and issued by a bank which is a commercial bank or trust company satisfactory to Landlord and insured by the Federal Deposit Insurance Corporation (FDIC), having banking offices at which the Letter of Credit may be drawn down upon in New York City, payable at sight to Landlord, or (iv) Tenant shall fund at its own expense the costs of such Restoration until the remaining Net Proceeds are sufficient for the completion of the Restoration. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of Restoration, the Net Proceeds shall be deemed to be disbursed prior to any amount added by Tenant.

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(h)          Provided no Event of Default or Disqualifying Default exists and is continuing, any Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Tenant. Notwithstanding any contrary provision hereof, if an Event of Default or a Disqualifying Default has occurred and is continuing, Landlord shall be entitled to retain any Net Proceeds and to apply the same to either repair the damages or to pay other amounts accrued and payable to Landlord hereunder or Lender under the Mortgage, at Lender’s or, if there is then no Lender, Landlord’s sole option. No such retention by Landlord shall impose on Landlord any obligation to repair the Premises or relieve Tenant of its obligations to repair the Premises.

15.         Condemnation.

15.1         Promptly upon obtaining knowledge of any proceeding for condemnation or eminent domain with respect to the Premises (a “Taking” or “Condemnation”), Tenant and Landlord shall each notify the other and Lender, and each shall be entitled to participate in such proceeding at Tenant’s sole expense. Tenant shall pay the costs of such proceeding and Tenant and Landlord, to the extent ethically possible, shall utilize the same legal counsel in such proceeding. Provided, however, that if the Condemnation Award for the applicable Facility exceeds the Landlord’s Purchase Price for the Facility that is subject to the Taking by more than $2,000,000, the excess funds above that amount (i.e. Purchase Price for the Facility plus $2,000,000) shall first be paid to Tenant to reimburse Tenant for its attorneys’ fees and costs incurred in the Condemnation proceeding, and any remaining proceeds shall thereafter shall be paid to Landlord. Subject to the provisions of this Section 15, Tenant hereby irrevocably assigns to Landlord’s Lender or to Landlord, in that order, any award or payment in respect of any Condemnation of the Premises, except that (except as hereinafter provided) nothing in this Lease shall be deemed to assign to Landlord or Lender any award relating to the value of the leasehold interest created by this Lease or any award or payment on account of an interruption of Tenant’s business at the Premises or the Tenant’s trade fixtures, moving expenses and out-of-pocket expenses incidental to the move, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor, it being agreed, however, that Tenant shall in no event be entitled to any payment that reduces the award to which Landlord is or would be entitled for the condemnation of Landlord’s interest in the Premises.

15.2         If (i) the entire Premises or (ii) a material portion of any Facility or land comprising a portion of the Premises the loss of which would, in Tenant’s commercially reasonable judgment, render the Premises unsuitable for Restoration or for the continued use and occupancy in Tenant’s business after Restoration, shall be the subject of a Taking (a “Major Condemnation”), then not later than ninety (90) days after such Taking has occurred, Tenant shall serve written notice upon Landlord and Lender (“Tenant’s Termination Notice”) of Tenant’s intention to terminate this Lease on any Base Rent payment Due Date specified in such notice, which Due Date (the “Involuntary Conversion Termination Date”) shall be no sooner than ninety (90) days and no later than one hundred twenty (120) days after Tenant’s Termination Notice but, in any event, not later than the last day of the Term of this Lease.

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15.3         In the event of any Taking of a portion of the Premises which does not result in a termination of this Lease, the net award resulting from the Taking, i.e., after deducting therefrom all expenses incurred in the collection thereof shall be held in accordance with Section 14.3. In the event of any such Taking, Tenant shall promptly commence and diligently complete the Restoration (as defined in Section 14.3) of the Premises in accordance with all Laws and Legal Requirements and all other terms of this Lease. Any net award from Condemnation not resulting in a termination of this Lease shall be disbursed in the same manner as set forth with respect to Net Proceeds in Section 14.5, provided, however, that Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Landlord and shall be owned by Landlord.

15.4         No agreement with any Taking authority in settlement of or under threat of any Taking shall be made by Landlord or Lender without Tenant’s prior written consent (provided, that Tenant’s consent shall, not be required if an Event of Default or a Disqualifying Default then exists and is continuing), or by Tenant without Landlord’s and Lender’s prior written consent.

15.5         In the case of any Taking, all Base Rent, Additional Rent and other obligations of Tenant shall continue unabated until the termination of this Lease.

16.         Assignment and Subletting.

16.1         Except in the normal course of Tenant’s business, Tenant shall not have the right to assign this Lease nor any interest therein, nor to sublet the whole or any part of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion. Landlord and Tenant agree that Tenant may lease a portion of the Premises to a provider of rehabilitation services, physical therapy services, or similar service provider, after obtaining the written consent of Landlord which consent shall not be unreasonably withheld. In the event of any permitted assignment of the Lease or a sublease of a portion of the Premises described in this Lease, Tenant shall remain liable for the obligations of Tenant hereunder, which liability of Tenant shall be and remain that of a primary obligor and not a guarantor or surety. Tenant agrees that in the case of a permitted assignment of this Lease, Tenant shall, within fifteen (15) days after the execution and delivery of any such assignment, deliver to Landlord (i) a duplicate original of such assignment in recordable form and (ii) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall agree to assume and agree to observe and perform all of the terms and provisions of this Lease on the part of the Tenant to be observed and performed from and after the date of such assignment. In the case of a permitted sublease, Tenant shall, within fifteen (15) days after the execution and delivery of such sublease, deliver to Landlord a duplicate original of such sublease. Any sublease or license relating to the Premises shall be subject to and subordinate to this Lease. In no event shall Tenant be permitted to assign this Lease to an entity with long-term unsecured debt rated below the minimum rating.

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16.2         For the purposes of this Section 16.2, the term “assign” or “assignment” shall include the following events: if Tenant is a partnership, a withdrawal or change (voluntary, involuntary or by operation of law or otherwise) of any of the general partners thereof or of general and limited partners owning in the aggregate fifty percent (50%) or more of the capital and profits of the partnership, or the dissolution of the partnership; or if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary or by operation of law or otherwise) from one thereof unto the other or others thereof; or, if Tenant is a corporation, any dissolution merger, consolidation or other reorganization of Tenant or any change in the ownership of fifty percent (50%) or more of its capital stock or fifty percent (50%) or more of its voting stock from the ownership existing on the date of execution hereof; or, the sale of fifty percent (50%) or more of the value of the assets of Tenant.

16.3         Upon the occurrence of an Event of Default under this Lease, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Premises, and Tenant hereby irrevocably and unconditionally assigns such rents and money to Landlord, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default.

17.         Alterations.

17.1         Tenant may make non-structural, interior and/or exterior alterations, changes, additions, improvements, reconstructions or replacements of any of the Premises (“alterations”), other than those which would result in a diminution in the value of the Premises that do not exceed the Threshold Repair Amount in the aggregate. Unless required by applicable federal, state or local law or regulation, Tenant shall obtain the prior written consent of Landlord and Lender to any alteration (i) which would result in a diminution in the value of the Premises, (ii) the cost of which in the aggregate exceeds the Threshold Repair Amount or (iii) which is structural in nature, which consent to a structural alteration shall not be unreasonably withheld. Without limitation, in determining whether a structural alteration is “reasonable” for purposes of subsection (iii) of the preceding sentence, Landlord shall have the right to consider whether such alteration would impair the structural integrity of the Premises, would impair the fair market value of the Premises, or would otherwise adversely affect the overall marketability of the Premises, as determined in Landlord’s reasonable discretion.

17.2         Tenant shall do all such work in a good and workmanlike manner, at its own cost, and in accordance with Laws and Legal Requirements. Tenant shall discharge, within sixty (60) days after notice of the filing of the same (by payment or by filing the necessary bond, or otherwise), any mechanics’, materialmen’s or other lien against the Premises and/or Landlord’s interest therein, which lien may arise out of any payment due for any labor, services, materials, supplies, or equipment furnished to or for Tenant in, upon, or about the Premises.

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17.3         At Tenant’s sole cost and without liability to Landlord, Landlord agrees to reasonably cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for any alterations which Tenant is permitted or required to make hereunder; provided none of the foregoing shall, in any manner, result in a material reduction of access to or ingress to or egress from the Premises, a diminution in the value of the Premises, a change in zoning having a material adverse effect on the ability to use the Premises for the Healthcare Business by Tenant or otherwise have a material adverse effect on the ability to use the Premises for the Healthcare Business by Tenant.

17.4         Tenant agrees that in connection with any alteration: (i) the fair market value of the Premises shall not be lessened by more than a de minimus extent after the completion of any such alteration, or its structural integrity impaired; (ii) all such alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements; (iii) Tenant shall promptly pay all costs and expenses of any such alteration; (iv) Tenant shall procure and pay for all permits and licenses required in connection with any such alteration; and (v) all alterations shall be made (in the case of any alteration the estimated cost of which in any one instance exceeds the Threshold Repair Amount) under the supervision of an architect or engineer and in accordance with plans and specifications which shall be submitted to Landlord and Lender (for information purposes only) prior to the commencement of the alterations.

17.5         All contracts and payments to contractors, subcontractors, suppliers and other persons in connection with any alteration, Restoration, repair or other work performed at the Premises shall be entered into, made and performed in compliance with all Laws and Legal Requirements.

18.         Signs. At Tenant’s sole cost, Tenant may install, replace, relocate and maintain and repair in and on the Facilities, such signs, awnings, lighting effects and fixtures as may be used from time to time by Tenant (collectively, ‘‘Signs”). At Tenant’s sole cost and without liability to Landlord, Landlord agrees to cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for Tenant’s Signs. All Signs of Tenant shall comply with Laws and Legal Requirements.

19.         Surrender.

19.1         At the expiration or other termination of this Lease, Tenant shall surrender the Premises to Landlord in as good order and condition as they were at the commencement of the Term or may be put in thereafter in accordance with this Lease, reasonable wear and tear and (other than for any Restoration required by the terms of this Lease) damage to the Premises by any Major Condemnation of the Premises excepted. All alterations, except Tenant’s furniture, trade fixtures, satellite communications dish and equipment, computer and other similar moveable equipment and shelving (“trade fixtures”), shall become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the termination or other expiration of the Term. At the expiration or termination of the Term, Tenant shall remove its trade fixtures, as well as its Signs and identification marks, from the Premises. Tenant agrees to repair any and all damage caused by such removal. Trade fixtures and personal property not so removed at the end of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord may thereafter cause such property to be removed from the Premises. The reasonable cost of removing and disposing of such property and repairing any damage to any of the Premises caused by such removal shall be borne by Tenant. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property which becomes the property of Landlord as a result of such expiration or earlier termination. The provisions of this Section 19.1 shall survive the termination or expiration of this Lease.

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19.2         Upon termination of this Lease for any reason, Tenant will return to Landlord the Premises licensed by the State of Oregon and by any and all governmental agencies having jurisdiction over the Premises as a skilled nursing facility and/or intermediate nursing care facility for the Fernhill Facility and the Pacific Facility and an intermediate nursing care facility for the Sheridan Facility with at least the Minimum Licensed Beds for each Facility (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) with an unrestricted license in full force and good standing for no less than the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises).

19.3         Upon the expiration or earlier termination of this Lease, Tenant shall enter into an operating transition agreement (the “OTA”) with Landlord in order to provide for the orderly transition of the operation of each Facility following the termination of this Lease. The OTA shall provide for a procedure for the assignment and assumption of all resident agreements, operating agreements and other agreements that Landlord elects to have assigned from Tenant. In addition, the OTA shall address the transition of licensing requirements for each Facility under all applicable Legal Requirements.

20.         Subordination of Lease; Mortgage Reserves.

20.1         Subordination. This Lease shall be subject and subordinate to any Mortgage and to all advances made upon the security thereof provided that Lender shall execute and deliver to Tenant an agreement in a form reasonably requested by Lender (“SNDA Agreement”), providing that Lender recognizes this Lease and agrees to not disturb Tenant’s possession of the Premises in the event of foreclosure if Tenant is not then in default hereunder beyond any applicable cure period. Tenant agrees, upon receipt of such SNDA Agreement, to execute such SNDA Agreement and such further reasonable instruments) as may be necessary to so subordinate this Lease. The term “Mortgage” shall include any mortgages, deeds of trust or any other similar hypothecations on the Premises securing Lender’s Loan to Landlord, regardless of whether or not such Mortgage is recorded.

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20.2         Attornment. Tenant agrees to attorn, from time to time, to Lender, and to any purchaser of the Premises, for the remainder of the Term, provided that Lender or such purchaser shall then be entitled to possession of the Premises, subject to the provisions of this Lease. This subsection shall inure to the benefit of Lender or such purchaser, shall apply notwithstanding that, as a matter of Law, this Lease may terminate upon the foreclosure of the Mortgage (in which event the parties shall execute a new lease for the remainder of the Term containing the provisions of this Lease), shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Each such party shall however, upon demand of the other, execute instruments in confirmation of the foregoing provisions reasonably satisfactory to the requesting party acknowledging such subordination, non-disturbance and attornment and setting forth the terms and conditions hereof.

20.3         Consent to Assignment of Lease to Lender. Tenant hereby consents to any assignment of this Lease by Landlord to or for the benefit of any Lender. Without limitation of the preceding sentence, Tenant hereby specifically consents to any Assignment of Lease and Rents executed by Landlord to and for the benefit of the Lender named herein.

20.4         Mortgage Reserves. Notwithstanding anything to the contrary in this Lease, all real estate tax, insurance reserve, capital expenditure reserves or other reserves required by the Lender against the Premises during the term of this Lease shall be paid by the Tenant to Landlord and shall be repaid to Tenant to the extent not applied in accordance with this Lease or the Mortgage when such holder repays such sums to Landlord and to the extent same are not required to be held for any replacement mortgage or are required to fund obligations of the Tenant under this Lease. Real estate taxes for the first and last year of the Lease Term shall be prorated in the same manner as the real estate taxes were prorated in connection with Landlord’s acquisition of the Premises.

21.         Tenant’s Obligation to Discharge Liens. Prior to the imposition of any fine, lien, interest or penalty Tenant shall timely pay and discharge all amounts and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty and interest with respect thereto.

22.         Utilities. Tenant agrees to timely pay for all utilities consumed by it in the Premises, prior to delinquency.

23.         Tenant Default.

23.1         Any of the following occurrences or acts shall constitute an Event of Default (herein so called) under this Lease:

(a)          Tenant’s failure to make any payment when due of any installment of Base Rent payable hereunder, and such default shall continue for ten (10) days after written notice of such default is sent to Tenant by Landlord (or Lender).

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(b)          Tenant’s failure to make any payment when due of any installment of Additional Rent payable hereunder and such default shall continue for ten (10) days after notice of such default is sent to Tenant by Landlord (or Lender).

(c)          The failure by Tenant to maintain insurance as required under this Lease, provided that if the insurance required under this Lease lapses for a period not in excess of thirty (30) days, and Tenant reinstates such lapsed insurance without a claim having been made, then such Event of Default shall be deemed cured for purposes of this Lease, provided further that Tenant shall indemnify Landlord for any claim arising in connection with such lapsed insurance.

(d)          Tenant’s failure to abide by any of the other covenants, agreements or obligations of this Lease, and such default shall continue for more than thirty (30) days after written notice thereof from Landlord (or Lender) specifying such default, provided, that if Tenant has commenced to cure within said thirty (30) days, and thereafter is in good faith diligently prosecuting same to completion, said thirty (30) day period shall be extended, for a reasonable time (not to exceed one hundred eighty (180) days or, with respect to a breach of Tenant’s obligations under Section 38, such longer period as may reasonably be necessary to cure such default so long as (i) Tenant delivers to Landlord a certificate of a qualified environmental remediation specialist that such default could not be cured within such one hundred eighty (180) days but is curable; and (ii) Tenant is in good faith diligently prosecuting such cure to completion) where, due to the nature of a default, it is unable to be completely cured within thirty (30) days.

(e)          Any execution or attachment shall be issued against Tenant or any of its property whereby the Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant, and the same shall not be bonded, dismissed, or discharged as promptly as possible under the circumstances

(f)          Tenant (i) shall make any assignment or other act for the benefit of creditors, (ii) shall file a petition or take any other action seeking relief under any state or federal insolvency or bankruptcy Laws, or (iii) shall have an involuntary petition or any other action filed against either of them under any state or federal insolvency or bankruptcy Laws which petition or other action is not vacated or dismissed within sixty (60) days after the commencement thereof.

(g)          The estate or interest of Tenant in the Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred and such process shall not be vacated or discharged within sixty (60) days after such levy or attachment.

(h)          Any material representation or warranty made by Tenant to Landlord herein or in any document delivered pursuant to this Lease is misleading or false when made.

(i)          The occurrence of an Adverse Healthcare Event at any Facility; provided if (i) the default described in this Section is curable, (ii) Tenant diligently commences the cure of such default and uses commercially reasonable efforts to diligently pursue any appeals or other required actions in accordance with applicable laws and regulations, and (iii) such default does not affect the ability of Tenant to comply with its financial obligations under this Lease, then such Adverse Healthcare Event shall not constitute a default until the earlier to occur of (A) final, adverse action upholding, in whole or in part, such termination, suspension, or material adverse action or restriction or (B) the passage of ninety (90) days from the date such termination, suspension or material adverse action or restriction was instituted without a final action having occurred.

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23.2         If an Event of Default shall have occurred and be continuing, Landlord shall be entitled to all remedies available at law or in equity. Without limiting the foregoing, Landlord shall have the right to give Tenant notice of Landlord’s termination of the Term of this Lease. Upon the giving of such notice, the Term of this Lease and the estate hereby granted shall expire and terminate on such date as fully and completely and with the same effect as if such date were the date herein fixed for the expiration of the Term of this Lease, and all rights of Tenant hereunder shall expire and terminate, but Tenant shall remain liable as hereinafter provided.

23.3         To the extent allowable under applicable Law, if an Event of Default shall have occurred and be continuing, Landlord shall have the immediate right, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, to re-enter and repossess the Premises and the right to remove all persons and property therefrom by summary proceedings, ejectment, any other legal action or in any lawful manner Landlord determines to be necessary or desirable. Landlord shall be under no liability by reason of any such re-entry, repossession or removal unless such re-entry, repossession or removal has not been authorized and approved by any and all federal, state and/or local governmental agencies having jurisdiction. Such re-entry, repossession or removal shall be construed as an election by Landlord to terminate this Lease unless a notice of such termination is given to Tenant pursuant to Section 23.2.

23.4         At any time or from time to time after a re-entry, repossession or removal pursuant to Section 23.3, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, Landlord may (but, except to the extent expressly required by any applicable Law, shall be under no obligation to) relet the Premises for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant, for such term or terms and on such conditions and for such uses as Landlord, in its absolute discretion, may determine. Landlord may collect any rents payable by reason of such reletting. Except to the extent required by applicable Law, Landlord shall not be liable for any failure to relet the Premises or for any failure to collect any rent due upon any such reletting.

23.5         No expiration or termination of the Term of this Lease pursuant to Section 23.2, by operation of law or otherwise, and no re-entry, repossession or removal pursuant to Section 23.3 or otherwise, and no reletting of the Premises pursuant to Section 23.4 or otherwise, shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such expiration, termination, re-entry, repossession, removal or reletting,

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23.6         In the event of any expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property therefrom by reason of the occurrence of an Event of Default, Tenant shall pay to Landlord all Base Rent, Additional Rent and other sums required to be paid by Tenant, in each case together with interest thereon at the Lease Default Rate from the due date thereof to and including the date of such expiration, termination, re-entry, repossession or removal; and thereafter, Tenant shall, until the end of what would have been the Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal and whether or not the Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages: (i) all Base Rent, Additional Rent and other sums which would be payable under this Lease by Tenant in the absence of any such expiration, termination, re-entry, repossession or removal, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant pursuant to Section 23.4, after deducting from such proceeds all reasonable expenses of Landlord in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, reasonable attorneys’ fees and expenses (including, without limitation, fees and expenses of appellate proceedings), alteration costs and expenses of preparation for such reletting. Tenant shall pay such liquidated and agreed current damages on the dates on which Base Rent would be payable under this Lease in the absence of such expiration, termination, re-entry, repossession or removal, and Landlord shall be entitled to recover the same from Tenant on each such date.

23.7         At any time after any such expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property thereon by reason of the occurrence of an Event of Default, whether or not Landlord shall have collected any liquidated and agreed current damages pursuant to Section 23.6, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damages for Tenant’s default and in lieu of all liquidated and agreed current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the sum of (i) the excess, if any of (A) the aggregate of all Base Rent, Additional Rent and other sums which would be payable under this Lease, in each case from the date of such demand (or, if it be earlier, the date to which Tenant shall have satisfied in full its obligations under Section 23.6 to pay liquidated and agreed current damages) for what would be the then-unexpired Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal, discounted at the rate equal to the then current rate on U.S. Treasury obligations of comparable maturity to such Term (the “Treasury Rate”), but in no event greater than the non-default rate of interest for the Loan (such lower rate being referred to as the “Discount Rate”) over (B) the amount of such rental loss that Tenant proves could be reasonably avoided by commercially reasonable mitigation efforts by Landlord, discounted at the Discount Rate for the same period, plus (ii) all reasonable legal fees and other costs and expenses incurred by Landlord and Lender as a result of Tenant’s default under this Lease. If any Law shall limit the amount of liquidated final damages to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such Law.

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Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy at law or in equity, including the right of injunction. Tenant waives any rights of redemption granted by any Laws if Tenant is evicted or dispossessed, for any cause, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the terms of this Lease.

23.8         In addition to the foregoing remedies set forth in this Section 23 and all other remedies available at law or in equity, and regardless of whether or not an Event of Default has occurred under this Lease, if Tenant has failed to perform any of its duties, obligations, covenants or agreements under this Lease, Landlord may give notice to Tenant that it has failed to perform any such duty, obligation, covenant or agreement (herein called a “Notice of Breach”) and may thereafter pursue any rights or remedies available to it at law or in equity including, without limitation, filing a suit for damages as a result of such breach or a suit for specific performance of any such duties, obligations, covenants or agreements. Any Notice of Breach delivered under this Section 23.8 or any such rights or remedies pursued by Landlord shall not be deemed to be a notice of default under any provision of this Section 23 and shall not result, with or without the passage of time, in an Event of Default existing under this Lease; provided that the delivery of any such Notice of Breach shall not limit Landlord’s right (which right will not be exercised without the consent of Lender so long as the Premises are subject to a Mortgage which requires Lender’s consent for the exercise thereof) to subsequently deliver notice (with respect to the same event or condition which is the subject of such Notice of Breach or any other event or condition) which will declare or, with the passage of time, result in an Event of Default hereunder. Further, after delivery of any such Notice of Breach, but without notice in the event of an emergency, if Tenant fails to cure such breach during the time that Tenant has to cure such breach under Section 23.1 above, Landlord may do whatever is reasonably necessary and permitted hereunder to cure such breach as may be appropriate under the circumstances for the account of and at the expense of Tenant. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including attorneys’ fees and expenses) so incurred, together with interest thereon at the Lease Default Rate from the date of payment, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

23.9         Subject to applicable Laws relating to the operations of Tenant in the Premises, Tenant acknowledges that one of the rights and remedies available to Landlord under applicable law is to apply to a court of competent jurisdiction for the appointment of a receiver to take possession of part or all of the Premises, to collect the rents, issues, profits and income of the Premises and to manage the operation of the Premises. Tenant further acknowledges that the revocation or suspension of the certification of any portion of the Premises for provider status under Medicare or Medicaid (or successor programs) for a period of thirty (30) days or more and/or the revocation or suspension of a license relating to the operation of any portion of the Premises for its intended use under the laws of the State for a period of thirty (30) days or more will materially and irreparably impair the value of Landlord's investment in the Premises. Therefore, in any of such events, and in addition to any other right or remedy of Landlord under this Lease, Landlord may petition any appropriate court for, and Tenant hereby consents to, the appointment of a receiver to take possession of the Property, to manage its operation, to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible any such license and provider certification for the Property or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for its services as a receiver. All such fees and other expenses of the receivership estate shall be added to the Minimum Rent due to Landlord under this Lease. Tenant hereby irrevocably stipulates to the appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. Tenant agrees to waive all rights to negotiate terms of an OTA and further agrees to execute all transfer documentation including an OTA.

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24.         HUD Loan Requirements. If Landlord obtains or seeks to obtain a HUD Loan on the Facilities, then the following sections shall apply:

24.1         Cooperation in Obtaining HUD Loan. In connection with Landlord’s efforts to obtain a HUD Loan, Tenant agrees to provide to HUD and/or Lender the application documents required by HUD ("Application Documents") and to execute and/or certify all Application Documents, as required by HUD or Lender.

24.2         Amendment of Lease. This Lease may be modified only by a written instrument signed by Landlord and Tenant and approved by Landlord's Lender and by the HUD Lender or HUD, as applicable.

24.3         Compliance with HUD Program Requirements and HUD Loan Documents.

(a)          Tenant agrees to comply with all applicable HUD Program Requirements and the HUD Loan Documents. Tenant further agrees that this Lease will be part of the collateral pledged by Landlord to Lender and HUD. Tenant agrees that it will not take any action which would violate any applicable HUD Program Requirements or any of the HUD Loan Documents.

(b)          In the event of any conflict between the terms and provisions of this Lease and any applicable HUD Program Requirements or the HUD Loan Documents, the HUD Program Requirements and HUD Loan Documents shall control in all respects. Landlord and Tenant agree that no provision of this Lease shall modify any obligation of Landlord or Tenant under the HUD Loan Documents. Landlord and Tenant acknowledge that HUD’s acceptance of this Lease in connection with the closing of the HUD Loan shall in no way constitute HUD’s consent to arrangements which are inconsistent with HUD Program Requirements. This Lease is subject to all HUD Program Requirements. If Landlord elects to obtain HUD financing, Landlord shall obtain HUD financing at Landlord’s sole expense.

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24.4         Subordination.

(a)          Subject to the requirements of applicable Laws relating to the operations of Tenant on the Premises, this Lease is and shall be subject and subordinate to the Mortgage and other HUD Loan Documents; to all renewals, modifications, consolidations, replacements and extensions thereof; to all substitutions thereof; and to all future mortgages upon the Premises and/or other security interests in or to the Premises and any other items which are herein leased to Tenant or which, pursuant to the terms hereof, become a part of the Premises or are otherwise deemed to become the property of Landlord or to remain upon the Premises at the end of the term; and to each advance made or hereafter to be made under any of the foregoing. This Section shall be self-operative and no further instrument of subordination shall be required. Without limiting the foregoing, Tenant agrees to execute and deliver promptly any and all certificates, agreements and other instruments that Landlord, Lender or HUD may reasonably request in order to confirm such subordination. Unless Lender shall have agreed otherwise, if Lender or another person or entity shall succeed to the interest of Landlord by reason of foreclosure or other proceedings brought by Lender in lieu of or pursuant to a foreclosure, or by any other manner (Lender or such other person or entity being called a “Successor”), then this Lease shall terminate, or, at the option of the Successor, this Lease shall nevertheless continue in full force and effect, in which case Tenant shall and does hereby agree to attorn to the Successor and to recognize the Successor as its landlord under the terms of this Lease.

(b)          Agreements for provision of services to the Premises or the granting of easements, rights of way or other allowances of use or placement of CATV, utilities or other items are, and shall always be, subordinate to (i) the right of Landlord, and (ii) the Mortgage and other HUD Loan Documents and all other mortgages and security interests now or hereafter encumbering the Premises and/or the property of which it forms a part. Tenant must obtain HUD written approval prior to entering into any telecommunications services agreement and/or granting of any easements.

24.5         Ownership of FF&E. Tenant agrees that (a) except leases of FF&E entered into in the ordinary course of business with third-party lessees and property of tenants and residents of the Premises, all FF&E located on the Premises at the date of the Lease is and shall be the property of Landlord, and (b) any FF&E acquired by Landlord or Tenant during the term of this Lease remaining on the Premises at the termination of the Lease shall be and/or become the property of Landlord. Tenant agrees, during the term of the Lease, not to remove any FF&E from the Premises, except to replace such FF&E with other similar items of equal or greater quality and value.

24.6         Payments. Landlord and Tenant each acknowledges and agrees that the rent and other amounts payable by Tenant under this Lease (including rent, additional rent and all other sums payable under this Lease) are sufficient to properly maintain the Premises, and to enable Landlord to meet its debt service obligations and related expenses in connection with the Mortgage Loan and the Premises. To the extent applicable, unless Lender and Landlord agree otherwise, and without limiting the generality of the foregoing, Tenant agrees to pay, as additional rent, when due all premiums for (i) liability insurance and full coverage property insurance on the Premises, and (ii) all other insurance coverage required under the HUD Loan Documents and/or applicable HUD Program Requirements. Unless Lender and Landlord agree otherwise, Tenant shall be responsible for funding all escrows for taxes, reserves for replacements, mortgage insurance premiums and/or other insurance premiums as may be required by Lender and/or HUD.

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24.7         Regulatory Agreement of Tenant. At the time of the closing of the HUD Loan, Tenant agrees to execute the Regulatory Agreement of Tenant, and other applicable documents evidencing Lender’s security interest in the collateral of Tenant. Tenant agrees to comply with its obligations under the Regulatory Agreement of Tenant, and agrees that a default by Tenant under the Regulatory Agreement of Tenant shall be deemed to be a default under this Lease.

24.8         Management Agreement Requirements. Tenant agrees not to enter into any Management Agreement involving any Facility unless such Management Agreement complies with applicable HUD Program Requirements and contains provisions that, in the event of default under the Regulatory Agreement of Landlord or the Regulatory Agreement of Tenant, the Management Agreement shall be subject to termination upon not more than thirty (30) days notice without penalty upon written request of HUD. Upon such HUD termination request, Tenant shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to HUD for continuing proper management of the Premises.

24.9         Licenses; Bed Authority. Tenant shall ensure that each Facility meets all state licensure requirements and standards at all times. Landlord and Tenant agree not to undertake or acquiesce to any modification to any license with respect to the Premises or to any “bed authority” related thereto without the prior written approval of HUD. Provided, however, that in the event each Facility does not meet all state licensure requirements and standards, Tenant shall have a reasonable period of time, as provided by applicable Laws, to take the appropriate corrective action towards meeting such state licensure requirements and standards.

24.10         Governmental Receivables. Tenant shall be responsible for obtaining and maintaining as may be appropriate under the circumstances, all existing or necessary provider agreements with Medicaid, Medicare and other governmental third party payors. Tenant agrees to furnish HUD and Lender with copies of all such provider agreements and any and all amendments thereto promptly after execution thereof.

24.11         Financial Statements and Reporting Requirements. Tenant agrees to furnish HUD and Lender copies of its annual financial statements with respect to the Premises, prepared in compliance with the requirements of the Regulatory Agreement of Tenant, within ninety (90) days after the close of Tenant’s fiscal year or such longer period as may be permitted by HUD. Tenant agrees to submit to HUD and Lender copies of all other financial reports as specified in the Regulatory Agreement of Tenant. Landlord shall provide Tenant with a copy of the Regulatory Agreement upon receipt of the same by Landlord.

24.12         Inspections. Tenant agrees that upon reasonable request, Lender, HUD and their respective designees and representatives may at all reasonable times, upon reasonable notice, subject to the rights of patients, residents and tenants, examine and inspect the Premises. Tenant shall, on the request of Lender and/or HUD, promptly make available for inspection by Lender and/or HUD, and their designees and representatives, copies of all of Tenant’s correspondence, books, records and other documentation relating to the Premises, excepting communications between Tenant and its attorneys. Tenant agrees to maintain accounting records for the Facilities in accordance with its customary practice and the Regulatory Agreement of Tenant, separate from any general accounting records which Tenant may maintain in connection with the Tenant’s other activities. Tenant agrees that Lender and/or HUD, and their designees and representatives, shall at any reasonable time, have access to and the right to examine all accounting records of Tenant which relate directly or indirectly to the Premises. The obligations of Tenant under this Section shall be limited to the extent necessary in order for Tenant to comply with applicable laws regarding the confidentiality of resident/patient medical records and information.

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24.13         Insurance; Casualty; Condemnation. Tenant agrees to procure and maintain, or cause to be procured and maintained, the insurance coverage required pursuant to the HUD Loan Documents and/or applicable HUD Requirements, including HUD Notices H 04-01 and H 04-15. Insurance proceeds and the proceeds of any condemnation award or other compensation paid by reason of a conveyance in lieu of the exercise of such power, with respect to the Premises, or any portion thereof, shall be applied in accordance with the terms of the HUD Loan Documents and applicable HUD Program Requirements. The decision to repair, reconstruct, restore or replace the Premises following a casualty or condemnation shall be subject to the terms of the HUD Loan Documents and applicable HUD Requirements.

24.14         Assignment of Operating Lease and Subletting of the Premises. This Lease shall not be assigned or subleased by Tenant, in whole or in part (including any transfer of title or right to possession and control of the Premises, or of any right to collect fees or rents), without the prior written approval of HUD. The prior written approval of HUD shall be required for (a) any change in or transfer of the management, operation, or control of the project or (b) any change in the ownership of Tenant that requires HUD approval under HUD’s previous participation approval requirements. Landlord and Tenant acknowledge that any proposed assignee shall be required to execute a Tenant Regulatory Agreement, each in form and substance satisfactory to HUD, as a prerequisite to any such approval. Any assignment or subletting of the Premises made without such prior approval shall be null and void. This restriction on subletting does not apply to Tenant’s leasing of individual units or beds to patient / residents.

24.15         Accounts Receivable (AR) Financing. Tenant shall not pledge its accounts receivable or receipts to an accounts receivable lender for any loan without the prior written approval of Lender and HUD. In the event that Lender and HUD grant such approval; (i) the holder(s) of such lien shall enter into an Intercreditor and a Rider to Intercreditor Agreement with the AR Lender and Lender on such terms and conditions as may be required by HUD; and (ii) Tenant shall agree to comply with the requirements imposed by Lender and HUD in connection therewith. Until such approved loan is paid in full, the written approval of HUD is required for any proposed modifications, extensions, renewals or amendments to a material term of the AR Loan or the security agreement, prior to the effective date of such amendments.

24.16         Termination of Lease. The Lease shall not be terminated prior to its expiration date without the prior written approval of HUD. If HUD becomes Mortgagee, Mortgagee in Possession, or Successor, HUD can terminate the Lease (a) for any violation of the Lease that is not cured within any applicable notice and cure period given in the Lease, (b) for any violation of the Regulatory Agreement of Tenant or other HUD Program Requirements or Health Care Requirements that is not cured within thirty (30) days after receipt by Tenant of written notice of such violation or (c) if HUD, as a result of the occurrence of either of the events described in the foregoing items (a) or (b), is required to advance funds for the operation of the Facilities located on the Premises.

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24.17         Master Lease. Projects proposed for FHA financing under the Section 232 program that are affiliated by common ownership among Mortgagors and/or Tenant/Operator entities must receive written approval from HUD, and may be required to use a Master Lease between the Mortgagor/Landlord and the Master Tenant/Subtenant/Operator. The Master Lease and the HUD Master Lease Subordination Agreement or Master Lease Subordination Non Disturbance Agreement shall be approved by HUD and the Mortgagee. The Master Lease shall only contain Mortgagors and Operators of FHA-insured projects.

24.18         Miscellaneous. Notwithstanding any other terms contained in the Lease, in the event of an assignment of the Lease to HUD or FHA, neither HUD nor FHA shall have any indemnification obligations under the Lease. In addition, any payment obligations of HUD or FHA pursuant to the Lease shall be limited to actual amounts received by HUD or FHA, and otherwise not prohibited by applicable law or regulation, including without limitation, the Anti Deficiency Act, 31 U.S.C. § 1341 et seq.

25.         Rent Payments. If Landlord’s interest in this Lease shall pass to another, or if the Base Rent or Additional Rent hereunder shall be assigned, or if a party other than Landlord shall become entitled to collect the Base Rent or Additional Rent due hereunder, then notice thereof shall be given to Tenant by Landlord in writing, or, if Landlord is an individual and shall have died or become incapacitated, by Landlord’s legal representative, accompanied by due proof of the appointment of such legal representative; provided, that if Base Rent is then being paid to Lender, then notwithstanding such notice from Landlord, Tenant shall continue to pay Base Rent to Lender until it receives contrary notice from Lender. Until such notice and proof shall be received by Tenant, Tenant may continue to pay the rent due hereunder, and Landlord shall indemnify and hold Tenant harmless from any challenges to such payments, to the one to whom, and in the manner in which, the last preceding installment of rent hereunder was paid, and each such payment shall fully discharge Tenant with respect to such payment.

Tenant shall not be obligated to recognize any agent for the collection of rent or otherwise authorized to act with respect to the Premises until written notice of the appointment and the extent of the authority of such agent shall be given to Tenant by the one appointing such agent.

26.         Holdover. If Tenant shall hold over after the expiration date of the Term, or if Tenant shall hold over after the date specified in the Tenant’s Termination Notice given by Tenant under Section 15.2, then, in either such event, Tenant shall be a month-to-month Tenant on the same terms as herein provided, except that the monthly Base Rent will be 1.5 times the monthly Base Rent payable by Tenant during the final full calendar month of the Term or, if applicable, during any extension of the Term, immediately preceding such holdover period.

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27.         Notices. Whenever, pursuant to this Lease, notice or demand shall or may be given to either of the parties (including Lender) by the other, and whenever either of the parties shall desire to give to the other any notice or demand with respect to this Lease or the Premises, each such notice or demand shall be in writing, and any Laws to the contrary notwithstanding, shall not be effective for any purpose unless the same shall be given or served as follows: by mailing the same to the other party by registered or certified mail, return receipt requested, or by delivery by nationally recognized overnight courier service provided a receipt is required, at its Notice Address set forth in Part I hereof, or at such other address as either party (including, without limitation, Lender) may from time to time designate by notice given to the other. The date of receipt of the notice or demand shall be deemed the date of the service thereof (unless delivery of the notice or demand is refused or rejected, in which case the date of such refusal or rejection shall be deemed the date of service thereof).

28.         Indemnity. TENANT SHALL DEFEND LANDLORD AND ANY OF LANDLORD’S OWNERS, PARTNERS, TRUSTEES, BENEFICIAL OWNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS, OFFICERS, DIRECTORS OR SHAREHOLDERS, TOGETHER WITH THE LENDER, AND ANY OWNER, PARTNER, MEMBER, MANAGER, TRUSTEE, BENEFICIAL OWNER, OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE OR AGENT OF THE LENDER OR ANY HOLDER OF A PASS-THROUGH OR SIMILAR CERTIFICATE ISSUED BY THE LENDER (HEREIN, COLLECTIVELY, “INDEMNIFIED PARTIES”) WITH RESPECT TO, AND SHALL PAY, PROTECT, INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM AND AGAINST, ANY AND ALL LIABILITIES, LOSSES, DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR JUDGMENTS OF ANY NATURE WHATSOEVER, HOWEVER CAUSED, (A) TO WHICH ANY INDEMNIFIED PARTY IS SUBJECT BECAUSE OF LANDLORD’S OR LENDER’S ESTATE IN THE PREMISES OR (B) ARISING FROM (I) INJURY TO OR DEATH OF ANY PERSON OR PERSONS OR DAMAGE TO OR LOSS OF PROPERTY, REAL OR PERSONAL, IN ANY MANNER ARISING THEREFROM, OCCURRING ON THE PREMISES OR CONNECTED WITH THE USE, NON-USE, CONDITION, OCCUPANCY, MAINTENANCE, REPAIR OR REBUILDING OF ANY THEREOF, WHETHER OR NOT SUCH INDEMNIFIED PARTY HAS OR SHOULD HAVE KNOWLEDGE OR NOTICE OF THE DEFECT OR CONDITIONS, IF ANY, CAUSING OR CONTRIBUTING TO SAID INJURY, DEATH, LOSS, DAMAGE OR OTHER CLAIM, (II) TENANT’S VIOLATION OF THIS LEASE, (III) ANY ACT OR OMISSION OF TENANT OR ITS AGENTS, CONTRACTORS, LICENSEES, SUBTENANTS OR INVITEES, AND (IV) ANY CONTEST REFERRED TO IN SECTION 30.2; PROVIDED, THAT TENANT SHALL NOT BE REQUIRED TO INDEMNIFY, DEFEND OR HOLD HARMLESS ANY INDEMNIFIED PARTY FOR ANY SUCH MATTERS ARISING DUE TO THE GROSS NEGLIGENCE, INTENTIONAL ACT, OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY. TENANT COVENANTS UPON NOTICE FROM SUCH INDEMNIFIED PARTY TO DEFEND SUCH INDEMNIFIED PARTY IN SUCH ACTION, WITH THE EXPENSES OF SUCH DEFENSE PAID BY TENANT; PROVIDED, THAT IN CONNECTION WITH TENANT’S OBLIGATIONS TO PROVIDE A DEFENSE OF THE INDEMNIFIED PARTIES HEREUNDER, TENANT SHALL BE ENTITLED TO SELECT COUNSEL REASONABLY SATISFACTORY TO LANDLORD TO DEFEND SUCH INDEMNIFIED PARTIES SO LONG AS DEFENSE OF MULTIPLE PARTIES IS REASONABLE UNDER THE CIRCUMSTANCES AND SO LONG AS SUCH COMMON DEFENSE DOES NOT LIMIT ANY REASONABLE CLAIMS OR DEFENSES WHICH COULD BE RAISED BY ANY SUCH INDEMNIFIED PARTIES. THE OBLIGATIONS OF TENANT UNDER THIS SECTION 28 SHALL SURVIVE ANY TERMINATION OF THIS LEASE. ANY AMOUNTS PAYABLE TO ANY INDEMNIFIED PARTY HEREUNDER BY REASON OF THE APPLICATION OF THIS SECTION 28 SHALL BECOME IMMEDIATELY DUE AND PAYABLE; AND SUCH AMOUNTS SHALL BEAR INTEREST AT THE LEASE DEFAULT RATE FROM THE DATE LOSS OR DAMAGE IS PAID BY SUCH INDEMNIFIED PARTY UNTIL PAID BY TENANT.

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LANDLORD AND TENANT INTEND THAT, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE, THE INDEMNITIES AND RELEASES PROVIDED IN THIS LEASE BY TENANT FOR THE BENEFIT OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES (INCLUDING WITHOUT LIMITATION, THE INDEMNITIES SET FORTH IN THIS SECTION 28 AND IN SECTION 38.5 OF THIS LEASE), SHALL APPLY EVEN IF AND WHEN THE SUBJECT MATTER OF THE INDEMNITIES AND RELEASES ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, OR ARISE AS A RESULT OF STRICT LIABILITY OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, BUT IN NO EVENT SHALL TENANT BE OBLIGATED TO INDEMNIFY LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES WITH RESPECT TO MATTERS ARISING FROM THEIR GROSS NEGLIGENCE AND/OR INTENTIONAL ACT OR WILLFUL MISCONDUCT.

29.         Tenant to Comply with Matters of Record. Tenant agrees to perform all obligations of Landlord and pay all costs, expenses and other amounts (including, without limitation, any liquidated damages) which Landlord or Tenant may be required to pay in accordance with, and to comply and cause the Premises to comply in all respects with all of the terms and conditions o£ any reciprocal easement agreement or any other agreement or document of record now affecting the Premises (including, without limitation, the Permitted Encumbrances) or hereafter executed or filed with Tenant’s written consent (each, herein referred to as a “Matter of Record”, and collectively as the “Matters of Record”) during the Term. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD AND LENDER AND ALL OTHER INDEMNIFIED PARTIES FROM ANY CLAIM, LOSS OR DAMAGE SUFFERED BY LANDLORD OR LENDER OR SUCH INDEMNIFIED PARTIES BY REASON OF TENANT’S FAILURE TO PERFORM ANY OBLIGATIONS OR PAY ANY COSTS, EXPENSES OR OTHER AMOUNTS (INCLUDING WITHOUT LIMITATION, LIQUIDATED DAMAGES) AS REQUIRED UNDER ANY MATTERS OF RECORD OR COMPLY AND CAUSE THE PREMISES TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY MATTERS OF RECORD DURING THE TERM.

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30.         Taxes.

30.1         Subject to the provisions hereof relating to contests and mortgage reserves, Tenant shall pay and discharge, before any interest or penalties are due thereon, all of the following taxes, charges, assessments, ground rents, levies and other items (collectively, “tax” or “taxes”), even if unforeseen or extraordinary, which are imposed or assessed on or subsequent to the Date of Rent Commencement during the Term, regardless of whether payment thereof is due prior to, during or after the Term: all taxes of every kind and nature (including, without limitation, real, ad valorem, personal property, and sales and use tax), on or with respect to the Premises (including, without limitation, any taxes assessed against Landlord’s reversionary estate in the Premises or against any real property other than the Premises which is included within the tax parcel which includes the Premises), the Base Rent and Additional Rent (including, without limitation, ad valorem taxes) payable hereunder, this Lease or the leasehold estate created hereby; all charges and/or assessments for any easement or agreement maintained for the benefit of the Premises; and all general and special assessments, levies, water and sewer assessments and other utility charges, use charges, impact fees and rents and all other public charges and/or taxes whether of a like or different nature. Landlord shall promptly deliver to Tenant any bill or invoice Landlord receives with respect to any tax; provided, that the Landlord’s failure to deliver any such bill or invoice shall not limit Tenant’s obligation to pay such tax. Landlord agrees to cooperate with Tenant to enable Tenant to receive tax bills directly from the respective taxing authorities. Nothing herein shall obligate Tenant to pay, and the term “taxes” shall exclude (unless the taxes referred to in clauses (i) and (ii) below are in lieu of or a substitute for any other tax or assessment upon or with respect to any of the Premises which, if such other tax or assessment were in effect on the Date of Rent Commencement, would be payable by Tenant hereunder or by Law), federal, state or local (i) franchise, capital stock or similar taxes, if any, of Landlord, (ii) income, excess profits or other taxes, if any, of Landlord, determined on the basis of or measured by Landlord’s net income, (iii) any estate, inheritance, succession, gift, capital levy or similar taxes of Landlord, (iv) taxes imposed upon Landlord under Section 59A of the Internal Revenue Code of 1986, as amended, or any similar state, local, foreign or successor provision, (v) any amounts paid by Landlord pursuant to the Federal Insurance Contribution Act (commonly referred to as FICA), the Federal Unemployment Tax Act (commonly referred to as FUTA), or any analogous state unemployment tax act, or any other payroll related taxes, including, but not limited to, any required withholdings relating to wages, (vi) except as otherwise provided in Section 15, any taxes in connection with the transfer or other disposition of any interest, other than Tenant’s (or any person claiming under Tenant), in the Premises or this Lease, to any person or entity, including but not limited to, any transfer, capital gains, sales, gross receipts, value added, income, stamp, real property gains or withholding tax, and (vii) any interest, penalties, professional fees or other charges relating to any item listed in clauses (i) through (vi) above; provided, further, that Tenant is not responsible for making any additional payments in excess of amounts which would have otherwise been due, as tax or otherwise, but for a withholding requirement which relates to the particular payment and such withholding is in respect to or in lieu of a tax which Tenant is not obligated to pay; and provided, further, that if at any time during the Term of this Lease, the method of taxation shall be such that there shall be assessed, levied, charged or imposed on Landlord a tax upon the value of the Premises or any present or future improvement or improvements on the Premises, including without limitation, any tax which uses rents received from Tenant as a means to derive value of the property subject to such tax, then all such levies and taxes or the part thereof so measured or based shall be payable by Tenant, but only to the extent that such levies or taxes would be payable if the Premises were the only property of Landlord, and Tenant shall pay and discharge the same as herein provided in the event that any assessment against the Premises is payable in installments, Tenant may pay such assessment in installments; and in such event, Tenant shall be liable only for those installments which become due and payable prior to or during the Term, or which are appropriately allocated to the Term even if due and payable after the Term. Tenant shall deliver, or cause to be delivered, to Landlord and Lender, promptly upon Landlord’s or Lender’s written request, evidence satisfactory to Landlord and Lender that the taxes required to be paid pursuant to this Section 30 have been so paid and are not then delinquent.

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30.2         After prior written notice to Landlord and Lender, at Tenant’s sole cost, Tenant may contest (including seeking an abatement or reduction of) in good faith any taxes agreed to be paid hereunder; provided, that (i) Tenant first shall satisfy any Legal Requirements, including, if required, that the taxes be paid in full before being contested or, if not required to be paid in full, such contest shall suspend the collection of such taxes, (ii) no Event of Default has occurred and is continuing and no Event of Default under this Lease shall occur as a result of such contest, and (iii) failing to pay such taxes will not subject Landlord or Lender to criminal or civil penalties or fines or to prosecution for a crime, or result in the sale, forfeiture, termination, cancellation or loss of any portion of the Premises or any interest therein, any Base Rent or any Additional Rent Tenant agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Tenant shall have the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay and shall indemnify, defend and hold Landlord and Lender and all other indemnified Parties harmless against any and all losses, judgments, decrees and costs (including, without limitation, all reasonable attorneys’ fees and expenses) in connection with any such contest and shall promptly, after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. At Tenant’s sole cost, Landlord shall assist Tenant as reasonably necessary with respect to any such contest, including joining in and signing applications or pleadings. Any rebate applicable to any portion of the Term shall belong to Tenant If at the time of any such contest an Event of Default has occurred and is continuing under this Lease, then Tenant shall post a bond or other security with and acceptable to Landlord and Lender in their discretion in an amount equal to one hundred twenty-five percent (125%) of the amount being contested.

31.         Insurance.

31.1         Tenant shall maintain All-Risk insurance for the Facilities for one hundred percent (100%) of its replacement value. Said All-Risk policy shall include flood coverage if the Premises is located in a Flood Zone A, and shall not exclude earthquake coverage.

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31.2         Tenant also shall maintain General Liability coverage, including Broad Form Endorsement, on an occurrence basis; in combined policy limits of not less than Ten Million and No/100 Dollars ($10,000,000.00) per occurrence for bodily injury and for property damage with respect to the Premises.

31.3         Professional Liability insurance of not less than One Million /Three Million and No/100 Dollars ($1,000,000/$3,000,000).

31.4         If, during the Term, Tenant is covered by general liability, professional liability, residential healthcare malpractice or other liability insurance on a "claims made" basis, ninety (90) days before the termination of this Lease, Tenant shall procure and maintain, at Tenant's sole cost and expense, an extended reporting endorsement or "tail" insurance coverage, with such coverage limits and such deductible amounts as shall be reasonably acceptable to Landlord for general liability, professional liability, residential healthcare professional malpractice or other liability claims reported after the termination of this Lease or expiration of the claims made policy, but concerning services provided during the Term or the claims made policy. Tenant shall provide Landlord with a certificate evidencing such coverage no later than ninety (90) days before the termination of this Lease and, if Tenant fails to procure and maintain tail insurance on termination of this Lease, Landlord shall have the right to apply any portion of the Lease Deposit to procure and maintain the insurance required under this Section to the extent such coverage is available at commercially reasonable rates.

31.5         At all times when any construction is in progress, Tenant shall maintain or cause to be maintained by its contractors and subcontractors with such companies reasonably approved by Landlord, builder’s risk insurance, completed value form, covering all physical loss, in an amount reasonably satisfactory to Landlord

31.6         Any insurance maintained by Tenant pursuant to this Section 31 shall name Landlord and Lender as additional insured parties and/or as loss payees, as appropriate, as their respective interests may appear.

31.7         All proceeds received from such All-Risk and/or builder’s risk insurance shall be used in the first instance in accordance with Tenant’s obligations under Section 14 hereof and any surplus shall be retained by Tenant.

31.8         Tenant may carry such All-Risk and/or General Liability insurance through blanket insurance covering the Premises and other locations of Tenant and/or of Tenant’s affiliates, provided that such blanket insurance policy specifically designates the Premises and shall not be reduced by claims as to other property covered by such blanket policy; and Tenant may maintain the required limits in the form of excess and/or umbrella policies, provided that the other requirements set forth herein have been satisfied.

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31.9         All insurance coverage required to be carried hereunder shall be carried with insurance companies licensed to do business in the State and which have a claims paying ability rating of “A” or better by S&P and a rating of “A2” or better by Moody’s, and shall require the insured’s insurance carrier to notify the Landlord and Lender at least thirty (30) days prior to any cancellation or material modification of such insurance. Notwithstanding the foregoing, Tenant may carry insurance with companies which are affiliated with Tenant (and do not meet the requirements herein) provided such insurance provided by such companies shall not exceed the deductible or self-insurance limitations herein. The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. If said insurance or part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and Lender.

31.10         Each insurance policy referred to above shall, to the extent applicable, contain standard non-contributory mortgagee clauses in favor of Lender and shall provide that it may not be canceled except after thirty (30) days prior notice to Landlord and Lender and that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Premises for purposes more hazardous than permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by any Lender pursuant to any provision of the Mortgage upon the happening of an event of default therein, or (iv) any change in title or ownership of any of the Premises. Any insurance policy may be written with a deductible of not more than Twenty Five Thousand and No/100 Dollars ($25,000.00), provided that Tenant indemnifies, defends and holds Landlord harmless for any Restoration and Restoration Cost to the extent that the net proceeds of insurance are insufficient to pay and perform the Restoration and the Restoration Costs.

31.11         Tenant shall pay all premiums for the insurance required by this Section 31 as they become due, and shall renew or replace each policy, and shall deliver to Landlord and Lender a certificate or other evidence of the then-existing policy and each renewal or replacement policy, not less than fifteen (15) days prior to the expiration of such policy (together with a certificate of a responsible officer of Tenant that the insurance maintained by Tenant with respect to the Premises is in compliance with the requirements of this Section 31 of this Lease). In the event of Tenant’s failure to comply with any of the foregoing requirements, Landlord shall be entitled to procure such insurance. Any sums so expended by Landlord, together with interest thereon from the date paid at the Lease Default Rate, shall be Additional Rent and shall be repaid by Tenant to Landlord, if accompanied by an invoice or other supporting documentation, immediately upon delivery of written demand therefor by Landlord.

32.         Landlord Exculpation. Anything contained herein to the contrary notwithstanding, any claim based upon liability of Landlord under this Lease shall be enforced only against the Landlord’s interest in the Premises and shall not be enforced against the Landlord individually or personally other than with respect to fraud or the misappropriation of insurance or Condemnation proceeds. In no event shall any partner, shareholder, trustee, manager, member, beneficial owner, officer, director or other owner or agent of Landlord have any liability under this Lease.

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33.         Landlord’s Title. The Premises are demised and let subject to the Permitted Encumbrances without representation or warranty by Landlord. The recital of the Permitted Encumbrances herein shall not be construed as a revival of any Permitted Encumbrance which has expired.

34.         Quiet Enjoyment. So long as the Lease is in full force and effect, Landlord warrants and agrees that Tenant, on paying the Base Rent, Additional Rent and other charges due hereunder and performing all of Tenant’s other obligations pursuant to this Lease, shall and may peaceably and quietly have, hold, and enjoy the Premises for the full Term, free from molestation, eviction, or disturbance by Landlord or by any other person(s) lawfully claiming by, through or under Landlord, subject, however, to the Permitted Encumbrances.

35.         Broker. Landlord and Tenant each represent and warrant that it has had no dealings or conversations with any real estate broker in connection with the negotiation and execution of this Lease. LANDLORD AND TENANT EACH AGREE TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE OTHER AGAINST ALL LIABILITIES ARISING FROM ANY CLAIM OF ANY REAL ESTATE BROKERS, INCLUDING COST OF COUNSEL FEES, RESULTING FROM THEIR RESPECTIVE ACTS. IN THE EVENT OF ANY BREACH OF LANDLORD’S REPRESENTATIONS UNDER THIS SECTION 35 OR ANY CLAIM BY TENANT AGAINST LANDLORD FOR ANY INDEMNITY UNDER THIS SECTION 35, TENANT SHALL HAVE NO RIGHT TO ABATE OR DEFER ANY PAYMENT OF ANY BASE RENT, ADDITIONAL RENT AND/OR OTHER AMOUNTS DUE UNDER THIS LEASE, OR TO EXERCISE ANY RIGHTS OF OFFSET WITH RESPECT THERETO, AND TENANT HEREBY EXPRESSLY WAIVES ANY SUCH RIGHTS THAT MAY EXIST AT LAW, IN EQUITY OR OTHERWISE.

36.         Transfer of Title. In the event of any transfer(s) of the title to the Premises, Landlord (and in the case of any subsequent transfer, the then-grantor) automatically shall be relieved from and after the date of such transfer, of all liability with respect to the performance of any obligations on the part of said Landlord contained in this Lease thereafter to be performed, including, without limitation, the release of Landlord’s outstanding obligations, if any, owed in connection with the Loan (provided that there is an assumption of Landlord’s obligations under this Lease and the Loan and subject to any conditions for such transfer as are contained in the Loan documents); provided that any amount then due and payable to Tenant by Landlord (or the then-grantor), and any other obligation then to be performed by Landlord (or the then-grantor) under this Lease, either shall be paid or performed by Landlord (or the then-grantor) or such payment or performance assumed by the transferee; it being intended hereby that the covenants, conditions and agreements contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and with respect to their respective successive period of ownership. Landlord may freely transfer the Premises and this Lease without the consent of Tenant. Until Landlord gives Tenant notice in accordance with the terms of this Lease, or Tenant receives notice, of a transfer of the Premises by Landlord, Tenant may deal with Landlord as if it continued to be the owner of the Premises. If a controlling ownership interest in Landlord is transferred and, in connection therewith, the address for notices to Landlord is changed, until Landlord gives, or Tenant receives, notice of such transfer and new address Tenant may correspond with the current owner of a controlling interest in Landlord at the prior address for notices to Landlord.

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37.         Management Agreements. Tenant shall not enter into any Management Agreement without the prior written approval of Landlord or Landlord's Lender. Any Manager shall be required to enter into an assignment and subordination of management fees or operating agreement in form and substance reasonably satisfactory to Landlord's Lender. Such restrictions and approval rights are solely for the purposes of assuring that the Healthcare Business is managed and operated in a first class manner consistent with applicable healthcare laws and the preservation and protection of the Premises as security for the Loan and shall not place responsibility for the control, care, management or repair of the Premises and/or the Healthcare Business upon Landlord's Lender, or make Landlord's Lender responsible or liable for negligence in the management, operation, upkeep, repair or control of the Premises and/or the Healthcare Business. Notwithstanding the foregoing, as of the Date of Lease, Landlord's Lender has approved the Manager pursuant to the terms of the Approved Management Agreement attached hereto as Exhibit C.

38.         Hazardous Materials.

38.1         For the purposes hereof, the term “Hazardous Materials” shall include, without limitation, any material, waste or substance which is (i) included within the definitions of “hazardous substances,” “hazardous materials,” “toxic substances,” or “hazardous wastes” in or pursuant to any Laws, or subject to regulation under any Law; (ii) listed in the United States Department of Transportation Optional Hazardous Materials Table, 49 C.F.R. Section 172.101, as enacted as of the date hereof or as hereafter amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as enacted as of the date hereof or as hereafter amended; or (iii) explosive, radioactive, asbestos, a polychlorinated biphenyl, petroleum or a petroleum product or waste oil. The term “Environmental Laws” shall include all Laws pertaining to health, industrial hygiene, Hazardous Materials or the environment, including, but not limited to each of the following, as enacted as of the date hereof or as hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §9601 et seq.; the Resource Conservation and Recovery Act of 1976,42 U.S.C. §6901 et seq.; the Toxic Substance Control Act, 15 U.S.C. §2601 et seq.; the Water Pollution Control Act (also known as the Clean Water Act), 33 U.S.C. §1251 et seq.; the Clean Air Act, 42 U.S.C. §7401 et seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq.

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38.2         Tenant represents and warrants to Landlord that neither the Premises, nor any portion thereof, has been used by Tenant for the generation, manufacture, storage, handling, transfer, treatment, recycling, transportation, processing, production, refinement or disposal (each, a “Regulated Activity”) of any Hazardous Materials. As of the Date of Rent Commencement, Tenant covenants it (i) will comply, and will cause the Premises to comply, with all Environmental Laws applicable to the Premises, (ii) will not use, and shall prohibit the use of the Premises for Regulated Activities or for the storage, handling or disposal of Hazardous Materials (other than in connection with the operation and maintenance of the Premises and in commercially reasonable quantities as a consumer thereof, subject to compliance with applicable Laws), (iii) (A) will not install or permit the installation on the Premises of any asbestos or asbestos-containing materials (except in compliance with all applicable Environmental Laws), underground storage tanks or surface impoundments and shall not permit there to exist any petroleum contamination in violation of applicable Environmental Laws originating on the Premises, and (B) with respect to any petroleum contamination on the Premises which originates from a source off the Premises, Tenant shall notify all responsible third parties and appropriate government agencies (collectively, ‘‘Third Parties”) and shall prosecute the cleanup of the Premises by such Third Parties, including, without limitation, undertaking legal action, if necessary, to enforce the cleanup obligations of such Third Parties and, to the extent not done so by such Third Parties and to the extent technically feasible and commercially practicable, Tenant shall remediate such petroleum contamination, and (iv) shall cause any alterations of the Premises to be done in a way which complies with applicable Laws relating to exposure of persons working on or visiting the Premises to Hazardous Materials and, in connection with any such alterations, shall remove any Hazardous Materials present upon the Premises which are not in compliance with applicable Environmental Laws or which present a danger to persons working on or visiting the Premises.

Landlord agrees that Tenant may use household and commercial cleaners and chemicals to maintain the Premises, provided that such use is in compliance with all Environmental Laws. Landlord and Tenant acknowledge that any or all of the cleaners and chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same as herein set forth, provided, that in doing so Tenant complies with all Laws. For the purposes of Sections 38.3 and 38.4, the term “Hazardous Materials” shall exclude the Hazardous Materials used as permitted in this paragraph.

38.3         If, at any time during the Term, Hazardous Materials shall be found in, on or under the Premises, unless such Hazardous Materials have been introduced by Landlord or Landlord’s agents or employees or were introduced to the Premises prior to the Substantial Completion Date, then Tenant shall (at Tenant’s sole expense), or shall cause such responsible Third Parties to, promptly commence and diligently prosecute to completion all investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (collectively, “Remedial Work”) to the extent required by Environmental Laws, and in compliance with Environmental Laws, and at Tenant’s sole cost; provided, that except as otherwise expressly provided in this subparagraph (c), Landlord shall not be required to accept any institutional control (such as a deed restriction) that restricts the permitted use of the Premises or any real property as a condition to any remedial plan approved by any governmental agency in connection with such Remedial Work. The Remedial Work required of Tenant under this Lease shall be limited to achieving clean-up standards applicable to residential use of the Premises as provided herein (“Commercial Closure”), if allowed under applicable Environmental Laws and if approved by the applicable governmental authority with jurisdiction over the Premises, Hazardous Materials and Remedial Work; provided, that the Hazardous Materials left in place would not reasonably be expected to cause or threaten to cause current or future migration of such Hazardous Materials from the environmental media in which such Hazardous Materials are present to other environmental media or to other properties in excess of applicable regulatory standards permitted under applicable Legal Requirements; and provided, further, that nothing contained in this Section 38.3 shall be deemed to limit the obligations of the Tenant under any other provision of this Section 38 including, without limitation, the indemnification obligations of the Tenant under Section 38.5. In the event an institutional control (such as a deed restriction, environmental land use restriction, or activity and use limitation) that restricts the permitted use of or activities on the Premises (hereinafter a “Restriction”) is required in order to achieve Commercial Closure, prior to submitting any proposed plan for Remedial Work to a governmental authority which proposes such a Restriction or performing or implementing such Remedial Work or actually recording any Restriction in the relevant real property records, Tenant shall submit such Restriction to Landlord for review and approval. Landlord shall not unreasonably withhold or delay its approval of any such Restrictions (i) so long as the condition set forth in subpart (iii) of this sentence is satisfied, which require that the Premises not be used for a day care facility or for agricultural purposes, (ii) so long as the condition set forth in subpart (iii) of this sentence is satisfied and the Premises are adequately served by a municipal water supply, which prohibit the use of the ground water underlying the Premises, or (iii) so long as such Restrictions would not reasonably be likely to result in a material decrease in the fair market value of the Premises based upon the use of the Premises for the Healthcare Business, would not reasonably be likely to materially affect the marketability of the Premises or the ability to obtain financing secured by the Premises based upon the use of the Premises for the Healthcare Business, and would not reasonably be likely to create ongoing monitoring or reporting obligations with respect to the Premises.

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38.4         To the extent that Tenant has knowledge thereof Tenant shall promptly provide notice to Landlord and Lender of any of the following matters:

(a)          any proceeding or investigation commenced or threatened by any governmental authority with respect to the presence of any Hazardous Material affecting the Premises;

(b)          any proceeding or investigation commenced or threatened by any governmental authority, against Tenant or Landlord, with respect to the presence, suspected presence, release or threatened release of Hazardous Materials from any property owned by Landlord;

(c)          all written notices of any pending or threatened investigation or claims made or any lawsuit or other legal action or proceeding brought by any person against (A) Tenant or Landlord or the Premises, or (B) any other party occupying the Premises or any portion thereof in any such case relating to any loss or injury allegedly resulting from any Hazardous Material or relating to any violation or alleged violation of Environmental Laws;

(d)          the discovery of any occurrence or condition on the Premises, of which Tenant becomes aware and which is not corrected within ten (10) days, or written notice received by Tenant of an occurrence or condition on any real property adjoining or in the vicinity of the Premises, which reasonably could be expected to lead to the Premises or any portion thereof being in violation of any Environmental Laws or subject to any restriction on ownership, occupancy, transferability or use under any Environmental Laws or which might subject Landlord or Lender to any Environmental Claim. “Environmental Claim” means any claim, action, investigation or written notice by any person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out o£ based on or resulting from (A) the presence, or release into the environment, of any Hazardous Materials at or from the Premises, or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law; and

44

(e)          the commencement and completion of any Remedial Work.

38.5         TENANT SHALL BE SOLELY RESPONSIBLE FOR AND SHALL DEFEND, REIMBURSE, INDEMNIFY AND HOLD EACH INDEMNIFIED PARTY HARMLESS FROM AND AGAINST ALL DEMANDS, CLAIMS, ACTIONS, CAUSES OF ACTION, ASSESSMENTS, LOSSES, DAMAGES, LIABILITIES (INCLUDING WITHOUT LIMITATION, STRICT LIABILITIES), INVESTIGATIONS, WRITTEN NOTICES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, DIMINUTION IN PROPERTY VALUE AND REASONABLE EXPENSES OF INVESTIGATION BY ENGINEERS, ENVIRONMENTAL CONSULTANTS AND SIMILAR TECHNICAL PERSONNEL AND REASONABLE FEES AND DISBURSEMENTS OF COUNSEL), ARISING OUT OF, IN RESPECT OF OR IN CONNECTION WITH (I) TENANT’S BREACH OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR OBLIGATIONS IN THIS LEASE, (II) THE OCCURRENCE OF ANY REGULATED ACTIVITY AT, ON OR UNDER THE PREMISES AT ANY TIME DURING THE TERM OF THIS LEASE, (III) ANY ENVIRONMENTAL CLAIM WITH RESPECT TO THE PREMISES AGAINST ANY INDEMNIFIED PARTY OR ANY PERSON WHOSE LIABILITY FOR SUCH ENVIRONMENTAL CLAIM LANDLORD OR TENANT HAS OR MAY HAVE ASSUMED OR RETAINED EITHER CONTRACTUALLY OR BY OPERATION OF LAW, (IV) THE RELEASE, THREATENED RELEASE OR PRESENCE OF ANY HAZARDOUS MATERIALS AT, ON, UNDER OR FROM THE PREMISES, REGARDLESS OF HOW DISCOVERED BY TENANT, LANDLORD OR ANY THIRD-PARTY, (V) ANY REMEDIAL WORK REQUIRED TO BE PERFORMED PURSUANT TO ANY ENVIRONMENTAL LAW OR THE TERMS HEREOF WITH RESPECT TO MATTERS ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM OR SURRENDER OF THE PREMISES TO LANDLORD, WHICHEVER IS LAST TO OCCUR, OR (VI) ANY MATTERS ARISING UNDER OR RELATING TO ANY ENVIRONMENTAL LAW AND RELATING TO THE TENANT OR THE PREMISES.

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38.6         Upon Landlord’s request, at any time that Landlord has reasonable grounds to believe that Hazardous Materials (except to the extent those substances are permitted to be used by Tenant under Section 38.2 in the ordinary course of its business and in compliance with all Environmental Laws) are or have been released, stored or disposed of on or around the Premises during the Term or that the Premises may be in violation of the Environmental Laws during the Term, Tenant shall provide, at Tenant’s sole cost and expense, except as otherwise expressly set forth herein, an inspection or audit of the Premises prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Landlord and Lender indicating the presence or absence of the reasonably suspected Hazardous Materials on the Premises or an inspection or audit of the Premises prepared by an engineering or consulting firm approved by Landlord and Lender indicating the presence or absence of friable asbestos or substances containing asbestos on the Premises. In the event that such inspection or audit determines that no such Hazardous Materials are or have been released, stored or disposed of on or around the Premises during the Term and that the Premises is not in violation of the Environmental Laws, the cost and expense of Tenant’s inspection or audit will be borne solely by Landlord. If Tenant fails to provide such inspection or audit within thirty (30) days after such request, Landlord may order the same, and Tenant hereby grants to Landlord and Lender and their respective employees, contractors and agents access to the Premises upon reasonable notice and a license to undertake such inspection or audit. The cost of such inspection or audit, together with interest thereon at the Lease Default Rate from the date Tenant is provided with written confirmation of costs incurred by Landlord until actually paid by Tenant, shall be immediately paid by Tenant on demand.

38.7         Without limiting the foregoing, where recommended by any “Phase I” or “Phase II” assessment of the Premises and where the particular conditions on the Premises which formed the basis for such recommendation were introduced to the Premises during the Term and still exist, Tenant shall establish and comply with an operations and maintenance program relative to the Premises, in form and substance acceptable to Landlord and Lender, prepared by an environmental consultant reasonably acceptable to Landlord and Lender, which program shall address any Hazardous Materials (including, without limitation, asbestos-containing material or lead based paint) that may now or in the future be detected on the Premises. Without limiting the generality of the preceding sentence, Landlord may require (i) periodic notices or reports to Landlord and Lender in form, substance and at such intervals as Landlord may specify to address matters raised in a “Phase I” or “Phase II’ assessment, (ii) an amendment to such operations and maintenance program to address changing circumstances, laws or other matters, (iii) at Tenant’s sole cost and expense, supplemental examination of the Premises by consultants reasonably acceptable to Landlord and Lender to address matters raised in a “Phase I” or “Phase II” assessment, (iv) access to the Premises upon reasonable notice, by Landlord or Lender, and their respective agents or servicer, to review and assess the environmental condition of the Premises and Tenant’s compliance with any operations and maintenance program, and (v) variation of the operation and maintenance program in response to the reports provided by any such consultants.

38.8         The indemnity obligations of the Tenant and the rights and remedies of the Landlord under this Section 38 shall survive the expiration or termination of this Lease.

39.         Estoppel Certificate. Landlord and Tenant agree to deliver to each other, from time to time as reasonably requested in writing, and within a reasonable period of time after receipt of such request, an estoppel certificate, addressed to such persons as the requesting party may reasonably request, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), the dates to which any Base Rent due hereunder has been paid in advance, if any, and that to the knowledge of the signer of such certificate, no default hereunder by either Landlord or Tenant exists hereunder (or specifying each such default to which this signer may have knowledge), together with such other information as Landlord or Tenant may reasonably require with respect to the status of this Lease and Tenant’s use and occupancy of the Premises.

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40.         Notice of Lease. Upon the request of either party hereto, Landlord and Tenant agree to execute a short form Notice of Lease or Memorandum of Lease in recordable form, setting forth information regarding this Lease, including, without limitation, if available, the dates of commencement and expiration of the Term, the Renewal Options, Tenant’s Purchase Option and the Right of First Refusal. All taxes, fees, costs and expenses of recording such Notice of Lease or Memorandum of Lease shall be paid by Tenant unless otherwise agreed in writing by Landlord.

41.         Miscellaneous.

41.1         This Lease shall be governed and construed in accordance with the Laws of the State.

41.2         The headings of the Sections are for convenient reference only, and are not to be construed as part of this Lease.

41.3         The language of this Lease shall be construed according to its plain meaning, and not strictly for or against Landlord or Tenant; and the construction of this Lease and of any of its provisions shall be unaffected by any argument or claim that this Lease has been prepared, wholly or in substantial part, by or on behalf of Tenant or Landlord.

41.4         Landlord and Tenant each warrant and represent to the other, that each has full right to enter into this Lease and that there are no impediments, contractual or otherwise, to full performance hereunder.

41.5         This Lease shall be binding upon the parties hereto and shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of Landlord and the successors and assigns of Tenant.

41.6         In the event of any suit, action, or other proceeding at law or in equity, by either party hereto against the other, by reason of any matter arising out of this Lease, the prevailing party shall recover, not only its legal costs, but also reasonable attorneys’ fees (to be fixed by the Court) for the maintenance or defense of said suit, action or other proceeding, as the case may be.

41.7         A waiver by either party of any breach(es) by the other of any one or more of the covenants, agreements, or conditions of this Lease, shall not bar the enforcement of any rights or remedies for any subsequent breach of any of the same or other covenants, agreements, or conditions.

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41.8         This Lease and the referenced schedules and exhibits set forth the entire agreement between the parties hereto and may not be amended, changed or terminated orally or by any agreement unless such agreement shall be in writing and signed by Tenant and Landlord and approved in writing by the Lender. Landlord and Tenant further agree that this Lease shall not be amended and no amendment shall be effective unless (i) all guarantors of the Tenant’s obligations under this Lease, remain liable for all of the Tenant’s obligations under this Lease notwithstanding such amendment, and (ii) Landlord and Tenant receive written notification from each nationally recognized statistical rating organization (including, without limitation, S&P and Moody’s, if applicable) which has issued a rating of any securities issued by the Lender or the Landlord which is secured by the Premises that such amendment will not result in a downgrade, withdrawal or qualification of the rating then assigned to such securities.

41.9         If any provision of this Lease or the application thereof to any persons or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by Law.

41.10         The submission of this Lease for examination does not constitute a reservation of or agreement to lease the Premises; and this Lease shall become effective and binding only upon proper execution and unconditional delivery thereof by Landlord and Tenant.

41.11         When the context in which words are used in this Lease indicates that such is the intent, words in the singular number shall include the plural and vice versa, and words in the masculine gender shall include the feminine and neuter genders and vice versa. Further, references to “person” or “persons” in this Lease shall mean and include any natural person and any corporation, partnership, joint venture, limited liability company, trust or other entity whatsoever.

41.12         All references to “business days” contained herein are references to normal working business days, i.e., Monday through Friday of each calendar week, exclusive of federal and national bank holidays.

41.13         Time is of the essence in the payment and performance of the obligations of Tenant under this Lease.

41.14         In the event that the Landlord hereunder consists of more than one (1) person, then all obligations of the Landlord hereunder shall be joint and several obligations of all persons named as Landlord herein. If any such person directly or indirectly transfers its interest in the Premises, whether by conveyance of its interest in the Premises, merger or consolidation or by the transfer of the ownership interest in such Person, such transferee and its successors and assigns shall be bound by this subparagraph (n). All persons named as Landlord herein shall collectively designate a single person (the “Designated Person”) to be the person entitled to give notices, waivers and consents hereunder. If Landlord consists of only one person, such person shall be the Designated Person. Landlord agrees that Tenant may rely on a waiver, consent or notice given by such Designated Person as binding on all other persons named as Landlord herein; provided, that any amendment, change or termination of this Lease which is permitted under Section 41.8 must be signed by all persons named as Landlord. The Designated Person shall be the only person entitled to give notices hereunder by the Landlord, and Tenant may disregard all communications from any other person named as Landlord herein, except as provided in the immediately following sentence. The identity of the Designated Person may be changed from time to time by ten (10) business days’ advance written notice to the Tenant signed by either the Designated Person or by all persons named as Landlord herein.

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41.15         If Landlord shall be in default under any of the provisions of this Lease, Tenant may, after thirty (30) days written notice to Landlord and failure of Landlord to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days but Landlord has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Landlord. If an emergency exists, Tenant shall use reasonable efforts to notify Landlord of the situation by phone or other available communication before taking any such action to cure such default.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the Date of Lease above written.

LANDLORD:
CHP PORTLAND, LLC,
a Delaware limited liability company
By:	/s/ Kent Eikanas
Name:	Kent Eikanas
Its:	COO

TENANT:
SHERIDAN CARE CENTER LLC,
an Oregon limited liability company,
dba Sheridan Care Center
By:	/s/ Kent M. Emry
Name:	Kent M. Emry
Its:	Managing Member

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FERNHILL ESTATES LLC,
an Oregon limited liability company,
dba Fernhill Estates
By:	/s/ Kent M. Emry
Name:	Kent M. Emry
Its:	Managing Member
PACIFIC GARDENS ESTATES LLC,
an Oregon limited liability company,
dba Pacific Health and Rehabilitation
By:	/s/ Kent M. Emry
Name:	Kent M. Emry
Its:	Managing Member

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SCHEDULE 1

BASE RENT SCHEDULE

Annual Base Rent		Year		Monthly Base Rent
$	1,680,000.00		1	$	140,000.00
$	1,713,600.00		2		142,800.00
$	1,747,872.00		3		145,656.00
$	1,782,829.44		4		148,569.12
$	1,818,486.03		5		151,540.50
$	1,854,855.75		6		154,571.31
$	1,891,952.86		7		157,662.74
$	1,929,791.92		8		160,815.99
$	1,968,387.75		9		164,032.31
$	2,007,755.52		10		167,312.96
$	2,047,910.63		11		170,659.22
$	2,088,868.84		12		174,072.40
$	2,130,646.21		13		177,553.85
$	2,173,259.14		14		181,104.93
$	2,216,724.32		15		184,727.03

S-1

EXHIBIT A

LEGAL DESCRIPTION OF THE PREMISES

3

EXHIBIT B

PERMITTED ENCUMBRANCES

Those matters referred to in the Proforma Policies for the Facilities attached hereto.

[Proforma Policies to be Attached]

EXHIBIT C

APPROVED MANAGEMENT AGREEMENT

[ATTACHED HERETO]

EX-10.5

LEASE

Between

CHP Medford 1, LLC,
a Delaware limited liability company

as Landlord,

and

RSL Medford, LLC,
an Oregon limited liability company

as Tenant

Date of Lease: As of September 14, 2012

Table of Contents

		Page
1.	Fundamental Lease Provisions; Definitions	1
2.	Premises	5
3.	No Merger of Title	5
4.	Renewal Options	6
5.	Use; Licensing Requirements and Operating Covenants	6
6.	Rent	9
7.	Net Lease; True Lease	11
8.	Condition	12
9.	Liens	12
10.	Repairs and Maintenance	12
11.	Compliance With Laws	15
12.	Access to Premises	15
13.	Waiver of Subrogation	16
14.	Damage; Destruction	16
15.	Condemnation	19
16.	Assignment and Subletting	20
17.	Alterations	21
18.	Signs	22
19.	Surrender	22
20.	Subordination of Lease; Mortgage Reserves	23
21.	Tenant’s Obligation to Discharge Liens	24
22.	Utilities	24
23.	Tenant Default	24
24.	HUD Loan Requirements	28

Table of Contents

(continued)

		Page
25.	Rent Payments	32
26.	Holdover	32
27.	Notices	33
28.	Indemnity	33
29.	Tenant to Comply with Matters of Record	34
30.	Taxes	35
31.	Insurance	36
32.	Landlord Exculpation	38
33.	Landlord’s Title	39
34.	Quiet Enjoyment	39
35.	Broker	39
36.	Transfer of Title	39
37.	Management Agreements	40
38.	Hazardous Materials	40
39.	Estoppel Certificate	45
40.	Notice of Lease	45
41.	Miscellaneous	45
42.	Tenant’s Purchase Option	47

ii

LIST OF SCHEDULES AND EXHIBITS

Schedule 1	Base Rent Schedule
Exhibit A	Legal Description of Premises
Exhibit B	Permitted Encumbrances
Exhibit C Exhibit D	Approved Management Agreement Memorandum of Option Agreement

iii

LEASE

This Lease (this “Lease”) is made on the Date of Lease specified below, between the Landlord and the Tenant specified below.

1.           Fundamental Lease Provisions; Definitions.

1.1          Fundamental Lease Provisions. The following list sets out certain fundamental provisions pertaining to this Lease:

(a)          Date of Lease. As set forth on cover page of this Lease.

(b)           Landlord. CHP Medford 1, LLC, a Delaware limited liability company (“Landlord”).

Landlord notice address:	CHP Medford 1, LLC c/o Cornerstone Real Estate Funds 1920 Main Street, Suite 400 Irvine, California 92614 Attn: Kent Eikanas E-mail: KEikanas@crefunds.com Telephone: (949) 812-4335 Fax: (949) 250-0592
with copy to:	DLA Piper LLP (US) 2000 University Avenue East Palo Alto, California 94303 Attn: James E. Anderson, Esq. E-mail: jim.anderson@dlapiper.com Telephone: (650) 833-2078 Fax: (650) 687-1158

(c)          Tenant. RSL Medford, LLC, an Oregon limited liability company (“Tenant”).

Tenant notice address: RSL Medford, LLC
10220 S.W. Greenberg Road, Suite 201 Portland, Oregon 97223
Attn: James T. Guffee
E-mail: james@radiantseniorliving.com
Telephone: (503) 595-2810
Fax: (503) 595-2818

Page 1 – LEASE

with copy to: Black Helterline LLP
805 S.W. Broadway, Suite 1900
Portland, Oregon 97205
Attn: Steven M. Zipper, Esq.
E-mail: smz@bhlaw.com
Telephone: (503) 224-5560
Fax: (503) 224-6148

1.2          Definitions. The following list sets out certain definitions used in this Lease:

(a)          “Adverse Healthcare Event.” The occurrence of any of the following at the Facility: any termination or suspension placed upon Tenant or the Healthcare Use of any portion of the Facility, the operation of the Healthcare Business conducted within the Facility or the ability to admit residents or patients for a period in excess of thirty (30) days or if the certification or licensure of any portion of the Property under any Legal Requirements is revoked, or suspended or materially limited for a period in excess of thirty (30) days, including, without limitation, (i) termination of provider agreements without Landlord’s consent; or (ii) failure to maintain Tenant’s qualifications for licenses, permits, certifications and any other healthcare requirement necessary to continue to operate the Facility for its Healthcare Use.

(b)          “Approved Management Agreement.” That certain management agreement, dated September 10, 2012, for the Premises by and between Tenant and Manager attached hereto as Exhibit C.

(c)          “AR Lender.” A third party institutional lender providing an AR Loan or AR Financing (as defined below in Section 1.2(d)) to Tenant.

(d)          “AR Loan or AR Financing.” A loan obtained by Tenant from a third party institutional lender secured by the accounts receivable from Tenant’s business operations within the Facility.

(e)          “AR Loan Documents.” All loan documents entered into by Tenant and/or AR Lender evidencing an AR Loan or AR Financing.

(f)          “Base Rent.” The amounts set forth on Schedule 1 hereto for the respective periods specified thereon. (See Section 6.1.)

(g)          “Broker.” Neither Landlord nor Tenant used a broker in connection with this Lease.

(h)          “C&C Threshold Repair Amount.” Fifty Thousand and No/100 Dollars ($50,000.00).

(i)          “Capital Reserve Deposits.” The deposits required to be made by Tenant in the amount of Three Hundred Fifty and No/100 Dollars ($350.00) per bed, annually.

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(j)          “Date of Rent Commencement.” The Date of Lease.

(k)          “EBITDAR.” Earnings before interest, taxes, depreciation, amortization and Base Rent.

(l)          “Exhibits.” All Exhibits and Schedules to this Lease are incorporated herein by this reference.

(m)         “Facility.” The memory care facility located at 1530 Poplar Drive, Medford, Oregon 97504 and commonly known as Farmington Square Medford.

(n)          “FF&E.” All furnishings, furniture, fixtures, and equipment owned by Landlord and used in or about the Premises, but expressly excluding any personal property owned by the residents of the Premises.

(o)          “FHA.” The Federal Housing Administration.

(p)          “Healthcare Business.” The business of operating the Facility for the Healthcare Use.

(q)          “Healthcare Use.” The use of the Facility for a memory care facility.

(r)          “HUD.” The United States Department of Housing and Urban Development.

(s)          “HUD Lender.” A Lender providing a HUD Loan to Landlord on the Premises.

(t)          “HUD Loan.” A new loan secured by the Premises from a Lender insured by HUD.

(u)          “HUD Loan Documents.” The Loan Documents evidencing a HUD Loan on the Premises.

(v)         “HUD Program Requirements.” All applicable statutes and regulations, including all amendments to such statutes and regulations, as they become effective, and all applicable requirements in HUD handbooks, notices and mortgagee letters that apply to the Premises and all requirements by HUD that Tenant’s AR Lender subordinate to HUD Loan in accordance with this Lease, including all updates and changes to such handbooks, notices and mortgagee letters that apply to the Premises, except that changes subject to notice and comment rulemaking shall become effective upon completion of the rulemaking process.

(w)          “Late Charge.” Five percent (5%) of the amount past due.

(x)          “Laws.” As defined below in Section 11.1.

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(y)          “Lease Default Rate.” The lower of (a) thirteen percent (13%) per annum, or (b) the highest rate permitted to be contracted for under applicable Law.

(z)          “Lease Deposit.” A deposit made by Tenant to Landlord in the amount of three (3) months initial Base Rent.

(aa)         “Legal Requirements.” As defined below in Section 11.1.

(bb)         “Lender.” Any institutional entity that makes a loan or loans (such loan or loans collectively referred to herein as the “Loan”) to Landlord, which is secured by a mortgage, deed of trust or similar instrument (the “Mortgage”), with respect to the Premises and of which Tenant is advised in writing by Landlord, and which may be insured by HUD pursuant to Sections 232 and 223(f) of the National Housing Act, as amended. Any such Loan may be evidenced by one or more promissory notes (collectively referred to herein as the “Note”).

(cc)         “Loan Documents.” Collectively, the Note, the Mortgage and all other documents entered into in connection with the Loan by Landlord and/or Tenant, including, but not limited to, the Regulatory Agreement for a HUD Loan.

(dd)         “Management Agreement.” The management agreement between Tenant and the manager of the Facility.

(ee)         “Manager.” The manager of the Facility pursuant to the Management Agreement, which currently is Radiant Senior Living, Inc., under the Approved Management Agreement.

(ff)         “Minimum Licensed Beds.” Seventy-one (71) licensed beds for a memory care facility.

(gg)         “Minimum Rent Coverage.” For any trailing six (6) month period, a ratio of EBITDAR to all Base Rent and all other rent payable under this Lease of not less than 1.1 to 1.0.

(hh)         “Payment of Base Rent.” As set forth in Section 6.1, Base Rent shall be paid monthly by wire transfer to the account set forth in the rent direction letter from Landlord to Tenant delivered concurrently with the execution and delivery of this Lease.

(ii)         “Permitted Encumbrances.” All taxes (as defined in Section 30), Legal Requirements (as defined in Section 11), the Mortgage and associated encumbrances in favor of the Lender, any matters consented to by Landlord, Tenant and Lender in writing, those covenants, restrictions, reservations, liens, conditions, encroachments, easements, encumbrances and other matters of title that affect the Premises as of the date hereof (including, without limitation, those listed on Exhibit B hereto) or which arise due to the acts or omissions of Tenant with Landlord’s prior written consent, or due to the acts or omissions of Landlord with Tenant’s prior written consent, after the date hereof.

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(jj)         “Premises.” That certain lot or parcel of real estate that is described on Exhibit A hereto, together with the Facility(ies) and all improvements now or hereinafter situated on said property (together with all right, title and interest of Landlord in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems used in connection with said property, and all other carpeting, appliances and other fixtures and equipment attached or appurtenant to said property), and all rights, easements, rights of way, and other appurtenances thereto.

(kk)         “Regulatory Agreement.” Collectively, the Regulatory Agreement with Landlord and the Regulatory Agreement with Tenant.

(ll)         “Regulatory Agreement with Landlord.” That certain Regulatory Agreement to be entered into between HUD and Landlord relating to the Premises.

(mm)       “Regulatory Agreement with Tenant.” That certain Regulatory Agreement to be entered into between HUD and Tenant relating to the Premises.

(nn)         “Renewal Options.” The Tenant shall have the following Renewal Options (herein so called) to extend the Term of this Lease for up to a total of two (2) Extension Periods (herein so called) of five (5) years each upon the same terms and conditions as are set forth in this Lease (except as otherwise expressly set forth herein), and for the Base Rent set forth on Schedule 1 hereto.

(oo)         “Required Advance Notice to Exercise Renewal Options.” Notice to exercise a renewal option shall be provided no earlier than three hundred sixty (360) days and no later than one hundred eighty (180) days prior to the expiration of the then-current Term. (See Section 4).

(pp)         “State.” The State of Oregon.

(qq)         “Term.” The term of this Lease shall commence on the Date of Rent Commencement, and shall expire on the 30th day of September following the tenth (10th) anniversary of the Date of Rent Commencement; all subject to all terms and conditions of this Lease.

(rr)         “Threshold Repair Amount.” Ten Thousand and No/100 Dollars ($10,000.00).

2.          Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the Term and on the conditions herein provided, the Premises, subject, however, to the Permitted Encumbrances.

3.          No Merger of Title. There shall be no merger of this Lease nor of the leasehold estate created hereby with the fee estate in or ownership of the Premises by reason of the fact that the same entity may acquire or hold or own (i) this Lease or the leasehold estate created hereby or any interest therein, and (ii) the fee estate or ownership of any of the Premises or any interest therein. No such merger shall occur unless and until all persons having any interest in this Lease and the leasehold estate created hereby, and the fee estate in the Premises including, without limitation, Lender’s interest therein, shall join in a written, recorded instrument effecting such merger.

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4.          Renewal Options. Tenant has the Renewal Options, and may extend the Term of this Lease for each of the Extension Periods, upon all of the terms set forth in this Lease with the Base Rent in the amounts specified on Schedule 1 hereto for the respective Extension Periods. The Term of this Lease shall be extended if Tenant provides Landlord written notice of Tenant’s exercise of the Renewal Option in accordance with the Required Advance Notice to Exercise Renewal Options. Notwithstanding the foregoing, if (a) Tenant is in default beyond the applicable cure period on the date of giving Landlord notice of Tenant’s exercise of the Renewal Option, or (b) Landlord has previously given Tenant two (2) or more notices of default under this Lease during the previous twelve (12) month period, Tenant shall have no right to extend the Term and this Lease shall expire at the end of the existing Term.

5.           Use; Licensing Requirements and Operating Covenants.

5.1           Use. Tenant may use the Premises for the Healthcare Use and for no other use or purpose. Tenant’s use of the Premises must be in accordance with all applicable Laws, including, without limitation, applicable zoning and land use Laws. In no event shall the Premises be used for any purpose which shall violate any of the provisions of any Permitted Encumbrance or any covenants, restrictions or agreements hereafter created by or consented to by Tenant applicable to the Premises; provided, however, that this sentence shall not apply with respect to any Permitted Encumbrance in effect on the Date of Rent Commencement so long as (a) the title insurance policy obtained by Landlord in connection with its purchase of the Premises (and the simultaneously issued Lender’s policy of title insurance) contains affirmative insurance against any loss arising due to a violation of such Permitted Encumbrance or if such affirmative title insurance is subsequently provided to Landlord and Lender at Tenant’s cost with respect to such Permitted Encumbrance on terms and conditions satisfactory to Landlord and Lender in their sole discretion, and (b) violation of such Permitted Encumbrance could not result in Landlord or Lender suffering (i) any criminal liability, penalty or sanction, (ii) any civil liability, penalty or sanction for which Tenant has not made provisions reasonably acceptable to Landlord and Lender, or (iii) defeasance or loss of priority of its interest in the Premises; provided, further, however, that TENANT SHALL NONETHELESS BE OBLIGATED TO INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD, LENDER AND ALL OTHER INDEMNIFIED PARTIES, FROM ANY AND ALL LOSSES, LIABILITIES, PENALTIES, ACTIONS, SUITS, CLAIMS, DEMANDS, JUDGMENTS, DAMAGES, COSTS OR EXPENSES SUFFERED AS A RESULT OF THE VIOLATION OF ANY SUCH PERMITTED ENCUMBRANCE BY TENANT. Tenant agrees that with respect to the Permitted Encumbrances and any covenants, restrictions or agreements hereafter created by or consented to by Tenant, Tenant shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Landlord. Notwithstanding the foregoing, Tenant shall not use, occupy or permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance or waste.

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5.2           Licensing Requirements. During the term of this Lease, the Premises shall be used by Tenant with not less than the Minimum Licensed Beds. Tenant shall at all times maintain in good standing and full force a probationary or non-probationary license issued by the State and any other governmental agencies permitting the operation on the Premises of a memory care facility of no less than the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) and shall at all times maintain in good standing and full force a provider agreement pursuant to which the Premises shall be entitled to participate in the Medicaid reimbursement program, and when applicable Medicare reimbursement program, in order to receive reimbursement for the services provided at the Premises. Except as otherwise specifically provided herein no reduction in the number of licensed beds shall entitle Tenant to any reduction or adjustment of the Base Rent or Additional Rent payable hereunder, which shall be and continue to be payable by Tenant in the full amount set forth herein notwithstanding any such reduction in the number of licensed beds. Tenant shall, within five (5) business days following its receipt thereof, provide Landlord with a copy of any notice from the Oregon Department of Health and Human Services or any federal, state or municipal governmental agency or authority regarding any reduction in the number of licensed beds and Landlord shall have the right, but not the obligation, to contest, by appropriate legal or administrative proceedings, any such reduction.

5.3          Operating Covenants.

(a)          Financial Reporting.

(i)          Within seventy-five (75) days after the end of each of its fiscal years, Tenant shall furnish to Landlord full and complete unaudited financial statements of the operations of the Facility for such annual fiscal period which shall be reviewed by an independent Certified Public Accountant selected by Tenant and such financial statements shall present fairly the financial condition of Tenant, and which shall contain a statement of capital changes, balance sheet and detailed income and expense statement (collectively called “Financial Statements”) as of the end of the fiscal year. Tenant shall also furnish to Landlord a copy of its cost report within ten (10) days after filing thereof. Each such cost report shall be certified as being true and correct by an officer of Tenant.

(ii)         Tenant shall also furnish to Landlord and to Lender copies of a balance sheet, income statement and cash flow statement for the Facility for the preceding calendar month by the thirtieth (30th) day following the last day of said month.

(iii)        Within thirty (30) days after the date for filing Tenant’s tax return (as the same may be extended), Tenant shall furnish (and cause its auditor to be permitted to furnish) to Landlord and to Lender a copy of the tax return for Tenant for said year, certified by an officer of Tenant to be true, correct and complete.

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(iv)        At least twenty-five (25) days prior to the commencement of Tenant’s fiscal year, Tenant shall provide Landlord with an annual budget covering the operations of the Facility including any proposed capital expenditures for the forthcoming fiscal year. Tenant shall also provide Landlord with such other information with respect to Tenant or the operations of the Facility as Landlord may reasonably request from time to time. Tenant acknowledges that Landlord’s receipt of the budgets shall not constitute or be deemed an assumption of any obligation or liability of Landlord in connection with Tenant’s business or operations, nor shall Landlord be deemed to be involved in Tenant’s business or operations in any manner other than as Landlord under this Lease.

(v)         In addition to the above financial statements, Tenant shall also provide to Landlord such other financial statement(s) or information relating to its operation as reasonably requested by Landlord which is customarily maintained by Tenant, which shall be furnished to Landlord and to Lender not later than the date same are required under the Loan Documents, provided that in the event of a conflict between the dates required under this Lease for deliveries and the dates under any Loan Documents for such deliveries, then the dates for deliveries set forth in the Loan Documents shall control.

(vi)        Tenant shall keep and maintain or cause to be kept and maintained at all times at the Facility, or such other place as Landlord or Landlord’s Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect the results of the operation of the Property and to provide the financial statements required to be provided under this Section 5.3 and copies of all written contracts, correspondence, reports in connection with Landlord’s loan, if any, and other documents affecting the Facility. Upon at least five (5) business days’ notice, Landlord and Landlord’s Lender and its designated agents shall have the right to inspect and copy any of the foregoing. Additionally, Tenant acknowledges that Landlord’s Lender shall have the right to audit such records, and Tenant shall reasonably cooperate with such audit(s). The costs and expenses of the audit shall be paid by Tenant if the audit discloses a monetary variance in any financial information or computation equal to or greater than the greater of: (a) five percent (5%); or (b) Twenty-Five Thousand Dollars ($25,000.00) more than any computation submitted by Tenant.

(b)          Regulatory Reporting. Tenant shall deliver to Landlord copies of all regulatory survey’s conducted by the State or any Federal agency, Reports of Contact (“ROCs”), Plans of Corrections (“POCs”) and Substantial Compliance notices within three (3) business days of receiving or preparing.

(c)          Minimum Rent Coverage. Tenant shall maintain on a monthly basis the Minimum Rent Coverage. If Tenant fails to maintain the Minimum Rent Coverage, then Tenant shall deposit on a monthly basis with Landlord an additional Lease Deposit equal to five percent (5%) of the monthly revenue that Tenant derives from the Facility. The funding of such additional Lease Deposit shall continue until the earlier of (i) the Lease Deposit equaling six (6) months of the then Base Rent payable under this Lease, or (ii) Tenant coming back into compliance with the Minimum Rent Coverage. Additional Lease Deposits funded pursuant to this Section 5.3(c) shall be held by Landlord until Tenant complies with the Minimum Rent Coverage for six (6) consecutive months, at which time all additional Lease Deposits shall be returned to Tenant.

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(d)          Occupancy. On a rolling three (3) month basis, Tenant shall maintain an occupancy level of no less than ninety percent (90%) of the average occupancy for the trailing twelve (12) months prior to the Date of this Lease. Tenant represents and warrants to Landlord that the average occupancy over the trailing twelve (12) months prior to the Date of this Lease is 53.1 residents.

6.           Rent.

6.1           Payment of Base Rent. Commencing as of the Date of Rent Commencement, Tenant shall pay Base Rent to Landlord, or to Lender if directed by Landlord in writing, at the business address of Landlord or Lender, as the case may be, specified herein, or at such other address as Landlord or Lender, as the case may be, shall from time to time designate by written notice to Tenant. The Base Rent shall be due and payable in the amounts set forth on Schedule 1 hereto, which Schedule 1 is incorporated herein by this reference. Tenant shall commence paying Base Rent on the Date of Rent Commencement (which Date of Rent Commencement is not required to occur on the first (1st) day of a month), and to the extent that the Date of Rent Commencement does not fall on the first (1st) day of a calendar month, then Base Rent for the calendar month in which the Date of Rent Commencement occurs shall be prorated based on the number of days in the calendar month in which the Date of Rent Commencement occurs. Other than payment of Base Rent on the Date of Rent Commencement (to the extent that the Date of Rent Commencement does not occur on the first (1st) day of a calendar month), Base Rent shall be due and payable on the first (1st) day of each month (or if such first (1st) day is not a business day, the first (1st) business day of each month) during the Term (each such date being referred to herein as a “Due Date”). Notwithstanding the foregoing, from the Date of Rent Commencement until Tenant is notified otherwise by Landlord and Lender, Base Rent shall be paid by wire transfer to the account specified in the rent direction letter from Landlord to Tenant.

6.2           Partial Months. Any Base Rent paid for a partial period of occupancy shall be allocated to such partial period. The foregoing notwithstanding, Tenant’s obligation to pay insurance charges pursuant to Section 31 of this Lease, taxes pursuant to Section 30 of this Lease, and all other Additional Rent shall commence upon the Date of Rent Commencement.

6.3           Payment of Additional Rent. Commencing as of the Date of Rent Commencement, all taxes, costs, expenses, and other amounts that Tenant is required to pay pursuant to this Lease (other than Base Rent), including, but not limited to insurance required pursuant to Section 31 of this Lease, together with every fine, penalty, interest and cost which may be added for non-payment or late payment thereof, shall constitute additional obligations hereunder (“Additional Rent”). All Additional Rent shall be paid directly by Tenant to the party to whom such Additional Rent is due. If Tenant shall fail to pay any such Additional Rent or any other sum due hereunder when the same shall become due (and if no due date is specified, then such amounts shall be payable within ten (10) business days following written notice of demand therefor), Landlord shall have all rights, powers and remedies with respect thereto as are provided herein or by Law in the case of non-payment of any Base Rent and shall, except as expressly provided herein, have the right, not sooner than ten (10) business days after notice to Tenant (except in the event of an emergency, as reasonably determined by Landlord, in which case prior notice shall not be necessary) of its intent to do so, to pay the same on behalf of Tenant, and Tenant shall repay such amounts to Landlord on demand. Tenant shall pay to Landlord interest at the Lease Default Rate on all overdue Additional Rent and other sums due hereunder, in each case paid by Landlord or Lender on behalf of Tenant, from the date of payment by Landlord or Lender until repaid by Tenant.

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6.4           Late Payments. If any installment of Base Rent, Additional Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee by the due date therefor, then Tenant shall pay to Landlord the Late Charge calculated off of the past due amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay such amount. The Late Charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the Late Charge, any Base Rent, Additional Rent or other amounts owing hereunder which are not paid within five (5) days of the date that they are due shall thereafter bear interest until paid at the Lease Default Rate.

6.5           Lease Deposit. The Lease Deposit shall be deposited by Tenant with Landlord in accordance with Section 1.2(z) of this Lease. The Lease Deposit shall serve as security for the payment and performance of the obligations, covenants, conditions and agreements contained herein. The Lease Deposit shall not constitute an advance payment of any amounts owed by Tenant under this Lease, or a measure of damages to which Landlord shall be entitled upon a breach of this Lease by Tenant or upon termination of this Lease. Landlord may, without prejudice to any other remedy, use the Lease Deposit to the extent necessary to remedy any default which has lapsed beyond applicable notice and cure period in the payment of Base Rent or Additional Rent or to satisfy any other obligation of Tenant hereunder and to remedy any Event of Default hereunder. In the event that any portion of the Lease Deposit is used by Landlord as set forth herein, Tenant shall promptly, on demand, restore the Lease Deposit to its original amount. Landlord will keep the Lease Deposit separate from its own funds in a separately segregated, interest bearing account. The Lease Deposit will not be a limitation on Landlord’s damages or other rights under this Lease, or a payment of liquidated damages, or an advance payment of the Base Rent. Landlord will return the unused portion of the Lease Deposit to Tenant within thirty (30) days after the end of the Term. If Landlord transfers its interest in the Premises during the Term, Landlord shall assign the Lease Deposit to the transferee who shall become obligated to Tenant for its return pursuant to the terms of this Lease, and thereafter Landlord shall have no further liability for its return, provided transferee shall assume such obligations in writing to Tenant.

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7.           Net Lease; True Lease.

7.1           Net Lease. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and Base Rent, Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events, and except as expressly provided otherwise in this Lease, the obligations of Tenant hereunder shall continue during the Term, unless the requirement to pay or perform the same shall have been terminated pursuant to the provisions of Section 14 or Section 15. This is an absolute net lease, and Base Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice or demand, and without setoff, counterclaim, recoupment, abatement, suspension, reduction or defense. This Lease is the absolute and unconditional obligation of Tenant, and the obligations of Tenant under this Lease shall not be affected by any interference with Tenant’s use of any of the Premises for any reason, including, but not limited to, the following: (i) any damage to or destruction of any of the Premises by any cause whatsoever (except as expressly provided otherwise in Section 14), (ii) any Condemnation (except as expressly provided otherwise in Section 15), (iii) the prohibition, limitation or restriction of Tenant’s use of any of the Premises, (iv) Tenant’s acquisition of ownership of any of the Premises other than pursuant to an express provision of this Lease, (v) any default on the part of Landlord under this Lease or under any other agreement, (vi) any latent or other defect in, or any theft or loss of any of the Premises, (vii) any violation of Section 34 by Landlord (provided, that this Section 7.1(vii) shall not limit Tenant’s rights, if any, to seek injunctive relief against Landlord for violation of said Section 34), or (viii) any other cause, whether similar or dissimilar to the foregoing, any present or future Law to the contrary notwithstanding. Except as otherwise set forth herein, all costs and expenses (other than depreciation, interest on and amortization of debt incurred by Landlord, and costs incurred by Landlord in financing or refinancing the Premises) and other obligations of every kind and nature whatsoever relating to the Premises and the appurtenances thereto and the use and occupancy thereof which may arise or become due and payable with respect to the period which ends on the expiration or earlier termination of the Term in accordance with the provisions hereof (whether or not the same shall become payable during the Term or thereafter) shall be paid and performed by Tenant. Tenant shall pay all expenses related to the maintenance and repair of the Premises, and taxes and insurance costs. This Lease shall not terminate and Tenant shall not have any right to terminate this Lease (except as otherwise expressly provided in this Lease), or to abate Base Rent or Additional Rent during the Term.

7.2           True Lease. Landlord and Tenant agree that this Lease is a true lease and does not represent a financing arrangement. Each party shall reflect the transaction represented hereby in all applicable books, records and reports (including income tax filings) in a manner consistent with “true lease” treatment rather than “financing” treatment.

7.3           No Termination of Lease. Tenant shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court.

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8.          Condition. Tenant acknowledges that it or one of its affiliates managed the Premises immediately prior to the commencement of the Term. Accordingly, Tenant is fully familiar with the physical condition of the Premises as of the date hereof, and that Landlord makes no representation or warranty express or implied, with respect to same, except as expressly set forth herein. EXCEPT FOR LANDLORD’S COVENANT OF QUIET ENJOYMENT SET FORTH IN SECTION 34 AND ANY OTHER REPRESENTATIONS EXPRESSLY SET FORTH HEREIN, LANDLORD MAKES NO, AND EXPRESSLY HEREBY DENIES ANY, REPRESENTATIONS OR WARRANTIES REGARDING THE CONDITION OR SUITABILITY OF THE PREMISES TO THE EXTENT PERMITTED BY LAWS, AND TENANT WAIVES ANY RIGHT OR REMEDY OTHERWISE ACCRUING TO TENANT ON ACCOUNT OF THE CONDITION OR SUITABILITY OF THE PREMISES, OR (EXCEPT WITH RESPECT TO LANDLORD’S WARRANTY SET FORTH IN SECTION 34) TITLE TO THE PREMISES, AND TENANT AGREES THAT IT TAKES THE PREMISES “AS IS,” WITHOUT ANY SUCH REPRESENTATION OR WARRANTY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. Tenant has examined the Premises and title to the Premises, and has found all of the same satisfactory for all purposes.

9.          Liens. Tenant shall not, directly or indirectly, create, or permit to be created or to remain, and shall remove and discharge (including, without limitation, by any statutory bonding procedure or any other bonding procedure reasonably satisfactory to Landlord and Lender which shall be sufficient to prevent any loss of the Landlord’s or Lender’s interest in the Premises) within thirty (30) days after obtaining knowledge thereof, any mortgage, lien, encumbrance or other charge on the Premises or the leasehold estate created hereby or any Base Rent or Additional Rent payable hereunder which arises for any reason, other than: the Landlord’s Mortgage (and any assignment of leases or rents collateral thereto); the Permitted Encumbrances or which subsequently arise with the prior written consent of Landlord and Lender; and any mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Landlord or those claiming by, through or under Landlord (other than Tenant). Landlord shall not be liable for any labor, services or materials furnished to Tenant or to any party holding any portion of the Premises through or under Tenant and no mechanic’s or other liens for any such labor, services or materials shall attach to the Premises or the leasehold estate created hereby.

10.         Repairs and Maintenance.

10.1         Tenant’s Repair and Maintenance Obligations. Tenant shall keep, maintain and repair, at its sole cost and expense, the Premises, including, without limitation, the roof walls, footings, foundations, HVAC, mechanical and electrical equipment and systems in or serving the Premises and structural and nonstructural components and systems of the Premises, parking areas, sidewalks, roadways and landscaping in safe and good condition and repair, and shall make all repairs and replacements (substantially equivalent in quality and workmanship to the original work) of every kind and nature, whether foreseen or unforeseen, which may be required to be made, in order to keep and maintain the Premises in good repair and condition, except for ordinary wear and tear and (other than for any Restoration required by the terms of this Lease) any damage to the Premises by any Major Condemnation of the Premises. Tenant shall prevent deferred maintenance from accumulating at the Premises. Landlord shall have the right to enter the Premises at reasonable times and upon at least twenty-four (24) hours’ notice to Tenant to perform annual inspections of the Premises to ensure that the Premises are maintained in good working order and that the Premises are free from maintenance issues and any other issues which would decrease the value of the Premises once returned to Landlord at the end of the Term. Tenant shall do or cause others to do all shoring of the Premises or of the foundations and walls of the Facility and every other act necessary or appropriate for the preservation and safety thereof (including, without limitation, any repairs required by Law as contemplated by Section 11), by reason or in connection with any excavation or other building operation upon the Premises, and Landlord shall have no obligation to do so. Landlord shall not be required to make any repair, replacement, maintenance or other work whatsoever, or to maintain the Premises in any way. Nothing in the preceding sentence shall be deemed to preclude Tenant from being entitled to insurance proceeds or awards for any taking to the extent provided in this Lease. Tenant shall, in all events, make all repairs, replacements and perform maintenance and other work for which it is responsible hereunder, in a good, proper and workmanlike manner. Without limiting the generality of the foregoing, Tenant shall be responsible for the performance of all maintenance and repairs of the Facility.

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10.2         Encroachments and Non-Compliance Issues. If all or any part of the Facility shall encroach upon any property, street or right-of-way adjoining or adjacent to the Premises, or shall violate the agreements or conditions affecting the Premises or any part thereof or shall violate any Laws or Legal Requirements, or shall hinder, obstruct or impair any easement or right-of-way to which the Premises is subject, then, promptly after written request of Landlord (unless such encroachment, violation of any agreements or conditions of record, hindrance, obstruction or impairment (a) existed or was constructed prior to the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement; (b) is a Permitted Encumbrance in existence as of the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement, or (c) subsequently arises with the prior written consent of Landlord and Lender, and Landlord and Lender have obtained, at Tenant’s cost, affirmative title insurance coverage against any loss arising due to any such matter on terms and conditions satisfactory to Landlord and Lender in their sole discretion, provided that this clause (c) shall not relieve Tenant from any liability for the removal, remedying, repair or replacement of any such encroachment, violation, hindrance, obstruction or impairment to the extent that the same exists or of any person affected thereby, Tenant shall, at its sole expense, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting therefrom, or (ii) make such changes, including alterations to the Facility (subject, however, to Tenant’s maintenance and repair obligations in Section 10.1) and take such other action as shall be necessary to remove or eliminate such encroachments, violations, hindrances, obstructions or impairments, provided that, if Landlord’s or Lender’s consent is required for such changes pursuant to this Lease, Landlord’s or Lender’s consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall have no liability for and shall not be required to take any action to remove or eliminate any Permitted Encumbrance in existence as of the Date of Rent Commencement that constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement.

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10.3         Tenant’s Failure to Perform. If Tenant shall be in default under any of the provisions of this Section 10, Landlord may, after thirty (30) days written notice to Tenant and failure of Tenant to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days, but Tenant has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Tenant. If an emergency exists, Landlord shall use reasonable efforts to notify Tenant of the situation by phone or other available communication before taking any such action to cure such default. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) so incurred, together with interest at the Lease Default Rate from the date of payment or incurring of the expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

10.4         Inspection Prior to Expiration of Term. One (1) year prior to the expiration of the Term of this Lease, Tenant shall cause the Premises to be inspected, the results of which shall be made available to Landlord and Lender not less than eleven (11) months prior to the end of the Term, to determine whether the condition of the Premises complies with the requirements of this Lease. In addition to any document or information which Tenant is expressly required to deliver pursuant to this Lease, Tenant will also deliver to Landlord, promptly upon request, information with respect to the Premises reasonably (both as to content and frequency) requested by Lender pursuant to the Mortgage or any other documents evidencing or securing the Loan; provided that this shall not increase the obligations of Tenant to deliver environmental reports beyond that required in Section 38. Landlord and Tenant agree to equally split the cost of the inspection required by this Section 10.4.

10.5         Lender Required Repairs. Tenant shall be responsible for any repairs to the Facility or reserves for repairs to the Facility required by Lender in accordance with the Loan Documents.

10.6         Life Safety Repairs. Tenant shall make such repairs and replacements relating to items covered by temporary life safety code waivers if such temporary life safety code waivers are not continued or are otherwise removed and shall correct any deficiencies or violations previously covered by such waivers, at Tenant’s sole cost, within the time periods required by applicable governmental authorities.

10.7         Capital Reserve Deposits. Tenant shall be required to make monthly deposits with Landlord in an amount equal to one-twelfth (1/12) (or such greater amount as may be reasonably required by Lender) of the Capital Reserve Deposit to fund future anticipated capital expenditures. The Capital Reserve Deposits shall be due and payable on the first (1st) day of each month as Additional Rent. The Capital Reserve Deposits shall not bear interest, unless interest on the Capital Reserve Deposits is paid to Landlord by Lender. The Capital Reserve Deposits shall be held by Landlord and/or Lender and shall be used to pay the capital expenditures as they become due and payable. If the amount of Tenant’s payments as made under this Section 10.7 shall be less than the total amount due or otherwise required, then Tenant shall pay the full deficiency. Tenant shall provide all capital expenditure draw requests to Landlord in writing, along with receipts and or invoices documenting the amount of the capital expenditure to be reimbursed by Landlord. Upon receipt of such receipts, invoices and/or additional documentation reasonably requested by Landlord, Landlord shall reimburse Tenant within ten (10) business days for such costs up to the amount of Capital Reserve Deposits made by Tenant and then being held by Landlord and/or Lender.

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11.         Compliance With Laws.

11.1         Tenant’s Obligations. During the Term, Tenant shall comply with all Laws and Legal Requirements relating to the Premises. As used herein, (i) the term “Laws” shall mean all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Tenant, Landlord or the Premises or which are due to take effect after expiration of the Term), and (ii) the term “Legal Requirements” shall mean all Laws and all covenants, restrictions and conditions now or in the future of record which may be applicable to Tenant, Landlord (with respect to the Premises) or to all or any part of or interest in the Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Premises.

11.2         Tenant’s Right to Contest. Notwithstanding anything herein to the contrary, after prior written notice to Landlord, Tenant, at Tenant’s own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Law or Legal Requirement, the applicability of any Law or Legal Requirement to Tenant or the Premises or any alleged violation of any Law or Legal Requirement, provided that (i) Tenant is not in default of any of the provisions of this Lease, which default has lapsed beyond any applicable notice and cure period; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Tenant is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the Premises, nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (iv) Tenant shall promptly upon final determination thereof comply with any such Law or Legal Requirement determined to be valid or applicable or cure any violation of any Law or Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Law or Legal Requirement against Tenant or the Premises; and (vi) Tenant shall furnish such security as may be required in the proceeding to insure compliance with such Law or Legal Requirement, together with all interest and penalties payable in connection therewith. Landlord may apply any such security, as necessary to cause compliance with such Law or Legal Requirement at any time when, in the reasonable judgment of Landlord, the validity, applicability or violation of such Law or Legal Requirement is finally established or the Premises (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost.

12.         Access to Premises.

12.1         Access Rights. Upon at least twenty-four (24) hours’ notice to Tenant, Landlord and Lender and their respective employees, contractors, agents and representatives may enter onto the Premises to (i) show the Premises to purchasers and potential purchasers, and to mortgagees and potential mortgagees, or (ii) for the purpose of inspecting the Premises or performing any work which Landlord is permitted to perform under this Lease; provided, that, for purposes of subpart (ii) of this sentence, Landlord and Lender shall not be required to give notice prior to entry onto the Premises in the event of an emergency situation. Upon at least twenty-four (24) hours’ notice to Tenant, during the six (6) months preceding the expiration or earlier termination of this Lease, Landlord also may enter onto the Premises to show the Premises to persons wishing to rent the same, at reasonable times and accompanied by a representative of Tenant. No such entry shall constitute an eviction of Tenant, but any such entry shall be done by Landlord in such reasonable manner as to minimize any disruption of Tenant’s business operations.

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12.2         Lender Meetings. Upon request of Lender, Tenant will arrange for meetings between such Lender (or its representatives) and a representative of Tenant designated by Tenant to discuss operations at the Premises; provided, that Tenant shall not be obligated to arrange for such meetings more than once in each calendar quarter.

12.3         Lender’s Rights under Mortgage. Further, Tenant hereby agrees to the licenses and other rights to enter onto the Premises which are granted to Lender under the Mortgage, and Tenant shall cause each and every subtenant and assignee of Tenant to agree thereto.

13.         Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each waive any rights of action for negligence against the other party, which may arise during the Term for damage to the Premises or to the property therein resulting from any fire or other casualty, but only to the extent covered by insurance or to the extent the same would have been covered by the insurance had Tenant maintained the insurance to be maintained under this Lease.

14.         Damage; Destruction.

14.1         In the event of any damage to or destruction of the Premises by fire, the elements or other casualty during the Term (a “Casualty”), Tenant shall give Landlord and Lender, if any, prompt written notice thereof. Tenant shall adjust, collect and compromise any and all claims covered by insurance.

14.2         In the event of any such Casualty (whether or not insured against) the Term shall continue and there shall be no abatement or reduction of Base Rent, Additional Rent or of any other sums payable by Tenant hereunder.

14.3         All proceeds of any insurance required to be carried hereunder, less any and all expenses of Landlord or Lender in collecting such proceeds, if any (the “Net Proceeds”), shall be delivered to Tenant to apply in accordance with the terms of this Lease if (a) the estimated cost of restoring or repairing the Premises as nearly as possible to its value, condition, character, utility and useful life immediately before such Condemnation or Casualty, but in any event assuming the Premises have been maintained in accordance with the requirements of Section 10 (such restoration or repair of the Premises, whether in connection with a Condemnation or a Casualty, as the context requires, herein called a “Restoration”), shall be the C&C Threshold Repair Amount or less; and (b) no Event of Default or Disqualifying Default (as hereinafter defined) has occurred and is continuing. In all other events, the Net Proceeds shall be delivered to a trustee, which shall be a federally insured bank or other financial institution, selected by Landlord and Tenant and reasonably satisfactory to Lender (the “Trustee”) to be held and disbursed in accordance with the provisions of Section 14.5; provided, however, that if at the time of the delivery of the Net Proceeds a Mortgage is in existence, the Lender or the servicer of the Loan may act as Trustee without the consent of either Landlord or Tenant. As used herein, a “Disqualifying Default” shall mean and include (i) any uncured failure to make any payment of Base Rent when due hereunder, and (ii) the occurrence of any event or condition described in subparts (h) or (i) of Section 23.1 hereof without regard to any notice or lapse of time set forth in such subparts which may be required for such events or conditions to mature into an Event of Default

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14.4         Tenant shall, whether or not the Net Proceeds of such insurance are sufficient for the purpose or are delivered to Tenant, promptly complete the Restoration of the Improvements damaged by any such Casualty in compliance with all requirements set forth in this Lease and all Legal Requirements, and such Restoration shall be completed in such a manner as not to impair the market value or usefulness of the Premises for use in Tenant’s ordinary course of business, all at Tenant’s sole cost and expense. Tenant shall notify Landlord in writing of the estimated cost thereof, which cost shall be that required to bring the Facility back to its condition before the Casualty occurred (the “Restoration Cost”). Landlord and its agents, employees and contractors shall have the right to enter the Premises for the purpose of assessing the amount of the Restoration Cost, and Landlord shall have the right, in its reasonable discretion, to approve the amount of the Restoration Cost, and such approval shall not be unreasonably withheld or delayed. Tenant shall not have any right to abate the payment of Fixed Rent or Additional Rent as a result of any Casualty.

14.5         Net Proceeds held by the Trustee shall be invested in accordance with prudent investment standards adopted by the Landlord, Lender and Tenant from time to time, and shall be disbursed from time to time in accordance with the following conditions:

(a)          Before commencing the Restoration, the architects, general contractor(s), and plans and specifications for the Restoration shall be approved by Landlord and Lender, which approval shall not be unreasonably withheld or delayed; and which approval shall be granted to the extent that the plans and specifications depict a Restoration which is substantially similar to the improvements and equipment which existed prior to the occurrence of the Casualty or Taking, whichever is applicable or, if the Facility was under construction prior thereto, which depict a Restoration to the condition to which the Facility was to have been constructed.

(b)          At the time of any requested disbursement, no Event of Default or Disqualifying Default shall exist and no mechanics’ or materialmen’s liens shall have been filed and remain undischarged or unbonded, with the exception of any mechanics’ or materialmen’s liens caused by Landlord.

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(c)          Disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (A) satisfactory evidence, including architects’ certificates of the stage of completion, of the estimated costs of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications; (B) partial releases of liens, if the same are obtainable or, if such partial releases are not obtainable, endorsements to Landlord’s and Lender’s title insurance policies showing no exceptions for mechanics’ or materialmen’s or any similar liens; and (C) other reasonable evidence of cost and payment so that Landlord can verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of mechanics’ lien claims.

(d)          Each request for disbursement shall be accompanied by a certificate of Tenant or its architect describing the work, materials or other costs or expenses for which payment is requested, stating the cost incurred in connection therewith and stating that Tenant has not previously received payment for such work or expense and the certificate to be delivered by Tenant upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

(e)          The Trustee may retain ten percent (10%) of the Net Proceeds until the Restoration is at least eighty percent (80%) complete and five percent (5%) of the Net Proceeds thereafter, which amount may continue to be held as retainage until the completion of all punch list items following substantial completion of the Restoration.

(f)          At all times the undisbursed balance of the Net Proceeds held by Trustee plus any funds contributed thereto by Tenant, at its option, shall be not less than the cost of completing the Restoration, free and clear of all liens.

(g)          In addition, before commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by an independent architect mutually agreed upon by the parties in their reasonable discretion, exceeds the amount of the Net Proceeds available for such Restoration, the amount of such excess shall (i) be paid by Tenant to the Trustee to be added to the Net Proceeds, (ii) be secured by Tenant by posting a payment bond or other security in form and in the amount of such excess, as satisfactory to Landlord, (iii) be secured by Tenant by providing Landlord with an irrevocable letter of credit (“Letter of Credit”) in a form satisfactory to Landlord and issued by a bank which is a commercial bank or trust company satisfactory to Landlord and insured by the Federal Deposit Insurance Corporation (FDIC), having banking offices at which the Letter of Credit may be drawn down upon in Irvine, California, payable at sight to Landlord, or (iv) Tenant shall fund at its own expense the costs of such Restoration until the remaining Net Proceeds are sufficient for the completion of the Restoration. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of Restoration, the Net Proceeds shall be deemed to be disbursed prior to any amount added by Tenant.

(h)          Provided no Event of Default or Disqualifying Default exists and is continuing, any Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Tenant. Notwithstanding any contrary provision hereof, if an Event of Default or a Disqualifying Default has occurred and is continuing, Landlord shall be entitled to retain any Net Proceeds and to apply the same to either repair the damages or to pay other amounts accrued and payable to Landlord hereunder or Lender under the Mortgage, at Lender’s or, if there is then no Lender, Landlord’s sole option. No such retention by Landlord shall impose on Landlord any obligation to repair the Premises or relieve Tenant of its obligations to repair the Premises.

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15.         Condemnation.

15.1         Promptly upon obtaining knowledge of any proceeding for condemnation or eminent domain with respect to the Premises (a “Taking” or “Condemnation”), Tenant and Landlord shall each notify the other and Lender, and Tenant and Landlord shall each be entitled to participate in such proceeding, with each being responsible for their respective expenses. Subject to the provisions of this Section 15, Tenant hereby irrevocably assigns to Landlord’s Lender or to Landlord, in that order, any award or payment in respect of any Condemnation of the Premises, except that (except as hereinafter provided) nothing in this Lease shall be deemed to assign to Landlord or Lender any award relating to the value of the leasehold interest created by this Lease or any award or payment on account of an interruption of Tenant’s business at the Premises or the Tenant’s trade fixtures, moving expenses and out-of-pocket expenses incidental to the move, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor, it being agreed, however, that Tenant shall in no event be entitled to any payment that reduces the award to which Landlord is or would be entitled for the condemnation of Landlord’s interest in the Premises.

15.2         If (i) the entire Premises or (ii) a material portion of the Facility or land comprising a portion of the Premises the loss of which would, in Tenant’s commercially reasonable judgment, render the Premises unsuitable for Restoration or for the continued use and occupancy in Tenant’s business after Restoration, shall be the subject of a Taking (a “Major Condemnation”), then not later than ninety (90) days after such Taking has occurred, Tenant shall serve written notice upon Landlord and Lender (“Tenant’s Termination Notice”) of Tenant’s intention to terminate this Lease on any Base Rent payment Due Date specified in such notice, which Due Date (the “Involuntary Conversion Termination Date”) shall be no sooner than ninety (90) days and no later than one hundred twenty (120) days after Tenant’s Termination Notice but, in any event, not later than the last day of the Term of this Lease.

15.3         In the event of any Taking of a portion of the Premises which does not result in a termination of this Lease, the net award resulting from the Taking (i.e., after deducting therefrom all expenses incurred in the collection thereof) shall be held in accordance with Section 14.3. In the event of any such Taking, Tenant shall promptly commence and diligently complete the Restoration (as defined in Section 14.3) of the Premises in accordance with all Laws and Legal Requirements and all other terms of this Lease. Any net award from Condemnation not resulting in a termination of this Lease shall be disbursed in the same manner as set forth with respect to Net Proceeds in Section 14.5, provided, however, that Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Landlord and shall be owned by Landlord.

15.4         No agreement with any Taking authority in settlement of or under threat of any Taking shall be made by Landlord or Lender without Tenant’s prior written consent (provided, that Tenant’s consent shall not be required if an Event of Default or a Disqualifying Default then exists and is continuing), or by Tenant without Landlord’s and Lender’s prior written consent.

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15.5         In the case of any Taking, all Base Rent, Additional Rent and other obligations of Tenant shall continue unabated until the termination of this Lease.

16.         Assignment and Subletting.

16.1         Tenant shall not have the right to assign this Lease or any interest therein, or to sublet the whole or any part of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion. In the event of any permitted assignment or sublease of this Lease, Tenant shall remain liable for the obligations of Tenant hereunder, which liability of Tenant shall be and remain that of a primary obligor and not a guarantor or surety. Tenant agrees that in the case of a permitted assignment of this Lease, Tenant shall, within fifteen (15) days after the execution and delivery of any such assignment, deliver to Landlord (a) a duplicate original of such assignment in recordable form and (b) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall agree to assume and agree to observe and perform all of the terms and provisions of this Lease on the part of the Tenant to be observed and performed from and after the date of such assignment. In the case of a permitted sublease, Tenant shall, within fifteen (15) days after the execution and delivery of such sublease, deliver to Landlord a duplicate original of such sublease. In no event shall Tenant be permitted to assign or sublet this Lease to an entity with long-term unsecured debt rated below the Minimum Rating. Any sublease or license shall be subject and subordinate to this Lease.

16.2         For the purposes of this Section 16.2, the term “assign” or “assignment” shall include the following events: if Tenant is a partnership, a withdrawal or change (voluntary, involuntary or by operation of law or otherwise) of any of the general partners thereof or of general and limited partners owning in the aggregate fifty percent (50%) or more of the capital and profits of the partnership, or the dissolution of the partnership; or if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary or by operation of law or otherwise) from one thereof unto the other or others thereof; or, if Tenant is a corporation, any dissolution merger, consolidation or other reorganization of Tenant or any change in the ownership of fifty percent (50%) or more of its capital stock or fifty percent (50%) or more of its voting stock from the ownership existing on the date of execution hereof; or the sale of fifty percent (50%) or more of the value of the assets of Tenant.

16.3         Upon the occurrence of an Event of Default under this Lease, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Premises, and Tenant hereby irrevocably and unconditionally assigns such rents and money to Landlord, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default.

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17.         Alterations.

17.1         Tenant may make non-structural, interior and/or exterior alterations, changes, additions, improvements, reconstructions or replacements of any of the Premises (“alterations”), other than those which would result in a diminution in the value of the Premises, which do not exceed the Threshold Repair Amount in the aggregate. Unless required by applicable federal, state or local law or regulation, Tenant shall obtain the prior written consent of Landlord, which shall not be unreasonably withheld, and Lender, but only if required by the Loan Documents, to any alteration (i) which would result in a diminution in the value of the Premises, (ii) the cost of which in the aggregate exceeds the Threshold Repair Amount, or (iii) which is structural in nature, which consent to a structural alteration shall not be unreasonably withheld. Without limitation, in determining whether a structural alteration is “reasonable” for purposes of subsection (iii) of the preceding sentence, Landlord shall have the right to consider whether such alteration would impair the structural integrity of the Premises, would impair the fair market value of the Premises, or would otherwise adversely affect the overall marketability of the Premises, as determined in Landlord’s reasonable discretion.

17.2         Tenant shall do all such work in a good and workmanlike manner, at its own cost, and in accordance with Laws and Legal Requirements. Tenant shall discharge, within sixty (60) days after notice of the filing of the same (by payment or by filing the necessary bond, or otherwise), any mechanics’, materialmen’s or other lien against the Premises and/or Landlord’s interest therein, which lien may arise out of any payment due for any labor, services, materials, supplies, or equipment furnished to or for Tenant in, upon, or about the Premises.

17.3         At Tenant’s sole cost and without liability to Landlord, Landlord agrees to reasonably cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for any alterations which Tenant is permitted or required to make hereunder; provided none of the foregoing shall, in any manner, result in a material reduction of access to or ingress to or egress from the Premises, a diminution in the value of the Premises, a change in zoning having a material adverse effect on the ability to use the Premises for the Healthcare Business by Tenant or otherwise have a material adverse effect on Tenant’s ability to use the Premises for the Healthcare Business.

17.4         Tenant agrees that in connection with any alteration: (i) the fair market value of the Premises shall not be lessened by more than a de minimis extent after the completion of any such alteration, or its structural integrity impaired; (ii) all such alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements; (iii) Tenant shall promptly pay all costs and expenses of any such alteration; (iv) Tenant shall procure and pay for all permits and licenses required in connection with any such alteration; and (v) all alterations shall be made (in the case of any alteration the estimated cost of which in any one instance exceeds the Threshold Repair Amount) under the supervision of an architect or engineer and in accordance with plans and specifications which shall be submitted to Landlord and Lender (for information purposes only) prior to the commencement of the alterations.

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17.5         All contracts and payments to contractors, subcontractors, suppliers and other persons in connection with any alteration, Restoration, repair or other work performed at the Premises shall be entered into, made and performed in compliance with all Laws and Legal Requirements.

18.         Signs. At Tenant’s sole cost, Tenant may install, replace, relocate and maintain and repair in and on the Facility, such signs, awnings, lighting effects and fixtures as may be used from time to time by Tenant (collectively, “Signs”). At Tenant’s sole cost and without liability to Landlord, Landlord agrees to cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for Tenant’s Signs. All Signs of Tenant shall comply with Laws and Legal Requirements.

19.         Surrender.

19.1         At the expiration or other termination of this Lease, Tenant shall surrender the Premises to Landlord in as good order and condition as they were at the commencement of the Term or may be put in thereafter in accordance with this Lease, reasonable wear and tear and (other than for any Restoration required by the terms of this Lease) damage to the Premises by any Major Condemnation of the Premises excepted. All alterations, except Tenant’s furniture, trade fixtures, satellite communications dish and equipment, computer and other similar moveable equipment and shelving (“trade fixtures”), shall become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the termination or other expiration of the Term. At the expiration or termination of the Term, Tenant shall remove its trade fixtures, as well as its Signs and identification marks, from the Premises. Tenant agrees to repair any and all damage caused by such removal. Trade fixtures and personal property not so removed at the end of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord may thereafter cause such property to be removed from the Premises. The reasonable cost of removing and disposing of such property and repairing any damage to any of the Premises caused by such removal shall be borne by Tenant. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property which becomes the property of Landlord as a result of such expiration or earlier termination. The provisions of this Section 19.1 shall survive the termination or expiration of this Lease.

19.2         Upon termination of this Lease for any reason, Tenant will return to Landlord the Premises licensed by the State of Oregon and by any and all governmental agencies having jurisdiction over the Premises as a memory care facility with at least the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) with an unrestricted license in full force and good standing for no less than the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises).

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19.3         Upon the expiration or earlier termination of this Lease, Tenant shall enter into an operating transition agreement (the “OTA”) with Landlord in order to provide for the orderly transition of the operation of the facility following the termination of this Lease. The OTA shall provide for a procedure for the assignment and assumption of all resident agreements, operating agreements and other agreements that Landlord elects to have assigned from Tenant. In addition, the OTA shall address the transition of licensing requirements for the Facility under all applicable Legal Requirements.

20.         Subordination of Lease; Mortgage Reserves.

20.1         Subordination. This Lease shall be subject and subordinate to any Mortgage and to all advances made upon the security thereof provided that Lender or any HUD Lender shall execute and deliver to Tenant an agreement in a form reasonably requested by Lender or HUD Lender (“SNDA Agreement”), providing that Lender or HUD Lender recognizes this Lease and agrees to not disturb Tenant’s possession of the Premises in the event of foreclosure if Tenant is not then in default hereunder beyond any applicable cure period. Tenant agrees, upon receipt of such SNDA Agreement, to execute such SNDA Agreement and such further reasonable instruments as may be necessary to so subordinate this Lease. The term “Mortgage” shall include any mortgages, deeds of trust or any other similar hypothecations on the Premises securing Lender’s or HUD Lender’s Loan to Landlord.

20.2         Attornment. Tenant agrees to attorn, from time to time, to Lender, HUD Lender or to any purchaser of the Premises, for the remainder of the Term, provided that Lender, HUD Lender or such purchaser shall be entitled to possession of the Premises, subject to the provisions of this Lease. This subsection shall inure to the benefit of Lender or such purchaser, shall apply notwithstanding that, as a matter of Law, this Lease may terminate upon the foreclosure of the Mortgage (in which event the parties shall execute a new lease for the remainder of the Term containing the provisions of this Lease), shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Each such party shall however, upon demand of the other, execute instruments in confirmation of the foregoing provisions reasonably satisfactory to the requesting party acknowledging such subordination, non-disturbance and attornment and setting forth the terms and conditions hereof.

20.3         Consent to Assignment of Lease to Lender. Tenant hereby consents to any assignment of this Lease by Landlord to or for the benefit of any Lender. Without limitation of the preceding sentence, Tenant hereby specifically consents to any Assignment of Lease and Rents executed by Landlord to and for the benefit of the Lender named herein.

20.4         Mortgage Reserves. Notwithstanding anything to the contrary in this Lease, all real estate tax, insurance reserve, capital expenditure reserves or other reserves required by the Lender against the Premises during the term of this Lease shall be paid by the Tenant to Landlord and shall be repaid to Tenant to the extent not applied in accordance with this Lease or the Mortgage when such holder repays such sums to Landlord and to the extent same are not required to be held for any replacement mortgage or are required to fund obligations of the Tenant under this Lease. Real estate taxes for the first and last year of the Lease Term shall be prorated in the same manner as the real estate taxes were prorated in connection with Landlord’s acquisition of the Premises.

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21.         Tenant’s Obligation to Discharge Liens. Prior to the imposition of any fine, lien, interest or penalty Tenant shall timely pay and discharge all amounts and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty and interest with respect thereto.

22.         Utilities. Tenant agrees to timely pay for all utilities consumed by it in the Premises, prior to delinquency.

23.         Tenant Default.

23.1         Any of the following occurrences or acts shall constitute an Event of Default (herein so called) under this Lease:

(a)          Tenant’s failure to make any payment when due of any installment of Base Rent payable hereunder, and such default shall continue for ten (10) days after written notice of such default is sent to Tenant by Landlord (or Lender).

(b)          Tenant’s failure to make any payment when due of any installment of Additional Rent payable hereunder and such default shall continue for ten (10) days after notice of such default is sent to Tenant by Landlord (or Lender).

(c)          The failure by Tenant to maintain insurance as required under this Lease, provided that if the insurance required under this Lease lapses for a period not in excess of thirty (30) days, and Tenant reinstates such lapsed insurance without a claim having been made, then such Event of Default shall be deemed cured for purposes of this Lease, provided further that Tenant shall indemnify Landlord for any claim arising in connection with such lapsed insurance.

(d)          Tenant’s failure to abide by any of the other covenants, agreements or obligations of this Lease, and such default shall continue for more than thirty (30) days after written notice thereof from Landlord (or Lender) specifying such default, provided, that if Tenant has commenced to cure within said thirty (30) days, and thereafter is in good faith diligently prosecuting same to completion, said thirty (30) day period shall be extended, for a reasonable time not to exceed one hundred eighty (180) days or, with respect to a breach of Tenant’s obligations under Section 38, such longer period as may reasonably be necessary to cure such default so long as (i) Tenant delivers to Landlord a certificate of a qualified environmental remediation specialist that such default could not be cured within such one hundred eighty (180) days but is curable, and (ii) Tenant is in good faith diligently prosecuting such cure to completion) where, due to the nature of a default, it is unable to be completely cured within thirty (30) days.

(e)          Any execution or attachment shall be issued against Tenant or any of its property whereby the Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant, and the same shall not be bonded, dismissed, or discharged as promptly as possible under the circumstances

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(f)          Tenant (i) shall make any assignment or other act for the benefit of creditors, (ii) shall file a petition or take any other action seeking relief under any state or federal insolvency or bankruptcy laws, or (iii) shall have an involuntary petition or any other action filed against either of them under any state or federal insolvency or bankruptcy laws, which petition or other action is not vacated or dismissed within sixty (60) days after the commencement thereof.

(g)          The estate or interest of Tenant in the Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred and such process shall not be vacated or discharged within sixty (60) days after such levy or attachment.

(h)          Any material representation or warranty made by Tenant to Landlord herein or in any document delivered pursuant to this Lease is misleading or false when made.

(i)          The occurrence of an Adverse Healthcare Event at the Facility; provided if (i) the default described in this Section is curable, (ii) Tenant diligently commences the cure of such default and uses commercially reasonable efforts to diligently pursue any appeals or other required actions in accordance with applicable laws and regulations, and (iii) such default does not affect the ability of Tenant to comply with its financial obligations under this Lease, then such Adverse Healthcare Event shall not constitute a default until the earlier to occur of (A) final, adverse action upholding, in whole or in part, such termination, suspension, or material adverse action or restriction or (B) the passage of ninety (90) days from the date such termination, suspension or material adverse action or restriction was instituted without a final action having occurred.

23.2         If an Event of Default shall have occurred and be continuing, Landlord shall be entitled to all remedies available at law or in equity. Without limiting the foregoing, Landlord shall have the right to give Tenant notice of Landlord’s termination of the Term of this Lease. Upon the giving of such notice, the Term of this Lease and the estate hereby granted shall expire and terminate on such date as fully and completely and with the same effect as if such date were the date herein fixed for the expiration of the Term of this Lease, and all rights of Tenant hereunder shall expire and terminate, but Tenant shall remain liable as hereinafter provided.

23.3         If an Event of Default shall have occurred and be continuing, Landlord shall have the immediate right, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, to re-enter and repossess the Premises and the right to remove all persons and property therefrom by summary proceedings, ejectment, any other legal action or in any lawful manner Landlord determines to be necessary or desirable. Landlord shall be under no liability by reason of any such re-entry, repossession or removal. No such re-entry, repossession or removal shall be construed as an election by Landlord to terminate this Lease unless a notice of such termination is given to Tenant pursuant to Section 23.2.

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23.4         At any time or from time to time after a re-entry, repossession or removal pursuant to Section 23.3, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, Landlord may (but, except to the extent expressly required by any applicable Law, shall be under no obligation to) relet the Premises for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant, for such term or terms and on such conditions and for such uses as Landlord, in its absolute discretion, may determine. Landlord may collect any rents payable by reason of such reletting. Except to the extent required by applicable Law, Landlord shall not be liable for any failure to relet the Premises or for any failure to collect any rent due upon any such reletting.

23.5         No expiration or termination of the Term of this Lease pursuant to Section 23.2, by operation of law or otherwise, and no re-entry, repossession or removal pursuant to Section 23.3 or otherwise, and no reletting of the Premises pursuant to Section 23.4 or otherwise, shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such expiration, termination, re-entry, repossession, removal or reletting,

23.6         In the event of any expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property therefrom by reason of the occurrence of an Event of Default, Tenant shall pay to Landlord all Base Rent, Additional Rent and other sums required to be paid by Tenant, in each case together with interest thereon at the Lease Default Rate from the due date thereof to and including the date of such expiration, termination, re-entry, repossession or removal; and, thereafter, Tenant shall, until the end of what would have been the Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal and whether or not the Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages: (i) all Base Rent, Additional Rent and other sums which would be payable under this Lease by Tenant in the absence of any such expiration, termination, re-entry, repossession or removal, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant pursuant to Section 23.4, after deducting from such proceeds all reasonable expenses of Landlord in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, reasonable attorneys’ fees and expenses (including, without limitation, fees and expenses of appellate proceedings), alteration costs and expenses of preparation for such reletting. Tenant shall pay such liquidated and agreed current damages on the dates on which Base Rent would be payable under this Lease in the absence of such expiration, termination, re-entry, repossession or removal, and Landlord shall be entitled to recover the same from Tenant on each such date.

23.7         At any time after any such expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property thereon by reason of the occurrence of an Event of Default, whether or not Landlord shall have collected any liquidated and agreed current damages pursuant to Section 23.6, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damages for Tenant’s default and in lieu of all liquidated and agreed current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the sum of (i) the excess, if any, of (A) the aggregate of all Base Rent, Additional Rent and other sums which would be payable under this Lease, in each case from the date of such demand (or, if it be earlier, the date to which Tenant shall have satisfied in full its obligations under Section 23.6 to pay liquidated and agreed current damages) for what would be the then-unexpired Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal, discounted at the rate equal to the then-current rate on U.S. Treasury obligations of comparable maturity to such Term (the “Treasury Rate”), but in no event greater than the non-default rate of interest for the Loan (such lower rate being referred to as the “Discount Rate”) over (B) the amount of such rental loss that Tenant proves could be reasonably avoided by commercially reasonable mitigation efforts by Landlord, discounted at the Discount Rate for the same period, plus (ii) all reasonable legal fees and other costs and expenses incurred by Landlord and Lender as a result of Tenant’s default under this Lease. If any Law shall limit the amount of liquidated final damages to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such Law.

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Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy at law or in equity, including the right of injunction. Tenant waives any rights of redemption granted by any Laws if Tenant is evicted or dispossessed, for any cause, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the terms of this Lease.

23.8         In addition to the foregoing remedies set forth in this Section 23 and all other remedies available at law or in equity, and regardless of whether or not an Event of Default has occurred under this Lease, if Tenant has failed to perform any of its duties, obligations, covenants or agreements under this Lease, Landlord may give notice to Tenant that it has failed to perform any such duty, obligation, covenant or agreement (herein called a “Notice of Breach”) and may thereafter pursue any rights or remedies available to it at law or in equity including, without limitation, filing a suit for damages as a result of such breach or a suit for specific performance of any such duties, obligations, covenants or agreements. Any Notice of Breach delivered under this Section 23.8 or any such rights or remedies pursued by Landlord shall not be deemed to be a notice of default under any provision of this Section 23 and shall not result, with or without the passage of time, in an Event of Default existing under this Lease; provided that the delivery of any such Notice of Breach shall not limit Landlord’s right (which right will not be exercised without the consent of Lender so long as the Premises are subject to a Mortgage which requires Lender’s consent for the exercise thereof) to subsequently deliver notice (with respect to the same event or condition which is the subject of such Notice of Breach or any other event or condition) which will declare or, with the passage of time, result in an Event of Default hereunder. Further, after delivery of any such Notice of Breach, but without notice in the event of an emergency, if Tenant fails to cure such breach during the time that Tenant has to cure such breach under Section 23.1 above, Landlord may do whatever is reasonably necessary and permitted hereunder to cure such breach as may be appropriate under the circumstances for the account of and at the expense of Tenant. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including attorneys’ fees and expenses) so incurred, together with interest thereon at the Lease Default Rate from the date of payment, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

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23.9         Tenant acknowledges that one of the rights and remedies available to Landlord under applicable law is to apply to a court of competent jurisdiction for the appointment of a receiver to take possession of part or all of the Premises, to collect the rents, issues, profits and income of the Premises and to manage the operation of the Premises. Tenant further acknowledges that the revocation or suspension of the certification of any portion of the Premises for provider status under Medicare or Medicaid (or successor programs) for a period of thirty (30) days or more and/or the revocation or suspension of a license relating to the operation of any portion of the Premises for its intended use under the Laws of the State for a period of thirty (30) days or more will materially and irreparably impair the value of Landlord’s investment in the Premises. Therefore, in any of such events, and in addition to any other right or remedy of Landlord under this Lease, Landlord may petition any appropriate court for, and Tenant hereby consents to, the appointment of a receiver to take possession of the Property, to manage its operation, to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible any such license and provider certification for the Property or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for its services as a receiver. All such fees and other expenses of the receivership estate shall be added to the Minimum Rent due to Landlord under this Lease. Tenant hereby irrevocably stipulates to the appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. Tenant agrees to waive all rights to negotiate terms of an OTA and further agrees to execute all transfer documentation including an OTA.

24.         HUD Loan Requirements. If Landlord obtains or seeks to obtain a HUD Loan on the Facility, then the following sections shall apply:

24.1        Cooperation in Obtaining HUD Loan. In connection with Landlord’s efforts to obtain a HUD Loan, Tenant agrees to provide to HUD and/or Lender the application documents required by HUD (“Application Documents”) and to execute and/or certify all Application Documents, as required by HUD or Lender, to the best of Tenant’s actual knowledge.

24.2        Amendment of Lease. This Lease may be modified only by a written instrument signed by Landlord and Tenant and approved by Landlord’s Lender and by the HUD Lender or HUD, as applicable.

24.3        Compliance with HUD Program Requirements and HUD Loan Documents.

(a)          Tenant agrees to comply with all applicable HUD Program Requirements and the HUD Loan Documents. Tenant further agrees that this Lease will be part of the collateral pledged by Landlord to Lender and HUD. Tenant agrees that it will not take any action which would violate any applicable HUD Program Requirements or any of the HUD Loan Documents.

(b)          In the event of any conflict between the terms and provisions of this Lease and any applicable HUD Program Requirements or the HUD Loan Documents, the HUD Program Requirements and HUD Loan Documents shall control in all respects. Landlord and Tenant agree that no provision of this Lease shall modify any obligation of Landlord or Tenant under the HUD Loan Documents. Landlord and Tenant acknowledge that HUD’s acceptance of this Lease in connection with the closing of the HUD Loan shall in no way constitute HUD’s consent to arrangements which are inconsistent with HUD Program Requirements. This Lease is subject to all HUD Program Requirements.

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24.4        Subordination.

(a)          This Lease is and shall be subject and subordinate to the Mortgage and other HUD Loan Documents; to all renewals, modifications, consolidations, replacements and extensions thereof; to all substitutions thereof; and to all future mortgages upon the Premises and/or other security interests in or to the Premises and any other items which are herein leased to Tenant or which, pursuant to the terms hereof, become a part of the Premises or are otherwise deemed to become the property of Landlord or to remain upon the Premises at the end of the term; and to each advance made or hereafter to be made under any of the foregoing. This Section shall be self-operative and no further instrument of subordination shall be required. Without limiting the foregoing, Tenant agrees to execute and deliver promptly any and all certificates, agreements and other instruments that Landlord, Lender or HUD may reasonably request in order to confirm such subordination. Unless Lender shall have agreed otherwise, if Lender or another person or entity shall succeed to the interest of Landlord by reason of foreclosure or other proceedings brought by Lender in lieu of or pursuant to a foreclosure, or by any other manner (Lender or such other person or entity being called a “Successor”), then this Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to the Successor and to recognize the Successor as its landlord under the terms of this Lease pursuant to the SNDA Agreement referenced in Section 20.1 above.

(b)          Agreements for provision of services to the Premises or the granting of easements, rights of way or other allowances of use or placement of CATV, utilities or other items are, and shall always be, subordinate to (i) the right of Landlord, and (ii) the Mortgage and other HUD Loan Documents and all other mortgages and security interests now or hereafter encumbering the Premises and/or the property of which it forms a part. Tenant must obtain HUD written approval prior to entering into any telecommunications services agreement and/or granting of any easements.

24.5         Ownership of FF&E. Tenant agrees that (a) except leases of FF&E entered into in the ordinary course of business with third-party lessors and property of tenants and residents of the Premises, all FF&E located on the Premises at the date of the Lease is and shall be the property of Landlord, and (b) any FF&E acquired by Landlord or Tenant during the term of this Lease remaining on the Premises at the termination of the Lease shall be and/or become the property of Landlord. Tenant agrees, during the term of the Lease, not to remove any FF&E from the Premises, except to replace such FF&E with other similar items of equal or greater quality and value.

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24.6         Payments. Landlord and Tenant each acknowledges and agrees that the rent and other amounts payable by Tenant under this Lease (including Base Rent, Additional Rent and all other sums payable under this Lease) are sufficient to properly maintain the Premises, and to enable Landlord to meet its debt service obligations and related expenses in connection with the Mortgage Loan and the Premises. Subject to Section 24.1, and only to the extent required by HUD, Tenant agrees to pay when due, as Additional Rent, all premiums for (i) liability insurance and full coverage property insurance on the Premises, and (ii) all other insurance coverage required under the HUD Loan Documents and/or applicable HUD Program Requirements. Unless Lender and Landlord agree otherwise, Tenant shall be responsible for funding all escrows for taxes, reserves for replacements, mortgage insurance premiums and/or other insurance premiums as may be required by Lender and/or HUD.

24.7         Regulatory Agreement of Tenant. At the time of the closing of the HUD Loan, Tenant agrees to execute the Regulatory Agreement of Tenant, and other applicable documents evidencing Lender’s security interest in the collateral of Tenant. Tenant agrees to comply with its obligations under the Regulatory Agreement of Tenant, and agrees that a default by Tenant under the Regulatory Agreement of Tenant shall be deemed to be a default under this Lease.

24.8         Management Agreement Requirements. Tenant agrees not to enter into any Management Agreement involving the Facility unless such Management Agreement complies with applicable HUD Program Requirements and contains provisions that, in the event of default under the Regulatory Agreement of Landlord or the Regulatory Agreement of Tenant, the Management Agreement shall be subject to termination upon not more than thirty (30) days notice without penalty upon written request of HUD. Upon such HUD termination request, Tenant shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to HUD for continuing proper management of the Premises.

24.9         Licenses; Bed Authority. Tenant shall ensure that the Facility meets all state licensure requirements and standards at all times. Landlord and Tenant agree not to undertake or acquiesce to any modification to any license with respect to the Premises or to any “bed authority” related thereto without the prior written approval of HUD.

24.10         Governmental Receivables. Tenant shall be responsible for obtaining and maintaining all necessary provider agreements with Medicaid, Medicare and other governmental third party payors. Tenant agrees to furnish HUD and Lender with copies of all such provider agreements and any and all amendments thereto promptly after execution thereof.

24.11         Financial Statements and Reporting Requirements. Tenant agrees to furnish HUD and Lender copies of its annual financial statements with respect to the Premises, prepared in compliance with the requirements of the Regulatory Agreement of Tenant, within ninety (90) days after the close of Tenant’s fiscal year or such longer period as may be permitted by HUD. Tenant agrees to submit to HUD and Lender copies of all other financial reports as specified in the Regulatory Agreement of Tenant.

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24.12         Inspections. Tenant agrees that upon reasonable request, Lender, HUD and their respective designees and representatives may at all reasonable times, upon at least twenty-four (24) hours’ written notice and at the sole expense of Landlord, subject to the rights of patients, residents and tenants, examine and inspect the Premises. Tenant shall, on the request of Lender and/or HUD, promptly make available for inspection by Lender and/or HUD, and their designees and representatives, copies of all of Tenant’s correspondence, books, records and other documentation relating to the Premises, excepting communications between Tenant and its attorneys. Tenant agrees to maintain accounting records for the Facility in accordance with its customary practice and the Regulatory Agreement of Tenant, separate from any general accounting records which Tenant may maintain in connection with the Tenant’s other activities. Tenant agrees that Lender and/or HUD, and their designees and representatives, shall at any reasonable time, have access to and the right to examine all accounting records of Tenant which relate directly or indirectly to the Premises. The obligations of Tenant under this Section shall be limited to the extent necessary in order for Tenant to comply with applicable laws regarding the confidentiality of resident/patient medical records and information.

24.13         Insurance; Casualty; Condemnation. Tenant agrees to procure and maintain, or cause to be procured and maintained, the insurance coverage required pursuant to the HUD Loan Documents and/or applicable HUD Requirements, including HUD Notices H 04-01 and H 04-15. Insurance proceeds and the proceeds of any condemnation award or other compensation paid by reason of a conveyance in lieu of the exercise of such power, with respect to the Premises, or any portion thereof, shall be applied in accordance with the terms of the HUD Loan Documents and applicable HUD Program Requirements. The decision to repair, reconstruct, restore or replace the Premises following a casualty or condemnation shall be subject to the terms of the HUD Loan Documents and applicable HUD Requirements.

24.14         Assignment of Operating Lease and Subletting of the Premises. This Lease shall not be assigned or subleased by Tenant, in whole or in part (including any transfer of title or right to possession and control of the Premises, or of any right to collect fees or rents), without the prior written approval of HUD. The prior written approval of HUD shall be required for (a) any change in or transfer of the management, operation, or control of the project or (b) any change in the ownership of Tenant that requires HUD approval under HUD’s previous participation approval requirements. Landlord and Tenant acknowledge that any proposed assignee shall be required to execute a Tenant Regulatory Agreement, each in form and substance satisfactory to HUD, as a prerequisite to any such approval. Any assignment or subletting of the Premises made without such prior approval shall be null and void. This restriction on subletting does not apply to Tenant’s leasing of individual units or beds to patients/residents.

24.15         Accounts Receivable (AR) Financing. Tenant shall not pledge its accounts receivable or receipts to an accounts receivable lender for any loan without the prior written approval of Lender and HUD. In the event that Lender and HUD grant such approval; (a) the holder(s) of such lien shall enter into an Intercreditor and a Rider to Intercreditor Agreement with the AR Lender and Lender on such terms and conditions as may be required by HUD; and (b) Tenant shall agree to comply with the requirements imposed by Lender and HUD in connection therewith. Until such approved loan is paid in full, the written approval of HUD is required for any proposed modifications, extensions, renewals or amendments to a material term of the AR Loan or the security agreement, prior to the effective date of such amendments.

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24.16         Termination of Lease. The Lease shall not be terminated prior to its expiration date without the prior written approval of HUD. If HUD becomes Mortgagee, Mortgagee in Possession, or Successor, HUD can terminate the Lease (a) for any violation of the Lease that is not cured within any applicable notice and cure period given in the Lease, (b) for any violation of the Regulatory Agreement of Tenant or other HUD Program Requirements or Health Care Requirements that is not cured within thirty (30) days after receipt by Tenant of written notice of such violation, or (c) if HUD, as a result of the occurrence of either of the events described in the foregoing items (a) or (b), is required to advance funds for the operation of the Facility located on the Premises.

24.17         Master Lease. Projects proposed for FHA financing under the Section 232 program that are affiliated by common ownership among Mortgagors and/or Tenant/Operator entities must receive written approval from HUD, and may be required to use a Master Lease between the Mortgagor/Landlord and the Master Tenant/Subtenant/Operator. The Master Lease and the HUD Master Lease Subordination Agreement or Master Lease Subordination Non-Disturbance Agreement shall be approved by HUD and the Mortgagee. The Master Lease shall only contain Mortgagors and Operators of FHA-insured projects.

24.18         Miscellaneous. Notwithstanding any other terms contained in the Lease, in the event of an assignment of the Lease to HUD or FHA, neither HUD nor FHA shall have any indemnification obligations under the Lease. In addition, any payment obligations of HUD or FHA pursuant to the Lease shall be limited to actual amounts received by HUD or FHA, and otherwise not prohibited by applicable law or regulation, including without limitation, the Anti Deficiency Act, 31 U.S.C. § 1341, et seq.

25.         Rent Payments. If Landlord’s interest in this Lease shall pass to another, or if the Base Rent or Additional Rent hereunder shall be assigned, or if a party other than Landlord shall become entitled to collect the Base Rent or Additional Rent due hereunder, then notice thereof shall be given to Tenant by Landlord in writing or, if Landlord is an individual and shall have died or become incapacitated, by Landlord’s legal representative, accompanied by due proof of the appointment of such legal representative; provided, that if Base Rent is then being paid to Lender, then notwithstanding such notice from Landlord, Tenant shall continue to pay Base Rent to Lender until it receives contrary notice from Lender. Until such notice and proof shall be received by Tenant, Tenant may continue to pay the rent due hereunder, and Landlord shall indemnify and hold Tenant harmless from any challenges to such payments, to the one to whom, and in the manner in which, the last preceding installment of rent hereunder was paid, and each such payment shall fully discharge Tenant with respect to such payment.

Tenant shall not be obligated to recognize any agent for the collection of rent or otherwise authorized to act with respect to the Premises until written notice of the appointment and the extent of the authority of such agent shall be given to Tenant by the one appointing such agent.

26.         Holdover. If Tenant shall hold over after the expiration date of the Term, or if Tenant shall hold over after the date specified in the Tenant’s Termination Notice given by Tenant under Section 15.2, then, in either such event, Tenant shall be a month-to-month Tenant on the same terms as herein provided, except that the monthly Base Rent will be one and one-half (1.5) times the monthly Base Rent payable by Tenant during the final full calendar month of the Term or, if applicable, during any extension of the Term, immediately preceding such holdover period.

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27.         Notices. Whenever, pursuant to this Lease, notice or demand shall or may be given to either of the parties (including Lender) by the other, and whenever either of the parties shall desire to give to the other any notice or demand with respect to this Lease or the Premises, each such notice or demand shall be in writing, and any Laws to the contrary notwithstanding, shall not be effective for any purpose unless the same shall be given or served as follows: by mailing the same to the other party by registered or certified mail, return receipt requested, or by delivery by nationally recognized overnight courier service provided a receipt is required, at its Notice Address set forth in Section 1 hereof, or at such other address as either party (including, without limitation, Lender) may from time to time designate by notice given to the other. The date of receipt of the notice or demand shall be deemed the date of the service thereof (unless delivery of the notice or demand is refused or rejected, in which case the date of such refusal or rejection shall be deemed the date of service thereof).

28.         Indemnity. TENANT SHALL DEFEND LANDLORD AND ANY OF LANDLORD’S OWNERS, PARTNERS, TRUSTEES, BENEFICIAL OWNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS, OFFICERS, DIRECTORS OR SHAREHOLDERS, TOGETHER WITH THE LENDER, AND ANY OWNER, PARTNER, MEMBER, MANAGER, TRUSTEE, BENEFICIAL OWNER, OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE OR AGENT OF THE LENDER OR ANY HOLDER OF A PASS-THROUGH OR SIMILAR CERTIFICATE ISSUED BY THE LENDER (HEREIN, COLLECTIVELY, “INDEMNIFIED PARTIES”) WITH RESPECT TO, AND SHALL PAY, PROTECT, INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM AND AGAINST, ANY AND ALL LIABILITIES, LOSSES, DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR JUDGMENTS OF ANY NATURE WHATSOEVER, HOWEVER CAUSED, (A) TO WHICH ANY INDEMNIFIED PARTY IS SUBJECT BECAUSE OF LANDLORD’S OR LENDER’S ESTATE IN THE PREMISES OR (B) ARISING FROM (I) INJURY TO OR DEATH OF ANY PERSON OR PERSONS OR DAMAGE TO OR LOSS OF PROPERTY, REAL OR PERSONAL, IN ANY MANNER ARISING THEREFROM, OCCURRING ON THE PREMISES OR CONNECTED WITH THE USE, NON-USE, CONDITION, OCCUPANCY, MAINTENANCE, REPAIR OR REBUILDING OF ANY THEREOF, WHETHER OR NOT SUCH INDEMNIFIED PARTY HAS OR SHOULD HAVE KNOWLEDGE OR NOTICE OF THE DEFECT OR CONDITIONS, IF ANY, CAUSING OR CONTRIBUTING TO SAID INJURY, DEATH, LOSS, DAMAGE OR OTHER CLAIM, (II) TENANT’S VIOLATION OF THIS LEASE, (III) ANY ACT OR OMISSION OF TENANT OR ITS AGENTS, CONTRACTORS, LICENSEES, SUBTENANTS OR INVITEES, AND (IV) ANY CONTEST REFERRED TO IN SECTION 30.2; PROVIDED, THAT TENANT SHALL NOT BE REQUIRED TO INDEMNIFY, DEFEND OR HOLD HARMLESS ANY INDEMNIFIED PARTY FOR ANY SUCH MATTERS ARISING DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY. TENANT COVENANTS UPON NOTICE FROM SUCH INDEMNIFIED PARTY TO DEFEND SUCH INDEMNIFIED PARTY IN SUCH ACTION, WITH THE EXPENSES OF SUCH DEFENSE PAID BY TENANT; PROVIDED, THAT IN CONNECTION WITH TENANT’S OBLIGATIONS TO PROVIDE A DEFENSE OF THE INDEMNIFIED PARTIES HEREUNDER, TENANT SHALL BE ENTITLED TO SELECT COUNSEL REASONABLY SATISFACTORY TO LANDLORD TO DEFEND SUCH INDEMNIFIED PARTIES SO LONG AS DEFENSE OF MULTIPLE PARTIES IS REASONABLE UNDER THE CIRCUMSTANCES AND SO LONG AS SUCH COMMON DEFENSE DOES NOT LIMIT ANY REASONABLE CLAIMS OR DEFENSES WHICH COULD BE RAISED BY ANY SUCH INDEMNIFIED PARTIES. THE OBLIGATIONS OF TENANT UNDER THIS SECTION 28 SHALL SURVIVE ANY TERMINATION OF THIS LEASE. ANY AMOUNTS PAYABLE TO ANY INDEMNIFIED PARTY HEREUNDER BY REASON OF THE APPLICATION OF THIS SECTION 28 SHALL BECOME IMMEDIATELY DUE AND PAYABLE; AND SUCH AMOUNTS SHALL BEAR INTEREST AT THE LEASE DEFAULT RATE FROM THE DATE LOSS OR DAMAGE IS PAID BY SUCH INDEMNIFIED PARTY UNTIL PAID BY TENANT.

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LANDLORD AND TENANT INTEND THAT, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE, THE INDEMNITIES AND RELEASES PROVIDED IN THIS LEASE BY TENANT FOR THE BENEFIT OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES (INCLUDING WITHOUT LIMITATION, THE INDEMNITIES SET FORTH IN THIS SECTION 28 AND IN SECTION 38.5 OF THIS LEASE), SHALL APPLY EVEN IF AND WHEN THE SUBJECT MATTER OF THE INDEMNITIES AND RELEASES ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, OR ARISE AS A RESULT OF STRICT LIABILITY OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, BUT IN NO EVENT SHALL TENANT BE OBLIGATED TO INDEMNIFY LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES WITH RESPECT TO MATTERS ARISING FROM THEIR GROSS NEGLIGENCE.

29.         Tenant to Comply with Matters of Record. During the Term, Tenant agrees to perform and pay Landlord’s obligations and to comply and cause the Premises to comply in all respects with all of the terms and conditions of any reciprocal easement agreements and any other agreements or documents of record now affecting the Premises (including, without limitation, the Permitted Encumbrances) or hereafter executed or filed with Tenant’s written consent (each, herein referred to as a “Matter of Record”, and collectively as the “Matters of Record”) during the Term. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD AND LENDER AND ALL OTHER INDEMNIFIED PARTIES FROM ANY CLAIM, LOSS OR DAMAGE SUFFERED BY LANDLORD OR LENDER OR SUCH INDEMNIFIED PARTIES BY REASON OF TENANT’S FAILURE TO PERFORM ANY OBLIGATIONS OR PAY ANY COSTS, EXPENSES OR OTHER AMOUNTS (INCLUDING WITHOUT LIMITATION, LIQUIDATED DAMAGES) AS REQUIRED UNDER ANY MATTERS OF RECORD OR COMPLY AND CAUSE THE PREMISES TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY MATTERS OF RECORD DURING THE TERM.

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30.         Taxes.

30.1         Subject to the provisions hereof relating to contests and mortgage reserves, Tenant shall pay and discharge, before any interest or penalties are due thereon, all of the following taxes, charges, assessments, ground rents, levies and other items (collectively, “tax” or “taxes”), even if unforeseen or extraordinary, which are imposed or assessed on or subsequent to the Date of Rent Commencement during the Term, regardless of whether payment thereof is due prior to, during or after the Term: all taxes of every kind and nature (including, without limitation, real, ad valorem, personal property, and sales and use tax), on or with respect to the Premises (including, without limitation, any taxes assessed against Landlord’s reversionary estate in the Premises or against any real property other than the Premises which is included within the tax parcel which includes the Premises), the Base Rent and Additional Rent (including, without limitation, ad valorem taxes) payable hereunder, this Lease or the leasehold estate created hereby; all charges and/or assessments for any easement or agreement maintained for the benefit of the Premises; and all general and special assessments, levies, water and sewer assessments and other utility charges, use charges, impact fees and rents and all other public charges and/or taxes whether of a like or different nature. Landlord shall promptly deliver to Tenant any bill or invoice Landlord receives with respect to any tax; provided, that the Landlord’s failure to deliver any such bill or invoice shall not limit Tenant’s obligation to pay such tax. Landlord agrees to cooperate with Tenant to enable Tenant to receive tax bills directly from the respective taxing authorities. Nothing herein shall obligate Tenant to pay, and the term “taxes” shall exclude (unless the taxes referred to in clauses (i) and (ii) below are in lieu of or a substitute for any other tax or assessment upon or with respect to any of the Premises which, if such other tax or assessment were in effect on the Date of Rent Commencement, would be payable by Tenant hereunder or by Law), federal, state or local (i) franchise, capital stock or similar taxes, if any, of Landlord, (ii) income, excess profits or other taxes, if any, of Landlord, determined on the basis of or measured by Landlord’s net income, (iii) any estate, inheritance, succession, gift, capital levy or similar taxes of Landlord, (iv) taxes imposed upon Landlord under Section 59A of the Internal Revenue Code of 1986, as amended, or any similar state, local, foreign or successor provision, (v) any amounts paid by Landlord pursuant to the Federal Insurance Contribution Act (commonly referred to as FICA), the Federal Unemployment Tax Act (commonly referred to as FUTA), or any analogous state unemployment tax act, or any other payroll-related taxes, including, but not limited to, any required withholdings relating to wages, (vi) except as otherwise provided in Section 15, any taxes in connection with the transfer or other disposition of any interest, other than Tenant’s (or any person claiming under Tenant), in the Premises or this Lease, to any person or entity, including but not limited to, any transfer, capital gains, sales, gross receipts, value added, income, stamp, real property gains or withholding tax, and (vii) any interest, penalties, professional fees or other charges relating to any item listed in clauses (i) through (vi) above; provided, further, that Tenant is not responsible for making any additional payments in excess of amounts which would have otherwise been due, as tax or otherwise, but for a withholding requirement which relates to the particular payment and such withholding is in respect to or in lieu of a tax which Tenant is not obligated to pay; and provided, further, that if at any time during the Term of this Lease, the method of taxation shall be such that there shall be assessed, levied, charged or imposed on Landlord a tax upon the value of the Premises or any present or future improvement or improvements on the Premises, including without limitation, any tax which uses rents received from Tenant as a means to derive value of the property subject to such tax, then all such levies and taxes or the part thereof so measured or based shall be payable by Tenant, but only to the extent that such levies or taxes would be payable if the Premises were the only property of Landlord, and Tenant shall pay and discharge the same as herein provided in the event that any assessment against the Premises is payable in installments, Tenant may pay such assessment in installments; and in such event, Tenant shall be liable only for those installments which become due and payable prior to or during the Term, or which are appropriately allocated to the Term even if due and payable after the Term. Tenant shall deliver, or cause to be delivered, to Landlord and Lender, promptly upon Landlord’s or Lender’s written request, evidence satisfactory to Landlord and Lender that the taxes required to be paid pursuant to this Section 30 have been so paid and are not then delinquent.

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30.2         After prior written notice to Landlord and Lender, at Tenant’s sole cost, Tenant may contest (including seeking an abatement or reduction of) in good faith any taxes agreed to be paid hereunder; provided, that (a) Tenant first shall satisfy any Legal Requirements, including, if required, that the taxes be paid in full before being contested or, if not required to be paid in full, such contest shall suspend the collection of such taxes, (b) no Event of Default has occurred and is continuing and no Event of Default under this Lease shall occur as a result of such contest, and (c) failing to pay such taxes will not subject Landlord or Lender to criminal or civil penalties or fines or to prosecution for a crime, or result in the sale, forfeiture, termination, cancellation or loss of any portion of the Premises or any interest therein, any Base Rent or any Additional Rent Tenant agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Tenant shall have the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay and shall indemnify, defend and hold Landlord and Lender and all other indemnified Parties harmless against any and all losses, judgments, decrees and costs (including, without limitation, all reasonable attorneys’ fees and expenses) in connection with any such contest and shall promptly, after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. At Tenant’s sole cost, Landlord shall assist Tenant as reasonably necessary with respect to any such contest, including joining in and signing applications or pleadings. Any rebate applicable to any portion of the Term shall belong to Tenant. If at the time of any such contest an Event of Default has occurred and is continuing under this Lease, then Tenant shall post a bond or other security with, and acceptable to, Landlord and Lender in their discretion in an amount equal to one hundred twenty-five percent (125%) of the amount being contested.

31.         Insurance.

31.1         Tenant shall maintain All-Risk insurance for the Facility for one hundred percent (100%) of its replacement value. Said All-Risk policy shall include flood coverage if the Premises is located in a Flood Zone A, and if required by Lender, earthquake coverage.

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31.2         Tenant also shall maintain commercial general liability coverage with respect to the Project and the business conducted by Tenant, on an occurrence basis, with limits of at least One Million and No/100 Dollars ($1,000,000.00) per occurrence, and Three Million and No/100 Dollars ($3,000,000) general aggregate limit.

31.3         Tenant shall also maintain Professional Liability insurance of not less than One Million and No/100 Dollars/Three Million and No/100 Dollars ($1,000,000/$3,000,000).

31.4         Tenant shall also maintain an additional Four Million and No/100 Dollars ($4,000,000) of excess coverage for issues arising under the insurance required in Section 31.2 and 31.3 above.

31.5         If, during the Term, Tenant is covered by general liability, professional liability, residential healthcare malpractice or other liability insurance on a “claims made” basis, ninety (90) days before the termination of this Lease, Tenant shall procure and maintain, at Tenant’s sole cost and expense, an extended reporting endorsement or “tail” insurance coverage, with such coverage limits and such deductible amounts as shall be reasonably acceptable to Landlord for general liability, professional liability, residential healthcare professional malpractice or other liability claims reported after the termination of this Lease or expiration of the claims made policy, but concerning services provided during the Term or the claims made policy. Tenant shall provide Landlord with a certificate evidencing such coverage no later than ninety (90) days before the termination of this Lease and, if Tenant fails to procure and maintain tail insurance on termination of this Lease, Landlord shall have the right to apply any portion of the Lease Deposit to procure and maintain the insurance required under this Section to the extent such coverage is available at commercially reasonable rates.

31.6         At all times when any construction is in progress, Tenant shall maintain or cause to be maintained by its contractors and subcontractors with such companies reasonably approved by Landlord, builder’s risk insurance, completed value form, covering all physical loss, in an amount reasonably satisfactory to Landlord

31.7         Any insurance maintained by Tenant pursuant to this Section 31 shall name Landlord and Lender as additional insured parties and/or as loss payees, as appropriate, as their respective interests may appear.

31.8         All proceeds received from such All-Risk and/or builder’s risk insurance shall be used in the first instance in accordance with Tenant’s obligations under Section 14 hereof and any surplus shall be retained by Tenant.

31.9         Tenant may carry such All-Risk and/or general liability insurance through blanket insurance covering the Premises and other locations of Tenant and/or of Tenant’s affiliates, provided that such blanket insurance policy specifically designates the Premises and shall not be reduced by claims as to other property covered by such blanket policy below the amounts Tenant is required to carry pursuant to this Section 31; and Tenant may maintain the required limits in the form of excess and/or umbrella policies, provided that the other requirements set forth herein have been satisfied.

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31.10         All insurance coverage required to be carried hereunder shall be carried with insurance companies licensed to do business in the State and which have a claims paying ability rating of “A” or better by S&P and a rating of “A2” or better by Moody’s, and shall require the insured’s insurance carrier to notify the Landlord and Lender at least thirty (30) days prior to any cancellation or material modification of such insurance. Notwithstanding the foregoing, Tenant may carry insurance with companies which are affiliated with Tenant (and do not meet the requirements herein) provided such insurance provided by such companies shall not exceed the deductible or self-insurance limitations herein. The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. If said insurance or part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and Lender.

31.11         Each insurance policy referred to above shall, to the extent applicable, contain standard non-contributory mortgagee clauses in favor of Lender and shall provide that it may not be canceled except after thirty (30) days’ prior notice to Landlord and Lender and that any loss otherwise payable thereunder shall be payable notwithstanding (a) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (b) the occupation or use of any of the Premises for purposes more hazardous than permitted by the provisions of such policy, (c) any foreclosure or other action or proceeding taken by any Lender pursuant to any provision of the Mortgage upon the happening of an event of default therein, or (d) any change in title or ownership of any of the Premises. Any insurance policy may be written with a deductible of not more than Twenty Five Thousand and No/100 Dollars ($25,000.00), provided that Tenant indemnifies, defends and holds Landlord harmless for any Restoration and Restoration Cost to the extent that the net proceeds of insurance are insufficient to pay and perform the Restoration and the Restoration Costs.

31.12         Tenant shall pay all premiums for the insurance required by this Section 31 as they become due, and shall renew or replace each policy, and shall deliver to Landlord and Lender a certificate or other evidence of the then-existing policy and each renewal or replacement policy, not less than fifteen (15) days prior to the expiration of such policy (together with a certificate of a responsible officer of Tenant that the insurance maintained by Tenant with respect to the Premises is in compliance with the requirements of this Section 31 of this Lease). In the event of Tenant’s failure to comply with any of the foregoing requirements, Landlord shall be entitled to procure such insurance. Any sums so expended by Landlord, together with interest thereon from the date paid at the Lease Default Rate, shall be Additional Rent and shall be repaid by Tenant to Landlord, if accompanied by an invoice or other supporting documentation, immediately upon delivery of written demand therefor by Landlord.

32.         Landlord Exculpation. Anything contained herein to the contrary notwithstanding, any claim based upon liability of Landlord under this Lease shall be enforced only against the Landlord’s interest in the Premises and shall not be enforced against the Landlord individually or personally other than with respect to fraud or the misappropriation of insurance or Condemnation proceeds. In no event shall any partner, shareholder, trustee, manager, member, beneficial owner, officer, director or other owner or agent of Landlord have any liability under this Lease.

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33.         Landlord’s Title. The Premises are demised and let subject to the Permitted Encumbrances without representation or warranty by Landlord. The recital of the Permitted Encumbrances herein shall not be construed as a revival of any Permitted Encumbrance which has expired.

34.         Quiet Enjoyment. So long as the Lease is in full force and effect, Landlord warrants and agrees that Tenant, on paying the Base Rent, Additional Rent and other charges due hereunder and performing all of Tenant’s other obligations pursuant to this Lease, shall and may peaceably and quietly have, hold, and enjoy the Premises for the full Term, free from molestation, eviction, or disturbance by Landlord or by any other person(s) lawfully claiming by, through or under Landlord, subject, however, to the Permitted Encumbrances.

35.         Broker. Landlord and Tenant each represent and warrant that it has had no dealings or conversations with any real estate broker in connection with the negotiation and execution of this Lease. LANDLORD AND TENANT EACH AGREE TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE OTHER AGAINST ALL LIABILITIES ARISING FROM ANY CLAIM OF ANY REAL ESTATE BROKERS, INCLUDING COST OF COUNSEL FEES, RESULTING FROM THEIR RESPECTIVE ACTS. IN THE EVENT OF ANY BREACH OF LANDLORD’S REPRESENTATIONS UNDER THIS SECTION 35 OR ANY CLAIM BY TENANT AGAINST LANDLORD FOR ANY INDEMNITY UNDER THIS SECTION 35, TENANT SHALL HAVE NO RIGHT TO ABATE OR DEFER ANY PAYMENT OF ANY BASE RENT, ADDITIONAL RENT AND/OR OTHER AMOUNTS DUE UNDER THIS LEASE, OR TO EXERCISE ANY RIGHTS OF OFFSET WITH RESPECT THERETO, AND TENANT HEREBY EXPRESSLY WAIVES ANY SUCH RIGHTS THAT MAY EXIST AT LAW, IN EQUITY OR OTHERWISE.

36.         Transfer of Title. In the event of any transfer(s) of the title to the Premises, Landlord (and in the case of any subsequent transfer, the then-grantor) automatically shall be relieved from and after the date of such transfer, of all liability with respect to the performance of any obligations on the part of said Landlord contained in this Lease thereafter to be performed, including, without limitation, the release of Landlord’s outstanding obligations, if any, owed in connection with the Loan (provided that there is an assumption of Landlord’s obligations under this Lease and the Loan and subject to any conditions for such transfer as are contained in the Loan documents); provided that any amount then due and payable to Tenant by Landlord (or the then-grantor), and any other obligation then to be performed by Landlord (or the then-grantor) under this Lease, either shall be paid or performed by Landlord (or the then-grantor) or such payment or performance assumed by the transferee; it being intended hereby that the covenants, conditions and agreements contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and with respect to their respective successive period of ownership. Landlord may freely transfer the Premises and this Lease without the consent of Tenant. Until Landlord gives Tenant notice in accordance with the terms of this Lease, or Tenant receives notice of a transfer of the Premises by Landlord, Tenant may deal with Landlord as if it continued to be the owner of the Premises. If a controlling ownership interest in Landlord is transferred and, in connection therewith, the address for notices to Landlord is changed, until Landlord gives, or Tenant receives, notice of such transfer and new address, Tenant may correspond with the current owner of a controlling interest in Landlord at the prior address for notices to Landlord.

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37.         Management Agreements. Tenant shall not enter into any Management Agreement without the prior written approval of Landlord or Landlord’s Lender. Any Manager shall be required to enter into an assignment and subordination of management fees or operating agreement in form and substance reasonably satisfactory to Landlord’s Lender. Such restrictions and approval rights are solely for the purposes of assuring that the Healthcare Business is managed and operated in a first-class manner consistent with applicable healthcare laws and the preservation and protection of the Premises as security for the Loan and shall not place responsibility for the control, care, management or repair of the Premises and/or the Healthcare Business upon Landlord’s Lender, or make Landlord’s Lender responsible or liable for negligence in the management, operation, upkeep, repair or control of the Premises and/or the Healthcare Business. Notwithstanding the foregoing, as of the Effective Date, Landlord’s Lender has approved the Manager pursuant to the terms of the Approved Management Agreement attached hereto as Exhibit C.

38.         Hazardous Materials.

38.1         For the purposes hereof, the term “Hazardous Materials” shall include, without limitation, any material, waste or substance which is (a) included within the definitions of “hazardous substances,” “hazardous materials,” “toxic substances,” or “hazardous wastes” in or pursuant to any Laws, or subject to regulation under any Law; (b) listed in the United States Department of Transportation Optional Hazardous Materials Table, 49 C.F.R. Section 172.101, as enacted as of the date hereof or as hereafter amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as enacted as of the date hereof or as hereafter amended; or (c) explosive, radioactive, asbestos, a polychlorinated biphenyl, petroleum or a petroleum product or waste oil. The term “Environmental Laws” shall include all Laws pertaining to health, industrial hygiene, Hazardous Materials or the environment, including, but not limited to each of the following, as enacted as of the date hereof or as hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act of 1976,42 U.S.C. § 6901 et seq.; the Toxic Substance Control Act, 15 U.S.C. § 2601 et seq.; the Water Pollution Control Act (also known as the Clean Water Act), 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq.

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38.2         Tenant represents and warrants to Landlord that neither the Premises, nor any portion thereof, has been used by Tenant for the generation, manufacture, storage, handling, transfer, treatment, recycling, transportation, processing, production, refinement or disposal (each, a “Regulated Activity”) of any Hazardous Materials. As of the Date of Rent Commencement, Tenant covenants it (a) will comply, and will cause the Premises to comply, with all Environmental Laws applicable to the Premises, (b) will not use, and shall prohibit the use of the Premises for Regulated Activities or for the storage, handling or disposal of Hazardous Materials (other than in connection with the operation and maintenance of the Premises and in commercially reasonable quantities as a consumer thereof, subject to compliance with applicable Laws), and (c)(i) will not install or permit the installation on the Premises of any asbestos or asbestos-containing materials (except in compliance with all applicable Environmental Laws), underground storage tanks or surface impoundments and shall not permit there to exist any petroleum contamination in violation of applicable Environmental Laws originating on the Premises, and (ii) with respect to any petroleum contamination on the Premises which originates from a source off the Premises, Tenant shall notify all responsible third parties and appropriate government agencies (collectively, ‘‘Third Parties”) and shall prosecute the cleanup of the Premises by such Third Parties, including, without limitation, undertaking legal action, if necessary, to enforce the cleanup obligations of such Third Parties and, to the extent not done so by such Third Parties and to the extent technically feasible and commercially practicable, Tenant shall remediate such petroleum contamination, and (iv) shall cause any alterations of the Premises to be done in a way which complies with applicable Laws relating to exposure of persons working on or visiting the Premises to Hazardous Materials and, in connection with any such alterations, shall remove any Hazardous Materials present upon the Premises which are not in compliance with applicable Environmental Laws or which present a danger to persons working on or visiting the Premises.

Landlord agrees that Tenant may use household and commercial cleaners and chemicals to maintain the Premises, provided that such use is in compliance with all Environmental Laws. Landlord and Tenant acknowledge that any or all of the cleaners and chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same as herein set forth, provided, that in doing so Tenant complies with all Laws. For the purposes of Sections 38.3 and 38.4, the term “Hazardous Materials” shall exclude the Hazardous Materials used or generated as permitted in this paragraph.

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38.3         If, at any time during the Term, Hazardous Materials shall be found in, on or under the Premises, unless such Hazardous Materials have been introduced by Landlord or Landlord’s agents or employees, then Tenant shall (at Tenant’s sole expense), or shall cause such responsible Third Parties to, promptly commence and diligently prosecute to completion all investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (collectively, “Remedial Work”) to the extent required by Environmental Laws, and in compliance with Environmental Laws, and at Tenant’s sole cost; provided, that except as otherwise expressly provided in this Lease, Landlord shall not be required to accept any institutional control (such as a deed restriction) that restricts the permitted use of the Premises or any real property as a condition to any remedial plan approved by any governmental agency in connection with such Remedial Work. The Remedial Work required of Tenant under this Lease shall be limited to achieving clean-up standards applicable to residential use of the Premises as provided herein (“Commercial Closure”), if allowed under applicable Environmental Laws and if approved by the applicable governmental authority with jurisdiction over the Premises, Hazardous Materials and Remedial Work; provided, that the Hazardous Materials left in place would not reasonably be expected to cause or threaten to cause current or future migration of such Hazardous Materials from the environmental media in which such Hazardous Materials are present to other environmental media or to other properties in excess of applicable regulatory standards permitted under applicable Legal Requirements; and provided, further, that nothing contained in this Section 38.3 shall be deemed to limit the obligations of the Tenant under any other provision of this Section 38 including, without limitation, the indemnification obligations of the Tenant under Section 38.5. In the event an institutional control (such as a deed restriction, environmental land use restriction, or activity and use limitation) that restricts the permitted use of or activities on the Premises (hereinafter a “Restriction”) is required in order to achieve Commercial Closure, prior to submitting any proposed plan for Remedial Work to a governmental authority which proposes such a Restriction or performing or implementing such Remedial Work or actually recording any Restriction in the relevant real property records, Tenant shall submit such Restriction to Landlord for review and approval. Landlord shall not unreasonably withhold or delay its approval of any such Restrictions (a) so long as the condition set forth in subpart (c) of this sentence is satisfied, which require that the Premises not be used for a day care facility or for agricultural purposes, (b) so long as the condition set forth in subpart (c) of this sentence is satisfied and the Premises are adequately served by a municipal water supply, which prohibit the use of the ground water underlying the Premises, or (c) so long as such Restrictions would not reasonably be likely to result in a material decrease in the fair market value of the Premises based upon the use of the Premises for the Healthcare Business, would not reasonably be likely to materially affect the marketability of the Premises or the ability to obtain financing secured by the Premises based upon the use of the Premises for the Healthcare Business, and would not reasonably be likely to create ongoing monitoring or reporting obligations with respect to the Premises.

38.4        To the extent that Tenant has actual knowledge thereof Tenant shall promptly provide notice to Landlord and Lender of any of the following matters:

(a)          any proceeding or investigation commenced or threatened by any governmental authority with respect to the presence of any Hazardous Material affecting the Premises;

(b)          any proceeding or investigation commenced or threatened by any governmental authority, against Tenant or Landlord, with respect to the presence, suspected presence, release or threatened release of Hazardous Materials from any property owned by Landlord;

(c)          all written notices of any pending or threatened investigation or claims made or any lawsuit or other legal action or proceeding brought by any person against (i) Tenant or Landlord or the Premises, or (ii) any other party occupying the Premises or any portion thereof in any such case relating to any loss or injury allegedly resulting from any Hazardous Material or relating to any violation or alleged violation of Environmental Laws;

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(d)          the discovery of any occurrence or condition on the Premises, of which Tenant becomes aware and which is not corrected within ten (10) days, or written notice received by Tenant of an occurrence or condition on any real property adjoining or in the vicinity of the Premises, which reasonably could be expected to lead to the Premises or any portion thereof being in violation of any Environmental Laws or subject to any restriction on ownership, occupancy, transferability or use under any Environmental Laws or which might subject Landlord or Lender to any Environmental Claim. “Environmental Claim” means any claim, action, investigation or written notice by any person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out o£ based on or resulting from (i) the presence, or release into the environment, of any Hazardous Materials at or from the Premises, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law; and

(e)          the commencement and completion of any Remedial Work.

38.5        TENANT SHALL BE SOLELY RESPONSIBLE FOR AND SHALL DEFEND, REIMBURSE, INDEMNIFY AND HOLD EACH INDEMNIFIED PARTY HARMLESS FROM AND AGAINST ALL DEMANDS, CLAIMS, ACTIONS, CAUSES OF ACTION, ASSESSMENTS, LOSSES, DAMAGES, LIABILITIES (INCLUDING WITHOUT LIMITATION, STRICT LIABILITIES), INVESTIGATIONS, WRITTEN NOTICES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, DIMINUTION IN PROPERTY VALUE AND REASONABLE EXPENSES OF INVESTIGATION BY ENGINEERS, ENVIRONMENTAL CONSULTANTS AND SIMILAR TECHNICAL PERSONNEL AND REASONABLE FEES AND DISBURSEMENTS OF COUNSEL), ARISING OUT OF, IN RESPECT OF OR IN CONNECTION WITH (A) TENANT’S BREACH OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR OBLIGATIONS IN THIS LEASE, (B) THE OCCURRENCE DURING THE TERM OF ANY REGULATED ACTIVITY AT, ON OR UNDER THE PREMISES AT ANY TIME, (C) ANY ENVIRONMENTAL CLAIM WITH RESPECT TO THE PREMISES AGAINST ANY INDEMNIFIED PARTY OR ANY PERSON WHOSE LIABILITY FOR SUCH ENVIRONMENTAL CLAIM LANDLORD OR TENANT HAS OR MAY HAVE ASSUMED OR RETAINED EITHER CONTRACTUALLY OR BY OPERATION OF LAW, TO THE EXTENT RELATING TO EVENTS ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM OR THE SURRENDER OF THE PREMISES, WHICHEVER IS LAST TO OCCUR, (D) THE RELEASE OR THREATENED RELEASE OF THE PRESENCE OF ANY HAZARDOUS MATERIALS AT, ON, UNDER OR FROM THE PREMISES, REGARDLESS OF HOW DISCOVERED BY TENANT, LANDLORD OR ANY THIRD-PARTY TO THE EXTENT ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM OR THE SURRENDER OF THE PREMISES, WHICHEVER IS LAST TO OCCUR, (E) ANY REMEDIAL WORK REQUIRED TO BE PERFORMED PURSUANT TO ANY ENVIRONMENTAL LAW OR THE TERMS HEREOF WITH RESPECT TO MATTERS ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM OR SURRENDER OF THE PREMISES TO LANDLORD, WHICHEVER IS LAST TO OCCUR, OR (F) ANY MATTERS ARISING UNDER OR RELATING TO ANY ENVIRONMENTAL LAW AND RELATING TO THE TENANT OR THE PREMISES IF SUCH MATTER OR MATTERS OCCURS OR ARISES PRIOR TO THE EXPIRATION OF THE TERM OR THE SURRENDER OF THE PREMISES, WHICHEVER IS LAST TO OCCUR.

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38.6         Upon Landlord’s request, at any time that Landlord has reasonable grounds to believe that Hazardous Materials (except to the extent those substances are permitted to be used by Tenant under Section 38.2 in the ordinary course of its business and in compliance with all Environmental Laws) are or have been released, stored or disposed of on or around the Premises during the Term or that the Premises may be in violation of the Environmental Laws during the Term, Tenant shall provide, at Tenant’s sole cost and expense, except as otherwise expressly set forth herein, an inspection or audit of the Premises prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Landlord and Lender indicating the presence or absence of the reasonably suspected Hazardous Materials on the Premises or an inspection or audit of the Premises prepared by an engineering or consulting firm approved by Landlord and Lender indicating the presence or absence of friable asbestos or substances containing asbestos on the Premises. In the event that such inspection or audit determines that no such Hazardous Materials are or have been released, stored or disposed of on or around the Premises during the Term and that the Premises is not in violation of the Environmental Laws, the cost and expense of Tenant’s inspection or audit will be borne solely by Landlord. If Tenant fails to provide such inspection or audit within thirty (30) days after such request, Landlord may order the same, and Tenant hereby grants to Landlord and Lender and their respective employees, contractors and agents access to the Premises upon reasonable notice and a license to undertake such inspection or audit. The cost of such inspection or audit, together with interest thereon at the Lease Default Rate from the date Tenant is provided with written confirmation of costs incurred by Landlord until actually paid by Tenant, shall be immediately paid by Tenant on demand.

38.7         Without limiting the foregoing, where recommended by any “Phase I” or “Phase II” assessment of the Premises and where the particular conditions on the Premises which formed the basis for such recommendation were introduced to the Premises during the Term and still exist, Tenant shall establish and comply with an operations and maintenance program relative to the Premises, in form and substance acceptable to Landlord and Lender, prepared by an environmental consultant reasonably acceptable to Landlord and Lender, which program shall address any Hazardous Materials (including, without limitation, asbestos-containing material or lead-based paint) that may now or in the future be detected on the Premises. Without limiting the generality of the preceding sentence, Landlord may require (a) periodic notices or reports to Landlord and Lender in form, substance and at such intervals as Landlord may specify to address matters raised in a “Phase I” or “Phase II’ assessment, (b) an amendment to such operations and maintenance program to address changing circumstances, laws or other matters, (c) at Tenant’s sole cost and expense, supplemental examination of the Premises by consultants reasonably acceptable to Landlord and Lender to address matters raised in a “Phase I” or “Phase II” assessment, (d) access to the Premises upon at least twenty-four (24) hours’ notice, by Landlord or Lender, and their respective agents or servicer, to review and assess the environmental condition of the Premises and Tenant’s compliance with any operations and maintenance program, and (e) variation of the operation and maintenance program in response to the reports provided by any such consultants.

38.8         The indemnity obligations of the Tenant and the rights and remedies of the Landlord under this Section 38 shall survive the expiration or termination of this Lease.

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39.         Estoppel Certificate. Landlord and Tenant agree to deliver to each other, from time to time as reasonably requested in writing, and within a reasonable period of time after receipt of such request, an estoppel certificate, addressed to such persons as the requesting party may reasonably request, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), the dates to which any Base Rent due hereunder has been paid in advance, if any, and that to the knowledge of the signer of such certificate, no default hereunder by either Landlord or Tenant exists hereunder (or specifying each such default to which this signer may have knowledge), together with such other information as Landlord or Tenant may reasonably require with respect to the status of this Lease and Tenant’s use and occupancy of the Premises.

40.         Notice of Lease. Upon the request of either party hereto, Landlord and Tenant agree to execute a short form Notice of Lease or Memorandum of Lease in recordable form, setting forth information regarding this Lease, including, without limitation, if available, the dates of commencement and expiration of the Term, the Renewal Options, Tenant’s Purchase Option and the Right of First Refusal. All taxes, fees, costs and expenses of recording such Notice of Lease or Memorandum of Lease shall be paid by Tenant unless otherwise agreed in writing by Landlord.

41.         Miscellaneous.

41.1         This Lease shall be governed and construed in accordance with the Laws of the State.

41.2         The headings of the Sections are for convenient reference only, and are not to be construed as part of this Lease.

41.3         The language of this Lease shall be construed according to its plain meaning, and not strictly for or against Landlord or Tenant; and the construction of this Lease and of any of its provisions shall be unaffected by any argument or claim that this Lease has been prepared, wholly or in substantial part, by or on behalf of Tenant or Landlord.

41.4         Landlord and Tenant each warrant and represent to the other, that each has full right to enter into this Lease and that there are no impediments, contractual or otherwise, to full performance hereunder.

41.5         This Lease shall be binding upon the parties hereto and shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of Landlord and the successors and assigns of Tenant.

41.6         In the event of any suit, action, or other proceeding at law or in equity, by either party hereto against the other, by reason of any matter arising out of this Lease, the prevailing party shall recover, not only its legal costs, but also reasonable attorneys’ fees (to be fixed by the Court) for the maintenance or defense of said suit, action or other proceeding, as the case may be.

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41.7         A waiver by either party of any breach(es) by the other of any one or more of the covenants, agreements, or conditions of this Lease, shall not bar the enforcement of any rights or remedies for any subsequent breach of any of the same or other covenants, agreements, or conditions.

41.8         This Lease and the referenced schedules and exhibits set forth the entire agreement between the parties hereto and may not be amended, changed or terminated orally or by any agreement unless such agreement shall be in writing and signed by Tenant and Landlord and approved in writing by the Lender. Landlord and Tenant further agree that this Lease shall not be amended and no amendment shall be effective unless (a) all guarantors of the Tenant’s obligations under this Lease remain liable for all of the Tenant’s obligations under this Lease notwithstanding such amendment, and (b) Landlord and Tenant receive written notification from each nationally recognized statistical rating organization (including, without limitation, S&P and Moody’s, if applicable) which has issued a rating of any securities issued by the Lender or the Landlord which is secured by the Premises that such amendment will not result in a downgrade, withdrawal or qualification of the rating then assigned to such securities.

41.9         If any provision of this Lease or the application thereof to any persons or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by Law.

41.10       The submission of this Lease for examination does not constitute a reservation of or agreement to lease the Premises; and this Lease shall become effective and binding only upon proper execution and unconditional delivery thereof by Landlord and Tenant.

41.11       When the context in which words are used in this Lease indicates that such is the intent, words in the singular number shall include the plural and vice versa, and words in the masculine gender shall include the feminine and neuter genders and vice versa. Further, references to “person” or “persons” in this Lease shall mean and include any natural person and any corporation, partnership, joint venture, limited liability company, trust or other entity whatsoever.

41.12       All references to “business days” contained herein are references to normal working business days (i.e., Monday through Friday) of each calendar week, exclusive of federal and national bank holidays.

41.13       Time is of the essence in the payment and performance of the obligations of Tenant and Landlord under this Lease.

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41.14       In the event that the Landlord hereunder consists of more than one (1) person, then all obligations of the Landlord hereunder shall be joint and several obligations of all persons named as Landlord herein. If any such person directly or indirectly transfers its interest in the Premises, whether by conveyance of its interest in the Premises, merger or consolidation or by the transfer of the ownership interest in such Person, such transferee and its successors and assigns shall be bound by this Section 41.14. All persons named as Landlord herein shall collectively designate a single person (the “Designated Person”) to be the person entitled to give notices, waivers and consents hereunder. If Landlord consists of only one person, such person shall be the Designated Person. Landlord agrees that Tenant may rely on a waiver, consent or notice given by such Designated Person as binding on all other persons named as Landlord herein; provided, that any amendment, change or termination of this Lease which is permitted under Section 41.8 must be signed by all persons named as Landlord. The Designated Person shall be the only person entitled to give notices hereunder by the Landlord, and Tenant may disregard all communications from any other person named as Landlord herein, except as provided in the immediately following sentence. The identity of the Designated Person may be changed from time to time by ten (10) business days’ advance written notice to the Tenant signed by either the Designated Person or by all persons named as Landlord herein.

41.15       If Landlord shall be in default under any of the provisions of this Lease, Tenant may, after thirty (30) days’ written notice to Landlord and failure of Landlord to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days but Landlord has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Landlord. If an emergency exists, Tenant shall use reasonable efforts to notify Landlord of the situation by phone or other available communication before taking any such action to cure such default.

42.         Tenant’s Purchase Option.

42.1       Purchase Option. Provided that Tenant is not in default beyond any applicable cure period at the time of exercise, during the period from and after the second (2nd) anniversary of the Date of Rent Commencement through the date that is the earlier of (a) thirty (30) days prior to the expiration of the initial ten (10) year Term, or (b) the date on which this Lease is terminated by Landlord because an Event of Default by Tenant occurs, Tenant shall have the option (the “Purchase Option”) to Purchase the entire Facility and the Premises (the “Project”) from Landlord. The purchase price (the “Purchase Price”) for the Project shall be determined based upon when the closing on the Project occurs as follows: (x) if the closing occurs prior to the expiration of the fiftieth (50th) month of the Term, the Purchase Price shall be Ten Million Eight Hundred Thousand and No/100 Dollars ($10,800,000.00), (y) if the closing occurs after the expiration of the fiftieth (50th) month of the Term and prior to the expiration of the fifty-ninth (59th) month of the Term, the Purchase Price shall be Eleven Million and No/100 Dollars ($11,000,000.00), and (z) if the closing occurs after the expiration of the fifty-ninth (59th) month of the Term, the Purchase Price shall be Eleven Million Two Hundred Fifty Thousand and No/100 Dollars ($11,250,000.00). The Purchase Price shall be payable in full at closing with funds immediately available to Landlord.

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42.2       Tenant shall exercise the Purchase Option by tendering written notice (the “Option Notice”) and the Option Deposit (as herein defined) to Landlord at any time on or before one hundred twenty (120) days prior to the expiration of the initial ten (10) year Term the “Option Trigger Date”), and the sale of the Project shall be consummated pursuant to the terms hereof on a date (the “Closing Date”) within one hundred (100) days after the date of receipt by Landlord of the Option Notice, such date to be mutually agreed upon by Landlord or Tenant. In the event Tenant fails to deliver the Option Notice or the Option Deposit to Landlord on or before the Option Trigger Date or fails to close on its acquisition of the Project on or before the one hundredth (100th) day following the date of receipt by Landlord of the Option Notice, the Tenant shall be deemed to have waived its right to purchase the Facility and Premises pursuant to the Option Notice and the Option Deposit shall be retained by Landlord as liquidated damages for Tenant’s failure to consummate the purchase of the Project and shall be non-refundable, but Tenant shall retain the Purchase Option and the ability to tender a subsequent Option Notice and an additional Option Deposit pursuant to the terms of this Section 42.2; provided that Tenant shall receive no credit against the Purchase Price for the previous Option Deposit retained by Seller as liquidated damages.

42.3       At the time the Purchase Option is exercised, Tenant shall deliver to Landlord, in cash or by certified check, a good faith deposit in the amount of One Hundred Thousand Dollars ($100,000.00) (the “Option Deposit”), which Option Deposit shall be credited against the Purchase Price payable at closing. In the event the purchase of the Project is not consummated in accordance with the terms hereof for any reason or no reason whatsoever other than Landlord’s failure to perform its obligations hereunder, the Option Deposit shall be retained by Landlord as liquidated damages for Tenant’s failure to consummate the purchase of the Project and shall be nonrefundable. In the event Tenant forfeits all rights to the Option Deposit due to a failure to consummate the purchase, Tenant shall retain the Purchase Option. Any subsequent exercise of the Purchase Option by Tenant shall require an additional Option Deposit and Tenant shall receive no credit against the Purchase Price for the previous Option Deposit retained by Seller as liquidated damages.

42.4       In the event Tenant exercises the Purchase Option in accordance with the terms and provisions of this Section 42, and at the time Tenant exercises the Purchase Option the Project is encumbered by the HUD Loan, and the HUD Loan does not allow for prepayment by Landlord, then Tenant shall assume the HUD Loan at closing. Tenant shall be responsible for obtaining all necessary approvals and/or consents (including, but not limited to, the approval of the HUD Lender) and paying any assignment and/or transfer fees with respect to the assignment and assumption of the HUD Loan by Landlord to Tenant. If Tenant assumes the HUD Loan, Tenant shall receive a credit against the Purchase Price at closing in the amount of the outstanding balance of principal and interest under the HUD Loan as of the Closing Date. Landlord shall, at no cost to Landlord, use commercially reasonable efforts to cooperate with Tenant with respect to the assignment and assumption of the HUD Loan. If Tenant cannot obtain all necessary approvals to assume the HUD Loan within one hundred eighty (180) days, then Tenant’s exercise of the Purchase Option shall be deemed revoked and Tenant shall not have the right to exercise the Purchase Option until the HUD Loan has been paid off in full or Tenant is able to obtain all necessary approvals to assume the HUD Loan.

42.5       If at the time Tenant exercises the Purchase Option the Project is encumbered by the HUD Loan which Tenant is not going to assume pursuant to Section 42.4 above, and the HUD Loan requires Landlord to pay a prepayment fee in order to pay off the HUD Loan before its maturity date, then Tenant shall be responsible for paying the prepayment fee at closing.

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If at the time Tenant exercises the Purchase Option, the Project is encumbered by a mortgage securing a loan other than a HUD Loan (a “Loan”), Tenant’s exercise of the Purchase Option shall be deemed revoked if, following the request of Landlord, the holder of such Loan refuses to release the Project from the lien of such mortgage due to the existence of an event of default or a potential default under documents evidencing such Loan (or if an event of default would occur as a result of the release of the Project); provided, if such event of default or potential default under the Loan can be cured by Landlord paying down the Loan with the proceeds from the sale of the Project to Tenant pursuant to the Purchase Option and an Event of Default does not exist under this Lease, then Landlord shall be required to pay down the Loan with the proceeds received from Tenant in exercising the Purchase Option.  This Section 42.5 shall not prevent Tenant from later re-exercising the Purchase Option in accordance with this Section.

Any unused Capital Reserve Deposits held by either the Lender or the Landlord as described in Section 10.7 shall become the property of, and be credited to, the Tenant at closing.

42.6        At the time of closing:

(a)          Landlord shall cause to be executed and delivered to Tenant a full warranty deed conveying the Premises to Tenant subject to all encumbrances created by Tenant and all Permitted Encumbrances, except Landlord shall be required to remove any Mortgage and any other monetary lien or other encumbrance created by Landlord against the Premises, except to the extent approved by Tenant;

(b)          Tenant shall deliver to Landlord the Purchase Price, in immediately available funds;

(c)          Landlord and Tenant shall deliver to the other such other documents or instruments as shall reasonably be required by such party’s counsel to consummate the transaction contemplated herein; and

(d)          Tenant shall pay all closing costs relating to the transfer of the Premises to Tenant, including, but not limited to, title insurance premiums, recording fees, transfer taxes and escrow fees; provided Landlord shall be responsible for all of its own legal fees in connection with the closing.

42.7        Tenant can only assign the Purchase Option to a related entity with the consent of Landlord, and such consent shall not be unreasonably withheld. Tenant can only assign the Purchase Option to a non-related entity with the consent of Landlord, and such consent shall be in Landlord’s sole and absolute discretion. Also, Tenant and Landlord will treat the terms of the Purchase Option as confidential and will not disclose the terms of the Purchase Option or any information relating to it to any person other than their advisors, Lenders or prospective buyer(s) of the Facilities.

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42.8        On the Date of Rent Commencement, Landlord will execute, acknowledge and deliver to Tenant for recording a Memorandum in the form attached as Exhibit D. If Tenant fails to exercise the Purchase Option before it expires, Tenant will execute, acknowledge and deliver to Landlord a quitclaim deed releasing any interest in the Property.

42.9        Landlord and Tenant agree to act in good faith and with fair dealing with one another in the execution, performance, and implementation of the Purchase Option. Whenever the consent, approval, or other action of a party is required under any provisions of the Purchase Option, the consent, approval, or other action will not be unreasonably withheld, delayed, or conditioned by a party.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the Date of Lease above written.

LANDLORD:		TENANT:
CHP Medford 1, LLC,		RSL Medford, LLC,
a Delaware limited liability company		an Oregon limited liability company
By:	/s/ Kent Eikanas	By:	/s/ James T. Guffee
Name:	Kent Eikanas		Radiant Companies, Inc., Manager
Its:	COO		By:  James T. Guffee, Its President

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SCHEDULE 1

BASE RENT SCHEDULE

SCHEDULE 1 

EXHIBIT A

LEGAL DESCRIPTION OF THE PREMISES

EXHIBIT A

EXHIBIT B

PERMITTED ENCUMBRANCES

Those matters referred to in ____________________________________, _________________, dated __________, 20___.

EXHIBIT B 

EXHIBIT C

APPROVED MANAGEMENT AGREEMENT

[ATTACHED HERETO]

EXHIBIT C 

EXHIBIT D

MEMORANDUM OF OPTION AGREEMENT

____________________ a _________________ (“Owner”) and ________________________, a _____________________________ (“Optionee”), have entered into an Option Agreement and Agreement of Purchase and Sale dated _______________, 20___ (the “Option Agreement”), wherein Owner has granted to Optionee the sole and exclusive option to purchase the property described in Exhibit A. The term if the option will expire on ________________, 20___.

This Memorandum is being executed and recorded in the Official Records of ______________ County, Oregon, to give notice of the provisions of the Option Agreement and will not be deemed or construed to define, limit or modify the Option Agreement in any manner.

EXECUTED as of ____________________, 20___.

OWNER:		OPTIONEE:
	,		,
a		a

By:	By:
Name:	Name:
Its:	Its:

(Notarial Acknowledgments on Following Page)

EXHIBIT D 

STATE OF OREGON	)
	) ss.
County of ____________	)

This instrument was acknowledged before me on _______________, 20___, by ________________________, as __________________ of ______________________, a __________________________, on behalf of said __________________________.

____________________________________,

Notary Public for Oregon

My commission expires:________________ 

STATE OF OREGON	)
	) ss.
County of ____________	)

This instrument was acknowledged before me on _______________, 20___, by ________________________, as __________________ of ______________________, a __________________________, on behalf of said __________________________.

____________________________________,

Notary Public for Oregon

My commission expires:________________

EX-10.6

LEASE

between

CHP FRIENDSWOOD SNF, LLC,
a Delaware limited liability company

as Landlord

and

MASON FRIENDSWOOD OP, LLC
a Texas limited liability company

as Tenant

Date of Lease: As of September 14, 2012

Table of Contents

		Page
1.	Fundamental Lease Provisions; Definitions	1
2.	Premises	5
3.	No Merger of Title	5
4.	Renewal Options	6
5.	Use; Licensing Requirements and Operating Covenants	6
6.	Rent	9
7.	Net Lease; True Lease	11
8.	Condition	11
9.	Liens	12
10.	Repairs and Maintenance	12
11.	Compliance With Laws	14
12.	Access to Premises	15
13.	Waiver of Subrogation	16
14.	Damage; Destruction	16
15.	Condemnation	18
16.	Assignment and Subletting	19
17.	Alterations	20
18.	Signs	21
19.	Surrender	21
20.	Subordination of Lease; Mortgage Reserves	22
21.	Tenant’s Obligation to Discharge Liens	23
22.	Utilities	23
23.	Tenant Default	23
24.	HUD Loan Requirements	28

Table of Contents

(continued)

		Page
25.	Rent Payments	32
26.	Holdover	32
27.	Notices	32
28.	Indemnity	33
29.	Tenant to Comply with Matters of Record	34
30.	Taxes	35
31.	Insurance	36
32.	Landlord Exculpation	38
33.	Landlord’s Title	38
34.	Quiet Enjoyment	38
35.	Broker	38
36.	Transfer of Title	39
37.	Management Agreements	39
38.	Hazardous Materials	39
39.	Estoppel Certificate	44
40.	Notice of Lease	44
41.	Miscellaneous	44
42.	Guaranty of Lease	47

ii

LIST OF SCHEDULES AND EXHIBITS

Schedule 1	Base Rent Schedule
Exhibit A	Legal Description of Premises
Exhibit B	Permitted Encumbrances
Exhibit C	Approved Management Agreement
Exhibit D	Guaranty of Lease

iii

LEASE

This Lease (this “Lease”) is made on the Date of Lease specified below, between the Landlord and the Tenant specified below.

1.           Fundamental Lease Provisions; Definitions.

1.1          Fundamental Lease Provisions. The following list sets out certain fundamental provisions pertaining to this Lease:

(a)          Date of Lease. As of September _____, 2012.

(b) Landlord. CHP Friendswood SNF, LLC (“Landlord”).

Landlord notice address:	CHP Friendswood SNF, LLC c/o Cornerstone Real Estate Funds 1920 Main Street, Suite 400 Irvine, California 92614 Attn: Kent Eikanas Email: KEikanas@crefunds.com Phone: (949) 812-4335 Fax: (949) 250-0592
with copy to:	DLA Piper LLP (US) 2000 University Avenue East Palo Alto, California 94303 Attn: James E. Anderson, Esq. Email: jim.anderson@dlapiper.com Phone: (650) 833-2078 Fax: (650) 687-1158

(c)          Tenant. Mason Friendswood OP, LLC, a Texas limited liability company (“Tenant”).

Tenant notice address: Mason Friendswood OP, LLC
4949 Westgrove, Suite 200
Dallas, Texas 75248
Attn: M. Craig Kelly
Email: mcraigkelly@aol.com
Phone: (469) 341-2720
Fax:____________________________

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with copy to:	Underwood Law Firm, P.C. P.O. Box 9158 Amarillo, Texas 79105 Attn: Sharon White Email: Sharon.White@uwlaw.com Phone: (806) 376-5613 Fax: (806) 349-9486
with copy to:	HMG Services, LLC 4 Waterway Square Place, Suite 350 The Woodlands, Texas 77380 Telephone No.: (281) 419-5520 Facsimile No.: (281) 419-5527

1.2          Definitions. The following list sets out certain definitions used in this Lease:

(a)          “Adverse Healthcare Event”. The occurrence of any of the following at the Facility: any termination or suspension placed upon Tenant or the Healthcare Use of any portion of the Facility, the operation of the Healthcare Business conducted within the Facility or the ability to admit residents or patients for a period in excess of thirty (30) days or if the certification or licensure of any portion of the Property under any Legal Requirements is revoked, or suspended or materially limited for a period in excess of thirty (30) days, including, without limitation, (i) termination of provider agreements without Landlord's consent; or (ii) failure to maintain Tenant's qualifications for licenses, permits, certifications and any other healthcare requirement necessary to continue to operate the Facility for its Healthcare Use.

(b)          “Approved Management Agreement.” That certain management agreement, dated February 1, 2012 for the Premises by and between Tenant and Manager attached hereto as Exhibit C.

(c)          “AR Lender.” A third party institutional lender providing an AR Loan or AR Financing (as defined below in Section 1.2(c)) to Tenant.

(d)          “AR Loan or AR Financing.” A loan obtained by Tenant from a third party institutional lender secured by the accounts receivable from Tenant’s business operations within the Facility.

(e)          “AR Loan Documents.” All loan documents entered into by Tenant and/or AR Lender evidencing an AR Loan or AR Financing.

(f)          “Base Rent” (See Section 6). The amounts set forth on Schedule 1 hereto for the respective periods specified thereon.

(g)          “Broker.” Neither Landlord nor Tenant used a Broker in connection with this Lease.

(h)          “C&C Threshold Repair Amount.” Fifty Thousand Dollars ($50,000).

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(i)          “Capital Reserve Deposits.” The deposits required to be made by Tenant in the amount of Four Hundred Fifty Dollars ($450) per bed annually.

(j)          “Date of Rent Commencement.” September ____, 2012.

(k)          “EBITDAR.” Earnings before interest, taxes, depreciation, amortization and Rent.

(l)          “Exhibits.” All Exhibits and Schedules to this Lease are incorporated herein by this reference.

(m)        “Facility.” The skilled nursing facility located at 1500 Sunset Drive, Friendswood, Texas, and commonly known as Friendship Haven Healthcare and Rehabilitation Center.

(n)          “FF&E.” All furnishings, furniture, fixtures, and equipment owned by Landlord and used in or about the Premises, but expressly excluding any personal property owned by the residents of the Premises.

(o)          “FHA.” The Federal Housing Administration.

(p)          “Guarantor.” As defined below in Section 42.

(q)          “Healthcare Business.” The business of operating the Facility for the Healthcare Use.

(r)          “Healthcare Use.” The use of the Facility for skilled nursing.

(s)          “HUD.” The United States Department of Housing and Urban Development.

(t)          “HUD Lender.” A Lender providing a HUD Loan to Landlord on the Premises.

(u)          “HUD Loan.” A new loan secured by the Premises from a Lender insured by HUD.

(v)         “HUD Loan Documents.” The Loan Documents evidencing a HUD Loan on the Premises.

(w)          “HUD Program Requirements.” All applicable statutes and regulations, including all amendments to such statutes and regulations, as they become effective, and all applicable requirements in HUD handbooks, notices and mortgagee letters that apply to the Premises and all requirements by HUD that Tenant’s AR Lender subordinate to HUD Loan in accordance with this Lease, including all updates and changes to such handbooks, notices and mortgagee letters that apply to the Premises, except that changes subject to notice and comment rulemaking shall become effective upon completion of the rulemaking process.

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(x)          “Late Charge.” Five percent (5%) of the amount past due.

(y)          “Laws.” As defined below in Section 11.1.

(z)          “Lease Default Rate.” The lower of (a) fourteen percent (14%) per annum, or (b) the highest rate permitted to be contracted for under applicable Law.

(aa)         “Lease Deposit.” A deposit made by Tenant to Landlord in the amount of three (3) months initial Base Rent.

(bb)         “Legal Requirements.” As defined below in Section 11.1.

(cc)         “Lender.” Any institutional entity that makes a loan or loans (such loan or loans collectively referred to herein as the “Loan”) to Landlord which is secured by a mortgage, deed of trust or similar instrument (the “Mortgage”) with respect to the Premises and of which Tenant is advised in writing by Landlord, and which may be insured by HUD pursuant to Sections 232 and 223(f) of the National Housing Act, as amended. Any such Loan may be evidenced by one or more promissory notes (collectively referred to herein as the “Note”).

(dd)         “Loan Documents.” Collectively, the Note, the Mortgage and all other documents entered into in connection with the Loan by Landlord and/or Tenant, including, but not limited to, the Regulatory Agreement for a HUD Loan.

(ee)         “Management Agreement.” The management agreement between Tenant and the manager of the Facility.

(ff)         “Manager.” The manager of the Facility pursuant to the Management Agreement, which currently is HMG Services, LLC under the Approved Management Agreement.

(gg)         “Minimum Licensed Beds.” 150 licensed beds (consisting of 150 skilled).

(hh)         “Minimum Rent Coverage.” For any trailing six (6) month period, a ratio of EBITDAR to all Base Rent and all other rent payable under this Lease of not less than 1.3 to 1.0.

(ii)         “Payment of Base Rent.” As set forth in Section 6.1, Base Rent shall be paid monthly by wire transfer to the account set forth in the rent direction letter from Landlord to Tenant delivered concurrently with the execution and delivery of this Lease.

(jj)         “Permitted Encumbrances.” All taxes (as defined in Section 30), Legal Requirements (as defined in Section 11), the Mortgage and associated encumbrances in favor of the Lender, any matters consented to by Landlord, Tenant and Lender in writing, those covenants, restrictions, reservations, liens, conditions, encroachments, easements, encumbrances and other matters of title that affect the Premises as of the date hereof (including, without limitation, those listed on Exhibit B hereto) or which arise due to the acts or omissions of Tenant with Landlord’s written consent, or due to the acts or omissions of Landlord with Tenant’s written consent, after the date hereof.

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(kk)         “Premises.” That certain lot or parcel of real estate which is described on Exhibit A hereto, together with the Facility(ies) and all improvements now or hereinafter situated on said property (together with all right, title and interest of Landlord in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems used in connection with said property, and all other carpeting, appliances and other fixtures and equipment attached or appurtenant to said property), and all rights, easements, rights of way, and other appurtenances thereto.

(ll)         “Regulatory Agreement.” Collectively, the Regulatory Agreement with Landlord and the Regulatory Agreement with Tenant.

(mm)       “Regulatory Agreement with Landlord.” That certain Regulatory Agreement to be entered into between HUD and Landlord relating to the Premises.

(nn)         “Regulatory Agreement with Tenant.” That certain Regulatory Agreement to be entered into between HUD and Tenant relating to the Premises.

(oo)         “Renewal Option(s).” The Tenant shall have the following Renewal Option(s) (herein so called) to extend the Term of this Lease for up to a total of two (2) Extension Period(s) (herein so called) of five (5) years each upon the same terms and conditions as are set forth in this Lease (except as otherwise expressly set forth herein), and for the Base Rent set forth on Schedule 1 hereto.

(pp)         “Required Advance Notice to Exercise Renewal Options.” Notice to exercise a renewal option shall be provided no earlier than nine (9) months and no later than six (6) months prior to the expiration of the then-current Term. (See Section 4).

(qq)         “State.” The State of Texas.

(rr)         “Term.” The term of this Lease shall commence on the Date of Rent Commencement, and shall expire on the tenth (10th) anniversary of the Date of Rent Commencement; all subject to all terms and conditions of this Lease.

(ss)         “Threshold Repair Amount.” Fifty Thousand Dollars ($50,000).

2.          Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the Term and on the conditions herein provided, the Premises, subject, however, to the Permitted Encumbrances.

3.          No Merger of Title. There shall be no merger of this Lease nor of the leasehold estate created hereby with the fee estate in or ownership of the Premises by reason of the fact that the same entity may acquire or hold or own (i) this Lease or the leasehold estate created hereby or any interest therein and (ii) the fee estate or ownership of any of the Premises or any interest therein. No such merger shall occur unless and until all persons having any interest in (x) this Lease and the leasehold estate created hereby, and (y) the fee estate in the Premises including, without limitation, Lender’s interest therein, shall join in a written, recorded instrument effecting such merger.

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4.          Renewal Options. Tenant has the Renewal Options, and may extend the Term of this Lease for each of the Extension Periods, upon all of the terms set forth in this Lease with the Base Rent in the amounts specified on Schedule 1 hereto for the respective Extension Periods. The Term of this Lease shall be extended if Tenant provides Landlord written notice of Tenant’s exercise of the Renewal Option in accordance with the Required Advance Notice to Exercise Renewal Options. Notwithstanding the foregoing, if (a) Tenant is in default beyond the applicable cure period on the date of giving Landlord notice of Tenant’s exercise of the Renewal Option, or (b) Landlord has previously given Tenant two (2) or more notices of default under this Lease during the previous twelve (12) month period, Tenant shall have no right to extend the Term and this Lease shall expire at the end of the existing Term.

5.          Use; Licensing Requirements and Operating Covenants.

5.1           Use. Tenant may use the Premises for the Healthcare Use and for no other use or purpose. Tenant’s use of the Premises must be in accordance with all applicable Laws, including, without limitation, applicable zoning and land use Laws. In no event shall the Premises be used for any purpose which shall violate any of the provisions of any Permitted Encumbrance or any covenants, restrictions or agreements hereafter created by or consented to by Tenant applicable to the Premises; provided, however, that this sentence shall not apply with respect to any Permitted Encumbrance in effect on the Date of Rent Commencement so long as (i) the title insurance policy obtained by Landlord in connection with its purchase of the Premises (and the simultaneously issued Lender’s policy of title insurance) contains affirmative insurance against any loss arising due to a violation of such Permitted Encumbrance or if such affirmative title insurance is subsequently provided to Landlord and Lender at Tenant’s cost with respect to such Permitted Encumbrance on terms and conditions satisfactory to Landlord and Lender in their sole discretion, and (ii) violation of such Permitted Encumbrance could not result in Landlord or Lender suffering (A) any criminal liability, penalty or sanction, (B) any civil liability, penalty or sanction for which Tenant has not made provisions reasonably acceptable to Landlord and Lender, or (C) defeasance or loss of priority of its interest in the Premises; provided, further, however, that TENANT SHALL NONETHELESS BE OBLIGATED TO INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD, LENDER AND ALL OTHER INDEMNIFIED PARTIES, FROM ANY AND ALL LOSSES, LIABILITIES, PENALTIES, ACTIONS, SUITS, CLAIMS, DEMANDS, JUDGMENTS, DAMAGES, COSTS OR EXPENSES SUFFERED AS A RESULT OF THE VIOLATION OF ANY SUCH PERMITTED ENCUMBRANCE BY TENANT. Tenant agrees that with respect to the Permitted Encumbrances and any covenants, restrictions or agreements hereafter created by or consented to by Tenant, Tenant shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Landlord. Notwithstanding the foregoing, Tenant shall not use, occupy or permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance or waste.

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5.2          Licensing Requirements. During the term of this Lease, the Premises shall be used by Tenant with not less than the Minimum Licensed Beds. Tenant shall at all times maintain in good standing and full force a probationary or non-probationary license issued by the State and any other governmental agencies permitting the operation on the Premises of a skilled nursing facility of no less than the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) and shall at all times maintain in good standing and full force a provider agreement pursuant to which the Premises shall be entitled to participate in the Medicaid reimbursement program, and when applicable Medicare reimbursement program in order to receive reimbursement for the services provided at the Premises. Except as otherwise specifically provided herein no reduction in the number of licensed beds shall entitle Tenant to any reduction or adjustment of the Base Rent or Additional Rent payable hereunder, which shall be and continue to be payable by Tenant in the full amount set forth herein notwithstanding any such reduction in the number of licensed beds. Tenant shall, within five (5) business days following its receipt thereof, provide Landlord with a copy of any notice from the Texas Department of Aging and Disability Services or any federal, state or municipal governmental agency or authority regarding any reduction in the number of licensed beds and Landlord shall have the right, but not the obligation, to contest, by appropriate legal or administrative proceedings, any such reduction.

5.3          Operating Covenants.

(a)          Financial Reporting.

(i)          Within sixty (60) days after the end of each of its fiscal years, Tenant shall furnish to Landlord full and complete unaudited financial statements of the operations of the Facility for such annual fiscal period, which shall be compiled by an independent Certified Public Accountant if required by Lender, and such financial statements shall present fairly the financial condition of Tenant, and which shall contain a statement of capital changes, balance sheet and detailed income and expense statement (collectively called “Financial Statements”) as of the end of the fiscal year. Tenant shall also furnish to Landlord a copy of its cost report within ten (10) days after filing thereof. Each such cost report shall be certified as being true and correct by an officer of Tenant.

(ii)         Tenant shall also furnish to Landlord and to Lender copies of all financial statements for the Facility for the preceding calendar month by the twenty-fifth (25th) day following the last day of said month.

(iii)        With thirty (30) days after the date for filing Tenant’s tax return (as the same may be extended), Tenant shall furnish (and cause its auditor to be permitted to furnish if required by Lender) to Tenant and to Lender with a copy of the tax return for Tenant for said year, certified by an officer of Tenant to be true, correct and complete.

(iv)        At least twenty-five (25) days prior to the commencement of Tenant's fiscal year, Tenant shall provide Landlord with an annual budget covering the operations of the Facility including any proposed capital expenditures for the forthcoming fiscal year. Tenant shall also provide Landlord with such other information with respect to Tenant or the operations of the Facility as Landlord may reasonably request from time to time. Tenant acknowledges that Landlord's receipt of the budgets shall not constitute or be deemed an assumption of any obligation or liability of Landlord in connection with Tenant's business or operations, nor shall Landlord be deemed to be involved in Tenant's business or operations in any manner other than as Landlord under this Lease.

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(v)         In addition to the above financial statements, Tenant shall also provide to Landlord such other financial statement(s) or information relating to its operation as reasonably required by Landlord which is customarily maintained by Tenant, which shall be furnished to Landlord and to Lender not later than the date reasonably required and set forth in a notice to Tenant.

(vi)        Tenant shall keep and maintain or cause to be kept and maintained at all times at the Facility, or such other place as Landlord or Landlord's Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect the results of the operation of the Property and to provide the financial statements required to be provided under this Section 5.3 and copies of all written contracts, correspondence, reports in connection with Landlord's loan, if any, and other documents affecting the Facility. Landlord and Landlord's Lender and its designated agents shall have the right to inspect and copy any of the foregoing during normal business hours and upon at least 24 hours notice to Tenant. Additionally, Tenant acknowledges that Landlord's Lender shall have the right to audit such records, and Tenant shall reasonably cooperate with such audit(s). The costs and expenses of the audit shall be paid by Tenant if the audit discloses a monetary variance in any financial information or computation equal to or greater than the greater of: (a) five percent (5%); or (b) Twenty-Five Thousand Dollars ($25,000.00) more than any computation submitted by Tenant.

(b)          Regulatory Reporting. Tenant shall deliver to Landlord copies of all regulatory survey’s conducted by the State or any Federal agency, Reports of Contract (“ROCs”), Plans of Corrections (“POCs”) and Substantial Compliance notices within three (3) business days of receiving or preparing.

(c)          Minimum Rent Coverage. Tenant shall maintain on a monthly basis the Minimum Rent Coverage. If Tenant fails to maintain the Minimum Rent Coverage, then Tenant shall deposit on a monthly basis with Landlord an additional Lease Deposit equal to five percent (5%) of the monthly revenue that Tenant derives from the business operated from the Premises. The funding of such additional Lease Deposit shall continue until the earlier of (i) the Lease Deposit equaling six (6) months of the then Base Rent payable under this Lease, or (ii) Tenant coming back into compliance with the Minimum Rent Coverage. Additional Lease Deposits funded pursuant to this Section 5.3(c) shall be held by Landlord until the end of the Term.

(d)          Occupancy. On a rolling three (3) month basis, Tenant shall maintain an occupancy level of no less than ninety percent (90%) of the occupancy existing on the Date of this Lease. Tenant represents and warrants to Landlord that there were [need #] residents in the Facility on the Date of this Lease.

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6.           Rent.

6.1          Payment of Base Rent. Commencing as of the Date of Rent Commencement, Tenant shall pay Base Rent to Landlord, or to Lender if directed by Landlord in writing, at the business address of Landlord or Lender, as the case may be, specified herein, or at such other address as Landlord or Lender, as the case may be, shall from time to time designate by written notice to Tenant. The Base Rent shall be due and payable in the amounts set forth on Schedule 1 hereto, which Schedule 1 is incorporated herein by this reference. Tenant shall commence paying Base Rent on the Date of Rent Commencement (which Date of Rent Commencement is not required to occur on the first day of a month), and to the extent that the Date of Rent Commencement does not fall on the first day of a calendar month, then Base Rent for the calendar month in which the Date of Rent Commencement occurs shall be prorated based on the number of days in the calendar month in which the Date of Rent Commencement occurs. Other than payment of Base Rent on the Date of Rent Commencement (to the extent that the Date of Rent Commencement does not occur on the first day of a calendar month), Base Rent shall be due and payable on the first day of each month (or if such first day is not a business day, the first business day of each month) during the Term (each such date being referred to herein as a “Due Date”). Notwithstanding the foregoing, from the Date of Rent Commencement until Tenant is notified otherwise by Landlord and Lender, Base Rent shall be paid by wire transfer to the account specified in the rent direction letter from Landlord to Tenant.

6.2          Partial Months. Any Base Rent paid for a partial period of occupancy shall be allocated to such partial period. The foregoing notwithstanding, Tenant’s obligation to pay insurance charges pursuant to Section 31 of this Lease, taxes pursuant to Section 30 of this Lease, and all other Additional Rent shall commence upon the Date of Rent Commencement.

6.3          Payment of Additional Rent. Commencing as of the Date of Rent Commencement, all taxes, costs, expenses, and other amounts which Tenant is required to pay pursuant to this Lease (other than Base Rent), including, but not limited to insurance required pursuant to Section 31 of this Lease together with every fine, penalty, interest and cost which may be added for non-payment or late payment thereof, shall constitute additional obligations hereunder (“Additional Rent”). All Additional Rent shall be paid directly by Tenant to the party to whom such Additional Rent is due. If Tenant shall fail to pay any such Additional Rent or any other sum due hereunder when the same shall become due (and if no due date is specified, then such amounts shall be payable within ten (10) business days following written notice of demand therefor), Landlord shall have all rights, powers and remedies with respect thereto as are provided herein or by Law in the case of non-payment of any Base Rent and shall, except as expressly provided herein, have the right, not sooner than ten (10) days after notice to Tenant (except in the event of an emergency, as reasonably determined by Landlord, in which case prior notice shall not be necessary) of its intent to do so, to pay the same on behalf of Tenant, and Tenant shall repay such amounts to Landlord on demand. Tenant shall pay to Landlord interest at the Lease Default Rate on all overdue Additional Rent and other sums due hereunder, in each case paid by Landlord or Lender on behalf of Tenant, from the date of payment by Landlord or Lender until repaid by Tenant.

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6.4          Late Payments. If any installment of Base Rent, Additional Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee by the due date therefor, then Tenant shall pay to Landlord the Late Charge calculated off of the past due amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay such amount. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the Late Charge, any Base Rent, Additional Rent or other amounts owing hereunder which are not paid within five (5) days of the date that they are due shall thereafter bear interest until paid at the Lease Default Rate.

6.5          Lease Deposit. The Lease Deposit shall be deposited by Tenant with Landlord in accordance with Section 1.2(u) of this Lease. The Lease Deposit shall serve as security for the payment and performance of the obligations, covenants, conditions and agreements contained herein. The Lease Deposit shall not constitute an advance payment of any amounts owed by Tenant under this Lease, or a measure of damages to which Landlord shall be entitled upon a breach of this Lease by Tenant or upon termination of this Lease. Landlord may, without prejudice to any other remedy, use the Lease Deposit to the extent necessary to remedy any default which has lapsed beyond applicable notice and cure period in the payment of Base Rent or Additional Rent or to satisfy any other obligation of Tenant hereunder and to remedy any Event of Default hereunder. In the event that any portion of the Lease Deposit is used by Landlord as set forth herein, Tenant shall promptly, on demand, restore the Lease Deposit to its original amount. Landlord will keep the Lease Deposit separate from its own funds in a separately segregated, interest bearing account. The Lease Deposit will not be a limitation on Landlord’s damages or other rights under this Lease, or a payment of liquidated damages, or an advance payment of the Base Rent. Landlord will return the unused portion of the Lease Deposit to Tenant within thirty (30) days after the end of the Term. If Landlord transfers its interest in the Premises during the Term, Landlord shall assign the Lease Deposit to the transferee who shall become obligated to Tenant for its return pursuant to the terms of this Lease, and thereafter Landlord shall have no further liability for its return, provided assignee shall assume such obligations in writing to Tenant.

6.6          Determination of Charges. Landlord and Tenant agree that each provision of this Lease for determining charges and amounts payable by Tenant (including provisions regarding Base Rent and Additional Rent) is commercially reasonable and, as to each charge or amount, constitutes a statement of the charge or a method by which the charge is to be computed for purposes of Section 93.012 of the Texas Property Code.

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7.           Net Lease; True Lease.

7.1          Net Lease. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and Base Rent, Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events, and the obligations of Tenant hereunder shall continue during the Term, unless the requirement to pay or perform the same shall have been terminated pursuant to the provisions of Section 14.4 or Section 15. This is an absolutely net lease and Base Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice or demand (except as specifically set forth in this Lease), and without setoff, counterclaim, recoupment, abatement, suspension, reduction or defense. This Lease is the absolute and unconditional obligation of Tenant, and the obligations of Tenant under this Lease shall not be affected by any interference with Tenant’s use of any of the Premises for any reason except as specifically set forth in this Lease, including, but not limited to, the following: (i) any damage to or destruction of any of the Premises by any cause whatsoever (except as otherwise expressly provided in Section 14.4), (ii) any Condemnation (except as otherwise expressly provided in Section 15), (iii) the prohibition, limitation or restriction of Tenant’s use of any of the Premises, (iv) Tenant’s acquisition of ownership of any of the Premises other than pursuant to an express provision of this Lease, (v) any default on the part of Landlord under this Lease or under any other agreement, (vi) any latent or other defect in, or any theft or loss of any of the Premises, (vii) any violation of Section 34 by Landlord (provided, that this Section 7.1(vii) shall not limit Tenant’s rights, if any, to seek injunctive relief against Landlord for violation of said Section 34), or (viii) any other cause, whether similar or dissimilar to the foregoing, any present or future Law to the contrary notwithstanding. Except as otherwise set forth herein, all costs and expenses (other than depreciation, interest on and amortization of debt incurred by Landlord, and costs incurred by Landlord in financing or refinancing the Premises) and other obligations of every kind and nature whatsoever relating to the Premises and the appurtenances thereto and the use and occupancy thereof which may arise or become due and payable with respect to the period which ends on the expiration or earlier termination of the Term in accordance with the provisions hereof (whether or not the same shall become payable during the Term or thereafter) shall be paid and performed by Tenant. Tenant shall pay all expenses related to the maintenance and repair of the Premises, and taxes and insurance costs. This Lease shall not terminate and Tenant shall not have any right to terminate this Lease (except as otherwise expressly provided in this Lease), or to abate Base Rent or Additional Rent during the Term.

7.2          True Lease. Landlord and Tenant agree that this Lease is a true lease and does not represent a financing arrangement. Each party shall reflect the transaction represented hereby in all applicable books, records and reports (including income tax filings) in a manner consistent with “true lease” treatment rather than “financing” treatment.

7.3          No Termination of Lease. Tenant shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court.

8.           Condition. Tenant acknowledges that it or one of its affiliates owned and occupied the Premises immediately prior to the commencement of the Term. Accordingly, Tenant is fully familiar with the physical condition of the Premises as of the date hereof, and that Landlord makes no representation or warranty express or implied, with respect to same, except as expressly set forth herein. EXCEPT FOR LANDLORD’S COVENANT OF QUIET ENJOYMENT SET FORTH IN SECTION 34 AND ANY OTHER REPRESENTATIONS EXPRESSLY SET FORTH HEREIN, LANDLORD MAKES NO AND EXPRESSLY HEREBY DENIES ANY REPRESENTATIONS OR WARRANTIES REGARDING THE CONDITION OR SUITABILITY OF THE PREMISES TO THE EXTENT PERMITTED BY LAWS, AND TENANT WAIVES ANY RIGHT OR REMEDY OTHERWISE ACCRUING TO TENANT ON ACCOUNT OF THE CONDITION OR SUITABILITY OF THE PREMISES, OR (EXCEPT WITH RESPECT TO LANDLORD’S WARRANTY SET FORTH IN SECTION 34) TITLE TO THE PREMISES, AND TENANT AGREES THAT IT TAKES THE PREMISES “AS IS,” WITHOUT ANY SUCH REPRESENTATION OR WARRANTY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. Tenant has examined the Premises and title to the Premises, and has found all of the same satisfactory for all purposes.

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9.           Liens. Tenant shall not, directly or indirectly, create, or permit to be created or to remain, and shall remove and discharge (including, without limitation, by any statutory bonding procedure or any other bonding procedure reasonably satisfactory to Landlord and Lender which shall be sufficient to prevent any loss of the Landlord’s or Lender’s interest in the Premises) within thirty (30) days after obtaining knowledge thereof any mortgage, lien, encumbrance or other charge on the Premises or the leasehold estate created hereby or any Base Rent or Additional Rent payable hereunder which arises for any reason, other than: the Landlord’s Mortgage (and any assignment of leases or rents collateral thereto); the Permitted Encumbrances or which subsequently arise with the prior written consent of Landlord and Lender; and any mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Landlord or those claiming by, through or under Landlord (other than Tenant). Landlord shall not be liable for any labor, services or materials furnished to Tenant or to any party holding any portion of the Premises through or under Tenant and no mechanic’s or other liens for any such labor, services or materials shall attach to the Premises or the leasehold estate created hereby.

10.         Repairs and Maintenance.

10.1        Tenant’s Repair and Maintenance Obligations. Tenant shall keep, maintain and repair, at its sole cost and expense, the Premises, including, without limitation, the roof walls, footings, foundations, HVAC, mechanical and electrical equipment and systems in or serving the Premises and structural and nonstructural components and systems of the Premises, parking areas, sidewalks, roadways and landscaping in safe and good condition and repair, and shall make all repairs and replacements (substantially equivalent in quality and workmanship to the original work) of every kind and nature, whether foreseen or unforeseen, which may be required to be made, in order to keep and maintain the Premises in good repair and condition, except for ordinary wear and tear and (other than for any Restoration required by the terms of this Lease) any damage to the Premises by any Major Condemnation of the Premises. Tenant shall prevent deferred maintenance from accumulating at the Premises. Landlord shall have the right to enter the Premises at reasonable times and upon reasonable notice to Tenant to perform annual inspections of the Premises to ensure that the Premises are maintained in good working order and that the Premises are free from maintenance issues and any other issues which would decrease the value of the Premises once returned to Landlord at the end of the Term. Tenant shall do or cause others to do all shoring of the Premises or of the foundations and walls of the Facility as may be reasonably required and every other act reasonably necessary for the preservation and safety thereof (including, without limitation, any repairs required by Law as contemplated by Section 11), by reason or in connection with any excavation or other building operation upon the Premises, and Landlord shall have no obligation to do so. Landlord shall not be required to make any repair, replacement, maintenance or other work whatsoever, or to maintain the Premises in any way. Nothing in the preceding sentence shall be deemed to preclude Tenant from being entitled to insurance proceeds or awards for any taking to the extent provided in this Lease. Tenant shall, in all events, make all repairs, replacements and perform maintenance and other work for which it is responsible hereunder, in a good, proper and workmanlike manner. Without limiting the generality of the foregoing, Tenant shall be responsible for the performance of all maintenance and repairs of the Facility.

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10.2        Encroachments and Non-Compliance Issues. If all or any part of the Facility shall encroach upon any property, street or right-of-way adjoining or adjacent to the Premises, or shall violate the agreements or conditions affecting the Premises or any part thereof or shall violate any Laws or Legal Requirements, or shall hinder, obstruct or impair any easement or right-of-way to which the Premises is subject, then, promptly after written request of Landlord (unless such encroachment, violation of any agreements or conditions of record, hindrance, obstruction or impairment (a) existed or was constructed prior to the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement; (b) is a Permitted Encumbrance in existence as of the Date of Rent Commencement and constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement, or (c) subsequently arises with the prior written consent of Landlord and Lender, and Landlord and Lender have obtained, at Tenant’s cost, affirmative title insurance coverage against any loss arising due to any such matter on terms and conditions satisfactory to Landlord and Lender in their sole discretion, provided that this clause (c) shall not relieve Tenant from any liability for the removal, remedying, repair or replacement of any such encroachment, violation, hindrance, obstruction or impairment to the extent that the same exists) or of any person affected thereby, Tenant shall, at its sole expense, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting therefrom, or (ii) make such changes, including alterations to the Facility (subject, however, to Tenant’s maintenance and repair obligations in Section 10.1) and take such other action as shall be necessary to remove or eliminate such encroachments, violations, hindrances, obstructions or impairments, provided that, if Landlord’s or Lender’s consent is required for such changes pursuant to this Lease, Landlord’s or Lender’s consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall have no liability for and shall not be required to take any action to remove or eliminate any Permitted Encumbrance in existence as of the Date of Rent Commencement that constituted an encroachment, violation, hindrance, obstruction or impairment as of the Date of Rent Commencement.

10.3        Tenant’s Failure to Perform. If Tenant shall be in default under any of the provisions of this Section 10, Landlord may, after thirty (30) days written notice to Tenant and failure of Tenant to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days but Tenant has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Tenant. If an emergency exists, Landlord shall use reasonable efforts to notify Tenant of the situation by phone or other available communication before taking any such action to cure such default. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) so incurred, together with interest at the Lease Default Rate from the date of payment or incurring of the expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

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10.4        Inspection Prior to Expiration of Term. One (1) year prior to the expiration of the Term of this Lease, Tenant shall at its own expense cause the Premises to be inspected, the results of which shall be made available to Landlord and Lender not less than eleven (11) months prior to the end of the Term, to determine whether the condition of the Premises complies with the requirements of this Lease. In addition to any document or information which Tenant is expressly required to deliver pursuant to this Lease, Tenant will also deliver to Landlord, promptly upon request, information with respect to the Premises reasonably (both as to content and frequency) requested by Lender pursuant to the Mortgage or any other documents evidencing or securing the Loan; provided that this shall not increase the obligations of Tenant to deliver environmental reports beyond that required in Section 38.

10.5        Lender Required Repairs. Tenant shall be responsible for any repairs to the Facility or reserves for repairs to the Facility required by Lender in accordance with the Loan Documents.

10.6        Life Safety Repairs. Tenant shall make such repairs and replacements relating to items covered by temporary life safety code waivers if such temporary life safety code waivers are not continued or are otherwise removed and shall correct any deficiencies or violations previously covered by such waivers, at Tenant’s sole cost, within the time periods required by applicable governmental authorities.

10.7        Capital Reserve Deposits. Tenant shall be required to make Capital Reserve Deposits and shall make monthly deposits with Landlord, in an amount equal to one-twelfth (1/12) (or such greater amount as may be reasonably required by Lender) of the Capital Reserve Deposit to fund future anticipated capital expenditures. The Capital Reserve Deposits shall be due and payable on the first (1st) day of each month as Additional Rent. The Capital Reserve Deposits shall not bear interest, unless interest on the Capital Reserve Deposits is paid to Landlord by Lender. The Capital Reserve Deposits shall be held by Landlord and/or Lender and shall be used to pay the capital expenditures as they become due and payable. If the amount of Tenant’s payments as made under this Section 10.7 shall be less than the total amount due or otherwise required, then Tenant shall pay the full deficiency. Tenant shall provide all capital expenditure draw requests to Landlord in writing along with receipts and or invoices documenting the amount of the capital expenditure to be reimbursed by Landlord. Upon receipt of such receipts, invoices and/or additional documentation reasonably requested by Landlord, Landlord shall reimburse Tenant for such costs up to the amount of Capital Reserve Deposits made by Tenant and then being held by Landlord and/or Lender.

11.         Compliance With Laws.

11.1        Tenant’s Obligations. During the Term, Tenant shall comply with all Laws and Legal Requirements relating to the Premises. As used herein, (i) the term “Laws” shall mean all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and do not impose any obligation on Tenant, Landlord or the Premises or which are due to take effect after expiration of the Term), and (ii) the term “Legal Requirements” shall mean all Laws and all covenants, restrictions and conditions now or in the future of record which may be applicable to Tenant, Landlord (with respect to the Premises) or to all or any part of or interest in the Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Premises.

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11.2        Tenant’s Right to Contest. Notwithstanding anything herein to the contrary, after prior written notice to Landlord, Tenant, at Tenant’s own expense, may contest by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Law or Legal Requirement, the applicability of any Law or Legal Requirement to Tenant or the Premises or any alleged violation of any Law or Legal Requirement, provided that (i) Tenant is not in default of any of the provisions of this Lease, which default has lapsed beyond any applicable notice and cure period; (ii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which Tenant is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the Premises, nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (iv) Tenant shall promptly upon final determination thereof comply with any such Law or Legal Requirement determined to be valid or applicable or cure any violation of any Law or Legal Requirement; (v) such proceeding shall suspend the enforcement of the contested Law or Legal Requirement against Tenant or the Premises; and (vi) Tenant shall furnish such security as may be required in the proceeding to insure compliance with such Law or Legal Requirement, together with all interest and penalties payable in connection therewith. Landlord may apply any such security, as necessary to cause compliance with such Law or Legal Requirement at any time when, in the reasonable judgment of Landlord, the validity, applicability or violation of such Law or Legal Requirement is finally established or the Premises (or any part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost.

12.         Access to Premises.

12.1        Access Rights. Upon reasonable notice to Tenant, Landlord and Lender and their respective employees, contractors, agents and representatives may enter onto the Premises to (i) show the Premises to purchasers and potential purchasers, and to mortgagees and potential mortgagees, or (ii) for the purpose of inspecting the Premises or performing any work which Landlord is permitted to perform under this Lease; provided, that, for purposes of subpart (ii) of this sentence, Landlord and Lender shall not be required to give notice prior to entry onto the Premises in the event of an emergency situation. Upon reasonable notice to Tenant, during the six (6) months preceding the expiration or earlier termination of this Lease, Landlord also may enter onto the Premises to show the Premises to persons wishing to rent the same, at reasonable times and accompanied by a representative of Tenant. No such entry shall constitute an eviction of Tenant but any such entry shall be done by Landlord in such reasonable manner as to minimize any disruption of Tenant’s business operations.

12.2        Lender Meetings. Upon request of Lender, Tenant will arrange for meetings between such Lender (or its representatives) and a representative of Tenant designated by Tenant to discuss operations at the Premises; provided, that Tenant shall not be obligated to arrange for such meetings more than once in each calendar quarter.

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12.3        Lender’s Rights under Mortgage. Further, Tenant hereby agrees to the licenses and other rights to enter onto the Premises which are granted to Lender under the Mortgage, and Tenant shall cause each and every subtenant and assignee of Tenant to agree thereto.

13.         Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each waive any rights of action for negligence against the other party, which may arise during the Term for damage to the Premises or to the property therein resulting from any fire or other casualty, but only to the extent covered by insurance or to the extent the same would have been covered by the insurance had Tenant maintained the insurance to be maintained under this Lease.

14.         Damage; Destruction.

14.1        In the event of any damage to or destruction of the Premises by fire, the elements or other casualty during the Term (a “Casualty”), Tenant shall give Landlord and Lender, if any, prompt written notice thereof. Tenant shall adjust, collect and compromise any and all claims covered by insurance.

14.2        In the event of any such Casualty (whether or not insured against) the Term shall continue and there shall be no abatement or reduction of Base Rent, Additional Rent or of any other sums payable by Tenant hereunder.

14.3        All proceeds of any insurance required to be carried hereunder less any and all expenses of Landlord or Lender in collecting such proceeds, if any (the “Net Proceeds”) shall be delivered to Tenant to apply in accordance with the terms of this Lease if (i) the estimated cost of restoring or repairing the Premises to as nearly as possible to its value, condition, character, utility and useful life immediately before such Condemnation or Casualty, but in any event assuming the Premises have been maintained in accordance with the requirements of Section 10 (such restoration or repair of the Premises, whether in connection with a Condemnation or a Casualty, as the context requires, herein called a “Restoration”), shall be the C&C Threshold Repair Amount or less, (ii) no Event of Default or Disqualifying Default (as hereinafter defined) has occurred and is continuing, and (iii) the long-term unsecured debt of Tenant is rated at least BBB by Standard & Poor’s Ratings Services, a division of the McGraw Hill Companies, Inc. (“S&P”) and at least Baa2 by Moody’s Investors Service, Inc. (“Moody’s”) (the “Minimum Rating”). In all other events the Net Proceeds shall be delivered to a trustee which shall be a federally insured bank or other financial institution, selected by Landlord and Tenant and reasonably satisfactory to Lender (the “Trustee”) to be held and disbursed in accordance with the provisions of Section 14.5; provided, however, that if at the time of the delivery of the Net Proceeds a Mortgage is in existence, the Lender or the servicer of the Loan may act as Trustee without the consent of either Landlord or Tenant. As used herein, a “Disqualifying Default” shall mean and include (i) any uncured failure to make any payment of Base Rent when due hereunder, and (ii) the occurrence of any event or condition described in subparts (vi) or (vii) of Section 23.1 hereof without regard to any notice or lapse of time set forth in such subparts which may be required for such events or conditions to mature into an Event of Default.

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14.4        Tenant shall, whether or not the Net Proceeds of such insurance are sufficient for the purpose or delivered to Tenant, promptly complete the Restoration of the Improvements damaged by any such Casualty in compliance with all requirements set forth in this Lease and all Legal Requirements, and such Restoration shall be completed in such a manner as not to impair the market value or usefulness of the Premises for use in Tenant’s ordinary course of business, all at Tenant’s sole cost and expense. Tenant shall notify Landlord in writing of the estimated cost thereof (the “Restoration Cost”). Landlord and its agents, employees and contractors shall have the right to enter the Premises for the purpose of assessing and adjusting the amount of the Restoration Cost, and Landlord shall have the right in its reasonable discretion to reasonably approve the amount of the Restoration Cost. Tenant shall not have any right to abate the payment of Fixed Rent or Additional Rent as a result of any Casualty.

14.5        Net Proceeds held by the Trustee shall be invested in accordance with prudent investment standards adopted by the Landlord, Lender and Tenant from time to time, and shall be disbursed from time to time in accordance with the following conditions:

(a)          Before commencing the Restoration the architects, general contractor(s), and plans and specifications for the Restoration shall be approved by Landlord and Lender, which approval shall not be unreasonably withheld or delayed; and which approval shall be granted to the extent that the plans and specifications depict a Restoration which is substantially similar to the improvements and equipment which existed prior to the occurrence of the Casualty or Taking, whichever is applicable, or, if the Facility was under construction prior thereto, which depict a Restoration to the condition to which the Facility was to have been constructed.

(b)          At the time of any requested disbursement, no Event of Default or Disqualifying Default shall exist and no mechanics’ or materialmen’s liens shall have been filed and remain undischarged or unbonded, with the exception of any mechanics’ or materialmen’s liens caused by Landlord.

(c)          Disbursements shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (A) satisfactory evidence, including architects’ certificates of the stage of completion, of the estimated costs of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (B) partial releases of liens, if the same are obtainable or, if such partial releases are not obtainable, endorsements to Landlord’s and Lender’s title insurance policies showing no exceptions for mechanics’ or materialmen’s or any similar liens, and (C) other reasonable evidence of cost and payment so that Landlord can verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of mechanics’ lien claims.

(d)          Each request for disbursement shall be accompanied by a certificate of Tenant or its architect describing the work, materials or other costs or expenses for which payment is requested, stating the cost incurred in connection therewith and stating that Tenant has not previously received payment for such work or expense and the certificate to be delivered by Tenant upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

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(e)          The Trustee may retain ten percent (10%) of the Net Proceeds until the Restoration is at least eighty percent (80%) complete and five percent (5%) of the Net Proceeds thereafter, which amount may continue to be held as retainage until the completion of all punch list items following substantial completion of the Restoration.

(f)          At all times the undisbursed balance of the Net Proceeds held by Trustee plus any funds contributed thereto by Tenant, at its option, shall be not less than the cost of completing the Restoration, free and clear of all liens.

(g)          In addition, before commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by an independent architect mutually agreed upon by the parties in their reasonable discretion, exceeds the amount of the Net Proceeds available for such Restoration, the amount of such excess shall (i) be paid by Tenant to the Trustee to be added to the Net Proceeds, (ii) be secured by Tenant by posting a payment bond or other security in form and in the amount of such excess, as reasonably satisfactory to Landlord, (iii) be secured by Tenant by providing Landlord with an irrevocable letter of credit (“Letter of Credit”) in a form reasonably satisfactory to Landlord and issued by a bank which is a commercial bank or trust company reasonably satisfactory to Landlord and insured by the Federal Deposit Insurance Corporation (FDIC), having banking offices at which the Letter of Credit may be drawn down upon in Irvine, California, payable at sight to Landlord, or (iv) Tenant shall fund at its own expense the costs of such Restoration until the remaining Net Proceeds are sufficient for the completion of the Restoration. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of Restoration, the Net Proceeds shall be deemed to be disbursed prior to any amount added by Tenant.

(h)          Provided no Event of Default or Disqualifying Default exists and is continuing, any Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Tenant. Notwithstanding any contrary provision hereof, if an Event of Default or a Disqualifying Default has occurred and is continuing, Landlord shall be entitled to retain any remaining Net Proceeds and to apply the same to either repair the damages or to pay other amounts accrued and payable to Landlord hereunder or Lender under the Mortgage, at Lender’s or, if there is then no Lender, Landlord’s sole option. No such retention by Landlord shall impose on Landlord any obligation to repair the Premises or relieve Tenant of its obligations to repair the Premises.

15.         Condemnation.

15.1        Promptly upon obtaining knowledge of any proceeding for condemnation or eminent domain with respect to the Premises (a “Taking” or “Condemnation”), Tenant and Landlord shall each notify the other and Lender, and Tenant shall be entitled to participate in such proceeding at Tenant’s sole expense. Subject to the provisions of this Section 15, Tenant hereby irrevocably assigns to Landlord’s Lender or to Landlord, in that order, any award or payment in respect of any Condemnation of the Premises, except that (except as hereinafter provided) nothing in this Lease shall be deemed to assign to Landlord or Lender any award relating to the value of the leasehold interest created by this Lease or any award or payment on account of an interruption of Tenant’s business at the Premises or the Tenant’s trade fixtures, moving expenses and out-of-pocket expenses incidental to the move, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor, it being agreed, however, that Tenant shall in no event be entitled to any payment that reduces the award to which Landlord is or would be entitled for the condemnation of Landlord’s interest in the Premises.

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15.2        If (i) the entire Premises or (ii) a material portion of the Facility or land comprising a portion of the Premises the loss of which would, in Tenant’s commercially reasonable judgment, render the Premises unsuitable for Restoration or for the continued use and occupancy in Tenant’s business after Restoration, shall be the subject of a Taking (a “Major Condemnation”), then not later than ninety (90) days after such Taking has occurred, Tenant shall serve written notice upon Landlord and Lender (“Tenant’s Termination Notice”) of Tenant’s intention to terminate this Lease on any Base Rent payment Due Date specified in such notice, which Due Date (the “Involuntary Conversion Termination Date”) shall be no sooner than sixty (60) days and no later than one hundred twenty (120) days after Tenant’s Termination Notice but, in any event, not later than the last day of the Term of this Lease.

15.3        In the event of any Taking of a portion of the Premises which does not result in a termination of this Lease, the net award resulting from the Taking, i.e., after deducting therefrom all expenses incurred in the collection thereof shall be held in accordance with Section 14.3. In the event of any such Taking, Tenant shall promptly commence and diligently complete the Restoration (as defined in Section 14.3) of the Premises in accordance with all Laws and Legal Requirements and all other terms of this Lease. Any net award from Condemnation not resulting in a termination of this Lease shall be disbursed in the same manner as set forth with respect to Net Proceeds in Section 14.5, provided, however, that Net Proceeds remaining after final payment has been made for such Restoration shall be promptly delivered to Landlord and shall be owned by Landlord.

15.4        No agreement with any Taking authority in settlement of or under threat of any Taking shall be made by Landlord or Lender without Tenant’s prior written consent (provided, that Tenant’s consent shall, not be required if an Event of Default or a Disqualifying Default then exists and is continuing), or by Tenant without Landlord’s and Lender’s prior written consent.

15.5        In the case of any Taking, all Base Rent, Additional Rent and other obligations of Tenant shall continue unabated until the termination of this Lease.

16.         Assignment and Subletting.

16.1        Tenant shall not have the right to assign this Lease or any interest therein, or to sublet the whole or any part of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion. In the event of any permitted assignment or sublease of this Lease, Tenant shall remain liable for the obligations of Tenant hereunder, which liability of Tenant shall be and remain that of a primary obligor and not a guarantor or surety. Tenant agrees that in the case of a permitted assignment of this Lease, Tenant shall, within fifteen (15) days after the execution and delivery of any such assignment, deliver to Landlord (i) a duplicate original of such assignment in recordable form and (ii) an agreement executed and acknowledged by the assignee in recordable form wherein the assignee shall agree to assume and agree to observe and perform all of the terms and provisions of this Lease on the part of the Tenant to be observed and performed from and after the date of such assignment. In the case of a permitted sublease, Tenant shall, within fifteen (15) days after the execution and delivery of such sublease, deliver to Landlord a duplicate original of such sublease. In no event shall Tenant be permitted to assign or sublet this Lease to an entity with long-term unsecured debt rated below the Minimum Rating. Any sublease or license shall be subject and subordinate to this Lease.

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16.2         For the purposes of this Section 16.2, the term “assign” or “assignment” shall include the following events: if Tenant is a partnership, a withdrawal or change (voluntary, involuntary or by operation of law or otherwise) of any of the general partners thereof or of general and limited partners owning in the aggregate fifty percent (50%) or more of the capital and profits of the partnership, or the dissolution of the partnership; or if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary or by operation of law or otherwise) from one thereof unto the other or others thereof; or, if Tenant is a corporation, any dissolution merger, consolidation or other reorganization of Tenant or any change in the ownership of fifty percent (50%) or more of its capital stock or fifty percent (50%) or more of its voting stock from the ownership existing on the date of execution hereof; or, the sale of fifty percent (50%) or more of the value of the assets of Tenant.

16.3         Upon the occurrence of an Event of Default under this Lease, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Premises, and Tenant hereby irrevocably and unconditionally assigns such rents and money to Landlord, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default.

17.         Alterations.

17.1         Tenant may make non-structural, interior and/or exterior alterations, changes, additions, improvements, reconstructions or replacements of any of the Premises (“alterations”), other than those which would result in a diminution in the value of the Premises, that do not exceed the Threshold Repair Amount in the aggregate. Unless required by applicable federal, state or local law or regulation, Tenant shall obtain the prior written consent of Landlord and Lender to any alteration (i) which would result in a diminution in the value of the Premises, (ii) the cost of which in the aggregate exceeds the Threshold Repair Amount or (iii) which is structural in nature, which consent to a structural alteration shall not be unreasonably withheld. Without limitation, in determining whether a structural alteration is “reasonable” for purposes of subsection (iii) of the preceding sentence, Landlord shall have the right to consider whether such alteration would impair the structural integrity of the Premises, would impair the fair market value of the Premises, or would otherwise adversely affect the overall marketability of the Premises, as determined in Landlord’s reasonable discretion.

17.2         Tenant shall do all such work in a good and workmanlike manner, at its own cost, and in accordance with Laws and Legal Requirements. Tenant shall discharge, within sixty (60) days after notice of the filing of the same (by payment or by filing the necessary bond, or otherwise), any mechanics’, materialmen’s or other lien against the Premises and/or Landlord’s interest therein, which lien may arise out of any payment due for any labor, services, materials, supplies, or equipment furnished to or for Tenant in, upon, or about the Premises.

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17.3         At Tenant’s sole cost and without liability to Landlord, Landlord agrees to reasonably cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for any alterations which Tenant is permitted or required to make hereunder; provided none of the foregoing shall, in any manner, result in a material reduction of access to or ingress to or egress from the Premises, a diminution in the value of the Premises, a change in zoning having a material adverse effect on the ability to use the Premises for the Healthcare Business by Tenant or otherwise have a material adverse effect on the ability to use the Premises for the Healthcare Business by Tenant.

17.4         Tenant agrees that in connection with any alteration: (i) the fair market value of the Premises shall not be lessened by more than a de minimus extent after the completion of any such alteration, or its structural integrity impaired; (ii) all such alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements; (iii) Tenant shall promptly pay all costs and expenses of any such alteration; (iv) Tenant shall procure and pay for all permits and licenses required in connection with any such alteration; and (v) all alterations shall be made (in the case of any alteration the estimated cost of which in any one instance exceeds the Threshold Repair Amount) under the supervision of an architect or engineer and in accordance with plans and specifications which shall be submitted to Landlord and Lender (for information purposes only) prior to the commencement of the alterations.

17.5         All contracts and payments to contractors, subcontractors, suppliers and other persons in connection with any alteration, Restoration, repair or other work performed at the Premises shall be entered into, made and performed in compliance with all Laws and Legal Requirements.

18.         Signs. At Tenant’s sole cost, Tenant may install, replace, relocate and maintain and repair in and on the Facility, such signs, awnings, lighting effects and fixtures as may be used from time to time by Tenant (collectively, “Signs”). At Tenant’s sole cost and without liability to Landlord, Landlord agrees to cooperate with Tenant (including signing applications upon Tenant’s written request) in obtaining any necessary permits, variances and consents for Tenant’s Signs. All Signs of Tenant shall comply with Laws and Legal Requirements.

19.         Surrender.

19.1         At the expiration or other termination of this Lease, Tenant shall surrender the Premises to Landlord in as good order and condition as they were at the commencement of the Term or may be put in thereafter in accordance with this Lease, reasonable wear and tear and (other than for any Restoration required by the terms of this Lease) damage to the Premises by any Major Condemnation of the Premises excepted. All alterations, except Tenant’s furniture, trade fixtures, satellite communications dish and equipment, computer and other similar moveable equipment and shelving (“trade fixtures”), shall become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the termination or other expiration of the Term. At the expiration or termination of the Term, Tenant shall remove its trade fixtures, as well as its Signs and identification marks, from the Premises. Tenant agrees to repair any and all damage caused by such removal. Trade fixtures and personal property not so removed at the end of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord may thereafter cause such property to be removed from the Premises. The reasonable cost of removing and disposing of such property and repairing any damage to any of the Premises caused by such removal shall be borne by Tenant. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property which becomes the property of Landlord as a result of such expiration or earlier termination. The provisions of this Section 19.1 shall survive the termination or expiration of this Lease for a period of twenty-four (24) months.

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19.2         Upon termination of this Lease for any reason, Tenant will return to Landlord the Premises licensed by the State of Texas and by any and all governmental agencies having jurisdiction over the Premises as a skilled nursing facility with at least the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises) with an unrestricted license in full force and good standing for no less than the Minimum Licensed Beds (subject to any reduction in the number of licensed beds required by any governmental authority solely as a result of changes in laws, rules and regulations relating to the physical attributes of the improvements on the Premises).

19.3         Upon the expiration or earlier termination of this Lease, Tenant shall enter into a mutually agreeable operating transition agreement (the “OTA”) with Landlord in order to provide for the orderly transition of the operation of the facility following the termination of this Lease. The OTA shall provide for a procedure for the assignment and assumption of all resident agreements, operating agreements and other agreements that Landlord elects to have assigned from Tenant. In addition, the OTA shall address the transition of licensing requirements for the Facility under all applicable Legal Requirements.

20.         Subordination of Lease; Mortgage Reserves.

20.1         Subordination. This Lease shall be subject and subordinate to any Mortgage and to all advances made upon the security thereof provided that Lender shall execute and deliver to Tenant an agreement in a form reasonably requested by Lender (“SNDA Agreement”), providing that Lender recognizes this Lease and agrees to not disturb Tenant’s possession of the Premises in the event of foreclosure if Tenant is not then in default hereunder beyond any applicable cure period. Tenant agrees, upon receipt of such SNDA Agreement, to execute such SNDA Agreement and such further reasonable instruments) as may be necessary to so subordinate this Lease. The term “Mortgage” shall include any mortgages, deeds of trust or any other similar hypothecations on the Premises securing Lender’s Loan to Landlord, regardless of whether or not such Mortgage is recorded.

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20.2         Attornment. Upon written notice to Tenant, Tenant agrees to attorn, from time to time, to Lender, and to any purchaser of the Premises, for the remainder of the Term, provided that Lender or such purchaser shall then be entitled to possession of the Premises, subject to the provisions of this Lease. Tenant shall be entitled to rely on the truth of the facts set forth in any such notice and shall not be liable to Landlord for such reliance or attornment. This subsection shall inure to the benefit of Lender or such purchaser, shall apply notwithstanding that, as a matter of Law, this Lease may terminate upon the foreclosure of the Mortgage (in which event the parties shall execute a new lease for the remainder of the Term containing the provisions of this Lease), shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Each such party shall however, upon demand of the other, execute instruments in confirmation of the foregoing provisions reasonably satisfactory to the parties acknowledging such subordination, non-disturbance and attornment and setting forth the terms and conditions hereof.

20.3         Consent to Assignment of Lease to Lender. Tenant hereby consents to any assignment of this Lease by Landlord to or for the benefit of any Lender. Without limitation of the preceding sentence, Tenant hereby specifically consents to any Assignment of Lease and Rents executed by Landlord to and for the benefit of the Lender named herein.

20.4         Mortgage Reserves. Notwithstanding anything to the contrary in this Lease, all real estate tax, insurance reserve, capital expenditure reserves or other reserves required by the Lender against the Premises during the term of this Lease shall be paid by the Tenant to Landlord and shall be repaid to Tenant to the extent not applied in accordance with this Lease or the Mortgage when such holder repays such sums to Landlord and to the extent same are not required to be held for any replacement mortgage or are required to fund obligations of the Tenant under this Lease. Real estate taxes for the first year of the Lease Term shall be prorated in the same manner as the real estate taxes were prorated in connection with Landlord’s acquisition of the Premises. Real estate taxes for the last year of the Lease Term shall be prorated based on the number of days which have elapsed as of the date the Lease terminates.

21.         Tenant’s Obligation to Discharge Liens. Prior to the imposition of any fine, lien, interest or penalty Tenant shall timely pay and discharge all amounts and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease, together with every fine, penalty and interest with respect thereto.

22.         Utilities. Tenant agrees to timely pay for all utilities consumed by it in the Premises, prior to delinquency.

23.         Tenant Default.

23.1        Any of the following occurrences or acts shall constitute an Event of Default (herein so called) under this Lease:

(a)          Tenant’s failure to make any payment when due of any installment of Base Rent payable hereunder, and such default shall continue for ten (10) days after written notice of such default is sent to Tenant by Landlord (or Lender).

(b)          Tenant’s failure to make any payment when due of any installment of Additional Rent payable hereunder and such default shall continue for ten (10) days after notice of such default is sent to Tenant by Landlord (or Lender).

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(c)          The failure by Tenant to maintain insurance as required under this Lease, provided that if the insurance required under this Lease lapses for a period not in excess of thirty (30) days, and Tenant reinstates such lapsed insurance without a claim having been made, then such Event of Default shall be deemed cured for purposes of this Lease, provided further that Tenant shall indemnify Landlord for any claim arising in connection with such lapsed insurance.

(d)          Tenant’s failure to abide by any of the other covenants, agreements or obligations of this Lease, and such default shall continue for more than thirty (30) days after written notice thereof from Landlord (or Lender) specifying such default, provided, that if Tenant has commenced to cure within said thirty (30) days, and thereafter is in good faith diligently prosecuting same to completion, said thirty (30) day period shall be extended, for a reasonable time (not to exceed one hundred eighty (180) days or, with respect to a breach of Tenant’s obligations under Section 38, such longer period as may reasonably be necessary to cure such default so long as (i) Tenant delivers to Landlord a certificate of a qualified environmental remediation specialist that such default could not be cured within such one hundred eighty (180) days but is curable, and (ii) Tenant is in good faith diligently prosecuting such cure to completion) where, due to the nature of a default, it is unable to be completely cured within thirty (30) days.

(e)          Any execution or attachment shall be issued against Tenant or any of its property whereby the Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant, and the same shall not be bonded, dismissed, or discharged as promptly as possible under the circumstances

(f)          Tenant (i) shall make any assignment or other act for the benefit of creditors, (ii) shall file a petition or take any other action seeking relief under any state or federal insolvency or bankruptcy Laws, or (iii) shall have an involuntary petition or any other action filed against either of them under any state or federal insolvency or bankruptcy Laws which petition or other action is not vacated or dismissed within sixty (60) days after the commencement thereof.

(g)          The estate or interest of Tenant in the Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred and such process shall not be vacated or discharged within sixty (60) days after such levy or attachment.

(h)          Any material representation or warranty made by Tenant to Landlord herein or in any document delivered pursuant to this Lease is misleading or false when made.

(i)          The occurrence of an Adverse Healthcare Event at the Facility; provided if (i) the default described in this Section is curable, (ii) Tenant diligently commences the cure of such default and uses commercially reasonable efforts to diligently pursue any appeals or other required actions in accordance with applicable laws and regulations, and (iii) such default does not affect the ability of Tenant to comply with its financial obligations under this Lease, then such Adverse Healthcare Event shall not constitute a default until the earlier to occur of (A) final, adverse action upholding, in whole or in part, such termination, suspension, or material adverse action or restriction or (B) the passage of ninety (90) days from the date such termination, suspension or material adverse action or restriction was instituted without a final action having occurred.

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23.2         If an Event of Default shall have occurred and be continuing, Landlord shall be entitled to all remedies available at law or in equity. To the extent permitted by applicable law, Landlord shall not be required to serve Tenant with any notice or demands as a prerequisite to its exercise of any of its rights or remedies under this Lease, other than those notices and demands specifically required under this Lease. Without limiting the foregoing, Landlord shall have the right to give Tenant notice of Landlord’s termination of the Term of this Lease. Upon the giving of such notice, the Term of this Lease and the estate hereby granted shall expire and terminate on such date as fully and completely and with the same effect as if such date were the date herein fixed for the expiration of the Term of this Lease, and all rights of Tenant hereunder shall expire and terminate, but Tenant shall remain liable as hereinafter provided.

23.3         If an Event of Default shall have occurred and be continuing, Landlord shall have the immediate right, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, to re-enter and repossess the Premises and change the locks, and the right to remove all persons and property therefrom by summary proceedings, ejectment, any other legal action or in any lawful manner Landlord determines to be necessary or desirable. Landlord shall be under no liability by reason of any such re-entry, repossession or removal. No such re-entry, repossession or removal shall be construed as an election by Landlord to terminate this Lease unless a notice of such termination is given to Tenant pursuant to Section 23.2. In order to regain possession of the Premises and to deny Tenant access thereto, Landlord or its agent may, at the expense and liability of the Tenant, alter or change any or all locks or other security devices controlling access to the Premises without posting or giving notice of any kind to the Tenant and Landlord shall have no obligation to provide Tenant a key to new locks installed in the Premises or grant Tenant access to the Premises. Tenant shall not be entitled to recover possession of the Premises, terminate this Lease, or recover any actual, incidental, consequential, punitive, statutory or other damages or award of attorneys’ fees, by reason of Landlord’s alteration or change of any lock or other security device and the resulting exclusion from the Premises of the Tenant or Tenant’s agents, servants, employees, customers, licensees, invitees or any other persons from the Premises.

23.4         At any time or from time to time after a re-entry, repossession or removal pursuant to Section 23.3, whether or not the Term of this Lease shall have been terminated pursuant to Section 23.2, Landlord may (but, except to the extent expressly required by any applicable Law, shall be under no obligation to) relet the Premises for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant, for such term or terms and on such conditions and for such uses as Landlord, in its absolute discretion, may determine. Landlord may collect any rents payable by reason of such reletting. Except to the extent required by applicable Law, Landlord shall not be liable for any failure to relet the Premises or for any failure to collect any rent due upon any such reletting.

23.5         No expiration or termination of the Term of this Lease pursuant to Section 23.2, by operation of law or otherwise, and no re-entry, repossession or removal pursuant to Section 23.3 or otherwise, and no reletting of the Premises pursuant to Section 23.4 or otherwise, shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such expiration, termination, re-entry, repossession, removal or reletting,

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23.6         In the event of any expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property therefrom by reason of the occurrence of an Event of Default, Tenant shall pay to Landlord all Base Rent, Additional Rent and other sums required to be paid by Tenant, in each case together with interest thereon at the Lease Default Rate from the due date thereof to and including the date of such expiration, termination, re-entry, repossession or removal; and thereafter, Tenant shall, until the end of what would have been the Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal and whether or not the Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages: (i) all Base Rent, Additional Rent and other sums which would be payable under this Lease by Tenant in the absence of any such expiration, termination, re-entry, repossession or removal, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant pursuant to Section 23.4, after deducting from such proceeds all reasonable expenses of Landlord in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, reasonable attorneys’ fees and expenses (including, without limitation, fees and expenses of appellate proceedings), alteration costs and expenses of preparation for such reletting. Tenant shall pay such liquidated and agreed current damages on the dates on which Base Rent would be payable under this Lease in the absence of such expiration, termination, re-entry, repossession or removal, and Landlord shall be entitled to recover the same from Tenant on each such date.

23.7         In lieu of the remedy set forth in Section 23.6, at any time after any such expiration or termination of the Term of this Lease or re-entry or repossession of the Premises or removal of persons or property thereon by reason of the occurrence of an Event of Default, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damages for Tenant’s default and in lieu of all liquidated and agreed current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the sum of (i) the excess, if any of (A) the aggregate of all Base Rent, Additional Rent and other sums which would be payable under this Lease for what would be the then-unexpired Term of this Lease in the absence of such expiration, termination, re-entry, repossession or removal, discounted at the rate equal to the then current rate on U.S. Treasury obligations of comparable maturity to such Term (the “Treasury Rate”), but in no event greater than the non-default rate of interest for the Loan (such lower rate being referred to as the “Discount Rate”) over (B) the amount of such rental loss that Tenant proves could be reasonably avoided by commercially reasonable mitigation efforts by Landlord, discounted at the Discount Rate for the same period, plus (ii) all reasonable legal fees and other costs and expenses incurred by Landlord and Lender as a result of Tenant’s default under this Lease. If any Law shall limit the amount of liquidated final damages to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such Law.

Except as specificallyl set forth in this Lease, mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy at law or in equity, including the right of injunction. Tenant waives any rights of redemption granted by any Laws if Tenant is evicted or dispossessed, for any cause, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the terms of this Lease.

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23.8         In addition to the foregoing remedies set forth in this Section 23 and all other remedies available at law or in equity, and regardless of whether or not an Event of Default has occurred under this Lease, if Tenant has failed to perform any of its duties, obligations, covenants or agreements under this Lease, Landlord may give notice to Tenant that it has failed to perform any such duty, obligation, covenant or agreement (herein called a “Notice of Breach”) and, if Tenant fails to cure such failure within ten (10) days after receipt of the Notice of Breach, Landlord may thereafter pursue any rights or remedies available to it at law or in equity including, without limitation, filing a suit for damages as a result of such breach or a suit for specific performance of any such duties, obligations, covenants or agreements. Any Notice of Breach delivered under this Section 23.8 or any such rights or remedies pursued by Landlord shall not be deemed to be a notice of default under any provision of this Section 23 and shall not result, with or without the passage of time, in an Event of Default existing under this Lease; provided that the delivery of any such Notice of Breach shall not limit Landlord’s right (which right will not be exercised without the consent of Lender so long as the Premises are subject to a Mortgage which requires Lender’s consent for the exercise thereof) to subsequently deliver notice (with respect to the same event or condition which is the subject of such Notice of Breach or any other event or condition) which will declare or, with the passage of time, result in an Event of Default hereunder. Further, after delivery of any such Notice of Breach, but without notice in the event of an emergency, if Tenant fails to cure such breach during the time that Tenant has to cure such breach under Section 23.1 above, Landlord may do whatever is reasonably necessary and permitted hereunder to cure such breach as may be appropriate under the circumstances for the account of and at the expense of Tenant. All reasonable sums so paid by Landlord and all reasonable costs and expenses (including attorneys’ fees and expenses) so incurred, together with interest thereon at the Lease Default Rate from the date of payment, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand.

23.9         Tenant acknowledges that one of the rights and remedies available to Landlord under applicable law is to apply to a court of competent jurisdiction for the appointment of a receiver to take possession of part or all of the Premises, to collect the rents, issues, profits and income of the Premises and to manage the operation of the Premises. Tenant further acknowledges that the revocation or suspension of the certification of any portion of the Premises for provider status under Medicare or Medicaid (or successor programs) for a period of thirty (30) days or more and/or the revocation or suspension of a license relating to the operation of any portion of the Premises for its intended use under the laws of the State for a period of thirty (30) days or more will materially and irreparably impair the value of Landlord's investment in the Premises. Therefore, in any of such events, and in addition to any other right or remedy of Landlord under this Lease, Landlord may petition any appropriate court for, and Tenant hereby consents to, the appointment of a receiver to take possession of the Property, to manage its operation, to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible any such license and provider certification for the Property or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for its services as a receiver. All such fees and other expenses of the receivership estate shall be added to the Minimum Rent due to Landlord under this Lease. Tenant hereby irrevocably stipulates to the appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. Tenant agrees to waive all rights to negotiate terms of an OTA and further agrees to execute all transfer documentation including an OTA.

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24.         HUD Loan Requirements. If Landlord obtains or seeks to obtain a HUD Loan on the Facility, then the following sections shall apply:

24.1        Cooperation in Obtaining HUD Loan. In connection with Landlord’s efforts to obtain a HUD Loan, Tenant agrees to provide to HUD and/or Lender the application documents required by HUD (“Application Documents”) and to execute and/or certify all Application Documents, as required by HUD or Lender.

24.2        Amendment of Lease. This Lease may be modified only by a written instrument signed by Landlord and Tenant and approved by Landlord's Lender and by the HUD Lender or HUD, as applicable.

24.3        Compliance with HUD Program Requirements and HUD Loan Documents.

(a)          Tenant agrees to comply with all applicable HUD Program Requirements and the HUD Loan Documents. Tenant further agrees that this Lease will be part of the collateral pledged by Landlord to Lender and HUD. Tenant agrees that it will not take any action which would violate any applicable HUD Program Requirements or any of the HUD Loan Documents.

(b)          In the event of any conflict between the terms and provisions of this Lease and any applicable HUD Program Requirements or the HUD Loan Documents, the HUD Program Requirements and HUD Loan Documents shall control in all respects. Landlord and Tenant agree that no provision of this Lease shall modify any obligation of Landlord or Tenant under the HUD Loan Documents. Landlord and Tenant acknowledge that HUD’s acceptance of this Lease in connection with the closing of the HUD Loan shall in no way constitute HUD’s consent to arrangements which are inconsistent with HUD Program Requirements. This Lease is subject to all HUD Program Requirements.

24.4        Subordination.

(a)          This Lease is and shall be subject and subordinate to the Mortgage and other HUD Loan Documents; to all renewals, modifications, consolidations, replacements and extensions thereof; to all substitutions thereof; and to all future mortgages upon the Premises and/or other security interests in or to the Premises and any other items which are herein leased to Tenant or which, pursuant to the terms hereof, become a part of the Premises or are otherwise deemed to become the property of Landlord or to remain upon the Premises at the end of the term; and to each advance made or hereafter to be made under any of the foregoing. This Section shall be self-operative and no further instrument of subordination shall be required. Without limiting the foregoing, Tenant agrees to execute and deliver promptly any and all certificates, agreements and other instruments that Landlord, Lender or HUD may reasonably request in order to confirm such subordination. Unless Lender shall have agreed otherwise, if Lender or another person or entity shall succeed to the interest of Landlord by reason of foreclosure or other proceedings brought by Lender in lieu of or pursuant to a foreclosure, or by any other manner (Lender or such other person or entity being called a “Successor”), then this Lease shall terminate, or, at the option of the Successor, this Lease shall nevertheless continue in full force and effect, in which case Tenant shall and does hereby agree to attorn to the Successor and to recognize the Successor as its landlord under the terms of this Lease.

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(b)          Agreements for provision of services to the Premises or the granting of easements, rights of way or other allowances of use or placement of CATV, utilities or other items are, and shall always be, subordinate to (i) the right of Landlord, and (ii) the Mortgage and other HUD Loan Documents and all other mortgages and security interests now or hereafter encumbering the Premises and/or the property of which it forms a part. Tenant must obtain HUD written approval prior to entering into any telecommunications services agreement and/or granting of any easements.

24.5        Ownership of FF&E. Tenant agrees that (a) except leases of FF&E entered into in the ordinary course of business with third-party lessees and property of tenants and residents of the Premises, all FF&E located on the Premises at the date of the Lease is and shall be the property of Landlord, and (b) any FF&E acquired by Landlord or Tenant during the term of this Lease remaining on the Premises at the termination of the Lease shall be and/or become the property of Landlord. Tenant agrees, during the term of the Lease, not to remove any FF&E from the Premises, except to replace such FF&E with other similar items of equal or greater quality and value.

24.6        Payments. Landlord and Tenant each acknowledges and agrees that the rent and other amounts payable by Tenant under this Lease (including rent, additional rent and all other sums payable under this Lease) are sufficient to properly maintain the Premises, and to enable Landlord to meet its debt service obligations and related expenses in connection with the Mortgage Loan and the Premises. To the extent applicable, unless Lender and Landlord agree otherwise, and without limiting the generality of the foregoing, Tenant agrees to pay, as additional rent, when due all premiums for (i) FHA mortgage insurance, (ii) liability insurance and full coverage property insurance on the Premises, and (iii) all other insurance coverage required under the HUD Loan Documents and/or applicable HUD Program Requirements. Unless Lender and Landlord agree otherwise, Tenant shall be responsible for funding all escrows for taxes, reserves for replacements, mortgage insurance premiums and/or other insurance premiums as may be required by Lender and/or HUD.

24.7        Regulatory Agreement of Tenant. At the time of the closing of the HUD Loan, Tenant agrees to execute the Regulatory Agreement of Tenant, and other applicable documents evidencing Lender’s security interest in the collateral of Tenant. Tenant agrees to comply with its obligations under the Regulatory Agreement of Tenant, and agrees that a default by Tenant under the Regulatory Agreement of Tenant shall be deemed to be a default under this Lease.

24.8        Management Agreement Requirements. Tenant agrees not to enter into any Management Agreement involving the Facility unless such Management Agreement complies with applicable HUD Program Requirements and contains provisions that, in the event of default under the Regulatory Agreement of Landlord or the Regulatory Agreement of Tenant, the Management Agreement shall be subject to termination upon not more than thirty (30) days notice without penalty upon written request of HUD. Upon such HUD termination request, Tenant shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to HUD for continuing proper management of the Premises.

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24.9        Licenses; Bed Authority. Tenant shall ensure that the Facility meets all state licensure requirements and standards at all times. Landlord and Tenant agree not to undertake or acquiesce to any modification to any license with respect to the Premises or to any “bed authority” related thereto without the prior written approval of HUD.

24.10      Governmental Receivables. Tenant shall be responsible for obtaining and maintaining all necessary provider agreements with Medicaid, Medicare and other governmental third party payors. Tenant agrees to furnish HUD and Lender with copies of all such provider agreements and any and all amendments thereto promptly after execution thereof.

24.11      Financial Statements and Reporting Requirements. Tenant agrees to furnish HUD and Lender copies of its annual financial statements with respect to the Premises, prepared in compliance with the requirements of the Regulatory Agreement of Tenant, within ninety (90) days after the close of Tenant’s fiscal year or such longer period as may be permitted by HUD. Tenant agrees to submit to HUD and Lender copies of all other financial reports as specified in the Regulatory Agreement of Tenant.

24.12      Inspections. Tenant agrees that upon reasonable request, Lender, HUD and their respective designees and representatives may at all reasonable times, upon reasonable notice, subject to the rights of patients, residents and tenants, examine and inspect the Premises. Tenant shall, on the request of Lender and/or HUD, promptly make available for inspection by Lender and/or HUD, and their designees and representatives, copies of all of Tenant’s correspondence, books, records and other documentation relating to the Premises, excepting communications between Tenant and its attorneys. Tenant agrees to maintain accounting records for the Facility in accordance with its customary practice and the Regulatory Agreement of Tenant, separate from any general accounting records which Tenant may maintain in connection with the Tenant’s other activities. Tenant agrees that Lender and/or HUD, and their designees and representatives, shall at any reasonable time, have access to and the right to examine all accounting records of Tenant which relate directly or indirectly to the Premises. The obligations of Tenant under this Section shall be limited to the extent necessary in order for Tenant to comply with applicable laws regarding the confidentiality of resident/patient medical records and information.

24.13      Insurance; Casualty; Condemnation. Tenant agrees to procure and maintain, or cause to be procured and maintained, the insurance coverage required pursuant to the HUD Loan Documents and/or applicable HUD Requirements, including HUD Notices H 04-01 and H 04-15. Insurance proceeds and the proceeds of any condemnation award or other compensation paid by reason of a conveyance in lieu of the exercise of such power, with respect to the Premises, or any portion thereof, shall be applied in accordance with the terms of the HUD Loan Documents and applicable HUD Program Requirements. The decision to repair, reconstruct, restore or replace the Premises following a casualty or condemnation shall be subject to the terms of the HUD Loan Documents and applicable HUD Requirements. Notwithstanding the foregoing, under no circumstances shall Tenant be required to repair, reconstruct, restore or replace the Premises if the insurance proceeds and/or the proceeds of any condemnation award are not fully made available to Tenant.

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24.14      Assignment of Operating Lease and Subletting of the Premises. This Lease shall not be assigned or subleased by Tenant, in whole or in part (including any transfer of title or right to possession and control of the Premises, or of any right to collect fees or rents), without the prior written approval of HUD. The prior written approval of HUD shall be required for (a) any change in or transfer of the management, operation, or control of the project or (b) any change in the ownership of Tenant that requires HUD approval under HUD’s previous participation approval requirements. Landlord and Tenant acknowledge that any proposed assignee shall be required to execute a Tenant Regulatory Agreement, each in form and substance satisfactory to HUD, as a prerequisite to any such approval. Any assignment or subletting of the Premises made without such prior approval shall be null and void. This restriction on subletting does not apply to Tenant’s leasing of individual units or beds to patient / residents.

24.15      Accounts Receivable (AR) Financing. Tenant shall not pledge its accounts receivable or receipts to an accounts receivable lender for any loan without the prior written approval of Lender and HUD. In the event that Lender and HUD grant such approval; (i) the holder(s) of such lien shall enter into an Intercreditor and a Rider to Intercreditor Agreement with the AR Lender and Lender on such terms and conditions as may be required by HUD; and (ii) Tenant shall agree to comply with the requirements imposed by Lender and HUD in connection therewith. Until such approved loan is paid in full, the written approval of HUD is required for any proposed modifications, extensions, renewals or amendments to a material term of the AR Loan or the security agreement, prior to the effective date of such amendments.

24.16      Termination of Lease. The Lease shall not be terminated prior to its expiration date without the prior written approval of HUD. If HUD becomes Mortgagee, Mortgagee in Possession, or Successor, HUD can terminate the Lease (a) for any violation of the Lease that is not cured within any applicable notice and cure period given in the Lease, (b) for any violation of the Regulatory Agreement of Tenant or other HUD Program Requirements or Health Care Requirements that is not cured within thirty (30) days after receipt by Tenant of written notice of such violation or (c) if HUD, as a result of the occurrence of either of the events described in the foregoing items (a) or (b), is required to advance funds for the operation of the Facility located on the Premises.

24.17      Master Lease. Projects proposed for FHA financing under the Section 232 program that are affiliated by common ownership among Mortgagors and/or Tenant/Operator entities must receive written approval from HUD, and may be required to use a Master Lease between the Mortgagor/Landlord and the Master Tenant/Subtenant/Operator. The Master Lease and the HUD Master Lease Subordination Agreement or Master Lease Subordination Non Disturbance Agreement shall be approved by HUD and the Mortgagee. The Master Lease shall only contain Mortgagors and Operators of FHA-insured projects.

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24.18      Miscellaneous. Notwithstanding any other terms contained in the Lease, in the event of an assignment of the Lease to HUD or FHA, neither HUD nor FHA shall have any indemnification obligations under the Lease. In addition, any payment obligations of HUD or FHA pursuant to the Lease shall be limited to actual amounts received by HUD or FHA, and otherwise not prohibited by applicable law or regulation, including without limitation, the Anti Deficiency Act, 31 U.S.C. § 1341 et seq.

25.         Rent Payments. If Landlord’s interest in this Lease shall pass to another, or if the Base Rent or Additional Rent hereunder shall be assigned, or if a party other than Landlord shall become entitled to collect the Base Rent or Additional Rent due hereunder, then notice thereof shall be given to Tenant by Landlord in writing, or, if Landlord is an individual and shall have died or become incapacitated, by Landlord’s legal representative, accompanied by due proof of the appointment of such legal representative; provided, that if Base Rent is then being paid to Lender, then notwithstanding such notice from Landlord, Tenant shall continue to pay Base Rent to Lender until it receives contrary notice from Lender. Until such notice and proof shall be received by Tenant, Tenant may continue to pay the rent due hereunder, and Landlord shall indemnify and hold Tenant harmless from any challenges to such payments, to the one to whom, and in the manner in which, the last preceding installment of rent hereunder was paid, and each such payment shall fully discharge Tenant with respect to such payment.

Tenant shall not be obligated to recognize any agent for the collection of rent or otherwise authorized to act with respect to the Premises until written notice of the appointment and the extent of the authority of such agent shall be given to Tenant by the one appointing such agent.

26.         Holdover. If Tenant shall hold over after the expiration date of the Term, or if Tenant shall hold over after the date specified in the Tenant’s Termination Notice given by Tenant under Section 15.2, then, in either such event, Tenant shall be a month-to-month Tenant on the same terms as herein provided, except that the monthly Base Rent will be 1.5 times the monthly Base Rent payable by Tenant during the final full calendar month of the Term or, if applicable, during any extension of the Term, immediately preceding such holdover period.

27.         Notices. Whenever, pursuant to this Lease, notice or demand shall or may be given to either of the parties (including Lender) by the other, and whenever either of the parties shall desire to give to the other any notice or demand with respect to this Lease or the Premises, each such notice or demand shall be in writing, and any Laws to the contrary notwithstanding, shall not be effective for any purpose unless the same shall be given or served as follows: by mailing the same to the other party by registered or certified mail, return receipt requested, or by delivery by nationally recognized overnight courier service provided a receipt is required, at its Notice Address set forth in Part I hereof, or at such other address as either party (including, without limitation, Lender) may from time to time designate by notice given to the other. The date of receipt of the notice or demand shall be deemed the date of the service thereof (unless delivery of the notice or demand is refused or rejected, in which case the date of such refusal or rejection shall be deemed the date of service thereof).

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28.         Indemnity. TENANT SHALL DEFEND LANDLORD AND ANY OF LANDLORD’S OWNERS, PARTNERS, TRUSTEES, BENEFICIAL OWNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS, OFFICERS, DIRECTORS OR SHAREHOLDERS, TOGETHER WITH THE LENDER, AND ANY OWNER, PARTNER, MEMBER, MANAGER, TRUSTEE, BENEFICIAL OWNER, OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE OR AGENT OF THE LENDER OR ANY HOLDER OF A PASS-THROUGH OR SIMILAR CERTIFICATE ISSUED BY THE LENDER (HEREIN, COLLECTIVELY, “INDEMNIFIED PARTIES”) WITH RESPECT TO, AND SHALL PAY, PROTECT, INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM AND AGAINST, ANY AND ALL LIABILITIES, LOSSES, DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR JUDGMENTS OF ANY NATURE WHATSOEVER, HOWEVER CAUSED, (A) TO WHICH ANY INDEMNIFIED PARTY IS SUBJECT BECAUSE OF LANDLORD’S OR LENDER’S ESTATE IN THE PREMISES OR (B) ARISING FROM (I) INJURY TO OR DEATH OF ANY PERSON OR PERSONS OR DAMAGE TO OR LOSS OF PROPERTY, REAL OR PERSONAL, IN ANY MANNER ARISING THEREFROM, OCCURRING ON THE PREMISES OR CONNECTED WITH THE USE, NON-USE, CONDITION, OCCUPANCY, MAINTENANCE, REPAIR OR REBUILDING OF ANY THEREOF, WHETHER OR NOT SUCH INDEMNIFIED PARTY HAS OR SHOULD HAVE KNOWLEDGE OR NOTICE OF THE DEFECT OR CONDITIONS, IF ANY, CAUSING OR CONTRIBUTING TO SAID INJURY, DEATH, LOSS, DAMAGE OR OTHER CLAIM, (II) TENANT’S VIOLATION OF THIS LEASE, (III) ANY ACT OR OMISSION OF TENANT OR ITS AGENTS, CONTRACTORS, LICENSEES, SUBTENANTS OR INVITEES, AND (IV) ANY CONTEST REFERRED TO IN SECTION 30.2; PROVIDED, THAT TENANT SHALL NOT BE REQUIRED TO INDEMNIFY, DEFEND OR HOLD HARMLESS ANY INDEMNIFIED PARTY FOR ANY SUCH MATTERS ARISING DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY. TENANT COVENANTS UPON NOTICE FROM SUCH INDEMNIFIED PARTY TO DEFEND SUCH INDEMNIFIED PARTY IN SUCH ACTION, WITH THE EXPENSES OF SUCH DEFENSE PAID BY TENANT; PROVIDED, THAT IN CONNECTION WITH TENANT’S OBLIGATIONS TO PROVIDE A DEFENSE OF THE INDEMNIFIED PARTIES HEREUNDER, TENANT SHALL BE ENTITLED TO SELECT COUNSEL REASONABLY SATISFACTORY TO LANDLORD TO DEFEND SUCH INDEMNIFIED PARTIES SO LONG AS DEFENSE OF MULTIPLE PARTIES IS REASONABLE UNDER THE CIRCUMSTANCES AND SO LONG AS SUCH COMMON DEFENSE DOES NOT LIMIT ANY REASONABLE CLAIMS OR DEFENSES WHICH COULD BE RAISED BY ANY SUCH INDEMNIFIED PARTIES. THE OBLIGATIONS OF TENANT UNDER THIS SECTION 28 SHALL SURVIVE ANY TERMINATION OF THIS LEASE. ANY AMOUNTS PAYABLE TO ANY INDEMNIFIED PARTY HEREUNDER BY REASON OF THE APPLICATION OF THIS SECTION 28 SHALL BECOME IMMEDIATELY DUE AND PAYABLE; AND SUCH AMOUNTS SHALL BEAR INTEREST AT THE LEASE DEFAULT RATE FROM THE DATE LOSS OR DAMAGE IS PAID BY SUCH INDEMNIFIED PARTY UNTIL PAID BY TENANT.

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LANDLORD AND TENANT INTEND THAT, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE, THE INDEMNITIES AND RELEASES PROVIDED IN THIS LEASE BY TENANT FOR THE BENEFIT OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES (INCLUDING WITHOUT LIMITATION, THE INDEMNITIES SET FORTH IN THIS SECTION 28 AND IN SECTION 38.5 OF THIS LEASE), SHALL APPLY EVEN IF AND WHEN THE SUBJECT MATTER OF THE INDEMNITIES AND RELEASES ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, OR ARISE AS A RESULT OF STRICT LIABILITY OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, BUT IN NO EVENT SHALL TENANT BE OBLIGATED TO INDEMNIFY LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES WITH RESPECT TO MATTERS ARISING FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

29.         Tenant to Comply with Matters of Record. Tenant agrees to perform all obligations of Landlord and pay all costs, expenses and other amounts (including, without limitation, any liquidated damages) which Landlord or Tenant may be required to pay in accordance with, and to comply and cause the Premises to comply in all respects with all of the terms and conditions o£ any reciprocal easement agreement or any other agreement or document of record now affecting the Premises (including, without limitation, the Permitted Encumbrances) or hereafter executed or filed with Tenant’s written consent (each, herein referred to as a “Matter of Record”, and collectively as the “Matters of Record”) during the Term. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD AND LENDER AND ALL OTHER INDEMNIFIED PARTIES FROM ANY CLAIM, LOSS OR DAMAGE SUFFERED BY LANDLORD OR LENDER OR SUCH INDEMNIFIED PARTIES BY REASON OF TENANT’S FAILURE TO PERFORM ANY OBLIGATIONS OR PAY ANY COSTS, EXPENSES OR OTHER AMOUNTS (INCLUDING WITHOUT LIMITATION, LIQUIDATED DAMAGES) AS REQUIRED UNDER ANY MATTERS OF RECORD OR COMPLY AND CAUSE THE PREMISES TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY MATTERS OF RECORD DURING THE TERM.

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30.         Taxes.

30.1        Subject to the provisions hereof relating to contests and mortgage reserves, Tenant shall pay and discharge, before any interest or penalties are due thereon, all of the following taxes, charges, assessments, ground rents, levies and other items (collectively, “tax” or “taxes”), even if unforeseen or extraordinary, which are imposed or assessed on or subsequent to the Date of Rent Commencement during the Term, regardless of whether payment thereof is due prior to, during or after the Term: all taxes of every kind and nature (including, without limitation, real, ad valorem, personal property, and sales and use tax), on or with respect to the Premises (including, without limitation, any taxes assessed against Landlord’s reversionary estate in the Premises or against any real property other than the Premises which is included within the tax parcel which includes the Premises), the Base Rent and Additional Rent (including, without limitation, ad valorem taxes) payable hereunder, this Lease or the leasehold estate created hereby; all charges and/or assessments for any easement or agreement maintained for the benefit of the Premises; and all general and special assessments, levies, water and sewer assessments and other utility charges, use charges, impact fees and rents and all other public charges and/or taxes whether of a like or different nature. Landlord shall promptly deliver to Tenant any bill or invoice Landlord receives with respect to any tax; provided, that the Landlord’s failure to deliver any such bill or invoice shall not limit Tenant’s obligation to pay such tax. Landlord agrees to cooperate with Tenant to enable Tenant to receive tax bills directly from the respective taxing authorities. Nothing herein shall obligate Tenant to pay, and the term “taxes” shall exclude (unless the taxes referred to in clauses (i) and (ii) below are in lieu of or a substitute for any other tax or assessment upon or with respect to any of the Premises which, if such other tax or assessment were in effect on the Date of Rent Commencement, would be payable by Tenant hereunder or by Law), federal, state or local (i) franchise, capital stock or similar taxes, if any, of Landlord, (ii) income, excess profits or other taxes, if any, of Landlord, determined on the basis of or measured by Landlord’s net income, (iii) any estate, inheritance, succession, gift, capital levy or similar taxes of Landlord, (iv) taxes imposed upon Landlord under Section 59A of the Internal Revenue Code of 1986, as amended, or any similar state, local, foreign or successor provision, (v) any amounts paid by Landlord pursuant to the Federal Insurance Contribution Act (commonly referred to as FICA), the Federal Unemployment Tax Act (commonly referred to as FUTA), or any analogous state unemployment tax act, or any other payroll related taxes, including, but not limited to, any required withholdings relating to wages, (vi) except as otherwise provided in Section 15, any taxes in connection with the transfer or other disposition of any interest, other than Tenant’s (or any person claiming under Tenant), in the Premises or this Lease, to any person or entity, including but not limited to, any transfer, capital gains, sales, gross receipts, value added, income, stamp, real property gains or withholding tax, and (vii) any interest, penalties, professional fees or other charges relating to any item listed in clauses (i) through (vi) above; provided, further, that Tenant is not responsible for making any additional payments in excess of amounts which would have otherwise been due, as tax or otherwise, but for a withholding requirement which relates to the particular payment and such withholding is in respect to or in lieu of a tax which Tenant is not obligated to pay; and provided, further, that if at any time during the Term of this Lease, the method of taxation shall be such that there shall be assessed, levied, charged or imposed on Landlord a tax upon the value of the Premises or any present or future improvement or improvements on the Premises, including without limitation, any tax which uses rents received from Tenant as a means to derive value of the property subject to such tax, then all such levies and taxes or the part thereof so measured or based shall be payable by Tenant, but only to the extent that such levies or taxes would be payable if the Premises were the only property of Landlord, and Tenant shall pay and discharge the same as herein provided. In the event that any assessment against the Premises is payable in installments, Tenant may pay such assessment in installments; and in such event, Tenant shall be liable only for those installments which become due and payable prior to or during the Term, or which are appropriately allocated to the Term even if due and payable after the Term. Tenant shall deliver, or cause to be delivered, to Landlord and Lender, promptly upon Landlord’s or Lender’s written request, evidence satisfactory to Landlord and Lender that the taxes required to be paid pursuant to this Section 30 have been so paid and are not then delinquent.

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30.2        After prior written notice to Landlord and Lender, at Tenant’s sole cost, Tenant may contest (including seeking an abatement or reduction of) in good faith any taxes agreed to be paid hereunder; provided, that (i) Tenant first shall satisfy any Legal Requirements, including, if required, that the taxes be paid in full before being contested or, if not required to be paid in full, such contest shall suspend the collection of such taxes, (ii) no Event of Default has occurred and is continuing and no Event of Default under this Lease shall occur as a result of such contest, and (iii) failing to pay such taxes will not subject Landlord or Lender to criminal or civil penalties or fines or to prosecution for a crime, or result in the sale, forfeiture, termination, cancellation or loss of any portion of the Premises or any interest therein, any Base Rent or any Additional Rent Tenant agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion, except that Tenant shall have the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay and shall indemnify, defend and hold Landlord and Lender and all other indemnified Parties harmless against any and all losses, judgments, decrees and costs (including, without limitation, all reasonable attorneys’ fees and expenses) in connection with any such contest and shall promptly, after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. At Tenant’s sole cost, Landlord shall assist Tenant as reasonably necessary with respect to any such contest, including joining in and signing applications or pleadings. Any rebate applicable to any portion of the Term shall belong to Tenant If at the time of any such contest an Event of Default has occurred and is continuing under this Lease, then Tenant shall post a bond or other security with and acceptable to Landlord and Lender in their discretion in an amount equal to one hundred twenty-five percent (125%) of the amount being contested.

31.         Insurance.

31.1         Tenant shall maintain All-Risk insurance for the Facility for one hundred percent (100%) of its replacement value. Said All-Risk policy shall include flood coverage if the Premises is located in a Flood Zone A, and shall not exclude earthquake coverage, if applicable.

31.2         Tenant also shall maintain General Liability coverage, including Broad Form Endorsement, on an occurrence basis; in combined policy limits of not less than Ten Million and No/100 Dollars ($10,000,000.00) per occurrence for bodily injury and for property damage with respect to the Premises.

31.3         Professional Liability insurance of not less than One Million /Three Million and No/100 Dollars ($1,000,000/$3,000,000).

31.4         If, during the Term, Tenant is covered by general liability, professional liability, residential healthcare malpractice or other liability insurance on a "claims made" basis, ninety (90) days before the termination of this Lease, Tenant shall procure and maintain, at Tenant's sole cost and expense, an extended reporting endorsement or "tail" insurance coverage, with such coverage limits and such deductible amounts as shall be reasonably acceptable to Landlord for general liability, professional liability, residential healthcare professional malpractice or other liability claims reported after the termination of this Lease or expiration of the claims made policy, but concerning services provided during the Term or the claims made policy. Tenant shall provide Landlord with a certificate evidencing such coverage no later than ninety (90) days before the termination of this Lease and, if Tenant fails to procure and maintain tail insurance on termination of this Lease, Landlord shall have the right to apply any portion of the Lease Deposit to procure and maintain the insurance required under this Section to the extent such coverage is available at commercially reasonable rates.

31.5         At all times when any construction is in progress, Tenant shall maintain or cause to be maintained by its contractors and subcontractors with such companies reasonably approved by Landlord, builder’s risk insurance, completed value form, covering all physical loss, in an amount reasonably satisfactory to Landlord

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31.6         Any insurance maintained by Tenant pursuant to this Section 31 shall name Landlord and Lender as additional insured parties and/or as loss payees, as appropriate, as their respective interests may appear.

31.7         All proceeds received from such All-Risk and/or builder’s risk insurance shall be used in the first instance in accordance with Tenant’s obligations under Section 14 hereof and any surplus shall be retained by Tenant.

31.8         Tenant may carry such All-Risk and/or General Liability insurance through blanket insurance covering the Premises and other locations of Tenant and/or of Tenant’s affiliates, provided that such blanket insurance policy specifically designates the Premises and shall not be reduced by claims as to other property covered by such blanket policy; and Tenant may maintain the required limits in the form of excess and/or umbrella policies, provided that the other requirements set forth herein have been satisfied.

31.9         All insurance coverage required to be carried hereunder shall be carried with insurance companies licensed to do business in the State and which have a claims paying ability rating of “A” or better by S&P and a rating of “A2” or better by Moody’s, and shall require the insured’s insurance carrier to notify the Landlord and Lender at least thirty (30) days prior to any cancellation or material modification of such insurance. Notwithstanding the foregoing, Tenant may carry insurance with companies which are affiliated with Tenant (and do not meet the requirements herein) provided such insurance provided by such companies shall not exceed the deductible or self-insurance limitations herein. The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. If said insurance or part thereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or become void or unsafe by reason of the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and Lender.

31.10       Each insurance policy referred to above shall, to the extent applicable, contain standard non-contributory mortgagee clauses in favor of Lender and shall provide that it may not be canceled except after thirty (30) days prior notice to Landlord and Lender and that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Premises for purposes more hazardous than permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by any Lender pursuant to any provision of the Mortgage upon the happening of an event of default therein, or (iv) any change in title or ownership of any of the Premises. Any insurance policy may be written with a deductible of not more than Twenty Five Thousand and No/100 Dollars ($25,000.00), provided that Tenant indemnifies, defends and holds Landlord harmless for any Restoration and Restoration Cost to the extent that the net proceeds of insurance are insufficient to pay and perform the Restoration and the Restoration Costs.

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31.11       Tenant shall pay all premiums for the insurance required by this Section 31 as they become due, and shall renew or replace each policy, and shall deliver to Landlord and Lender a certificate or other evidence of the then-existing policy and each renewal or replacement policy, not less than fifteen (15) days prior to the expiration of such policy (together with a certificate of a responsible officer of Tenant that the insurance maintained by Tenant with respect to the Premises is in compliance with the requirements of this Section 31 of this Lease). In the event of Tenant’s failure to comply with any of the foregoing requirements, Landlord shall be entitled to procure such insurance. Any sums so expended by Landlord, together with interest thereon from the date paid at the Lease Default Rate, shall be Additional Rent and shall be repaid by Tenant to Landlord, if accompanied by an invoice or other supporting documentation, immediately upon delivery of written demand therefor by Landlord.

32.         Landlord Exculpation. Anything contained herein to the contrary notwithstanding, any claim based upon liability of Landlord under this Lease shall be enforced only against the Landlord’s interest in the Premises and shall not be enforced against the Landlord individually or personally other than with respect to fraud or the misappropriation of insurance or Condemnation proceeds. In no event shall any partner, shareholder, trustee, manager, member, beneficial owner, officer, director or other owner or agent of Landlord have any liability under this Lease.

33.         Landlord’s Title. The Premises are demised and let subject to the Permitted Encumbrances without representation or warranty by Landlord. The recital of the Permitted Encumbrances herein shall not be construed as a revival of any Permitted Encumbrance which has expired.

34.         Quiet Enjoyment. So long as the Lease is in full force and effect, Landlord warrants and agrees that Tenant, on paying the Base Rent, Additional Rent and other charges due hereunder and performing all of Tenant’s other obligations pursuant to this Lease, shall and may peaceably and quietly have, hold, and enjoy the Premises for the full Term, free from molestation, eviction, or disturbance by Landlord or by any other person(s) lawfully claiming by, through or under Landlord, subject, however, to the Permitted Encumbrances.

35.         Broker. Landlord and Tenant each represent and warrant that it has had no dealings or conversations with any real estate broker in connection with the negotiation and execution of this Lease. LANDLORD AND TENANT EACH AGREE TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE OTHER AGAINST ALL LIABILITIES ARISING FROM ANY CLAIM OF ANY REAL ESTATE BROKERS, INCLUDING COST OF COUNSEL FEES, RESULTING FROM THEIR RESPECTIVE ACTS. IN THE EVENT OF ANY BREACH OF LANDLORD’S REPRESENTATIONS UNDER THIS SECTION 35 OR ANY CLAIM BY TENANT AGAINST LANDLORD FOR ANY INDEMNITY UNDER THIS SECTION 35, TENANT SHALL HAVE NO RIGHT TO ABATE OR DEFER ANY PAYMENT OF ANY BASE RENT, ADDITIONAL RENT AND/OR OTHER AMOUNTS DUE UNDER THIS LEASE, OR TO EXERCISE ANY RIGHTS OF OFFSET WITH RESPECT THERETO, AND TENANT HEREBY EXPRESSLY WAIVES ANY SUCH RIGHTS THAT MAY EXIST AT LAW, IN EQUITY OR OTHERWISE.

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36.         Transfer of Title. In the event of any transfer(s) of the title to the Premises, Landlord (and in the case of any subsequent transfer, the then-grantor) automatically shall be relieved from and after the date of such transfer, of all liability with respect to the performance of any obligations on the part of said Landlord contained in this Lease thereafter to be performed, including, without limitation, the release of Landlord’s outstanding obligations, if any, owed in connection with the Loan (provided that there is an assumption of Landlord’s obligations under this Lease and the Loan and subject to any conditions for such transfer as are contained in the Loan documents); provided that any amount then due and payable to Tenant by Landlord (or the then-grantor), and any other obligation then to be performed by Landlord (or the then-grantor) under this Lease, either shall be paid or performed by Landlord (or the then-grantor) or such payment or performance assumed by the transferee; it being intended hereby that the covenants, conditions and agreements contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and with respect to their respective successive period of ownership. Landlord may freely transfer the Premises and this Lease without the consent of Tenant. Until Landlord gives Tenant notice in accordance with the terms of this Lease, or Tenant receives notice, of a transfer of the Premises by Landlord, Tenant may deal with Landlord as if it continued to be the owner of the Premises. If a controlling ownership interest in Landlord is transferred and, in connection therewith, the address for notices to Landlord is changed, until Landlord gives, or Tenant receives, notice of such transfer and new address Tenant may correspond with the current owner of a controlling interest in Landlord at the prior address for notices to Landlord.

37.         Management Agreements. Tenant shall not terminate the Approved Management Agreement or enter into any Management Agreement without the prior written reasonable approval of Landlord or Landlord's Lender. Any Manager shall be required to enter into an assignment and subordination of management fees or operating agreement in form and substance reasonably satisfactory to Landlord's Lender. Such restrictions and approval rights are solely for the purposes of assuring that the Healthcare Business is managed and operated in a first class manner consistent with applicable healthcare laws and the preservation and protection of the Premises as security for the Loan and shall not place responsibility for the control, care, management or repair of the Premises and/or the Healthcare Business upon Landlord's Lender, or make Landlord's Lender responsible or liable for negligence in the management, operation, upkeep, repair or control of the Premises and/or the Healthcare Business. Notwithstanding the foregoing, as of the Effective Date, Landlord's Lender has approved the Manager pursuant to the terms of the Approved Management Agreement attached hereto as Exhibit C.

38.         Hazardous Materials.

38.1         For the purposes hereof, the term “Hazardous Materials” shall include, without limitation, any material, waste or substance which is (i) included within the definitions of “hazardous substances,” “hazardous materials,” “toxic substances,” or “hazardous wastes” in or pursuant to any Laws, or subject to regulation under any Law; (ii) listed in the United States Department of Transportation Optional Hazardous Materials Table, 49 C.F.R. Section 172.101, as enacted as of the date hereof or as hereafter amended, or in the United States Environmental Protection Agency List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as enacted as of the date hereof or as hereafter amended; or (iii) explosive, radioactive, asbestos, a polychlorinated biphenyl, petroleum or a petroleum product or waste oil. The term “Environmental Laws” shall include all Laws pertaining to health, industrial hygiene, Hazardous Materials or the environment, including, but not limited to each of the following, as enacted as of the date hereof or as hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §9601 et seq.; the Resource Conservation and Recovery Act of 1976,42 U.S.C. §6901 et seq.; the Toxic Substance Control Act, 15 U.S.C. §2601 et seq.; the Water Pollution Control Act (also known as the Clean Water Act), 33 U.S.C. §1251 et seq.; the Clean Air Act, 42 U.S.C. §7401 et seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq.

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38.2         Tenant represents and warrants to Landlord that neither the Premises, nor any portion thereof, has been used by Tenant for the generation, manufacture, storage, handling, transfer, treatment, recycling, transportation, processing, production, refinement or disposal (each, a “Regulated Activity”) of any Hazardous Materials. As of the Date of Rent Commencement, Tenant covenants it (i) will comply, and will cause the Premises to comply, with all Environmental Laws applicable to the Premises, (ii) will not use, and shall prohibit the use of the Premises for Regulated Activities or for the storage, handling or disposal of Hazardous Materials (other than in connection with the operation and maintenance of the Premises and in commercially reasonable quantities as a consumer thereof, subject to compliance with applicable Laws), (iii) (A) will not install or permit the installation on the Premises of any asbestos or asbestos-containing materials (except in compliance with all applicable Environmental Laws), underground storage tanks or surface impoundments and shall not permit there to exist any petroleum contamination in violation of applicable Environmental Laws originating on the Premises, and (B) with respect to any petroleum contamination on the Premises which originates from a source off the Premises, Tenant shall notify all responsible third parties and appropriate government agencies (collectively, ‘‘Third Parties”) and shall prosecute the cleanup of the Premises by such Third Parties, including, without limitation, undertaking legal action, if necessary, to enforce the cleanup obligations of such Third Parties and, to the extent not done so by such Third Parties and to the extent technically feasible and commercially practicable, Tenant shall remediate such petroleum contamination, and (iv) shall cause any alterations of the Premises to be done in a way which complies with applicable Laws relating to exposure of persons working on or visiting the Premises to Hazardous Materials and, in connection with any such alterations, shall remove any Hazardous Materials present upon the Premises which are not in compliance with applicable Environmental Laws or which present a danger to persons working on or visiting the Premises.

Landlord agrees that Tenant may use household and commercial cleaners and chemicals to maintain the Premises, provided that such use is in compliance with all Environmental Laws. Landlord and Tenant acknowledge that any or all of the cleaners and chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same as herein set forth, provided, that in doing so Tenant complies with all Laws. For the purposes of Sections 38.3 and 38.4, the term “Hazardous Materials” shall exclude the Hazardous Materials used as permitted in this paragraph.

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38.3        If, at any time during the Term, Hazardous Materials shall be found in, on or under the Premises, unless such Hazardous Materials have been introduced by Landlord or Landlord’s agents or employees or were introduced to the Premises prior to the Substantial Completion Date, then Tenant shall (at Tenant’s sole expense), or shall cause such responsible Third Parties to, promptly commence and diligently prosecute to completion all investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (collectively, “Remedial Work”) to the extent required by Environmental Laws, and in compliance with Environmental Laws, and at Tenant’s sole cost; provided, that except as otherwise expressly provided in this subparagraph (c), Landlord shall not be required to accept any institutional control (such as a deed restriction) that restricts the permitted use of the Premises or any real property as a condition to any remedial plan approved by any governmental agency in connection with such Remedial Work. The Remedial Work required of Tenant under this Lease shall be limited to achieving clean-up standards applicable to residential use of the Premises as provided herein (“Commercial Closure”), if allowed under applicable Environmental Laws and if approved by the applicable governmental authority with jurisdiction over the Premises, Hazardous Materials and Remedial Work; provided, that the Hazardous Materials left in place would not reasonably be expected to cause or threaten to cause current or future migration of such Hazardous Materials from the environmental media in which such Hazardous Materials are present to other environmental media or to other properties in excess of applicable regulatory standards permitted under applicable Legal Requirements; and provided, further, that nothing contained in this Section 38.3 shall be deemed to limit the obligations of the Tenant under any other provision of this Section 38 including, without limitation, the indemnification obligations of the Tenant under Section 38.5. In the event an institutional control (such as a deed restriction, environmental land use restriction, or activity and use limitation) that restricts the permitted use of or activities on the Premises (hereinafter a “Restriction”) is required in order to achieve Commercial Closure, prior to submitting any proposed plan for Remedial Work to a governmental authority which proposes such a Restriction or performing or implementing such Remedial Work or actually recording any Restriction in the relevant real property records, Tenant shall submit such Restriction to Landlord for review and approval. Landlord shall not unreasonably withhold or delay its approval of any such Restrictions (i) so long as the condition set forth in subpart (iii) of this sentence is satisfied, which require that the Premises not be used for a day care facility or for agricultural purposes, (ii) so long as the condition set forth in subpart (iii) of this sentence is satisfied and the Premises are adequately served by a municipal water supply, which prohibit the use of the ground water underlying the Premises, or (iii) so long as such Restrictions would not reasonably be likely to result in a material decrease in the fair market value of the Premises based upon the use of the Premises for the Healthcare Business, would not reasonably be likely to materially affect the marketability of the Premises or the ability to obtain financing secured by the Premises based upon the use of the Premises for the Healthcare Business, and would not reasonably be likely to create ongoing monitoring or reporting obligations with respect to the Premises.

38.4        To the extent that Tenant has knowledge thereof Tenant shall promptly provide notice to Landlord and Lender of any of the following matters:

(a)          any proceeding or investigation commenced or threatened by any governmental authority with respect to the presence of any Hazardous Material affecting the Premises;

(b)          any proceeding or investigation commenced or threatened by any governmental authority, against Tenant or Landlord, with respect to the presence, suspected presence, release or threatened release of Hazardous Materials from any property owned by Landlord;

(c)          all written notices of any pending or threatened investigation or claims made or any lawsuit or other legal action or proceeding brought by any person against (A) Tenant or Landlord or the Premises, or (B) any other party occupying the Premises or any portion thereof in any such case relating to any loss or injury allegedly resulting from any Hazardous Material or relating to any violation or alleged violation of Environmental Laws;

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(d)          the discovery of any occurrence or condition on the Premises, of which Tenant becomes aware and which is not corrected within ten (10) days, or written notice received by Tenant of an occurrence or condition on any real property adjoining or in the vicinity of the Premises, which reasonably could be expected to lead to the Premises or any portion thereof being in violation of any Environmental Laws or subject to any restriction on ownership, occupancy, transferability or use under any Environmental Laws or which might subject Landlord or Lender to any Environmental Claim. “Environmental Claim” means any claim, action, investigation or written notice by any person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damages, personal injuries or penalties) arising out o£ based on or resulting from (A) the presence, or release into the environment, of any Hazardous Materials at or from the Premises, or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law; and

(e)          the commencement and completion of any Remedial Work.

38.5        TENANT SHALL BE SOLELY RESPONSIBLE FOR AND SHALL DEFEND, REIMBURSE, INDEMNIFY AND HOLD EACH INDEMNIFIED PARTY HARMLESS FROM AND AGAINST ALL DEMANDS, CLAIMS, ACTIONS, CAUSES OF ACTION, ASSESSMENTS, LOSSES, DAMAGES, LIABILITIES (INCLUDING WITHOUT LIMITATION, STRICT LIABILITIES), INVESTIGATIONS, WRITTEN NOTICES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, DIMINUTION IN PROPERTY VALUE AND REASONABLE EXPENSES OF INVESTIGATION BY ENGINEERS, ENVIRONMENTAL CONSULTANTS AND SIMILAR TECHNICAL PERSONNEL AND REASONABLE FEES AND DISBURSEMENTS OF COUNSEL), ARISING OUT OF, IN RESPECT OF OR IN CONNECTION WITH (I) TENANT’S BREACH OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR OBLIGATIONS IN THIS LEASE, (II) THE OCCURRENCE OF ANY REGULATED ACTIVITY AT, ON OR UNDER THE PREMISES AT ANY TIME PRIOR TO THE EXPIRATION OF THE TERM, (III) ANY ENVIRONMENTAL CLAIM WITH RESPECT TO THE PREMISES AGAINST ANY INDEMNIFIED PARTY OR ANY PERSON WHOSE LIABILITY FOR SUCH ENVIRONMENTAL CLAIM LANDLORD OR TENANT HAS OR MAY HAVE ASSUMED OR RETAINED EITHER CONTRACTUALLY OR BY OPERATION OF LAW, (IV) THE RELEASE, THREATENED RELEASE OR PRESENCE OF ANY HAZARDOUS MATERIALS AT, ON, UNDER OR FROM THE PREMISES, REGARDLESS OF HOW DISCOVERED BY TENANT, LANDLORD OR ANY THIRD-PARTY, (V) ANY REMEDIAL WORK REQUIRED TO BE PERFORMED PURSUANT TO ANY ENVIRONMENTAL LAW OR THE TERMS HEREOF WITH RESPECT TO MATTERS ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM OR SURRENDER OF THE PREMISES TO LANDLORD, WHICHEVER IS LAST TO OCCUR, OR (VI) ANY MATTERS ARISING UNDER OR RELATING TO ANY ENVIRONMENTAL LAW AND RELATING TO THE TENANT OR THE PREMISES.

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38.6         Upon Landlord’s request, at any time that Landlord has reasonable grounds to believe that Hazardous Materials (except to the extent those substances are permitted to be used by Tenant under Section 38.2 in the ordinary course of its business and in compliance with all Environmental Laws) are or have been released, stored or disposed of on or around the Premises during the Term or that the Premises may be in violation of the Environmental Laws during the Term, Tenant shall provide, at Tenant’s sole cost and expense, except as otherwise expressly set forth herein, an inspection or audit of the Premises prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Landlord and Lender indicating the presence or absence of the reasonably suspected Hazardous Materials on the Premises or an inspection or audit of the Premises prepared by an engineering or consulting firm approved by Landlord and Lender indicating the presence or absence of friable asbestos or substances containing asbestos on the Premises. In the event that such inspection or audit determines that no such Hazardous Materials are or have been released, stored or disposed of on or around the Premises during the Term and that the Premises is not in violation of the Environmental Laws, the cost and expense of Tenant’s inspection or audit will be borne solely by Landlord. If Tenant fails to provide such inspection or audit within thirty (30) days after such request, Landlord may order the same, and Tenant hereby grants to Landlord and Lender and their respective employees, contractors and agents access to the Premises upon reasonable notice and a license to undertake such inspection or audit. The cost of such inspection or audit, together with interest thereon at the Lease Default Rate from the date Tenant is provided with written confirmation of costs incurred by Landlord until actually paid by Tenant, shall be immediately paid by Tenant on demand.

38.7         Without limiting the foregoing, where recommended by any “Phase I” or “Phase II” assessment of the Premises and where the particular conditions on the Premises which formed the basis for such recommendation were introduced to the Premises during the Term and still exist, Tenant shall establish and comply with an operations and maintenance program relative to the Premises, in form and substance acceptable to Landlord and Lender, prepared by an environmental consultant reasonably acceptable to Landlord and Lender, which program shall address any Hazardous Materials (including, without limitation, asbestos-containing material or lead based paint) that may now or in the future be detected on the Premises. Without limiting the generality of the preceding sentence, Landlord may require (i) periodic notices or reports to Landlord and Lender in form, substance and at such intervals as Landlord may specify to address matters raised in a “Phase I” or “Phase II’ assessment, (ii) an amendment to such operations and maintenance program to address changing circumstances, laws or other matters, (iii) at Tenant’s sole cost and expense, supplemental examination of the Premises by consultants reasonably acceptable to Landlord and Lender to address matters raised in a “Phase I” or “Phase II” assessment, (iv) access to the Premises upon reasonable notice, by Landlord or Lender, and their respective agents or servicer, to review and assess the environmental condition of the Premises and Tenant’s compliance with any operations and maintenance program, and (v) variation of the operation and maintenance program in response to the reports provided by any such consultants.

38.8         The indemnity obligations of the Tenant and the rights and remedies of the Landlord under this Section 38 shall survive the expiration or termination of this Lease for a period of twenty-four (24) months.

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39.         Estoppel Certificate. Landlord and Tenant agree to deliver to each other, from time to time as reasonably requested in writing, and within a reasonable period of time after receipt of such request, an estoppel certificate, addressed to such persons as the requesting party may reasonably request, certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), the dates to which any Base Rent due hereunder has been paid in advance, if any, and that to the knowledge of the signer of such certificate, no default hereunder by either Landlord or Tenant exists hereunder (or specifying each such default to which this signer may have knowledge), together with such other information as Landlord or Tenant may reasonably require with respect to the status of this Lease and Tenant’s use and occupancy of the Premises.

40.         Notice of Lease. Upon the request of either party hereto, Landlord and Tenant agree to execute a short form Notice of Lease or Memorandum of Lease in recordable form, setting forth information regarding this Lease, including, without limitation, if available, the dates of commencement and expiration of the Term, the Renewal Options, Tenant’s Purchase Option and the Right of First Refusal. All taxes, fees, costs and expenses of recording such Notice of Lease or Memorandum of Lease shall be paid by Tenant unless otherwise agreed in writing by Landlord.

41.         Miscellaneous.

41.1         This Lease shall be governed and construed in accordance with the Laws of the State.

41.2         The headings of the Sections are for convenient reference only, and are not to be construed as part of this Lease.

41.3         The language of this Lease shall be construed according to its plain meaning, and not strictly for or against Landlord or Tenant; and the construction of this Lease and of any of its provisions shall be unaffected by any argument or claim that this Lease has been prepared, wholly or in substantial part, by or on behalf of Tenant or Landlord.

41.4         Landlord and Tenant each warrant and represent to the other, that each has full right to enter into this Lease and that there are no impediments, contractual or otherwise, to full performance hereunder.

41.5         This Lease shall be binding upon the parties hereto and shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of Landlord and the successors and assigns of Tenant.

41.6         In the event of any suit, action, or other proceeding at law or in equity, by either party hereto against the other, by reason of any matter arising out of this Lease, the prevailing party shall recover, not only its legal costs, but also reasonable attorneys’ fees (to be fixed by the Court) for the maintenance or defense of said suit, action or other proceeding, as the case may be.

41.7         A waiver by either party of any breach(es) by the other of any one or more of the covenants, agreements, or conditions of this Lease, shall not bar the enforcement of any rights or remedies for any subsequent breach of any of the same or other covenants, agreements, or conditions.

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41.8         This Lease and the referenced schedules and exhibits set forth the entire agreement between the parties hereto and may not be amended, changed or terminated orally or by any agreement unless such agreement shall be in writing and signed by Tenant and Landlord and approved in writing by the Lender. Landlord and Tenant further agree that this Lease shall not be amended and no amendment shall be effective unless (i) all guarantors of the Tenant’s obligations under this Lease, remain liable for all of the Tenant’s obligations under this Lease notwithstanding such amendment, and (ii) Landlord and Tenant receive written notification from each nationally recognized statistical rating organization (including, without limitation, S&P and Moody’s, if applicable) which has issued a rating of any securities issued by the Lender or the Landlord which is secured by the Premises that such amendment will not result in a downgrade, withdrawal or qualification of the rating then assigned to such securities.

41.9         If any provision of this Lease or the application thereof to any persons or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by Law.

41.10       The submission of this Lease for examination does not constitute a reservation of or agreement to lease the Premises; and this Lease shall become effective and binding only upon proper execution and unconditional delivery thereof by Landlord and Tenant.

41.11       When the context in which words are used in this Lease indicates that such is the intent, words in the singular number shall include the plural and vice versa, and words in the masculine gender shall include the feminine and neuter genders and vice versa. Further, references to “person” or “persons” in this Lease shall mean and include any natural person and any corporation, partnership, joint venture, limited liability company, trust or other entity whatsoever.

41.12       All references to “business days” contained herein are references to normal working business days, i.e., Monday through Friday of each calendar week, exclusive of federal and national bank holidays.

41.13       Time is of the essence in the payment and performance of the obligations of Tenant under this Lease.

41.14       In the event that the Landlord hereunder consists of more than one (1) person, then all obligations of the Landlord hereunder shall be joint and several obligations of all persons named as Landlord herein. If any such person directly or indirectly transfers its interest in the Premises, whether by conveyance of its interest in the Premises, merger or consolidation or by the transfer of the ownership interest in such Person, such transferee and its successors and assigns shall be bound by this subparagraph 41.14. All persons named as Landlord herein shall collectively designate a single person (the “Designated Person”) to be the person entitled to give notices, waivers and consents hereunder. If Landlord consists of only one person, such person shall be the Designated Person. Landlord agrees that Tenant may rely on a waiver, consent or notice given by such Designated Person as binding on all other persons named as Landlord herein; provided, that any amendment, change or termination of this Lease which is permitted under Section 41.8 must be signed by all persons named as Landlord. The Designated Person shall be the only person entitled to give notices hereunder by the Landlord, and Tenant may disregard all communications from any other person named as Landlord herein, except as provided in the immediately following sentence. The identity of the Designated Person may be changed from time to time by ten (10) business days’ advance written notice to the Tenant signed by either the Designated Person or by all persons named as Landlord herein.

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41.15       If Landlord shall be in default under any of the provisions of this Lease, Tenant may, after thirty (30) days written notice to Landlord and failure of Landlord to cure during said period (or such longer period of time as may reasonably be necessary, but under no circumstances longer than a total of ninety (90) days, if the default may not be cured within thirty (30) days but Landlord has commenced and is diligently pursuing a cure of such default), but without notice in the event of an emergency, do whatever is necessary to cure such default as may be appropriate under the circumstances for the account of and at the expense of Landlord. If an emergency exists, Tenant shall use reasonable efforts to notify Landlord of the situation by phone or other available communication before taking any such action to cure such default.

41.16       In addition to any statutory lien for rent in Landlord’s favor, Landlord (the secured party for purposes hereof) shall have and Tenant (the debtor for purposes hereof) hereby grants to Landlord, a continuing security interest for all Base Rent, Additional Rent and other sums of money becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant situated on the Premises subject to this Lease and such property shall not be removed therefrom without the consent of Landlord until all arrearages in Rent as well as any and all sums of money then due to Landlord hereunder shall first have been paid and discharged. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided herein or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this Section at public or private sale upon ten (10) days notice to Tenant which notice Tenant hereby agrees is adequate and reasonable. Tenant hereby agrees to execute such other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any statutory lien for Rent in not hereby waived, the express contractual lien herein being granted in addition and supplementary thereto. Tenant warrants and represents that the collateral subject to the security interest granted herein is not purchased or used by Tenant for personal, family or household purposes. Tenant further warrants and represents that the lien granted herein constitutes a first and superior lien and the Tenant will not allow the placing of any other lien upon the property described in this Section without the prior written consent of Landlord. Notwithstanding anything to the contrary contained herein, Landlord acknowledges and agrees that Tenant may pledge or encumber its accounts receivable for any purpose, including but not limited to a pledge or encumbrance to secure a working capital line of credit from one or more lenders and Lender shall execute any intercreditor agreement reasonably required by such accounts receivable lender..

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41.17       TENANT HEREBY WAIVES ALL ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET. SEQ. OF THE TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF TENANT’S OWN SELECTION, TENANT VOLUNTARILY CONSENTS TO THIS WAIVER.

42.         Guaranty of Lease. This Lease and the obligations of Tenant hereunder shall be guaranteed by M. Craig Kelly (“Guarantor”). Upon the execution of the Lease, Guarantor shall execute that certain Guaranty of Lease in the form attached hereto as Exhibit D.

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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the Date of Lease above written.

LANDLORD:
CHP FRIENDSWOOD SNF, LLC, a Delaware limited liability company
By:	Cornerstone Core Properties REIT, Inc., a
	Maryland corporation
Its:	Manager
By:	/s/ Kent Eikanas
	Kent Eikanas
	President and Chief Operating Officer

TENANT:
MASON FRIENDSWOOD OP, LLC
a Texas limited liability company
By:	/s/ M. Craig Keely
Name:	CEO
Its:

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SCHEDULE 1

BASE RENT SCHEDULE

S-1

EXHIBIT A

LEGAL DESCRIPTION OF THE PREMISES

3

EXHIBIT B

PERMITTED ENCUMBRANCES

5

EXHIBIT C

APPROVED MANAGEMENT AGREEMENT

[ATTACHED HERETO]

EXHIBIT D

GUARANTY OF LEASE

The following provisions form a part of and constitute the basis for this Guaranty of Lease (herein referred to as the “Guaranty”):

WHEREAS, a certain Lease Agreement dated September ___, 2012 (herein referred to as the “Lease”) has been executed by and between CHP Friendswood SNF, LLC, as Landlord (herein referred to as “Landlord”, and Mason Friendswood OP, LLC, herein referred to as “Tenant”), covering certain Premises located in Friendswood, County of Galveston, State of Texas, as more particularly described in the Lease;

WHEREAS, as a condition to Landlord's entering into the Lease, Landlord requires the undersigned to guarantee the full performance of all of the obligations of Tenant accruing under the Lease;

WHEREAS, the undersigned desires to induce Landlord to enter into the Lease with Tenant;

NOW, THEREFORE, in consideration of the execution of the Lease by Landlord, and other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agrees that:

1.          The undersigned unconditionally, absolutely and to the same extent as if the undersigned had signed the Lease as Tenant, assumes all liabilities, obligations and duties of Tenant accruing under the Lease, and guarantees to Landlord and Landlord's successors and assigns the full, prompt and complete performance of each and all of the terms, covenants, conditions and provisions of the Lease to be kept and performed by Tenant or Tenant's successors or assigns, including the payment of all rental and other charges to accrue thereunder and all damages that may arise as a consequence of the nonperformance thereof.

2.          The liability of the undersigned under this Guaranty shall be unconditional and primary, and in relation to any right of action which shall accrue to Landlord under the Lease, Landlord may, at its option, proceed from time-to-time solely against the undersigned or jointly against the undersigned and any other person or entity without regard to Tenant's ability to perform and without first commencing any action, exhausting any remedy, obtaining any judgment or proceeding in any way against Tenant or any other person or entity; and suit may be brought and maintained against the undersigned by Landlord to enforce any liability, duty or obligation guaranteed hereby without joinder of Tenant or any other person or entity.

3.          This Guaranty shall continue during the entire term of the Lease and any renewals or extensions thereof and thereafter until Tenant and Tenant's successors or assigns have fully discharged all of their obligations under the Lease.

4.          Until all the covenants and conditions in the Lease to be performed and observed by Tenant or Tenant's successors or assigns are fully performed and observed, the undersigned: (a) shall have no right of subrogation or any other right to enforce any remedy against Tenant or Tenant's successors or assigns by reason of any payment or performance thereunder by the undersigned, and (b) subordinates any liability or indebtedness of Tenant or Tenant's successors or assigns now or hereafter held by the undersigned to all obligations of Tenant or Tenant's successors or assigns to Landlord under the Lease.

5.          The undersigned agrees that, to the extent allowed by law, the undersigned's obligations under the terms of this Guaranty shall not be released, diminished, impaired, reduced or affected by any limitation of liability or recourse under the Lease or by the occurrence of any one or more of the following events: (a) the taking or accepting of any other security or guaranty in connection with the Lease; (b) any release, surrender, exchange, subordination, or loss of any security at any time existing or purported or believed to exist in connection with the Lease; (c) the death, insolvency, bankruptcy, disability, dissolution, termination, receivership, reorganization or lack of corporate, partnership or other power of Tenant, the undersigned, or any party at any time liable for payment or performance pursuant to the Lease, whether now existing or hereafter occurring; (d) any assignment or subletting by Tenant or Tenant's successors or assigns whether or not permitted pursuant to the terms of the Lease or otherwise approved by Landlord; (e) amendment of the Lease or any renewal, extension, modification or rearrangement of the terms of payment or performance pursuant to the Lease either with or without notice to or consent of the undersigned, or any adjustment, indulgence, forbearance, or compromise that may be granted or given by Landlord to Tenant, the undersigned or any other party at any time liable for payment or performance pursuant to the Lease; (f) any neglect, delay, omission, failure, or refusal of Landlord to take or prosecute any action for the collection or enforcement of the Lease or to foreclose or take or prosecute any action in connection with the Lease; (g) any failure of Landlord to notify the undersigned of any renewal, extension, rearrangement, modification, assignment of the Lease or subletting of the Premises or any part thereof, or of the release of or change in any security or of any other action taken or refrained from being taken by Landlord against Tenant or of any new agreement between Landlord and Tenant, it being understood that Landlord shall not be required to give the undersigned any notice of any kind under any circumstances with respect to or in connection with the Lease; (h) the unenforceability of all or any part of the Lease against Tenant, it being agreed that the undersigned shall remain liable hereon regardless of whether Tenant or any other person be found not liable on the Lease, or any part thereof, for any reason; or (i) any payment by Tenant to Landlord being held to constitute a preference under the bankruptcy laws or for any other reason Landlord being required to refund such payment or pay the amount thereof to someone else.

Anything herein or in the Lease to the contrary notwithstanding, Guarantor hereby acknowledges and agrees that any security deposit or other credit in favor of the Tenant may be applied to cure any Tenant default or offset any damages incurred by Landlord under the Lease, as Landlord determines in its sole and absolute discretion, and Landlord shall not be obligated to apply any such deposit or credit to any such default or damages before bringing any action or pursuing any remedy available to Landlord against Guarantor. Guarantor further acknowledges that its liability under this Guaranty shall not be affected in any manner by such deposit or credit, or Landlord’s application thereof.

6.          In the event suit or action is brought upon or in connection with the enforcement of this Guaranty, the undersigned shall pay reasonable attorneys' fees and all other expenses and court costs incurred by Landlord in connection therewith.

7.          This Guaranty shall be binding upon the heirs, legal representatives, successors and assigns of the undersigned and shall inure to the benefit of the heirs, legal representatives, successors and assigns of Landlord.

8.          The undersigned represents that [the undersigned is the owner of a direct or indirect interest in Tenant and that] the undersigned will receive a direct or indirect benefit from the Lease.

IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the _________________ day of ______________________________, 2012.

GUARANTOR:

/s/ M. Craig Kelly

M. Craig Kelly

EX-10.7

Loan No. 07-0004432

GENERAL ELECTRIC CAPITAL CORPORATION

(as Administrative Agent and a Lender)

THE FINANCIAL INSTITUTIONS WHO ARE OR HEREAFTER

BECOME PARTIES TO THIS LOAN AGREEMENT,

as Lenders,

and

CHP PORTLAND, LLC

CHP MEDFORD 1, LLC,

and

CHP FRIENDSWOOD SNF, LLC,

Each, a Delaware limited liability company,

(Borrower)

 LOAN AGREEMENT

 Dated as of: September 13, 2012

Cornerstone Portfolio

TABLE OF CONTENTS

ARTICLE I	DEFINITIONS	1
Section 1.1.	Certain Definitions	1
Section 1.2.	Definitions	20
Section 1.3.	Phrases	20
ARTICLE II	LOAN TERMS	20
Section 2.1.	The Loan	20
Section 2.2.	Interest Rate; Late Charge; Default Rate.	21
Section 2.3.	Terms of Payment	21
Section 2.4.	Prepayment.	22
Section 2.5.	Security; Establishment of Funds.	22
Section 2.6.	Application of Payments.	24
Section 2.7.	Sources and Uses	26
Section 2.8.	Capital Adequacy; Increased Costs; Illegality.	26
Section 2.9.	Interest Rate Protection	27
Section 2.10.	Libor Breakage Amount	28
Section 2.11.	[Reserved].	28
Section 2.12.	Evidence of Debt.	28
Section 2.13.	Substitution of Lenders.	29
Section 2.14.	Defaulting Lenders.	30
Section 2.15.	Fees and Expenses	31
Section 2.16.	Withholding Taxes.	31
Section 2.17.	Partial Releases.	33
ARTICLE III	INSURANCE, CONDEMNATION, AND IMPOUNDS	35
Section 3.1.	Insurance	35
Section 3.2.	Use and Application of Insurance Proceeds.	38
Section 3.3.	Condemnation Awards	39
Section 3.4.	Insurance Impounds	40
Section 3.5.	Real Estate Tax Impounds	41
ARTICLE IV	ENVIRONMENTAL MATTERS	42
Section 4.1.	Representations and Warranties on Environmental Matters	42
Section 4.2.	Covenants on Environmental Matters.	42
Section 4.3.	Allocation of Risks and Indemnity	43
Section 4.4.	Administrative Agent’s Right to Protect Collateral	43
Section 4.5.	No Waiver	44

i

ARTICLE V	LEASING MATTERS	44
Section 5.1.	Representations and Warranties on Leases.	44
Section 5.2.	[Reserved].	45
Section 5.3.	Covenants.	45
Section 5.4.	Tenant Estoppels.	46
Section 5.5.	Payment of Rents Under Master Lease.	46
ARTICLE VI	REPRESENTATIONS AND WARRANTIES	47
Section 6.1.	Organization, Power and Authority; Formation Documents.	47
Section 6.2.	Validity of Loan Documents	47
Section 6.3.	Liabilities; Litigation.	48
Section 6.4.	Taxes and Assessments	48
Section 6.5.	Other Agreements; Defaults	48
Section 6.6.	Compliance with Law	48
Section 6.7.	Condemnation	48
Section 6.8.	Access	49
Section 6.9.	Location of Borrower	49
Section 6.10.	ERISA; Employees.	49
Section 6.11.	Margin Stock	49
Section 6.12.	Forfeiture	49
Section 6.13.	Tax Filings	49
Section 6.14.	Solvency	50
Section 6.15.	Full and Accurate Disclosure	50
Section 6.16.	Flood Zone	50
Section 6.17.	Single Purpose Entity/Separateness	50
Section 6.18.	Compliance With International Trade Control Laws and OFAC Regulations	53
Section 6.19.	Borrower’s Funds	54
Section 6.20.	Operators’ Agreements	55
Section 6.21.	Physical Condition	55
Section 6.22.	Healthcare Representations	56
Section 6.23.	No Change in Facts or Circumstances; Disclosure	57
ARTICLE VII	FINANCIAL REPORTING	57
Section 7.1.	Financial Statements	57
Section 7.2.	Additional Reports	59
Section 7.3.	Compliance Certificate	60
Section 7.4.	Accounting Principles	60
Section 7.5.	Other Information; Access	60
Section 7.6.	Annual Budget	61
Section 7.7.	Books and Records/Audits	61

ii

ARTICLE VIII	COVENANTS	61
Section 8.1.	Transfers or Encumbrance of Property.	61
Section 8.2.	Taxes; Utility Charges	64
Section 8.3.	Management.	64
Section 8.4.	Operation; Maintenance; Inspection	65
Section 8.5.	Taxes on Security	65
Section 8.6.	Legal Existence; Name, Etc	66
Section 8.7.	Further Assurances	66
Section 8.8.	Estoppel Certificates Regarding Loan	66
Section 8.9.	Notice of Certain Events	67
Section 8.10.	Indemnification	67
Section 8.11.	[Intentionally Omitted].	67
Section 8.12.	Payment For Labor and Materials	67
Section 8.13.	Use and Proceeds, Revenues	68
Section 8.14.	Compliance with Laws and Contractual Obligations.	68
Section 8.15.	Operating and Financial Covenants	68
Section 8.16.	Healthcare Laws and Covenants.	69
Section 8.17.	Cooperation Regarding Licenses	71
Section 8.18.	Transactions With Affiliates	72
Section 8.19.	Representations and Warranties	72
Section 8.20.	Alterations	72
Section 8.21.	Business and Operations	72
Section 8.22.	Severability of Covenants	72
Section 8.23.	Required Repairs and Post Closing Requirements	72
ARTICLE IX	EVENTS OF DEFAULT	73
Section 9.1.	Events of Default	73
Section 9.2.	Special Right to Cure with Respect to Operational Defaults	75
ARTICLE X	REMEDIES	76
Section 10.1.	Remedies - Insolvency Events	76
Section 10.2.	Remedies - Other Events	77
Section 10.3.	Administrative Agent’s Right to Perform the Obligations	77
ARTICLE XI	ADMINISTRATIVE AGENT	78
Section 11.1.	Appointment and Duties.	78
Section 11.2.	Binding Effect	79
Section 11.3.	Use of Discretion.	79
Section 11.4.	Delegation of Rights and Duties	79
Section 11.5.	Reliance and Liability.	80
Section 11.6.	Administrative Agent Individually	81
Section 11.7.	Lender Credit Decision	81
Section 11.8.	Expenses; Indemnities.	81

iii

Section 11.9.	Resignation of Administrative Agent.	82
Section 11.10.	Additional Secured Parties	83
ARTICLE XII	MISCELLANEOUS	83
Section 12.1.	Notices	83
Section 12.2.	Amendments and Waivers.	85
Section 12.3.	Assignments and Participations; Binding Effect.	87
Section 12.4.	Indemnities.	90
Section 12.5.	Lender-Creditor Relationship	90
Section 12.6.	Right of Setoff	91
Section 12.7.	Sharing of Payments, Etc	91
Section 12.8.	Marshaling; Payments Set Aside	91
Section 12.9.	Limitation on Interest	92
Section 12.10.	Invalid Provisions	92
Section 12.11.	Reimbursement of Expenses.	93
Section 12.12.	Approvals; Third Parties; Conditions	94
Section 12.13.	Administrative Agent and Lenders Not in Control; No Partnership	94
Section 12.14.	Contest of Certain Claims	95
Section 12.15.	Time of the Essence	95
Section 12.16.	Successors and Assigns	95
Section 12.17.	Renewal, Extension or Rearrangement	95
Section 12.18.	Waivers.	95
Section 12.19.	Cumulative Rights; Joint and Several Liability	95
Section 12.20.	Singular and Plural	96
Section 12.21.	Exhibits and Schedules	96
Section 12.22.	Titles of Articles, Sections and Subsections	96
Section 12.23.	Promotional Material	96
Section 12.24.	Survival	96
Section 12.25.	WAIVER OF JURY TRIAL	96
Section 12.26.	Waiver of Punitive or Consequential Damages	97
Section 12.27.	Governing Law	97
Section 12.28.	Entire Agreement	97
Section 12.29.	Counterparts	97
Section 12.30.	Consents and Approvals	97
Section 12.31.	Right of First Refusal	98
Section 12.32.	Effectiveness of Facsimile Documents and Signatures	98
Section 12.33.	Venue	98
Section 12.34.	Important Information Regarding Procedures for Requesting Credit	99
Section 12.35.	Method of Payment	99
Section 12.36.	Non-Public Information; Confidentiality; Disclosure	99
Section 12.37.	Post-Closing Obligations of Borrower	99
Section 12.38.	Release and Waiver Regarding Special Audits	100
ARTICLE XIII	LIMITATIONS ON LIABILITY	100
Section 13.1.	Limitation on Liability.	100

iv

Section 13.2.	Limitation on Liability of Lender’s Officers, Employees, etc	103
ARTICLE XIV	CROSS-GUARANTY	104
Section 14.1.	Cross-Guaranty	104
Section 14.2.	Waivers By Borrower	104
Section 14.3.	Benefit of Guaranty	104
Section 14.4.	Waiver of Subrogation, Etc	105
Section 14.5.	Election of Remedies	105
Section 14.6.	Limitation	105
Section 14.7.	Contribution with respect to Guarantee Obligations.	106
Section 14.8.	Liability Cumulative	107

Exhibits and Schedules

Exhibit A	Description of Projects and Operators; Allocated Loan Amounts
Exhibit B	Loan Commitments
Schedule 2.1	Conditions to Advance of Loan Proceeds
Schedule 2.3(a)	Amortization Schedule
Schedule 2.5(b)	Required Repairs
Schedule 2.7	Sources and Uses
Schedule 6.1	Organizational Information; Organizational Chart
Schedule 6.22	Disclosures Regarding Healthcare Matters
Schedule 6.22(a)	Third Party Payor Programs
Schedule 6.22(b)	Primary Licenses
Schedule 7.2	Form of Compliance Certificate
Schedule 12.37	Post-Closing Obligations

v

LOAN AGREEMENT

This Loan Agreement (this “Agreement”) is entered into as of September 13, 2012 by and among GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“GE Capital”), as Administrative Agent and collateral agent for the Lenders (as defined herein) (in such capacity and together with its successors and permitted assigns, the “Administrative Agent”), THE FINANCIAL INSTITUTIONS WHO ARE OR HEREAFTER BECOME PARTIES TO THIS AGREEMENT as Lenders (together with their successors and permitted assigns, each a “Lender” and collectively, the “Lenders”), and CHP PORTLAND, LLC, CHP MEDFORD 1, LLC, and CHP FRIENDSWOOD SNF, LLC, each, a Delaware limited liability company (individually or collectively, as the context may require, and together with such Affiliates of each as may from time to time become signatories hereto as “Borrowers” “Borrower”).

ARTICLE I

DEFINITIONS

Section 1.1.    Certain Definitions. As used herein, the following terms have the meanings indicated:

“Acceleration Prepayment Premium” has the meaning assigned in Section 2.4(d).

“Acceptance Notice” has the meaning assigned in Section 11.25.

“Account Debtor” means “account debtor”, as defined in Article 9 of the UCC, and any other obligor in respect of an Account.

“ACH” has the meaning assigned in Section 2.6(c).

“Acknowledgement of Property Manager” means any Collateral Assignment, Subordination and Agreement of a Property Manager (whether one or more) executed by a Property Manager in favor of the Administrative Agent (on behalf of itself and the Lenders).

“Adjusted Expenses” means actual operating expenses related to the Projects, excluding any rent and interest paid and depreciation recorded by Operating Tenant on a stabilized accrual basis for the previous twelve (12) month period (as reasonably adjusted by Administrative Agent), including: (i) recurring expenses as determined under GAAP, (ii) real estate taxes, (iii) management fees (whether paid or not) in an amount not less than five percent (5%) of effective gross income (or the actual management fee paid, if higher) and (iv) a replacement reserve (whether reserved or not) of not less than Three Hundred Fifty and No/100 Dollars ($350) per Residential Unit.

“Adjusted Net Operating Income” or “ANOI” means annualized Adjusted Revenue less Adjusted Expenses, based upon the financial reports provided by Borrower under Article 7 and approved by Administrative Agent in its reasonable discretion.

1

“Adjusted Revenue” means revenues generated by the Operator at the Projects for the period in question (and if none specified, then for the most current twelve (12) months), as determined under GAAP, but excluding (a) nonrecurring income and non-property related income (as determined by Administrative Agent in its sole discretion) and income from tenants that is classified as “bad debt” under GAAP, and (b) late fees and interest income; provided, however, if actual occupancy of the Projects, taken as a whole, exceeds 95%, Adjusted Revenue shall be proportionately reduced assuming an occupancy of 95%.

“Administrative Agent” has the meaning assigned in the preamble to this Agreement.

“Affected Lender” has the meaning assigned in Section 2.13(a).

“Affiliate” means, with respect to a particular Person, (a) any corporation in which such Person or any partner, shareholder, director, officer, member, or manager of such Person directly or indirectly owns or controls more than ten percent (10%) of the beneficial interest, (b) any partnership, joint venture or limited liability company in which such Person or any partner, shareholder, director, officer, member, or manager of such Person is a partner, joint venturer or member, (c) any trust in which such Person or any partner, shareholder, director, officer, member or manager of such Person is a trustee or beneficiary, (d) any Person which is directly or indirectly owned or controlled by such Person or any partner, shareholder, director, officer, member or manager of such Person, (e) any partner, shareholder, director, officer, member, manager or employee of such Person, (f) any Person related by birth, adoption or marriage to any partner, shareholder, director, officer, member, manager, or employee of such Person. Any Borrower Party shall be deemed an Affiliate of Borrower.

“Affiliated Manager” shall mean any property manager in which Borrower, or any Affiliate of Borrower has, directly or indirectly, any legal, beneficial or economic interest.

“Agreement” means this Loan Agreement, as amended, restated, supplemented, or otherwise modified from time to time.

“Anti-Money Laundering Laws” means those laws, regulations and sanctions, state and federal, criminal and civil, that (a) limit the use of and/or seek the forfeiture of proceeds from illegal transactions; (b) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotics dealers or otherwise engaged in activities contrary to the interests of the United States; (c) require identification and documentation of the parties with whom a Financial Institution conducts business; or (d) are designed to disrupt the flow of funds to terrorist organizations. Such laws, regulations and sanctions shall be deemed to include the Patriot Act, the Bank Secrecy Act, the Trading with the Enemy Act, 50 U.S.C. App. Section 1, et seq., the International Emergency Economic Powers Act, 50 U.S.C. Section 1701, et seq., and the sanction regulations promulgated pursuant thereto by the OFAC, as well as laws relating to prevention and detection of money laundering in 18 U.S.C. Sections 1956 and 1957.

“Approved Fund” means, with respect to Administrative Agent or any Lender, any Person (other than a natural Person) that (a) is or will be engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and (b) is advised or managed by (i) Administrative Agent or such Lender, (ii) any Affiliate of Administrative Agent or such Lender or (iii) any Person (other than an individual) or any Affiliate of any Person (other than an individual) that administers or manages Administrative Agent or such Lender.

2

“Approved Insurer” means any insurer (other than Medicaid/Medicare/TRICARE) as may be approved by Administrative Agent from time to time in its sole discretion.

“Assignment” means an assignment agreement entered into by a Lender, as assignor, and any Person, as assignee, pursuant to the terms and provisions of Section 12.3 (with the consent of any party whose consent is required by Section 12.3), accepted by the Administrative Agent, in form and substance satisfactory to Administrative Agent.

“Assignment of Hedge Agreement” means one more collateral assignments of Hedge Agreements, as amended, restated, supplemented or otherwise modified from time to time, which may be executed and delivered by Borrower and the counterparty under such Hedge Agreement to Administrative Agent (on behalf of itself and the Lenders), in accordance with Section 2.9 hereof.

“Assignment of Leases and Rents” means any Assignment of Leases and Rents (whether one or more), executed by any Borrower for the benefit of Administrative Agent (on behalf of itself and the Lenders), and pertaining to the Leases, as amended, restated, supplemented or otherwise modified from time to time.

“Assignment of Membership Interests” means any Assignment of Membership Interests, executed by the sole member of any Borrower for the benefit of Administrative Agent (on behalf of the Lenders), and pertaining to all of the membership interests in such Borrower, as amended, restated, supplemented or otherwise modified from time to time.

“ASTM” means the American Society for Testing and Materials.

“Award” has the meaning assigned in Section 3.3.

“Bankruptcy Party” has the meaning assigned in Section 9.7.

“Bank Secrecy Act” means the Bank Secrecy Act, 31 U.S.C. Section 5311, et seq.

“Borrower” has the meaning assigned in the preamble to this Agreement.

“Borrower Formation Documents” has the meaning assigned in Section 6.1(b).

“Borrower Party” means any Guarantor, any general partner of any Borrower, and any general partner in any partnership that is a general partner of any Borrower, any manager or managing member of any Borrower, and any manager or managing member in any limited liability company that is a managing member of any Borrower.

“Borrower’s Knowledge” means the knowledge of any Borrower after diligent inquiry including, without limitation, review of existing reports (e.g., environmental and property condition reports) regarding the Projects, inquiry of the current operator of the Projects.

3

“Business Day” means a day other than a Saturday, a Sunday, or a legal holiday on which national banks located in the State of Illinois are not open for general banking business.

“Cash Management Agreement” means any agreement existing as of the date hereof or from time to time during the term of the Loan among Administrative Agent (on behalf of itself and the Lenders), a Borrower, a Master Tenant (and any combination of the foregoing persons) and a bank approved by Administrative Agent regarding the establishment and operation of a lockbox account, blocked account or similar account into which rents and other Revenue are to be deposited, and includes the Deposit Account Control Agreement.

“Casualty” has the meaning assigned in Section 3.2.

“Census Report” means, with respect to the Projects, a report which records the number of licensed beds for the Projects, as well s the number of patients and patient census days by Third Party Payor source.

“Closing Date” means the date the Loan is funded by the Lenders.

“Code” means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Collateral” means all real and personal property with respect to which Liens in favor of Administrative Agent are executed, identified or purported to be granted pursuant to the Loan Documents and which secure the Obligations described in the Loan Documents and the Secured Hedge Agreement, and includes, without limitation, all of a Borrower’s right, title and interest in, to and under all personal property, real property, and other assets that arise from, are used in connection with, are related to or are located at the Projects, whether now owned by or owing to, or hereafter acquired by or arising in favor of a Borrower (including all personal property and other assets owned or acquired under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, a Borrower, and regardless of where located.

“Commercial Lease” means any non-residential Lease of any portion of a Project, but excluding each Master Lease.

“Compliance Certificate” means the compliance certificate in the form of Schedule 7.2 attached hereto.

“CON” means a certificate of need or similar certificate, license or approval issued by the State Regulator for the requisite number of Residential Units in each of the Projects.

“Condemnation” has the meaning assigned in Section 3.3.

“Contest” has the meaning assigned in Section 13.1(b).

“Contract Rate” means a floating rate of interest equal to four and five tenths percent (4.50%) per annum in excess of the LIBOR Rate.*

4

“Control” or “controls” means, when used with respect to any specified Person, the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract, by its position with such Person as general partner or managing member, or otherwise; and the terms “Controlling” and “Controlled” have the meanings correlative to the foregoing.

“Debt” means, for any Person, without duplication: (a) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or any of its assets is liable, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person or any of its assets would be liable or subject, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Person, directly or indirectly, (e) all obligations under leases that constitute capital leases for which such Person or any of its assets is liable or subject, and (f) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person or any of its assets is liable or subject contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss.

“Debt Service” means, for any particular period, the aggregate interest, fixed principal (if applicable), and other payments due during such period under the Loan and under any other permitted Debt relating to the Projects expressly approved by Administrative Agent (but not including payments applied to escrows or reserves required by Administrative Agent or the Lenders). In the event that Debt Service for a period of twelve (12) months (or other calculation period) is not available, Administrative Agent shall annualize the Debt Service for such period of time as is available.

“Debt Service Coverage Ratio” means the ratio of (i) Adjusted Net Operating Income for the Projects for a particular period, to (ii) Debt Service for such period.

“Default Rate” means the lesser of (a) the maximum rate of interest allowed by applicable law, and (b) five percent (5%) per annum in excess of the Contract Rate.

“Defaulting Lender” means a Lender that (a) has given written notice to Borrower, Administrative Agent, or any other Lender that it will fail to fund any amounts to be funded by such Lender after the Closing Date under this Agreement or otherwise fails to fund such amount under this Agreement; (b) is in default for failing to make payments under one or more syndicated credit facilities (unless subject to a good faith dispute); (c) has declared (or the holding company of such Lender has declared) bankruptcy or is otherwise involved in a liquidation proceeding and Administrative Agent has determined such Lender is reasonably likely to become a Defaulting Lender or (d) is the subject of a receivership.

“Deposit Account” means a “deposit account” (as defined in Article 9 of the UCC), an investment account, or other account in which funds are held or invested for credit to or for the benefit of any Borrower.

5

“Deposit Account Bank” means each bank in which any Borrower maintains a Deposit Account.

“Deposit Account Control Agreement” means an agreement, in form and substance satisfactory to Administrative Agent, among Administrative Agent, a Borrower and the Deposit Account Bank, which agreement provides that (a) such bank shall comply with instructions originated by Administrative Agent directing disposition of the funds in such Deposit Account without further consent by Borrower, and (b) such bank shall agree that it shall have no Lien on, or right of setoff or recoupment against, such Deposit Account or the contents thereof, other than in respect of commercially reasonable fees and other items, in each such case expressly consented to by Administrative Agent, and containing such other terms and conditions as Administrative Agent may require, as amended, restated, supplemented or otherwise modified from time to time.

“Determination Date” has the meaning assigned in Section 8.15(a).

“Dollars” and the sign “$” each mean the lawful money of the United States of America.

“Electronic Transmission” means any process of communication that does not directly involve the physical transfer of paper and that is suitable for the retention, retrieval and reproduction of information by the recipient.

“Environmental Indemnity Agreement” means that certain Hazardous Materials Indemnity Agreement dated of even date hereof in favor of Administrative Agent (for itself and on behalf of the Lenders) executed by Borrower and Guarantor with respect to the Projects, as amended, restated, supplemented or otherwise modified from time to time.

“Environmental Laws” means any federal, state or local law (whether imposed by statute, ordinance, rule, regulation, administrative or judicial order, or common law), now or hereafter enacted, governing health, safety, industrial hygiene, the environment or natural resources, or Hazardous Materials, including, without limitation, such laws (a) governing or regulating the use, generation, storage, removal, recovery, treatment, handling, transport, disposal, control, release, discharge of, or exposure to, Hazardous Materials, (b) governing or regulating the transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of such property, or (c) requiring notification or disclosure of releases of Hazardous Materials or other environmental conditions whether or not in connection with a transfer of title to or interest in property.

“ERISA” means the Employment Retirement Income Security Act of 1974, as amended from time to time, and all rules and regulations promulgated thereunder.

“ERISA Affiliate” means each Restricted Party and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with such Restricted Party, are (or were at any time in the past six years) treated as a single employer under Section 414 of the Internal Revenue Code.

“Event of Default” has the meaning assigned in Article 9.

6

“Federal Bankruptcy Code” means Chapter 11 of Title II of the United States Code (11 U.S.C. § 101, et seq.), as amended.

“Financial Institution” means a United States Financial Institution as defined in 31 U.S.C. 5312, as amended from time to time.

“Financing Notice” has the meaning assigned in Section 12.32.

“FIRREA” has the meaning assigned in Schedule 2.1.

“Friendswood Project” means the Project described on Part 4 of Exhibit A.

“Funds” means, collectively, the Replacement Escrow Fund, the HUD Fund and the Master Lease Fund.

“GAAP” means general accepted accounting principles of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable on the date so indicated and consistently applied.

“GE Capital” has the meaning assigned in the Preamble to this Agreement.

“GECB” has the meaning specified in Section 12.3.

“Governmental Account Debtor” means any Account Debtor that is a Governmental Authority, including, without limitation, Medicare and Medicaid.

“Governmental Approvals” means, collectively, all consents, licenses and permits and all other authorizations or approvals required from any Governmental Authority to operate the Projects.

“Governmental Authority” means any federal, state, county or municipal government or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body (including, without limitation, the State Regulator), or any court, administrative tribunal, or public body.

“Guarantor” means Cornerstone Core Properties REIT, Inc.

7

“Hazardous Materials” means (a) petroleum or chemical products, whether in liquid, solid, or gaseous form, or any fraction or by product thereof, (b) asbestos or asbestos containing materials, (c) polychlorinated biphenyls (pcbs), (d) radon gas, (e) underground storage tanks, (f)any explosive or radioactive substances, (g) lead or lead-based paint, (h) any other substance, material, waste or mixture which is or shall be listed, defined, or otherwise determined by any Governmental Authority to be hazardous, toxic, dangerous or otherwise regulated, controlled or giving rise to liability under any Environmental Laws, (i) any excessive moisture, mildews, mold or other fungi in quantities and/or concentrations that could reasonably be expected to pose a risk to human health or the environment, or negatively impact the value of the Projects or (j) any elements, material, compounds, mixtures, chemicals, wastes, pollutants, contaminants or substances known to cause cancer or reproductive toxicity, that, because of its quantity, concentration or physical or chemical characteristics, exposure is limited or regulated by any Governmental Authority having jurisdiction over human health and safety, natural resources or the environment, or which poses a significant present or potential hazard to human health and safety, or to the environment, if released into the workplace or the environment.

“Healthcare Investigations” means any inquiries, investigations, probes, audits or proceedings concerning the business affairs, practices, licensing or reimbursement entitlements of Borrower, Guarantor or any Operator (including, without limitation, inquiries involving the Comprehensive Error Rate Testing and any inquiries, investigations, probes, audit or procedures initiated by Fiscal Intermediary/Medicare Administrator Contractor, Medicaid Integrity Contractor, Recovery Audit Contractor, Program Safeguard Contractor, Zone Program Integrity Contractor, Attorney General, Office of Inspector General, Department of Justice or similar governmental agencies or contractors for such agencies).

“Healthcare Laws” means all applicable state and federal statutes, codes, ordinances, orders, rules, regulations, and guidance relating to patient healthcare and/or patient healthcare information, including HIPAA, the Health Information Technology for Economic Clinical Health Act provisions of the American Recovery and Investment Act of 2009 and the respective rules and regulations promulgated thereunder, and all other applicable state and federal laws regarding the privacy and security of protected health information and other confidential patient information; the establishment, construction, ownership, operation, licensure, use or occupancy of the Projects or any part thereof as a skilled nursing facility or other healthcare or senior living facility, and all conditions of participation pursuant to Medicare and/or Medicaid certification; fraud and abuse, including without limitation, Section 1128B(b) of the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or State Health Care Programs), commonly referred to as the “Federal Anti-Kickback Statute,” and the Social Security Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition Against Certain Referrals), commonly referred to as the “Stark Statute”, 31 U.S.C Section 3729-33, and the “False Claims Act”.

“Hedge Agreement” means any and all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements pertaining to fluctuations in interest rates, now or hereafter entered into by any Borrower pursuant to Section 2.9 of this Agreement, as the same may be renewed, extended, amended or replaced from time to time.

8

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended.

“HIPAA Compliance Plan” has the meaning assigned in Section 8.16(a).

“HIPAA Compliance Date” has the meaning assigned in Section 8.16(b).

“HIPAA Compliant” has the meaning assigned in Section 8.16(a).

“HUD” means the United States Department of Housing and Urban Development.

“HUD Commitment” means a commitment letter or letter of intent entered into on or before September 13, 2013, by a lender insured by HUD and Borrower that contemplates the funding of a HUD Loan, in an amount sufficient to repay the Loan in full, to Borrower on or before September 12, 2014.

“HUD Conditions” means (a) no Event of Default has occurred and is continuing; (b) Borrower has delivered the HUD Commitment to Administrative Agent; (c) the HUD Commitment remains in full force and effect; and (d) the HUD Commitment has not been amended or modified in a manner that would reduce the funds available to Borrower to prepay the Loan to be less than the amount required to repay the Obligations in full.

“HUD Fund” has the meaning assigned in Section 2.5.

“HUD Loan” means a loan to be advanced to Borrower by a lender insured by HUD, the proceeds of which shall be sufficient to repay the Obligations in full.

“Indebtedness” means all payment obligations of Borrower or any Borrower Party to Administrative Agent or to any Lender under the Loan or any of the Loan Documents, including, without limitation, any and all interest, whether or not accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post petition interest is allowed in any such proceeding.

“Indemnitee” has the meaning assigned in Section 11.3.

“Insurance Impound” has the meaning assigned in Section 3.4.

“Insurance Premiums” has the meaning assigned in Section 3.1(c).

“Interest Only Period” means the first twelve (12) Payment Dates commencing with the first Payment Date on October 1, 2012, and ending on the Payment Date on September 1, 2013.

“Land” means the real property described in Exhibit A attached hereto.

“Laws” means, collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations and guidances and judicial opinions or presidential authority in the applicable jurisdiction, including quality and safety standards, accreditation standards and requirements of any Governmental Authority or State Regulator having jurisdiction over Borrower or the ownership, use, occupancy or operations of a Project, each as it may be amended from time to time.

9

“Lease Party” means the party to any Lease that grants to the other party the right to use or occupy any portion of a Project, whether it be Borrower or any Operator.

“Leases” means all leases of, subleases of and occupancy agreements affecting a Project or any part thereof now existing or hereafter executed (including all patient and resident care agreements and service agreements which include an occupancy agreement) and all amendments, modifications or supplements thereto.

“Lender” has the meaning assigned in the preamble to this Agreement. In addition to the foregoing, solely for the purpose of identifying the Persons entitled to share in payments and collections from the Collateral and the benefit of any guarantees of the Obligations as more fully set forth in this Agreement and the other Loan Documents, the term “Lender” shall include Secured Hedge Providers. For the avoidance of doubt, any Person to whom any Obligations in respect of a Secured Hedge Agreement are owed and which does not hold any portion of the Loan or commitments hereunder shall not be entitled to any other rights as a “Lender” under this Agreement or the other Loan Documents.

“Lender Transferee” has the meaning assigned in Section 12.3(f).

“Liabilities” means all claims, actions, suits, judgments, damages, losses, liability, obligations, responsibilities, fines, penalties, sanctions, costs, fees, taxes, commissions, charges, disbursements and expenses, in each case of any kind or nature (including interest accrued thereon or as a result thereto and fees, charges and disbursements of financial, legal and other advisors and consultants), whether joint or several, whether or not indirect, contingent, consequential, actual, punitive, treble or otherwise.

“Libor Breakage Amount” means an amount, as reasonably calculated by any Lender, equal to the amount of any losses, expenses and liabilities (including, without limitation, any loss (including interest paid) and lost opportunity cost in connection with the re-employment of such funds) that such Lender or any of its Affiliates may sustain as a result of any payment of the Loan (or any portion thereof) on any day that is not the last day of the Libor Interest Period applicable thereto (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise).

“Libor Business Day” means a Business Day on which banks in the City of London are generally open for interbank or foreign exchange transactions.

“Libor Interest Period” means each period commencing on the first day of a calendar month and ending on the last day of the month that is three months thereafter; provided, any Libor Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date.

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“Libor Rate” means the greater of (a) five tenths percent (0.50%) per annum or (b) for each Libor Interest Period, the rate determined by the Administrative Agent to be the offered rate for deposits in Dollars for the applicable Libor Interest Period appearing on the Reuters Screen LIBOR01 page as of 11:00 a.m. (London time) two (2) Business Days prior to the next preceding first day of each Libor Interest Period. In the event that such rate does not appear on the Reuters Screen LIBOR01 page at such time, the “Libor Rate” shall be determined by reference to such other comparable publicly available service for displaying the offered rate for deposit in Dollars in the London interbank market as may be selected by the Administrative Agent and, in the absence of availability, such other method to determine such offered rate as may be selected by the Administrative Agent in its sole discretion.

“Lien” means any interest, or claim thereof, in a Project securing an obligation owed to, or a claim by, any Person other than the owner of such Project, whether such interest is based on common law, statute or contract, including the lien or security interest arising from a deed of trust, mortgage, assignment, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term “Lien” shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting such Project.

“Loan” means the loan made by the Lenders to Borrower under this Agreement, together with all other amounts secured by the Loan Documents.

“Loan Commitment” means, with respect to each Lender, the commitment of such Lender to make its Pro Rata Share of the Loan to Borrower, which commitment is in the amount set forth opposite such Lender’s name on Exhibit B under the caption “Lender’s Loan Commitment.” The aggregate amount of the Loan Commitments on the date hereof is specified on Exhibit B.

“Loan Documents” means: (a) this Agreement, (b) the Note, (c) the Mortgage, (d) the Assignment of Leases and Rents, (e) Uniform Commercial Code financing statements, (f) such assignments of management agreements, contracts and other rights as may be required under the Term Sheet or otherwise requested by Administrative Agent or the Lenders, (g) the Business Associate Agreement, (h) the Recourse Guaranty Agreement, (i) Collateral Assignment of Membership Interests, (j) the Security Agreement, (k) the Cash Management Agreement, (l) [reserved], (m) Acknowledgment of Property Manager, (n) all other documents evidencing, securing, governing or otherwise pertaining to the Loan, (o) any letter of credit provided to Administrative Agent (for itself and on behalf of the Lenders) in connection with the Loan, and (p) all amendments, modifications, renewals, substitutions and replacements of any of the foregoing; provided however, in no event shall the term “Loan Documents” include the Environmental Indemnity Agreement.

“Lockout Period” means the period beginning on the Closing Date and ending on the last day of the calendar month that is twelve (12) months thereafter.

“Management Agreement” means, individually or collectively, as the context may require, any agreement, in the form approved by Administrative Agent, between a Master Tenant and a Property Manager pursuant to which such Property Manager is engaged to manage a Project.

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“Master Lease” means, individually and collectively, as the context may require, a lease (whether one or more), in the form approved by Administrative Agent, between a Borrower, as landlord, and a Master Tenant, as tenant, demising a Project in its entirety, together with all amendments, restatements, supplements and modifications thereto permitted under Section 5.3(b) hereof.

“Master Lease Fund” has the meaning specified in Section 2.5(d).

“Master Lease Subordination Agreement” means, individually and collectively, as the context may require, a Subordination, Non-Disturbance and Attornment Agreement (whether one or more), in the form approved by Administrative Agent, executed by a Master Tenant, a Borrower and Administrative Agent with respect to a Master Lease.

“Master Tenant” means, individually or collectively as the context may require, each Person identified on Exhibit A as the “Master Tenant” of a Project.

“Material Action” means to file any insolvency, or reorganization case or proceeding, to institute proceedings to have a Borrower or any Borrower Party be adjudicated bankrupt or insolvent, to institute proceedings under any applicable insolvency law, to seek any relief under any law relating to relief from debts or the protection of debtors, to consent to the filing or institution of bankruptcy or insolvency proceedings against a Borrower or any Borrower Party, to file a petition seeking, or consent to, reorganization or relief with respect to a Borrower or any Borrower Party under any applicable federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or for a Borrower or any Borrower Party or a substantial part of its respective property, to make any assignment for the benefit of creditors of a Borrower or any Borrower Party, the admission in writing such Borrower’s or any Borrower Party of such Person’s inability to pay its debts generally as they become due, or to take action in furtherance of any of the foregoing.

“Material Adverse Change” or “material adverse change” means, in Administrative Agent’s reasonable discretion, the business prospects, operations or financial condition of a Person or property has changed in a manner which could impair the value of the Collateral, prevent timely repayment of the Loan or otherwise prevent the applicable Person from timely performing any of its material obligations under the Loan Documents or Environmental Indemnity Agreement.

“Material Adverse Effect” or “material adverse effect” means, in Administrative Agent’s reasonable discretion, a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of a Borrower, (ii) the ability of a Borrower to perform any material obligation under the Loan Documents, (iii) the rights and remedies of the Administrative Agent and the Lenders under the Loan Documents, (iv) the ability of a Borrower or an Operator to operate all or a material portion of the Projects owned by such Borrower or operated by such Operator or (v) the ability of a Master Tenant to make the required rental payments under a Master Lease.

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“Maturity Date” means, as applicable, the earlier of (a) September 12, 2017; or (b) the date on which the Obligations are otherwise required to be paid in full, by acceleration or otherwise, under this Agreement or any of the other Loan Documents.

“Medicaid” means Title XIX of the Social Security Act, which was enacted in 1965 to provide a cooperative federal-state program for low income and medically indigent persons, which is partially funded by the federal government and administered by the states.

“Medicare” means Title XVIII of the Social Security Act, which was enacted in 1965 to provide a federally funded and administered health program for the aged and certain disabled persons.

“Mortgage” means, collectively (whether one or more), as applicable, the Mortgage(s), Assignment of Leases and Rents, Security Agreement and Fixture Filing, the Deed(s) of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, the Deed(s) to Secure Debt, Assignment of Leases and Rents, Security Agreement and Fixture Filing, or any similar security agreement encumbering a Project executed by any Borrower in favor of Administrative Agent (for itself and on behalf of the Lenders), covering the Projects, as amended, restated, supplemented or otherwise modified from time to time.

“Non-U.S. Lender Party” means each of the Administrative Agent, the Lenders and each participant, in each case that is not a Domestic Person.

“Note” and “Notes” means, respectively, (a) each Promissory Note executed at any time by a Borrower and payable to the order of a Lender in evidence of the Loan of such Lender and (b) all such Promissory Notes, together with all renewals, modifications and extensions thereof and any replacement or additional notes executed by any Borrower pursuant to the terms hereof.

“Obligations” means the Indebtedness and all other obligations of Borrower hereunder and under the other Loan Documents.

“OFAC” means the Office of Foreign Assets Control, Department of the Treasury.

“Operational Default” has the meaning assigned in Section 9.2.

“Operational Default Forbearance Period” has the meaning assigned in Section 9.2.

“Operator”, individually, and “Operators”, collectively, means the applicable Property Manager, Master Tenant, property sublessee and/or operator under any Operating Agreement, approved by Administrative Agent and any successor to such Operator approved by Administrative Agent. If there exists a Property Manager, Master Tenant and a property sublessee, or any combination thereof, with respect to a Project, then “Operator” shall refer to all such entities, collectively and individually as applicable and as the context may require.

“Operators’ Agreements” means, collectively, the Master Lease, the Management Agreement and/or other similar agreement regarding the management and operation of a Project between a Borrower and a Master Tenant or a Master Tenant and a Property Manager.

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“Other Taxes” has the meaning assigned in Section 2.16(c).

“Partial Release” has the meaning assigned in Section 2.17.

“Partial Release Price” has the meaning assigned in Section 2.17(a)(viii).

“Partial Release Principal Reduction Payment” shall mean a payment of a principal an amount that, if it had been made and applied to the principal balance of the Loan on the last day of the applicable fiscal quarter, would have reduced the principal balance of the Loan to an amount that would have enabled the Retained Project Debt Service Coverage Ratio and the Retained Project Debt Yield to be in compliance with the requirements specified in Section 2.17(a)(v).

“Partial Release Project” has the meaning assigned in Section 2.17.

“Patriot Act” means the USA Patriot Act of 2001, Pub. L. No. 107-56.

“Payment Date” means the first (1^st) day of each calendar month.

“Permit” means, with respect to any Person, any permit, approval, authorization, license, registration, certificate (including certificates of occupancy), concession, grant, franchise, variance or permission from, and any other contractual obligations with, any Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Permitted Exceptions” means the exceptions to title contained in the Title Policy insuring the liens created pursuant to the Mortgages and any other title matter to which Administrative Agent consents in writing.

“Permitted Transfer” means (a) a Sale or Pledge expressly permitted under Section 8.1(c) or (b) a Prohibited Transfer approved by the Required Lenders pursuant to Section 8.1(d) or 8.1(e).

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity.

“Post Closing Obligations” means the post closing obligations described on Schedule 12.37.

“Potential Default” means the occurrence of any event or condition which, with the giving of notice, the passage of time, or both, would constitute an Event of Default.

“Primary Licenses” means, with respect to a Project or Person operating a Project, as the case may be, the CON, permit or license to operate as a skilled nursing facility, and each Medicaid/Medicare/TRICARE provider agreement.

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“Prohibited Transfer” has the meaning assigned in Section 8.1(a).

“Projects” means the Land, and facilities located thereon, and all related facilities, amenities, fixtures and personal property owned by Borrower and any improvements now or hereafter located on such Land, and any other real property and facilities owned by Borrower that may from time to time be encumbered by a Mortgage. Each Project is more particularly described on Exhibit A hereto.

“Project Yield” means the ratio, as of any particular date, expressed as a percentage, of (a) annualized Adjusted Net Operating Income from the Projects, as determined by Administrative Agent as of such date, to (b) the outstanding principal balance of the Loan as of such date.

“Property Condition Report” has the meaning assigned in Schedule 2.1.

“Property Manager” means, individually or collectively as the context may require, each Person identified on Exhibit A as the “Property Manager” of a Project, together with any successor thereto approved by Administrative Agent.

“Pro Rata Outstandings” means, with respect to any Lender at any time, the outstanding principal amount of the Loan owing to such Lender at such time.

“Pro Rata Share” means, with respect to any Lender at any time (a) on or prior to the Closing Date, the percentage obtained by dividing (i) the Loan Commitment of such Lender then in effect by (ii) the sum of the Loan Commitments and (b) after the making of the Loan, the percentage obtained by dividing (i) the Pro Rata Outstandings of such Lender by (ii) the total outstanding principal amount of the Loan; provided, however, that, if there are no Loan Commitments and no Pro Rata Outstandings, such Lender’s Pro Rata Share shall be determined based on the Pro Rata Share most recently in effect, after giving effect to any subsequent assignment and any subsequent non-pro rata payments of any Lender pursuant to the terms of this Agreement.

“Prorated Interest” has the meaning assigned in Section 2.4(b).

“Rating Agencies” means each of Standard & Poor’s Ratings Group, a division of McGraw-Hill, Inc., Moody’s Investors Service, Inc., and Fitch, Inc., or any other nationally-recognized statistical rating agency which has been approved by Administrative Agent to the extent that any of the foregoing have been or will be engaged by Administrative Agent or its designees.

“Rating Agency Confirmation” means a written affirmation from each of the Rating Agencies (unless otherwise agreed by Administrative Agent) that an action or event shall not result in the qualification, downgrade or withdrawal of any credit rating by such Rating Agency.

“Recipient” has the meaning assigned in Section 12.38.

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“Recourse Guaranty Agreement” means that certain Guaranty of Recourse Obligations executed by Guarantor, as amended, restated, supplemented or otherwise modified from time to time.

“Register” has the meaning specified in Section 2.12(b).

“Related Persons” means, with respect to any Person, each of such Person’s Affiliates, officers, directors, employees, agents, trustees, representatives, attorneys, accountants, and each insurance, environmental, legal, financial and other advisor and other consultants and agents of or to such Person or any of its Affiliates, together with, if such Person is the Administrative Agent, each other Person or individual designated, nominated or otherwise mandated by or helping the Administrative Agent pursuant to and in accordance with Section 11.4 or any comparable provision of any Loan Document.

“Replacement Escrow Fund” has the meaning assigned in Section 2.5.

“Replacement Treasury Yield” means the rate of interest equal to the yield to maturity of the most recently issued U.S. Treasury security as quoted in the Wall Street Journal on any prepayment date. If the remaining term is less than one year, the Replacement Treasury Yield will equal the yield for 1-Year Treasury’s. If the remaining term of the Loan is 1-Year, 2-Year, etc., then the Replacement Treasury Yield will equal the yield for the Treasury’s with a maturity equaling the remaining term. If the remaining term of the Loan is longer than one year but does not equal one of the maturities being quoted, then the Replacement Treasury Yield will equal the yield for Treasury’s with a maturity closest to but not exceeding the remaining term. If the Wall Street Journal (i) quotes more than one such rate, the highest of such quotes shall apply, or (ii) ceases to publish such quotes, the U.S. Treasury security shall be determined from such financial reporting service or source as Administrative Agent shall determine.

“Reports” has the meaning assigned in Section 12.38.

“Required Lenders” means, at any time, Lenders whose Pro Rata Shares at such time are in excess of 50% in the aggregate; provided, however, the Loan Commitment of, and the portion of the Obligations held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Requirements of Law” means, with respect to any Person, collectively, the common law and all federal, state, local, foreign, multinational or international laws, statutes, codes, treaties, standards, rules and regulations, guidelines, ordinances, orders, judgments, writs, injunctions, decrees (including administrative or judicial precedents or authorities) and the interpretation or administration thereof by, and other determinations, directives, requirements or requests of, any Governmental Authority, in each case whether or not having the force of law and that are applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Residential Units” means, collectively, (a) each skilled nursing bed, Alzheimer’s unit and/or assisted living unit authorized under the Primary Licenses and (b) each independent living unit comprising the Projects.

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“Restoration Threshold” means, as of any date, the lesser of (a) two and one-half percent (2.5%) of the replacement value of the improvements at the affected Project as of such date, and (b) $500,000.00.

“Restricted Party” means Borrower, any Affiliated Manager, Guarantor or any shareholder, partner, member or non-member manager of Borrower or of any Affiliated Manager, or of any direct or indirect legal or beneficial owner of Borrower, of any Affiliated Manager or of any shareholder, partner, member or any non-member manager hereof.

“Retained Project” means the Project that is not a Partial Release Project.

“Retained Project Adjusted Expenses” means actual operating expenses (as adjusted by Administrative Agent) related to the Retained Project on a stabilized accrual basis for the twelve (12) month period ending on a particular date, including: (i) recurring expenses as determined under GAAP, (ii) real estate taxes, (iii) Insurance Premiums, (iv) management fees (whether paid or not) in an amount not less than five percent (5%) of effective gross income (or the actual management fee paid, if higher) and (v) a replacement reserve (whether reserved or not) of not less than Three Hundred Fifty and No/100 Dollars ($350.00) per Residential Unit per annum.

“Retained Project Adjusted Net Operating Income” means the Retained Project Adjusted Revenue less the Retained Adjusted Expenses, based upon the financial reports provided by Borrowers under Article 7 and approved by Administrative Agent in its reasonable discretion.

“Retained Project Adjusted Revenue” means revenues (as adjusted by Administrative Agent) generated by the operation of the Retained Project for any particular period, as determined under GAAP, but excluding (a) nonrecurring income and non-property related income (as determined by Administrative Agent in its sole discretion) and income from tenants that is classified as “bad debt” under GAAP, and (b) late fees and interest income; provided, however, if actual occupancy of the Retained Project exceeds 95%, Retained Project Adjusted Revenue shall be proportionately reduced assuming an occupancy of 95%.

“Retained Project Debt Service” means, for any particular period, (1) the aggregate interest, fixed principal, and other payments due during such period under the Loan and under any other permitted Debt relating to the Projects expressly approved by Administrative Agent (but not including payments applied to escrows or reserves required by Administrative Agent or Lenders) minus (2) the aggregate interest, fixed principal and other payments due during such period under the Loan that would not have been due had the Partial Release Price been paid immediately prior to the commencement of such period. In the event that Retained Project Debt Service for a period of twelve (12) months is not available, Administrative Agent shall annualize the Retained Project Debt Service for such period of time as is available.

“Retained Project Debt Service Coverage Ratio” means, as of any particular date, the ratio of (i) the Retained Project Adjusted Net Operating Income for the twelve (12) calendar month period ending on such date, to (ii) Retained Project Debt Service for the twelve (12) calendar month period ending on such date.

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“Retained Project Debt Yield” means the ratio, as of any particular date, expressed as a percentage, of (a) Retained Project Adjusted Net Operating Income, as determined by Administrative Agent for the twelve (12) calendar month period ending on such date, to (b) the outstanding principal balance of the Loan (determined on a pro forma basis after deducting the Partial Release Price therefrom) as of such date.

“Sale or Pledge” means a voluntary or involuntary sale, conveyance, mortgage, grant, bargain, master lease, encumbrance, pledge, assignment, grant of any options with respect to, or any other transfer or disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) a legal or beneficial interest.

“Secured Hedge Agreement” means any Hedge Agreement between a Borrower (or Affiliate of Borrower) and a Secured Hedge Provider.

“Secured Hedge Provider” means (i) a Lender or an Affiliate of a Lender (or a Person who was a Lender or an Affiliate of a Lender at the time of execution and delivery of a Hedge Agreement) who has entered into a Hedge Agreement with any Borrower, or (ii) a Person with whom Borrower has entered into a Hedge Agreement provided or arranged by GE Capital or an Affiliate of GE Capital, and any assignee thereof.

“Secured Parties” means the Lenders and the Administrative Agent and each such Person’s Related Persons.

“Security” means all of the real and personal property securing the Obligations described in the Loan Documents and the Secured Hedge Agreements.

“Security Agreement” means, collectively, the Security Agreement(s) executed by Borrower in favor of Administrative Agent (for itself and on behalf of the Lenders) covering certain personal property described therein, as amended, restated, supplemented or otherwise modified from time to time.

“Security Deposits” means any and all security deposits and entrance fees from any tenant or occupant of a Project collected or held by Borrower or any Operator.

“Single Purpose Entity” means a Person (other than an individual, a government or any agency or political subdivision thereof), which exists solely for the purpose of owning and leasing the Projects, observes corporate, company or partnership formalities, as applicable, independent of any other entity, and which otherwise complies with the covenants set forth in Section 6.17 hereof.

“Site Assessment” means an environmental engineering report for each Project prepared at Borrower’s expense by an engineer engaged by Borrower or by Administrative Agent on behalf of Borrower, and approved by Administrative Agent, and in a manner reasonably satisfactory to Administrative Agent, based upon an investigation relating to and making appropriate inquiries concerning the existence of Hazardous Materials on or about such Project, and the past or present discharge, disposal, release or escape of any such substances, all consistent with ASTM Standard E1527-05 (or any successor thereto published by ASTM) and good customary and commercial practice.

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“Social Security Act” means 42 U.S.C. 401 et seq., as enacted in 1935, and amended, restated or otherwise supplemented thereafter from time to time and all rules and regulations promulgated thereunder.

“SPE Party” has the meaning assigned in Section 6.17(d).

“Specially Designated National and Blocked Persons” means those Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC.

“State Regulator” has the meaning assigned in Section 8.14(a).

“Substitute Lender” has the meaning assigned in Section 2.13(a).

“Survey” has the meaning assigned in Schedule 2.1.

“Tax Impound” has the meaning assigned to such term in Section 3.5.

“Taxes” has the meaning assigned in Section 8.2.

“Tenant” means any tenant or occupant of a Project under a Lease.

“Term Sheet” means that certain letter agreement dated June 1, 2012 from Administrative Agent and accepted by and on behalf of Borrower on June 7, 2012.

“Third Party Payor Programs” means any participation or provider agreements with any third party payor, including Medicare, Medicaid, TRICARE and any Approved Insurer, and any other private commercial insurance managed care and employee assistance program, to which Borrower or any Operator may be subject with respect to any Project.

“Title Policy” has the meaning assigned in Schedule 2.1.

“Transferee” has the meaning assigned in Section 8.1(d).

“TWEA” has the meaning assigned in Section 6.19(f).

“UCC” means the Uniform Commercial Code as from time to time in effect in the State of Illinois; provided, however, that, in the event that, by reason of mandatory provisions of any applicable Requirement of Law, any of the attachment, perfection or priority of Administrative Agent’s or any other Lender’s security interest in any Collateral is governed by the Uniform Commercial Code of a jurisdiction other than the State of Illinois, “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of the definitions related to or otherwise used in such provisions.

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“U.S. Lender Party” means each of Administrative Agent, the Lenders, and each participant of a Lender, in each case that is a U.S. Person.

“U.S. Person” means any United States citizen, any entity organized under the laws of the United States or its constituent states or territories, or any entity, regardless of where organized, having its principal place of business within the United States or any of its territories.

“Withholding Taxes” has the meaning assigned in Section 2.16.

“Zoning Report” has the meaning assigned in Schedule 2.1.

Section 1.2.          Definitions. All terms defined in Section 1.1 above or otherwise in this Agreement shall, unless otherwise defined therein, have the same meanings when used in any other Loan Document or Environmental Indemnity Agreement, or any certificate or other document made or delivered pursuant hereto. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole. The words “include” and “include(s)” when used in this Agreement and the other Loan Documents or Environmental Indemnity Agreement means “include(s), without limitation,” and the word “including” means “including, but not limited to.”

Section 1.3.          Phrases. When used in this Agreement and the other Loan Documents or Environmental Indemnity Agreement, the phrases “satisfactory to Administrative Agent,” “satisfactory to Lenders,” and “satisfactory to Required Lenders” shall mean “in form and substance satisfactory to the applicable Person in all respects”, the phrases “with Administrative Agent’s consent,” “with the Lenders’ consent,” and “with the Required Lenders’ consent,” or “with Administrative Agent’s approval,” “with the Lenders’ approval,” and “with the Required Lenders’ approval” shall mean such consent or approval at such Person’s sole discretion, and the phrases “acceptable to Administrative Agent,” “acceptable to Lenders,” and “acceptable to the Required Lenders” shall mean “acceptable to such Person at such Person’s sole discretion” unless otherwise specified in this Agreement.

ARTICLE II

LOAN TERMS

Section 2.1.          The Loan. Upon satisfaction of all the terms and conditions set forth in the Term Sheet and Schedule 2.1 attached hereto, each Lender severally, but not jointly, agrees to make its Pro Rata Share of the Loan in Dollars to Borrower in the amount of such Lender’s Loan Commitment, which shall be funded in one advance on the Closing Date and repaid in accordance with the terms of this Agreement and the Notes. Each Borrower hereby agrees to accept the Loan on the Closing Date, subject to and upon the terms and conditions set forth herein.

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Section 2.2.          Interest Rate; Late Charge; Default Rate.

(a)          Interest Rate. The outstanding principal balance of the Loan shall bear interest, commencing on the Closing Date, at a floating rate of interest equal to the Contract Rate.

(b)          Late Charge. If any Borrower fails to pay any installment of interest or principal within five (5) days after the date on which the same is due excluding the final installment due on the Maturity Date, Borrower shall pay to Administrative Agent, for the account of the Lenders (other than any Defaulting Lender), a late charge on such past due amount, as liquidated damages and not as a penalty, equal to five percent (5%) of such amount, but not in excess of the maximum amount of interest allowed by applicable law. The Administrative Agent shall pay to each Lender (other than any Defaulting Lender) of the Loan its portion of the late charge based on each Lender’s Pro Rata Share of the Loan in accordance with Section 2.6. The foregoing late charge is intended to compensate each Lender for the expenses incident to handling any such delinquent payment and for the losses incurred by each Lender as a result of such delinquent payment. Borrower agrees that, considering all of the circumstances existing on the date this Agreement is executed, the late charge represents a reasonable estimate of the costs and losses each Lender will incur by reason of late payment. Borrower and each Lender further agree that proof of actual losses would be costly, inconvenient, impracticable and extremely difficult to fix. Acceptance of the late charge shall not constitute a waiver of the Event of Default arising from the overdue installment, and shall not prevent any Lender from exercising any other rights or remedies available to such Lender with respect to such Event of Default.

(c)          Default Rate. While any Event of Default exists, the Loan shall bear interest at the Default Rate.

Section 2.3.          Terms of Payment. The Loan shall be payable as follows:

(a)          Principal and Interest.

(i)          Commencing on October 1, 2012, and continuing on each Payment Date thereafter during the Interest Only Period, Borrower shall pay to Administrative Agent for the account of the Lenders (other than a Defaulting Lender), interest only in arrears computed at the Contract Rate on the outstanding principal balance of the Loan.

(ii)         Thereafter, commencing on October 1, 2013, and continuing on each Payment Date thereafter through and including the Payment Date immediately prior to the Maturity Date, Borrower shall pay to Administrative Agent for the account of the Lenders (other than a Defaulting Lender) (A) interest in arrears computed at the Contract Rate on the outstanding principal balance of the Loan and (B) installments of principal in accordance with the amortization schedule attached hereto as Schedule 2.3(a). Each of such payments shall be applied (i) to the payment of interest computed at the Contract Rate and (ii) the balance applied toward reduction of the principal sum. The constant payment required hereunder is based on a twenty-five (25) year amortization schedule with an assumed interest rate of 6.0% per annum.

(b)          Maturity. On the Maturity Date, Borrower shall pay to Administrative Agent, for the account of the Lenders (other than a Defaulting Lender), all outstanding principal, accrued and unpaid interest, default interest, late charges, the Acceleration Prepayment Premium (if applicable) and any and all other amounts due under the Loan Documents.

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Section 2.4.          Prepayment.

(a)          Lock-Out Period. Except as set forth herein, the Loan is closed to prepayment in whole or in part. Notwithstanding the foregoing, the Loan may be prepaid in whole, but not in part, at any time following the expiration of the Lockout Period without payment of any Acceleration Prepayment Premium, provided Borrower pays with such prepayment all accrued interest and all other outstanding amounts then due and unpaid under the Loan Documents.

(b)          Reserved.

(c)          Prepayment Not Made on a Payment Date. If for any reason the Loan or any portion thereof is prepaid on a day other than a scheduled monthly Payment Date, interest shall be prorated through the date of prepayment (the “Prorated Interest”). On the prepayment date, Borrower shall pay to Administrative Agent, for the account of Lenders, the outstanding principal balance of the Loan, Prorated Interest and Libor Breakage Amount, and any other amounts, if any, required under this Agreement.

(d)          Involuntary Prepayment. If the Loan is accelerated for any reason other than casualty or condemnation, and the Loan is otherwise closed to prepayment, Borrower shall pay to Administrative Agent, for the account of the Lenders, in addition to all other amounts outstanding under the Loan Documents, a prepayment premium equal to the sum of (i) the Libor Breakage Amount and (ii) two percent (2%) of the outstanding balance of the Loan (the “Acceleration Prepayment Premium”).

(e)          Prepayment Due to Casualty or Condemnation. In the event of a prepayment resulting from the application of insurance or condemnation proceeds pursuant to Article 3 hereof, no prepayment penalty or premium shall be imposed.

(f)          Character of Acceleration Prepayment Premium. The Acceleration Prepayment Premium does not constitute a penalty, but rather represents the reasonable estimate, agreed to between Borrower and each Lender, of fair compensation for the loss that may be sustained by such Lender due to the payment of the principal Indebtedness prior to the Maturity Date and/or the increased cost and expense to such Lender resulting from an acceleration of the Loan. Any Acceleration Prepayment Premium shall be paid without prejudice to the right of any Lender to collect on its behalf any of the amounts owing under the Note, this Loan Agreement or the other Loan Documents or otherwise, to enforce any of its rights or remedies arising out of an Event of Default.

(g)          Partial Prepayment. If, notwithstanding Section 2.4(a), Administrative Agent permits the Loan to be prepaid in part, Borrower shall pay, in addition to the principal amount prepaid, pro-rated interest on the amount of such prepayment plus any Libor Breakage Amount applicable to such principal being prepaid. Partial prepayments may be made from time to time following the expiration of the Lockout Period to the extent permitted under Section 2.17.

Section 2.5.          Security; Establishment of Funds.

(a)          Security. The Loan shall be secured by the Mortgage creating a first lien on the Projects, the Assignment of Leases and Rents and the other Loan Documents.

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(b)          Establishment of Replacement Escrow Fund; Disbursement of Funds.

(i)          Borrower shall deposit with Administrative Agent on each Payment Date, the product of Thirty Dollars ($30) multiplied by the number of Residential Units in the Projects, which shall be held by Administrative Agent for replacements and repairs required to be made to the Projects during the term of the Loan (the “Replacement Escrow Fund”).

(ii)         Administrative Agent shall make disbursements from the Replacement Escrow Fund as requested by Borrower, and approved by Administrative Agent in its reasonable discretion, on a monthly basis in increments of no less than $5,000.00 upon delivery by Borrower of Administrative Agent’s standard form of draw request accompanied by copies of paid invoices for the amounts requested and, if required by Administrative Agent, lien waivers and releases from all parties furnishing materials and/or services in connection with the requested payment. Administrative Agent may require an inspection of the Projects at Borrower’s expense prior to making a monthly disbursement in order to verify completion of replacements and repairs for which reimbursement is sought.

(c)          Establishment of HUD Fund. If, on or before September 13, 2013, Borrower provides Administrative Agent with a HUD Commitment, then Administrative Agent shall place, following receipt thereof, the scheduled installment of principal due and payable with respect to the Loan on October 1, 2013, into a reserve (the “HUD Fund”) in lieu of releasing such installment to Lenders for application to the outstanding principal balance of the Loan, provided the HUD Conditions are satisfied on such date. Commencing on September 1, 2013, and continuing thereafter through and including September 1, 2014, Administrative Agent, following receipt of each scheduled installment of principal due and payable with respect to the Loan, shall place such payment into the HUD Fund, provided the HUD Conditions are satisfied on such date. If, on or before September 12, 2014, the Obligations are repaid in full, the funds contained in the HUD Fund shall be released to Borrower in connection with such repayment. If the Obligations are not repaid in full on or before September 12, 2014, or if at any time the HUD Conditions cease to be satisfied, the funds then contained in the HUD Fund shall be released to Lenders and applied to the outstanding principal balance of the Loan on October 1, 2014 or, if sooner, at any time following the date upon which the HUD Conditions cease to be satisfied. For avoidance of doubt, the outstanding principal balance of the Loan, unreduced by the funds contained in HUD Fund, shall bear interest in accordance with Section 2.2.

(d)          Establishment of Master Lease Fund. Each Borrower hereby agrees to the establishment of a reserve for each Project (each, a “Master Lease Fund”), into which, during any period in which a Project is not in compliance with the “Minimum Rent Coverage” (as defined under the Master Lease applicable to such Project) specified for such Project in the applicable Master Lease, the applicable Borrower shall deposit an amount equal to the additional monthly deposit required under such Master Lease to be deposited with Borrower by the Master Tenant thereunder. Upon such time as the applicable Borrower delivers evidence reasonably satisfactory to Administrative Agent (and Administrative Agent confirms to its reasonable satisfaction) that such Project has been in compliance with the “Minimum Rent Coverage” applicable thereto for a period of six (6) consecutive months, and provided no Event of Default is then in existence, the funds contained in the applicable Master Lease Fund shall be released to the applicable Borrower (or, at the option of Administrative Agent, directly to the applicable Master Tenant).

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(e)          Funds, Generally; Pledge of Security Interest. Borrower hereby pledges to Administrative Agent and the Lenders, and grants a security interest in, any and all monies now or hereafter deposited in the Funds as additional security for the payment of the Loan. Administrative Agent shall hold the Funds, and any and all other impounds or reserves otherwise provided for in this Agreement, for the benefit of all Lenders. The Lenders and Borrower acknowledge and agree that the Funds may be commingled with Administrative Agent’s own funds at financial institutions selected by Administrative Agent in its reasonable discretion and, except as otherwise expressly provided herein, shall be held without interest in Administrative Agent’s name. Upon the occurrence of an Event of Default, Administrative Agent may (and at the direction of the Required Lenders shall) apply any sums then present in the Funds to the payment of the Loan in any order in the reasonable discretion of Administrative Agent. Until expended or applied as above provided, the Funds shall constitute additional security for the Loan. Administrative Agent shall have no obligation to release any of the Funds while any Event of Default or Potential Default exists or any Material Adverse Change has occurred in Borrower or any Borrower Party or the Projects. All costs and expenses reasonably incurred by Administrative Agent in the disbursement of any of the Funds shall be paid by Borrower promptly upon demand or, at Administrative Agent’s sole discretion, deducted from the Funds.

Section 2.6.          Application of Payments.

(a)          Waterfall. Prior to the occurrence of an Event of Default, all payments received by Administrative Agent under the Loan Documents shall be applied, (i) first, to pay Obligations in respect of any cost or expense reimbursements, fees or indemnities then due to the Administrative Agent pursuant to this Agreement or any Loan Document, (ii) second, to pay interest then due and payable to the Lenders (other than a Defaulting Lender) calculated at the Contract Rate, (iii) third, to pay Obligations in respect of any cost or expense reimbursements, fees or indemnities then due to the Lenders (other than a Defaulting Lender) in respect of the Loan pursuant to this Agreement or any Loan Document, (iv) fourth, subject to Section 2.5(b), to principal payments due under the Loan owing to the Lenders (other than a Defaulting Lender) and to the Obligations under the Secured Hedge Agreements, (v) fifth, to any reserves, escrows or other impounds required to be maintained pursuant to the Loan Documents, (vi) sixth, to the ratable payment of all other Obligations (other than Obligations owing to a Defaulting Lender); and (vii) seventh, to repay all other Obligations owing to a Defaulting Lender. Upon the occurrence of an Event of Default, all payments shall be applied in such order as the Administrative Agent shall determine in its sole discretion. Notwithstanding anything herein to the contrary, if at any time following an Event of Default or acceleration of the Obligations or on or after the Maturity Date, the Administrative Agent applies any payments received or the proceeds of any Collateral to principal payments on the Loan, the Administrative Agent shall apply such payments or proceeds pro rata between such principal payments on the Loan and the Obligations under the Secured Hedge Agreements based on the outstanding principal balance of the Loan and the Obligations under Secured Hedge Agreements.

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(b)          Application of Payments Generally. All repayments of the Loan shall be applied to reduce ratably the remaining installments of such outstanding principal amounts of the Loan in the inverse order of maturity. If sufficient amounts are not available to repay all outstanding Obligations described in any priority level set forth in this Section 2.6, the available amounts shall be applied, unless otherwise expressly specified herein, to such Obligations ratably based on the proportion of the Secured Parties’ interest in such Obligations. Any priority level set forth in this Section 2.6 that includes interest shall include all such interest, whether or not accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post-petition interest is allowed in any such proceeding. All prepayments of principal shall be applied in the inverse order of maturity.

(c)          Payments and Computations. Borrower shall make each payment under any Loan Document not later than 1:00 p.m. (Eastern Standard or Daylight Savings time) on the day when due to the Administrative Agent by wire transfer or Automated Clearing House (“ACH”) transfer (which shall be the exclusive means of payment hereunder) to the following account (or at such other account or by such other means to such other address as the Administrative Agent shall have notified Borrower in writing within a reasonable time prior to such payment) in immediately available Dollars and without setoff or counterclaim:

Bank:	Deutsche Bank Trust Co.
	New York, New York
ABA No.:	021001033
Account Number:	50-256-477
Account Name:	GE HFS - GEMSA
Reference:	Cornerstone Portfolio

The Administrative Agent shall promptly thereafter cause to be distributed immediately available funds relating to the payment of principal, interest or fees to the Lenders, in accordance with the application of payments set forth in Section 2.6(a) on the same Business Day as funds are deemed received. Payments received by the Administrative Agent after 1:00 p.m. (Eastern Standard or Daylight Savings time) shall be deemed to be received on the next Business Day.

(d)          Computations of Interest and Fees. All computations of interest and of fees shall be made by the Administrative Agent on the basis of a fraction, the denominator of which is three hundred sixty (360) and the numerator of which is the actual number of days elapsed from the Closing Date or the date of the preceding Payment Date, as the case may be, to the date of the next Payment Date or the Maturity Date. Each determination of an interest rate or the amount of a fee hereunder shall be made by the Administrative Agent and shall be conclusive, binding and final for all purposes, absent manifest error.

(e)          Payment Dates. Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, the due date for such payment shall be extended to the next succeeding Business Day without any increase in such payment as a result of additional interest or fees.

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(f)          Advancing Payments. Unless the Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due hereunder that Borrower will not make such payment in full, the Administrative Agent may assume that Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that Borrower shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender together with interest thereon (at the Contract Rate) for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent.

Section 2.7.          Sources and Uses. The sources and uses of funds for the contemplated transaction are as described on Schedule 2.7 attached hereto. Borrower shall deliver such information and documentation as Administrative Agent shall request to verify that the sources and uses are as indicated on Schedule 2.7. A reduction in the amounts necessary for any of the uses may, at Administrative Agent’s election, shall result in an equal reduction in the amount of the Loan. The proceeds of the Loan are intended and will be used for agricultural, business and/or commercial purposes and are not intended and will not be used for personal, family or household purposes.

Section 2.8.          Capital Adequacy; Increased Costs; Illegality.

(a)          If any Lender determines that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by such Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender, pay to Lender, additional amounts sufficient to compensate Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by the affected Lender to Borrower shall, absent manifest error, be final, conclusive and binding for all purposes. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, such Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 2.8(a).

(b)          If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) (other than changes in income taxes) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case adopted after the Closing Date, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining the Loan, then Borrower shall from time to time, upon demand by such Lender, pay to such Lender, additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, such Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 2.8(b).

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(c)          Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any Loan bearing interest computed by reference to the Libor Rate, then, unless such Lender is able to make or to continue to fund or to maintain the Loan at another office of such Lender without, in such Lender's opinion, adversely affecting it or its Loan or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain the Loan shall terminate and (ii) Borrower shall prepay in full such Lender’s Pro Rata Share of the Loan, together with interest accrued thereon, but without payment of any Acceleration Prepayment Premium, within thirty (30) days following such Lender's demand for payment unless such Lender determines a replacement index and spread to approximate the Contract Rate before such change in law or regulation. Each Lender will use its best efforts to determine such replacement index and spread and will notify Borrower of the index and spread to be used and the same shall be applied to the Loan effective as of the date such Lender determined that the Libor Rate was no longer available.

(d)          Notwithstanding anything herein to the contrary, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith shall be deemed to be a change in a Requirement of Law under subsection (b) above and/or a change in capital adequacy requirements under subsection (a) above, as applicable, regardless of the date enacted, adopted or issued.

Section 2.9.          Interest Rate Protection. Borrower, at its sole cost and expense, may obtain and maintain, at its option and otherwise in compliance with this Section, an interest rate cap for the benefit of Borrower pursuant to one or more Hedge Agreements reasonably satisfactory to the Administrative Agent. The Hedge Agreement shall, at Administrative Agent’s request, be collaterally assigned to Administrative Agent (for the benefit of Lenders). Any such Hedge Agreement shall be provided by either Administrative Agent or any Lender (or an Affiliate of such Person) or a bank or other financial institution whose long-term debt rating is equal to or greater than “A”. Upon repayment of the Obligations in full, Administrative Agent shall assign the Hedge Agreement back to Borrower or an Affiliate of Borrower. Except in connection with a Secured Hedge Agreement, the Projects shall not be pledged or encumbered in any manner to secure any obligation under the Hedge Agreement. Borrower shall not enter into any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement pertaining to fluctuations in interest rates, or any swaps, caps or collar agreements or similar arrangements providing for protection against fluctuations in currency exchange rates, either generally or under specific contingencies, other than the Hedge Agreement contemplated by this Section 2.9, and not for speculative purposes.

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Section 2.10.         Libor Breakage Amount. Upon any payment of the Loan (or any portion thereof) on any day that is not the last day of the Libor Interest Period applicable thereto (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise), Borrower shall pay to Administrative Agent, for the account of Lenders (other than a Defaulting Lender) the Libor Breakage Amount. For purposes of calculating the Libor Breakage Amount payable to a Lender under this Section 2.10, each Lender shall be deemed to have actually funded the Loan through the purchase of a deposit bearing interest at the Libor Rate in an amount equal to the amount of the Loan and having a maturity and repricing characteristics comparable to the relevant Libor Interest Period; provided, however, that each Lender may fund its Pro Rata Share of the Loan in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.10.

Section 2.11.         [Reserved].

Section 2.12.         Evidence of Debt.

(a)          Records of Lenders. Each Lender shall maintain in accordance with its usual practice accounts evidencing the Indebtedness of Borrower to each Lender resulting from the Pro Rata Share of the Loan of such Lender from time to time outstanding, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. In addition, with respect to each Lender having sold a participation interest in any of the Obligations owing to it, such Lender, acting as agent of Borrower solely for this purpose and solely for tax purposes, shall establish and maintain at its address referred to in Section 12.1 (or at such other address as Administrative Agent shall notify Borrower) a record of ownership, in which such Lender shall register by book entry (A) the name and address of each such participant (and each change thereto, whether by assignment or otherwise) and (B) the rights, interest or obligation of each such participant in any Obligation owing to such Lender, in any Loan Commitment or any portion of the Loan and in any right of such Lender to receive any payment hereunder.

(b)          Records of Administrative Agent. The Administrative Agent, acting as agent of Borrower solely for tax purposes and solely with respect to the actions described in this Section 2.12, shall establish and maintain at its address referred to in Section 12.1 (or at such other address as the Administrative Agent may notify Borrower) (i) a record of ownership (the “Register”) in which the Administrative Agent agrees to register by book entry the interests (including any rights to receive payment hereunder) of each Lender in the Loan and the Pro Rata Outstandings, and any assignment of any such interest, obligation or right and (ii) accounts in the Register in accordance with its usual practice in which it shall record (A) the names and addresses of the Lenders (and each change thereto pursuant to Section 2.13 (Substitution of Lenders) and Section 12.3 (Assignments and Participations; Binding Effect)), (B) the Loan Commitments of each Lender, (C) the amount of each of the Pro Rata Outstandings and any assignment of a Lender’s Pro Rata Share of the Loan, (D) the amount of any principal or interest due and payable or paid, and (E) any other payment received by the Administrative Agent from Borrower and its application to the Obligations.

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(c)          Registered Obligations. Notwithstanding anything to the contrary contained in this Agreement, the Loan (including any Notes evidencing the Loan) shall constitute a registered obligation, the right, title and interest of the Lenders and their assignees in and to the Loan shall be transferable only upon notation of such transfer in the Register and no assignment thereof shall be effective until recorded therein. This Section 2.12 and Section 12.3 shall be construed so that the Loan is at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and any related regulations (and any successor provisions).

(d)          Prima Facie Evidence. The entries made in the Register and in the accounts maintained pursuant to clauses (a) and (b) of this Section 2.12 shall, to the extent permitted by applicable Requirements of Law, be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, however, that no error in such account and no failure of any Lender or the Administrative Agent to maintain any such account shall affect the obligations of Borrower or any Borrower Party to repay the Loan in accordance with its terms. In addition, Borrower, the Administrative Agent, and the Lenders shall treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. Information contained in the Register with respect to any Lender shall be available for access by Borrower, the Administrative Agent and such Lender at any reasonable time and from time to time upon reasonable prior notice. No Lender shall have access to or be otherwise permitted to review any information in the Register other than information with respect to such Lender unless otherwise agreed by the Administrative Agent.

Section 2.13.         Substitution of Lenders.

(a)          In the event that any Lender that is not an Affiliate of the Administrative Agent (an “Affected Lender”), (i) makes a claim under Section 2.8 or notifies Borrower and the Administrative Agent pursuant to Section 2.8 that it becomes illegal for such Lender to continue to fund or maintain its Pro Rata Share of the Loan using the Libor Rate or (ii) does not consent to any amendment, waiver or consent to any Loan Document for which the consent of the Required Lenders is obtained but that requires the consent of other Lenders, Borrower may, without regard to the Lock Out Period, either pay in full such Affected Lender with respect to amounts due with the consent of the Administrative Agent or substitute for such Affected Lender any Lender or any Affiliate or Approved Fund of any Lender or any other Person acceptable (which acceptance shall not be unreasonably withheld or delayed) to the Administrative Agent (in each case, a “Substitute Lender”).

(b)          To substitute such Affected Lender or pay in full the Obligations owed to such Affected Lender, Borrower shall deliver a notice to the Administrative Agent and such Affected Lender. The effectiveness of such payment or substitution shall be subject to the delivery to the Administrative Agent by Borrower (or, as may be applicable in the case of a substitution, by the Substitute Lender) of (i) payment for the account of such Affected Lender, of, to the extent accrued through, and outstanding on, the effective date for such payment or substitution, all Obligations owing to such Affected Lender (including those that will be owed because of such payment and all Obligations that would be owed to such Lender if it was solely a Lender), and (ii) in the case of a substitution, (A) payment of the assignment fee set forth in Section 12.3 and (B) an assumption agreement in form and substance satisfactory to the Administrative Agent whereby the Substitute Lender shall, among other things, agree to be bound by the terms of the Loan Documents and assume the Loan Commitment of the Affected Lender.

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(c)          Upon satisfaction of the conditions set forth in clause (b) above, the Administrative Agent shall record such substitution or payment in the Register, whereupon (i) in the case of any payment in full, such Affected Lender’s Loan Commitments shall be terminated and (ii) in the case of any substitution, (A) the Affected Lender shall sell and be relieved of, and the Substitute Lender shall purchase and assume, all rights and claims of such Affected Lender under the Loan Documents with respect to the Loan, except that the Affected Lender shall retain such rights expressly providing that they survive the repayment of the Obligations and the termination of the Loan Commitments, (B) the Substitute Lender shall become a “Lender” hereunder having a Loan Commitment in the amount of such Affected Lender’s Loan Commitment and (C) the Affected Lender shall execute and deliver to the Administrative Agent an Assignment to evidence such substitution and deliver any Note in its possession; provided, however, that the failure of any Affected Lender to execute any such Assignment or deliver any such Note shall not render such sale and purchase (or the corresponding assignment) invalid.

Section 2.14.         Defaulting Lenders.

(a)          Cure of Defaulting Lender Status. A Defaulting Lender may regain its status as a non-defaulting Lender hereunder upon satisfaction of each of the following conditions, as applicable: (i) payment by such Defaulting Lender of all amounts owing hereunder (whether to the Administrative Agent for indemnity purposes or otherwise); (ii) receipt by Administrative Agent of (A) a written revocation by Defaulting Lender of any written notice by Defaulting Lender to Borrower, Administrative Agent, or any other Lender that such Defaulting Lender will fail to fund under this Agreement, or (B) evidence satisfactory to Administrative Agent (in consultation with the Required Lenders) that such Defaulting Lender has publicly revoked any public announcement of the same; (iii) evidence satisfactory to Administrative Agent (in consultation with the Required Lenders) that such Defaulting Lender is no long in default for failing to make payments under one or more syndicated credit facilities; and (iv) evidence satisfactory to Administrative Agent (in consultation with the Required Lenders) that such Defaulting Lender (or the holding company of such Defaulting Lender) is no longer the subject of a bankruptcy proceeding and is not otherwise involved in any liquidation proceeding, and Administrative Agent has determined such Defaulting Lender is able to meet its obligations hereunder.

(b)          Right of Offset. Anything herein to the contrary notwithstanding, upon receipt of any payment from Borrower hereunder for the account of the Lenders, Administrative Agent may, in its discretion, offset against a Defaulting Lender’s Pro Rata Share of such payment, the amount of any unfunded reimbursement obligations of such Defaulting Lender.

(c)          Replacement of Defaulting Lender. If any Lender is a Defaulting Lender, the Administrative Agent may, upon notice to such Lender and Borrower, replace such Lender by causing such Lender to assign its Loan (with the related assignment fee to be paid by such Defaulting Lender) pursuant to Section 12.3 to one or more Persons eligible under such Section procured by the Administrative Agent. Borrower shall pay in full all principal, interest, fees and other amounts owing to such Defaulting Lender through the date of replacement. Any Defaulting Lender being replaced under this Section 2.14(c) shall execute and deliver an Assignment with respect to such Lender’s Loan.

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Section 2.15.         Fees and Expenses. Borrower agrees to pay to the Administrative Agent for the benefit of the Lenders the fees and expenses provided in the Term Sheet.

Section 2.16.         Withholding Taxes.

(a)          Payments Free and Clear of Withholding Taxes. Except as otherwise provided in this Section 2.16, each payment by Borrower under any Loan Document shall be made free and clear of all present or future taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto (and without deduction for any of them) (collectively, but excluding the taxes set forth in clauses (i) and (ii) below, the “Withholding Taxes”) other than for (i) taxes measured by net income (including branch profits taxes) and franchise taxes imposed in lieu of net income taxes, in each case imposed on any Lender as a result of a connection between such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than such connection arising solely from any Lender having executed, delivered or performed its obligations or received a payment under, or enforced, any Loan Document) or (ii) taxes that are directly attributable to the failure (other than as a result of a change in any Requirement of Law) by any Lender to deliver the documentation required to be delivered pursuant to clause (f) below.

(b)          Gross-Up. If any Withholding Taxes shall be required by law to be deducted from or in respect of any amount payable under any Loan Document to any Lender (i) such amount shall be increased as necessary to ensure that, after all required deductions for Withholding Taxes are made (including deductions applicable to any increases to any amount under this Section 2.16), such Lender receives the amount it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) the relevant Lender shall timely pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable Requirements of Law and (iv) within 30 days after such payment is made, Borrower shall deliver to Administrative Agent an original or certified copy of a receipt evidencing such payment; provided, however, that no such increase shall be made with respect to, and Borrower shall not be required to indemnify any such Lender pursuant to clause (d) below for, Withholding Taxes to the extent that the obligation to withhold amounts existed on the date that such Lender became a “Lender” under this Agreement in the capacity under which such Lender makes a claim under this clause (b), except in each case to the extent such Lender is a direct or indirect assignee (other than pursuant to Section 2.13 (Substitution of Lenders)) of any other Lender that was entitled, at the time the assignment of such other Lender became effective, to receive additional amounts under this clause (b).

(c)          Other Taxes. In addition, Borrower agrees to pay or cause to be paid, and authorizes Administrative Agent to pay in its name, any stamp, documentary, excise or property tax, charges or similar levies imposed by any applicable Requirement of Law or Governmental Authority and all Liabilities with respect thereto (including by reason of any delay in payment thereof), in each case arising from the execution, delivery or registration of, or otherwise with respect to, any Loan Document or any transaction contemplated therein (collectively, “Other Taxes”). Within thirty (30) days after the date of any payment of Withholding Taxes or Other Taxes by Borrower, Borrower shall furnish to Administrative Agent, at its address referred to in Section 12.1, the original or a certified copy of a receipt evidencing payment thereof.

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(d)          Indemnification. Borrower shall reimburse and indemnify, within thirty (30) days after receipt of demand therefor (with copy to Administrative Agent), each Lender for all Withholding Taxes and Other Taxes (including any Withholding Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender and any Liabilities arising therefrom or with respect thereto, whether or not such Withholding Taxes or Other Taxes were correctly or legally asserted. A certificate of the Lender (or of Administrative Agent on behalf of such Lender) claiming any compensation under this clause (d), setting forth the amounts to be paid thereunder and delivered to Borrower with copy to Administrative Agent, shall be conclusive, binding and final for all purposes, absent manifest error. In determining such amount, Administrative Agent and such Lender may use any reasonable averaging and attribution methods.

(e)          Mitigation. Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its reasonable efforts (consistent with its internal policies and Requirements of Law) to change the jurisdiction of its lending office if such a change would reduce any such additional amounts (or any similar amount that may thereafter accrue) and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

(f)          Tax Forms.

(i)          Each Non-U.S. Lender Party that, at any of the following times, is entitled to an exemption from United States withholding tax or, after a change in any Requirement of Law, is subject to such withholding tax at a reduced rate under an applicable tax treaty, shall (w) on or prior to the date such Non-U.S. Lender Party becomes a “Non-U.S. Lender Party” hereunder, (x) on or prior to the date on which any such form or certification expires or becomes obsolete, (y) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (i) and (z) from time to time if requested by Borrower or Administrative Agent (or, in the case of a participant, the relevant Lender), provide Administrative Agent and Borrower (or, in the case of a participant, the relevant Lender) with two completed originals of each of the following, as applicable: (A) Forms W-8ECI (claiming exemption from U.S. withholding tax because the income is effectively connected with a U.S. trade or business), W-8BEN (claiming exemption from, or a reduction of, U.S. withholding tax under an income tax treaty) or any successor forms, (B) in the case of a Non-U.S. Lender Party claiming exemption under Sections 871(h) or 881(c) of the Code, Form W-8BEN (claiming exemption from U.S. withholding tax under the portfolio interest exemption) or any successor form and a certificate in form and substance acceptable to Administrative Agent that such Non-U.S. Lender Party is not (1) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of Borrower within the meaning of Section 881(c)(3)(B) of the Code or (3) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code or (C) any other applicable document prescribed by the IRS certifying as to the entitlement of such Non-U.S. Lender Party to such exemption from United States withholding tax or reduced rate with respect to all payments to be made to such Non-U.S. Lender Party under the Loan Documents. Unless Borrower and Administrative Agent have received forms or other documents satisfactory to them indicating that payments under any Loan Document to or for a Non-U.S. Lender Party are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, Borrower and Administrative Agent shall withhold amounts required to be withheld by applicable Requirements of Law from such payments at the applicable statutory rate.

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(ii)         Each U.S. Lender Party shall (A) on or prior to the date such U.S. Lender Party becomes a “U.S. Lender Party” hereunder, (B) on or prior to the date on which any such form or certification expires or becomes obsolete, (C) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (f) and (D) from time to time if requested by Borrower or Administrative Agent (or, in the case of a participant, the relevant Lender), provide Administrative Agent and Borrower (or, in the case of a participant, the relevant Lender) with two completed originals of Form W-9 (certifying that such U.S. Lender Party is entitled to an exemption from U.S. backup withholding tax) or any successor form.

(iii)        Each Lender having sold a participation in any of its Obligations shall collect from such participant the documents described in this clause (f) and provide them to Administrative Agent.

(g)          Refunds. If a Lender has received a refund of (or tax credit with respect to) any Withholding Taxes or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 2.16, it shall pay over such refund (or the benefit realized as a result of such tax credit) to Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section 2.16 with respect to the Withholding Taxes or Other Taxes giving rise to such refund), net of all out of pocket expenses of the Lender (including any Withholding Taxes imposed with respect to such refund) as is determined by the Lender in good faith, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that Borrower, upon the request of the Lender, agree to repay as soon as reasonably practicable the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender in the event the Lender is required to repay such refund to such Governmental Authority. This Section 2.16 shall not be construed to require the Lender to make available its tax returns (or any other information relating to its Withholding Taxes or Other Taxes which it deems in good faith to be confidential) to Borrower or any other person.

Section 2.17.         Partial Releases.

(a)          General Provisions. Notwithstanding anything contained in this Agreement, the Note, the Mortgage or any of the other Loan Documents to the contrary, from time to time upon the sale of one or more of the Projects in an arms-length transaction to a Person who is not an Affiliate of any Borrower Party, upon the request of Borrower, Administrative Agent agrees to release any of such Projects (each, a “Partial Release Project”) from the Lien of the related Mortgage and the other Loan Documents, provided that all of the following terms and conditions are satisfied (such release herein called a “Partial Release”):

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(i)          No Potential Default or Event of Default shall be in existence at the time the request is made or at the time the Partial Release occurs, and no Material Adverse Change shall have occurred (or be reasonably expected to occur in connection with the Partial Release).

(ii)         After giving effect to a Partial Release and payment of the Partial Release Price there shall be at least two (2) Projects remaining as security for the Loans, one of which shall be the Friendswood Project.

(iii)        Borrower shall provide written notice to Administrative Agent of their desire to have the applicable Partial Release Project released as security for the Loans, and provide Administrative Agent with all information (including any purchase and sale agreement and proposed partial release forms) and documents relating to such release at least thirty (30) days prior to the closing of the sale or refinancing of the Partial Release Project and such partial release forms must be reasonably satisfactory to Administrative Agent in form and substance.

(iv)         Borrower shall deliver, together with such request for the Partial Release, a certificate certifying to Administrative Agent that no Potential Default or Event of Default is in existence at the time such request is made or will be in existence immediately after giving effect to the Partial Release and the execution and delivery of all documents connected therewith.

(v)          Borrower shall deliver, together with such request for the Partial Release, a Compliance Certificate showing (and Administrative Agent shall have confirmed) that: as of the date of the most recent financial statements required to be delivered pursuant to Section 7.1(a)(i), (A) the Retained Project Debt Service Coverage Ratio shall not be less than the Debt Service Coverage Ratio as of the most recent Determination Date; and (B) the Retained Project Debt Yield shall not be less than the Project Yield as of the most recent Determination Date.

(vi)         Such release will not affect the priority of Lien or Liens on the remainder of the Security, or Administrative Agent’s or Lenders’ rights in and to the remainder of the Security.

(vii)        Administrative Agent shall receive reasonable assurances that the Environmental Indemnity Agreement shall remain in full force and effect with respect to the remaining Security and the Partial Release Project, provided that with respect to the Partial Release Project, such indemnity will apply only to claims or violations or alleged violations for the period of time prior to the date of the Partial Release.

(viii)      Borrower shall pay all reasonable expenses of Administrative Agent, including reasonable attorneys fees and expenses, title insurance premiums, recording costs and similar costs in connection with the Partial Release.

(ix)         Borrower shall pay to Administrative Agent, for the account of Lenders, an amount equal to the Partial Release Price, plus the pro rata portion of any applicable Prepayment Premium required and calculated on the Partial Release Price. As used herein, “Partial Release Price” shall mean 105% of the portion of the Loan allocated to the Partial Release Project, as specified on Exhibit A (the “Allocated Loan Amount”).

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(x)          Administrative Agent shall receive (or the title company that issued the Title Policy shall be irrevocably committed to issue) such title insurance endorsements as it may require, including partial release endorsements.

(b)          Partial Release Principal Reduction Payment. If Borrower is unable to exercise any option to cause a Partial Release Project to be released from the Lien of the related Mortgage solely because the Retained Project Debt Yield or the Retained Project Debt Service Coverage Ratio or both do not meet the threshold required to exercise such option, Borrower, following receipt from Administrative Agent of written notice setting forth the Partial Release Principal Reduction Payment and the amount of the applicable LIBOR Breakage Amount (if any), may pay to Administrative Agent, for the benefit of Lenders, the applicable Partial Release Principal Reduction Payment.

(c)          Effect of Partial Release; Reamortization of Loans. Upon satisfaction of the requirements contained in this Section 2.17, in addition to releasing the applicable Project from the Lien of the applicable Mortgage, Assignment of Leases and Rents and other Loan Documents specific to the Partial Release Project, Administrative Agent shall also partially-release all obligations of Borrower under all other Loan Documents as, but only to the extent, they relate to the Project being released. Following each Partial Release, the monthly principal payments required under Section 2.3(a) shall be recalculated based upon the outstanding principal balance of the Loan after the Partial Release Payment (and Partial Release Principal Reduction Payment, if made) is applied by Lenders and assuming a 25-year amortization period, less the full or partial months elapsed since the Closing Date. Such recalculated monthly payment shall be due and payable commencing on the first Payment Date following the month in which the Partial Release occurs.

ARTICLE III

INSURANCE, CONDEMNATION, AND IMPOUNDS

Section 3.1.          Insurance. Borrower shall maintain (or cause to be maintained) insurance as follows:

(a)          Casualty; Business Interruption. Borrower shall keep (or cause to be kept) the Projects insured against damage by fire and the other hazards covered by a standard extended coverage and all-risk insurance policy for the full insurable value thereof on a replacement cost claim recovery basis (without reduction for depreciation or co-insurance and without any exclusions or reduction of policy limits for acts of domestic and foreign terrorism and other specified action/inaction), and shall maintain boiler and machinery insurance, acts of domestic and foreign terrorism endorsement coverage and such other casualty insurance as reasonably required by Administrative Agent. Administrative Agent reserves the right to require from time to time the following additional insurance: flood; earthquake/sinkhole; windstorm; worker’s compensation; and/or building law or ordinance. Borrower shall keep a Project insured against loss by flood if such Project is located currently or at any time in the future in an area identified by the Federal Emergency Management Agency as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994 (as such acts may from time to time be amended) in an amount at least equal to the lesser of (i) the portion of the Loan allocated to such Project by Administrative Agent, acting in its reasonable discretion or (ii) the maximum limit of coverage available under said acts. Any such flood insurance policy shall be issued in accordance with the requirements and current guidelines of the Federal Insurance Administration. Borrower shall maintain business interruption insurance, including use and occupancy, rental income loss and extra expense, for all periods covered by Borrower’s property insurance for a limit equal to twelve (12) calendar months’ exposure, all without any exclusions or reduction of policy limits for acts of domestic and foreign terrorism or other specified action/inaction. Borrower shall not maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise reasonably satisfactory to Administrative Agent in all respects. The proceeds of insurance paid on account of any damage or destruction to any Project shall be paid to Administrative Agent, on behalf of the Lenders, to be applied as provided in Section 3.2.

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(b)          Liability. Borrower shall maintain (or cause to be maintained) (i) commercial general liability insurance with respect to the each Project providing for limits of liability in the amount approved by Administrative Agent for both injury to or death of a person and for property damage per occurrence, (ii) umbrella liability coverage in the amount and to the extent required by Administrative Agent, and (iii) other liability insurance as reasonably required by Administrative Agent. In addition, Borrower shall cause each Operator to maintain (A) worker’s compensation insurance and employer’s liability insurance covering employees at the Projects employed by such Operator (in the amounts required by applicable Laws) and (B) professional liability insurance. In no event shall Borrower consent to any decrease in the amount or scope of coverage or increase the deductibles from those previously approved by Administrative Agent.

(c)          Form and Quality. All insurance policies shall be endorsed in form and substance acceptable to Administrative Agent to name Administrative Agent as an additional insured, loss payee or mortgagee thereunder, as its interest may appear, with loss payable to Administrative Agent, without contribution, under a standard New York (or local equivalent) mortgagee clause and shall not contain a Protective Safeguard Endorsement. Administrative Agent shall act on behalf of the Lenders in respect of insurance matters. All such insurance policies and endorsements shall be fully paid for and contain such provisions and expiration dates and be in such form and issued by such insurance companies licensed to do business in the state in which the applicable Project is located, with a rating of “AX” or better as established by Best’s Rating Guide with respect to property and casualty insurance and a rating of “AX” or better as established by Best’s Rating Guide or “A” or better by Standard & Poor’s Ratings Group with respect to liability insurance. Each policy shall provide that such policy may not be canceled or materially changed except upon thirty (30) days’ prior written notice of intention of non-renewal, cancellation or material change to Administrative Agent and that no act or thing done by Borrower shall invalidate any policy as against Administrative Agent. Blanket policies shall be permitted only if (i) Administrative Agent receives appropriate endorsements and/or duplicate policies containing Administrative Agent’s right to continue coverage on a pro rata pass-through basis and that coverage will not be affected by any loss on other properties covered by the policies and (ii) the policy contains a sublimit equal to the replacement cost of the Projects in an amount approved by Administrative Agent which is expressly allocated for each Project, and any such policy shall in all other respects comply with the requirements of this Section. Borrower authorizes Administrative Agent to pay the premiums for such policies (the “Insurance Premiums”) from the Insurance Impound as the same become due and payable annually in advance. If Borrower fails to deposit funds into the Insurance Impound sufficient to permit Administrative Agent to pay the Insurance Premiums when due, Administrative Agent may obtain such insurance and pay the premium therefor and Borrower shall, on demand, reimburse Administrative Agent for all expenses incurred in connection therewith.

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(d)          Assignment. Borrower shall assign (or cause to be assigned) the policies or proofs of insurance to Administrative Agent (for the benefit of the Lenders), in such manner and form that Administrative Agent and its successors and assigns shall at all times have and hold the same as security for the payment of the Loan. If requested by Administrative Agent, Borrower shall deliver copies of all original policies certified to Administrative Agent by the insurance company or authorized agent as being true copies, together with the endorsements required hereunder. If Borrower elects to obtain any insurance which is not required under this Agreement, all related insurance policies shall be endorsed in compliance with Section 3.1(c), and such additional insurance shall not be canceled without prior notice to Administrative Agent . From time to time upon Administrative Agent’s request, Borrower shall identify to Administrative Agent all insurance maintained by Borrower or Operator with respect to the Projects. The proceeds of insurance policies coming into the possession of Administrative Agent shall not be deemed trust funds, and Administrative Agent shall be entitled to apply such proceeds as herein provided.

(e)          Adjustments. Borrower shall give (or cause to be given) immediate written notice of any loss to the insurance carrier and to Administrative Agent. Borrower hereby irrevocably authorizes and empowers Administrative Agent, as attorney in fact for Borrower coupled with an interest, to notify any of Borrower’s insurance carriers to add Administrative Agent (for itself and the benefit of the Lenders) as a loss payee, mortgagee insured or additional insured, as the case may be, to any policy maintained by Borrower (regardless of whether such policy is required under this Agreement), to make proof of loss, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collect and receive insurance proceeds, and to deduct therefrom Administrative Agent’s reasonable expenses incurred in the collection of such proceeds. Nothing contained in this Section 3.1(e), however, shall require Administrative Agent to incur any expense or take any action hereunder.

(f)          WARNING REGARDING RIGHT OF ADMINISTRATIVE AGENT TO PURCHASE INSURANCE: If Borrower fails to provide Administrative Agent with evidence of the insurance coverages required by this Agreement, Administrative Agent may purchase insurance at Borrower’s expense to protect the interest of Administrative Agent and Lenders. This insurance may, but need not, also protect Borrower’s interest. If the Collateral becomes damaged, the coverage Administrative Agent purchases may not pay any claim Borrower makes or any claim made against Borrower. Borrower may later cancel this coverage by providing evidence that the required property coverage was purchased elsewhere. Borrower is responsible for the cost of any insurance purchased pursuant to this provision and such cost is payable on demand; if Borrower fails to pay such cost, it may be added to the Indebtedness and bear interest at the Default Rate. The effective date of coverage may be the date Borrower’s prior coverage lapsed or the date Borrower failed to provide proof of coverage. The coverage Administrative Agent purchases may be considerably more expensive than insurance Borrower can obtain and may not satisfy any need for property damage coverage or any mandatory liability insurance imposed by applicable Laws.

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Section 3.2.          Use and Application of Insurance Proceeds.

(a)          Notice; Repair Obligation. If any of the Projects shall be damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrower shall give prompt notice thereof to Administrative Agent. Following the occurrence of a Casualty, Borrower, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law.

(b)          Application of Insurance Proceeds. Administrative Agent shall make insurance proceeds available to Borrower for application to the costs of restoring the affected Project or to the payment of the Loan as follows:

(i)          if the loss is less than or equal to the Restoration Threshold, Administrative Agent shall make the insurance proceeds available to Borrower, which proceeds shall be used by Borrower for the restoration of the damaged Project provided (A) no Event of Default or Potential Default exists, and (B) Borrower promptly commences and is diligently pursuing restoration of the damaged Project;

(ii)         if the loss exceeds the Restoration Threshold but is not more than 25% of the replacement value of the improvements constructed on the damaged Project, Administrative Agent shall disburse the insurance proceeds to Borrower, which proceeds shall be used by Borrower for the restoration of the damaged Project provided that (A) at all times during such restoration no Event of Default or Potential Default exists; (B) Administrative Agent determines throughout the restoration that there are sufficient funds available to restore and repair the Project to a condition approved by Administrative Agent and if the Administrative Agent reasonably determines there is any such insufficiency, Borrower provides additional security to address such insufficiency to Administrative Agent’s satisfaction; (C) Administrative Agent determines that the Adjusted Net Operating Income of the Projects (including the damaged Projects) during restoration, taking into account rent loss or business interruption insurance, will be sufficient to pay Debt Service; (D) Administrative Agent determines that the ratio of the outstanding principal balance of the Loan to appraised value of the Projects after restoration of the damaged Project will not exceed the loan-to-value ratio that existed on the Closing Date (or, to the extent that a Project was not encumbered on the Closing Date, the loan-to-value ratio that existed on the date upon which Borrower granted a Mortgage to Administrative Agent to secure the Loan); (E) Administrative Agent determines that after restoration of the damaged Project and Borrower will comply with the financial covenants in Section 8.15; (F) Administrative Agent determines that restoration and repair of the damaged Project to a condition approved by Administrative Agent will be completed within six months after the date of loss or casualty and in any event ninety (90) days prior to the Maturity Date; (G) Borrower promptly commences and is diligently pursuing restoration of the damaged Project; and (H) the damaged Project after the restoration will be in compliance with and permitted under all applicable zoning, building and land use laws, rules, regulations and ordinances; and

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(iii)        if the conditions set forth in (i) and (ii) above are not satisfied or the loss exceeds the maximum amount specified in Section 3.2(b)(ii) above, (A) if no Event of Default exists hereunder, in Required Lenders’ reasonable discretion, Required Lenders may direct Administrative Agent to apply any insurance proceeds Administrative Agent receives as a prepayment of the Loan pursuant to Section 2.4(e), or allow all or a portion of such proceeds to be used for the restoration of the damaged Project and (B) if an Event of Default exists hereunder, Administrative Agent shall apply any insurance proceeds Administrative Agent receives as a prepayment of the Loan pursuant to Section 2.4(e), unless the Required Lenders otherwise consent in writing to allow all or a portion of the proceeds to be used for the restoration of the damaged Project.

(c)          Disbursement of Insurance Proceeds. Insurance proceeds received by Administrative Agent and to be applied to restoration pursuant to the terms of this Section 3.2 will be disbursed by Administrative Agent to Borrower on a monthly basis, commencing within ten (10) Business Days following receipt by Administrative Agent of plans and specifications, contracts and subcontracts, schedules, budgets, lien waivers and architects’ certificates all in form reasonably satisfactory to Administrative Agent, and otherwise in accordance with prudent commercial construction lending practices for construction loan advances (including appropriate retainages to ensure that all work is completed in a workmanlike manner).

Section 3.3.          Condemnation Awards. Borrower shall promptly give Administrative Agent written notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting any Project (a “Condemnation”) and shall deliver to Administrative Agent copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether any award or compensation (an “Award”) is available, shall promptly proceed to restore, repair, replace or rebuild the same to the extent practicable to be of at least equal value and of substantially the same character as prior to such Condemnation, all to be effected in accordance with applicable law. Administrative Agent may participate in any such proceeding (for itself and on behalf of the Lenders) and Borrower will deliver to Administrative Agent all instruments necessary or required by Administrative Agent to permit such participation. Without Administrative Agent’s prior consent, Borrower (a) shall not agree to any Award, and (b) shall not take any action or fail to take any action which would cause the Award to be determined. All Awards for the taking or purchase in lieu of condemnation of the a Project or any part thereof are hereby assigned to and shall be paid to Administrative Agent. Administrative Agent is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any Award and to make any compromise or settlement in connection with any such Condemnation and to give proper receipts and acquittances therefor, and in Administrative Agent’s sole discretion (in consultation with the Required Lenders) to apply the same toward the payment of the Loan, notwithstanding that the Loan may not then be due and payable, or to the restoration of the applicable Project; provided, however, if the Award is less than or equal to $100,000 and Borrower requests that such proceeds be used for nonstructural site improvements (such as landscape, driveway, walkway and parking area repairs) required to be made as a result of such Condemnation, Administrative Agent will apply the Award to such restoration in accordance with disbursement procedures applicable to insurance proceeds provided there exists no Potential Default or Event of Default. Borrower, upon request by Administrative Agent, shall execute all instruments requested to confirm the assignment of the Awards to Administrative Agent, free and clear of all liens, charges or encumbrances. Anything herein to the contrary notwithstanding, if a Potential Default or Event of Default exists, Administrative Agent is authorized to adjust such Award without the consent of Borrower and to collect such Award in the name of Administrative Agent (on behalf of itself and the Lenders) and Borrower.

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Section 3.4.          Insurance Impounds. Borrower shall deposit (or cause to be deposited) with Administrative Agent, monthly on each Payment Date, a sum of money (the “Insurance Impound”) equal to one-twelfth (l/12th) of the annual charges for the Insurance Premiums. At or before the initial advance of the Loan, Borrower shall deposit (or cause to be deposited) with Administrative Agent a sum of money which together with the monthly installments will be sufficient to make each of such payments thirty (30) days prior to the date any delinquency or penalty becomes due with respect to such payments. Deposits shall be made on the basis of Administrative Agent’s estimate from time to time of the Insurance Premiums for the current year. All funds so deposited shall be held by Administrative Agent. These sums may be commingled with the general funds of Administrative Agent, and shall not be deemed to be held in trust for the benefit of Borrower. Borrower hereby grants to Administrative Agent (for its benefit and the benefit of the Lenders) a security interest in all funds so deposited with Administrative Agent for the purpose of securing the Loan. Until an Event of Default exists, Administrative Agent shall apply the funds deposited to pay Insurance Premiums as provided herein. While an Event of Default exists, the funds deposited may be applied in payment of the Insurance Premiums for which such funds have been deposited, or to the payment of the Loan or any other charges affecting the security of Administrative Agent, as Administrative Agent may elect, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Administrative Agent. Borrower shall furnish Administrative Agent with bills for the Insurance Premiums for which such deposits are required at least thirty (30) days prior to the date on which the Insurance Premiums first become payable. If at any time the amount on deposit with Administrative Agent, together with amounts to be deposited by Borrower or Operator before such Insurance Premiums are payable, is insufficient to pay such Insurance Premiums, Borrower shall deposit (or cause to be deposited) any deficiency with Administrative Agent immediately upon demand. Administrative Agent shall pay such Insurance Premiums when the amount on deposit with Administrative Agent is sufficient to pay such Insurance Premiums and Administrative Agent has received a bill for such Insurance Premiums. On the Maturity Date, the monies then remaining on deposit with Administrative Agent under this Section 3.4 shall, at Administrative Agent’s option, be applied against the Indebtedness or if no Event of Default exists hereunder, returned to Borrower. Notwithstanding the foregoing, if, with respect to a Project, the Insurance Premiums are paid via a premium financing arrangement to which Administrative Agent has given its written consent, then (i) the amount to be escrowed with Administrative Agent at any given time in respect of the Insurance Premiums payable with respect to such Project (as determined by Administrative Agent in its reasonable discretion) shall be an amount equal to three months of the allocated amounts payable under such premium finance arrangement, (ii) at Administrative Agent’s request, the applicable Borrower shall tender to Administrative Agent evidence reasonably satisfactory to Administrative Agent that such Borrower or the applicable Master Tenant (or the owner of the policy if the applicable Borrower or the applicable Master Tenant shares in a blanket policy) has paid the applicable premium finance amount due for the preceding month, and (iii) Administrative Agent shall have no obligation to remit such escrowed sums in payment of the premium finance amounts.

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Section 3.5.          Real Estate Tax Impounds. Borrower shall deposit (or cause to be deposited) with Administrative Agent, monthly on each Payment Date, a sum of money (the “Tax Impound”) equal to one-twelfth (1/12th) of the annual Taxes. At or before the initial advance of the Loan, Borrower shall deposit (or cause to be deposited) with Administrative Agent a sum of money which together with the monthly installments will be sufficient to make each of such payments thirty (30) days prior to the date any delinquency or penalty becomes due with respect to such payments. Deposits shall be made on the basis of Administrative Agent’s estimate from time to time of the Taxes for the current year (after giving effect to any reassessment or, at Administrative Agent’s election, on the basis of the Taxes for the prior year, with adjustments when the Taxes are fixed for the then current year). All funds so deposited shall be held by Administrative Agent. Borrower and Lenders acknowledge and agree that these sums may be commingled with Administrative Agent’s general funds and shall not be deemed to be held in trust for the benefit of Borrower. Borrower hereby grants to Administrative Agent (for its benefit and the benefit of the Lenders) a security interest in all funds so deposited with Administrative Agent for the purpose of securing the Loan. Until an Event of Default exists, Administrative Agent shall apply the funds deposited to pay the Taxes as provided herein. While an Event of Default exists, the funds deposited may be applied in payment of the charges for which such funds have been deposited, or to the payment of the Loan or any other charges affecting the security of Administrative Agent, as Administrative Agent may elect, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Administrative Agent. Borrower shall furnish Administrative Agent with bills for the Taxes for which such deposits are required at least thirty (30) days prior to the date on which the Taxes first become payable. If at any time the amount on deposit with Administrative Agent, together with amounts to be deposited by Borrower or Operator before such Taxes are payable, is insufficient to pay such Taxes, Borrower shall deposit (or cause to be deposited) any deficiency with Administrative Agent immediately upon demand. Administrative Agent shall pay such Taxes when the amount on deposit with Administrative Agent is sufficient to pay such Taxes and Administrative Agent has received a bill for such Taxes. The obligation of Borrower to pay the Taxes, as set forth in the Loan Documents, is not affected or modified by the provision of this paragraph; provided, however, that Borrower shall not be in default under the Loan for failure to pay Taxes if and to the extent there are sufficient funds on deposit in the Tax Impound to timely pay such Taxes. On the Maturity Date, the monies then remaining on deposit with Administrative Agent under this Section 3.5 shall, at Administrative Agent’s option, be applied against the Indebtedness or if no Event of Default exists hereunder, returned to Borrower.

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ARTICLE IV

ENVIRONMENTAL MATTERS

Section 4.1.          Representations and Warranties on Environmental Matters. To Borrower’s Knowledge, except as set forth in the Site Assessment, (a) no Hazardous Material is now or was formerly used, stored, generated, manufactured, installed, treated, discharged, disposed of or otherwise present at or about the Projects or any property adjacent to a Project (except for cleaning and other products currently used in connection with the routine maintenance or repair of the Projects in full compliance with Environmental Laws) and no Hazardous Material was removed or transported from any Project, (b) all permits, licenses, approvals and filings required by Environmental Laws have been obtained, and the use, operation and condition of each Project does not, and did not previously, violate any Environmental Laws, (c) no civil, criminal or administrative action, suit, claim, hearing, investigation or proceeding is pending or threatened, nor have any settlements been reached by or with any parties or any liens imposed in connection with any Project concerning Hazardous Materials or Environmental Laws; (d) no underground storage tanks exist on any part of any Project; and (e) Borrower has not received and no prior owner or current or prior tenant, subtenant, or other occupant of all or any part of the Projects has received, any notice from any Person, public or private, alleging any violation of or potential liability under any Environmental Law with regard to the Projects, nor has Borrower, nor have any of the third-parties described above, received any administrative order or entered into any administrative consent order with any governmental agency with respect to Hazardous Materials on or at the Projects.

Section 4.2.          Covenants on Environmental Matters.

(a)          Borrower shall (i) comply strictly and in all respects with applicable Environmental Laws; (ii) notify Administrative Agent immediately upon Borrower’s discovery of any spill, discharge, release or presence of any Hazardous Material at, upon, under, within, contiguous to or otherwise affecting any Project; (iii) promptly remove such Hazardous Materials and remediate the applicable Project in full compliance with Environmental Laws or as reasonably required by Administrative Agent based upon the recommendations and specifications of an independent environmental consultant approved by Administrative Agent; and (iv) promptly forward to Administrative Agent copies of all orders, notices, permits, applications or other communications and reports in connection with any spill, discharge, release or the presence of any Hazardous Material or any other matters relating to the Environmental Laws or any similar laws or regulations, as they may affect any Project or Borrower.

(b)          Borrower shall not cause and shall prohibit any other Person from (i) causing any spill, discharge or release, or the use, storage, generation, manufacture, installation, or disposal, of any Hazardous Materials at, upon, under, within or about any Project or the transportation of any Hazardous Materials to or from any Project (except for cleaning and other products used in connection with routine maintenance or repair of such Project in full compliance with Environmental Laws), (ii) installing any underground storage tanks at any Project, or (iii) conducting any activity that requires a permit or other authorization under Environmental Laws.

(c)          Borrower shall provide to Administrative Agent, at Borrower’s expense promptly upon the written request of Administrative Agent from time to time, a Site Assessment or, if required by Administrative Agent, an update to any existing Site Assessment for the applicable Project, to assess the presence or absence of any Hazardous Materials and the potential costs in connection with abatement, cleanup or removal of any Hazardous Materials found on, under, at or within such Project. Borrower shall pay the cost of no more than one such Site Assessment or update for a Project in any twelve (12) month period, unless Administrative Agent’s request for a Site Assessment is based on information provided under Section 4.2(a), a reasonable suspicion of Hazardous Materials at or near such Project, a breach of representations under Section 4.1, or an Event of Default, in which case any such Site Assessment or update shall be at Borrower’s expense.

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(d)          Each Borrower covenants and agrees that it shall comply in all material respects with the terms and conditions of each operation and maintenance program reasonably required by the Administrative Agent and/or Lenders to be maintained with respect to any Project.

Section 4.3.          Allocation of Risks and Indemnity. As between Borrower and Administrative Agent and each Lender, all risk of loss associated with non-compliance with Environmental Laws, or with the presence of any Hazardous Material at, upon, within, contiguous to or otherwise affecting the Projects, shall lie solely with Borrower. Accordingly, Borrower shall bear all risks and costs associated with any loss (including any loss in value attributable to Hazardous Materials), damage or liability therefrom, including all costs of removal of Hazardous Materials or other remediation required by Administrative Agent or by law. Borrower shall indemnify, defend and hold Administrative Agent and each Lender and their respective shareholders, directors, officers, employees and agents harmless from and against all loss, liabilities, damages, claims, costs and expenses (including reasonable costs of defense and consultant fees, investigation and laboratory fees, court costs, and other litigation expenses) arising out of or associated, in any way, with (a) the non-compliance with Environmental Laws, or (b) the existence of Hazardous Materials in, on, or about the Projects, (c) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to Hazardous Materials; (d) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, (e) a breach of any representation, warranty or covenant contained in this Article 4, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, or (f) the imposition of any environmental lien encumbering the Projects; provided, however, Borrower shall not be liable under such indemnification to the extent such loss, liability, damage, claim, cost or expense results solely from such indemnified Person’s gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Borrower’s obligations under this Section 4.3 shall arise whether or not any Governmental Authority has taken or threatened any action in connection with the presence of any Hazardous Material, and whether or not the existence of any such Hazardous Material or potential liability on account thereof is disclosed in the Site Assessment and shall continue notwithstanding the repayment of the Loan or any transfer or sale of any right, title and interest in any Project (by foreclosure, deed in lieu of foreclosure or otherwise).

Section 4.4.          Administrative Agent’s Right to Protect Collateral. If any discharge of Hazardous Materials or the threat of any discharge of Hazardous Materials affecting any Project occurs or Borrower fails to comply with any Environmental Laws and Borrower has not, within ten (10) Business Days of the occurrence of such event, taken commercially reasonable steps to begin the remediation of such condition as required by Section 4.3, Administrative Agent may (but shall not be obligated to) give such notices and take such actions as it deems necessary or advisable at the expense of Borrower in order to abate the discharge of any Hazardous Materials or remove the Hazardous Materials. Any amounts payable to Administrative Agent by reason of the application of this Section 4.4 shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Administrative Agent until paid. The obligations and liabilities of Borrower under this Section 4.4 shall survive any termination, satisfaction, assignment, entry of a judgment of foreclosure or delivery of a deed in lieu of foreclosure.

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Section 4.5.          No Waiver. Notwithstanding any provision in this Article 4 or elsewhere in the Loan Documents, or any rights or remedies granted by the Environmental Indemnity Agreement or the Loan Documents, neither Administrative Agent nor any Lender waives and each of them expressly reserves all rights and benefits now or hereafter accruing to Administrative Agent and the Lenders under the “security interest” or “secured creditor” exception under applicable Environmental Laws, as the same may be amended. No action taken by Administrative Agent or any Lender pursuant to the Environmental Indemnity Agreement or the Loan Documents shall be deemed or construed to be a waiver or relinquishment of any such rights or benefits under the “security interest exception.”

ARTICLE V

LEASING MATTERS

Section 5.1.          Representations and Warranties on Leases.

(a)          Leases. Borrower represents and warrants to Administrative Agent and the Lenders with respect to the Leases for residential occupancy, (i) the rent roll or Census Report for each Project delivered to Administrative Agent is true and correct; (ii) such Leases are valid and in and full force and effect; and (iii) the interests of the landlord and the rents under such Leases have not been assigned or pledged. Borrower represents and warrants to Administrative Agent and Lenders with respect to the Commercial Leases, if any, (i) the rent roll with respect to such Commercial Leases, if any, delivered to Administrative Agent is true and correct; (ii) such Commercial Leases are in full force and effect; (iii) the Commercial Leases (including amendments) are in writing, and there are no oral agreements with respect thereto; (iv) the copies of the Leases delivered to Administrative Agent are true and complete; (v) neither the landlord nor any tenant is in default under any of the Commercial Leases; (vi) Borrower has no knowledge of any notice of termination or default with respect to any Commercial Lease; (vii) Borrower has not assigned or pledged any of the Commercial Leases, the rents or any interests therein except to Administrative Agent and the Lender; (viii) no Tenant or other party has an option to purchase all or any portion of Projects; (ix) no Tenant has the right to terminate its Commercial Lease prior to expiration of the stated term of such Commercial Lease; (x) no Tenant has prepaid more than one month’s rent in advance (except for bona fide security deposits not in excess of an amount equal to two months’ rent); and (xi) all existing Commercial Leases are subordinate to the Mortgage either pursuant to their terms or a recorded subordination agreement.

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(b)          Master Lease. Each Borrower represents and warrants to Administrative Agent and the Lenders with respect to the Master Lease to which such Borrower is party that: (i) such Master Lease is valid and in and full force and effect; (ii) such Master Lease (including amendments) is in writing, and there are no oral agreements with respect thereto; (iii) the copy of such Master Lease delivered to Administrative Agent is true and complete; (iv) neither such Borrower nor the Master Tenant party to such Master Lease is (or as to the other party is, to such party’s knowledge), in default under such Master Lease; (v) neither such Borrower nor the Master Tenant party to such Lease has any knowledge of any notice of termination or default with respect to such Master Lease; (vi) such Borrower has not assigned or pledged such Master Lease, the rents or any interests therein, except to Administrative Agent and the Lenders or except in connection with a Permitted Transfer; (vii) except as set forth in such Master Lease, the Master Tenant party thereto does not have an option to purchase all or any portion of the Project demised thereunder; (viii) except as set forth in such Master Lease, the Master Tenant party thereto does not have the right to terminate such Master Lease prior to expiration of the stated term of such Master Lease (unless due to casualty or condemnation of the Project demised thereunder); and (ix) the Master Tenant party to such Master Lease has not prepaid more than one month’s rent in advance.

Section 5.2.          [Reserved].

Section 5.3.          Covenants.

(a)          Leases. Borrower shall (or cause Operator to) (i) perform the obligations which any Lease Party is required to perform under the Leases; (ii) enforce the obligations to be performed by the Tenants under the Leases; (iii) promptly furnish to Administrative Agent any notice of default or termination received by Borrower from any Tenant under a Commercial Lease, and any notice of default or termination given by any Borrower to any Tenant under a Commercial Lease; (iv) not collect any rents for more than one month in advance of the time when the same shall become due, except for bona fide Security Deposits not in excess of an amount equal to two month’s rent; (v) not enter into any ground lease or master lease of any part of the Projects other than the Master Lease; (vi) not further assign or encumber any Lease; (vii) not, except with Administrative Agent’s prior written consent, cancel or accept surrender or termination of any Commercial Lease; (viii) not, except with Administrative Agent’s prior written consent, modify or amend any Lease (except for minor modifications and amendments entered into in the ordinary course of business, consistent with prudent property management practices, not affecting the economic terms of the Lease); and (ix) assign to Administrative Agent any letter of credit evidencing a security deposit on such terms as may be required by Administrative Agent and shall deliver the original of such letter(s) of credit to Administrative Agent. Any action in violation of clauses (v), (vi), (vii), and (viii) of this Section 5.3(a) shall be void at the election of Administrative Agent. Borrower and Operator, as applicable, will not suffer or permit any breach or default to occur in any of any Lease Party’s obligations under any of the Leases, nor suffer or permit the same to terminate by reason of any failure of Lease Party to meet any requirement of any Lease.

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(b)          Master Lease. Each Borrower shall (i) perform the obligations which such Borrower is required to perform under the Master Lease to which such Borrower is party; (ii) enforce the material obligations to be performed by the Master Tenant under the Master Lease to which such Borrower is party; (iii) promptly furnish to Administrative Agent any notice of default or termination received by such Borrower from the Master Tenant, and any notice of default or termination given by such Borrower to such Master Tenant, under the Master Lease to which such Borrower is party; (iv) not collect any rents for more than one month in advance of the time when the same shall become due under the Master Lease to which such Borrower is party, except for bona fide security deposits not in excess of an amount equal to two months rent; (v) not enter into any ground lease or master lease of any part of the Projects other than the Master Lease to which such Borrower is party; (vi) not further assign or encumber the Master Lease to which such Borrower is party; (vii) not, except with Administrative Agent’s prior written consent, cancel or accept surrender or termination of the Master Lease to which such Borrower is party; and (viii) not, except with Administrative Agent’s prior written consent, modify or amend the Master Lease to which such Borrower is party, and any action in violation of clauses (v), (vi), (vii), and (viii) of this Section 5.3(b) shall be void at the election of Administrative Agent. For avoidance of doubt, Administrative Agent may withhold its consent to any amendment or modification of any Master Lease that would provide for a reduction in the amount of base rent payable thereunder. No Borrower will suffer or permit any breach or default to occur in any of such Borrower’s obligations under the Master Lease to which such Borrower is party nor suffer or permit the same to terminate by reason of any failure of such Borrower to meet any requirement under the Master Lease to which such Borrower is party.

Section 5.4.          Tenant Estoppels.

(a)          Leases. At Administrative Agent’s request, Borrower shall obtain and furnish (or cause Operator to obtain and furnish) to Administrative Agent, written estoppels in form and substance reasonably satisfactory to Administrative Agent, executed by Tenants under Commercial Leases in excess of 3,000 square feet of a Project and confirming the term, rent, and other provisions and matters relating to such Commercial Leases.

(b)          Master Lease. At Administrative Agent’s request, Master Tenant shall furnish to Administrative Agent, a written estoppel in form and substance satisfactory to Administrative Agent, executed by Master Tenant and confirming the term, rent and other provisions and matters relating to the Master Lease.

Section 5.5.          Payment of Rents Under Master Lease.

(a)          Commencing on the Closing Date and continuing so long as the Loan are outstanding, Borrower shall direct Master Tenant to make all payments of rent and all other amounts due under the Master Lease (such net amount herein called the “Master Lease Payments”) to the Deposit Account Bank for deposit in the account subject to the Deposit Account Control Agreement. So long as no Potential Default or Event of Default is continuing, Deposit Account Bank shall be authorized to transfer on a daily basis the funds in the account to the operating account of Borrower, excluding the Security Deposit and any supplements thereto and amounts deposited by the Master Tenant in connection with future payments of Taxes and insurance premiums, which shall remain on deposit in a Deposit Account subject to a Deposit Account Control Agreement.

(b)          If a Potential Default or an Event of Default exists, Administrative Agent shall have the right in its sole discretion to direct the Deposit Account Bank to disburse all amounts in the account held by the Deposit Account Bank to Administrative Agent or as otherwise directed by Administrative Agent, and to the extent disbursed to Administrative Agent. Administrative Agent shall apply such amounts to the Obligations, in such order as Administrative Agent, in its sole discretion, may elect.

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES

Borrower and Master Tenant, as applicable represents, warrants and covenants to Administrative Agent and Lenders unless otherwise specified, as of the Closing Date and as of the date of each Compliance Certificate delivered to Administrative Agent pursuant to Section 7.2 hereof that:

Section 6.1.          Organization, Power and Authority; Formation Documents.

(a)          Organization, etc. Borrower and each Borrower Party (a) is duly organized, validly existing and in good standing under the laws of the state of its formation or existence and is in compliance with all legal requirements applicable to doing business in each state in which a Project is located. Borrower is not a “foreign person” within the meaning of §1445(f)(3) of the Code. Borrower and each Borrower Party has only one state of incorporation or organization. All other information regarding Borrower and each Borrower Party contained in Schedule 6.1, including the ownership structure of Borrower and its constituent entities, is true and correct as of the Closing Date.

(b)          Formation Documents. A true and complete copy of the formation documents creating Borrower and each Borrower Party and any and all amendments thereto (collectively, the “Borrower Formation Documents”) has been furnished to Administrative Agent. The Borrower Formation Documents constitute the entire agreement regarding Borrower and each Borrower Party among the members of Borrower and shareholders of each Borrower Party and are binding upon and enforceable against each of the members or shareholders, as applicable, in accordance with their terms. No breach exists under the Borrower Formation Documents and no condition exists which, with the giving of notice or the passage of time would constitute a breach under the Borrower Formation Documents.

Section 6.2.          Validity of Loan Documents. The execution, delivery and performance by Borrower and each Borrower Party of the Loan Documents and the Environmental Indemnity Agreement: (a) are duly authorized and do not require the consent or approval of any other party or Governmental Authority which has not been obtained; and (b) will not violate any law or result in the imposition of any lien, charge or encumbrance upon the assets of any such party, except as contemplated by the Loan Documents and/or the Environmental Indemnity Agreement. The Loan Documents and/or the Environmental Indemnity Agreement constitute the legal, valid and binding obligations of Borrower and each Borrower Party who is a party to the Loan Documents and/or the Environmental Indemnity Agreement, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors’ rights.

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Section 6.3.          Liabilities; Litigation.

(a)          Financial Statements. The financial statements delivered by Borrower and each Borrower Party are true and correct with no significant change since the date of preparation. Except as disclosed in such financial statements, there are no liabilities (fixed or contingent) affecting any Project, Borrower or any Borrower Party. Except as disclosed in such financial statements, there is no litigation, administrative proceeding, investigation or other legal action (including any proceeding under any state or federal bankruptcy or insolvency law) pending or, to Borrower’s Knowledge, threatened, against any Project, Borrower or any Borrower Party which if adversely determined could have a Material Adverse Effect on such party, any Project or the Loan.

(b)          Contemplated Actions. None of Borrower or any Borrower Party is contemplating either the filing of a petition by it under state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and none of Borrower, or any Borrower Party has knowledge of any Person contemplating the filing of any such petition against it.

Section 6.4.          Taxes and Assessments. There are no unpaid or outstanding real estate or other taxes or assessments on or against the Projects or any part thereof, except general real estate taxes not due or payable. Each Project is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot. There are no pending or, to Borrower’s Knowledge, proposed, special or other assessments for public improvements or otherwise affecting any Project, nor are there any contemplated improvements to any Project that may result in such special or other assessments.

Section 6.5.          Other Agreements; Defaults. None of Borrower or any Borrower Party is a party to any agreement or instrument or subject to any court order, injunction, permit, or restriction which might adversely affect any Project or the business, operations, or condition (financial or otherwise) of Borrower or any Borrower Party. None of Borrower or any Borrower Party is in violation of any agreement which violation could reasonably be expected to have a Material Adverse Effect on Borrower or any Borrower Party or Borrower’s or any Borrower Party’s business, properties, or assets, operations or condition, financial or otherwise.

Section 6.6.          Compliance with Law. Borrower has all requisite Permits to own and lease the Projects and carry on its business and to Borrower’s Knowledge each Operator has all requisite Primary Licenses and Permits to operate the Projects and carry on its business. Except as described in each Zoning Report and Property Condition Report delivered to Administrative Agent prior to the Closing Date, each Project in compliance with all applicable zoning and building requirements and is free of structural defects. Except as described in the Property Condition Report delivered to Administrative Agent prior to the Closing Date, all of the building systems contained in each Project are in good working order, subject to ordinary wear and tear. Except as set forth in the Zoning Report, no Project constitutes, in whole or in part, a legally non-conforming use under applicable legal requirements.

Section 6.7.          Condemnation. No condemnation has been commenced or, to Borrower’s Knowledge, is contemplated with respect to all or any portion of the Projects or for the relocation of roadways providing access to any Project.

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Section 6.8.          Access. Each Project has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain facilities. All public utilities necessary or convenient to the full use and enjoyment of each Project are located in the public right-of-way abutting the applicable Project, and all such utilities are connected so as to serve such Project without passing over other property, except to the extent such other property is subject to a perpetual easement for such utility benefitting such Project. All roads necessary for the full utilization of each Project for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities.

Section 6.9.          Location of Borrower. Borrower’s principal place of business and chief executive offices are located at the address stated in Schedule 6.1, and, except as otherwise set forth in Schedule 6.1, Borrower at all times has maintained its principal place of business and chief executive office at such location or at other locations within the same state.

Section 6.10.         ERISA; Employees.

(a)          As of the Closing Date hereof and throughout the term of the Loan, (i) Borrower is not and will not be an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and (ii) the assets of Borrower do not and will not constitute “plan assets” of one or more such plans for purposes of Title I of ERISA.

(b)          As of the Closing Date hereof and throughout the term of the Loan (i) Borrower is not and will not be a “governmental plan” within the meaning of Section 3(3) of ERISA and (ii) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans.

(c)          Borrower has no employees.

Section 6.11.         Margin Stock. No part of proceeds of the Loan will be used for purchasing or acquiring any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System.

Section 6.12.         Forfeiture. There has not been and shall never be committed by Borrower or any other person in occupancy of or involved with the operation or use of a Project any act or omission affording the federal government or any state or local government the right of forfeiture as against such Project or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents or the Environmental Indemnity Agreement. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture.

Section 6.13.         Tax Filings. Borrower and each Borrower Party have filed (or have obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower and each Borrower Party, respectively. Borrower and each Borrower Party believe that their respective tax returns properly reflect the income and taxes of Borrower and each Borrower Party, respectively, for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.

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Section 6.14.         Solvency. After giving effect to the Loan, the fair saleable value of Borrower’s assets exceeds and will, immediately following the making of the Loan, exceed Borrower’s total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of Borrower’s assets is and will, immediately following the making of the Loan, be greater than Borrower’s probable liabilities, including the maximum amount of its contingent liabilities on its Debts as such Debts become absolute and matured, and Borrower’s assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur Debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Debts as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of obligations of Borrower). Except as expressly disclosed to Administrative Agent in writing, no petition in bankruptcy has been filed against Borrower or any Borrower Party in the last seven (7) years, and neither Borrower nor any Borrower Party in the last seven (7) years has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor any Borrower Party is contemplating either the filing of a petition by it under state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and neither Borrower nor any Borrower Party has knowledge of any Person contemplating the filing of any such petition against it.

Section 6.15.         Full and Accurate Disclosure. No statement of fact made by or on behalf of Borrower or any Borrower Party in this Agreement, in any of the other Loan Documents or the Environmental Indemnity Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed to Administrative Agent which adversely affects, nor as far as Borrower can foresee, might adversely affect, any Project or the business, operations or condition (financial or otherwise) of Borrower or any Borrower Party. All information supplied by Borrower regarding any other Collateral is accurate and complete in all material respects. All evidence of Borrower’s and each Borrower Party’s identity provided to Administrative Agent and Lenders is genuine, and all related information is accurate.

Section 6.16.         Flood Zone. No portion of the improvements comprising the Projects is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Act of 1994, as amended, or any successor law, or, if located within any such area, Borrower has obtained and will maintain the insurance prescribed in Section 3.1 hereof.

Section 6.17.         Single Purpose Entity/Separateness. Borrower represents, warrants and covenants, from and after the Closing Date and for so long as any obligation under the Loan Documents remains outstanding, as follows:

(a)          Limited Purpose. The sole purpose conducted or promoted by Borrower is to engage in the following activities:

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(i)          to acquire, own, hold, lease, operate, manage, maintain, develop and improve the Projects (or an undivided interest therein) and to contract for the operation, maintenance, management and development of the Projects;

(ii)         to enter into and perform its obligations under the Loan Documents and Environmental Indemnity Agreement;

(iii)        to sell, transfer, service, convey, dispose of, pledge, assign, borrow money against, finance, refinance or otherwise deal with the Projects to the extent permitted under the Loan Documents; and

(iv)        to engage in any lawful act or activity and to exercise any powers permitted to limited liability companies organized under the laws of its jurisdiction of formation that are related or incidental to and necessary, convenient or advisable for the accomplishment of the above mentioned purposes.

(b)          Limitations on Debt, Actions. Notwithstanding anything to the contrary in the Loan Documents or in any other document governing the formation, management or operation of Borrower, Borrower shall not:

(i)          guarantee any obligation of any Person, including any Affiliate, or become obligated for the debts of any other Person or hold out its credit as being available to pay the obligations of any other Person;

(ii)         engage, directly or indirectly, in any business other than as required or permitted to be performed under this Section 6.17;

(iii)        incur, create or assume any Debt other than (A) the Loan and (B) unsecured trade payables incurred in the ordinary course of its business that are related to the ownership and operation of the Projects and which shall (1) not exceed two percent (2%) of the outstanding balance of the Loan, (2) not be evidenced by a note, (3) be paid within sixty (60) days, and (4) otherwise expressly be permitted under the Loan Documents;

(iv)        make or permit to remain outstanding any loan or advance to, or own or acquire any stock or securities of, any Person, except that Borrower may invest in those investments permitted under the Loan Documents;

(v)         to the fullest extent permitted by law, engage in any dissolution, liquidation, consolidation, merger, sale or other transfer of any of its assets outside the ordinary course of Borrower’s business;

(vi)        buy or hold evidence of indebtedness issued by any other Person (other than cash or investment-grade securities);

(vii)       form, acquire or hold any subsidiary (whether corporate, partnership, limited liability company or other) or own any equity interest in any other entity;

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(viii)      own any asset or property other than the Projects (or an undivided interest therein) and incidental personal property necessary for the ownership or operation of the Projects; or

(ix)         take any Material Action without the unanimous written approval of all members of Borrower.

(c)          Separateness Covenants. In order to maintain its status as a separate entity and to avoid any confusion or potential consolidation with any Affiliate, Borrower represents and warrants that in the conduct of its operations since its organization it has observed, and covenants that it will continue to observe, the following covenants:

(i)          maintain books and records and bank accounts separate from those of any other Person;

(ii)         maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets;

(iii)        comply with all organizational formalities necessary to maintain its separate existence;

(iv)        hold itself out to creditors and the public as a legal entity separate and distinct from any other entity;

(v)         maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person and not have its assets listed on any financial statement of any other Person; except that Borrower’s assets may be included in a consolidated financial statement of its Affiliate so long as appropriate notation is made on such consolidated financial statements to indicate the separateness of Borrower from such Affiliate and to indicate that Borrower’s assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person;

(vi)        other than with respect to the consolidated tax return of its Affiliates, prepare and file its own tax returns separate from those of any Person to the extent required by applicable law, and pay any taxes required to be paid by applicable law;

(vii)       allocate and charge fairly and reasonably any common employee or overhead shared with Affiliates;

(viii)      not enter into any transaction with any Person owned or controlled by an Affiliate of Borrower except on an arm’s-length basis on terms which are intrinsically fair and no less favorable than would be available for unaffiliated third parties, and pursuant to written, enforceable agreements;

(ix)         conduct business in its own name, and use separate stationery, invoices and checks;

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(x)          not commingle its assets or funds with those of any other Person other than as required or permitted by this Agreement;

(xi)         not assume, guarantee or pay the debts or obligations of any other Person;

(xii)        correct any known misunderstanding as to its separate identity;

(xiii)       not permit any Affiliate to guarantee or pay its obligations (other than limited guarantees and indemnities set forth in the Loan Documents and in the Environmental Indemnity Agreement);

(xiv)      not make loans or advances to any other Person;

(xv)       pay its liabilities and expenses out of and to the extent of its own funds;

(xvi)      maintain a sufficient number of employees in light of its contemplated business purpose and pay the salaries of its own employees, if any, only from its own funds;

(xvii)     maintain adequate capital in light of its contemplated business purpose, transactions and liabilities; provided, however, that the foregoing shall not require any equity owner to make additional capital contributions to Borrower;

(xviii)    cause the managers, officers, employees, agents and other representatives of Borrower to act at all times with respect to Borrower consistently and in furtherance of the foregoing and in the best interests of Borrower;

(xix)       not have any obligation to, and will not, indemnify its partners, officers, directors or members, as the case may be, unless such an obligation is fully subordinated to the Indebtedness and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Indebtedness is insufficient to pay such obligation;

(xx)        not pledge its assets for the benefit of any other Person other than to Administrative Agent and Lenders in connection with the Loan; and

(xxi)       observe all partnership, corporate or limited liability company formalities, as applicable.

Failure of Borrower to comply with any of the foregoing covenants or any other covenants contained in this Agreement shall not affect the status of Borrower as a separate legal entity.

(d)          SPE Party. So long as any obligation under the Loan Documents remains outstanding, Borrower shall at all times have a corporate or limited liability company member having provisions in its organizational documents the provisions limiting its purpose and authority approved by Administrative Agent (“SPE Party”).

Section 6.18.         Compliance With International Trade Control Laws and OFAC Regulations. Borrower represents, warrants and covenants to Administrative Agent and Lenders that:

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(a)          No Borrower Party and no Person who owns a direct interest in Borrower is now nor shall be at any time until after the Loan is fully repaid, a Person with whom a U.S. Person, including a Financial Institution, is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under U.S. law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated Nationals and Blocked Persons) or otherwise.

(b)          Each Borrower Party and Person who owns a direct interest in Borrower is now, and Borrower will remain, in compliance (and will cause each Borrower Party and Person who owns a direct interest in Borrower to remain in compliance) in all material respects with all U.S. economic sanctions laws, Executive Orders and implementing regulations as promulgated by OFAC and all applicable Anti-Money Laundering Laws.

Section 6.19.         Borrower’s Funds. Borrower represents, warrants and covenants to each Lender and the Administrative Agent that:

(a)          It has taken, and shall continue to take until after the Loan is fully repaid, such measures as are required by law to verify that the funds invested in Borrower are derived (i) from transactions that do not violate U.S. law and, to the extent such funds originate outside the United States, do not violate the laws of the jurisdiction in which they originated; and (ii) from permissible sources under U.S. law and to the extent such funds originate outside the United States, under the laws of the jurisdiction in which they originated.

(b)          To Borrower’s Knowledge, no Borrower Party, nor any Person who owns a direct interest in Borrower, nor any Person providing funds to Borrower (i) is under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist related activities, any crimes which in the United States would be predicate crimes to money laundering, or any violation of any Anti-Money Laundering Laws; (ii) has been assessed civil or criminal penalties under any Anti-Money Laundering Laws; and (iii) has had any of its/his/her funds seized or forfeited in any action under any Anti-Money Laundering Laws.

(c)          Borrower shall make payments on the Loan using funds invested in Borrower, Adjusted Revenues or insurance proceeds unless otherwise agreed to by Administrative Agent.

(d)          To Borrower’s Knowledge, as of the Closing Date and at all times during the term of the Loan, all revenues arising from the Projects are and will be derived from lawful business activities of Tenants of the Projects or other permissible sources under U.S. law.

(e)          On the Maturity Date, Borrower will take reasonable steps to verify that funds used to repay the Loan in full (whether in connection with a refinancing, asset sale or otherwise) are from sources permissible under U.S. law and to the extent such funds originate outside the United States, permissible under the laws of the jurisdiction in which they originated.

(f)          Each Borrower Party and Person who owns a direct interest in Borrower is now, and Borrower will remain in compliance (and will cause each Borrower Party and Person who owns a direct interest in Borrower to remain in compliance) with the Office of Foreign Assets Control sanctions and regulations promulgated under the authority granted by the Trading with the Enemy Act (“TWEA”), 50 U.S.C. App. Section 1 et seq., and the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. Section 1701 et seq., as the TWEA and the IEEPA may apply to Borrower’s activities;

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(g)          Each Borrower Party and Person who owns a direct interest in Borrower is now, and Borrower will remain in compliance (and will cause each Borrower Party and Person who owns a direct interest in Borrower to remain in compliance) with (i) the Patriot Act and all rules and regulations promulgated under the Patriot Act applicable to Borrower and (ii) other federal or state laws relating to “know your customer” and other anti-money laundering rules and regulations; and

(h)          Each Borrower Party and Person who owns a direct interest in Borrower i) is not now, nor has ever been, under investigation by any Governmental Authority for, nor has been charged with or convicted for a crime under, 18 U.S.C. Sections 1956 or 1957 or any predicate offense thereunder, or a violation of the Bank Secrecy Act; ii) has never been assessed a civil penalty under any Anti-Money Laundering Laws or predicate offenses thereunder; iii) has not had any of its funds seized, frozen or forfeited in any action relating to any Anti-Money Laundering Laws or predicate offenses thereunder; iv) has taken such steps and implemented such policies as are reasonably necessary to ensure that such party is not promoting, facilitating or otherwise furthering, intentionally or unintentionally, the transfer, deposit or withdrawal of criminally derived property, or of money or monetary instruments which are (or which such party suspects or has reason to believe are) the proceeds of any illegal activity or which are intended to be used to promote or further any illegal activity; and v) has taken such steps and implemented such policies as are reasonably necessary to ensure that such party is in compliance with all laws and regulations applicable to its business for the prevention of money laundering and with anti-terrorism laws and regulations, with respect both to the source of funds from its investors and from its operations, and that such steps include the development and implementation of an anti money laundering compliance program within the meaning of Section 352 of the Patriot Act, to the extent any such party is required to develop such a programs under the rules and regulations promulgated pursuant to Section 352 of the Patriot Act.

Section 6.20.         Operators’ Agreements. A true, correct and complete copy of each of the Operators’ Agreements, together with all amendments thereto, have been delivered to Administrative Agent; and the Operators’ Agreements and all amendments thereto are in full force and effect as of the Closing Date.

Section 6.21.         Physical Condition. Except as specifically set forth in the Property Condition Report, to Borrower’s Knowledge, (a) the Projects, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; and (b) there exists no structural or other material defects or damages in any Project, whether latent or otherwise. Borrower has not received written notice from any insurance company or bonding company of any defects or inadequacies in any Project, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

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Section 6.22.         Healthcare Representations. Borrower represents and warrants to Administrative Agent and Lenders that:

(a)          Each Project (i) is being operated as a skilled nursing facility or intermediate care facility, having the number of Residential Units as set forth on Exhibit A, attached hereto, (ii) if applicable, has a current provider agreement that is in full force and effect under Medicare and Medicaid, and (iii) is in all material respects in compliance with all applicable Requirements of Law (and, to the extent that failure to comply with any such Requirements of Law would materially and adversely affect the operation of a Project, is in compliance with such Requirement of Law) including (A) staffing requirements, (B) health and fire safety codes, including quality and safety standards, (C) accepted professional standards and principles that apply to professionals providing services at the Projects; (D) federal, state or local laws, rules, regulations or published interpretations or policies relating to the prevention of fraud and abuse, (E) insurance, reimbursement and cost reporting requirements, (F) government payment program requirements and disclosure of ownership and related information requirements, (G) requirements of applicable Governmental Authorities, including those relating to the Projects’ physical structure and environment, licensing, quality and adequacy of medical care, distributions of pharmaceuticals, rate setting, equipment, personnel, operating policies and services and fee splitting, and (H) any other applicable laws, regulations or agreements for reimbursement for the type of care or services provided by Operator with respect to the Projects. There is no threatened in writing, existing or pending revocation, suspension, termination, probation, restriction, limitation, or nonrenewal proceeding by any third-party payor under a Third Party Payor Program. The Third Party Payor Programs to which Borrower or any Operator may presently be subject with respect to any Project are listed on Schedule 6.22(a).

(b)          All Primary Licenses necessary for using and operating the Projects for the uses described in clause (a), above are listed on Schedule 6.22(b), are either held by, or will be held by, Borrower or the applicable Operator, as required under applicable Law, and are in full force and effect.

(c)          Except as set forth on Schedule 6.22 hereof, with respect to any Project, there are no inquiries, investigations, probes, audits or proceedings by any Governmental Authority or notices thereof, or any other third party or any patient, employee or resident (including whistleblower suits, or suits brought pursuant to federal or state “false claims acts” and Medicaid, Medicare or state fraud and/or abuse laws) that are reasonably likely directly or indirectly, or with the passage of time (i) to have a material adverse impact on Operators’ ability to accept and/or retain patients or residents or operate such Project for its current use or result in the imposition of a fine, a sanction, a lower rate certification or a lower reimbursement rate for services rendered to eligible patients or residents, (ii) to modify, limit or result in the transfer, suspension, revocation or imposition of probationary use of any of the Primary Licenses, (iii) to affect any Operator’s continued participation in the Medicaid or Medicare programs or any other Third-Party Payor Programs, or any successor programs thereto at then current rate certifications, or (iv) result in any other civil or criminal penalty or remedy, or which could result in the appointment of a receiver.

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(d)          With respect to any Project, except as set forth on Schedule 6.22, no Project has received a notice of violation at a level that under applicable Law requires the immediate or accelerated filing of a plan of corrections, and no statement of charges or deficiencies has been made or penalty enforcement action has been undertaken against any Project, no Operator currently has outstanding any violation, and no statement of charges or deficiencies has been made or penalty enforcement action has been undertaken each that remain outstanding against any Project, any Operator or against any officer, director, partner, member or stockholder of any Operator, by any Governmental Authority, and there have been no violations threatened against any Project’s, or any Operator’s certification for participation in Medicare or Medicaid or the other Third-Party Payor Programs that remain open or unanswered.

(e)          With respect to any Project, there are no current, pending or outstanding Third-Party Payor Programs reimbursement audits, appeals or recoupment efforts actually pending at the Project, and there are no years that are subject to an open audit in respect of any Third-Party Payor Program that would, in each case, adversely affect any Operator, other than customary audit rights pursuant to Medicare/Medicaid/TRICARE programs or other Approved Insurer’s programs that would materially adversely affect Operators or Borrower.

(f)          Neither Borrower nor any Operator has received federal funds authorized under the Hill-Burton Act (42 U.S.C. 291, et seq.), as it may be amended.

(g)          With respect to each Project, substantially all of the patient and resident care agreements with respect to such Project conform in all material respects with the form patient or resident care agreements that have been delivered to Administrative Agent and all such agreements are in compliance with Healthcare Laws.

(h)          Borrower’s and Operator’s private payor, Medicaid, Medicare, and/or managed care company, insurance company or other third party insurance accounts receivable with respect to the Projects are free of any Liens and neither Borrower nor Operators have pledged any of their respective receivables as collateral security for any loan or indebtedness.

(i)          Neither Borrower nor Operator is a party to any collective bargaining agreement or other labor contract applicable to persons employed by it at the Projects and there are no threatened or pending labor disputes at the Projects.

Section 6.23.         No Change in Facts or Circumstances; Disclosure. To Borrower’s Knowledge, there has been no material adverse change in any condition, fact, circumstance or event that would make the financial statements, rent rolls, reports, certificates or other documents submitted in connection with the Loan inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely affects the business operations or the financial condition of Borrower or the Projects.

ARTICLE VII

FINANCIAL REPORTING

Section 7.1.          Financial Statements. Borrower shall furnish to Administrative Agent and shall cause each Borrower Party to furnish to Administrative Agent such financial statements and other financial information as may be required pursuant to this Article 7 and such other financial information as Administrative Agent may require pursuant to this Article 7 and such other financial information as Administrative Agent may reasonably request from time to time. All such financial statements shall reflect all material contingent liabilities in accordance with GAAP and shall accurately and fairly present the results of operations and the financial condition of Borrower at the dates and for the period indicated and shall be sufficient to permit Administrative Agent and Lenders to calculate and/or verify Borrower’s calculation of Debt Service Coverage Ratio, Project Yield and Adjusted Net Operating Income.

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(a)          Financial Information. In furtherance of the foregoing, Borrower will furnish to Administrative Agent (or cause to be furnished to Administrative Agent) the following financial information and reports with respect to Borrower, each Project and/or Operator (as applicable), in each case in form and format and providing information satisfactory to Administrative Agent in its discretion:

(i)          within forty-five (45) days after the end of each calendar month, internally prepared monthly financial statements (including income statements and balance sheets) prepared for each Borrower and each Project which fairly present the financial condition for each Borrower and each Project for such period;

(ii)         within forty-five (45) days after the end of each calendar month, (A) a detailed operating statement (showing monthly activity and year-to-date) stating operating revenues, operating expenses, operating income and net cash flow for the calendar month just ended and year-to-date for each Project and (B) a current Census Report for each Project;

(iii)        following Administrative Agent’s request therefor, within forty-five (45) days after the end of each fiscal quarter, a description of the type and amount of all capital expenditures incurred at the Projects during such period;

(iv)        within thirty (30) days before the end of each fiscal year, annual projected (A) profit and loss statements and (B) operating and capital budgets (each prepared on a monthly basis) for the succeeding fiscal year;

(v)         within sixty (60) days after the end of each fiscal year, internally prepared annual financial statements prepared for each Borrower in accordance with GAAP (except for the absence of footnotes and year-end adjustments) and based on an accrual basis of accounting consistent with industry standards;

(vi)        within one hundred twenty (120) days after the end of each fiscal year, annual consolidated audited financial statements prepared (A) for each Borrower in accordance with GAAP and prepared by a firm of independent public accountants reasonably satisfactory to Administrative Agent and (B) for Operator (which may be on a consolidated basis with respect to the Master Tenant and Operating Tenants) in accordance with GAAP on an accrual basis and prepared by a firm of independent public accountants reasonably satisfactory to Administrative Agent;

(vii)       evidence satisfactory to Administrative Agent that all federal and state taxes, including, without limitation, payroll taxes, that are due have been paid in full by each Borrower, and each Borrower Party, to be delivered to Administrative Agent (A) with respect to federal and state taxes (other than payroll taxes), within ten (10) days after the required filing date of the applicable tax return (taking into account available extensions) and (B) with respect to payroll taxes, within thirty-five (35) days following the end of each calendar month;

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(viii)      copies of all cost reports and rate letters filed with Medicare and Medicaid or any other Third Party Payor by Operator and/or Borrower;

(ix)         within forty-five (45) days after the end of each calendar quarter, financial statements (including income statements and balance sheets) prepared for Operator, or if the Operator is a Single Purpose Entity, prepared for the parent of Operator, on a consolidated basis;

(x)          within ten (10) days after Administrative Agent’s request, a written statement, duly acknowledged by Operator, setting forth any right of set-off, counterclaim or other defense that may exist under any Leases;

(xi)         copies of state and local health inspection and regulatory surveys (including complaint surveys), to be provided within twenty-five (25) days after the completion of such surveys;

(xii)        within forty-five (45) days after the end of each fiscal quarter, internally prepared monthly financial statements (including income statements and balance sheets) prepared for Guarantor which fairly present the financial condition of Guarantor for such period;

(xiii)       within one hundred twenty (120) days after the end of each fiscal year, annual consolidated audited financial statements prepared for Guarantor in accordance with GAAP and prepared by a firm of independent public accountants reasonably satisfactory to Administrative Agent; and

(xiv)      such additional information, reports or statements regarding the Borrower, the Projects, Guarantor or Operator as Administrative Agent may from time to time reasonably request.

(b)          Certification of Financial Statements. Each financial statement provided hereunder shall be in scope and detail reasonably satisfactory to Administrative Agent and certified by the chief financial representative of each Borrower. Borrower will maintain a system of accounting established and administered in accordance with sound business practices to (i) permit preparation of financial statements on an accrual basis consistent with industry standards and substantially in accordance with GAAP, and (ii) provide the information required to be delivered to Administrative Agent hereunder.

Section 7.2.          Additional Reports. Borrower shall deliver to Administrative Agent as soon as reasonably available but in no event later than thirty (30) days after such items become available to Borrower in final form:

(i)          copies of any final engineering or environmental reports prepared for Borrower with respect to any Project;

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(ii)         a copy of any notice received by Borrower from any Governmental Authority with respect to an environmental condition existing or alleged to exist or emanate from or at any Project;

(iii)        if requested by Administrative Agent, and to the extent there are Commercial Leases encumbering a Project, a summary report listing Tenants under Commercial Leases and square footage occupied by such Tenants;

(iv)        From time to time, if any Lender determines that obtaining appraisals is necessary in order for such Lender to comply with applicable Laws (including any appraisals required to comply with FIRREA), Borrower shall furnish to Administrative Agent appraisal reports in form and substance and from appraisers reasonably satisfactory to Administrative Agent stating the then current fair market value of each Project; provided, however, that such report shall not be required during the term of the Loan unless (A) a Potential Default or Event of Default exists, (B) any Lender is required to obtain such report under applicable Law more frequently than once during the term of the Loan or (C) Administrative Agent or any Lender elects to obtain such report at its cost and expense.

(b)          Tax Reports. Promptly upon receipt or filing thereof, Borrower shall deliver to Administrative Agent copies of any reports or notices related to any material taxes and any other material reports or notices received by Borrower or any Guarantor from, or filed by Borrower or any Guarantor with, any Governmental Authority.

Section 7.3.          Compliance Certificate. Within forty-five (45) days after the end of each calendar quarter, Borrower shall deliver and shall cause Guarantor to deliver such financial reports and information as Administrative Agent shall require evidencing compliance with the applicable financial covenants, together with a fully completed Compliance Certificate executed by an officer of Borrower or Guarantor (or an officer of its manager, managing member or general partner), and, if requested by Administrative Agent, back-up documentation as Administrative Agent shall reasonably require evidencing compliance.

Section 7.4.          Accounting Principles. All financial statements shall be prepared in accordance with GAAP (or such other accounting basis reasonably acceptable to Administrative Agent). Notwithstanding the foregoing, all financial statements delivered hereunder shall be prepared, and all financial covenants contained herein shall be calculated, without giving effect to any election under Statement of Financial Accounting Standards 159 (or any similar accounting principle) permitting a Person to value its financial liabilities at the fair value thereof.

Section 7.5.          Other Information; Access. Borrower shall deliver to Administrative Agent such additional information regarding Borrower, its subsidiaries, its business, any Borrower Party, and the Projects within thirty (30) days after Administrative Agent’s request therefor, including, if requested by Administrative Agent, (a) copies of the regular monthly bank statements provided to Borrower or Operator and such other information relating to the Borrower’s operating accounts as shall reasonably be requested by Administrative Agent, in each case, to the extent such bank has the operational ability to do so, by providing Administrative Agent with internet access to such statements or information, (b) cash flow statements for the Operator and (c) an accounts receivable and accounts payable aging report. Borrower shall permit Administrative Agent to examine such records, books and papers of Borrower which reflect upon its financial condition and the income and expenses of the Projects. In the event that Borrower fails to forward the financial statements required in this Article 7 within thirty (30) days after written request, Administrative Agent shall have the right to audit such records, books and papers at Borrower’s expense.

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Section 7.6.          Annual Budget. At least thirty (30) days prior to the commencement of each fiscal year, Borrower will provide to Administrative Agent the Operator’s proposed annual operating and capital improvements budget for the Projects for such fiscal year for review by Administrative Agent.

Section 7.7.          Books and Records/Audits. Borrower shall keep and maintain or cause to be kept and maintained at all times at the Projects, or such other place as Administrative Agent may approve in writing, complete and accurate books of accounts and records adequate to reflect the results of the operation of the Projects and to provide the financial statements required to be provided to Administrative Agent pursuant to Section 7.1 above and copies of all written contracts, material correspondence, and other material documents affecting the Projects. Administrative Agent and its designated agents shall have the right to inspect and copy any of the foregoing, subject to compliance with Healthcare Laws. Additionally, if a Potential Default or Event of Default exists or if Administrative Agent or any Lender has a reasonable basis to believe that Borrower’s records are materially inaccurate, Administrative Agent and each Lender may, subject to compliance with Healthcare Laws conduct a joint audit and determine, in such Person’s reasonable discretion, the accuracy of Borrower’s records and computations.

ARTICLE VIII

COVENANTS

Borrower covenants and agrees with each Lender and Administrative Agent as follows:

Section 8.1.          Transfers or Encumbrance of Property.

(a)          Borrower shall not cause or permit a Sale or Pledge of any Project or any part thereof or any legal or beneficial interest therein nor permit a Sale or Pledge of an interest in any Restricted Party (in each case, a “Prohibited Transfer”) without the prior written consent of the Administrative Agent, other than pursuant to Leases of space in the improvements to Tenants in accordance with the provisions of Article 5.

(b)          A Prohibited Transfer shall include, but not be limited to, (i) an installment sale agreement wherein Borrower agrees to sell any Project or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of any Project for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any rents (other than pursuant to the Master Lease); (iii) if a Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation’s stock or the creation or issuance of new stock in one or a series of transactions; (iv) if a Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation or addition of a general partner or the Sale or Pledge of the partnership interest of any general or limited partner or any profits or proceeds relating to such partnership interests or the creation or issuance of new partnership interests; (v) if a Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of any member or any profits or proceeds relating to such membership interest; (vi) if a Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Restricted Party or the creation or issuance of new legal or beneficial interests; or (vii) the removal or the resignation of the Property Manager (including an Affiliated Manager) other than in accordance with Section 8.3.

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(c)          Notwithstanding the provisions of Section 8.1(b), any of the following transfers shall not be deemed to be a Prohibited Transfer: (i) a transfer by devise or descent or by operation of law upon the death of a member, partner or shareholder of a Restricted Party; or (ii) the Sale or Pledge, in one or a series of transactions after the date hereof, of not more than forty-nine percent (49%) of the stock, limited partnership interests or non-managing membership interests (as the case may be) in a Restricted Party; provided, however, any such transfer shall be subject to the following additional conditions: (A) no such transfers shall result in a change in Control in the Restricted Party or change in control of any Project, (B) no transfer shall be made to any Person that is not in compliance with Section 6.18, and (C) Administrative Agent shall receive not less than thirty (30) days prior written notice of such proposed transfer; or (iii) any Sale or Pledge of the stock in any publicly traded company whose shares are listed on the New York Stock Exchange or such other nationally recognized stock exchange. Notwithstanding the foregoing, any transfer that results in any Person owning in excess of forty-nine percent (49%) of the ownership interest in a Restricted Party must comply with the requirements of Section 8.1(d) hereof.

(d)          Administrative Agent’s consent to any proposed Prohibited Transfer will be conditioned upon satisfaction of the following, it being understood that Administrative Agent is under no obligation to consent to any proposed Prohibited Transfer:

(i)          no Potential Default or Event of Default shall have occurred and remain uncured;

(ii)         the proposed transferee (“Transferee”) and its principals, owners, officers and directors meet all of the eligibility, credit, management and other standards customarily applied by Administrative Agent and the Required Lenders at the time of the proposed transfer to the approval of borrowers in connection with the origination or purchase of similar mortgages on healthcare facilities, to be determined by Administrative Agent in its sole discretion, including any standards with respect to (i) previous relationships between Administrative Agent or any Lender and the Transferee and its principals, (ii) the reputation for integrity, honesty and veracity of the Transferee and its principals, owners, officers and directors, and (iii) OFAC, money-laundering, anti-terrorism, SEC and other similar regulations and activities;

(iii)        the Transferee and its property manager shall have sufficient experience in the ownership and management of properties similar to the Projects, and Administrative Agent shall be provided with reasonable evidence thereof (and Administrative Agent reserves the right to approve the Transferee without approving the substitution of the property manager);

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(iv)        If required by Administrative Agent, Administrative Agent shall have received Rating Agency Confirmation with respect to the transfer and the Transferee;

(v)         Administrative Agent shall have received evidence satisfactory to it that the single purpose nature and bankruptcy remoteness of Borrower and its shareholders, partners, or members, as the case may be, following such transfer are in accordance with the standards of the Rating Agencies and the requirements of Section 6.17;

(vi)        to the extent that the Transfer results in the Transferee holding fee simple title to the Projects, the Transferee shall have executed and delivered to Administrative Agent an assumption agreement in form and substance acceptable to Administrative Agent, evidencing such Transferee’s agreement to abide and be bound by the terms of the Note, the Mortgage and the other Loan Documents, and containing such modification to the Loan Documents as Administrative Agent may require, together with such legal opinions and title insurance endorsements as may be reasonably requested by Administrative Agent;

(vii)       Administrative Agent shall have received on or prior to the date of the sale or transfer (A) any transfer fee charged by Administrative Agent as a condition to approving such sale, (B) a rating confirmation fee for each of the Rating Agencies delivering a Rating Agency Confirmation pursuant to clause (iv) above, which confirmation fees shall be equal to the then customary fees charged by each applicable Rating Agency for such confirmation, and (C) the payment of all costs and expenses reasonably incurred by Administrative Agent and any Lender in connection with such assumption (including reasonable attorneys’ fees and costs);

(viii)      Administrative Agent shall have received such additional documentation as Administrative Agent may require in connection with the sale or transfer, including a new Recourse Guaranty Agreement and Environmental Indemnity Agreement (substantially in the form delivered to Administrative Agent contemporaneously herewith) from Persons acceptable to Administrative Agent affiliated with the Transferee, amendments to financing statements naming the Transferee as debtor and documentary evidence of the organization and good standing of the Transferee and authorization of the sale or transfer;

(ix)         the satisfaction of such other conditions and/or legal opinions as Administrative Agent shall determine in its sole discretion to be in the interest of the Lenders; and

(x)          Without limiting the foregoing, if Administrative Agent shall consent to a transfer of the Projects, the written assumption agreement described in Subsection 8.1(e)(vi) above shall provide for the release of Borrower, but only as to acts or events occurring, or obligations arising, after the closing of such transfer.

(xi)         All expenses incurred by Administrative Agent and Lenders shall be payable by Borrower whether or not the Required Lenders consent to the Prohibited Transfer. Neither Administrative Agent nor any Lender shall be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Indebtedness immediately due and payable upon a Prohibited Transfer made without the Required Lenders’ consent. This provision shall apply to each and every Prohibited Transfer, whether or not the Required Lenders have consented to any previous Prohibited Transfer.

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Section 8.2.          Taxes; Utility Charges. Except to the extent sums sufficient to pay all Taxes (defined herein) have been previously deposited with Administrative Agent as part of the Tax Impound and subject to Borrower’s right to contest in accordance with Section 12.14 hereof, Borrower shall pay before any fine, penalty, interest or cost may be added thereto, and shall not enter into any agreement to defer, any real estate taxes and assessments, franchise taxes and charges, and other governmental charges (the “Taxes”) that may become a Lien upon any Project or become payable during the term of the Loan. Borrower’s compliance with Section 3.4 of this Agreement relating to impounds for Taxes shall, with respect to payment of such Taxes, be deemed compliance with this Section 8.2. Borrower shall not suffer or permit the joint assessment of any Project with any other real property constituting a separate tax lot or with any other real or personal property. Borrower shall promptly pay for all utility services provided to each Project.

Section 8.3.          Management.

(a)          Borrower acknowledges that the Lenders are making the Loan, in part, based upon the operational expertise of the Property Manager. Borrower shall not, and shall not permit Master Tenant to, surrender, terminate, cancel, modify in any material respect, renew, amend, or extend the Management Agreement, or enter into any other agreement relating to the management or operation of the Projects with Property Manager or any other Person, or consent to the assignment by the Property Manager of its interest under the Management Agreement, in each case without the express written consent of Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed and shall be based upon Administrative Agent’s evaluation of the proposed substitute manager’s and operator’s financial condition, credit history and credit worthiness, experience in operating and managing properties similar to the Projects, performance and compliance history in connection with healthcare facilities, reputation for honesty and integrity and prior experience with Administrative Agent and the Lenders; provided, further, however, with respect to a new manager such consent may be conditioned upon Borrower delivering a Rating Agency Confirmation as to such new manager and management agreement. If at any time Administrative Agent consents to the appointment of a new manager, such new manager and Borrower shall, as a condition of Administrative Agent’s consent, execute an Acknowledgment and Agreement of Property Manager in form and substance similar to the Acknowledgment and Agreement of Property Manager executed by the Property Manager as of the Closing Date. Any change in ownership or control of the Property Manager shall be cause for Administrative Agent to re-approve such Property Manager and Management Agreement. Each Property Manager shall hold and maintain all necessary licenses, certifications and permits required by law to operate and manage the Project for which it is providing management services.

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(b)          Borrower and Master Tenant shall cause each Property Manager to manage the Projects in accordance with the applicable Management Agreement. Borrower and/or Master Tenant, as the case may be shall (a) diligently perform and observe all of the terms, covenants and conditions of the applicable Management Agreement on the part of Borrower or Master Tenant, respectively, to be performed and observed, (b) promptly notify Administrative Agent of any notice received by Borrower or Master Tenant of any default by Borrower in the performance or observance of any of the material terms, covenants or conditions of the applicable Management Agreement on the part of Borrower or Master Tenant, respectively, to be performed and observed, and (c) promptly deliver to Administrative Agent a copy of each financial statement, business plan or capital expenditures plan received by it under the Management Agreement. The management fee payable under each Management Agreement shall not exceed Five Percent (5.0%) of rental collections.

(c)          Administrative Agent shall have the right to require Borrower and/or Master Tenant to replace the Property Manager with a Person which is not an Affiliate of, but is chosen by, Borrower and approved by Administrative Agent, such approval not to be unreasonably withheld or delayed, upon the occurrence of any one or more of the following events: (a) at any time following the occurrence and continuance of an Event of Default, and/or (b) if Property Manager shall be in default under the Management Agreement beyond any applicable notice and cure period or if at any time the Manager has engaged in gross negligence, fraud or willful misconduct or if at any time the Manager is insolvent or a debtor in a bankruptcy proceeding.

Section 8.4.          Operation; Maintenance; Inspection. Borrower shall observe and comply with all legal requirements applicable to the ownership, use and operation of the Projects. Borrower shall maintain the Projects in good condition and promptly repair any damage or casualty, normal wear and tear excepted. Borrower shall permit Administrative Agent and its agents, representatives and employees, upon reasonable prior notice to Borrower, to inspect the Projects and conduct such environmental and engineering studies as Administrative Agent may require, provided such inspections and studies do not materially interfere with the use and operation of the Projects.

Section 8.5.          Taxes on Security. Borrower shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Note or the Liens created or secured by the Loan Documents, other than income, franchise and doing business taxes imposed on Administrative Agent or any Lender. If there shall be enacted any law (a) deducting the Loan from the value of any Project for the purpose of taxation, (b) affecting any Lien on the Projects, or (c) changing existing laws of taxation of mortgages, deeds of trust, security deeds, or debts secured by real property, or changing the manner of collecting any such taxes, Borrower shall promptly pay to Administrative Agent, on demand, all taxes, costs and charges for which Administrative Agent or any Lender is or may be liable as a result thereof; however, if such payment would be prohibited by law or would render the Loan usurious, then instead of collecting such payment, Administrative Agent may declare all amounts owing under the Loan Documents to be immediately due and payable.

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Section 8.6.          Legal Existence; Name, Etc. Borrower and each SPE Party shall preserve and keep in full force and effect its existence as, and at all times operate as, a Single Purpose Entity, and shall preserve and keep in full force and effect its entity status, franchises, rights and privileges under the laws of the state of its formation, and all qualifications, licenses and permits applicable to the ownership, use and operation of the Projects. Neither Borrower nor any general partner or managing member of Borrower shall wind up, liquidate, dissolve, reorganize, merge, or consolidate with or into any Person, or permit any subsidiary or Affiliate of Borrower to do so. Without limiting the foregoing, Borrower shall not reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the Closing Date. Borrower and each general partner or managing member in Borrower shall conduct business only in its own name and shall not change its name, identity, state of formation, or organizational structure, or the location of its chief executive office or principal place of business unless Borrower (a) shall have obtained the prior written consent of Administrative Agent to such change, and (b) shall have taken all actions necessary or requested by Administrative Agent to file or amend any financing statement or continuation statement to assure perfection and continuation of perfection of security interests under the Loan Documents. If Borrower does not have an organizational identification number and later obtains one, such Borrower shall promptly notify Administrative Agent of its organizational identification number. Borrower (and each general partner or managing member in Borrower, if any) shall maintain its separateness as an entity, including maintaining separate books, records, and accounts and observing corporate and partnership formalities independent of any other entity, shall pay its obligations with its own funds and shall not commingle funds or assets with those of any other entity.

Section 8.7.          Further Assurances. Borrower shall promptly (a) cure any defects in the execution and delivery of the Loan Documents and the Environmental Indemnity Agreement, (b) provide, and cause each Borrower Party to provide, Administrative Agent such additional information and documentation on Borrower’s and each Borrower Party’s legal or beneficial ownership, policies, procedures, and sources of funds as Administrative Agent deems necessary or prudent to enable Administrative Agent and each Lender to comply with Anti-Money Laundering Laws as now in existence or hereafter amended, and (c) execute and deliver, or cause to be executed and delivered, all such other documents, agreements and instruments as Administrative Agent may reasonably request to further evidence and more fully describe the Collateral for the Loan, to correct any omissions in the Loan Documents or the Environmental Indemnity Agreement to perfect, protect or preserve any liens created under any of the Loan Documents and the Environmental Indemnity Agreement, or to make any recordings, file any notices, or obtain any consents, as may be necessary or appropriate in connection therewith. Borrower grants Administrative Agent an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Administrative Agent and the Lenders under the Loan Documents and the Environmental Indemnity Agreement, at law and in equity, including without limitation such rights and remedies available to Administrative Agent pursuant to this Section 8.7. From time to time upon the written request of Administrative Agent, Borrower shall deliver to Administrative Agent a schedule of the name, legal domicile address and jurisdiction of organization, if applicable, for each Borrower Party and each holder of a legal interest in Borrower.

Section 8.8.          Estoppel Certificates Regarding Loan. Each Borrower, within ten (10) days after request, shall furnish to Administrative Agent a written statement, duly acknowledged, setting forth the amount due on the Loan, the terms of payment of the Loan, the date to which interest has been paid, whether any offsets or defenses exist against the Loan and, if any are alleged to exist, the nature thereof in detail, and such other matters as Administrative Agent reasonably may request.

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Section 8.9.          Notice of Certain Events. Borrower shall promptly notify Administrative Agent of (a) any Potential Default or Event of Default, together with a detailed statement of the steps being taken to cure such Potential Default or Event of Default; (b) any notice of default received by Borrower under other obligations relating to the Projects or otherwise material to Borrower’s business, including any notices of violations of any laws, regulations, codes or ordinances; (c) any threatened or pending legal, judicial or regulatory proceedings, including any dispute between Borrower and any Governmental Authority, materially adversely affecting Borrower, any Borrower Party or the Projects; (d) a copy of each notice of default or termination given or made to any Operator by Borrower or received by Borrower from any Operator; and (e) a copy of each notice of default or termination under any license or permit necessary for the operation of the Projects in the manner required by this Agreement; and (f) any threatened or actual ban on admissions as to the Projects; and in the case of clauses (b), (d) or (e), promptly provide Administrative Agent with copies of such notices referred to therein.

Section 8.10.         Indemnification. Borrower shall protect, defend, indemnify and save harmless Administrative Agent and each Lender, their respective shareholders, directors, officers, employees and agents (each, an “Indemnified Person”) from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including without limitation reasonable attorneys’ fees and expenses and other costs of investigation, or defense, including those uncured upon any appeal or in connection with responding to subpoenas, third parties or otherwise), imposed upon or incurred by or asserted against any Indemnified Person by reason of (a) credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith; (b) ownership of the Mortgage, the Projects or any interest therein or receipt of any rents and the exercise of rights and remedies thereunder; (c) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Projects or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (d) any use, nonuse or condition in, on or about the Projects or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Projects or any part thereof; and (e) the failure of any Person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with this Agreement, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the transaction in connection with which this Agreement is made. Any amounts payable to Administrative Agent or any Lender by reason of the application of this Section shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Administrative Agent or such Lender until paid.

Section 8.11.         [Intentionally Omitted].

Section 8.12.         Payment For Labor and Materials. Subject to Borrower’s right to contest in accordance with Section 12.14 hereof, Borrower will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Projects and never permit to exist beyond the due date thereof in respect of any Project or any part thereof any Lien, even though inferior to the Liens hereof, and in any event never permit to be created or exist in respect of any Project or any part thereof any other or additional Lien other than the Liens hereof, except for the Permitted Encumbrances (defined in the Mortgage).

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Section 8.13.         Use and Proceeds, Revenues. Each Borrower shall use the proceeds of the Loan for proper business purposes. No portion of the proceeds of the Loan shall be used by Borrower in any manner that might cause the borrowing or the application of such proceeds to violate Regulation D, Regulation T or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Act of 1933 or the Securities Exchange Act of 1934. Except as otherwise specifically provided in the Loan Documents, revenues and other proceeds from the Projects received by Borrower shall be applied to the Indebtedness then due and payable, actual operating expenses relating to the Projects of the type included in the definition of “Adjusted Expenses”, or other budgeted capital improvements, repairs or replacements for the Projects before distribution by Borrower to any Borrower Party.

Section 8.14.         Compliance with Laws and Contractual Obligations.

(a)          Borrower will (and will cause Operator to) comply in all material respects with (or, to the extent that failure to comply could reasonably be expected to materially and adversely affect the operation of a Project, will comply in all respects with) (i) the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including, without limitation, laws, rules, regulations and orders relating to all building, zoning, density, land use, covenants, conditions and restrictions, subdivision requirements, taxes, employer and employee contributions, securities, employee retirement and welfare benefits, environmental protection matters, employee health and safety, quality and safety standards, accreditation standards and requirements of the applicable state department of health or other applicable state regulatory agency (each a “State Regulator”)), as are now in effect and which may be imposed upon Borrower or Operator or the maintenance, use or operation of the Projects or the provision of services to the occupants of the Projects and (ii) the obligations, covenants and conditions contained in all other material contractual obligations of Borrower, and as they relate to the Projects and Operator.

(b)          Borrower will obtain and maintain and will cause Operator to obtain and maintain, all licenses, qualifications and permits now held or hereafter required to be held by Borrower or Operator for which the loss, suspension, revocation or failure to obtain or renew, could reasonably be expected to have a material adverse effect upon the financial condition of Borrower or the ability to operate the Projects in compliance with the requirements of the Loan Documents and as it has been operated prior to the date hereof.

Section 8.15.         Operating and Financial Covenants. The Projects shall satisfy each of the following covenants as of the end of each calendar quarter (the “Determination Date”):

(a)          Occupancy. The Projects shall maintain (on a combined basis) average occupancy during the calendar quarter prior to each Determination Date of not less than 66%.

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(b)          Debt Service Coverage. The Debt Service Coverage Ratio as to each Determination Date shall be equal to or greater than 2.00 to 1.00 based upon the trailing twelve (12) full calendar months prior to the Determination Date; provided, if on any Determination Date within twelve (12) months following acquisition by Borrower of a Project, operating statements for the prior twelve (12) month period are not available for such Project, the operating statements covering any lesser period of time will be annualized to determine compliance with this Section 8.15(b).

(c)          Project Yield. The Project Yield as of each Determination Date shall be equal to or greater than 15.3% based on the trailing twelve (12) full calendar months prior to the Determination Date; provided, if on any Determination Date within twelve (12) months following acquisition by Borrower of a Project, operating statements for the prior twelve (12) month period are not available for such Project, the operating statements covering any lesser period of time will be annualized to determine compliance with this Section 8.15(c).

Section 8.16.         Healthcare Laws and Covenants.

(a)          Without limiting the generality of any other provision of this Agreement, Borrower and Operator and their employees and contractors (other than contracted agencies) in the exercise of their duties on behalf of Borrower or Operator (with respect to its operation of the Projects) shall be in compliance in all material respects with all applicable Healthcare Laws. Borrower and Operator will have maintained and shall have continued to maintain in all material respects all records required to be maintained by any Governmental Authority or otherwise under the Healthcare Laws and to Borrower’s Knowledge there are no presently existing circumstances which would result or likely would result in material violations of the Healthcare Laws. Borrower and Operator have and will maintain all Primary Licenses, Permits and other Governmental Approvals necessary under applicable Laws to own and/or operate the Projects, as applicable (including such Governmental Approvals as are required under such Healthcare Laws); or, if applicable Licenses have been applied for, but not yet issued to, Operator, Operator have entered into applicable agreements with the prior operator of the Projects to operate the Projects under the current Primary Licenses.

(b)          Borrower represents that it is neither (i) a “covered entity” within the meaning of HIPAA or submits claims or reimbursement requests to Third Party Payor Programs “electronically” (within the meaning of HIPAA) nor (ii) subject to the “Administrative Simplification” provisions of HIPAA. If Borrower at any time becomes, and during any period during which Operator is, a “covered entity” or subject to the “Administrative Simplification” provisions of HIPAA, then such Person (during any period during which such Person is a covered entity or subject to the co-called “Administrative Simplification” provisions of HIPAA) (x) will promptly undertake all necessary surveys, audits, inventories, reviews, analyses and/or assessments (including any necessary risk assessments) of all areas of its business and operations required by HIPAA and/or that could be adversely affected by the failure of such Person(s) to be HIPAA Compliant (as defined below); (y) will promptly develop a detailed plan and time line for becoming HIPAA Compliant (a “HIPAA Compliance Plan”); and (z) will implement those provisions of such HIPAA Compliance Plan in all material respects necessary to ensure that such Person(s) are or become HIPAA Compliant. For purposes hereof, “HIPAA Compliant” shall mean that Person (A) is or will be in material compliance with each of the applicable requirements of the so-called “Administrative Simplification” provisions of HIPAA on and as of each date that any party thereof, or any final rule or regulation thereunder, becomes effective in accordance with its or their terms, as the case may be (each such date, a “HIPAA Compliance Date”) if and to the extent such Person is subject to such provisions, rules or regulations, and (B) is not and could not reasonably be expected to become, as of any date following any such HIPAA Compliance Date, the subject of any civil or criminal penalty, process, claim, action or proceeding, or any administrative or other regulatory review, survey, process or proceeding (other than routine surveys or reviews conducted by any government health plan or other accreditation entity) that could result in any of the foregoing or that could reasonably be expected to adversely affect such Person’s business, operations, assets, properties or condition (financial or otherwise), in connection with any actual or potential violation by such Person of the then effective provisions of HIPAA.

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(c)          If and to the extent required under applicable Laws, Borrower and/or each Operator shall maintain in full force and effect throughout the term of the Loan (i) a valid Primary License for the requisite number of Residential Units in the Projects, free from restrictions or known conflicts, and such Primary License shall not be provisional, probationary or restricted in any manner that would materially impair the use or operation of the Projects for the use described in Section 6.22(a) above, and (ii) a provider agreement or other required documentation of approved provider status for each Third-Party Payor Programs, if applicable. The Projects shall be operated in a manner such that the Primary Licenses shall remain in full force and effect.

(d)          Neither Borrower nor any Operator shall do (or suffer to be done) any of the following with respect to any Project without the prior written consent of Administrative Agent:

(i)          Transfer the Primary Licenses to any location other than the Projects.

(ii)         Rescind, withdraw, revoke, or amend the number of Residential Units permitted under the Primary Licenses, or otherwise amend the Primary Licenses in such a manner that results in a material adverse effect on the rates charged or otherwise diminish or impair the nature, tenor or scope of the Primary Licenses;

(iii)        Amend or otherwise change any Project’s authorized units/beds capacity and/or the number of Residential Units approved by the State Regulator, if applicable;

(iv)        Replace or transfer all or any part of any Project’s units or beds to another site or location other than to another Project; or

(v)         Voluntarily transfer or encourage the transfer of any resident of any Project to any other facility (other than to another Project), unless such transfer is (A) at the request of the resident, (B) for reasons relating to the health, required level of medical care or safety of the resident to be transferred or the residents remaining at the facility or (C) as a result of the disruptive behavior of the transferred resident that is detrimental to the facility.

(e)          If and when Borrower or Operator participates in any Medicare or Medicaid or other Third-Party Payor Programs with respect to the Projects, the Projects will remain in compliance with all requirements necessary for participation in Medicare and Medicaid, including the Medicare and Medicaid Patient Protection Act of 1987, as it may be amended, and such other Third-Party Payor Programs. Each Project is and will remain in conformance in all material respects with all insurance, reimbursement and cost reporting requirements, and, if applicable, have a current provider agreement that is in full force and effect under Medicare and Medicaid.

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(f)          To Borrower’s Knowledge, there exists no Healthcare Investigations affecting the Projects. If Borrower becomes aware of any Healthcare Investigation after the Closing Date, Borrower will promptly provide to Administrative Agent the following information with respect thereto: (i) number of records requested, (ii) dates of service, (iii) dollars at risk, (iv) date records submitted, (v) determinations, findings, results and denials (including number, percentage and dollar amount of claims denied, (vi) additional remedies proposed or imposed, (vii) status update, including appeals, and (viii) any other pertinent information related thereto.¹

Section 8.17.         Cooperation Regarding Licenses. From time to time, upon the request of Administrative Agent, if a Potential Default or Event of Default exists hereunder, Borrower shall, and shall cause Operator to, complete, execute and deliver to Administrative Agent any applications, notices, documentation, and other information necessary or desirable, in Administrative Agent’s judgment, to permit Administrative Agent or its designee (including a receiver) to obtain, maintain or renew any one or more of the Primary Licenses for the Projects (or to become the owner of the existing Primary Licenses for the Projects) and to the extent permitted by applicable Laws to obtain any other provider agreements or Governmental Approvals then necessary or desirable for the operation of the Projects by Administrative Agent or its designee for their current use (including, without limitation, any applications for change of ownership of the existing Primary Licenses or change of control of the owner of the existing Primary Licenses). To the extent permitted by applicable Laws, (i) Administrative Agent is hereby authorized (without the consent of Borrower or Operator) to submit any such applications, notices, documentation or other information which Borrower caused to be delivered to Administrative Agent in accordance with the above provisions to the applicable Governmental Authorities, or to take such other steps as Administrative Agent may deem advisable to obtain, maintain or renew any Primary License or Permits or other Governmental Approvals in connection with the operation of the Projects for their current use, and Borrower agrees to cooperate and to cause Operator to cooperate with Administrative Agent in connection with the same and (ii) Borrower, upon demand by Administrative Agent, shall take any action and cause Operator to take any action necessary or desirable, in Administrative Agent’s sole judgment, to permit Administrative Agent or its designee (including a receiver) to use, operate and maintain each Project for its current use. If Borrower fails to comply with the provisions of this Section 8.17 for any reason whatsoever, Borrower hereby irrevocably appoints Administrative Agent and its designee as Borrower’s attorney-in-fact, with full power of substitution, to take any action and execute any documents and instruments necessary or desirable in Administrative Agent’s sole judgment to permit Administrative Agent or its designee to undertake Borrower’s obligations under this Section 8.17, including obtaining any Licenses or Governmental Approvals then required for the operation of the Projects by Administrative Agent or its designee for their current uses. The foregoing power of attorney is coupled with an interest and is irrevocable and Administrative Agent may exercise its rights thereunder in addition to any other remedies which Administrative Agent may have against Borrower or any Borrower Party as a result of Borrower’s breach of the obligations contained in this Section 8.17.

¹ Please note that a broader covenant with respect to Healthcare Investigations will need to be added to the Lease.

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Section 8.18.         Transactions With Affiliates. Without the prior written consent of Administrative Agent, Borrower shall not engage in any transaction affecting the Projects with an Affiliate of Borrower, except as expressly contemplated by this Agreement.

Section 8.19.         Representations and Warranties. Borrower shall cause all representations and warranties in the Loan Documents and Environmental Indemnity Agreement to remain true and correct at all times while any portion of the Loan remains outstanding.

Section 8.20.         Alterations. Administrative Agent’s prior approval shall be required in connection with any alterations to the Projects (except tenant improvements under any Lease approved by Administrative Agent or under any Lease for which approval was not required by Administrative Agent under this Agreement) (a) that adversely affect the structural components of the Projects, utilities, HVAC or the exterior of the Projects, (b) that are reasonably likely to cause a Material Adverse Change or (c) the cost of which (including any related alteration, improvement or replacement) is reasonably anticipated to exceed the Restoration Threshold, which approval may be granted or withheld in Administrative Agent’s sole discretion. If the total unpaid amounts incurred and to be incurred with respect to such alterations to the Projects shall at any time exceed the Restoration Threshold, Borrower shall promptly deliver to Administrative Agent as security for the payment of such amounts and as additional security for Borrower’s obligations under the Loan Documents any of the following: (i) cash, (ii) letters of credit, (iii) U.S. Obligations, (iv) other securities acceptable to Administrative Agent, or (v) a completion bond in form acceptable to Administrative Agent. Such security shall be in an amount equal to the excess of the total unpaid amounts incurred and to be incurred with respect to such alterations to the Projects (other than such amounts to be paid or reimbursed by Tenants under the Leases) over the Restoration Threshold.

Section 8.21.         Business and Operations. Borrower will continue to engage only in the businesses currently conducted by it on the date hereof, as and to the extent the same are necessary for the ownership and leasing of the Projects. Borrower shall at all times cause the Projects to be maintained in accordance with the Projects’ use as a senior housing and healthcare facility.

Section 8.22.         Severability of Covenants. Any representations, warranties or covenants made by Borrower regarding such entities or their Affiliates (as contrasted with the Projects) shall be deemed to have been made solely on behalf of such entity, and neither Borrower shall be deemed to be making such representations or covenants or warranties regarding any other entity.

Section 8.23.         Required Repairs and Post Closing Requirements. Borrower shall provide evidence reasonably satisfactory to Administrative Agent that the Required Repairs have been completed within the time periods set forth on Schedule 2.5(b), all of which shall be performed in a manner satisfactory to Administrative Agent and shall be subject to inspection by Administrative Agent. Borrower shall also satisfy the Post Closing Requirements within the time periods set forth on Schedule 12.37.

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ARTICLE IX

EVENTS OF DEFAULT

Section 9.1.          Events of Default. Each of the following shall constitute an Event of Default hereunder and under the Loan:

(a)          Payments. Failure of Borrower to pay any regularly scheduled installment of principal, interest or other amount due under the Loan Documents within five (5) days of (and including) the date when due, or failure of Borrower to pay the Loan at the Maturity Date, whether by acceleration or otherwise.

(b)          Insurance. Borrower’s failure to maintain insurance as required under Section 3.1 of this Agreement.

(c)          Sale, Encumbrance, Etc. The sale, transfer, conveyance, pledge, mortgage or assignment of any part or all of any Project, or any interest therein, or of any interest in Borrower, in violation of this Agreement.

(d)          Covenants. Borrower’s failure to perform, observe or comply with any of the agreements, covenants or provisions contained in this Agreement or in any of the other Loan Documents or Environmental Indemnity Agreement (other than those agreements, covenants and provisions referred to elsewhere in this Article 9), and the continuance of such failure for ten (10) days after notice by Administrative Agent to Borrower; however, subject to any shorter period for curing any failure by Borrower as specified in any of the other Loan Documents or Environmental Indemnity Agreement, Borrower shall have an additional sixty (60) days to cure such failure if (a)such failure does not involve the failure to make payments on a monetary obligation; (b)such failure cannot reasonably be cured within ten (10) days; (c) Borrower is diligently undertaking to cure such default; and (d) Borrower has provided Administrative Agent with security reasonably satisfactory to Administrative Agent against any interruption of payment or impairment of collateral under the Loan Documents as a result of such continuing failure. The notice and cure provisions of this Section 9.4 do not apply to the other Events of Default described in this Article 9 or to Borrower’s failure to perform, observe or comply with any of the agreements, covenants or provisions referenced elsewhere in this Article 9 (for which no notice and cure period shall apply).

(e)          Representations and Warranties. Any representation or warranty made in any Loan Document or the Environmental Indemnity Agreement or the Compliance Certificate proves to be untrue in any material respect when made or deemed made.

(f)          Other Encumbrances. Any default under any document or instrument, other than the Loan Documents, evidencing or creating a Lien on any Project or any part thereof, is not cured within any applicable grace or cure period therein.

(g)          Involuntary Bankruptcy or Other Proceeding. Commencement of an involuntary case or other proceeding against Borrower, any Borrower Party or any other Person having an ownership or security interest in the Projects (each, a “Bankruptcy Party”) which seeks liquidation, reorganization or other relief with respect to it or its debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of sixty (60) days; or an order for relief against a Bankruptcy Party shall be entered in any such case under the Federal Bankruptcy Code.

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(h)          Voluntary Petitions, etc. Commencement by a Bankruptcy Party of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its Debts or other liabilities under any bankruptcy, insolvency or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any of its property, or consent by a Bankruptcy Party to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or the making by a Bankruptcy Party of a general assignment for the benefit of creditors, or the failure by a Bankruptcy Party, or the admission by a Bankruptcy Party in writing of its inability, to pay its debts generally as they become due, or any action by a Bankruptcy Party to authorize or effect any of the foregoing.

(i)          Default Under Operating Agreement. The occurrence of a default by Borrower under any of the Operators’ Agreements, which remains uncured beyond any applicable grace or cure periods available to Borrower.

(j)          Certain Covenants. Borrower’s failure to (i) maintain its status as a Single Purpose Entity; (ii) timely deliver the Compliance Certificate; (iii) comply with the provisions of Section 8.15; (iv) comply with the provisions of Section 8.16(c); and (v) provide Administrative Agent with ten (10) days subsequent written notice of changes of the state of Borrower’s formation or Borrower’s name.

(k)          Financial Information. Borrower’s failure to deliver financial statements and reports as required by Article 7 and the continuance of such failure (i) in connection with the first such failure, for a period of ten (10) days after delivery of written notice to Borrower by Administrative Agent of such failure and (ii) thereafter, for ten (10) days after the required delivery date of such financial statement or report.

(l)          Default Under Guaranty. The occurrence of a default under the Recourse Guaranty Agreement and such default is not cured within any grace or cure periods provided therein.

(m)          Criminal Act. Borrower’s or any Borrower Party’s being charged with a felony crime or a crime involving moral turpitude and the individual charged in connection therewith is not terminated within five (5) days of Borrower’s knowledge of such indictment as an officer, employee or director of Borrower or Borrower Party.

(n)          Master Lease. The occurrence of a material default under the Master Lease which continues uncured beyond any applicable notice and grace period provided under the Master Lease.

(o)          [Reserved]

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(p)          Environmental Indemnity Agreement. There shall have occurred any default under the Environmental Indemnity Agreement which remains uncured beyond any applicable grace or cure periods available under the Environmental Indemnity Agreement.

(q)          Required Repairs and Post Closing Requirements. The failure to satisfy the Post Closing Obligations within the time periods set forth on Schedule 12.37, provided, however, that, if Borrower has made good faith efforts to satisfy, and diligently pursued the completion of, such Post Closing Obligations within the time periods specified on such Schedule, Borrower shall have an additional thirty (30) days to cure such failure, provided Borrower is diligently pursuing such cure.

(r)          Death of Guarantor. If any Guarantor is an individual, the death of such Guarantor.

(s)          Admissions Restrictions. Any Governmental Authority ceases to permit new residents or tenants to be admitted to any of the Projects or causes the Operator to discharge any residents or tenants from any of the Projects.

(t)          Healthcare Investigations. The occurrence of a Healthcare Investigation affecting any of the Projects that results in a deficiency finding by the relevant authority.

(u)          Cash Management Agreement. The occurrence of a default under a Cash Management Agreement which remains uncured beyond any applicable grace or cure periods provided therein.

Section 9.2.          Special Right to Cure with Respect to Operational Defaults. Notwithstanding anything contained in Section 9.1 to the contrary, if an event that would otherwise constitute an Event of Default under Section 9.1(t) occurs solely as a result of an act or omission of a Master Tenant or any Operator (and such act, omission or failure is outside Borrower’s control and not otherwise caused by Borrower) (each such failure, an “Operational Default”), such Operational Default shall not constitute an “Event of Default” under Section 9.1(t) hereunder if (and only if) all of the following conditions are satisfied, as determined by Administrative Agent in its reasonable discretion:

(a)          There exists no other Event of Default hereunder.

(b)          Borrower sends written notice to Administrative Agent describing in reasonable detail such breach within three (3) Business Days following the date upon which Borrower becomes aware of such Operational Default.

(c)          All debt service payments and all other amounts due under the Loan Documents are paid current at all times (regardless of whether or not there is available revenue from the Projects or rent from the Master Lease to make such payments).

(d)          Neither the value of the Collateral nor the ability to operate the Projects is materially impaired as a result of the act or omission that caused the Operational Default.

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(e)          Borrower diligently pursues all rights and remedies available to Borrower under the Master Lease and under applicable Laws to cure (or cause the Operator to cure) such Operational Default, and if Borrower elects to cure (or cause the Operator to cure) such Operational Default, such Operational Default is actually cured within ninety (90) days of the occurrence of such Operational Default (such ninety (90) day period from the occurrence of the Operational Default is referred to as the “Operational Default Forbearance Period”).

(f)          Borrower take commercially reasonable steps to cause the Primary Licenses required to operate the Projects as assisted living or skilled nursing facilities and the reimbursement agreements with respect to the Projects to remain in full force and effect under the Requirements of Law.

(g)          Borrower pays all of Administrative Agent’s and each Lender's reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) in connection with the matters set forth in this Section 9.2.

(h)          On a bi-weekly basis during the pendency of the Operational Default Forbearance Period, Borrower furnishes to Administrative Agent a detailed written statement summarizing the then current status of Borrower’s attempts to cure such Operational Default.

(i)          Borrower at all times during the Operational Default Forbearance Period takes such additional action and/or executes such additional documents (and/or causes Operator to take such additional action and/or execute such additional documents) as Administrative Agent may reasonably require in connection with the matters set forth in this Section 9.2.

Anything herein to the contrary notwithstanding, Administrative Agent and Lenders shall have no obligation to forbear from exercising remedies by reason of an Operational Default of any type as to which Borrower elects to cure more than twice in the aggregate during the term of the Loan or more than once in any twelve (12) month period during the term of the Loan. For the avoidance of doubt, Administrative Agent and Lenders shall have no obligation to forbear from submitting any pleadings in any bankruptcy or other proceeding to the extent that a failure to do so could result in any prejudice to Lenders, a rejection or termination of the Master Lease or otherwise adversely affect the Collateral securing the Loan.

ARTICLE X

REMEDIES

Section 10.1.          Remedies Insolvency Events. Upon the occurrence of any Event of Default described in Sections 9.7 or 9.8, all amounts due under the Loan Documents immediately shall become due and payable, all without written notice and without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity thereof, or any other notice of default of any kind, all of which are hereby expressly waived by Borrower; however, if the Bankruptcy Party under Section 9.7 or 9.8 is other than Borrower, then all amounts due under the Loan Documents shall become immediately due and payable at Administrative Agent’s election, in Administrative Agent’s sole discretion.

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Section 10.2.          Remedies Other Events. Except as set forth in Section 10.1 above, while any Event of Default exists, Administrative Agent may and at the direction of the Required Lenders shall (a) by written notice to Borrower, declare the entire Loan to be immediately due and payable without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity thereof, or other notice of default of any kind, all of which are hereby expressly waived by Borrower, and (b) exercise all rights and remedies therefor under the Loan Documents and at law or in equity. Notwithstanding anything to the contrary contained in the Loan Documents or the Environmental Indemnity Agreement, the enforcement of the obligations of Borrower and the Borrower Parties under the Loan Documents and the Environmental Indemnity Agreement and the exercise of rights and remedies thereunder shall be undertaken solely by Administrative Agent in its capacity as agent for the Lenders.

Section 10.3.          Administrative Agent’s Right to Perform the Obligations. If Borrower shall fail, refuse or neglect to make any payment or perform any act required by the Loan Documents or the Environmental Indemnity Agreement, then while any Event of Default exists, and without notice to or demand upon Borrower and without waiving or releasing any other right, remedy or recourse Administrative Agent may have because of such Event of Default, Administrative Agent may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Borrower, and shall have the right to enter upon the Projects for such purpose and to take all such action thereon and with respect to the Projects as it may deem necessary or appropriate. If Administrative Agent shall elect to pay any sum due with reference to the Projects, Administrative Agent may do so in reliance on any bill, statement or assessment procured from the appropriate Governmental Authority or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Loan Documents, Administrative Agent shall not be bound to inquire into the validity of any apparent or threatened adverse title, lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Borrower shall indemnify, defend and hold Administrative Agent harmless from and against any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs, or disbursements of any kind or nature whatsoever, including reasonable attorneys’ fees, incurred or accruing by reason of any acts performed by Administrative Agent pursuant to the provisions of this Section 10.3, including those arising from the joint, concurrent, or comparative negligence of Administrative Agent, except as a result of Administrative Agent’s gross negligence or willful misconduct. All sums paid by Administrative Agent pursuant to this Section 10.3, and all other sums expended by Administrative Agent to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate from the date of such payment or expenditure until paid, shall constitute additions to the Loan, shall be secured by the Loan Documents and shall be paid by Borrower to Administrative Agent upon demand.

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ARTICLE XI

ADMINISTRATIVE AGENT

Section 11.1.          Appointment and Duties.

(a)          Each Lender hereby appoints GE Capital (together with any successor Administrative Agent pursuant to Section 11.9) as the Administrative Agent hereunder and authorizes the Administrative Agent to (i) execute and deliver the Loan Documents and the Environmental Indemnity Agreement and accept delivery thereof on its behalf from Borrower or any Borrower Party, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to the Administrative Agent under such Loan Documents the Environmental Indemnity Agreement, and (iii) exercise such powers as are reasonably incidental thereto.

(b)          Without limiting the generality of clause (a) above, the Administrative Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders), and is hereby authorized, to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection with the Loan Documents and the Environmental Indemnity Agreement (including in any proceeding described in Section 9.7 or Section 9.8 or any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document and the Environmental Indemnity Agreement to any Secured Party is hereby authorized to make such payment to the Administrative Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of the Secured Parties with respect to any Obligation in any proceeding described in Section 9.7 or Section 9.8 or any other bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of such Secured Party), (iii) act as collateral agent for each Secured Party for purposes of the perfection of all Liens created by such agreements and all other purposes stated therein, (iv) manage, supervise and otherwise deal with the Collateral, (v) take such other action as is necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document or the Environmental Indemnity Agreement, exercise all remedies given to the Administrative Agent and the other Secured Parties with respect to the Collateral, whether under the Loan Documents or the Environmental Indemnity Agreement, applicable law or otherwise, (vii) execute any amendment, consent or waiver under the Loan Documents and the Environmental Indemnity Agreement on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided, however, that the Administrative Agent hereby appoints, authorizes and directs each Lender to act as collateral sub-agent for the Administrative Agent and the Lenders for purposes of the perfection of all Liens with respect to the Collateral, including any deposit account maintained by Borrower or a Borrower Party with, and cash and cash equivalents held by, such Lender, and may further authorize and direct the Lenders to take further actions as collateral sub-agents for purposes of enforcing such Liens or otherwise to transfer the Collateral subject thereto to the Administrative Agent, and each Lender hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed and (viii) provide each Lender within ten (10) Business Days following receipt, copies of the reports and financial information received from Borrower under Article 7 and notices of default delivered by or received by Administrative Agent under this Agreement.

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(c)          Under the Loan Documents and the Environmental Indemnity Agreement, the Administrative Agent (i) is acting solely on behalf of the Lenders (except to the limited extent provided in Section 2.13(b) with respect to the Register and in Section 11.10), with duties that are entirely administrative in nature, notwithstanding the use of the defined term “Administrative Agent”, the terms “agent”, “administrative agent” and “collateral agent” and similar terms in any Loan Document and the Environmental Indemnity Agreement to refer to the Administrative Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document or the Environmental Indemnity Agreement other than as expressly set forth therein or any role as agent, fiduciary or trustee of or for any Lender or any other Secured Party and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document or the Environmental Indemnity Agreement, and each Lender hereby waives and agrees not to assert any claim against the Administrative Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i) through (iii) above.

Section 11.2.          Binding Effect. Each Lender agrees that (i) any action taken by the Administrative Agent or the Required Lenders (or, if expressly required hereby, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents or the Environmental Indemnity Agreement, (ii) any action taken by the Administrative Agent in reliance upon the instructions of Required Lenders (or, where so required, such greater proportion) and (iii) the exercise by the Administrative Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Secured Parties.

Section 11.3.          Use of Discretion.

(a)          The Administrative Agent shall not be required to exercise any discretion or take, or to omit to take, any action, including with respect to enforcement or collection, except any action it is required to take or omit to take (i) under any Loan Document or the Environmental Indemnity Agreement or (ii) pursuant to instructions from the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders).

(b)          Notwithstanding clause (a) of this Section 11.3, the Administrative Agent shall not be required to take, or to omit to take, any action (i) unless, upon demand, the Administrative Agent receives an indemnification satisfactory to it from the Lenders (or, to the extent applicable and acceptable to the Administrative Agent, any other Secured Party) against all Liabilities that, by reason of such action or omission, may be imposed on, incurred by or asserted against the Administrative Agent or any Related Person thereof or (ii) that is, in the opinion of the Administrative Agent or its counsel, contrary to any Loan Document or the Environmental Indemnity Agreement or applicable Requirement of Law.

Section 11.4.          Delegation of Rights and Duties. The Administrative Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document or the Environmental Indemnity Agreement by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any Secured Party). Any such Person shall benefit from this Article 11 to the extent provided by the Administrative Agent.

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Section 11.5.          Reliance and Liability.

(a)          The Administrative Agent may, without incurring any liability hereunder, (i) treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 12.3, (ii) rely on the Register to the extent set forth in Section 2.13, (iii) consult with any of its Related Persons and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, any Borrower or any Borrower Party) and (iv) rely and act upon any document and information (including those transmitted by Electronic Transmission) and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.

(b)          None of the Administrative Agent and its Related Persons shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document or the Environmental Indemnity Agreement, and each Lender and Borrower and the Borrower Parties hereby waive and shall not assert any right, claim or cause of action based thereon, except to the extent of liabilities resulting primarily from the gross negligence or willful misconduct of the Administrative Agent or, as the case may be, such Related Person (each as determined in a final, non-appealable judgment by a court of competent jurisdiction) in connection with the duties expressly set forth herein. Without limiting the foregoing, the Administrative Agent:

(i)          shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of any of its Related Persons selected with reasonable care (other than employees, officers and directors of the Administrative Agent, when acting on behalf of the Administrative Agent);

(ii)         shall not be responsible to any Secured Party for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document or the Environmental Indemnity Agreement;

(iii)        makes no warranty or representation, and shall not be responsible, to any Secured Party for any statement, document, information, representation or warranty made or furnished by or on behalf of any Related Person or Borrower or any Borrower Party in connection with any Loan Document or any transaction contemplated therein or any other document or information with respect to any Borrower or any Borrower Party, whether or not transmitted or (except for documents expressly required under any Loan Document to be transmitted to the Lenders) omitted to be transmitted by the Administrative Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by the Administrative Agent in connection with the Loan Documents; and

(iv)        shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of any Borrower or any Borrower Party or as to the existence or continuation or possible occurrence or continuation of any Potential Default or Event of Default and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from a Borrower, any Lender describing such Potential Default or Event of Default clearly labeled “notice of default” (in which case the Administrative Agent shall promptly give notice of such receipt to all Lenders);

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and, for each of the items set forth in clauses (i) through (iv) above, each Lender and Borrower and the Borrower Parties hereby waives and agrees not to assert any right, claim or cause of action it might have against the Administrative Agent based thereon.

Section 11.6.          Administrative Agent Individually. The Administrative Agent and its Affiliates may make loans and other extensions of credit to, acquire stock and stock equivalents of, engage in any kind of business with, Borrower or any Borrower Party or Affiliate thereof as though it were not acting as Administrative Agent and may receive separate fees and other payments therefor. To the extent the Administrative Agent or any of its Affiliates makes any Loan or otherwise becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender and the terms “Lender,” and “Required Lender,” and any similar terms shall, except where otherwise expressly provided in any Loan Document or the Environmental Indemnity Agreement, include, without limitation, the Administrative Agent or such Affiliate, as the case may be, in its individual capacity as Lender or as one of the Required Lenders, respectively.

Section 11.7.          Lender Credit Decision. Each Lender acknowledges that it shall, independently and without reliance upon the Administrative Agent, any other Lender or any of their Related Persons or upon any document solely or in part because such document was transmitted by the Administrative Agent or any of its Related Persons, conduct its own independent investigation of the financial condition and affairs of Borrower and each Borrower Party and make and continue to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or the Environmental Indemnity Agreement or with respect to any transaction contemplated in any Loan Document or the Environmental Indemnity Agreement, in each case based on such documents and information as it shall deem appropriate. Except for documents expressly required by any Loan Document or the Environmental Indemnity Agreement to be transmitted by the Administrative Agent to the Lenders, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any Borrower Party or any Affiliate of Borrower or any Borrower Party that may come into the possession of the Administrative Agent or any of its Related Persons.

Section 11.8.          Expenses; Indemnities.

(a)          Each Lender agrees to reimburse the Administrative Agent and each of its Related Persons (to the extent not reimbursed by Borrower or any Borrower Party) promptly upon demand for such Lender’s Pro Rata Share with respect to the Loan of any costs and expenses (including fees, charges and disbursements of financial, legal and other advisors and other taxes paid in the name of, or on behalf of, Borrower or any Borrower Party) that may be incurred by the Administrative Agent or any of its Related Persons in connection with the preparation, syndication, execution, delivery, administration, modification, consent, waiver or enforcement (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding or otherwise) of, or legal advice in respect of its rights or responsibilities under, any Loan Document and the Environmental Indemnity Agreement.

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(b)          Each Lender further agrees to indemnify the Administrative Agent and each of its Related Persons (to the extent not reimbursed by Borrower or any Borrower Party), from and against such Lender’s aggregate Pro Rata Share with respect to the Loan of the Liabilities (including taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to on or for the account of any Lender) that may be imposed on, incurred by or asserted against the Administrative Agent or any of its Related Persons in any matter relating to or arising out of, in connection with or as a result of any Loan Document or the Environmental Indemnity Agreement, any Related Document or any other act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any action taken or omitted to be taken by the Administrative Agent or any of its Related Persons under or with respect to any of the foregoing; provided, however, that no Lender shall be liable to the Administrative Agent or any of its Related Persons to the extent such liability has resulted primarily from the gross negligence or willful misconduct of the Administrative Agent or, as the case may be, such Related Person, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.

Section 11.9.          Resignation of Administrative Agent.

(a)          The Administrative Agent may resign at any time by delivering notice of such resignation to the Lenders and Borrower, effective on the date set forth in such notice or, if no such date is set forth therein, upon the date such notice shall be effective. If the Administrative Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Administrative Agent. If, within 30 days after the retiring Administrative Agent having given notice of resignation, no successor Administrative Agent has been appointed by the Required Lenders that has accepted such appointment, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent from among the Lenders. Each appointment under this clause (a) shall be subject to the prior consent of Borrower, which may not be unreasonably withheld, but shall not be required during the continuance of a Potential Default or Event of Default.

(b)          Effective immediately upon its resignation, (i) the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents and the Environmental Indemnity Agreement, (ii) the Lenders shall assume and perform all of the duties of the Administrative Agent until a successor Administrative Agent shall have accepted a valid appointment hereunder, (iii) the retiring Administrative Agent and its Related Persons shall no longer have the benefit of any provision of any Loan Document or the Environmental Indemnity Agreement other than with respect to any actions taken or omitted to be taken while such retiring Administrative Agent was, or because such Administrative Agent had been, validly acting as Administrative Agent under the Loan Documents and (iv) subject to its rights under Section 10.3, the retiring Administrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents and the Environmental Indemnity Agreement. Effective immediately upon its acceptance of a valid appointment as Administrative Agent, a successor Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Administrative Agent under the Loan Documents and the Environmental Indemnity Agreement.

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(c)          Administrative Agent may be removed as Administrative Agent upon the request of all Lenders (other than Affiliates of Administrative Agent) upon the determination by a court of competent jurisdiction that Administrative Agent has committed actions constituting gross negligence or willful misconduct under this Agreement. The provisions of subsection (b) above shall apply upon such removal.

Section 11.10.         Additional Secured Parties. The benefit of the provisions of the Loan Documents and the Environmental Indemnity Agreement directly relating to the Collateral or any Lien granted thereunder shall extend to and be available to any Secured Party that is not a Lender as long as, by accepting such benefits, such Secured Party agrees, as among the Administrative Agent and all other Secured Parties, that such Secured Party is bound by (and, if requested by the Administrative Agent, shall confirm such agreement in a writing in form and substance acceptable to the Administrative Agent) this Article 11, Section 12.6 (Right of Setoff), Section 12.7 (Sharing of Payments, Etc.) and Section 12.36 (Non-Public Information; Confidentiality) and the decisions and actions of the Administrative Agent and the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders) to the same extent a Lender is bound; provided, however, that, notwithstanding the foregoing, (a) such Secured Party shall be bound by Section 11.8 only to the extent of Liabilities, costs and expenses with respect to or otherwise relating to the Collateral held for the benefit of such Secured Party, in which case the obligations of such Secured Party thereunder shall not be limited by any concept of Pro Rata Share or similar concept, (b) except as set forth specifically herein, each of the Administrative Agent and each Lender shall be entitled to act at its sole discretion, without regard to the interest of such Secured Party, regardless of whether any Obligation to such Secured Party thereafter remains outstanding, is deprived of the benefit of the Collateral, becomes unsecured or is otherwise affected or put in jeopardy thereby, and without any duty or liability to such Secured Party or any such Obligation and (c) except as set forth specifically herein, such Secured Party shall not have any right to be notified of, consent to, direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under any Loan Document or the Environmental Indemnity Agreement.

ARTICLE XII

MISCELLANEOUS

Section 12.1.          Notices. Any notice required or permitted to be given under this Agreement shall be in writing and either shall be mailed by certified mail, postage prepaid, return receipt requested, or sent by overnight air courier service, or personally delivered to a representative of the receiving party, or sent by facsimile (provided an identical notice is also sent simultaneously by mail, overnight courier, or personal delivery as otherwise provided in this Section 12.1). All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below.

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If to Borrower:	CHP Portland LLC
	CHP Medford 1, LLC
	CHP Friendswood SNF, LLC
	1920 Main Street, Suite 400
	Irvine, California 92614
	Attention:	General Counsel
	Facsimile:	(949) 250-0592
If to Administrative
Agent:	General Electric Capital Corporation
	Loan No. 07-0004432
	500 West Monroe Street
	Chicago, Illinois 60661
	Attention:	Dague Retzlaff, Vice President
	Facsimile:	(866) 579-3042
with a copy to:	General Electric Capital Corporation
	Loan No. 07-0004432
	500 West Monroe Street
	Chicago, Illinois  60661
	Attention:	Jeffrey M. Muchmore, Managing Director
	Facsimile:	(866) 254-1971
with a copy to:	General Electric Capital Corporation
	Loan No. 07-0004432
	5804 Trailridge Drive
	Austin, Texas  78731
	Attention:	Diana Pennington, Chief Counsel- HFS Real Estate
	Facsimile:	(866) 221-0433
If to a Lender:	To the address set forth on Exhibit B attached hereto.

Any notice or request so addressed and sent by United States mail or overnight courier shall be deemed to be given on the earliest of (1) when actually delivered, (2) on the first Business Day after deposit with an overnight air courier service, or (3) on the third Business Day after deposit in the United States mail, postage prepaid, in each case to the address of the intended addressee (except as otherwise provided in the Mortgage). Any notice or request so delivered in person shall be deemed to be given when receipted for by, or actually received by Administrative Agent, a Lender, or Borrower, as the case may be. If given by facsimile, a notice or request shall be deemed given and received when the facsimile is transmitted to the party’s facsimile number specified above and confirmation of complete receipt is received by the transmitting party during normal business hours or on the next Business Day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier, or personal delivery as otherwise provided in this Section 12.1. If given by electronic mail, a notice shall be deemed given and received when the electronic mail is transmitted to the recipient’s electronic mail address specified above and electronic confirmation of receipt (either by reply from the recipient or by automated response to a request for delivery receipt) is received by the sending party during normal business hours or on the next Business Day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier or personal delivery as otherwise provided in this Section 12.1. Except for facsimile and electronic mail notices sent as expressly described above, no notice hereunder shall be effective if sent or delivered by electronic means. Either party may designate a change of address by written notice to the other by giving at least ten (10) days prior written notice of such change of address.

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Section 12.2.          Amendments and Waivers.

(a)          No amendment or waiver of any provision of the Environmental Indemnity Agreement or any Loan Document and no consent to any departure by Borrower or any Borrower Party therefrom shall be effective unless the same shall be in writing and signed (1) in the case of an amendment, consent or waiver to cure any ambiguity, omission, defect or inconsistency or granting a new Lien for the benefit of the Secured Parties or extending an existing Lien over additional property, by the Administrative Agent and Borrower, (2) in the case of any other waiver or consent, by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and (3) in the case of any other amendment, by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and Borrower; provided, however, that no amendment, consent or waiver described in clause (2) or (3) above shall be effective, unless in writing and signed by each Lender (or by the Administrative Agent with the consent of the Lenders), in addition to any other Person the signature of which is otherwise required pursuant to any Loan Document, and such amendment, consent or waiver does any of the following:

(i)          waives any condition precedent to the effectiveness of this Agreement, except any condition referring to any other provision of any Loan Document;

(ii)         increases the Loan Commitment of any Lender or subjects any Lender to any additional obligation or otherwise increases the principal amount of the Loan;

(iii)        reduces (including through release, forgiveness, assignment or otherwise) (A) the principal amount of, the interest rate on, or any obligation of Borrower to repay (whether or not on a fixed date), any outstanding amount under the Loan owing to Lenders or (B) any fee or accrued interest payable to any Lender; provided, however, that this clause (iii) does not apply to (x) any change to any provision increasing any interest rate or fee during the continuance of an Event of Default or to any payment of any such increase or (y) any modification to any financial covenant set forth in Article 8 or in any definition set forth therein or principally used therein;

(iv)        waives or postpones any scheduled maturity date or other scheduled date fixed for the payment, in whole or in part, of principal of or interest on the Loan (including any agreement to forbear that would have the same effect) or fee owing to such Lender or for the reduction of such Lender’s Loan Commitment; provided, however, that this clause (iv) does not apply to any change to mandatory prepayments, including those required under Section 2.5(c), or to the application of any payment, including as set forth in Section 2.7;

(v)         releases all or substantially all of the Collateral or any Guarantor from its guaranty of any Obligation of Borrower;

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(vi)        reduces or increases the proportion of Lenders required for the Lenders (or any subset thereof) to take any action hereunder or change the definition of the terms “Required Lenders,” “Pro Rata Share,” or “Pro Rata Outstandings”; or

(vii)       amends Section 12.7 (Sharing of Payments, Etc.) or this Section 12.2;

(b)          Anything herein to the contrary notwithstanding, (A) any waiver of any payment applied pursuant to Section 2.6 (Application of Payments) to, and any modification of the application of any such payment to the Loan shall require the consent of the Required Lenders, (B) no amendment, waiver or consent shall affect the rights or duties under any Loan Document of, or any payment to, the Administrative Agent (or otherwise modify any provision of Article 11 or the application thereof), and (C) (1) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that (x) the Loan Commitment or of such Lender may not be increased or extended without the consent of such Lender, (y) the outstanding balance of such Lender’s Pro Rata Share of the Loan may not be forgiven without the consent of such Lender, and (z) the interest rate on the Loan cannot be reduced unless the Defaulting Lender is treated the same as all other Lenders; (2) each Lender is entitled to vote as such Lender sees fit on any bankruptcy or insolvency reorganization plan that affects the Loan; (3) each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein; and (4) the Required Lenders may consent to allow a Borrower to use cash collateral in the context of a bankruptcy or insolvency proceeding.

(c)          Each waiver or consent under any Loan Document, the Guaranty or the Environmental Indemnity Agreement shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower or any Borrower Party shall entitle such Person to any notice or demand in the same, similar or other circumstances. No failure on the part of any Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

(d)          This Agreement and the other Loan Documents and the Environmental Indemnity Agreement shall not be executed, entered into, altered, amended, or modified by electronic means. Without limiting the generality of the foregoing, Borrower, Administrative Agent, and each Lender hereby agree that the transactions contemplated by this Agreement shall not be conducted by electronic means, except as specifically set forth in Section 12.1 regarding notices. Any reference to a Loan Document or the Environmental Indemnity Agreement, whether in this Agreement or in any other Loan Document or the Environmental Indemnity Agreement, shall be deemed to be a reference to such Loan Document or the Environmental Indemnity Agreement as it may hereafter from time to time be amended, modified, supplemented and restated in accordance with the terms hereof.

(e)          Unless also consented to in writing by such Secured Hedge Provider or, in the case of a Secured Hedge Agreement provided or arranged by GE Capital or an Affiliate of GE Capital, GE Capital, no such amendment, waiver or consent with respect to this Credit Agreement or any other Loan Document shall (A) alter the ratable treatment of Obligations arising under Secured Hedge Agreements such that such Obligations become junior in right of payment to principal on the Loan or (B) result in Obligations owing to any Secured Hedge Provider becoming unsecured (other than releases of Liens applicable to all Lenders and otherwise permitted in accordance with the terms hereof), in each case in a manner adverse to such Secured Hedge Provider.

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Section 12.3.          Assignments and Participations; Binding Effect.

(a)          This Agreement shall become effective when it shall have been executed by the Administrative Agent, the Lenders party hereto, and Borrower. Thereafter, it shall be binding upon and inure to the benefit of Borrower (except for Article 11), the Administrative Agent, each Lender and, to the extent provided in Section 12.4, each other Indemnitee and Secured Party and, in each case, their respective successors and permitted assigns. Except as expressly provided in any Loan Document or the Environmental Indemnity Agreement none of Borrower, the Master Tenant, or the Administrative Agent shall have the right to assign any rights or obligations hereunder or any interest herein.

(b)          Each Lender (other than a Defaulting Lender) may sell, transfer, negotiate or assign all or a portion of its rights and obligations hereunder (including all or a portion of its Loan Commitment and its rights and obligations with respect to the Loan) to (i) any existing Lender (other than a Defaulting Lender), (ii) any Affiliate or Approved Fund of any existing Lender (so long as such Person would not, upon acceptance of such rights and obligations hereunder, constitute a Defaulting Lender) or (iii) any other Person acceptable (which acceptance shall not be unreasonably withheld or delayed) to the Administrative Agent and, provided no Potential Default or Event of Default is in existence, to Borrower; provided, however, that the aggregate outstanding principal amount (determined as of the effective date of the applicable Assignment) of the Loan subject to any such sale shall be in a minimum amount of $1,000,000, unless such sale is made to an existing Lender or an Affiliate or Approved Fund of any existing Lender, is of the assignor’s (together with its Affiliates and Approved Funds) entire interest in the Loan or is made with the prior consent of the Administrative Agent. For purposes of clarification, any sale, transfer, conveyance or other assignment, however described, by GE Capital to GE Capital Bank, formerly known as GE Capital Financial Inc. (“GECB”), and/or to any Affiliate of GECB, and by GECB to any of its Affiliates (including GE Capital) or to GE Capital, is expressly approved, and each signatory hereto, including Borrower, acknowledges that no further consent or approval will be required in connection with any such sale, transfer, conveyance or other assignment. A Defaulting Lender may not sell, transfer, negotiate or assign all or a portion of its rights and obligations hereunder except with Administrative Agent’s consent or at Administrative Agent’s direction in accordance with Section 2.14(c) hereof. A Defaulting Lender (or Person that would constitute a Defaulting Lender upon acceptance of rights and obligations hereunder) may not be the recipient of the sale, transfer, negotiation or assignment of any rights or obligations hereunder except with the consent of the Administrative Agent and, provided no Potential Default or Event of Default is then in existence, Borrower.

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(c)          The parties to each transfer or sale made in reliance on clause (b) above (other than those described in clause (d) or (e) below) shall execute and deliver to the Administrative Agent an Assignment via an electronic settlement system designated by the Administrative Agent (or if previously agreed with the Administrative Agent, via a manual execution and delivery of the assignment) evidencing such transfer or sale, together with any existing Note subject to such transfer or sale (or any affidavit of loss therefor acceptable to the Administrative Agent), any tax forms or other forms required to be delivered by the Administrative Agent, and payment of an assignment fee in the amount of $3,500, provided that (1) if a transfer or sale by a Lender is made to an Affiliate or an Approved Fund of such assigning Lender, then no assignment fee shall be due in connection with such transfer or sale, and (2) if a transfer or sale by a Lender is made to an assignee that is not an Affiliate or Approved Fund of such assignor Lender, and concurrently to one or more Affiliates or Approved Funds of such assignee, then only one assignment fee of $3,500 shall be due in connection with such transfer or sale. Upon receipt of all the foregoing, and conditioned upon such receipt and, if such assignment is made in accordance with Section 12.3(b)(iii), upon the Administrative Agent (and Borrower, if applicable) consenting to such Assignment, from and after the effective date specified in such Assignment, the Administrative Agent shall record or cause to be recorded in the Register the information contained in such Assignment.

(d)          Subject to the recording of an Assignment by the Administrative Agent in the Register pursuant to Section 2.13(b), (i) the assignee thereunder shall become a party hereto and, to the extent that rights and obligations under the Loan Documents and the Environmental Indemnity Agreement have been assigned to such assignee pursuant to such Assignment, shall have the rights and obligations of a Lender, (ii) any applicable Note shall be transferred to such assignee through such entry and (iii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment, relinquish its rights (except for those surviving the termination of the Loan Commitments and the payment in full of the Obligations) and be released from its obligations under the Loan Documents and the Environmental Indemnity Agreement, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment covering all or the remaining portion of an assigning Lender’s rights and obligations under the Loan Documents and the Environmental Indemnity Agreement, such Lender shall cease to be a party hereto except that each Lender agrees to remain bound by Article 11, Section 12.6 (Right of Setoff), Section 12.7 (Sharing of Payments) and Section 12.36 (Non-Public Information; Confidentiality).

(e)          In addition to the other rights provided in this Section 12.3, each Lender may grant a security interest in, or otherwise assign as collateral, any of its rights under this Agreement, whether now owned or hereafter acquired (including rights to payments of principal or interest on the Loan), to (A) any federal reserve bank (pursuant to Regulation A of the Federal Reserve Board), without notice to the Administrative Agent or (B) any holder of, or trustee for the benefit of the holders of, such Lender’s securities by notice to the Administrative Agent; provided, however, that no such holder or trustee, whether because of such grant or assignment or any foreclosure thereon (unless such foreclosure is made through an assignment in accordance with clause (b) above), shall be entitled to any rights of such Lender hereunder and no such Lender shall be relieved of any of its obligations hereunder.

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EACH LENDER AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND RESTATE ITS PRO RATA SHARE OF THE LOAN OR ITS NOTE, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, THE ENVIRONMENTAL INDEMNITY AGREEMENT, THE LOAN, ITS NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A “LENDER TRANSFEREE”). Borrower agrees to cooperate with Lenders in connection with any such restatement, division, sale, assignment or transfer. Each Lender Transferee shall have all of the rights and benefits with respect to the Loan, Obligations, any Notes, the Collateral and/or the Loan Documents and the Environmental Indemnity Agreement held by it as fully as if the original holder thereof, and either Lender or any Lender Transferee may be designated as the sole agent to manage the transactions and obligations contemplated therein. Notwithstanding any other provision of any Loan Document or the Environmental Indemnity Agreement, a Lender may disclose to any Lender Transferee all information, reports, financial statements, certificates and documents obtained under any provision of any Loan Document.

(f)          In addition to the other rights provided in this Section 12.3, each Lender may, without notice to or consent from the Administrative Agent or Borrower, sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Loan Documents and the Environmental Indemnity Agreement; provided, however, that, whether as a result of any term of any Loan Document or of such grant or participation, (i) no such participant shall have a commitment, or be deemed to have made an offer to commit, to make advances of the Loan hereunder, and, except as provided in the applicable option agreement, none shall be liable for any obligation of such Lender hereunder, (ii) such Lender’s rights and obligations, and the rights and obligations of the Loan Parties and the Secured Parties towards such Lender, under any Loan Document and the Environmental Indemnity Agreement shall remain unchanged and each other party hereto shall continue to deal solely with such Lender, which shall remain the holder of the Obligations in the Register, except that (A) each such participant shall be entitled to the benefit of Sections 2.8 (Capital Adequacy; Increased Costs; Illegality), 2.9 (Interest Rate Protection), and 2.10 (Libor Breakage Amount); provided, however, that in no case shall a participant have the right to enforce any of the terms of any Loan Document, and (iii) the consent of such participant shall not be required (either directly, as a restraint on such Lender’s ability to consent hereunder or otherwise) for any amendments, waivers or consents with respect to any Loan Document and the Environmental Indemnity Agreement or to exercise or refrain from exercising any powers or rights such Lender may have under or in respect of the Loan Documents and the Environmental Indemnity Agreement (including the right to enforce or direct enforcement of the Obligations), except for those described in clauses (iii), (iv), and (v) of Section 12.2(a) with respect to amounts, or dates fixed for payment of amounts, to which such participant would otherwise be entitled.

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Section 12.4.          Indemnities.

(a)          Borrower agrees to indemnify, hold harmless and defend the Administrative Agent, each Lender, and each of their respective Related Persons (each such Person being an “Indemnitee”) from and against all Liabilities (including brokerage commissions, fees and other compensation) that may be imposed on, incurred by or asserted against any such Indemnitee in any matter relating to or arising out of, in connection with or as a result of (i) any Loan Document, any Obligation (or the repayment thereof), any related transaction, or any securities filing of, or with respect to, Borrower, any Borrower Party or the Projects, (ii) any commitment letter, proposal letter or term sheet with any Person and any contractual obligation entered into in connection with any E-Systems or other Electronic Transmissions, (iii) any actual or prospective investigation, litigation or other proceeding, whether or not brought by any such Indemnitee or any of its Related Persons, any holders of securities or creditors (and including attorneys’ fees in any case), whether or not any such Indemnitee, Related Person, holder or creditor is a party thereto, and whether or not based on any securities or commercial law or regulation or any other Requirement of Law or theory thereof, including common law, equity, contract, tort or otherwise, or (iv) any other act, event or transaction related, contemplated in or attendant to any of the foregoing (collectively, the “Indemnified Matters”); provided, however, that Borrower shall have no liability under this Section 12.4 to any Indemnitee with respect to any Indemnified Matter, and no Indemnitee shall have any liability with respect to any Indemnified Matter other than (to the extent otherwise liable), to the extent such liability has resulted from the gross negligence or willful misconduct of such Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order. Furthermore, Borrower and each Borrower Party waives and agrees not to assert against any Indemnitee any right of contribution with respect to any Liabilities that may be imposed on, incurred by or asserted against any Related Person.

(b)          Without limiting the foregoing, “Indemnified Matters” includes all environmental Liabilities as set forth in Article 4 whether or not, with respect to any such environmental Liabilities, any Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor-in-interest to any Related Person or the owner, lessee or operator of any property of any Related Person through any foreclosure action, in each case except to the extent such environmental Liabilities (i) are incurred solely following foreclosure by any Secured Party or following any Secured Party having become the successor-in-interest to Borrower or any Borrower Party and (ii) are attributable solely to acts of such Indemnitee.

(c)          Any indemnification or other protection provided to any Indemnitee pursuant to any Loan Document and all representations and warranties made in any Loan Document shall (i) survive the termination of the Loan Commitment and the payment in full of other Obligations and (ii) inure to the benefit of any Person that at any time held a right thereunder (as an Indemnitee or otherwise) and, thereafter, its successors and permitted assigns.

(d)          In no event shall any Indemnitee be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings). Each of Borrower and Borrower Parties hereby waives, releases and agrees not to sue upon any such claim for any special, indirect, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 12.5.          Lender-Creditor Relationship. The relationship between the Lenders and the Administrative Agent, on the one hand, and Borrower, on the other hand, is solely that of lender and creditor. No Secured Party has any fiduciary relationship or duty to Borrower or Borrower Party arising out of or in connection with, and there is no agency, tenancy or joint venture relationship between the Secured Parties and Borrower and Borrower Parties by virtue of, any Loan Document or any transaction contemplated therein.

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Section 12.6.          Right of Setoff. Each of the Administrative Agent, each Lender, and each Affiliate (including each branch office thereof) of any of them is hereby authorized, without notice or demand (each of which is hereby waived by Borrower), at any time and from time to time during the continuance of any Event of Default and to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (whether general or special, time or demand, provisional or final) at any time held and other indebtedness, claims or other obligations at any time owing by the Administrative Agent, such Lender, or any of their respective Affiliates to or for the credit or the account of Borrower against any Obligation of Borrower or any Borrower Party now or hereafter existing, whether or not any demand was made under any Loan Document with respect to such Obligation and even though such Obligation may be unmatured. Each of the Administrative Agent and each Lender agrees promptly to notify Borrower and the Administrative Agent after any such setoff and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights under this Section 12.6 are in addition to any other rights and remedies (including other rights of setoff) that the Administrative Agent, the Lenders, and their Affiliates and other Secured Parties may have.

Section 12.7.          Sharing of Payments, Etc. If any Lender, directly or through an affiliate or branch office thereof, obtains any payment of any Obligation of Borrower or any Borrower Party (whether voluntary, involuntary or through the exercise of any right of setoff or the receipt of any Collateral or “proceeds” (as defined under the applicable UCC) of Collateral) other than pursuant to Sections 2.8 (Capital Adequacy; Increased Costs; Illegality), 2.9 (Interest Rate Protection), and 2.10 (Libor Breakage Amount) and such payment exceeds the amount such Lender would have been entitled to receive if all payments had gone to, and been distributed by, the Administrative Agent in accordance with the provisions of the Loan Documents, such Lender shall purchase for cash from other Secured Parties such participations in their Obligations as necessary for such Lender to share such excess payment with such Secured Parties to ensure such payment is applied as though it had been received by the Administrative Agent and applied in accordance with this Agreement (or, if such application would then be at the discretion of Borrower, applied to repay the Obligations in accordance herewith); provided, however, that (a) if such payment is rescinded or otherwise recovered from such Lender in whole or in part, such purchase shall be rescinded and the purchase price therefor shall be returned to such Lender without interest and (b) such Lender shall, to the fullest extent permitted by applicable Requirements of Law, be able to exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation.

Section 12.8.          Marshaling; Payments Set Aside. No Secured Party shall be under any obligation to marshal any property in favor of Borrower or any Borrower Party or any other party or against or in payment of any Obligation. To the extent that any Secured Party receives a payment from Borrower, from the proceeds of the Collateral, from the exercise of its rights of setoff, any enforcement action or otherwise, and such payment is subsequently, in whole or in part, invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not occurred.

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Section 12.9.          Limitation on Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws. Accordingly, all agreements between Borrower, Administrative Agent and Lenders with respect to the Loan are hereby expressly limited so that in no event, whether by reason of acceleration of maturity or otherwise, shall the amount paid or agreed to be paid to Administrative Agent and any Lender or charged by Administrative Agent or any Lender for the use, forbearance or detention of the money to be lent hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan would be usurious under applicable law (including the laws of the State of Illinois and the laws of the United States of America), then, notwithstanding anything to the contrary in the Loan Documents: (a) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under the Loan Documents and the Environmental Indemnity Agreement shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the holder thereof (or, if the Note has been paid in full, refunded to Borrower); and (b) if maturity is accelerated by reason of an election by Administrative Agent, or in the event of any prepayment, then any consideration which constitutes interest may never include more than the maximum amount allowed by applicable law. In such case, excess interest, if any, provided for in the Loan Documents and the Environmental Indemnity Agreement or otherwise, to the extent permitted by applicable law, shall be amortized, prorated, allocated and spread from the date of advance until payment in full so that the actual rate of interest is uniform through the term hereof. If such amortization, proration, allocation and spreading is not permitted under applicable law, then such excess interest shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the Note (or, if the Note has been paid in full, refunded to Borrower). The terms and provisions of this Section 12.9 shall control and supersede every other provision of the Loan Documents. The Loan Documents and the Environmental Indemnity Agreement are contracts made under and shall be construed in accordance with and governed by the laws of the State of Illinois, except that if at any time the laws of the United States of America permit Administrative Agent or the Lenders to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State of Illinois (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Administrative Agent or the Lenders may contract for, take, reserve, charge or receive under the Loan Documents and the Environmental Indemnity Agreement.

Section 12.10.         Invalid Provisions. If any provision of any Loan Document or the Environmental Indemnity Agreement is held to be illegal, invalid or unenforceable, such provision shall be fully severable; the Environmental Indemnity Agreement and the Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; the remaining provisions thereof shall remain in full effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom; and in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of such Environmental Indemnity Agreement and/or such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible to be legal, valid and enforceable.

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Section 12.11.         Reimbursement of Expenses.

(a)          Any action taken by Borrower or any Borrower Party under or with respect to any Loan Document, even if required under any Loan Document or at the request of any Secured Party, shall be at the expense of Borrower or such Borrower Party, and no Secured Party shall be required under any Loan Document to reimburse any Borrower or Borrower Party therefor except as expressly provided therein. In addition, Borrower agrees to pay or reimburse upon demand (a) the Administrative Agent for all reasonable out-of-pocket costs and expenses incurred by it or any of its Related Persons in connection with the investigation, development, preparation, negotiation, syndication, execution, interpretation or administration of, any modification of any term of or termination of, any Loan Document, any commitment or proposal letter therefor, any other document prepared in connection therewith or the consummation and administration of any transaction contemplated therein (including periodic audits in connection therewith and environmental audits and assessments), in each case including the reasonable fees, charges and disbursements of legal counsel to the Administrative Agent or such Related Persons, fees, costs and expenses incurred in connection with Intralinks® or any other E-System and allocated to the Loan by the Administrative Agent in its reasonable discretion and fees, charges and disbursements of the auditors, appraisers, printers and other of their Related Persons retained by or on behalf of any of them or any of their Related Persons, (b) the Administrative Agent and each Lender for all reasonable costs and expenses incurred by them or any of their Related Persons in connection with internal audit reviews, field examinations, financial investigation, and Collateral examinations, including, without limitation, any tax service company (which shall be reimbursed, in addition to the out-of-pocket costs and expenses of such examiners, at the per diem rate per individual charged by the Administrative Agent for its examiners), (c) each of the Administrative Agent, its Related Persons, and each Lender for all costs and expenses incurred in connection with (i) any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out”, (ii) the enforcement or preservation of any right or remedy under any Loan Document, any Obligation, with respect to the Collateral or any other related right or remedy or (iii) the commencement, defense, conduct of, intervention in, or the taking of any other action with respect to, any proceeding (including any bankruptcy or insolvency proceeding) related to Borrower or any Borrower Party or Master Tenant, Loan Document, Obligation or related transaction (or the response to and preparation for any subpoena or request for document production relating thereto), including reasonable fees and disbursements of counsel (including allocated costs of internal counsel), (d) costs incurred in connection with settlement of condemnation and casualty awards, premiums for title insurance and endorsements thereto, and (e) fees and costs for Uniform Commercial Code and litigation searches and background checks, and Rating Agency fees and expenses in connection with a Rating Agency Confirmation, if required.

(b)          Borrower shall also pay to Administrative Agent on the first (1st) day of each month during the term of the Loan, in addition to all other amounts due under the Loan Documents, the sum of One Hundred Fifty and No/100 Dollars ($150.00) per Project, which Administrative Agent shall apply against the cost and expenses incurred in connection with the annual on-site audit and inspection of the Projects.

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Section 12.12.         Approvals; Third Parties; Conditions. All approval rights retained or exercised by Administrative Agent or the Lenders with respect to the Leases, contracts, plans, studies and other matters are solely to facilitate Administrative Agent’s and the Lenders’ credit underwriting, and shall not be deemed or construed as a determination that Administrative Agent or the Lenders have passed on the adequacy thereof for any other purpose and may not be relied upon by Borrower or any other Person. This Agreement is for the sole and exclusive use of Administrative Agent (and its successors and permitted assigns), the Lenders (and their successors and permitted assigns and participants), and Borrower and may not be enforced, nor relied upon, by any Person other than Administrative Agent (and its successors and permitted assigns), the Lenders (and their successors and permitted assigns and participants), and Borrower. All conditions of the obligations of Administrative Agent and the Lenders hereunder, including the obligation to make advances, are imposed solely and exclusively for the benefit of Administrative Agent and the Lenders, its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that any Lender will refuse to make advances in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by any Lender at any time in such Lender’s sole discretion.

Section 12.13.         Administrative Agent and Lenders Not in Control; No Partnership. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Administrative Agent or the Lenders the right or power to exercise control over the affairs or management of Borrower, the power of Administrative Agent and the Lenders being limited to the rights to exercise the remedies referred to in the Environmental Indemnity Agreement or the Loan Documents. No covenant or provision of the Environmental Indemnity Agreement or the Loan Documents is intended, nor shall it be deemed or construed, to create a partnership, joint venture, agency or common interest in profits or income among Administrative Agent and the Lenders or any of them, on the one hand, and Borrower, on the other hand, or to create an equity interest in the Projects in Administrative Agent or any Lender. None of Administrative Agent nor any Lender undertakes or assumes any responsibility or duty to Borrower or to any other Person with respect to the Projects or the Loan, except as expressly provided in the Environmental Indemnity Agreement and the Loan Documents; and notwithstanding any other provision of the Environmental Indemnity Agreement or the Loan Documents: (a) none of Administrative Agent or any Lender are, and shall not be construed as, a partner, joint venturer, alter ego, manager, controlling person or other business associate or participant of any kind of Borrower or its stockholders, members, or partners and Administrative Agent and the Lenders do not intend to ever assume such status; (b) Administrative Agent and the Lenders shall in no event be liable for any Debts, expenses or losses incurred or sustained by Borrower; and (c) Administrative Agent and the Lenders shall not be deemed responsible for or a participant in any acts, omissions or decisions of Borrower or its stockholders, members, or partners. Administrative Agent and the Lenders and Borrower disclaim any intention to create any partnership, joint venture, agency or common interest in profits or income among the Administrative Agent and the Lenders or any of them, on the one hand, and Borrower, on the other hand, or to create an equity interest in the Projects in Administrative Agent or the Lenders, or any sharing of liabilities, losses, costs or expenses.

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Section 12.14. Contest of Certain Claims. Borrower may contest the validity of Taxes or any mechanic’s or materialman’s lien asserted against any Project so long as (a) Borrower notifies Administrative Agent that it intends to contest such Taxes or liens, as applicable, (b) Borrower provides Administrative Agent with an indemnity, bond or other security reasonably satisfactory to Administrative Agent assuring the discharge of Borrower’s obligations for such Taxes or liens, as applicable, including interest and penalties, (c) Borrower is diligently contesting the same by appropriate legal proceedings in good faith and at its own expense and concludes such contest prior to the tenth (10th) day preceding the earlier to occur of the Maturity Date or the date on which any Project is scheduled to be sold for non-payment, (d) Borrower promptly upon final determination thereof pays the amount of any such Taxes or liens, as applicable, together with all costs, interest and penalties which may be payable in connection therewith, and (e) notwithstanding the foregoing, Borrower shall immediately upon request of Administrative Agent pay any such Taxes or liens, as applicable, notwithstanding such contest if, in the opinion of Administrative Agent, any Project or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, canceled or lost. Administrative Agent may pay over any cash deposit or part thereof to the claimant entitled thereto at any time when, in the reasonable judgment of Administrative Agent, the entitlement of such claimant is established.

Section 12.15.  Time of the Essence. Time is of the essence with respect to this Agreement.

Section 12.16. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Administrative Agent, the Lenders and Borrower and their respective successors and assigns, provided that neither Borrower nor any other Borrower Party shall, without the prior written consent of the Lenders, assign any of its rights, duties or obligations hereunder.

Section 12.17. Renewal, Extension or Rearrangement. All provisions of the Environmental Indemnity Agreement and the Loan Documents shall apply with equal effect to each and all promissory notes and amendments thereof hereinafter executed which in whole or in part represent a renewal, extension, increase or rearrangement of the Loan.

Section 12.18.  Waivers.

(a)          No course of dealing on the part of Administrative Agent or the Lenders or their respective officers, employees, consultants or agents, nor any failure or delay by Administrative Agent or any Lender with respect to exercising any right, power or privilege of Administrative Agent or the Lenders under the Environmental Indemnity Agreement and any of the Loan Documents, shall operate as a waiver thereof.

(b)          Borrower hereby waives any right under the UCC or any other applicable law to receive notice and/or copies of any filed or recorded financing statements, amendments thereto, continuations thereof or termination statements and releases and excuses Administrative Agent and each Lender from any obligation under the UCC or any other applicable law to provide notice or a copy of any such filed or recorded documents.

Section 12.19. Cumulative Rights; Joint and Several Liability. Rights and remedies of Administrative Agent (on behalf of the Lenders) under the Environmental Indemnity Agreement and the Loan Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. If more than one person or entity has executed this Agreement as “Borrower,” the obligations of all such persons or entities hereunder shall be joint and several.

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Section 12.20. Singular and Plural. Words used in this Agreement, the other Loan Documents and the Environmental Indemnity Agreement, in the singular, where the context so permits, shall be deemed to include the plural and vice versa. The definitions of words in the singular in this Agreement, the other Loan Documents, and the Environmental Indemnity Agreement shall apply to such words when used in the plural where the context so permits and vice versa.

Section 12.21. Exhibits and Schedules. The exhibits and schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein.

Section 12.22. Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement, the other Loan Documents, and the Environmental Indemnity Agreement or the exhibits hereto and thereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

Section 12.23. Promotional Material. Borrower authorizes Administrative Agent and any Lender to issue press releases, advertisements and other promotional materials in connection with Administrative Agent’s or such Lender’s own promotional and marketing activities, subject to Borrower’s reasonable approval of the form of such materials, and such materials may describe the Loan in general terms and Administrative Agent’s and such Lender’s participation therein in the Loan. All references to Administrative Agent or any Lender contained in any press release, advertisement or promotional material issued by Borrower shall be approved in writing by Administrative Agent in advance of issuance.

Section 12.24. Survival. All of the representations, warranties, covenants, and indemnities hereunder (including environmental matters under Article 4), under the indemnification provisions of the other Loan Documents and under the Environmental Indemnity Agreement, shall survive the repayment in full of the Loan and the release of the liens evidencing or securing the Loan, and shall survive the transfer (by sale, foreclosure, conveyance in lieu of foreclosure or otherwise) of any or all right, title and interest in and to the Projects to any party, whether or not an Affiliate of Borrower.

Section 12.25. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE ENVIRONMENTAL INDEMNITY AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS AND THE ENVIRONMENTAL INDEMNITY AGREEMENT OR IN ANY WAY RELATING TO THE LOAN OR THE PROJECTS (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR ADMINISTRATIVE AGENT AND EACH LENDER TO ENTER INTO THIS AGREEMENT.

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Section 12.26. Waiver of Punitive or Consequential Damages. None of Administrative Agent, any Lender nor Borrower shall be responsible or liable to the other or to any other Person for any punitive, exemplary or consequential damages which may be alleged as a result of the Loan or the transaction contemplated hereby, including any breach or other default by any party hereto. Borrower represents and warrants to Administrative Agent and each Lender that as of the Closing Date neither Borrower nor any Borrower Party has any claims against Administrative Agent or any Lender in connection with the Loan.

Section 12.27.  Governing Law. UNLESS OTHERWISE NOTED THEREIN TO THE CONTRARY, THE LOAN DOCUMENTS AND THE ENVIRONMENTAL INDEMNITY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES THEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO ILLINOIS’ PRINCIPLES OF CONFLICTS OF LAW) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT FOR THOSE PROVISIONS IN THE LOAN DOCUMENTS AND THE ENVIRONMENTAL INDEMNITY PERTAINING TO THE CREATION, PERFECTION OR VALIDITY OF OR EXECUTION ON LIENS OR SECURITY INTERESTS ON PROPERTY LOCATED IN THE STATES WHERE THE PROJECTS ARE LOCATED, WHICH PROVISIONS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATES WHERE THE PROJECTS ARE LOCATED AND APPLICABLE UNITED STATES FEDERAL LAW.

Section 12.28.  Entire Agreement. This Agreement, the other Loan Documents and the Environmental Indemnity Agreement embody the entire agreement and understanding between Administrative Agent and each Lender and Borrower and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents and the Environmental Indemnity Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between the Term Sheet and this Agreement, any of the other Loan Documents, or the Environmental Indemnity Agreement, the terms of this Agreement, the other Loan Documents, and the Environmental Indemnity Agreement, as applicable, shall control.

Section 12.29.  Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

Section 12.30.  Consents and Approvals. To the extent that Administrative Agent, Lenders and/or Required Lenders provide any consent or approval as provided for in this Agreement, such consent shall be limited to the specific matter approved and shall NOT be construed to (a) relieve Borrower from compliance with all of the other terms and obligations of this Agreement, or (b) constitute a consent to any further similar action (as to which a prospective consent or approval shall be required and may not necessarily be granted), or (c) constitute a consent to any other obligation to which any Lender may be a party.

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Section 12.31.  Right of First Refusal. Borrower shall not borrow any money for the acquisition of healthcare real estate asset(s) or refinancing of the Loan (other than obtaining a HUD Commitment and any related funding) without first providing Administrative Agent and Lenders with written notice of the intention to incur said financing, which notice shall contain all terms and conditions of the offered and contemplated financing to be obtained from a third party (“Financing Notice”). Borrower shall give Administrative Agent the exclusive first right to provide said financing on the same terms and conditions as contemplated in the Financing Notice. Administrative Agent shall have the right to provide said financing to Borrower by sending Borrower notice of Administrative Agent’s intent to provide the financing (“Acceptance Notice”) within five (5) Business Days of receipt by Administrative Agent of the Financing Notice. If Administrative Agent timely sends an Acceptance Notice to Borrower, then Administrative Agent or Lenders and Borrower shall consummate the proposed loan in accordance with the terms and conditions of the Financing Notice within sixty (60) days after receipt of the Acceptance Notice by Borrower. Borrower and Administrative Agent shall reasonably cooperate with each other to permit such Lender or Lenders to ascertain if Administrative Agent wants to provide such financing, and if so, to close said loan and to reasonably negotiate all open terms and conditions of said loan. If no Lender timely sends an Acceptance Notice to Borrower, Borrower may close said loan under the terms and conditions of the Financing Notice with the applicable lender referenced therein, subject to the other provisions of this Agreement.

Section 12.32.  Effectiveness of Facsimile Documents and Signatures. The Loan Documents and Environmental Indemnity Agreement may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually signed originals and shall be binding on all parties to the Loan Documents and Environmental Indemnity Agreement, as applicable. Administrative Agent may also require that any such documents and signatures be confirmed by a manually signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.

Section 12.33.  Venue. EACH PARTY HERETO HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO ADMINISTRATIVE AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY HERETO EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

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Section 12.34.  Important Information Regarding Procedures for Requesting Credit. Each of the Administrative Agent and Lenders hereby notifies the Borrower Parties that in order to help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each individual or business that requests credit. Accordingly, in connection with the Loan or any other request for credit, Administrative Agent and the Lenders will ask for the business name, business address, Employer Identification Number, and other information which allows them to identify each Borrower Party, and may ask for other identifying documents showing existence of each Borrower Party.

Section 12.35.  Method of Payment. All amounts payable under this Agreement and the other Loan Documents must be paid by Borrower in accordance with Section 2.6(c). Payments in the form of cash, money order, third party payment, cashier’s check, a check drawn on a foreign bank or non-bank financial institution, or any form of payment other than those provided in the preceding sentence will not be accepted.

Section 12.36.  Non-Public Information; Confidentiality; Disclosure. Borrower authorizes Administrative Agent and each Lender to disclose information about Borrower and any Borrower Party that Administrative Agent or such Lender may at any time possess to any Affiliate of a Lender or Administrative Agent, whether such information was supplied by Borrower or otherwise obtained by Administrative Agent or the Lender; provided to the extent Administrative Agent or any Lender receives material non-public information hereunder concerning Borrower, the Borrower Parties, and the Master Tenant and their Affiliates and agrees to use such information in compliance with all relevant policies, procedures and contractual obligations and applicable Requirements of Laws (including United States federal and state securities laws and regulations).

Section 12.37.  Post-Closing Obligations of Borrower. Notwithstanding the fact that Borrower have not satisfied certain of the conditions to the advance of the Loan proceeds as of the Closing Date, Lenders have agreed to advance the proceeds of the Loan to Borrower, subject to the satisfaction of the other conditions to funding contained herein and each of the requirements set forth in Schedule 12.37 attached hereto. Borrower shall complete the same (or cause the same to be completed) within the time periods specified in Schedule 12.37, which time period may be extended by Administrative Agent in its sole discretion.

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Section 12.38.  Release and Waiver Regarding Special Audits. Borrower and Lenders acknowledge that from time to time during the term of the Loan, one or more Lenders and/or Borrower may request that GE Capital provide Borrower and/or the Lenders (collectively, the “Recipient”) with certain internally generated reports (whether oral and/or written, the “Reports”), which Reports may include oral and/or written information, assessments, notes, memoranda and analyses prepared by employees of GE Capital for the limited purpose of preparing an audit of the progress of one or more of the Projects has made with respect to a plan of correction (or similar remedial obligation of Borrower or any Operator under any Healthcare Laws) that may be issued from time to time with respect to one or more of the Projects. With respect to any Reports that may be provided to the Recipient from time to time during the term of the Loan, Lenders and Borrower hereby acknowledge and agree as follows: (a) the Reports may be prepared based on procedures that may not include all procedures deemed necessary for the Recipient’s own purposes; (b) GE Capital will not be able or willing to make any recommendations based on the Reports and GE Capital shall not in any way be deemed a consultant, agent or other representative to the Recipient in any manner; (c) the Recipient does not acquire any rights as a result of the disclosure of the Reports and its access thereto, and GE Capital assumes no duties or obligations in connection with, or as a result of, such access; (d) the Recipient is not entitled to rely on the Report; (e) the Recipient will not distribute or disclose the Reports or the information contained therein to any third party, except if compelled by legal process, and it will, to the extent permitted by applicable Law, indemnify and hold harmless GE Capital, together with its employees, officers, advisors and Affiliates from and against any and all claims, losses or expenses (including attorneys’ fees) arising as a result of GE Capital having disclosed the Reports to the Recipient; (f) the Recipient waives its right to recover from, and releases and discharges any legal action against, GE Capital with respect to any and all suits, actions, proceedings, investigations, demands, claims, liabilities, fines, penalties, liens, judgments, losses, injuries, damages, settlement expenses or costs of whatever kind or nature, whether direct or indirect, known or unknown, contingent or otherwise, including, without limitation, attorneys’ and experts’ fees and expenses, and investigation and remediation costs that may arise on account of or in any way be connected with the Report; and (g) and with respect to the Reports, GE Capital is not acting as an agent, fiduciary or representative for the Recipient, and the Recipient will (i) make its own independent investigation of the subject matter of the Reports and (ii) be solely responsible for its own review, assessments, conclusions and decisions with respect to the Loan, the Projects and the relevant Borrower and/or Operator.

ARTICLE XIII

LIMITATIONS ON LIABILITY

Section 13.1.  Limitation on Liability.

(a)          Subject to the qualifications below, neither the Administrative Agent nor any Lender shall enforce the liability and obligation of Borrower to perform and observe the Obligations by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Administrative Agent and the Lenders may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Administrative Agent and the Lenders to enforce and realize upon its interest under the Note, this Agreement, the Mortgage and the other Loan Documents, or in the Projects, or any other Collateral given to Administrative Agent and the Lenders pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower’s interest in the Projects and in any other collateral given to Administrative Agent and the Lenders to secure the Obligations, and Administrative Agent and each Lender, as applicable, by accepting the Note, this Agreement, the Mortgage and the other Loan Documents, shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgage or the other Loan Documents.

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(b)          The provisions of this Section 13.1 shall not, however, (i) constitute a waiver, release or impairment of any Obligation evidenced or secured by any of the Loan Documents; (ii) impair the right of Administrative Agent or any Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Mortgage; (iii) affect the validity or enforceability of any guaranty made in connection with the Loan or any of the rights and remedies of Administrative Agent or any Lender thereunder; (iv) impair the right of Administrative Agent or any Lender to obtain the appointment of a receiver; (v) impair the enforcement of the Assignment of Leases and Rents; (vi) constitute a prohibition against Administrative Agent or any Lender to commence any appropriate action or proceeding in order for Administrative Agent or any Lender to exercise its remedies against the Projects; or (vii) constitute a waiver of the right of Administrative Agent or any Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation (including attorneys’ fees and costs reasonably incurred), causes of action, suits, claims, demands and judgments of any nature or description whatsoever, which may be imposed upon, incurred by or awarded against Administrative Agent or any Lender or any affiliate thereof as a result of, arising out of or in connection with (and Borrower shall be personally liable and shall indemnify Administrative Agent and such Lender for) the following:

(A) any failure by Borrower or any Guarantor or any of their Affiliates or their respective employees, managers, contractors, agents or other representatives after the occurrence and during the continuance of any Event of Default to apply any portion of the gross income from the Projects at any time received by or payable to Borrower or any Guarantor or any of their Affiliates or their respective employers, managers, contractors, agents or other representatives to the Loan or to customary operating expenses of the Projects;

(B) Borrower’s commission of a criminal act;

(C) Borrower’s failure to permit on-site inspections of any Project or to provide the financial reports and other financial information, each as required by, and in accordance with the terms and provisions of, this Agreement and the other Loan Documents;

(D) the failure by Borrower or any Borrower Party to apply any funds derived from the Projects, including Security Deposits, Adjusted Revenue, insurance proceeds and condemnation awards as required by the Loan Documents;

(E) any intentional misrepresentation by Borrower or any Borrower Party made in or in connection with the Loan Documents or the Loan;

(F) Borrower’s collection of rents more than one month in advance or entering into or modifying or canceling Leases, or receipt of monies by Borrower or any Borrower Party in connection with the modification or cancellation of any Leases, in violation of this Agreement or any of the other Loan Documents;

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(G) Borrower, any Guarantor or any Affiliate of any of them contesting or in any way interfering with, directly or indirectly (collectively, a “Contest”), any foreclosure action or sale commenced by Administrative Agent or any Lender or with any other enforcement of Administrative Agent’s or any Lender’s rights, powers or remedies under any of the Loan Documents or under any document evidencing, securing or otherwise relating to any of the Security (whether by making any motion, bringing any counterclaim, claiming any defense, seeking any injunction or other restraint, commencing any action seeking to consolidate any such foreclosure or other enforcement with any other action, or otherwise);

(H) Borrower’s failure to turn over to Administrative Agent all Security Deposits upon Administrative Agent’s demand following an Event of Default;

(I) any amendment or modification of the Master Lease, or any guaranty thereof, or any termination or surrender of the Master Lease or any guaranty thereof (except only to the extent expressly permitted under this Agreement), without the prior written consent of Administrative Agent in each instance;

(J) Borrower’s failure to maintain insurance as required by this Agreement or to pay any Taxes or assessments affecting the Projects;

(K) damage or destruction to any Project caused by the negligent or intentional acts or omissions of Borrower, its agents, employees, or contractors;

(L) Borrower’s failure to perform its obligations under the Environmental Indemnity Agreement or with respect to environmental matters under Article 4;

(M) Borrower’s failure to pay for any loss, liability or expense (including attorneys’ fees) incurred by Administrative Agent or any Lender arising out of any claim or allegation made by Borrower, its successors or assigns, or any creditor of Borrower, that this Agreement or the transactions contemplated by the Loan Documents and the Environmental Indemnity Agreement establish a joint venture, partnership or other similar arrangement among Borrower, the Administrative Agent, or any Lender;

(N) any brokerage commission or finder’s fees claimed in connection with the transactions contemplated by the Loan Documents;

(O) uninsured damage to any Project resulting from acts of terrorism;

(P) the physical waste of any Project;

(Q) the removal or disposal of any personal property from any Project in which Administrative Agent or the Lenders have a security interest in violation of the terms and conditions of the Loan Documents;

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(R) the payment of any distributions to Borrower or any Guarantor or any of their Affiliates, employees, managers or contractors, other than as permitted in this Agreement; or

(S) any fees paid by Borrower to any Guarantor or any of their Affiliates, employees, managers or contractors after the occurrence and during the continuation of an Event of Default under the Loan Documents.

(c)          Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan Documents, all of the Obligations shall be fully recourse to Borrower and Borrower shall be personally liable therefor in the event of: (i) any Sale or Pledge of any Project or any part thereof or a Sale or Pledge of an interest in any Restricted Party in breach of any of the covenants in this Agreement or the Mortgage, (ii) Borrower’s or SPE Party’s failure to comply with the covenants in Section 6.17 hereof; (iii) the commission of fraud by Borrower or any Borrower Party in connection with the Loan, or (iv) the filing by Borrower or any Borrower Party or the filing against Borrower or any Borrower Party by Borrower, any Borrower Party or any Affiliate of Borrower of any proceeding for relief under any federal or state bankruptcy, insolvency or receivership laws or any assignment for the benefit of creditors made by Borrower or any Borrower Party or the consenting to, acquiescing in or joining in any such proceeding by Borrower or Borrower Party.

(d)          Borrower also shall be personally liable to Administrative Agent and the Lenders for any and all attorneys’ fees and expenses and court costs incurred by Administrative Agent and the Lenders in enforcing this Section 13.1 or otherwise incurred by Administrative Agent or any Lender in connection with any of the foregoing matters, regardless whether such matters are legal or equitable in nature or arise under tort or contract law. The limitation on the personal liability of Borrower in this Section 13.1 shall not modify, diminish or discharge the personal liability of any Guarantor. Nothing herein shall be deemed to be a waiver of any right which Administrative Agent or any Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of the United States Bankruptcy Code, as such sections may be amended, or corresponding or superseding sections of the Bankruptcy Amendments and Federal Judgeship Act of 1984, to file a claim for the full amount due to Administrative Agent and the Lenders under the Loan Documents or to require that all collateral shall continue to secure the amounts due under the Loan Documents.

Section 13.2.  Limitation on Liability of Lender’s Officers, Employees, etc. Any obligation or liability whatsoever of Administrative Agent or any Lender which may arise at any time under this Agreement, any other Loan Document, or the Environmental Indemnity Agreement shall be satisfied, if at all, out of the Administrative Agent’s or such Lender’s assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of Administrative Agent’s or such Lender’s shareholders, directors, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

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ARTICLE XIV

cross-guaranty

Section 14.1.  Cross-Guaranty. Each Borrower hereby agrees that such Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to the Administrative Agent and Lenders and their respective successors and assigns, the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Administrative Agent and Lenders by each other Borrower. Each Borrower agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, that its obligations under this Article XIV shall not be discharged until payment and performance, in full, of the Obligations has occurred, and that its obligations under this Article XIV shall be absolute and unconditional, irrespective of, and unaffected by:

(a)          the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Borrower is or may become a party;

(b)          the absence of any action to enforce this Agreement (including this Article XIV) or any other Loan Document or the waiver or consent by Administrative Agent and Lenders with respect to any of the provisions thereof;

(c)          the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Agent and Lenders in respect thereof (including the release of any such security);

(d)          the insolvency of any Borrower or Guarantor; or

(e)          any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor.

Each Borrower shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder.

Section 14.2.  Waivers By Borrower. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Administrative Agent or Lenders to marshal assets or to proceed in respect of the Obligations guaranteed hereunder against any other Borrower, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. It is agreed among each Borrower, Administrative Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Article XIV and such waivers, Administrative Agent and Lenders would decline to enter into this Agreement.

Section 14.3.  Benefit of Guaranty. Each Borrower agrees that the provisions of this Article XIV are for the benefit of Administrative Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower and Administrative Agent or Lenders, the obligations of such other Borrower under the Loan Documents.

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Section 14.4.  Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, and except as set forth in Section 14.7, each Borrower hereby expressly and irrevocably waives any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor. Each Borrower acknowledges and agrees that this waiver is intended to benefit Administrative Agent and Lenders and shall not limit or otherwise affect such Borrower's liability hereunder or the enforceability of this Article XIV, and that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 14.4.

Section 14.5.  Election of Remedies. If Administrative Agent or any Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Administrative Agent or such Lender a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Administrative Agent or any Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Article XIV. If, in the exercise of any of its rights and remedies, Administrative Agent or any Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, each Borrower hereby consents to such action by Administrative Agent or such Lender and waives any claim based upon such action, even if such action by Administrative Agent or such Lender shall result in a full or partial loss of any rights of subrogation that each Borrower might otherwise have had but for such action by Administrative Agent or such Lender. Any election of remedies that results in the denial or impairment of the right of Administrative Agent or any Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower's obligation to pay the full amount of the Obligations. In the event Administrative Agent or any Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Administrative Agent or such Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Administrative Agent or such Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Administrative Agent, Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Article XIV, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Administrative Agent or any Lender might otherwise be entitled but for such bidding at any such sale.

Section 14.6.  Limitation. Notwithstanding any provision herein contained to the contrary, each Borrower's liability under this Article XIV (which liability is in any event in addition to amounts for which such Borrower is primarily liable under Article II) shall be limited to an amount not to exceed as of any date of determination the greater of:

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(a)          the net amount of all Loan advanced to any other Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower; and

(b)          the amount that could be claimed by Agent and Lenders from such Borrower under this Article XIV without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Borrower's right of contribution and indemnification from each other Borrower under Section 14.7.

Section 14.7.  Contribution with respect to Guarantee Obligations.

(a)          To the extent that any Borrower shall make a payment under this Article XIV of all or any of the Obligations (other than Loan made to that Borrower for which it is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower's “Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.

(b)          As of any date of determination, the “Allocable Amount” of any Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Borrower under this Article XIV without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law.

(c)          This Section 14.7 is intended only to define the relative rights of Borrowers and nothing set forth in this Section 14.7 is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 14.1. Nothing contained in this Section 14.7 shall limit the liability of any Borrower to pay the Loan made directly or indirectly to that Borrower and accrued interest, fees and expenses with respect thereto for which such Borrower shall be primarily liable.

(d)          The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Borrower to which such contribution and indemnification is owing.

(e)          The rights of the indemnifying Borrower against each other Borrower under this Section 14.7 shall be exercisable upon the full and indefeasible payment of the Obligations.

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Section 14.8.  Liability Cumulative. The liability of Borrower under this Article XIV is in addition to and shall be cumulative with all liabilities of each Borrower to Administrative Agent and Lenders under this Agreement and the other Loan Documents to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

[Signatures Begin on Following Page]

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EXECUTED as of the date first written above.

ADMINISTRATIVE AGENT:	GENERAL ELECTRIC CAPITAL CORPORATION,
	a Delaware corporation
	By:	/s/ Dague Retzlaff
	Dague Retzlaff, its Duly Authorized Signatory
LENDERS:	GENERAL ELECTRIC CAPITAL CORPORATION,
	a Delaware corporation
	By:	/s/ Dague Retzlaff
	Dague Retzlaff, its Duly Authorized Signatory

Signature Page – Loan Agreement

[Cornerstone Portfolio]

BORROWER:	CHP PORTLAND, LLC,
	CHP MEDFORD 1, LLC,
	CHP FRIENDSWOOD SNF, LLC,
	each, a Delaware limited liability company
	By:	Cornerstone Core Properties REIT, Inc.,
		a Maryland corporation, its Manager
		By:	/s/ Kent Eikanas
			Kent Eikanas, its Chief Operating Officer

Signature Page – Loan Agreement

[Cornerstone Portfolio]

EXHIBIT A

Description of Projects

Part 1.          Portland Project:
Name of Facility:	Fernhill Manor
Address of Land:	5737 NE 37th Avenue
	Portland, Oregon
Number of Residential Units:	51 skilled nursing beds (up to 62 permitted under existing Conditional Use Permit)
Number of Parking Spaces:	10
Name of Master Tenant:	Fernhill Estates LLC, an Oregon limited liability company doing business as Fernhill Estates
Name of Property Manager:	Dakavia Management, Corp.
Allocated Loan Amount:	$5,800,000 (collectively with the Project described on Part 2 of this Exhibit A, allocated between such Projects in such manner as Administrative Agent may deem reasonably satisfactory)
Legal Description of Land:

Lots 12, 13, 14 and 15, the East 50 feet of Lot 3, the East 50 feet of Lot 4 and the South 30 feet of Lot 5, Block 2, KENNEDY'S ADDITION TO EAST PORTLAND, in the City of Portland, Multnomah County, Oregon.

EXHIBIT A

Part 2.          Sheridan Project
Name of Facility:	Sheridan Care Center
Address of Land:	411 SE Sheridan Road
	Sheridan, Oregon
Number of Residential Units:	51 skilled nursing beds
Number of Parking Spaces:	24
Name of Master Tenant:	Sheridan Care Center LLC, an Oregon limited liability company doing business as Sheridan Care Center
Name of Property Manager:	Dakavia Management, Corp.
Allocated Loan Amount:	Allocated Loan Amount: $5,800,000 (collectively with the Project described on Part 1 of this Exhibit A, allocated between such Projects in such manner as Administrative Agent may deem reasonably satisfactory)
Legal Description of Land:

Parcel 1:

A tract of land in Section 35, Township 5 South, Range 6 West of the Willamette Meridian in Yamhill County, Oregon, more particularly described as follows:

Beginning at a point in the center of Sheridan Road, which said point is reached by running South 78° East 455.40 feet; South 77° East 50.16 feet and South 70° 15' East 142.56 feet from the intersection of the center lines of Schley Street and Second Street in South Sheridan, said beginning point being the Southeast corner of that certain tract conveyed by Helen and Robert Dixon to Mark and Bernice Smith by Deed as recorded on Page 334 of Volume 148 of the Deed Records of Yamhill County, and being also the Southwest corner of that certain tract described in Deed from Emil and Maude Schuman and others to George and Delia Epley as recorded on Page 298 of Volume 103 of the Deed Records of Yamhill County, and running thence from said point of beginning North 1° East along the East line of said Smith Tract, 428.0 feet to the South bank of the Yamhill River, from which point an iron pipe bears South 1° West 40.0 feet; thence continuing North 1° East to the North line of said Graves Claim; thence North 77° West along said Claim line 96.8 feet; thence South 1° West to a point on the South bank of the Yamhill River, from which point an iron pipe bears South 1° West 40.0 feet; thence continuing South 1° West 412.4 feet to a point in the center of Sheridan Road, from which point an iron pipe bears North 1° East 26.4 feet; thence South 70° 15' East along center of said Road, 100.0 feet to the place of beginning.

EXHIBIT A

Parcel 2:

Being a part of the Charles B. Graves Donation Land Claim No. 57, Notification No. 5329 in Section 35, Township 5 South, Range 6 West of the Willamette Meridian in Yamhill County, Oregon, said part being described as follows:

Beginning at a point which is North 1° East 207 feet from a stone set South 78° East 6.90 chains from the intersection of the lines of Schley and Second Streets in South Sheridan in Yamhill County; thence North 1° East 340.8 feet to the North line of said Graves Donation Land Claim; thence South 77° East to the Northwest corner of a certain tract of land conveyed by Mark D. Smith, et ux. to Charles A. Casteel, et ux. by deed recorded November 25, 1957 in Book 186, Page 110 (erroneously described as Book 185, Page 662), Deed Records; thence South 1° West along the West line of said Casteel tract 340.8 feet; thence North 77° West to the place of beginning.

Parcel 3:

Beginning at a 1/2 inch iron pipe at the Southeast corner of a tract of land described in a deed recorded November 25, 1957 in Book 185, Page 662, Deed Records of Yamhill County, Oregon, being South 80° 58 1/2' East 277.54 feet and North 70° 15' West 121.6 feet from the Northeast corner of Block 1 of Gutbrod Addition to the City of Sheridan in Township 5 South, Range 6 West of the Willamette Meridian in Yamhill County, Oregon; thence South 70° 15' East 67.2 feet to an iron rod; thence North 01° 11' East 86.71 feet to an iron rod; thence North 01° 33' West to the North boundary of the C.B. Graves Donation Land Claim; thence along the North boundary of the Graves Donation Land Claim North 77° West 50 feet, more or less, to a point North 01° 00' East of the point of beginning; thence South 01° West 560 feet, more or less, to the point of beginning.

SAVING AND EXCEPTING the following described tract of land:

Beginning at a 1/2 inch iron pipe at the Southeast corner of a tract of land described in deed recorded November 25, 1957 in Book 185, Page 662, Deed Records, said iron pipe being South 80° 50' 30" East 277.54 feet and North 70° 15' West 121.6 feet from the Northeast corner of Block 1 of Gutbrod's Addition to the Town of Sheridan in Yamhill County, Oregon; thence South 70° 15' East 67.2 feet to an iron rod; thence North 01° 11' East 86.71 feet to an iron rod; thence North 01° 33' West 104.60 feet to a 1/2 inch iron rod; thence South 89° West 59.26 feet to a 1/2 inch iron rod; thence South 1° West 169.60 feet to the place of beginning.

Parcel 4:

Beginning at a point in Section 35, Township 5 South, Range 6 West of the Willamette Meridian, Yamhill County, Oregon, said point being 207.00 feet North 1° East of a stone, said stone being 455.40 feet South 78° East of the intersection of the lines of Schley and Second Streets in South Sheridan; thence South 77° East 91.36 feet; thence North 87° 04' 54" West 89.42 feet; thence North 1° East 16.00 feet to the place of beginning.

EXHIBIT A

Part 3.          Medford Project
Name of Facility:	Medford Memory Care
Address of Land:	1530 Poplar Drive
	Medford, Oregon
Number of Residential Units:	71 Alzheimer’s beds
Number of Parking Spaces:	32
Name of Master Tenant:	RSL Medford, LLC, an Oregon limited liability company
Name of Property Manager:	Radiant Senior Living, Inc.
Allocated Loan Amount:	$5,800,000
Legal Description of Land:

Commencing at the northwest corner of Donation Land Claim No. 40, Township 37 South, Range 1 West of the Willamette Meridian in Jackson County, Oregon, from which the northwest corner of Donation Land Claim No. 61, Township 37 South, Range 2 West of the Willamette Meridian, bears West 20.46 chains; thence North 89° 57' East, along the north line of Donation Land Claim No. 40, a distance of 157.73 feet to the east line of the Old Pacific and Eastern Railroad right of way, as described in Volume 80, Page 609, of the Deed Records of Jackson County, Oregon; thence continue North 89° 57' East, along the north line of said Donation Land Claim No. 40, a distance of 465.5 feet; thence South 00° 05' East 579.0 feet, to the south right of way line of Morrow Road; thence South 89° 57' 22" East (Record South 89° 57' East), along said south right of way line, 1105.73 feet, to the northwest corner of parcel described in Volume 413, Page 420, Deed Records; thence continue South 89° 57' 22" East (Record South 89° 57' East) 22.11 feet, to the True Point of Beginning; thence continue South 89° 57' 22" East (Record South 89° 57' East) 147.30 feet, to the east line of tract described in No. 88-17233, of the Official Records of Jackson County, Oregon; thence along said east line, along the center of a drain ditch, the following courses: South 14° 36' 27" East 29.18 feet; South 12° 44' 16" East 22.12 feet; South 10° 56' 59" East 24.29 feet; South 21° 28' 11" East , 14.50 feet; South 17° 51' 23" East 17.51 feet; South 15° 50' 57" East 23.19 feet; South 18° 36' 50" East 21.90 feet; South 16° 03' 34" East 21.64 feet; South 16° 05' 03" East 20.96 feet; South 17° 34' 04" East 26.28 feet; South 16° 14' 39" East 30.02 feet; South 16° 23' 24" East 23.56 feet; South 12° 59' 47" East 21.77 feet; South 19° 39' 18" East 26.58 feet; South 14° 38' 52" East 22.65 feet; South 16° 59' 48" East 21.80 feet; South 09° 52' 27" East 18.69 feet; South 16° 50' 22" East 24.00 feet; South 12° 44' 27" East 15.77 feet, to the northeast corner of tract described in No. 73-11542, Official Records; thence West, along the northerly line of said tract and its westerly prolongation, 320.19 feet to the easterly right of way line of Poplar Drive, as described in No. 89-00633, Official Records; thence along said easterly right of way line, North 10° 23' 02" East 189.51 feet; thence North 00° 35' 20" East 20.94 feet; thence North 10° 10' 46" East 97.05 feet; thence along the arc of a 425.00 foot radius curve to the left, through a central angle of 09° 35' 26", a distance of 71.14 feet; thence North 00° 35' 20" East 36.70 feet, to the True Point of Beginning. EXCEPTING THEREFROM a 5.0 foot strip of land adjoining Morrow Road, deeded to the City of Medford by No. 89-19214, Official Records of Jackson County, Oregon. ALSO EXCEPTING THEREFROM a strip of land along the west boundary of Poplar Drive deeded to the City of Medford by instrument recorded July 16, 1993 as No. 93-23314, Official Records.

EXHIBIT A

Part 4.          Friendswood Project
Name of Facility:	Friendship Haven Healthcare and Rehabilitation Center
Address of Land:	1500 Sunset Drive
	Friendswood, Texas
Number of Residential Units:	150 skilled nursing beds
Number of Parking Spaces:	79
Name of Master Tenant:	HMG Services, LLC
Name of Property Manager:	Radiant Senior Living, Inc.
Allocated Loan Amount:	$10,700,000
Legal Description of Land:

TRACT I:

A tract or parcel of land containing 4.3698 acres of land, more or less, being out of Reserve "A", Tract "A" of Commercial Reserve of Regency Estates, Section II, a subdivision in Galveston County, Texas, according to the map or plat thereof recorded in Volume 18, Page 304, in the Office of the County Clerk of Galveston County, Texas, and being more particularly described by metes and bounds as follows:

BEGINNING at a point in the southwesterly right-of-way line of Sunset Drive (80 feet wide) for the northerly corner of said 7.7763-acre Commercial Reserve, for the northerly corner of said 4.5660-acre tract, and for the northerly corner of said tract herein described,

THENCE South 45 deg. 21 min. 35 sec. East along the southwesterly right-of-way line of said Sunset Drive, a distance of 265.02 feet to a 1/2 inch iron rod set with cap "Survey 1" for corner,

THENCE South 45 deg. 00 min. 00 sec. West, a distance of 90.00 feet to an "X" in concrete set for corner,

THENCE South 45 deg. 21 min. 35 sec. East, a distance of 95.00 feet to a 5/8-inch iron found for corner,

THENCE South 45 deg. 00 min. 00 sec. West, along the northwesterly line of Parkwood Commercial Center recorded in 9523542, a distance of 468.60 feet to a 1/2 inch iron rod set with cap "Survey 1", for corner,

THENCE North 45 deg. 00 min. 00 sec. West, a distance of 300.01 feet to a 1/2-inch iron rod set with cap "Survey 1", for corner,

THENCE North, a distance of 84.66 feet to a 1/2 inch iron rod with cap "Survey 1", for corner,

EXHIBIT A

THENCE North 45 deg. 00 min. 00 sec. East, a distance of 496.34 feet to the POINT-OF-BEGINNING of the herein described tract of land, and containing 4.3698 acres of land.

TRACT II:

A tract or parcel of land containing 0.1963 acre of land, more or less, being out of Reserve "A", Tract "A", of Commercial Reserve of Regency Estates, Section II, a subdivision in Galveston County, Texas, according to the map or plat thereof recorded in Volume 18, Page 304, in the Office of the County Clerk of Galveston County, Texas, and being more particularly described by metes and bounds as follows,

COMMENCING at a point in the Southwesterly right-of-way line of Sunset Drive (80.00' ROW) for the Northerly corner of said 7.7763 acre Commercial Reserve and for the Northerly corner of said 4.5660 acre tract,

THENCE South 45 deg. 21 min. 35 sec. East, with the Southwesterly right-of-way line of said Sunset Drive, a distance of 265.02 feet to a 1/2 inch iron rod set with cap "Survey 1" to the POINT OF BEGINNING of the herein described tract of land,

THENCE continuing South 45 deg. 21 min. 35 sec. East, continuing along the Southwesterly right-of-way line of said Sunset Drive, a distance of 95.00 feet to 1/2 inch iron rod set with cap "Survey 1", for corner,

THENCE South 45 deg. 00 min. 00 sec. West, a distance of 90.00 feet to a 5/8 inch iron rod found for corner,

THENCE North 45 deg. 21 min. 35 sec. West, a distance of 95.00 feet to an "X" in concrete set for corner,

THENCE North 45 deg. 00 min. 00 sec. East, a distance of 90.00 feet to the POINT OF BEGINNING of the herein described tract of land, and containing 0.1963 acres of land, more or less.

EXHIBIT A

EXHIBIT B

Loan Commitments

Lender’s Name	Lender’s Address for Notices	Lender’s Loan Commitment		Lender’s Pro Rata Share
General Electric Capital Corporation	See Section 12.1	$	22,300,000		100	%

EXHIBIT B

SCHEDULE 2.1

CONDITIONS TO ADVANCE OF LOAN PROCEEDS

The advance of the proceeds of the Loan shall be subject to the terms of the Term Sheet, and Administrative Agent’s receipt, review, approval and/or confirmation of the following items set forth in Part A of this Schedule 2.1 and in the items specified in the Term Sheet, at Borrower’s cost and expense, each in form and content satisfactory to Administrative Agent in its sole discretion:

1. Loan Documents. The Loan Documents and Environmental Indemnity Agreement executed by Borrower, any Borrower Party and/or Operator, as applicable.

2. Title Insurance Policy. An ALTA (or equivalent) mortgagee policy or policies of title insurance in the maximum amount of the Loan, with reinsurance and endorsements as Administrative Agent may require, containing no exceptions to title (printed or otherwise) which are unacceptable to Administrative Agent, and insuring that the Mortgage creates a first-priority Lien on the Projects and related collateral (the “Title Policy”).

3. Organizational and Authority Documents. Certified copies of all documents evidencing the formation, organization, valid existence, good standing, and due authorization of and for Borrower and each Borrower Party for the execution, delivery, and performance of the Loan Documents and the Environmental Indemnity Agreement by each Borrower and each Borrower Party, as applicable.

4. Legal Opinions. Legal opinions issued by counsel for Borrower and each Borrower Party, opining as to the due organization, valid existence and good standing of Borrower and each Borrower Party, and the due authorization, execution, delivery, enforceability and validity of the Loan Documents and Environmental Indemnity Agreement with respect to, Borrower and each Borrower Party; that the Loan, as reflected in the Loan Documents is not usurious; and as to such other matters as Administrative Agent and Administrative Agent’s counsel reasonably may specify, including, without limitation, non-consolidation opinions.

5. Searches. Current Uniform Commercial Code, tax, judgment lien and litigation searches for Borrower and each Borrower Party, and the immediately preceding owner of the Projects.

6. Insurance. Evidence of insurance as required by this Agreement, and conforming in all respects to the requirements of Administrative Agent.

7. Survey. Three (3) originals of a current “as built” survey of each Project, dated or updated to a date not earlier than forty-five (45) days prior to the Closing Date, prepared by a registered land surveyor in accordance with the American Land Title Association/ American Congress on Surveying and Mapping Standards and containing Administrative Agent’s approved form of certification in favor of Administrative Agent (on behalf of itself and the Lenders) and the title insurer (collectively, the “Survey”). The Survey shall conform to Administrative Agent’s current survey requirements and shall be sufficient for the title insurer to remove the general survey exception.

SCHEDULE 2.1

1

8. Property Condition Report. A current engineering report or architect’s certificate with respect to each Project, covering, among other matters, inspection of heating and cooling systems, roof and structural details and showing no failure of compliance with building plans and specifications, applicable legal requirements (including requirements of the Americans with Disabilities Act) and fire, safety and health standards (the “Property Condition Report”, whether one or more). As requested by Administrative Agent, the Property Condition Report shall also include an assessment of each Project’s tolerance for earthquake and seismic activity.

9. Environmental Reports. A current Site Assessment (as defined in the Environmental Indemnity Agreement) for each Project.

10. Rent Roll. A current rent roll or Census Report for each Project, certified by Borrower or the current owner of such Project. Such rent roll and/or Census Report shall include such information as reasonably required by Administrative Agent.

11. Operators’ Agreements. A copy of each fully executed Operators’ Agreement in form and substance satisfactory to Administrative Agent, certified by Borrower as being true, correct and complete.

12. Tax and Insurance Impounds. Borrower’s deposit with Administrative Agent of the amount required under this Agreement to impound for taxes and assessments, insurance premiums and to fund any other required escrows or reserves.

13. Compliance With Laws. Evidence that each Project and the operation thereof comply with all legal requirements, including that all requisite certificates of occupancy, building permits, and other licenses, certificates, approvals or consents required of any Governmental Authority have been issued without variance or condition and that there is no litigation, action, citation, injunctive proceedings, or like matter pending or threatened with respect to the validity of such matters. If title insurance with respect to a Project described in item 3 above does not include a Zoning 3.1 (with parking) endorsement because such an endorsement is not available in the state where such Project is located, then Borrower shall furnish to Administrative Agent a zoning letter from the applicable municipal agency with respect to such Project or a zoning report that verifies the zoning classification of such Project and such Project’s compliance with such zoning classification (the “Zoning Report”).

14. No Casualty or Condemnation. No condemnation or adverse zoning or usage change proceeding shall have occurred or shall have been threatened against the Projects; the Projects shall not have suffered any significant damage by fire or other casualty which has not been repaired; no law, regulation, ordinance, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened by any Governmental Authority, which would have, in Administrative Agent’s judgment, a material adverse effect on Borrower, any Borrower Party or the Projects.

SCHEDULE 2.1

2

15. Broker’s Fees. All fees and commissions payable to real estate brokers, mortgage brokers, or any other brokers or lenders in connection with the Loan or the acquisition of the Projects have been paid, such evidence to be accompanied by any waivers or indemnifications deemed necessary by Administrative Agent.

16. Costs and Expenses. Payment of Administrative Agent’s and each Lender’s costs and expenses in underwriting, documenting, and closing the transaction, including fees and expenses of Administrative Agent’s and such Lender’s inspecting engineers, consultants and counsel.

17. Representations and Warranties. The representations and warranties contained in this Loan Agreement and in all other Loan Documents and Environmental Indemnity Agreement are true and correct.

18. No Defaults. No Potential Default or Event of Default or default shall have occurred or exist.

19. Appraisal. Administrative Agent shall obtain an appraisal report for each Project, in form and content acceptable to Administrative Agent, prepared by an independent MAI appraiser in accordance with the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) and the regulations promulgated pursuant to such act.

20. Management. The Operator and any Operators’ Agreement for each Project shall be satisfactory to Administrative Agent in its sole discretion.

21. Other Items. Administrative Agent and the Lenders shall have received such other items as Administrative Agent and the Lenders may reasonably require.

SCHEDULE 2.1

3

SCHEDULE 2.3(a)

AMORTIZATION SCHEDULE

Period		Date		Days		Ending Balance		Principal		Prepayment		Balloon Amount
	0		9/13/2012				22,300,000.00
	1		10/1/2012		17		22,300,000.00		0.00		0.00		0.00
	2		11/1/2012		31		22,300,000.00		0.00		0.00		0.00
	3		12/1/2012		30		22,300,000.00		0.00		0.00		0.00
	4		1/1/2013		31		22,300,000.00		0.00		0.00		0.00
	5		2/1/2013		31		22,300,000.00		0.00		0.00		0.00
	6		3/1/2013		28		22,300,000.00		0.00		0.00		0.00
	7		4/1/2013		31		22,300,000.00		0.00		0.00		0.00
	8		5/1/2013		30		22,300,000.00		0.00		0.00		0.00
	9		6/1/2013		31		22,300,000.00		0.00		0.00		0.00
	10		7/1/2013		30		22,300,000.00		0.00		0.00		0.00
	11		8/1/2013		31		22,300,000.00		0.00		0.00		0.00
	12		9/1/2013		31		22,300,000.00		0.00		0.00		0.00
	13		10/1/2013		30		22,267,820.79		32,179.21		0.00		0.00
	14		11/1/2013		31		22,239,191.98		28,628.81		0.00		0.00
	15		12/1/2013		30		22,206,708.73		32,483.25		0.00		0.00
	16		1/1/2014		31		22,177,764.18		28,944.55		0.00		0.00
	17		2/1/2014		31		22,148,670.08		29,094.10		0.00		0.00
	18		3/1/2014		28		22,108,351.33		40,318.75		0.00		0.00
	19		4/1/2014		31		22,078,898.60		29,452.73		0.00		0.00
	20		5/1/2014		30		22,045,613.88		33,284.72		0.00		0.00
	21		6/1/2014		31		22,015,837.00		29,776.87		0.00		0.00
	22		7/1/2014		30		21,982,236.98		33,600.03		0.00		0.00
	23		8/1/2014		31		21,952,132.66		30,104.32		0.00		0.00
	24		9/1/2014		31		21,921,872.80		30,259.86		0.00		0.00
	25		10/1/2014		30		21,887,802.95		34,069.85		0.00		0.00
	26		11/1/2014		31		21,857,210.72		30,592.23		0.00		0.00
	27		12/1/2014		30		21,822,817.56		34,393.16		0.00		0.00
	28		1/1/2015		31		21,791,889.57		30,927.99		0.00		0.00
	29		2/1/2015		31		21,760,801.79		31,087.78		0.00		0.00
	30		3/1/2015		28		21,718,672.98		42,128.80		0.00		0.00
	31		4/1/2015		31		21,687,206.91		31,466.07		0.00		0.00
	32		5/1/2015		30		21,651,963.73		35,243.18		0.00		0.00
	33		6/1/2015		31		21,620,153.00		31,810.73		0.00		0.00
	34		7/1/2015		30		21,584,574.55		35,578.45		0.00		0.00
	35		8/1/2015		31		21,552,415.64		32,158.91		0.00		0.00
	36		9/1/2015		31		21,520,090.58		32,325.07		0.00		0.00
	37		10/1/2015		30		21,484,011.82		36,078.76		0.00		0.00
	38		11/1/2015		31		21,451,333.33		32,678.48		0.00		0.00
	39		12/1/2015		30		21,414,910.79		36,422.55		0.00		0.00
	40		1/1/2016		31		21,381,875.28		33,035.51		0.00		0.00
	41		2/1/2016		31		21,348,669.09		33,206.19		0.00		0.00
	42		3/1/2016		29		21,308,175.11		40,493.98		0.00		0.00
	43		4/1/2016		31		21,274,588.14		33,586.97		0.00		0.00

SCHEDULE 2.3(a)

44	5/1/2016	30	21,237,281.87	37,306.27	0.00	0.00
45	6/1/2016	31	21,203,328.61	33,953.26	0.00	0.00
46	7/1/2016	30	21,165,666.04	37,662.57	0.00	0.00
47	8/1/2016	31	21,131,342.77	34,323.27	0.00	0.00
48	9/1/2016	31	21,096,842.16	34,500.61	0.00	0.00
49	10/1/2016	30	21,058,647.16	38,195.00	0.00	0.00
50	11/1/2016	31	21,023,770.96	34,876.20	0.00	0.00
51	12/1/2016	30	20,985,210.60	38,560.36	0.00	0.00
52	1/1/2017	31	20,949,954.97	35,255.62	0.00	0.00
53	2/1/2017	31	20,914,517.20	35,437.78	0.00	0.00
54	3/1/2017	28	20,868,439.06	46,078.13	0.00	0.00
55	4/1/2017	31	20,832,580.12	35,858.94	0.00	0.00
56	5/1/2017	30	20,793,063.81	39,516.31	0.00	0.00
57	6/1/2017	31	20,756,815.43	36,248.38	0.00	0.00
58	7/1/2017	30	20,716,920.29	39,895.14	0.00	0.00
59	8/1/2017	31	20,680,278.50	36,641.79	0.00	0.00
60	9/1/2017	31	20,643,447.39	36,831.11	0.00	0.00
61	9/11/2017	10	0.00	109,273.47	20,534,173.92	20,643,447.39

SCHEDULE 2.3(a)

SCHEDULE 2.5(b)

REQUIRED REPAIRS

None.

SCHEDULE 2.5(b)

SCHEDULE 2.7

SOURCES AND USES

Sources

Source	Amount
Loan:	$	22,300,000
Borrower Equity Contribution:	$	9,873,000
Total:	$	32,173,000

Uses

Use	Amount
Acquisition of Projects:	$	31,400,000
Acquisition Fee:	$	350,000
Commitment Fee:	$	223,000
Closing Costs (est.)	$	200,000
Total:	$	32,173,000

SCHEDULE 2.7

SCHEDULE 6.1

ORGANIZATION; FORMATION

A.           Borrower’s Organizational Structure. See attached chart.

B.           Organizational Information. (Borrower and each entity comprising Borrower Party).

Legal Name	State of Formation		Type of Entity	State Organization ID No.		Federal Tax ID No.
CHP Portland, LLC		Delaware	Limited liability company		5165986	45-5475756
CHP Medford 1, LLC		Delaware	Limited liability company		5165987	46-0854163
CHP Friendswood SNF 1, LLC		Delaware	Limited liability company		5200025	46-0862893
Cornerstone Healthcare Holdings 1, LLC		Delaware	Limited liability company		5165903	45-5495453
Cornerstone Core Properties REIT, Inc.		Maryland	Corporation		D10272573	73-1721791

C.           Location Information.

1.		Borrower:
	a.	Chief Executive Office:	1920 Main Street, Suite 400 Irvine, California 92614
	b.	Location of any prior Chief Executive Office (during last 5 years):	N/A
	c.	Other Office Location:	N/A
	d.	Location of Collateral:	At the Projects
2.		Borrower Parties:
	a.	Chief Executive Office:	1920 Main Street, Suite 400 Irvine, California 92614
	b.	Location of any prior Chief Executive Office (during last 5 years):	N/A
	c.	Other Office Location:	N/A

ORGANIZATIONAL CHART

[See Attached]

SCHEDULE 6.1

1

SCHEDULE 6.22

DISCLOSURES REGARDING HEALTHCARE MATTERS

None.

SCHEDULE 6.22

1

SCHEDULE 6.22(a)

THIRD PARTY PAYOR PROGRAMS

Sheridan Project

Medicare Provider No. 385275

Medicaid Provider No. 800092

NPI Number 1316992347

Portland Project

Medicare Provider No. 385237

Medicaid Provider No. 800034

NPI Number 1811987779

Medford Project

Medicaid Provider No. 135955

Friendswood Project

Medicaid Vendor No.     4286

Medicare Provider No.  67-5744

SCHEDULE 6.22(a)

1

SCHEDULE 6.22(b)

PRIMARY LICENSES

1. Nursing Facility License #1780937313, issued for Fernhill Estates, 5737 NE 37^th, Portland, OR 97211 (expiration: 12/31/2012).

2. Nursing Facility License #1361721217, issued for Sheridan Care Center, 411 SE Sheridan Rd., Sheridan, OR 97378 (expiration: 12/31/2012).

3. Residential Care Facility License #1845022081, issued for Farmington Square – Medford, 1530 Poplar Drive, Medford, OR 97504 (expiration 9/3/2014).

4. Nursing Facility License #132738, issued for Friendship Haven Healthcare and Rehabilitation Center, 1500 Sunset Drive, Friendswood, Galveston County, Texas. 77546.

SCHEDULE 6.22(b)

1

SCHEDULE 7.2

FORM OF COMPLIANCE CERTIFICATE

Compliance Certificate

Date: ________________, ______

General Electric Capital Corporation,

as Administrative Agent

500 West Monroe Street

Chicago, Illinois 60661

Attention: Managing Director, HFS Real Estate

Portfolio Management Group

Re: Compliance Certificate – Loan No. 07-0004432

Ladies and Gentlemen:

This certificate is given in accordance with Section 7.2 and Section 9.10 of the Loan Agreement dated __________________ (as amended from time to time, the “Loan Agreement”), among CHP Portland, LLC, CHP Medford 1, LLC and CHP Friendswood SNF, LLC (the foregoing, collectively, “Borrower”) and General Electric Capital Corporation, as Administrative Agent on behalf of the financial institutions from time to time party to the Loan Agreement (in such capacity, the “Administrative Agent”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement.

I hereby certify that:

1. I am an officer of the manager of each Borrower, and

2. Based on my review of the financial statements delivered with this certificate in accordance with the Section 7.1 of the Loan Agreement, such (a) financial statements fairly present the financial condition of each Borrower as the dates of such financial statements in all material respects and (b) have been prepared in accordance with GAAP consistently applied. There have been no material changes in accounting policies or financial reporting practices of any Borrower Party since ____________, 201_ [insert date of last year-end financial statement provided by Borrower], or, if any such change has occurred, I have attached a description of such changes.

SCHEDULE 7.2

1

3. I have reviewed the terms of the Loan Agreement and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and condition of each Borrower during the accounting period covered by such financial statements.

4. Such review has not disclosed the existence during or at the end of such accounting period, and I have no knowledge whether arising out of such review or otherwise, of the existence during or at the end of such accounting period or as of the date hereof, of any condition or event that constitutes a Potential Default or an Event of Default, or if any Potential Default or Event or Default existed or exists, attached as Schedule 1 hereto is a description of the nature and period of existence thereof and what action Borrower has taken or propose to take with respect thereto.

5. Guarantor is in compliance with the covenants contained in the Recourse Guaranty constituting a part of the Loan Documents, except as set forth in Schedule 4 attached hereto.

6. Except as noted on Schedule 2 attached hereto, the undersigned has no knowledge of any federal or state tax liens having been filed against the Borrower, Guarantor, the Operator or all or any portion of any Project.

7. Except as noted on Schedule 2 attached hereto, the undersigned has no knowledge of any failure of any Borrower, Guarantor or Operator to make required payments of withholding or other tax obligations of such Borrower, Guarantor or Operator during the accounting period to which the attached statements pertain or any subsequent period.

8. If the Loan Agreement contemplates payments into a lockbox or restricted account, or directly to Lender, Administrative Agent, Borrower and Operator (as required under the Loan Agreement or in the Loan Documents) have directed all of its account debtors, residents and/or lessees, as applicable, to make payments into such account or to Administrative Agent.

9. If the Loan Agreement contemplates a lien on the deposit accounts of the Borrower in favor of Administrative Agent, Schedule 3 attached hereto contains a complete and accurate statement of all deposit or investment accounts maintained by Borrower, Guarantor or any Operator.

10. With respect to each Project:

(a) there are no current, pending or threatened proceedings relating to a condemnation or other public taking of such Project;

(b) the Project has suffered no casualty or other damage or loss of the type typically covered by hazard insurance;

SCHEDULE 7.2

2

(c) all insurance required to be maintained by Borrower, Guarantor or Operator under the Loan Agreement is in force;

(d) all real estate taxes or other assessments pertaining to such Project have been paid as and when due.

(e) the undersigned has no knowledge of any current, pending or threatened changes to the zoning classification or permitted uses of such Project.

11. All of the other covenants (i.e., those not specifically described in the prior paragraphs above) set forth in the Loan Agreement and Security Documents are fully performed and the representations and warranties set forth in the Loan Agreement and Security Documents are and remain true, correct, and complete (except as set forth on Schedule 4 attached hereto).

12. Except as set forth in the Loan Agreement or on Schedule 5 attached hereto, Borrower not has received (a) any notice of default under other obligations relating to the Projects or otherwise material to Borrower’s business, including any notices of violations of any laws, regulations, codes or ordinances; (b) any notice of threatened or pending legal, judicial or regulatory proceedings, including any dispute between Borrower and any Governmental Authority, materially adversely affecting Borrower, any Borrower Party or Projects; (c) Healthcare Investigations; (d) any notice of default or termination given or made to any Operator by Borrower or received from any Operator; and (e) any notice of default or termination under any license or permit necessary for the operation of the Projects in the manner required by the Loan Agreement. If any such notices or Healthcare Investigations have been received or commenced, they are listed on Schedule 5 and Borrower has provided (or are providing concurrently with this Certificate) Administrative Agent with copies of such notices and relevant materials referred to herein. With respect to any such notices or Healthcare Investigations, Borrower is providing the following information: (a) number of records requested, (b) dates of service, (c) dollars at risk, (d) date records submitted, (e) determinations, findings, results and denials (including number, percentage and dollar amount of claims denied, (f) additional remedies proposed or imposed, (g) status update, including appeals, and (h) any other pertinent information related thereto.

13. The calculations set forth on Schedule 6 have been made to determine Borrower’s compliance with Section 8.15 of the Loan Agreement, which calculations are true, correct, and complete.

SCHEDULE 7.2

3

The foregoing certification and computations are made as of _____________, 20___ and delivered this _____day of _____________, 20___.

Sincerely,

___________________________________

in his capacity as _____________________ of Cornerstone Core Properties REIT, Inc., the manager of each of CHP Portland, LLC, CHP Medford 1, LLC and CHP Friendswood SNF, LLC

SCHEDULE 7.2

4

Schedule 1

Description of Defaults or Potential

Defaults and Cures Being Undertaken

SCHEDULE 7.2

5

Schedule 2

Tax Liens or Withholding Obligations

SCHEDULE 7.2

6

Schedule 3

List of all Deposit Accounts

SCHEDULE 7.2

7

Schedule 4

Exceptions to Covenant Compliance

SCHEDULE 7.2

8

Schedule 5

Schedule of Notices of Default, Litigation, etc.

SCHEDULE 7.2

9

Schedule 6

Financial Covenant Analysis

As of: ____________ __, 20__

A.           NET OPERATING INCOME (“NOI”):
(1)          Name of Borrower:	CHP Portland, LLC
(a)          Calculation Period:	(a) Trailing 12 Months
(b)          Adjusted Revenue	(b) $___________________
(c)          Less Adjusted Expenses:	(c) $___________________
(including real estate tax, management fee equal to 5% of effective gross income regardless of whether paid & replacement reserve of $350 per licensed bed/unit)
(d)          Adjusted Net Operating Income:	(d) $___________________
(2)         Name of Borrower:	CHP Medford 1, LLC
(a)          Calculation Period:	(a) Trailing 12 Months
(b)          Adjusted Revenue	(b) $___________________
(c)          Less Adjusted Expenses:	(c) $___________________
(including real estate tax, management fee equal to 5% of effective gross income regardless of whether paid & replacement reserve of $350 per licensed bed/unit)
(d)          Adjusted Net Operating Income:	(d) $___________________
(3)         Name of Borrower:	CHP Friendswood, SNF, LLC
(a)          Calculation Period:	(a) Trailing 12 Months
(b)          Adjusted Revenue	(b) $___________________
(c)          Less Adjusted Expenses:	(c) $___________________
(including real estate tax, management fee equal to 5% of effective gross income regardless of whether paid & replacement reserve of $350 per licensed bed/unit)
(d)          Adjusted Net Operating Income:	(d) $___________________

SCHEDULE 7.2

10

B.          DEBT SERVICE OF BORROWER:
(1)         Calculation Period:	(1) Trailing 12 Months
(2)         Debt Service Calculation:
(a)          Interest Expense	(a) $___________________
(b)          Scheduled Amortization of Principal	(b) $___________________
(c)          Other Payments on Permitted Debt	(c) $___________________
(d)          Total Debt Service	(d) $___________________
(3)         Debt Service Coverage Ratio (ANOI/Debt Service):	(3)  :1.00
(4)         Required Minimum Debt Service Coverage Pursuant to Section 8.15):	(4) 2.00:1.00
(5)         In Compliance:	(5) ¨ Yes      ¨ No
C.           AVERAGE OCCUPANCY RATE:
(1)         Calculation Period:	(1) Trailing 3 Months
(2)         Average Occupancy Rate for Calculation Period – Portland Project (described on Part 1 of Exhibit A to the Loan Agreement):	(2) _______________%
(3)         Average Occupancy Rate for Calculation Period – Sheridan Project (described on Part 2 of Exhibit A to the Loan Agreement)	(3) _______________%
(4)         Average Occupancy Rate for Calculation Period – Medford Project (described on Part 3 of Exhibit A to the Loan Agreement)	(4) _______________%
(5)         Average Occupancy Rate for Calculation Period – Friendswood Project (described on Part 4 of Exhibit A to the Loan Agreement)	(5) _______________%
(6)         Average Occupancy Rate for Calculation Period (average of lines 2, 3, 4 and 5):	(6) _______________%
(7)         Required Minimum Occupancy Rate:	(7)    66%
(8)         In Compliance:	(8) ¨ Yes      ¨ No

SCHEDULE 7.2

11

D.           PROJECT YIELD:
(1)         Calculation Period:	(1) Trailing ___ Months
(2)         NOI:	(2) $___________________
(a)          Interest Expense
(3)         Outstanding Principal Balance of Loan:	(3) $___________________
(4)         Project Yield for Calculation Period (ANOI ÷ Principal Balance of Loan):	(4) $___________________
(5)         Required Project Yield:	(5) 15.3%
(6)         In Compliance:	(6) ¨ Yes      ¨ No

SCHEDULE 7.2

12

SCHEDULE 12.37

POST-CLOSING OBLIGATIONS

Project	Description of Post Closing Obligation	Required Completion Date
Friendswood Project	Remove and remediate existing mold growth; identify site of water intrusion into site of mold incursion and restore same to watertight condition; deliver evidence reasonably acceptable to Administrative Agent confirming completion of work.	Within ninety days following the Closing Date
Portland Project	Deliver evidence reasonably satisfactory to Administrative Agent that commercial general liability insurance that complies with the requirements specified in Sections 3.1(b) and 3.1(c) and otherwise reasonably acceptable to Administrative Agent has been obtained from an insurance company in compliance with the requirements specified in Section 3.1(c); deliver to Administrative Agent the endorsements to such policy required under Section 3.1(c).	On or before October 1, 2012
Medford Project	Deliver to Administrative documentation reasonably acceptable to Administrative Agent evidencing premium financing arrangement.	Within thirty (30) days following the Closing Date
Medford Project	Deliver to Administrative Agent a waiver of subrogation for insurance policies in form reasonably acceptable to Administrative Agent.	Within 5 Business Days following Closing Date

1

Medford Project	Deliver to Administrative Agent mortgagee/loss payee endorsements to insurance policies as required under Section 3.1(c).	Within 10 Business Days following Closing Date
Friendswood Project
Sheridan Project	Deliver evidence reasonably satisfactory to Administrative Agent that Borrowers have obtained excess flood insurance coverage amount providing additional coverage in an amount equal to or in excess of $500,000	Within 5 Business Days following the Closing Date
All Projects	Deliver information for deposit accounts form which debt service payments will be made.	Within five (5) business days following the Closing Date
All Projects	Deliver Deposit Account Control Agreement, in form and substance reasonably satisfactory to Agent, executed by each Deposit Account Bank and Borrower and covering each Borrower’s Deposit Accounts.	Within thirty (30) days following the Closing Date, which period may be extended by Agent in its reasonable discretion

2

EX-10.8

LOAN AGREEMENT

between

COP - WESTERN AVE., LLC

as Borrower

and

GENERAL ELECTRIC CAPITAL CORPORATION

as Lender

September 7, 2012

TABLE OF CONTENTS

		Page
ARTICLE 1 CERTAIN DEFINITIONS		1
Section 1.1	Certain Definitions	1
ARTICLE 2 LOAN TERMS		10
Section 2.1	The Loan	10
Section 2.2	Interest Rate; Late Charge	11
Section 2.3	Terms of Payment	11
Section 2.4	Security	14
Section 2.5	Interest Rate Cap Agreement	15
ARTICLE 3 INSURANCE, CONDEMNATION, AND IMPOUNDS		15
Section 3.1	Insurance	15
Section 3.2	Use and Application of Loss Proceeds	17
Section 3.3	Condemnation Awards	18
Section 3.4	Impounds	19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES		19
Section 4.1	Organization and Power	19
Section 4.2	Validity of Loan Documents	19
Section 4.3	Liabilities; Litigation; Other Secured Transactions.	20
Section 4.4	Taxes and Assessments	20
Section 4.5	Other Agreements; Defaults	20
Section 4.6	Compliance with Law; Project Condition.	20
Section 4.7	Location of Borrower	21
Section 4.8	ERISA.	21
Section 4.9	Margin Stock	21
Section 4.10	Tax Filings	21
Section 4.11	Solvency	22
Section 4.12	Full and Accurate Disclosure	22
Section 4.13	Single Purpose Entity	22
Section 4.14	Management Agreement	22
Section 4.15	No Conflicts	23
Section 4.16	Title	23
Section 4.17	Use of Project	23
Section 4.18	Flood Zone	23
Section 4.19	Insurance	23
Section 4.20	Filing and Recording Taxes	24
Section 4.21	Investment Company Act	24
ARTICLE 5 ENVIRONMENTAL MATTERS		24
Section 5.1	Representations and Warranties on Environmental Matters	24
Section 5.2	Covenants on Environmental Matters.	24
Section 5.3	Allocation of Risks and Indemnity	26

-i-

Section 5.4	Lender's Right to Protect Collateral	27
Section 5.5	No Waiver	27
ARTICLE 6 LEASING MATTERS		27
Section 6.1	Representations and Warranties on Leases	27
Section 6.2	Standard Lease Form; Approval Rights	28
Section 6.3	Covenants	28
Section 6.4	Tenant Estoppels	28
ARTICLE 7 FINANCIAL REPORTING		28
Section 7.1	Financial Statements.	28
Section 7.2	Accounting Principles	29
Section 7.3	Other Information	29
Section 7.4	Annual Budget	29
Section 7.5	Audits	30
ARTICLE 8 COVENANTS		30
Section 8.1	Due on Sale and Encumbrance; Transfers of Interests	30
Section 8.2	Taxes; Charges	31
Section 8.3	Control; Management	32
Section 8.4	Operation; Maintenance; Inspection	32
Section 8.5	Taxes on Security	32
Section 8.6	Legal Existence; Name, Etc.	33
Section 8.7	Affiliate Transactions	33
Section 8.8	Limitation on Other Debt	33
Section 8.9	Mechanics Liens and Stop Payment Notices	33
Section 8.10	Further Assurances	34
Section 8.11	Estoppel Certificates	34
Section 8.12	Notice of Certain Events	34
Section 8.13	Indemnification	34
Section 8.14	Application of Operating Revenues	35
Section 8.15	Representations and Warranties	35
Section 8.16	Post-Closing Matters.	35
ARTICLE 9 ANTI-MONEY LAUNDERING AND INTERNATIONAL TRADE CONTROLS		36
Section 9.1	Compliance with International Trade Control Laws and OFAC Regulations	36
Section 9.2	Borrower's Funds	36
ARTICLE 10 EVENTS OF DEFAULT		37
Section 10.1	Payments	37
Section 10.2	Insurance	37
Section 10.3	Transfer	37
Section 10.4	Covenants	37
Section 10.5	Representations and Warranties	38
Section 10.6	Other Encumbrances	38

-ii-

Section 10.7	Involuntary Bankruptcy or Other Proceeding	38
Section 10.8	Voluntary Petitions, Etc.	38
Section 10.9	Guarantor's Tangible Net Worth and Liquidity	38
ARTICLE 11 REMEDIES		38
Section 11.1	Remedies - Insolvency Events	38
Section 11.2	Remedies - Other Events	39
Section 11.3	Lender's Right to Perform the Obligations	39
ARTICLE 12 MISCELLANEOUS		40
Section 12.1	Notices	40
Section 12.2	Amendments, Waivers, References.	42
Section 12.3	Limitation on Interest	42
Section 12.4	Invalid Provisions	43
Section 12.5	Reimbursement of Expenses	43
Section 12.6	Approvals; Third Parties; Conditions	43
Section 12.7	Lender Not in Control; No Partnership.	44
Section 12.8	Time of the Essence	45
Section 12.9	Successors and Assigns; Secondary Market Transactions.	45
Section 12.10	Renewal, Extension or Rearrangement	46
Section 12.11	Waivers	46
Section 12.12	Cumulative Rights	47
Section 12.13	Singular and Plural	47
Section 12.14	Phrases	47
Section 12.15	Exhibits and Schedules	47
Section 12.16	Titles of Articles, Sections and Subsections	47
Section 12.17	Promotional Material	47
Section 12.18	Survival	47
Section 12.19	WAIVER OF JURY TRIAL	48
Section 12.20	Punitive or Consequential Damages; Waiver	48
Section 12.21	Governing Law	48
Section 12.22	Entire Agreement	48
Section 12.23	Counterparts	48
Section 12.24	Brokers	48
Section 12.25	Claims Against Lender	49
ARTICLE 13 LIMITATIONS ON LIABILITY		49
Section 13.1	Limitation on Liability.	49
Section 13.2	Limitation on Liability of Lender's Officers, Employees, Etc.	51

-iii-

LIST OF EXHIBITS AND SCHEDULES

EXHIBIT A	–	LEGAL DESCRIPTION OF PROJECT
EXHIBIT B	–	BUDGET
SCHEDULE 2.1	–	ADVANCE CONDITIONS
SCHEDULE 2.3(4)	–	LIBOR BREAKAGE AMOUNT DEFINITION
SCHEDULE 2.4(1)	–	CAPITAL REPLACEMENTS RESERVE
SCHEDULE 4.1	–	ORGANIZATIONAL MATTERS

-iv-

LIST OF DEFINED TERMS

Affiliate	1
Agreement	1
Anti-Money Laundering Laws	1
Assignment of Rents and Leases	1
Bank Secrecy Act	2
Bankruptcy Party	38
Borrower	1
Borrower Party	2
Budget	2
Business Day	2
Cap Agreement	14
Cash Liquidity Balances	2
Cash on Cash Return	2
Closing Date	2
Collateral	2
Compliance Certificate	2
Contract Rate	10
Cornerstone REIT	2
Counterparty	15
Debt	3
Debt Service	3
Debt Service Coverage	3
Default Rate	3
Environmental Laws	3
ERISA	21
Eurodollar Business Day	1
Event of Default	3
Exit Fee	14
Financial Institution	4
Guarantors	4
Guaranty	4
Hazardous Materials	4
Interest Holder	31
Interest Period	4
Lender	1
Lender Investment Claims	45
Libor Floor Rate	4
Libor Rate	4
Lien	4
Loan	5
Loan Documents	5
Loan Year	5
Loss Proceeds	5
LTV Ratio	5

-v-

Management Agreement	5
Manager	5
Maturity Date	6
Mortgage	6
Net Cash Flow	6
Note	6
OFAC	6
Operating Expenses	6
Operating Revenues	7
Origination Fee	14
Patriot Act	7
Permitted Encumbrances	7
Person	7
Potential Default	7
Project	7
Restoration Threshold	7
Secondary Market Transaction	7
Single Purpose Entity	7
Site Assessment	8
Specially Designated National and Blocked Persons	8
Spread Maintenance Amount	8
Standard Adjustments	8
Subordination of Property Management Agreement	9
Tangible Net Worth	9
Tax and Insurance Escrow Reserve	9
Test Period	9
Transfer	30
U.S. Person	10
UCC	9
Underwritten NOI	10
Underwritten Operating Expenses	10
Underwritten Operating Revenues	10

-vi-

LOAN AGREEMENT

This Loan Agreement (this "Agreement") is entered into as of September 7, 2012 between GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Lender"), and COP - WESTERN AVE., LLC, a California limited liability company ("Borrower").

ARTICLE 1

CERTAIN DEFINITIONS

Section 1.1           Certain Definitions. As used herein, the following terms have the meanings indicated:

"Affiliate" means, as to any Person, (a) any corporation in which such Person or any partner, shareholder, director, officer, member, or manager of such Person, at any level, directly or indirectly owns or controls more than ten percent (10%) of the beneficial interest, (b) any partnership, joint venture or limited liability company in which such Person or any partner, shareholder, director, officer, member, or manager of such Person, at any level, is a partner, joint venturer or member, (c) any trust in which such Person or any partner, shareholder, director, officer, member or manager of such Person, at any level, or any individual related by birth, adoption or marriage to such Person, is a trustee or beneficiary, (d) any entity of any type which is directly or indirectly owned or controlled by (or is under common control with) such Person or any partner, shareholder, director, officer, member or manager of such Person, at any level, (e) any partner, shareholder, director, officer, member, manager or employee of such Person, or (f) any individual related by birth, adoption or marriage to any partner, shareholder, director, officer, member, manager, or employee of such Person. Each Borrower Party shall be deemed to be an Affiliate of Borrower.

"Agreement" means this Loan Agreement.

"Anti-Money Laundering Laws" means those laws, regulations and sanctions, state and federal, criminal and civil, that (a) limit the use of and/or seek the forfeiture of proceeds from illegal transactions; (b) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotics dealers or otherwise engaged in activities contrary to the interests of the United States; (c) require identification and documentation of the parties with whom a Financial Institution conducts business; or (d) are designed to disrupt the flow of funds to terrorist organizations. Such laws, regulations and sanctions shall be deemed to include the Patriot Act, the Bank Secrecy Act, the Trading with the Enemy Act, 50 U.S.C. App. Section 1 et seq., the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et seq., and the sanction regulations promulgated pursuant thereto by the OFAC, as well as laws relating to prevention and detection of money laundering in 18 U.S.C. Sections 1956 and 1957.

"Assignment of Rents and Leases" means the Assignment of Rents and Leases, executed by Borrower for the benefit of Lender, and pertaining to leases of space in the Project.

-1-

"Bank Secrecy Act" means the Bank Secrecy Act, 31 U.S.C. Sections 5311 et seq.

"Borrower Party" means any Guarantor and any general partner or managing member in Borrower, at any level.

"Budget" means the budget attached as Exhibit B showing total costs relating to the subject transaction, use of the initial advance of the Loan, and amounts allocated for future advances (if any).

"Business Day" means a day other than a Saturday, a Sunday, or a legal holiday on which national banks located in the State of New York are not open for general banking business.

"Cash Liquidity Balances" means Lien-free (a) cash balances maintained in the conventional forms of demand deposits and money market account deposits, (b) monies held in cash reserves and other cash equivalents reasonably acceptable to Lender, (c) readily marketable direct full faith and credit obligations of the United States of America or obligations unconditionally guaranteed by the full faith and credit of the United States of America, in each case due within one year, (d) certificates of deposit issued by any bank with combined capital, surplus and undivided profits of at least $500,000,000 (as of the date such certificate of deposit is acquired), doing business in and incorporated under the laws of the United States of America or any State thereof, and whose deposits are insured through the Federal Deposit Insurance Corporation, in each case due within one year, and (e) without duplication, unfunded, unpledged and unencumbered capital commitments that are available to be called by Guarantor, without restriction, in Guarantor's sole discretion. Notwithstanding the foregoing, Cash Liquidity Balances shall not include any reserves maintained by Borrower with respect to the Project and shall not include any funds held in reserves or impounds maintained by Lender.

"Cash on Cash Return" means, as of any date, the ratio, expressed as a percentage, of (a) Underwritten NOI to (b) the outstanding principal balance of the Loans.

"Closing Date" means the date on which Lender makes the initial advance of Loan proceeds.

"Collateral" means the Project and all other "Mortgaged Property" described in the Mortgage, and any other property that at any time secures the Loan or any portion thereof.

"Compliance Certificate" means a certificate executed by Guarantor's chief financial officer, in scope and detail reasonably satisfactory to Lender, certifying to Lender Guarantor's then-current Tangible Net Worth and Cash Liquidity Balances.

"Contract Rate" has the meaning assigned in Article 2.

"Cornerstone REIT" means Cornerstone Core Properties REIT, Inc., a Maryland corporation.

-2-

"Counterparty" has the meaning assigned in Section 2.5.

"Debt" means, for any Person, without duplication: (a) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or any of its assets is liable or subject, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person or any of its assets would be liable or subject, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to partners, members (or other equity holders) or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Person, directly or indirectly, (e) all obligations under leases that constitute capital leases for which such Person or any of its assets is liable or subject, and (f) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person or any of its assets is liable or subject, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss.

"Debt Service" means the aggregate interest, fixed principal, and other payments due under the Loan for the period of time for which calculated, provided that the interest component of such payments shall be reduced by amounts that would be payable (based on the then current interest rate payable on the Loan) to Borrower under the Cap Agreement then in effect, provided (a) such Cap Agreement and the Counterparty thereto comply with the requirements of Section 2.5 and (b) the benefits of such Cap Agreement are pledged to Lender pursuant to an Interest Rate Cap Security Agreement. The foregoing calculation shall exclude payments applied to escrows or reserves required by Lender under the Loan Documents.

"Debt Service Coverage" means, as of any date, the ratio of Underwritten NOI to annualized Debt Service.

"Default Rate" means the lesser of (a) the maximum per annum rate of interest allowed by applicable law, and (b) five percent (5%) per annum in excess of the Contract Rate.

"Environmental Laws" means any federal, state or local law (whether imposed by statute, ordinance, rule, regulation, administrative or judicial order, or common law), now or hereafter enacted, governing health, safety, industrial hygiene, the environment or natural resources, or Hazardous Materials, including, without limitation, such laws governing or regulating (a) the use, generation, storage, removal, recovery, treatment, handling, transport, disposal, control, release, discharge of, or exposure to, Hazardous Materials, (b) the transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of such property, or (c) requiring notification or disclosure of releases of Hazardous Materials or other environmental conditions whether or not in connection with a transfer of title to or interest in property.

"Event of Default" has the meaning assigned in Article 10.

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"Financial Institution" means a United States Financial Institution as defined in 31 U.S.C. Section 5312, as periodically amended.

"Guarantors" means the Persons, if any, executing a Guaranty, including Cornerstone REIT.

"Guaranty" means the instruments of guaranty, if any, now or hereafter in effect from a Guarantor to Lender.

"Hazardous Materials" means (a) petroleum or chemical products, whether in liquid, solid, or gaseous form, or any fraction or by-product thereof, (b) asbestos or asbestos-containing materials, (c) polychlorinated biphenyls (pcbs), (d) radon gas, (e) underground storage tanks, (f) any explosive or radioactive substances, (g) lead or lead-based paint, or (h) any other substance, material, waste or mixture which is or shall be listed, defined, or otherwise determined by any governmental authority to be hazardous, toxic, dangerous or otherwise regulated, controlled or giving rise to liability under any Environmental Laws.

"Interest Holder" has the meaning assigned in Section 8.1.

"Interest Period" means (a) for the first Interest Period, the period from the Closing Date through the last day of the month in which the Closing Date occurs, and (b) for each Interest Period thereafter, the 3-month period commencing on the first day of the calendar month following the end of the preceding Interest Period through the last day of such 3-month period.

"Lender Investment Claims" has the meaning assigned in Section 12.7.

"Libor Breakage Amount" has the meaning assigned in Schedule 2.3(4).

"Libor Floor Rate" means one-quarter percent (0.25%) per annum.

"Libor Rate" means, for each Interest Period, the British Bankers Association LIBOR Rate (rounded upward to the nearest one-sixteenth of one percent) listed on Reuters Screen LIBOR01 Page for U.S. Dollar deposits with a designated maturity of three (3) months, determined as of 11:00 a.m. London Time on the date two Eurodollar Business Days prior to the first day of such Interest Period, provided that (a) if Reuters publishes more than one (1) such rate, the average of such rates shall apply, or (b) if Reuters ceases to publish such rate, or if in Lender's reasonable judgment the information contained on such page ceases to accurately reflect the rate offered by leading banks in the London interbank market as reported by any publicly available source of similar market data selected by Lender, the Libor Rate for such Interest Period shall be determined from such substitute financial reporting service as Lender in its discretion shall determine. The term "Eurodollar Business Day" shall mean any Business Day on which banks in the City of London are generally open for interbank or foreign exchange transactions.

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"Lien" means any interest, or claim thereof, in the Collateral securing an obligation owed to, or a claim by, any Person other than the owner of the Collateral, whether such interest is based on common law, statute or contract, including the lien or security interest arising from a deed of trust, mortgage, assignment, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Collateral.

"Loan" means the loan to be made by Lender to Borrower under this Agreement and all other amounts evidenced or secured by the Loan Documents.

"Loan Documents" means: (a) this Agreement, (b) the Note, (c) the Mortgage, (d) the Assignment of Rents and Leases, (e) UCC financing statements, (f) the Subordination of Property Management Agreement, (g) each Guaranty, (h) such assignments of management agreements, contracts and other rights as may be required by Lender, (i) any letter of credit provided to Lender in connection with the Loan, (j) all other documents evidencing, securing, governing or otherwise pertaining to the Loan, and (k) all amendments, modifications, renewals, substitutions and replacements of any of the foregoing.

"Loan Year" means the period between the Closing Date and September 30, 2013 for the first Loan Year and the period between each succeeding October 1 and September 30 until the Maturity Date.

"Loss Proceeds" means amounts, awards or payments payable to Borrower or Lender in respect of all or any portion of the Project in connection with a casualty or condemnation thereof (after the deduction therefrom and payment to Borrower and Lender, respectively, of any and all reasonable out-of-pocket expenses incurred by Borrower and Lender in the recovery thereof, including all reasonable attorneys' fees and disbursements, the fees of insurance experts and adjusters and the costs incurred in any litigation or arbitration with respect to such casualty or condemnation) including proceeds from rental or business interruption insurance.

"LTV Ratio" means, as of the date of determination, the ratio, expressed as a percentage, of (a) the outstanding principal balance of the Loan as of such date, to (b) the value of the Project as of such date, as determined by Lender in its reasonable judgment and in accordance with its customary underwriting practices and procedures in effect at the time of such determination for assets of a similar nature to the Project.

"Management Agreement" means that certain Real Estate Property Management Agreement dated as of December 10, 2008, between Manager and Borrower with respect to the management of the Project by the Manager, together with any management agreements entered into with future Managers in accordance with the terms of this Agreement.

"Manager" means Essex Realty Management, Inc., a California corporation, which is the initial property manager of the Project under the Management Agreement, together with any successor property managers appointed for the Project in accordance with the terms of this Agreement.

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"Maturity Date" means the earlier of (a) September 30, 2014, as such date may possibly be extended in accordance with Section 2.3(3), or (b) any earlier date on which the entire Loan is required to be paid in full, by acceleration or otherwise, under this Agreement or any of the other Loan Documents.

"Mortgage" means the Deed of Trust, Security Agreement and Fixture Filing, executed by Borrower in favor of Lender, covering the Project.

"Net Cash Flow" means, for any period, the amount by which Operating Revenues exceed the sum of (a) Operating Expenses, (b) Debt Service paid during such period, (c) capital expenditures, tenant improvement costs and leasing commissions, each approved by Lender and paid by Borrower during such period, (d) any actual payment into a working capital reserve maintained by Borrower for the Project in an amount not to exceed $0.10, and (e) any actual payment into impounds, escrows, or reserves required under the Loan Documents, except to the extent that any such payment is already included within the definition of Operating Expenses. No deduction for capital expenditures shall be made until such expenditure is actually paid by Borrower or the reserve amount is actually deposited with Lender. In addition, Net Cash Flow shall be increased by (i) any proceeds withdrawn from reserves and impounds funded out of Operating Revenues to the extent such proceeds are not applied to Operating Expenses, and (ii) any payments received under any Cap Agreement.

"Note" means the Promissory Note of even date, in the stated principal amount of $9,620,000.00, executed by Borrower, and payable to the order of Lender in evidence of the Loan, and all promissory notes delivered in substitution or exchange therefor, in each case as the same may be consolidated, replaced, severed, modified, amended or extended from time to time in accordance with this Agreement.

"OFAC" means the Office of Foreign Assets Control, Department of the Treasury.

"Operating Expenses" means, for any period, all reasonable and necessary expenses of operating the Project in the ordinary course of business which are paid in cash by Borrower during such period and which are directly associated with and fairly allocable to the Project for the applicable period, including ad valorem real estate taxes and assessments, insurance premiums, utility charges, regularly scheduled tax and insurance impounds paid to Lender, repair and maintenance costs, management fees and costs, wages, salaries, personnel expenses, accounting, legal and other professional fees, fees and other expenses incurred by Lender and reimbursed by Borrower under the Loan Documents and deposits to any capital replacement, leasing or other reserves required under the Loan Documents. Notwithstanding the foregoing, Operating Expenses shall exclude Debt Service, capital expenditures, tenant improvement costs, leasing commissions, any of the foregoing operating expenses which are paid from deposits to cash reserves and such deposits were previously included as Operating Expenses, any payment or expense for which Borrower was or is to be reimbursed from Loss Proceeds or proceeds of the Loan or by any third party, any sales, use, occupancy or other taxes on receipts for which Borrower must account to any governmental authority, and any non-cash charges such as depreciation and amortization. For purposes of determining Net Cash Flow only, any management fee or other expense payable to Borrower or to an Affiliate of Borrower shall be included as an Operating Expense only with Lender's prior approval. Operating Expenses shall not include federal, state or local income taxes.

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"Operating Revenues" means, for any period, all cash receipts of Borrower during such period from the ownership and operation of the Project or otherwise arising in respect of the Project after the date hereof which are properly allocable to the Project for the applicable period, including receipts from leases and parking agreements, concession fees and charges, utility charges, interest received on credit accounts, service fees and charges, license fees, any required pass-throughs and other reimbursements paid by tenants under leases of any nature, other miscellaneous operating revenues and Loss Proceeds from rental or business interruption insurance, but excluding (a) security deposits and earnest money deposits until they are forfeited by the depositor, (b) advance rentals until they are earned, (c) proceeds from a sale or other disposition of the Project or any interest therein, (d) any disbursements to Borrower from any impounds, escrows, or reserves required under the Loan Documents, and (e) any sales, use, occupancy or other taxes on receipts for which Borrower must account to any governmental authority.

"Origination Fee" has the meaning assigned in Section 2.3(5)

"Patriot Act" means the USA PATRIOT Act of 2001, Pub. L. No. 107-56.

"Permitted Encumbrances" has the meaning set forth in the Mortgage.

"Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity.

"Potential Default" means the occurrence of any event or condition which, with the giving of notice, the passage of time, or both, would constitute an Event of Default.

"Project" means an approximately 116,433 square foot industrial building, and all related facilities, amenities, fixtures, and personal property owned by Borrower and any improvements now or hereafter located on the real property described in Exhibit A.

"Restoration Threshold" means $350,000.

"Secondary Market Transaction" has the meaning assigned in Section 12.9(2).

"Single Purpose Entity" shall mean a Person (other than an individual, a government, or any agency or political subdivision thereof), which (a) exists solely for the purpose of owning the Project, (b) conducts business only in its own name, (c) does not engage in any business or have any assets unrelated to the Project, (d) does not have any Debt other than as permitted by this Agreement, (e) has its own separate books, records and accounts (with no commingling of assets), (f) allocates fairly and reasonably any overhead expenses that are shared with any Affiliate including paying for office space and services performed by any employee of any Affiliate, (g) files its own tax returns, (h) holds itself out as being a Person separate and apart from any other Person, and promptly corrects any known misunderstandings regarding its separate identity, (i) observes corporate and partnership formalities independent of any other entity, and (j) otherwise constitutes a single purpose, bankruptcy remote entity as determined by Lender.

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"Site Assessment" means an environmental engineering report for the Project prepared by an engineer engaged by Lender at Borrower's expense, and in a manner satisfactory to Lender, based upon an investigation relating to and making appropriate inquiries concerning the existence of Hazardous Materials on or about the Project, and the past or present discharge, disposal, release or escape of any such substances, all consistent with ASTM Standard E1527-05 (or any successor thereto published by ASTM) or ASTM Standard E1903-97 (2002) (or any successor thereto published by ASTM), as applicable, and other good customary and commercial practice.

"Specially Designated National and Blocked Persons" means those Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC.

"Spread Maintenance Amount" means the amount equal to the product obtained by multiplying (a) the principal amount of the Loan being prepaid by (b) the sum of 4.3% plus the positive difference (if any) between the Libor Floor Rate and the Libor Base Rate by (c) the quotient obtained by dividing (i) the number of days from the date of such prepayment to (and including) September 30, 2013, by (ii) 360.

"Standard Adjustments" means the following assumptions and adjustments to be made when calculating Underwritten NOI, Underwritten Operating Expenses and Underwritten Operating Revenues:

(1)         an occupancy rate equal to the lesser of (i) the market occupancy rate or (ii) the Project's actual occupancy rate; but in no event more than a ninety-five percent (95%) occupancy rate;

(2)         capital reserves of $0.10 per gross square foot;

(3)         a management fee equal to the greater of the Project's actual management fee (as approved by Lender, if Lender's approval is required under this Agreement) or three percent (3.0%) of Operating Revenues;

(4)         increases in Operating Expenses estimated to occur during the twelve (12) months following the date of calculation due to, among other things, inflation, projected increases in the Project's assessed value and compliance with Section 3.1 of this Agreement, as reasonably determined by Lender; and

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(5)         Operating Revenues shall exclude, without limitation, (i) revenue from tenants (A) that are not physically occupying their leased premises, (B) that are delinquent in the payment of their monetary obligations, or that are otherwise in default in a manner that entitles the landlord to terminate their tenancy, (C) under month-to-month tenancies, (D) who are the subject of any voluntary or involuntary bankruptcy, insolvency, liquidation, reorganization or similar proceeding (to the extent that such tenant has not assumed such lease in bankruptcy), (E) then in a free rent period; provided, however, if any tenant's lease has a remaining free rent period of nine (9) months or less as of the date of calculation, Operating Revenues shall include the rent actually payable under such lease during the 12-month period following the date of calculation, (F) that exceeds the then-current market rents for Comparable Projects (defined below), and (G) with leases that expire within six (6) months following the date as of which Underwritten NOI is to be calculated, (ii) any interest income received or owed from any source (except that Operating Revenues shall include payments received from tenants that are in the nature of rent even if such payments are structured as interest payments for tax or other reasons), (iii) recovery from tenants of any amounts expended or reimbursed by Borrower for tenant improvements, whether in the form of rent, loan repayment, or otherwise, (iv) lease termination fees or payments, (v) Loss Proceeds (other than proceeds from rental or business interruption insurance), and (vi) any other extraordinary or non-recurring revenue or expense items.

As used above, the "market occupancy rate" means the average occupancy rate of industrial buildings that are similar in size and quality to the Project and that are located in the Project's geographic market or sub-market area, all as determined by Lender ("Comparable Projects").

"Subordination of Property Management Agreement" means the Subordination of Property Management Agreement executed by the Manager and Borrower in favor of Lender.

"Tangible Net Worth" means total assets (excluding the value of Guarantor's direct or indirect interest in Borrower, and excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles) less total liabilities, including accrued and deferred income taxes, and any reserves against assets, determined in accordance with generally accepted accounting principles, consistently applied.

"Tax and Insurance Escrow Reserve" has the meaning assigned in Section 3.4.

"Test Period" means the 12-month period ending on the last day of the calendar month immediately preceding the calculation date.

"Transfer" has the meaning assigned in Section 8.1.

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"UCC" means the Uniform Commercial Code as enacted and in effect in the state where the Project is located (and as it may from time to time be amended); provided that, to the extent that the UCC is used to define any term in this Agreement or in any other Loan Document and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern; provided further, however, that if, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender's Liens on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the state where the Project is located, the term "UCC" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for the purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

"Underwritten NOI" means the amount by which Underwritten Operating Revenues exceed Underwritten Operating Expenses.

"Underwritten Operating Expenses" means, for any Test Period, Operating Expenses for such Test Period, as determined and adjusted by Lender to reflect the Standard Adjustments and otherwise in accordance with its then current audit policies and procedures for properties similar to the Project.

"Underwritten Operating Revenues" means, for any Test Period, Operating Revenues for the last calendar month of such Test Period, times twelve, as determined and adjusted by Lender to reflect the Standard Adjustments and otherwise in accordance with its then current audit policies and procedures for properties similar to the Project.

"U.S. Person" means any United States citizen, any entity organized under the laws of the United States or its constituent states or territories, or any entity, regardless of where organized, having its principal place of business within the United States or any of its territories.

ARTICLE 2

LOAN TERMS

Section 2.1           The Loan. The Loan of up to NINE MILLION SIX HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($9,620,000.00) shall be funded in one or more advances and repaid in accordance with this Agreement. The initial advance of the Loan shall be in the amount of up to $8,900,000.00. The initial advance and all subsequent advances for the items shown on the Budget shall be made upon Borrower's satisfaction of the conditions for such advances described in Schedule 2.1. The Loan is not a revolving credit loan, and Borrower is not entitled to any readvances of any portion of the Loan which it may (or is otherwise required to) prepay pursuant to the provisions of this Agreement.

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Section 2.2           Interest Rate; Late Charge. During each Interest Period, the outstanding principal balance of the Loan (including any amounts added to principal under the Loan Documents) shall bear interest at a rate of interest (the "Contract Rate"), equal to the sum of four and three-tenths percent (4.30%) per annum plus the greater of (1) the Libor Rate in effect for such Interest Period, or (2) the Libor Floor Rate. Interest owing for each month shall be computed on the basis of a fraction, the denominator of which is three hundred sixty (360) and the numerator of which is the actual number of days elapsed from the first day of such month (or, for the initial advance, from the date of such advance). Principal and other amortization payments shall be applied to the Loan balance as and when actually received. If Borrower fails to pay any installment of interest or principal within five (5) days of (and including) the date on which the same is due, Borrower shall pay to Lender a late charge on such past-due amount, as liquidated damages and not as a penalty, equal to five percent (5%) of such amount, but not in excess of the maximum amount of interest allowed by applicable law. The foregoing late charge is intended to compensate Lender for the expenses incident to handling any such delinquent payment and for the losses incurred by Lender as a result of such delinquent payment. Borrower agrees that, considering all of the circumstances existing on the date this Agreement is executed, the late charge represents a reasonable estimate of the costs and losses Lender will incur by reason of late payment. Borrower and Lender further agree that proof of actual losses would be costly, inconvenient, impracticable and extremely difficult to fix. Acceptance of the late charge shall not constitute a waiver of the default arising from the overdue installment, and shall not prevent Lender from exercising any other rights or remedies available to Lender. While any Event of Default exists, the Loan shall bear interest at the Default Rate.

Section 2.3           Terms of Payment. The Loan shall be payable as follows:

(1)         Interest. On the Closing Date, Borrower shall make a payment of interest only for the first Interest Period. Thereafter, commencing on November 1, 2012, Borrower shall pay interest in arrears on the first day of each month until all amounts due under the Loan Documents are paid in full.

(2)         Principal Amortization. Commencing on November 1, 2013, and continuing on the first day of each month until all amounts due under the Loan Documents are paid in full, Borrower shall make monthly principal amortization payments in accordance with this Section 2.3(2), which payments shall be applied to the outstanding principal balance of the Loan. Lender shall calculate the total amount of principal payments payable from November 1, 2013 to the Maturity Date based upon a 30-year amortization schedule, an amortization period which begins on October 1, 2013, a fixed interest rate equal to the Contract Rate in effect as of October 1, 2013 and the outstanding principal balance of the Loan as of October 1, 2013. The monthly amortization payment shall equal the total amount of principal payable for such period (calculated as set forth above) divided by the number of monthly payments during such period. The foregoing notwithstanding, upon any additional advance of Loan funds Lender shall recalculate the amount of the monthly principal amortization payment owing for the remainder of the Loan term, based upon the new outstanding principal balance and the Contract Rate then in effect, and such revised principal amortization payment shall be due commencing on the first day of the month immediately following the month in which such additional advance or prepayment (as applicable) is made. In addition, if the term of the Loan is extended in accordance with Section 2.3(3), then Lender shall recalculate the amount of the monthly principal amortization payment owing during such extension period, based upon the then-remaining portion of the 30-year amortization schedule, the outstanding principal balance of the Loan and the Contract Rate in effect as of the first day of such period. Lender's determination of the amount of the monthly amortization payments to be made by Borrower under this Agreement shall be conclusive absent manifest error.

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(3)         Maturity. On the Maturity Date, Borrower shall pay to Lender all outstanding principal, accrued and unpaid interest, and any other amounts due under the Loan Documents. Subject to the provisions of this Section 2.3(3), Borrower, at its option, may extend the term of the Loan for one (1) additional 12-month period. Borrower's right to extend the term of the Loan is subject to the satisfaction of each of the following conditions:

(a)          Borrower shall deliver to Lender a written request to extend the term of the Loan (the "Extension Request") at least sixty (60) days, but not more than ninety (90) days, before the then existing Maturity Date.

(b)          No Event of Default or Potential Default has occurred and is continuing on the date on which Borrower delivers the Extension Request to Lender, or on the date the extension period commences.

(c)          Borrower shall have paid to Lender, in immediately available funds, an extension fee equal to one-half percent (0.50%) of the outstanding principal balance of the Loan as of the first day of such extension.

(d)          During the extended term of the Loan, all terms and conditions of the Loan Documents (other than the original Maturity Date) shall continue to apply except that Borrower shall have no further right to extend the term of the Loan.

(e)          The Cash on Cash Return equals or exceeds nine percent (9.0%), and the Debt Service Coverage (based on the Contract Rate which will be in effect upon commencement of such extension period) equals or exceeds 1.30:1.0; provided, however, that if, based on the outstanding Loan balance as of the date of calculation, Borrower fails to satisfy the foregoing Cash on Cash Return and/or Debt Service Coverage condition(s), Borrower may satisfy such condition(s) by paying down the outstanding Loan balance to an amount that would result in such condition(s) being satisfied.

(f)          Borrower shall have delivered to Lender (i) a copy of a Cap Agreement with a term through the end of the extension period, a notional amount of not less than the then outstanding principal balance of the Loan, and a strike price that does not exceed the rate which, when included in the Contract Rate, would result in a Debt Service Coverage of 1.05:1.0 (and that otherwise complies with the requirements of Section 2.5, including the rating of the Counterparty), and (ii) an Interest Rate Cap Security Agreement covering such Cap Agreement, duly executed by Borrower, together with the consent of the Counterparty to the Interest Rate Cap Security Agreement.

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(g)          Borrower shall cause to be delivered to Lender at Borrower's expense an updated Site Assessment satisfactory to Lender, which shall show no adverse matters or items not reflected in the Site Assessment obtained in connection with the closing of the Loan (and, as to any adverse matters or items reflected in the original Site Assessment, none shall have worsened).

(h)          Borrower shall cause to be delivered to Lender at Borrower's expense an updated engineering and an updated seismic report, each report satisfactory to Lender, which shall show no adverse matters or items not reflected in the engineering report or the seismic report obtained in connection with the closing of the Loan (and, as to any adverse matters or items reflected in the original engineering report or the seismic report, none shall have worsened).

(i)          Borrower shall deliver or cause Guarantor to deliver a Compliance Certificate and such other evidence reasonably satisfactory to Lender that Guarantor's Tangible Net Worth and Cash Liquidity Balances equal or exceed the amounts set forth in Section 10.9.

(j)          Borrower shall execute and deliver such other instruments, certificates, opinions of counsel and documentation as Lender shall reasonably request in order to preserve, confirm or secure the Liens and security granted to Lender by the Loan Documents, including any amendments, modifications or supplements to any of the Loan Documents, endorsements to Lender's title insurance policy and, if required by Lender, estoppels and other certificates.

(k)          Borrower shall pay all costs and expenses incurred by Lender in connection with such extension of the Loan, including Lender's attorneys' fees and disbursements.

(4)         Prepayment. During the first Loan Year (the "Prepayment Premium Period"), Borrower may prepay the Loan, in whole but not in part, upon not less than thirty (30) days' prior written notice to Lender and upon payment of a prepayment premium equal to the Spread Maintenance Amount. Thereafter, upon not less than thirty (30) days' prior written notice to Lender, Borrower may prepay the Loan, in whole but not in part, without any prepayment premium (subject, however, to the payment of the Libor Breakage Amount, if any, as required below). If the Loan is prepaid, in whole or in part, including pursuant to a casualty or condemnation, each such prepayment shall be made to Lender together with (a) the accrued and unpaid interest on the principal amount prepaid, (b) the Libor Breakage Amount, if any, calculated as provided in Schedule 2.3(4), and (c) the Exit Fee. If the Loan is accelerated during the Prepayment Premium Period for any reason other than casualty, condemnation or pursuant to Section 8.5, Borrower shall pay, in addition to the amounts described in the preceding sentence, the Spread Maintenance Amount. The prepayment premium required by this Section 2.3(4) is acknowledged by Borrower to be partial compensation to Lender for the cost of reinvesting the Loan proceeds and for the loss of the contracted rate of return on the Loan. Furthermore, Borrower acknowledges that the loss that may be sustained by Lender as a result of such a prepayment by Borrower is not susceptible of precise calculation and the prepayment premium represents the good faith effort of Borrower and Lender to compensate Lender for such loss. By initialing this provision where indicated below, Borrower waives any rights it may have under California Civil Code Section 2954.10, or any successor statute, and Borrower confirms that Lender's agreement to make the Loan at the interest rate(s) and on the other terms set forth herein constitutes adequate and valuable consideration, given individual weight by Borrower, for the prepayment provisions set forth in this Section 2.3(4).

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Borrower's Initials

(5)         Fees. As partial consideration for Lender's agreement to make the Loan, Borrower shall pay to Lender (a) a loan origination fee of $96,200.00 (the "Origination Fee"), and (b) an exit fee equal to $96,200.00 (the "Exit Fee"). The Origination Fee shall be payable in full on or before the Closing Date and the Exit Fee shall be payable in full upon the first to occur of (i) the Maturity Date, or (ii) repayment of the Loan in full, including any repayment from Loss Proceeds or condemnation proceeds; provided, however, that upon any partial prepayment of the Loan from Loss Proceeds or condemnation proceeds, Borrower shall pay to Lender a portion of the Exit Fee equal to one percent (1.0%) of the amount of the prepayment.

(6)         Application of Payments. All payments received by Lender under the Loan Documents shall be applied to the following, in such order as Lender may elect in its sole discretion: (a) to any fees and expenses due to Lender under the Loan Documents; (b) to any Default Rate interest or late charges; (c) to accrued and unpaid interest; (d) to amounts owed under any reserves or escrows required under the Loan Documents; and (e) to the principal sum and other amounts due under the Loan Documents. Prepayments of principal, if permitted or accepted, shall be applied against amounts owing in inverse order of maturity.

Section 2.4           Security. The Loan shall be secured by the Mortgage creating a first Lien on the Project, the Assignment of Rents and Leases and the other Loan Documents. As further security for the Loan, Borrower agrees:

(1)         to fund the Capital Replacements Reserve in accordance with Schedule 2.4(1); and

(2)         to fund the Tax and Insurance Escrow Reserve in accordance with Section 3.4.

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Section 2.5           Interest Rate Cap Agreement. On or before the Closing Date, Borrower shall enter into and at all times thereafter maintain an interest rate cap agreement ("Cap Agreement") in connection with the Loan, which Cap Agreement shall have (1) during the first Loan Year, a notional amount not less than the outstanding Loan balance and shall have a strike price of, or shall otherwise cap Borrower's Libor Rate exposure at, (1) 1.55% during the first Loan Year and (2) 3.44% during the second Loan Year. The form of the Cap Agreement required pursuant to this Section, and the counterparty to the Cap Agreement (the "Counterparty"), shall be reasonably satisfactory to Lender (and shall otherwise satisfy the ratings criteria set forth below). Substantially concurrently with entering into the Cap Agreement, Borrower shall deliver to Lender an Interest Rate Cap Security Agreement, duly executed and delivered by Borrower in favor of Lender, together with the consent of the Counterparty to such collateral assignment. The Counterparty must have long-term debt obligations rated not lower than "A-" by Standard & Poor's and "A3" by Moody's, or a Counterparty Rating not lower than "A-" by Standard & Poor's and "A3" by Moody's. In the event of any downgrade or withdrawal of the Counterparty rating below A- from Standard & Poor's or below A3 from Moody's, Borrower shall replace the Cap Agreement with a replacement Cap Agreement with an acceptable Counterparty not later than ten (10) Business Days following receipt of notice from Counterparty or Lender of such downgrade or withdrawal, which substitute Cap Agreement shall otherwise comply with the foregoing provisions of this Section.

ARTICLE 3

INSURANCE, CONDEMNATION, AND IMPOUNDS

Section 3.1           Insurance. Borrower shall maintain insurance as follows:

(1)         Property; Business Interruption. Borrower shall keep the Project insured against damage by fire and the other hazards covered by a standard extended coverage and all-risk insurance policy for the full insurable value thereof on a replacement cost claim recovery basis with a deductible not to exceed $25,000 (without reduction for depreciation or co-insurance and without any exclusions or reduction of policy limits for acts of domestic and foreign terrorism or other specified action/inaction), and shall maintain boiler and machinery insurance, sinkhole insurance, acts of domestic and foreign terrorism endorsement coverage and such other property insurance as reasonably required by Lender. Lender reserves the right to require from time to time the following additional insurance: flood, earthquake, windstorm, worker's compensation, building law or ordinance and any additional insurance which may be reasonably required by Lender; provided, however, that in determining whether earthquake insurance will be required, Lender shall evaluate the Project in a manner that is substantially similar to the manner in which it evaluates substantially similar projects with substantially similar seismic risk profiles. Borrower shall keep the Project insured against loss by flood if the Project is located currently or at any time in the future in an area identified by the Federal Emergency Management Agency as an area having special flood hazards in an amount at least equal to the lesser of (a) the maximum amount of the Loan or (b) the maximum limit of coverage available (i) under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994 (as such acts may from time to time be amended) or (ii) through such other flood insurance provider as Lender may approve in its sole discretion. Any such flood insurance policy shall be issued in accordance with the requirements and current guidelines of the Federal Insurance Administration. Borrower shall maintain business interruption insurance, including use and occupancy, rental income loss and extra expense, against all periods covered by Borrower's property insurance for a limit equal to twelve (12) calendar months' exposure, all without any exclusions or reduction of policy limits for acts of domestic and foreign terrorism or other specified action/inaction. Borrower shall not maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise satisfactory to Lender in all respects. The proceeds of insurance paid on account of any damage or destruction to the Project shall be paid to Lender to be applied as provided in Section 3.2.

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(2)         Liability. Borrower shall maintain (a) commercial general liability insurance with respect to the Project providing for limits of liability of not less than $5,000,000 for both injury to or death of a person and for property damage per occurrence, and (b) other liability insurance as reasonably required by Lender.

(3)         Form and Quality. All insurance policies shall be endorsed in form and substance acceptable to Lender to name Lender as an additional insured, loss payee or mortgagee thereunder, as its interest may appear, with loss payable to Lender, without contribution, under a standard New York (or local equivalent) mortgagee clause. All such insurance policies and endorsements shall be fully paid for, shall be issued by appropriately licensed insurance companies acceptable to Lender with a rating of "A-:IX" or better as established by A.M. Best's Rating Guide, shall contain deductibles not to exceed $25,000 (with no increased deductible for acts of domestic or foreign terrorism or other specified action/inaction), and shall be in such form, and shall contain such provisions and expiration dates, as are acceptable to Lender. Each policy shall provide that such policy may not be canceled or materially changed except upon thirty (30) days' prior written notice of intention of non-renewal, cancellation or material change to Lender and that no act or thing done by Borrower shall invalidate any policy as against Lender. Blanket policies shall not be permitted unless the terms and conditions of the coverage afforded thereunder are acceptable to Lender in its reasonable discretion. Lender shall have the right to periodically evaluate the continuing acceptability of any previously approved blanket policies and to require replacement insurance if any blanket policies are no longer acceptable as determined by Lender in its sole discretion. If Borrower fails to maintain insurance in compliance with this Section 3.1, Lender may obtain such insurance and pay the premium therefor and Borrower shall, on demand, reimburse Lender for all expenses incurred in connection therewith.

(4)         Assignment. Borrower shall assign the policies or proofs of insurance to Lender, in such manner and form that Lender and its successors and assigns shall at all times have and hold the same as security for the payment of the Loan. If requested by Lender, Borrower shall deliver copies of all original policies certified to Lender by the insurance company or authorized agent as being true copies, together with the endorsements required hereunder. If Borrower elects to obtain any insurance which is not required under this Agreement (including earthquake insurance), all related insurance policies shall be endorsed in compliance with Section 3.1(3), such additional insurance shall be renewed during the term of the Loan unless Lender provides its prior, written authorization. From time to time upon Lender's request, Borrower shall identify to Lender all insurance maintained by Borrower with respect to the Project. All Loss Proceeds shall be delivered directly to Lender, and shall be applied in accordance with Section 3.2. The Loss Proceeds coming into the possession of Lender shall not be deemed trust funds, and Lender shall be entitled to apply such proceeds as herein provided.

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(5)         Adjustments. Borrower shall give immediate written notice of any loss to the insurance carrier and to Lender. Borrower hereby irrevocably authorizes and empowers Lender, as attorney-in-fact for Borrower coupled with an interest, to notify any of Borrower's insurance carriers to add Lender as a loss payee, mortgagee insured or additional insured, as the case may be, to any policy maintained by Borrower (regardless of whether such policy is required under this Agreement), to make proof of loss, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collect and receive Loss Proceeds (and endorse, on Borrower's behalf, all checks, drafts and other negotiable demand instruments payable to Borrower, or to Borrower and Lender jointly), and to deduct therefrom Lender's expenses incurred in the collection of such Loss Proceeds. Nothing contained in this Section 3.1(5), however, shall require Lender to incur any expense or take any action hereunder.

Section 3.2           Use and Application of Loss Proceeds. Lender shall apply Loss Proceeds (excluding proceeds from rental or business interruption insurance) to costs of restoring the Project or the Loan as follows:

(1)         if the loss is less than or equal to the Restoration Threshold, Lender shall apply the Loss Proceeds to restoration provided (a) no Event of Default or Potential Default exists, and (b) Borrower promptly commences and is diligently pursuing restoration of the Project;

(2)         if the loss exceeds the Restoration Threshold, but is not more than twenty-five percent (25%) of the replacement value of the improvements (for projects containing multiple phases or stand-alone structures, such calculation to be based on the damaged phase or structure, not the project as a whole), Lender shall apply the Loss Proceeds to restoration provided that at all times during such restoration (a) no Event of Default or Potential Default exists; (b) Lender determines that there are sufficient funds available to restore and repair the Project to a condition approved by Lender; (c) Lender determines that the Underwritten NOI during restoration will be sufficient to pay Debt Service during restoration; (d) Lender determines (based on leases which will remain in effect after restoration is complete if the Project is not a multi-family project) that after restoration the Debt Service Coverage and the Cash on Cash Return will be at least equal to 1.36:1.0 and 6.6%, respectively (if the restoration is projected to be completed prior to the original Maturity Date), or 1.30:1.0 and 9.0%, respectively (if the restoration is projected to be completed during the extension term); (e) Lender determines that the LTV Ratio after restoration will not exceed 75%; (f) Lender determines that restoration and repair of the Project to a condition approved by Lender will be completed within six months after the date of loss or casualty and in any event ninety (90) days prior to the Maturity Date; (g) Borrower promptly commences and is diligently pursuing restoration of the Project; and (h) the Project after the restoration will be in compliance with and permitted under all applicable zoning, building and land use laws, rules, regulations and ordinances;

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(3)         if the conditions set forth above are not satisfied or the loss exceeds the maximum amount specified in Section 3.2(2) above, in Lender's sole discretion, Lender may apply any Loss Proceeds it may receive to the payment of amounts owing under the Loan Documents in such order and manner as Lender in its sole discretion determines or allow all or a portion of such Loss Proceeds to be used for the restoration of the Project; and

(4)         Loss Proceeds applied to restoration will be disbursed on receipt of satisfactory plans and specifications, contracts and subcontracts, schedules, budgets, lien waivers and architects' certificates, and otherwise in accordance with prudent commercial construction lending practices for construction loan advances, including, as applicable, the advance conditions under Schedule 2.1. Any Loss Proceeds remaining after payment of all restoration costs shall be applied by Lender to the Loan balance or, at Lender's sole option, remitted to Borrower.

Section 3.3           Condemnation Awards. Borrower shall immediately notify Lender of the institution of any proceeding for the condemnation or other taking of the Project or any portion thereof. Lender may participate in any such proceeding and Borrower will deliver to Lender all instruments necessary or required by Lender to permit such participation. Without Lender's prior consent, Borrower (1) shall not agree to any compensation or award, and (2) shall not take any action or fail to take any action which would cause the compensation to be determined. All awards and compensation for the taking or purchase in lieu of condemnation of the Project or any part thereof are hereby assigned to and shall be paid to Lender. Borrower authorizes Lender to collect and receive such awards and compensation, to give proper receipts and acquittances therefor, and in Lender's sole discretion to apply the same toward the payment of the Loan, notwithstanding that the Loan may not then be due and payable, or to the restoration of the Project; however, if the award is less than or equal to $100,000 and Borrower requests that such proceeds be used for non-structural site improvements (such as landscape, driveway, walkway and parking area repairs) required to be made as a result of such condemnation, Lender will apply the award to such restoration in accordance with disbursement procedures applicable to insurance proceeds provided there exists no Potential Default or Event of Default. Borrower, upon request by Lender, shall execute all instruments requested to confirm the assignment of the awards and compensation to Lender, free and clear of all liens, charges or encumbrances.

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Section 3.4           Impounds. On the first day of each month, Borrower shall pay to Lender, for deposit into a reserve established by Lender (the "Tax and Insurance Escrow Reserve"), one-twelfth (1/12th) of the annual charges for ground or other rent, if any (but only if such rent is due less often than monthly or, regardless of payment frequency, if Borrower has failed to make one or more of such payments), insurance premiums and real estate taxes, assessments and similar charges relating to the Project. At or before the initial advance of the Loan, Borrower shall deliver to Lender, for deposit in the Tax and Insurance Escrow Reserve, a sum of money which together with the monthly installments will be sufficient to make each of such payments thirty (30) days prior to the date any delinquency or penalty becomes due with respect to such payments. The amount of the monthly installments shall be determined on the basis of Lender's estimate from time to time of the charges for the current year (after giving effect to any reassessment or, at Lender's election, on the basis of the charges for the prior year, with adjustments when the charges are fixed for the then current year). All funds deposited in the Tax and Insurance Escrow Reserve shall be held by Lender, without interest, and may be commingled with Lender's general funds. Borrower hereby grants to Lender a security interest in all funds so deposited in the Tax and Insurance Escrow Reserve for the purpose of securing the Loan. While an Event of Default exists, the funds held in the Tax and Insurance Escrow Reserve may be applied in payment of the charges for which such funds have been deposited, or to the payment of the Loan or any other charges affecting the security of Lender, as Lender may elect, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender. Borrower shall furnish Lender with bills for the charges for which the Tax and Insurance Escrow Reserve funds are required at least thirty (30) days prior to the date on which the charges first become payable. If at any time the amount on deposit in the Tax and Insurance Escrow Reserve, together with the monthly installments to be paid by Borrower before such charges are payable, is insufficient to pay such charges, Borrower shall pay any deficiency to Lender immediately upon demand, for deposit in the Tax and Insurance Escrow Reserve. Lender shall pay such charges when the amount on deposit in the Tax and Insurance Escrow Reserve is sufficient to pay such charges and Lender has received a bill for such charges.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that:

Section 4.1           Organization and Power. Borrower and each Borrower Party is duly organized, validly existing and in good standing under the laws of the state of its formation or existence, and is in compliance with all legal requirements applicable to doing business in the state in which the Project is located. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code. Borrower and each Borrower Party has only one state of incorporation or organization, which is set forth in Schedule 4.1. All other information regarding Borrower and each Borrower Party contained in Schedule 4.1, including the ownership structure of Borrower and its constituent entities, is true and correct as of the Closing Date.

Section 4.2           Validity of Loan Documents. The execution, delivery and performance by Borrower and each Borrower Party of the Loan Documents: (1) are duly authorized and do not require the consent or approval of any other party or governmental authority which has not been obtained; and (2) will not violate any law or result in the imposition of any lien, charge or encumbrance upon the assets of any such party, except as contemplated by the Loan Documents. The Loan Documents constitute the legal, valid and binding obligations of Borrower and each Borrower Party, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors' rights.

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Section 4.3           Liabilities; Litigation; Other Secured Transactions.

(1)         The financial statements delivered by Borrower and Guarantor are true and correct with no significant change since the date of preparation. Except as disclosed in such financial statements, there are no liabilities (fixed or contingent) affecting the Project, Borrower or any Borrower Party. There is no litigation, administrative proceeding, investigation or other legal action (including any proceeding under any state or federal bankruptcy or insolvency law) pending or, to the knowledge of Borrower, threatened, against the Project, Borrower or any Borrower Party which if adversely determined could have a material adverse effect on such party, the Project or the Loan.

(2)         Borrower is not, and has not been, bound (whether as a result of a merger or otherwise) as a debtor under a pledge or security agreement entered into by another Person, which has not heretofore been terminated.

Section 4.4           Taxes and Assessments. The Project is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot. There are no pending or, to Borrower's best knowledge, proposed, special or other assessments for public improvements or otherwise affecting the Project, nor are there any contemplated improvements to the Project that may result in such special or other assessments.

Section 4.5           Other Agreements; Defaults. Neither Borrower nor any Borrower Party is a party to any agreement or instrument or subject to any court order, injunction, permit, or restriction which might adversely affect the Project or the business, operations, or condition (financial or otherwise) of Borrower or any Borrower Party. Neither Borrower nor any Borrower Party is in violation of any agreement which violation would have an adverse effect on the Project, Borrower, or any Borrower Party or Borrower's or any Borrower Party's business, properties, or assets, operations or condition, financial or otherwise.

Section 4.6           Compliance with Law; Project Condition.

(1)         Borrower and each Borrower Party have all requisite licenses, permits, franchises, qualifications, certificates of occupancy or other governmental authorizations to own, lease, occupy and operate the Project and carry on its business. The Project is in compliance with all applicable zoning, subdivision, building and other legal requirements and is free of structural defects. All of the Project's building systems and structural components are in good working order, subject to ordinary wear and tear. To Borrower's knowledge, no structural or other material defects or damage in the Project exists, whether latent or otherwise, and Borrower has not received written notice from any insurance company or bonding company of any defects or inadequacies in the Project, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. The Project does not constitute, in whole or in part, a legally non-conforming use under applicable legal requirements.

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(2)         No condemnation has been commenced or, to Borrower's knowledge, is contemplated with respect to all or any portion of the Project or for the relocation of roadways providing access to the Project.

(3)         The Project has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain facilities. All public utilities necessary or convenient to the full use and enjoyment of the Project are located in the public right-of-way abutting the Project, and all such utilities are connected so as to serve the Project without passing over other property, except to the extent such other property is subject to a perpetual easement for such utility benefiting the Project. All roads necessary for the full utilization of the Project for its current purpose have been completed and dedicated to public use and accepted by all governmental authorities.

Section 4.7           Location of Borrower. Borrower's principal place of business and chief executive offices are located at the address stated in Section 12.1 and, except as otherwise set forth in Schedule 4.1, Borrower at all times has maintained its principal place of business and chief executive office at such location or at other locations within the same state.

Section 4.8           ERISA.

(1)         As of the Closing Date and throughout the term of the Loan, (a) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, and (b) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA.

(2)         As of the Closing Date and throughout the term of the Loan (a) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(32) of ERISA and (b) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans.

(3)         Borrower has no employees.

Section 4.9           Margin Stock. No part of proceeds of the Loan will be used for purchasing or acquiring any "margin stock" within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System.

Section 4.10         Tax Filings. Borrower and each Borrower Party have filed (or have obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower and each Borrower Party, respectively.

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Section 4.11         Solvency. Giving effect to the Loan, the fair saleable value of Borrower's assets exceeds and will, immediately following the making of the Loan, exceed Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of Borrower's assets is and will, immediately following the making of the Loan, be greater than Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its Debts as such Debts become absolute and matured. Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur Debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Debts as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of obligations of Borrower). Except as expressly disclosed to Lender in writing, no petition in bankruptcy has been filed by or against Borrower or any Borrower Party in the last seven (7) years, and neither Borrower nor any Borrower Party in the last seven (7) years has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor any Borrower Party is contemplating either the filing of a petition by it under state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and neither Borrower nor any Borrower Party has knowledge of any Person contemplating the filing of any such petition against it.

Section 4.12         Full and Accurate Disclosure. No statement of fact made by or on behalf of Borrower or any Borrower Party in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed to Lender which adversely affects, nor as far as Borrower can foresee, might adversely affect, the Project or the business, operations or condition (financial or otherwise) of Borrower or any Borrower Party. All information supplied by Borrower regarding any other Collateral is accurate and complete in all material respects. All evidence of Borrower's and each Borrower Party's identity provided to Lender is genuine, and all related information is accurate.

Section 4.13         Single Purpose Entity. Borrower is and has at all times since its formation been a Single Purpose Entity.

Section 4.14         Management Agreement. The Management Agreement is the only management agreement in existence with respect to the operation or management of the Project. The copy of the Management Agreement delivered to Lender is a true and correct copy, and such agreement has not been amended or modified. Neither party to such agreement is in default under such agreement and the Manager has no defense, offset right or other right to withhold performance under or terminate such agreement.

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Section 4.15         No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, operating agreement or other agreement or instrument to which Borrower is a party or by which any of Borrower's property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower or any of Borrower's properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body required for the execution, delivery and performance by Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect.

Section 4.16         Title. Borrower has good, marketable and insurable title to the Project, free and clear of all Liens whatsoever, except for the Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents and has rights and the power to transfer each item of Collateral upon which it purports to grant a Lien under the Mortgage or any of the other Loan Documents. The Mortgage creates (and upon the recordation thereof and of any related financing statements there will be perfected) (1) a valid Lien on the Project, subject only to Permitted Encumbrances and (2) security interests in and to, and collateral assignments of, all personalty (including the leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents. There are no claims for payment for work, labor or materials affecting the Project which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. None of the Permitted Encumbrances, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by the Mortgage and this Agreement, materially and adversely affect the value of the Project, impair the use or operations of the Project or impair Borrower's ability to pay its obligations in a timely manner.

Section 4.17         Use of Project. The Project is being, and will continue to be, used exclusively for flex/industrial and other appurtenant and related uses.

Section 4.18         Flood Zone. No portion of the improvements comprising the Project is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Act of 1994, as amended, or any successor law.

Section 4.19         Insurance. Borrower has obtained and has delivered to Lender evidence of all of the insurance policies for the Project reflecting the insurance coverages, amounts and other insurance requirements set forth in this Agreement. No claims have been made under any such policy, and no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such policy.

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Section 4.20         Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable legal requirements currently in effect in connection with the transfer of the Project to Borrower or any transfer of a controlling interest in Borrower have been paid. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable legal requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including the Mortgage, have been paid and, under current legal requirements, the Mortgage is enforceable in accordance with its terms by Lender or any subsequent holder thereof, subject to applicable bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors' rights.

Section 4.21         Investment Company Act. Borrower is not (1) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (2) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (3) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

ARTICLE 5

ENVIRONMENTAL MATTERS

Section 5.1           Representations and Warranties on Environmental Matters. Borrower represents and warrants to Lender that, to Borrower's knowledge, except as set forth in the Site Assessment, (1) no Hazardous Material is now or was formerly used, stored, generated, manufactured, installed, disposed of or otherwise present at or about the Project or any property adjacent to the Project (except for cleaning and other products currently used in connection with the routine maintenance or repair of the Project, and the generation of a small amount of lead by Fujitsu Ten Corp. of America as disclosed in Section 58 of its lease with Borrower, in each case in full compliance with Environmental Laws), (2) all permits, licenses, approvals and filings required by Environmental Laws have been obtained, and the use, operation and condition of the Project do not, and did not previously, violate any Environmental Laws, (3) no civil, criminal or administrative action, suit, claim, hearing, investigation or proceeding has been brought or been threatened, nor have any settlements been reached by or with any parties or any Liens imposed in connection with the Project concerning Hazardous Materials or Environmental Laws and (4) no underground storage tanks exist at the Project.

Section 5.2           Covenants on Environmental Matters.

(1)         Borrower shall (a) comply with applicable Environmental Laws; (b) notify Lender immediately upon Borrower's discovery of any spill, discharge, release or presence of any Hazardous Material at, upon, under, within, contiguous to or otherwise affecting the Project; (c) promptly remove such Hazardous Materials and remediate the Project in full compliance with Environmental Laws and in accordance with the recommendations and specifications of an independent environmental consultant approved by Lender; and (d) promptly forward to Lender copies of all orders, notices, permits, applications or other communications and reports in connection with any spill, discharge, release or the presence of any Hazardous Material or any other matters relating to the Environmental Laws or any similar laws or regulations, as they may affect the Project or Borrower.

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(2)         Borrower shall not cause, shall prohibit any other Person within the control of Borrower from causing, and shall use prudent, commercially reasonable efforts to prohibit other Persons (including tenants) from causing (a) any spill, discharge or release, or the use, storage, generation, manufacture, installation, or disposal, of any Hazardous Materials at, upon, under, within or about the Project or the transportation of any Hazardous Materials to or from the Project (except for cleaning and other products used in connection with routine maintenance or repair of the Project, and the generation of a small amount of lead by Fujitsu Ten Corp. of America as disclosed in Section 58 of its lease with Borrower, in each case in full compliance with Environmental Laws), (b) any underground storage tanks to be installed at the Project, or (c) any activity that requires a permit or other authorization under Environmental Laws to be conducted at the Project.

(3)         Borrower shall provide to Lender, at Borrower's expense promptly upon the written request of Lender from time to time, a Site Assessment or, if required by Lender, an update to any existing Site Assessment, to assess the presence or absence of any Hazardous Materials and the potential costs in connection with abatement, cleanup or removal of any Hazardous Materials found on, under, at or within the Project. Borrower shall pay the cost of no more than one such Site Assessment or update in any twelve (12)-month period, unless Lender's request for a Site Assessment is based on either information provided under Section 5.2(1), a reasonable suspicion of Hazardous Materials at or near the Project, a breach of representations under Section 5.1, or an Event of Default, in which case any such Site Assessment or update shall be at Borrower's expense.

(4)         Borrower shall at all times comply with the provisions of the Easement Agreement (defined below), including permitting Montrose Chemical Corporation of California, a Delaware corporation ("Montrose"), access to the Project to conduct "Environmental Activities" as defined in the Easement Agreement. As used above, the "Easement Agreement" means, collectively, (a) that certain Easement Agreement dated October 18, 2010 by and between Borrower and Montrose, which was recorded in the Official Records of Los Angeles County, California on December 29, 2010 as Instrument No. 20101933398, and (b) that certain Memorandum of Easement Agreement dated September 23, 2010 by and between Borrower and Montrose, which was recorded in the Official Records of Los Angeles County, California on December 29, 2010 as Instrument No. 20101933399.

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Section 5.3           Allocation of Risks and Indemnity. As between Borrower and Lender, all risk of loss associated with non-compliance with Environmental Laws, or with the presence of any Hazardous Material at, upon, within, contiguous to or otherwise affecting the Project, shall lie solely with Borrower. Accordingly, Borrower shall bear all risks and costs associated with any loss (including any loss in value attributable to Hazardous Materials), damage or liability therefrom, including all costs of removal of Hazardous Materials or other remediation reasonably required by Lender or by law. Borrower shall at all times indemnify, defend and hold Lender harmless from and against any and all claims, suits, actions, debts, damages, losses, liabilities, litigations, judgments, charges, costs and expenses (including reasonable costs of defense), of any nature whatsoever proffered or incurred by Lender, whether as mortgagee or beneficiary under the Mortgage, as mortgagee in possession, or as successor-in-interest to Borrower by foreclosure deed or deed in lieu of foreclosure, and whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including those arising from the joint, concurrent or comparative negligence of Lender, under or on account of the Environmental Laws, including the assertion of any lien thereunder, with respect to: (1) a breach of any representation, warranty or covenant of Borrower contained in this Article 5; (2) any acts performed by Lender pursuant to the provisions of this Article 5; (3) any discharge of Hazardous Materials, the threat of discharge of any Hazardous Materials or the storage or presence of any Hazardous Materials affecting the Project whether or not the same originates or emanates from the Project or any contiguous real estate, including any loss of value of the Project as a result of the foregoing; (4) any costs of removal or remedial action incurred by the United States Government or any costs incurred by any other Person or damages from injury to, destruction of, or loss of natural resources including reasonable costs of assessing such injury, destruction or loss incurred pursuant to any Environmental Laws; (5) liability for personal injury or property damage arising under any statutory or common law tort theory, including without limitation damages assessed for the maintenance of a public or private nuisance or for the carrying on of an abnormally dangerous activity at, upon, under or within the Project; and/or (6) any other environmental matter affecting the Project within the jurisdiction of the Environmental Protection Agency, any other federal agency or any state or local environmental agency. The foregoing notwithstanding, Borrower shall not be liable under the foregoing indemnification to the extent any such loss, liability, damage, claim, cost or expense results solely from Lender's gross negligence or willful misconduct. Borrower's obligations under this Article 5 shall arise upon the discovery of the presence of any Hazardous Material, whether or not the Environmental Protection Agency, any other federal agency or any state or local environmental agency has taken or threatened any action in connection with the presence of any Hazardous Materials and whether or not the existence of any such Hazardous Material or potential liability on account thereof is disclosed in the Site Assessment, and shall continue notwithstanding the repayment of the Loan or any transfer or sale of any right, title and interest in the Project (by foreclosure, deed in lieu of foreclosure or otherwise). Notwithstanding the foregoing, subject to the conditions specified below in this Section 5.3, Borrower shall not be liable under this Section 5.3 for such indemnified matters directly created or arising from events or conditions caused or created by Lender and first existing after Lender acquires title to the Project by foreclosure or acceptance of a deed in lieu thereof, but only if (a) not more than ninety (90) days and not less than thirty (30) days prior to the date Lender acquires title, Borrower delivers to Lender a current site assessment showing no adverse matters or items not reflected in the Site Assessment delivered to Lender prior to the Closing Date (and, as to any adverse matters or items reflected in the original Site Assessment, none shall have worsened), and (b) such loss, liability, damage, claim, cost or expense does not directly or indirectly arise from or relate to any release of or exposure to any Hazardous Material (including personal injury or damage to property), non-compliance with any Environmental Laws, or remediation existing or occurring prior to the date Lender acquires title to the Project.

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Section 5.4           Lender's Right to Protect Collateral. If (1) any discharge of Hazardous Materials or the threat of a discharge of Hazardous Material affecting the Project occurs, whether originating or emanating from the Project or any contiguous real estate, and/or (2) Borrower fails to comply with any Environmental Laws or related regulations, Lender may at its election, but without the obligation so to do, give such notices and/or cause such work to be performed at the Project and/or take any and all other actions as Lender shall deem necessary or advisable in order to abate the discharge of any Hazardous Material, remove the Hazardous Material or cure Borrower's noncompliance.

Section 5.5           No Waiver. Notwithstanding any provision in this Article 5 or elsewhere in the Loan Documents, or any rights or remedies granted by the Loan Documents, Lender does not waive and expressly reserves all rights and benefits now or hereafter accruing to Lender under any "security interest" or "secured creditor" exception under applicable Environmental Laws, as the same may be amended. No action taken by Lender pursuant to the Loan Documents shall be deemed or construed to be a waiver or relinquishment of any such rights or benefits under any "security interest exception."

ARTICLE 6

LEASING MATTERS

Section 6.1           Representations and Warranties on Leases. Borrower represents and warrants to Lender with respect to leases of the Project that: (1) the rent roll delivered to Lender is true and correct, and the leases are valid and in full force and effect; (2) the leases (including amendments) are in writing, and there are no oral agreements with respect thereto; (3) the copies of the leases delivered to Lender are true and complete; (4) neither the landlord nor any tenant is in default under any of the leases; (5) Borrower has no knowledge of any notice of termination or default with respect to any lease; (6) Borrower has not assigned or pledged any of the leases, the rents or any interests therein except to Lender; (7) no tenant or other party has an option to purchase all or any portion of the Project; (8) except as expressly set forth in the leases provided to Lender prior to the Closing Date, no tenant has the right to terminate its lease prior to expiration of the stated term of such lease; (9) no tenant has prepaid more than one month's rent in advance (except for bona fide security deposits not in excess of an amount equal to two month's rent); and (10) all existing leases are subordinate to the Mortgage either pursuant to their terms or a recorded subordination agreement.

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Section 6.2           Standard Lease Form; Approval Rights. All leases and other rental arrangements shall in all respects be approved by Lender in its reasonable discretion and shall be on a standard lease form approved by Lender with no material modifications (except as approved by Lender). Such lease form shall provide that the tenant shall attorn to Lender, and that any cancellation, surrender, or amendment of such lease without the prior written consent of Lender shall be voidable by Lender. Without limiting the provisions of Section 5.2(2), Borrower shall not enter into a lease with a new tenant that would use, generate or store at the Project chlorinated solvents, chlorobenzine or parachlorobenzine sulfonic acid (pCBSA), and Borrower shall include in all future leases a provision expressly prohibiting the use, generation or storage of such substances. Within ten (10) days after Lender's request, Borrower shall furnish to Lender a statement of all tenant security deposits, and copies of all leases not previously delivered to Lender, certified by Borrower as being true and correct.

Section 6.3           Covenants. Borrower (1) shall perform the obligations which Borrower is required to perform under the leases; (2) shall enforce the obligations to be performed by the tenants; (3) shall promptly furnish to Lender any notice of default or termination received by Borrower from any tenant, and any notice of default or termination given by Borrower to any tenant; (4) shall not collect any rents for more than thirty (30) days in advance of the time when the same shall become due, except for bona fide security deposits not in excess of an amount equal to two months rent; (5) shall not enter into any ground lease or master lease of any part of the Project; (6) shall not further assign or encumber any lease; (7) shall not, except with Lender's prior written consent, cancel or accept surrender or termination of any lease (other than a termination resulting from a tenant exercising a unilateral early termination right expressly set forth in a lease approved by Lender); and (8) shall not, except with Lender's prior written consent, modify or amend any lease (except for minor modifications and amendments entered into in the ordinary course of business, consistent with prudent property management practices, not affecting the economic terms of the lease), and any action in violation of clauses (5), (6), (7), and (8) of this Section 6.3 shall be void at the election of Lender.

Section 6.4           Tenant Estoppels. At Lender's request (but not more frequently than once in any 12-month period, or while any Event of Default exists), Borrower shall obtain and furnish to Lender, written estoppels in form and substance satisfactory to Lender, executed by tenants under leases in the Project and confirming the term, rent, and other provisions and matters relating to the leases.

ARTICLE 7

FINANCIAL REPORTING

Section 7.1           Financial Statements.

(1)         Monthly Reports. Within forty-five (45) days after the end of each calendar month, Borrower shall furnish to Lender a current (as of the calendar month just ended) balance sheet, a detailed operating statement (showing monthly activity and year-to-date) stating Operating Revenues, Operating Expenses and Net Cash Flow for the calendar month just ended, an updated rent roll, and, as requested by Lender, a written statement setting forth any variance from the annual budget, a general ledger, copies of bank statements and bank reconciliations and other documentation supporting the information disclosed in the most recent financial statements.

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(2)         Quarterly Reports. Within forty-five (45) days after the end of each calendar quarter, Borrower shall furnish to Lender (a) a detailed operating statement (showing quarterly activity and year-to-date) stating Operating Revenues, Operating Expenses and Net Cash Flow for the calendar quarter just ended, and (b) a current (as of the end of such calendar quarter) balance sheet and income statement (showing quarterly activity and year-to-date) for Guarantor, along with a Compliance Certificate.

(3)         Annual Reports. Within one hundred twenty (120) days after the end of each fiscal year of Borrower's operation of the Project, Borrower shall furnish to Lender a current (as of the end of such fiscal year) balance sheet, a detailed operating statement stating Operating Revenues, Operating Expenses and Net Cash Flow for each of Borrower and the Project. In addition, within one hundred twenty (120) after the end of each fiscal year of Guarantor, Borrower shall furnish to Lender a current (as of the end of such fiscal year) balance sheet and income statement for Guarantor, along with a Compliance Certificate as of the end of such fiscal year. If required by Lender, such annual financial statements for Borrower, the Project and/or Guarantor shall be prepared on a review basis and certified by an independent public accountant satisfactory to Lender.

(4)         Certification; Supporting Documentation. Each such financial statement shall be in scope and detail satisfactory to Lender and certified by the chief financial representative of Borrower and Guarantor, as applicable.

(5)         Tax Returns. Borrower shall furnish to Lender copies of Borrower's filed federal, state and (if applicable) local income tax returns for each taxable year (with all forms and supporting schedules attached) within thirty (30) days after filing.

Section 7.2           Accounting Principles. All financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied from year to year. If the financial statements are prepared on an accrual basis, such statements shall be accompanied by a reconciliation to cash basis accounting principles.

Section 7.3           Other Information. Borrower shall deliver to Lender such additional information regarding Borrower, its subsidiaries, its business, any Borrower Party, and the Project within thirty (30) days after Lender's request therefor.

Section 7.4           Annual Budget. At least thirty (30) days prior to the commencement of each fiscal year, Borrower shall provide to Lender its proposed annual capital improvements budget for such fiscal year for Lender's review and approval, and Borrower shall provide to Lender its proposed annual operating budget for such fiscal year for Lender's review.

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Section 7.5           Audits. Lender's employees and third party consultants shall be entitled to perform such financial investigations and audits of Borrower's books and records as Lender shall deem necessary. Borrower shall permit Lender and Lender's agents and consultants to examine such records, books and papers of Borrower which reflect upon its financial condition, the income and expenses relative to the Project and the representations set forth in Article 9. Borrower authorizes Lender to communicate directly with Borrower's independent certified public accountants, and authorizes such accountants to disclose to Lender any and all financial statements and other supporting financial documents and schedules, including copies of any management letter, with respect to the business, financial condition and other affairs of Borrower.

ARTICLE 8

COVENANTS

Borrower covenants and agrees with Lender as follows:

Section 8.1           Due on Sale and Encumbrance; Transfers of Interests. Without the prior written consent of Lender,

(1)         no Transfer shall occur or be permitted, nor shall Borrower enter into any easement or other agreement granting rights in or restricting the use or development of the Project;

(2)         no Transfer shall occur or be permitted which would (a) cause Cornerstone Operating Partnership, L.P., a Delaware limited partnership ("Operating Partnership"), to own less than one hundred percent (100%) of the beneficial interests in Borrower and the Project, (b) cause Cornerstone REIT to (i) own less than ninety-nine and nine-tenths percent (99.9%) of the Operating Partnership or (ii) cease to be the general partner of the Operating Partnership, or (c) result in a new general partner, member or limited partner having the ability to control the affairs of Borrower being admitted to or created in Borrower or the Operating Partnership (or result in any existing general partner or member or controlling limited partner withdrawing from Borrower or the Operating Partnership); and

(3)         no Transfer shall occur or be permitted which, either alone or together with all prior Transfers during the Loan term, would result in the Transfer of more than twenty-five percent (25%) of the direct or indirect beneficial or other ownership interest in Borrower..

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As used in this Agreement, "Transfer" shall mean any direct or indirect sale, transfer, conveyance, installment sale, master lease, mortgage, pledge, encumbrance, grant of Lien or other interest, license, lease, alienation or assignment, whether voluntary or involuntary, of all or any portion of the direct or indirect legal or beneficial ownership of, or any interest in (a) the Project or any part thereof, or (b) Borrower, including any agreement to transfer or cede to another Person any voting, management or approval rights, or any other rights, appurtenant to any such legal or beneficial ownership or other interest. "Transfer" is specifically intended to include any pledge or assignment, directly or indirectly, of a controlling interest in Borrower or its general partner, controlling limited partner or controlling member for purposes of securing so-called "mezzanine" indebtedness. "Transfer" shall not include (i) the leasing of individual units within the Project so long as Borrower complies with the provisions of the Loan Documents relating to such leasing activity; or (ii) the transfer of ownership interests in Cornerstone REIT, so long as Cornerstone REIT continues to be a public real estate investment trust, registered with the Securities and Exchange Commission.

Without limiting the foregoing, Borrower further agrees that it will require each Person that proposes to become a partner, member or shareholder (each such Person, an "Interest Holder") in Borrower after the Closing Date to sign and deliver to Borrower, within thirty (30) days after such transfer (and Borrower shall deliver to Lender promptly after receipt), a certificate executed by a duly authorized officer of the new Interest Holder containing representations, warranties and covenants substantially the same as the representations, warranties and covenants provided by Borrower in Article 9 hereof.

Section 8.2           Taxes; Charges. Borrower shall pay before any fine, penalty, interest or cost may be added thereto, and shall not enter into any agreement to defer, any real estate taxes and assessments, franchise taxes and charges, and other governmental charges that may become a Lien upon the Project or become payable during the term of the Loan, and will promptly furnish Lender with evidence of such payment; however, Borrower's compliance with Section 3.4 of this Agreement relating to impounds for taxes and assessments shall, with respect to payment of such taxes and assessments, be deemed compliance with this Section 8.2. Borrower shall not suffer or permit the joint assessment of the Project with any other real property constituting a separate tax lot or with any other real or personal property. Borrower may in good faith contest, by proper legal actions or proceedings, the validity or amount of any tax or assessment assessed upon the Project provided that at the time of commencement of any such action or proceeding, and during the pendency thereof, (1) no Event of Default shall be continuing; (2) Borrower provides Lender with a release bond in such form and amount as are satisfactory to Lender, including Lender's estimate of interest, penalties and attorneys' fees; (3) such contest operates to suspend collection of the contested tax or assessment; (4) Borrower maintains and prosecutes such contest continuously with diligence, and concludes such contest prior to the thirtieth (30th) day preceding the earlier to occur of the Maturity Date or the date on which the Project is scheduled to be sold for non-payment; (5) the Project shall not be subject to forfeiture or loss or any Lien by reason of the institution or prosecution of such contest; and (6) Borrower shall promptly pay or discharge such contested tax or assessment and all additional charges, interest, penalties and expenses, if any, and shall deliver to Lender evidence acceptable to Lender of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to Borrower.

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Section 8.3           Control; Management. Without the prior written consent of Lender, there shall be no change in the day-to-day control and management of Borrower or Borrower's general partner or managing member, and no change in their respective organizational documents relating to control over Borrower, Borrower's general partner or managing member and/or the Project. Borrower shall not terminate, replace or appoint any Manager or terminate or amend the Management Agreement without Lender's prior written approval, which shall not be unreasonably withheld. Any change in ownership or control of the Manager shall be cause for Lender to reapprove (in its reasonable discretion) such Manager and Management Agreement, provided that Borrower shall not be in breach of this requirement unless Borrower has failed to notify Lender of such change in ownership or control after Borrower obtains actual knowledge of such event. Each Manager shall hold and maintain all necessary licenses, certifications and permits required by law. Borrower shall fully perform all of its covenants, agreements and obligations under the Management Agreement.

Section 8.4           Operation; Maintenance; Inspection. Borrower shall observe and comply with all legal requirements applicable to its existence and to the ownership, use and operation of the Project. Borrower shall maintain the Project in good condition and promptly repair any damage or casualty. Borrower shall not, without the prior written consent of Lender, undertake any material alteration of the Project or permit any of the fixtures or personalty owned by Borrower to be removed at any time from the Project, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Borrower and free and clear of any Liens except those in favor of Lender. Borrower shall permit Lender and its agents, representatives and employees, upon reasonable prior notice to Borrower, to inspect the Project and conduct such environmental and engineering studies as Lender may require, provided such inspections and studies do not materially interfere with the use and operation of the Project.

Section 8.5           Taxes on Security. Borrower shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Note or the Liens created or secured by the Loan Documents, other than income, franchise and doing business taxes imposed on Lender. If there shall be enacted any law (1) deducting the Loan from the value of the Project for the purpose of taxation, (2) affecting any Lien on the Project, or (3) changing existing laws of taxation of mortgages, deeds of trust, security deeds, or debts secured by real property, or changing the manner of collecting any such taxes, Borrower shall either (a) promptly pay to Lender, on demand, all taxes, costs and charges for which Lender is or may be liable as a result thereof; however, if such payment would be prohibited by law or would render the Loan usurious, then instead of collecting such payment, Lender may declare all amounts owing under the Loan Documents to be immediately due and payable; or (b) repay the Loan in full. Borrower shall not be required to pay any Spread Maintenance Amount in connection with any prepayment of the Loan pursuant to this Section.

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Section 8.6           Legal Existence; Name, Etc. Borrower shall preserve and keep in full force and effect its existence as, and at all times operate as, a Single Purpose Entity, and Borrower and each general partner, managing member or non-member manager in Borrower shall preserve and keep in full force and effect its entity status, franchises, rights and privileges under the laws of the state of its formation, and all qualifications, licenses and permits applicable to the ownership, use and operation of the Project. Neither Borrower nor any Borrower Party shall wind up, liquidate, dissolve, reorganize, merge, or consolidate with or into any Person. Without limiting the foregoing, neither Borrower nor any general partner or managing member of Borrower shall reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the Closing Date. Borrower and each general partner or managing member in Borrower shall conduct business only in its own name and shall not change its name, identity, organizational structure, state of formation or the location of its chief executive office or principal place of business unless Borrower (1) shall have obtained the prior written consent of Lender to such change, and (2) shall have taken all actions necessary or requested by Lender to file or amend any financing statement or continuation statement to assure perfection and continuation of perfection of security interests under the Loan Documents. Borrower (and each general partner or managing member in Borrower, if any) shall maintain its separateness as an entity, including maintaining separate books, records, and accounts and observing corporate and partnership formalities independent of any other entity, shall pay its obligations with its own funds and shall not commingle funds or assets with those of any other entity. If Borrower does not have an organizational identification number and later obtains one, Borrower shall promptly notify Lender of its organizational identification number.

Section 8.7           Affiliate Transactions. Without the prior written consent of Lender, Borrower shall not engage in any transaction affecting the Project with an Affiliate of Borrower or of any Borrower Party.

Section 8.8           Limitation on Other Debt. Borrower (and each general partner or managing member in Borrower, if any) shall not, without the prior written consent of Lender, incur any Debt other than the Loan and customary trade payables which are payable, and shall be paid, within sixty (60) days of when incurred.

Section 8.9           Mechanics Liens and Stop Payment Notices. Borrower shall pay when due all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in a mechanics or materialmans or similar Lien and/or notice of pendency of action (each, a "Mechanics Lien") being filed or recorded against the Project or the assertion of a stop payment notice or similar claim ("Stop Payment Notice") against Loan proceeds, and shall defend, indemnify and hold Lender harmless from all Mechanics Liens and Stop Payment Notices including all proceedings to foreclose on Mechanics Liens or to enforce Stop Payment Notices. If any Mechanics Liens are filed, recorded or otherwise asserted against any portion of the Project, or if any such Stop Payment Notices are asserted against Loan proceeds, Borrower shall, within ten (10) days of written demand, discharge or cause to be discharged such Mechanics Lien and/or Stop Payment Notice, and shall promptly obtain the dismissal of any proceedings for the foreclosure or the enforcement thereof. However, Borrower may contest in good faith the validity of any Mechanics Lien or Stop Payment Notice so long as (1) Borrower notifies Lender that it intends to contest such Mechanics Lien or Stop Payment Notice, (2) Borrower provides Lender with (a) an endorsement to Lender's title insurance policy (insuring against such Mechanics Lien) in form and substance satisfactory to Lender, and (b) either a release bond or other security, in either case in such form and amount as may be satisfactory to Lender, including Lender's estimate of interest, penalties and attorneys' fees, and (3) Borrower is diligently contesting the same by appropriate legal proceedings in good faith, at its own expense, and on its own behalf and on behalf of Lender, and concludes such contest prior to the tenth (10th) day preceding the earlier to occur of the Maturity Date or the date on which the Project is scheduled to be sold for non-payment, and timely pays any award, judgment or settlement in favor of such Mechanics Lien or Stop Payment Notice claimant. Lender shall have no obligation to make any Loan advances until all Mechanics Liens and Stop Payment Notices have been fully released or discharged. Borrower's breach of its obligations under this Section 8.9 with respect to any Mechanic's Lien shall constitute a Transfer in violation of Section 8.9.

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Section 8.10         Further Assurances. Borrower shall promptly (1) cure any defects in the execution and delivery of the Loan Documents, (2) provide, and cause each Borrower Party to provide, Lender such additional information and documentation on Borrower's and each Borrower Party's legal or beneficial ownership, policies, procedures and sources of funds as Lender deems necessary or prudent to enable Lender to comply with Anti-Money Laundering Laws as now in existence or hereafter amended, and (3) execute and deliver, or cause to be executed and delivered, all such other documents, agreements and instruments as Lender may reasonably request to further evidence and more fully describe the collateral for the Loan, to correct any omissions in the Loan Documents, to perfect, protect or preserve any Liens created under any of the Loan Documents, or to make any recordings, file any notices, or obtain any consents, as may be necessary or appropriate in connection therewith. From time to time upon the written request of Lender, Borrower shall deliver to Lender a schedule of the name, legal domicile address and jurisdiction of organization, if applicable, for each Borrower Party and each holder of a legal interest in Borrower.

Section 8.11         Estoppel Certificates. Borrower, within ten (10) days after request (but not more frequently than once in any 12-month period, or while any Event of Default exists), shall furnish to Lender a written statement, duly acknowledged, setting forth the amount due on the Loan, the terms of payment of the Loan, the date to which interest has been paid, whether any offsets or defenses exist against the Loan and, if any are alleged to exist, the nature thereof in detail, and such other matters as Lender reasonably may request.

Section 8.12         Notice of Certain Events. Borrower shall promptly notify Lender of (1) any Potential Default or Event of Default, together with a detailed statement of the steps being taken to cure such Potential Default or Event of Default; (2) any notice of default received by Borrower or any Borrower Party under other obligations relating to the Project or otherwise material to Borrower's business; and (3) any threatened or pending legal, judicial or regulatory proceedings, including any dispute between Borrower and any governmental authority, affecting Borrower or the Project.

Section 8.13         Indemnification. Borrower shall indemnify, defend and hold Lender harmless from and against any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs and disbursements (including the reasonable fees and actual expenses of Lender's counsel) of any kind or nature whatsoever, including those arising from the joint, concurrent, or comparative negligence of Lender, in connection with (1) any inspection, review or testing of or with respect to the Project, (2) any investigative, administrative, mediation, arbitration, or judicial proceeding, whether or not Lender is designated a party thereto, commenced or threatened at any time (including after the repayment of the Loan) in any way related to the execution, delivery or performance of any Loan Document, to the Project, to the Borrower or its owners, or to the entire course of dealing, prior to the Closing Date, between Lender and the Borrower or any Borrower Party with respect to the Loan or the transactions contemplated by the Loan Documents, or to any dealings between the Borrower or its owners and any third parties (including any and all costs and expenses incurred by Lender in responding to any third-party subpoenas or other third-party discovery requests and defending any depositions of their respective directors, officers, employees, agents or attorneys), (3) any proceeding instituted by any Person claiming a Lien, and (4) any brokerage commissions or finder's fees claimed by any broker or other party in connection with the Loan, the Project, or any of the transactions contemplated in the Loan Documents, except to the extent any of the foregoing is caused by Lender's gross negligence or willful misconduct.

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Section 8.14         Application of Operating Revenues. Borrower shall apply all Operating Revenues to the payment of Debt Service and other payments due under the Loan Documents, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Project, insurance premiums, operations and maintenance charges relating to the Project, and other obligations of the lessor under leases of space at the Project, before using Operating Revenues for any other purpose.

Section 8.15         Representations and Warranties. Borrower will cause all representations and warranties to remain true and correct all times while any portion of the Loan remains outstanding.

Section 8.16         Post-Closing Matters.

(1)         Immediate Repairs. Within six (6) months after the Closing Date, Borrower shall deliver to Lender evidence reasonably satisfactory to Lender that Borrower has completed, Lien-free and in accordance with all applicable legal requirements, the immediate repairs work (the "Immediate Repairs"), consisting of installing hand railings at the landings on exterior stairs, as recommended in that certain Property Condition Assessment for the Project dated as of August 13, 2012 prepared by EMG (EMG Project No. 102648.12R-001.042) (the "Property Report"). Borrower acknowledges receipt of the Property Report, and Borrower shall commence work on the Immediate Repairs promptly after the Closing Date.

(2)         Delivery of Sinkhole Endorsement. Within three Business Days after the Closing Date, Borrower shall deliver to Lender a copy of the sinkhole endorsement to Borrower's property insurance, which endorsement is required pursuant to Section 3.1(1).

(3)         Delivery of Counterparty Signature. Within three Business Days after the Closing Date, Borrower shall deliver to Lender the Counterparty's signature to the Notice of Security Interest and Acknowledgment, substantially in the form of Exhibit B to the Interest Rate Cap Security Agreement executed by Borrower in favor of Lender.

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ARTICLE 9

ANTI-MONEY LAUNDERING AND

INTERNATIONAL TRADE CONTROLS

Section 9.1           Compliance with International Trade Control Laws and OFAC Regulations. Borrower represents, warrants and covenants to Lender that:

(1)         It is not now nor shall it be at any time until after the Loan is fully repaid a Person with whom a U.S. Person, including a Financial Institution, is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under U.S. law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated Nationals and Blocked Persons) or otherwise.

(2)         No Borrower Party and no Person who owns a direct interest in Borrower is now nor shall be at any time until after the Loan is fully repaid a Person with whom a U.S. Person, including a Financial Institution, is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under U.S. law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated Nationals and Blocked Persons) or otherwise.

Section 9.2           Borrower's Funds. Borrower represents, warrants and covenants to Lender that:

(1)         It has taken, and shall continue to take until after the Loan is fully repaid, such measures as are required by law to verify that the funds invested in the Borrower are derived (a) from transactions that do not violate U.S. law nor, to the extent such funds originate outside the United States, do not violate the laws of the jurisdiction in which they originated; and (b) from permissible sources under U.S. law and to the extent such funds originate outside the United States, under the laws of the jurisdiction in which they originated.

(2)         To the best of its knowledge, neither Borrower, nor any Borrower Party, nor any holder of a direct interest in Borrower, nor any Person providing funds to Borrower (a) is under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities, any crimes which in the United States would be predicate crimes to money laundering, or any violation of any Anti-Money Laundering Laws; (b) has been assessed civil or criminal penalties under any Anti-Money Laundering Laws; and (c) has had any of its/his/her funds seized or forfeited in any action under any Anti-Money Laundering Laws.

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(3)         Borrower shall make payments on the Loan solely from funds invested in Borrower, Operating Revenues or insurance proceeds unless otherwise agreed to by Lender.

(4)         To the best of Borrower's knowledge, as of the Closing Date and at all times during the term of the Loan, all Operating Revenues are and will be derived from lawful business activities of Project tenants or other permissible sources under U.S. law.

(5)         Borrower will take reasonable steps to verify that funds used to repay the Loan (whether in connection with a refinancing, asset sale or otherwise) are from sources permissible under U.S. law and to the extent such funds originate outside the United States, permissible under the laws of the jurisdiction in which they originated.

ARTICLE 10

EVENTS OF DEFAULT

Each of the following shall constitute an Event of Default under the Loan:

Section 10.1         Payments. Borrower's failure to pay any regularly scheduled installment of principal, interest or other amount due under the Loan Documents within five (5) days of (and including) the date when due, or Borrower's failure to pay the Loan at the Maturity Date, whether by acceleration or otherwise.

Section 10.2         Insurance. Borrower's failure to maintain insurance as required under Section 3.1 of this Agreement.

Section 10.3         Transfer. Any Transfer occurs in violation of Section 8.1 of this Agreement.

Section 10.4         Covenants. Borrower's failure to perform, observe or comply with any of the agreements, covenants or provisions contained in this Agreement or in any of the other Loan Documents (other than those agreements, covenants and provisions referred to elsewhere in this Article 10), and the continuance of such failure for thirty (30) days after notice by Lender to Borrower; however, subject to any shorter period for curing any failure by Borrower as specified in any of the other Loan Documents, Borrower shall have an additional sixty (60) days to cure such failure if (1) such failure does not involve the failure to make payments on a monetary obligation; (2) such failure cannot reasonably be cured within thirty (30) days but, using reasonable diligence, is curable within such additional 60-day period; (3) Borrower is diligently undertaking to cure such default, and (4) Borrower has provided Lender with security reasonably satisfactory to Lender against any interruption of payment or impairment of collateral as a result of such continuing failure. The notice and cure provisions of this Section 10.4 do not apply to the other Events of Default described in this Article 10 or to Borrower's failure to perform, observe or comply with any of the agreements, covenants or provisions contained in Article 9 (for which no notice and cure period shall apply).

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Section 10.5         Representations and Warranties. Any representation or warranty made in any Loan Document proves to be untrue in any material respect when made or deemed made.

Section 10.6         Other Encumbrances. Any default under any document or instrument, other than the Loan Documents, evidencing or creating a Lien on the Project or any part thereof.

Section 10.7         Involuntary Bankruptcy or Other Proceeding. Commencement of an involuntary case or other proceeding against Borrower, any Borrower Party or any other Person having an ownership or security interest in the Project (each, a "Bankruptcy Party") which seeks liquidation, reorganization or other relief with respect to it or its Debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of sixty (60) days; or an order for relief against a Bankruptcy Party shall be entered in any such case under the Federal Bankruptcy Code.

Section 10.8         Voluntary Petitions, Etc.Commencement by a Bankruptcy Party of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its Debts or other liabilities under any bankruptcy, insolvency or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any of its property, or consent by a Bankruptcy Party to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or the making by a Bankruptcy Party of a general assignment for the benefit of creditors, or the failure by a Bankruptcy Party, or the admission by a Bankruptcy Party in writing of its inability, to pay its debts generally as they become due, or any action by a Bankruptcy Party to authorize or effect any of the foregoing.

Section 10.9         Guarantor's Tangible Net Worth and Liquidity. The failure of Guarantor to maintain at all times (a) a Tangible Net Worth of not less Ten Million and No/100 Dollars ($10,000,000.00) and (b) Cash Liquidity Balances of not less than Two Million and No/100 Dollars ($2,000,000.00).

ARTICLE 11

REMEDIES

Section 11.1         Remedies Insolvency Events. Upon the occurrence of any Event of Default described in Section 10.7 or Section 10.8, the obligations of Lender to advance amounts hereunder shall immediately terminate, and all amounts due under the Loan Documents immediately shall become due and payable, all without written notice and without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity thereof, or any other notice of default of any kind, all of which are hereby expressly waived by Borrower; however, if the Bankruptcy Party under Section 10.7 or Section 10.8 is other than Borrower, then all amounts due under the Loan Documents shall become immediately due and payable at Lender's election, in Lender's sole discretion.

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Section 11.2         Remedies - Other Events. Except as set forth in Section 11.1 above, while any Event of Default exists, Lender may (1) by written notice to Borrower, declare the entire Loan to be immediately due and payable without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity thereof, or other notice of default of any kind, all of which are hereby expressly waived by Borrower, (2) terminate the obligation, if any, of Lender to advance amounts hereunder, and (3) exercise all rights and remedies therefor under the Loan Documents and at law or in equity.

Section 11.3         Lender's Right to Perform the Obligations. If Borrower shall fail, refuse or neglect to make any payment or perform any act required by the Loan Documents, then while any Event of Default exists, and without notice to or demand upon Borrower and without waiving or releasing any other right, remedy or recourse Lender may have because of such Event of Default, Lender may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Borrower, and shall have the right to enter upon the Project for such purpose and to take all such action thereon and with respect to the Project as it may deem necessary or appropriate. If Lender shall elect to pay any sum due with reference to the Project, Lender may do so in reliance on any bill, statement or assessment procured from the appropriate governmental authority or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Loan Documents, Lender shall not be bound to inquire into the validity of any apparent or threatened adverse title, Lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Borrower shall indemnify, defend and hold Lender harmless from and against any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever, including reasonable attorneys' fees and disbursements, incurred or accruing by reason of any acts performed by Lender pursuant to the provisions of this Section 11.3, including those arising from the joint, concurrent, or comparative negligence of Lender, except to the extent caused by Lender's gross negligence or willful misconduct. All sums paid by Lender pursuant to this Section 11.3 and all other sums expended by Lender to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate from the date of such payment or expenditure until paid, shall constitute additions to the Loan, shall be secured by the Loan Documents and shall be paid by Borrower to Lender upon demand.

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ARTICLE 12

MISCELLANEOUS

Section 12.1         Notices. Any notice required or permitted to be given under this Agreement shall be in writing and either shall be mailed by certified mail, postage prepaid, return receipt requested, or sent by overnight air courier service, or personally delivered to a representative of the receiving party, or sent by facsimile or electronic mail (provided that for both facsimile and electronic mail delivery, an identical notice is also sent simultaneously by mail, overnight courier or personal delivery as otherwise provided in this Section 12.1). All such notices shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below.

If to Borrower:	COP – Western Ave., LLC
	1920 Main St, Suite 400
	Irvine, California  92614
	Attention:	Jon Carley
	Facsimile:	(949) 852-2734
	E-Mail:	jcarley@crefunds.com
	with a copy to:
	COP – Western Ave., LLC
	1920 Main St, Suite 400,
	Irvine, California 92614
	Attention:	Kent Eikanas
	Facsimile:	(949) 852-2734
	E-Mail:	keikanas@crefunds.com
	with a copy to:
	Hanson Bridgett LLP
	425 Market Street, 26th Floor
	San Francisco, California 94105
	Attention:	Jennifer Berland
	Facsimile:	(415) 541-9366
	E-Mail:	jberland@hansonbridgett.com

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If to Lender:	General Electric Capital Corporation
	1901 Main Street, 7th Floor
	Irvine, California  92614
	Attention:	Asset Manager (Cornerstone/Western Ave.)
	Facsimile:	(949) 477-0903
	E-Mail:	kurt.stuart@ge.com
	with a copy to:
	General Electric Capital Corporation
	c/o GE Capital Real Estate - Legal
	500 West Monroe Street, 15th Floor
	Chicago, Illinois 60661
	Attention:	Legal Counsel (Cornerstone/Western Ave.)
	Facsimile:	(312) 463-2252
	E-Mail:	pamela.kain@ge.com
	with a copy to:
	Sheppard, Mullin, Richter & Hampton LLP
	650 Town Center Drive, 4th Floor
	Costa Mesa, California 92626
	Attention:	Steven Cardoza, Esq.
	Facsimile:	(714) 424-8234
	E-Mail:	scardoza@sheppardmullin.com

Any notice so addressed and sent by United States mail or overnight courier shall be deemed to be given on the earliest of (1) when actually delivered, (2) on the first Business Day after deposit with an overnight air courier service, or (3) on the third Business Day after deposit in the United States mail, postage prepaid, in each case to the address of the intended addressee (except as otherwise provided in the Mortgage). Any notice so delivered in person shall be deemed to be given when receipted for by, or actually received by Lender or Borrower, as the case may be. If given by facsimile, a notice shall be deemed given and received when the facsimile is transmitted to the party's facsimile number specified above and confirmation of complete receipt is received by the transmitting party during normal business hours or on the next Business Day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier, or personal delivery as otherwise provided in this Section 12.1. If given by electronic mail, a notice shall be deemed given and received when the electronic mail is transmitted to the recipient's electronic mail address specified above and electronic confirmation of receipt (either by reply from the recipient or by automated response to a request for delivery receipt) is received by the sending party during normal business hours or on the next Business Day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier or personal delivery as otherwise provided in this Section 12.1. Except for facsimile and electronic mail notices sent as expressly described above, no notice hereunder shall be effective if sent or delivered by electronic means. Either party may designate a change of address by written notice to the other by giving at least ten (10) days prior written notice of such change of address.

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Section 12.2         Amendments, Waivers, References.

(1)         This Agreement and any other Loan Document may be amended, modified or supplemented only by a written instrument signed by Borrower and Lender. No waiver of any provision of the Loan Documents shall be effective unless in writing and signed by the party against whom enforcement is sought.

(2)         This Agreement and the other Loan Documents shall not be executed, entered into, altered, amended, or modified by electronic means. Without limiting the generality of the foregoing, Borrower and Lender hereby agree that no exchange of electronic correspondence between the parties shall operate to amend, modify or waive any term or provision of any Loan Document.

(3)         Any reference to a Loan Document, whether in this Agreement or in any other Loan Document, shall be deemed to be a reference to such Loan Document as it may hereafter from time to time be amended, modified, supplemented and restated in accordance with the terms hereof.

Section 12.3         Limitation on Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws. Accordingly, all agreements between Borrower and Lender with respect to the Loan are hereby expressly limited so that in no event, whether by reason of acceleration of maturity or otherwise, shall the amount paid or agreed to be paid to Lender or charged by Lender for the use, forbearance or detention of the money to be lent hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan would be usurious under applicable law, then, notwithstanding anything to the contrary in the Loan Documents: (1) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under the Loan Documents shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the holder thereof (or, if the Note has been paid in full, refunded to Borrower); and (2) if maturity is accelerated by reason of an election by Lender, or in the event of any prepayment, then any consideration which constitutes interest may never include more than the maximum amount allowed by applicable law. In such case, excess interest, if any, provided for in the Loan Documents or otherwise, to the extent permitted by applicable law, shall be amortized, prorated, allocated and spread from the date of advance until payment in full so that the actual rate of interest is uniform through the term hereof. If such amortization, proration, allocation and spreading is not permitted under applicable law, then such excess interest shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the Note (or, if the Note has been paid in full, refunded to Borrower). The terms and provisions of this Section 12.3 shall control and supersede every other provision of the Loan Documents. If at any time the laws of the United States of America permit Lender to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by applicable state law (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Lender may contract for, take, reserve, charge or receive under the Loan Documents.

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Section 12.4         Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable, such provision shall be fully severable; the Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; the remaining provisions thereof shall remain in full effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom; and in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible to be legal, valid and enforceable.

Section 12.5         Reimbursement of Expenses. Borrower shall pay or reimburse Lender on demand for (1) all costs and expenses incurred by Lender in connection with the negotiation, documentation, closing, disbursement and administration of the Loan, including fees and expenses of Lender's attorneys and Lender's environmental, engineering, accounting and other consultants; fees, charges and taxes for the recording or filing of Loan Documents; financial investigation, audit and inspection fees and costs; settlement of condemnation and casualty awards; title search costs, premiums for title insurance and endorsements thereto; and fees and costs for UCC and litigation searches and background checks; and (2) all amounts expended, advanced or incurred by Lender to collect the Note, or to enforce the rights of Lender under this Agreement or any other Loan Document, to defend or assert the rights, claims and actions of Lender under the Loan Documents or with respect to the Collateral (by litigation or other proceedings) or to defend any claims asserted against Lender by Borrower or any Borrower Party with respect to the Loan, the Loan Documents, the Collateral or the transactions contemplated hereby, which amounts will include all court costs, attorneys' fees and expenses, fees of auditors and accountants, and investigation expenses as may be incurred by Lender in connection with any such matters (whether or not litigation is instituted), together with interest at the Default Rate on each such amount from the date of disbursement until the date of reimbursement to Lender, all of which shall constitute part of the Loan and shall be secured by the Loan Documents.

Section 12.6         Approvals; Third Parties; Conditions. All rights retained or exercised by Lender to review or approve leases, contracts, plans, studies and other matters, including Borrower's and any other Person's compliance with the provisions of Article 9 and compliance with laws applicable to Borrower, the Project or any other Person, are solely to facilitate Lender's credit underwriting, and shall not be deemed or construed as a determination that Lender has passed on the adequacy thereof for any other purpose and may not be relied upon by Borrower or any other Person. This Agreement is for the sole and exclusive use of Lender and Borrower and may not be enforced, nor relied upon, by any Person other than Lender and Borrower. All conditions of the obligations of Lender hereunder, including the obligation to make advances, are imposed solely and exclusively for the benefit of Lender, its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will refuse to make advances in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by Lender at any time in Lender's sole discretion.

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Section 12.7         Lender Not in Control; No Partnership.

(1)         None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Lender the right or power to exercise control over the affairs or management of Borrower. The power of Lender is limited to the right to exercise the rights and remedies under the Loan Documents.

(2)         Borrower and Lender agree that the relationship between Borrower and Lender is, and at all times shall remain, solely that of debtor and creditor. No covenant or provision of the Loan Documents is intended, nor shall be deemed or construed, to create, and Lender and Borrower disclaim any intention to create, a partnership, joint venture, agency or common interest in profits or income between Lender and Borrower, or to create an equity in the Project in Lender, or any sharing of liabilities, losses, costs or expenses. Lender neither undertakes nor assumes any responsibility or duty to Borrower, to any direct or indirect constituent partners, members, stockholders or investors in Borrower (each, a "Borrower Investor") or to any other Person with respect to the Collateral or the Loan, except as expressly provided in the Loan Documents. Notwithstanding any other provision of the Loan Documents: (a) Lender is not, nor shall be construed as, a partner, joint venturer, alter ego, manager, controlling person or other business associate or participant of any kind in Borrower or any Borrower Investor or Borrower Party, and Lender does not intend to ever assume such status; (b) Lender shall in no event be liable for any debts, expenses or losses incurred or sustained by Borrower or any Borrower Investor or Borrower Party; and (c) Lender shall not be deemed responsible for or a participant in any acts, omissions or decisions of Borrower or any Borrower Investor or Borrower Party.

(3)         Borrower and Lender acknowledge that Lender or one or more of its Affiliates may now or hereafter be an indirect investor in Borrower or Affiliates of Borrower (each, a "Lender Investment"). No such present or future Lender Investment shall terminate, qualify, impair or otherwise affect in any manner the obligations, agreements and understandings of Borrower and Lender set forth in Section 12.7(1) and Section 12.7(2). Without limiting the foregoing, Borrower represents and warrants that (a) Borrower was not required, compelled or influenced to enter into this Agreement or otherwise obtain the Loan by any existing Lender Investment or the prospect of any future Lender Investment, and (b) any return or payment made on, or loss incurred as the result of, any Lender Investment shall not be taken into account with respect to the obligations of Borrower under this Agreement or with respect to the Loan, and with respect to both (a) and (b) above, Borrower covenants and agrees that it shall forever be estopped from asserting to the contrary. Borrower hereby WAIVES AND RELEASES any offsets, defenses, claims (including claims of equitable subordination in any bankruptcy proceeding involving Borrower or its assets) or counterclaims to the payment of the Loan, to the enforcement of Borrower's other obligations under the Loan Documents, to the priority of the Liens of the Loan Documents or to Lender's exercise of remedies against the Collateral to the extent such offsets, defenses, claims or counterclaims are based on the existence of, or the prospect of, any Lender Investments (collectively, "Lender Investment Claims"). Borrower shall indemnify, defend and hold Lender harmless from and against any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs and disbursements (including the reasonable fees and actual expenses of their counsel) of any kind or nature whatsoever, as a result of the assertion of any Lender Investment Claims by Borrower, any Borrower Party or any other Affiliate of Borrower.

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Section 12.8         Time of the Essence. Time is of the essence with respect to this Agreement.

Section 12.9         Successors and Assigns; Secondary Market Transactions.

(1)         This Agreement shall be binding upon and inure to the benefit of Lender and Borrower and their respective successors and permitted assigns, provided that neither Borrower nor any other Borrower Party shall, without the prior written consent of Lender, assign any rights, duties or obligations hereunder.

(2)         Borrower acknowledges that Lender and its successors and assigns may without notice to or consent from Borrower (a) sell this Agreement, the Mortgage, the Note, the other Loan Documents, and any and all servicing rights thereto, or any portions thereof, to one or more investors, (b) participate and/or syndicate the Loan to one or more investors, (c) deposit this Agreement, the Note and the other Loan Documents, or any portions thereof, with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell, transfer or assign the Loan or interests therein in one or more transactions to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as a "Secondary Market Transaction"). Borrower shall reasonably cooperate with Lender in effecting any such Secondary Market Transaction and shall reasonably cooperate and use all reasonable efforts to satisfy the market standards to which Lender customarily adheres or which may be reasonably required by any participant, investor, purchaser or any rating agency involved in any Secondary Market Transaction (including delivery of opinions of counsel in form and substance similar to the opinions of counsel delivered to Lender on the Closing Date). Borrower shall provide such information and documents relating to Borrower, the Guarantors and the Project as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, Borrower shall make available to Lender all information concerning the Project, its business and operations that Lender may reasonably request. Lender shall be permitted to share all information with the participants, investors, purchasers, investment banking firms, rating agencies, accounting firms, law firms and third-party advisory firms involved with the Loan and Loan Documents or the applicable Secondary Market Transaction (collectively, "Interested Parties"). Lender and all of the Interested Parties shall be entitled to rely on the information supplied by or on behalf of Borrower. Borrower and each Borrower Party agrees that Lender shall have no liability whatsoever as a result of delivering any such information to any Interested Party, and Borrower and the other Borrower Parties, on behalf of themselves and their successors and assigns, hereby release and discharge Lender from any and all liabilities, claims, damages, or causes of action arising out of, connected with or incidental to the delivery of any such information to any Interested Party. Borrower also agrees to execute any amendment of or supplement to this Agreement and the other Loan Documents as Lender may reasonably request in connection with any Secondary Market Transaction, provided that such amendment or supplement does not change the economic terms of the Loan, or increase, in any material respect, Borrower's or any Borrower Party's duties, responsibilities or liabilities under the Loan Documents, or reduce, in any material respect, the rights of Borrower or any Borrower Party under the Loan Documents.

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(3)         Lender shall have the right, at any time (whether prior to, in connection with, or after any Secondary Market Transaction), with respect to all or any portion of the Loan, to modify, split and/or sever all or any portion of the Loan; provided, however, in each such instance the outstanding principal balance of the Notes evidencing the Loan (or components of such Notes) immediately after the effective date of such modification, split or severance equals the outstanding principal balance of the Loan immediately prior to such modification, split or severance, and if such Notes have different stated interest rates, the weighted average of the interest rates for all such Notes (or components of such Notes) immediately after the effective date of such modification, split or severance (and at all times thereafter) equals the weighted average of the interest rates of the Notes immediately prior to such modification, split or severance. Without limiting the foregoing, Lender may (a) cause the Note and the Mortgage (and the other collateral documents now or hereafter executed to secure, or to perfect a security interest granted to secure, any or all of the Loan) to be split into a first and second priority mortgage loan, (b) create one or more senior and subordinate notes and, in connection therewith, allocate some or all rights and benefits under Mortgage (and under such other collateral documents) to the holders of either such senior or subordinate notes, (c) create multiple components of the Note (and allocate or reallocate the principal balance of the Loan among such components) or (d) otherwise sever membership interests (directly or indirectly) in Borrower (i.e., a senior loan/mezzanine loan structure), in each such case, in whatever proportion and whatever priority Lender determines. Borrower (and Borrower's constituent members, if applicable) shall promptly execute such documentation as Lender may reasonably request to evidence and/or effectuate any such modification or severance.

Section 12.10         Renewal, Extension or Rearrangement. Subject to Section 12.9, all provisions of the Loan Documents shall apply with equal effect to each and all promissory notes and amendments thereof hereinafter executed which in whole or in part represent a renewal, extension, increase or rearrangement of the Loan.

Section 12.11         Waivers. No course of dealing on the part of Lender, its officers, employees, consultants or agents, nor any failure or delay by Lender with respect to exercising any right, power or privilege of Lender under any of the Loan Documents, shall operate as a waiver thereof.

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Section 12.12         Cumulative Rights. Rights and remedies of Lender under the Loan Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy.

Section 12.13         Singular and Plural. Words used in this Agreement and the other Loan Documents in the singular, where the context so permits, shall be deemed to include the plural and vice versa. The definitions of words in the singular in this Agreement and the other Loan Documents shall apply to such words when used in the plural where the context so permits and vice versa.

Section 12.14         Phrases. When used in this Agreement and the other Loan Documents, the phrase "including" shall mean "including, but not limited to," the phrase "satisfactory to Lender" shall mean "in form and substance satisfactory to Lender in all respects," the phrase "with Lender's consent" or "with Lender's approval" shall mean such consent or approval at Lender's sole discretion, and the phrase "acceptable to Lender" shall mean "acceptable to Lender at Lender's sole discretion."

Section 12.15         Exhibits and Schedules. The exhibits and schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein.

Section 12.16         Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement and the other Loan Documents or the exhibits hereto and thereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

Section 12.17         Promotional Material. Borrower authorizes Lender to issue press releases, advertisements and other promotional materials in connection with Lender's own promotional and marketing activities, and describing the Loan in general terms or in detail and Lender's participation in the Loan, provided that all references to Borrower contained in any such press releases, advertisements or promotional materials shall be approved in writing by Borrower in advance of issuance. All references to Lender contained in any press release, advertisement or promotional material issued by Borrower shall be approved in writing by Lender in advance of issuance.

Section 12.18         Survival. All of the representations, warranties, covenants, and indemnities of Borrower hereunder, and under the indemnification provisions of the other Loan Documents, shall survive the repayment in full of the Loan and the release of the Liens evidencing or securing the Loan, and shall survive the transfer (by sale, foreclosure, conveyance in lieu of foreclosure or otherwise) of any or all right, title and interest in and to the Project to any party, whether or not an Affiliate of Borrower.

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Section 12.19         WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN ANY WAY RELATING TO THE LOAN OR THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT.

Section 12.20         Punitive or Consequential Damages; Waiver. Neither Lender nor Borrower shall be responsible or liable to the other or to any other Person for any punitive, exemplary or consequential damages which may be alleged as a result of the Loan or the transaction contemplated hereby, including any breach or other default by any party hereto. Borrower represents and warrants to Lender that as of the Closing Date neither Borrower nor any Borrower Party has any claims against Lender in connection with the Loan.

Section 12.21         Governing Law. Except as expressly set forth in the definition of "UCC" in the Mortgage, the validity, construction, enforcement, interpretation and performance of the Loan Documents, and any claim, controversy or dispute arising under or related to any of the Loan Documents, the transactions contemplated thereby or the rights, duties and relationship of the parties thereto, shall be governed by the laws of the State of California, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America.

Section 12.22         Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between Lender and Borrower and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof, including any commitment letter (if any) issued by Lender with respect to the Loan and any confidentiality agreements previously executed by the parties with respect to the Loan. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between this Agreement and any of the other Loan Documents, the terms of this Agreement shall control.

Section 12.23         Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

Section 12.24         Brokers. Borrower hereby represents to Lender that Borrower has not dealt with any broker, underwriters, placement agent, or finder in connection with the transactions contemplated by this Agreement and the other Loan Documents, other than Johnson Capital (the "Broker"). Borrower hereby agrees to pay all fees and commissions due and payable to Broker and to indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person (including Broker) that such Person acted on behalf of Borrower in connection with the transactions contemplated herein.

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Section 12.25         Claims Against Lender. Lender shall not be in default under this Agreement, or under any other Loan Documents, unless a written notice specifically setting forth the default claimed by Borrower shall have been given to Lender within three (3) months after Borrower first had knowledge of the occurrence of the event which Borrower alleges gave rise to such claimed default and Lender does not remedy or cure the default, if any default actually exists, promptly thereafter. Borrower waives any claim, set-off or defense against Lender arising by reason of any alleged default by Lender as to which Borrower does not give such notice timely as required by this Section 12.25. Borrower acknowledges that such waiver is or may be essential to Lender's ability to enforce its remedies without delay and that such waiver therefore constitutes a substantial part of the bargain between Lender and Borrower with regard to the Loan. No Borrower Party or tenant of the Project is intended to have any rights as a third-party beneficiary of the provisions of this Section 12.25.

ARTICLE 13

LIMITATIONS ON LIABILITY

Section 13.1         Limitation on Liability.

(1)         Except as provided below in this Section 13.1, Borrower shall not be personally liable for amounts due under the Loan Documents.

(2)         Borrower shall be personally liable to Lender for any deficiency, loss or damage suffered by Lender because of: (a) Borrower's commission of a criminal act; (b) the failure by Borrower or any Borrower Party to apply any funds derived from the Project, including Operating Revenues, security deposits, insurance proceeds and condemnation awards, as required by the Loan Documents; (c) the fraud or misrepresentation by Borrower or any Borrower Party made in or in connection with the Loan Documents or the Loan; (d) Borrower's collection of rents more than one month in advance or entering into, modifying or canceling leases (excluding the exercise by any tenant of a unilateral cancellation right expressly set forth a lease approved by Lender), or receipt of monies by Borrower or any Borrower Party in connection with the modification or cancellation of any leases, in violation of this Agreement or any of the other Loan Documents; (e) Borrower's interference with Lender's exercise of rights under the Assignment of Rents and Leases; (f) Borrower's failure to turn over to Lender all tenant security deposits upon Lender's demand following an Event of Default; (g) Borrower's failure to timely renew any letter of credit issued in connection with the Loan (for the avoidance of doubt, the parties acknowledge that, as of the Closing Date, no letters of credit are required in connection with the Loan); (h) Borrower's failure to maintain insurance as required by this Agreement or to pay any taxes or assessments affecting the Project; (i) damage or destruction to the Project caused by the negligent or intentional acts or omissions of Borrower, its agents, employees, or contractors (excluding any negligent acts or omissions that are fully covered by Borrower's insurance); (j) Borrower's failure to perform its obligations with respect to environmental matters under Article 5; (k) Borrower's failure to pay for any loss, liability or expense incurred by Lender arising out of any Lender Investment Claim or any other claim or allegation made by Borrower, its successors or assigns, or any creditor of Borrower, that this Agreement or the transactions contemplated by the Loan Documents establish a joint venture, partnership or other similar arrangement between Borrower and Lender; or (l) any brokerage commission or finder's fees claimed in connection with the transactions contemplated by the Loan Documents. Borrower also shall be personally liable to Lender for any and all attorneys' fees and expenses and court costs incurred by Lender in enforcing this Section 13.1(2) or otherwise incurred by Lender in connection with any of the foregoing matters, regardless of whether such matters are legal or equitable in nature or arise under tort or contract law.

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(3)         Notwithstanding anything to the contrary contained in the Loan Documents, the limitation on Borrower's liability contained in Section 13.1(1) SHALL BECOME NULL AND VOID and shall be of no further force and effect if:

(a)          any Transfer in violation of the Loan Documents occurs;

(b)          Borrower files a petition under the United States Bankruptcy Code or similar state insolvency laws; or

(c)          Borrower becomes the subject of an involuntary proceeding under the United States Bankruptcy Code or similar state insolvency laws, and either (i) Borrower or any Affiliate of Borrower conspired or cooperated with, or solicited, one or more creditors of Borrower to commence such involuntary proceeding, or (ii) the claims of one or more of the creditors of Borrower that commenced such involuntary proceeding arise from Debts incurred by Borrower in violation of this Agreement, or (iii) Borrower fails to use commercially reasonable efforts to obtain a dismissal of such involuntary proceeding.

(4)         The limitation on Borrower's personal liability in Section 13.1(1) shall not modify, diminish or discharge the personal liability of any Guarantor.

(5)         Nothing in this Section 13.1 shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of the United States Bankruptcy Code, as such sections may be amended, or corresponding or superseding sections of the Bankruptcy Amendments and Federal Judgeship Act of 1984, to file a claim for the full amount due to Lender under the Loan Documents or to require that all Collateral shall continue to secure the amounts due under the Loan Documents.

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Section 13.2         Limitation on Liability of Lender's Officers, Employees, Etc. Any obligation or liability whatsoever of Lender which may arise at any time under this Agreement or any other Loan Document shall be satisfied, if at all, out of Lender's assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of Lender's shareholders, directors, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

[Remainder of page intentionally left blank.]

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EXECUTED as of the date first written above.

LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
By:	/s/ David R. Martindale
	Name:	David R. Martindale
	Title:	Managing Director
BORROWER:
COP – WESTERN AVE., LLC, a California limited liability company
By:	Cornerstone Operating Partnership, L.P., a Delaware limited partnership, its Sole Member
	By:	Cornerstone Core Properties REIT, Inc., a Maryland corporation, its General Partner
		By:	/s/ Kent Eikanas
			Name:	Kent Eikanas
			Title:	President and Chief Operating Officer

S-1

EXHIBIT A

LEGAL DESCRIPTION OF PROJECT

That certain real property located in the City of Torrance, County of Los Angeles, State of California, and is described as follows:

PARCEL A:

THOSE PORTIONS OF LOTS 18, 19 AND 20 OF TRACT NO. 52172-02, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1238 PAGES 17 TO 22, INCLUSIVE, OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AS DESCRIBED AS PARCEL 3 IN EXHIBIT "A" OF THAT CERTAIN CERTIFICATE OF COMPLIANCE FOR LOT LINE ADJUSTMENT 99-2594, RECORDED DECEMBER 8, 2000 AS INSTRUMENT NO. 00-1917705, OFFICIAL RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS A WHOLE AS FOLLOWS:

COMMENCING AT THE NORTHEAST CORNER OF SAID LOT 18; THENCE ALONG THE NORTHERLY LINE OF SAID LOT 18, SOUTH 86° 30’ 05" WEST 0.67 FEET TO THE TRUE POINT OF BEGINNING; THENCE LEAVING SAID NORTHERLY LINE OF LOT 18, "SOUTH" 798.54 FEET TO THE SOUTHERLY LINE OF SAID LOT 20; THENCE ALONG THE SOUTHERLY LINE OF SAID LOT 20, SOUTH 89° 59’ 31" WEST 346.30 FEET TO THE SOUTHWEST CORNER OF SAID LOT 20; THENCE ALONG THE WESTERLY LINE OF SAID LOTS 18, 19, AND 20, NORTH 00° 23’ 15" WEST 690.86 FEET; THENCE NORTH 89° 36’ 45" EAST 1.89 FEET TO A POINT OF A NON TANGENT CURVE CONCAVE SOUTHEASTERLY, HAVING A RADIUS OF 90.00 FEET, A RADIAL LINE TO SAID POINT BEARS SOUTH 88° 54’ 26" WEST; THENCE NORTHEASTERLY ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 87° 35’ 39", AN ARC LENGTH OF 137.59 FEET; THENCE ALONG THE NORTHERLY LINE OF SAID LOT 18, NORTH 86° 30’ 05" EAST 265.09 FEET TO THE TRUE POINT OF BEGINNING.

PARCEL B:

EASEMENTS FOR VEHICULAR AND PEDESTRIAN INGRESS AND EGRESS, DRAINAGE, FIRE HYDRANTS, UNDERGROUND UTILITIES, AND REFUSE ENCLOSURE AS CREATED BY THAT CERTAIN DECLARATION AND GRANT OF EASEMENTS AND RECIPROCAL EASEMENT AGREEMENT, RECORDED SEPTEMBER 21, 2000 AS INSTRUMENT NO. 00-1482684, OVER PORTIONS OF CERTAIN PARCELS OF LAND DESCRIBED AS PARCELS 1 AND 2 IN EXHIBIT "A" OF THAT CERTAIN CERTIFICATE OF COMPLIANCE FOR LOT LINE ADJUSTMENT 99-2594, RECORDED DECEMBER 8, 2000 AS INSTRUMENT NO. 00-1917705, AS MORE PARTICULARLY DESCRIBED IN SAID DECLARATION, UPON THE TERMS, COVENANTS AND PROVISIONS THEREIN CONTAINED, AS AMENDED BY A DOCUMENT ENTITLED "FIRST AMENDMENT TO DECLARATION GRANT OF EASEMENTS AND RECIPROCAL EASEMENT AGREEMENT", RECORDED DECEMBER 19, 2000 AS INSTRUMENT NO. 00-1975273.

EXHIBIT A – Page 1

PARCEL C:

THOSE CERTAIN EASEMENT RIGHTS AS CREATED BY THAT CERTAIN DOCUMENT ENTITLED "DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS FOR HARBOR GATEWAY CENTER, INDUSTRIAL TRACT PARCEL", RECORDED AUGUST 6, 1999 AS INSTRUMENT NO. 99-1483487, AS AMENDED BY DOCUMENTS RECORDED DECEMBER 10, 1999 AS INSTRUMENT NOS. 99-2285253, 99-2285254, AND 99-2285255, AFFECTING THE COMMON AREA, AS DEFINED THEREIN. SUBJECT TO THE TERMS, COVENANTS AND PROVISIONS CONTAINED THEREIN.

EXHIBIT A – Page 2

EXHIBIT B

BUDGET

Sources
GECC Loan
- Initial Advance	$	8,900,000
- Subsequent Advances	$	720,000
Borrower's Funds	$	10,408,200
Total Sources:	$	20,028,200
Uses
Equity Reimbursement for Acquisition	$	19,050,000
Interest Reserve	$	120,000
Fujitsu Tenant Improvements	$	600,000
Origination Fee	$	96,200
Closing Costs	$	162,000
Total Uses:	$	20,028,200

EXHIBIT B

SCHEDULE 2.1

ADVANCE CONDITIONS

Part A - Conditions to Initial Advance

Part B - General Conditions

Part C - Improvements Advances

PART A. CONDITIONS TO INITIAL ADVANCE

The initial advance of the Loan shall be subject to the terms of any commitment letter (if any) issued by Lender with respect to the Loan, and Lender's receipt, review, approval and/or confirmation of the following, at Borrower's cost and expense, each in form and content satisfactory to Lender in its sole discretion:

1.          The Underwritten NOI of the Project generates a Cash on Cash Return of at least 6.5% and a Debt Service Coverage of at least 1.37:1.0.

2.          The LTV Ratio does not exceed 75%.

3.          Borrower's cash equity in the Project is at least $10,000,000.

4.          The Loan Documents, executed by Borrower and, as applicable, each Borrower Party and each other party thereto.

5.          The Origination Fee of $96,200.00 in cash.

6.          An ALTA (or equivalent) mortgagee policy of title insurance in the maximum amount of the Loan, with reinsurance and endorsements as Lender may require, containing no exceptions to title (printed or otherwise) which are unacceptable to Lender, and insuring that the Mortgage is a first-priority Lien on the Project and related collateral.

7.          All documents evidencing the formation, organization, valid existence, good standing, and due authorization of and for Borrower and each Borrower Party and the authorization for the execution, delivery, and performance of the Loan Documents by Borrower and each Borrower Party.

8.          Legal opinions issued by counsel for Borrower and each Borrower Party, opining as to the due organization, valid existence and good standing of Borrower and each Borrower Party, and the due authorization, execution, delivery, enforceability and validity of the Loan Documents with respect to, Borrower and each Borrower Party; that the Loan, as reflected in the Loan Documents, is not usurious; to the extent that Lender is not otherwise satisfied, that the Project and its use is in full compliance with all legal requirements; and as to such other matters as Lender and Lender's counsel reasonably may specify.

Schedule 2.1 - Page 1

9.          Current UCC searches for Borrower and the immediately preceding owner of the Project.

10.         Evidence of insurance as required by this Agreement, and conforming in all respects to the requirements of Lender.

11.         A current ALTA/ACSM land title survey of the Project, dated or updated to a date not earlier than thirty (30) days prior to the date hereof, certified to Lender and the issuer of Lender's title insurance, prepared by a licensed surveyor acceptable to Lender and such title insurer, and conforming to Lender's current standard survey requirements.

12.         A current engineering report or architect's certificate with respect to the Project, covering, among other matters, inspection of heating and cooling systems, roof and structural details, and showing no failure of compliance with building plans and specifications, applicable legal requirements (including requirements of the Americans with Disabilities Act) and fire, safety and health standards. Such report shall also include an assessment of the Project's tolerance for earthquake and seismic activity.

13.         A current Site Assessment.

14.         A current rent roll of the Project, which Borrower or the current owner of the Project shall represent and warrant is true and correct. Such rent roll shall include the following information: (a) tenant names; (b) unit/suite numbers; (c) area of each demised premises and total area of the Project (stated in net rentable square feet); (d) rental rate (including escalations) (stated in gross amount and in amount per net rentable square foot per year); (e) lease term (commencement, expiration and renewal options); (f) expense pass-throughs; (g) cancellation/termination provisions; (h) security deposit; and (i) material operating covenants and co-tenancy clauses. In addition, Borrower shall provide Lender with a copy of the standard lease form to be used by Borrower in leasing space in the Project, and, at Lender's request, true and correct copies of all leases of the Project.

15.         A copy of the Management Agreement, certified by Borrower as being true, correct and complete.

16.         Borrower's deposit with Lender of the amount required by Lender to impound for taxes and assessments and insurance under Article 3 and to fund any other required escrows or reserves.

17.         Evidence that the Project and the operation thereof comply with all legal requirements, including that all requisite certificates of occupancy, building permits, and other licenses, certificates, approvals or consents required of any governmental authority have been issued without variance or condition and that there is no litigation, action, citation, injunctive proceedings, or like matter pending or threatened with respect to the validity of such matters. At Lender's request, Borrower shall furnish Lender with a zoning endorsement to Lender's title insurance policy, zoning letters from applicable municipal agencies, and utility letters from applicable service providers.

Schedule 2.1 - Page 2

18.         No change shall have occurred in the financial condition of Borrower or any Borrower Party or in the Underwritten NOI of the Project, or in the financial condition of any major or anchor tenant, which would have, in Lender's sole judgment, a material adverse effect on the Project or on Borrower's or any Borrower Party's ability to repay the Loan or otherwise perform its obligations under the Loan Documents.

19.         No condemnation or adverse zoning or usage change proceeding shall have occurred or shall have been threatened against the Project; the Project shall not have suffered any significant damage by fire or other casualty which has not been repaired; no law, regulation, ordinance, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened by any governmental authority or other third party, which would have, in Lender's judgment, a material adverse effect on Borrower, any Borrower Party or the Project.

20.         All fees and commissions payable to real estate brokers, mortgage brokers, or any other brokers or agents in connection with the Loan or the acquisition of the Project have been paid, such evidence to be accompanied by any waivers or indemnifications deemed necessary by Lender.

21.         The Budget showing all sources of funds and total costs relating to closing of the proposed transaction, all uses of the initial advance, and amounts allocated for future advances (if any).

22.         Payment of Lender's costs and expenses in underwriting, documenting, and closing the transaction, including fees and expenses of Lender's inspecting engineers, consultants, and outside counsel.

23.         Estoppel certificates and subordination, non-disturbance and attornment agreements from tenants, as requested by Lender.

24.         Such credit checks, background investigations and other information required by Lender regarding Borrower, each Borrower Party and any other Person holding a direct or indirect interest in Borrower, including such additional information as Lender may request regarding compliance by Borrower, and by direct and indirect interest holders in Borrower, with the provisions of Article 9.

25.         Such other documents or items as Lender or its counsel may require.

26.         The representations and warranties contained in this Loan Agreement and in all other Loan Documents are true and correct.

27.         No Potential Default or Event of Default shall have occurred or exist.

PART B. GENERAL CONDITIONS

Each advance of the Loan from the Interest Reserve and Fujitsu Tenant Improvements line items of the Budget shall be shall be subject to Lender's receipt, review, approval and/or confirmation of the following, each in form and content satisfactory to Lender in its sole discretion:

Schedule 2.1 - Page 3

1.          There shall exist no Potential Default or Event of Default (currently and after giving effect to the requested advance).

2.          The representations and warranties contained in this Agreement and in all other Loan Documents are true and correct as of the date of the requested advance.

3.          Such advance shall be secured by the Loan Documents, subject only to those exceptions to title approved by Lender at the time of Loan closing, as evidenced by title insurance endorsements satisfactory to Lender.

4.          Borrower shall have paid Lender's costs and expenses in connection with such advance (including title charges, and costs and expenses of Lender's inspecting engineer and attorneys).

5.          No change shall have occurred in the financial condition of Borrower or any Borrower Party, or in the Underwritten NOI of the Project, or in the financial condition of any major or anchor tenant, which would have, in Lender's sole judgment, a material adverse effect on the Loan, the Project, or Borrower's or any Borrower Party's ability to perform its obligations under the Loan Documents.

6.          Borrower shall have delivered to Lender all information requested by Lender pursuant to Article 9 and all Interest Holder certifications then required under Section 8.1.

7.          No condemnation or adverse, as determined by Lender, zoning or usage change proceeding shall have occurred or shall have been threatened against the Project; the Project shall not have suffered any damage by fire or other casualty which has not been repaired or is not being restored in accordance with this Agreement; no law, regulation, ordinance, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened by any governmental authority, which would have, in Lender's judgment, a material adverse effect on the Project or Borrower's or any Borrower Party's ability to perform its obligations under the Loan Documents.

8.          Lender shall have no obligation to make any additional advance for less than $20,000, except for the final additional advance; provided, however, that the foregoing minimum advance amount shall not apply to advances from the Interest Reserve line item of the Budget.

9.          Lender shall have no obligation to make advances more often than once in any one-month period.

10.         Lender shall not under any circumstances be obligated to make (a) any advance from the Interest Reserve line item of the Budget after March 5, 2013 or (b) any advance from the Fujitsu Tenant Improvements line item of the Budget after June 30, 2013.

Schedule 2.1 - Page 4

11.         At the option of Lender (a) each advance request shall be submitted to Lender at least ten (10) Business Days prior to the date of the requested advance, and (b) all advances shall be made at the address of Lender set forth in Section 12.1 or at such other place as Lender may designate unless Lender exercises its option to make an advance directly to the Person to whom payment is due.

12.         Borrower shall immediately deposit all proceeds of the Loan advanced by Lender in a separate and exclusive account to be used solely for the purposes specified in this Agreement and in Borrower's advance request and, upon Lender's request, shall promptly furnish Lender with evidence thereof.

Each request for and acceptance of a Loan advance shall be deemed to constitute, as of the date of such request or acceptance, a representation and warranty by Borrower that the statements contained in paragraphs 2 and 3 above are true and correct.

PART C. INTEREST RESERVE ADVANCES

Each advance of the Loan from the Interest Reserve line item of the Budget also shall be subject to Lender's receipt of evidence reasonably satisfactory to Lender that Operating Revenues are insufficient (after payment of current Operating Expenses) to pay Debt Service then owing on the Loan. For purposes of this paragraph, any amounts paid by Borrower into the Capital Replacements Reserve described in Schedule 2.4(1) shall not be included within Operating Expenses.

PART D. IMPROVEMENTS ADVANCES

Each advance of the Loan from the Fujitsu Tenant Improvements line item of the Budget, and each advance of funds from the Capital Replacements Reserve, shall be made on the following terms and conditions:

1.          Each request for such an advance shall specify the amount requested, shall be on forms satisfactory to Lender, and shall be accompanied by appropriate invoices, bills paid affidavits, lien waivers, title updates, endorsements to the title insurance, and other documents as may be required by Lender. Such advances may be made, at Lender's election, either: (a) in reimbursement for expenses paid by Borrower, or (b) for payment of expenses incurred and invoiced but not yet paid by Borrower, or (c) with respect to tenant improvements, by funding allowances for tenant improvements (the "Fujitsu TI's") undertaken to be constructed by Fujitsu Ten Corp. of America ("Fujitsu") and completed in accordance with its lease with Borrower dated May 1, 2012 (the "Fujitsu Lease"). Lender, at its option and without further direction from Borrower, may disburse any advance to the Person to whom payment is due or through an escrow satisfactory to Lender. Borrower hereby irrevocably directs and authorizes Lender to so advance the proceeds of the Loan or the Capital Replacements Reserve, as applicable. All sums so advanced from the Fujitsu Tenant Improvements line item shall constitute advances of the Loan and shall be secured by the Loan Documents. Lender may, at Borrower's expense, conduct an audit, inspection, or review of the Project to confirm the amount of the requested advance.

Schedule 2.1 - Page 5

2.          Borrower shall have submitted and Lender shall have approved (a) for capital replacements work only, the improvements to be constructed, (b) for capital replacements work only, the plans and specifications for such improvements, which plans and specifications may not be changed without Lender's prior written consent, and (c) if requested by Lender, each contract or subcontract for an amount in excess of $20,000 for the performance of labor or the furnishing of materials for such improvements.

3.          Borrower shall have submitted and Lender shall have approved the time schedule for completing the capital replacements work. After Lender's approval of a detailed budget for such capital replacements work, such budget may not be changed without Lender's prior written consent. If the estimated cost of such capital replacements work exceeds the unadvanced portion of the amount allocated therefor in the approved budget, then Borrower shall provide such security as Lender may require to assure the Lien-free completion of such work before the scheduled completion date.

4.          If requested by Lender, Borrower shall have delivered to Lender reasonably satisfactory evidence that Fujitsu has satisfied the conditions under the Fujitsu Lease for the tenant improvement allowance disbursement that corresponds to Borrower's requested Loan advance.

5.          All Fujitsu TI's constructed prior to the date an advance is requested shall be completed to the satisfaction of Lender and Lender's engineer and in accordance with the plans and budget for such work and all legal requirements. If Lender wishes to conduct an inspection of the Fujitsu premises at the Project to confirm satisfaction of the foregoing condition, Lender shall endeavor to coordinate such inspection with any inspection planned by Borrower, and shall otherwise use commercially reasonable efforts to schedule any such inspection so as to minimize any disruption in Fujitsu’s tenant improvement work and allow Borrower to meet its funding obligations under the Fujitsu Lease in a timely manner (provided Borrower has timely satisfied all of its obligations under this Agreement with respect to the requested Loan advance).

6.          All capital replacements work constructed prior to the date an advance is requested shall be completed to the satisfaction of Lender and Lender's engineer and in accordance with the plans and budget for such work, as approved by Lender, and all legal requirements.

7.          Borrower shall not use any portion of any advance for payment of any other cost except as specifically set forth in a request for advance approved by Lender in writing.

8.          Each advance, except for a final advance, shall be in the amount of actual costs incurred less ten percent (10%) of such costs as retainage to be advanced as part of a final advance.

9.          No funds will be advanced for materials stored at the Project unless Borrower furnishes Lender satisfactory evidence that such materials are properly stored and secured at the Project.

Schedule 2.1 - Page 6

10.         Borrower shall have submitted to Lender evidence (including canceled checks, invoices and receipts) satisfactory to Lender that the proceeds of all prior advances have been used for the purposes for which such advances were requested.

11.         As a condition to funding the final advance for the Fujitsu TI's:

(a)          Fujitsu is in occupancy, has accepted the leased premises and is paying rent under the Fujitsu Lease, without offset, credit or defense, as evidenced by a tenant estoppel certificate executed by Fujitsu, addressed to Lender, in form satisfactory to Lender;

(b)          the brokers to whom lease commissions are payable (if any) have acknowledged payment in full of all commissions due with respect to the lease in question and have released Lender, Borrower, the Project and the lease from all commissions due with respect to such lease; and

(c)          Borrower shall have furnished Lender with (i) a true and correct copy of the final and unconditional certificate of occupancy for the space under said lease, issued without restriction by the appropriate governmental authority having jurisdiction over the Project; and (ii) final original lien waivers executed by each contractor, subcontractor and materialmen supplying labor or materials for the Fujitsu TI's;

provided, however, that if any Loan funds remain undisbursed in the Fujitsu Tenant Improvements line item of the Budget after either (x) the Fujitsu TI's have been completed in accordance with the Fujitsu Lease and the foregoing requirements, and all of Borrower's tenant improvement allowance obligations with respect thereto have been fully satisfied, or (y) the time period during which Fujitsu is entitled to seek disbursements of the tenant improvement allowance under the Fujitsu Lease has expired, and Borrower has no further obligation to fund any such tenant improvements allowance disbursements, then upon Borrower's request (and satisfaction of the conditions set forth in Part B), Lender shall advance to Borrower the remaining Loan funds in such line item.

Schedule 2.1 - Page 7

SCHEDULE 2.3(4)

LIBOR BREAKAGE AMOUNT DEFINITION

The "Libor Breakage Amount" means the sum on the date of prepayment of each Libor Monthly Interest Shortfall (as hereinafter defined) for the remaining term of the then current Interest Period; provided, however, that if the difference between (1) the Libor Rate in effect for the then current Interest Period (or the Libor Floor Rate, if greater) and (2) the Libor Replacement Rate (as hereinafter defined) is one-half of one percent (0.5%) or less, then notwithstanding anything to the contrary contained in this Schedule 2.3(4), the Libor Breakage Amount shall be deemed to be zero.

The "Libor Monthly Interest Shortfall" will be calculated by Lender for each monthly payment date through and including the monthly payment date immediately following the end of the then current Interest Period and means the product of (1) the prepaid principal balance of the Loan divided by 12, and (2) the positive result, if any, from (a) the Libor Rate in effect for the then current Interest Period (or the Libor Floor Rate, if greater), plus a break contract fee of 20 basis points, minus (b) the Libor Replacement Rate (as hereinafter defined).

The "Libor Replacement Rate" means the rate calculated by linear interpolation (rounded to one thousandth of one percent (i.e., .001%)) of the rates, as listed on Reuters Screen LIBOR01 Page as of 11:00 a.m. London Time on the second (2nd) full Eurodollar Business Day next preceding the prepayment date, of the British Bankers Association LIBOR Rate (rounded upward to the nearest one sixteenth of one percent) for U.S. Dollar deposits with designated maturities (one longer and one shorter) most nearly approximating the number of days remaining in the then current Interest Period as of the prepayment date. If Reuters (a) publishes more than one (1) such Libor rate, the average of such rates shall apply, or (b) ceases to publish such Libor rate, or if in Lender's reasonable judgment the information contained on such page ceases to accurately reflect the rate offered by leading banks in the London interbank market as reported by any publicly available source of similar market data selected by Lender, such Libor rate shall be determined from such substitute financial reporting service as Lender in its discretion shall determine. The term "Eurodollar Business Day" shall mean any Business Day on which banks in the City of London are generally open for interbank or foreign exchange transactions.

Schedule 2.3(4) – Page 1

SCHEDULE 2.4(1)

CAPITAL REPLACEMENTS RESERVE

Capital Replacements Reserve. On January 15, 2013, and by the fifteenth (15th) day of each January thereafter, Borrower shall pay to Lender, for deposit into a capital improvements reserve established by Lender (the "Capital Replacements Reserve"), an amount equal to the positive difference between (1) the product obtained by multiplying $0.10 by the existing number of rentable square feet in the Project and (2) the sum of all expenditures by Borrower for capital improvements and replacements to the Project during the preceding calendar year which were approved in advance by Lender and not paid with disbursements from the Capital Replacements Reserve (provided that for the calendar year in which the Closing Date occurs, such amount shall be pro-rated to reflect the portion of the calendar year during which the Loan is outstanding). The Capital Replacements Reserve will be held by Lender, without interest, and may be commingled with Lender's own funds. The Capital Replacements Reserve shall be advanced by Lender to Borrower for capital improvements and capital repairs to the Project, as approved by Lender; however, funds in the Capital Replacements Reserve shall not be available for financing any of the improvements for which capital improvements advances are contemplated by the Budget. Borrower grants to Lender a security interest in the Capital Replacements Reserve. While an Event of Default or a Potential Default exists, Lender shall not be obligated to advance to Borrower any portion of the Capital Replacements Reserve, and while an Event of Default exists, Lender shall be entitled, without notice to Borrower, to apply any funds in the Capital Replacements Reserve to satisfy Borrower's obligations under the Loan Documents in such order and manner as Lender shall determine in its sole discretion. Borrower and Lender shall meet annually on a date selected by Lender to establish monthly, quarterly, and annual budgets for capital expenditures for the Project for the succeeding calendar year (the "Capital Expenditures Budget"). The Capital Expenditures Budget shall be based on the previous year's experience and an assessment of anticipated future needs, and shall be subject to Lender's approval. The Capital Replacements Reserve shall be advanced in accordance with the conditions for improvements advances under Part D of Schedule 2.1.

Schedule 2.4(1) – Page 1

SCHEDULE 4.1

ORGANIZATIONAL MATTERS

A.           Borrower's Organizational Structure.

[ORGANIZATIONAL CHART ATTACHED]

B.           Organizational Information: (Borrower and each Borrower Party).

Legal Name *	State of Incorporation or Organization	Type of Entity	State Organizational ID No. **	Federal Tax ID No.
COP – Western Ave., LLC	CA	Ltd. Liability Co.	200633210072	20-5946107
Cornerstone Operating Partnership, L.P.	DE	Ltd. Partnership	3888683	72-1589471
Cornerstone Core Properties REIT, Inc.	MD	Corporation	D10272573	73-1721791

*  As it appears in official filings in the state of its incorporation or organization.

**If none issued by applicable state of organization/incorporation, insert "none issued."

C.           Location Information.

1.	Borrower:
	a.	Chief Executive Office:	1920 Main Street, Suite 400
			Irvine, California  92614
			Telephone No.:  (949) 852-1007
	b.	Location of any prior Chief Executive Office (during last 5 years):	N/A
	c.	Other Office Location:	N/A
	d.	Location of Collateral:	At the Project and
2.	Borrower Parties (Chief Executive Office):
	a.	Cornerstone Operating Partnership, L.P.:	same as Borrower
	b.	Cornerstone Core Properties REIT, Inc.:	same as Borrower

Schedule 4.1– Page 1

BORROWER'S ORGANIZATIONAL CHART

 

Schedule 4.1– Page 2

EX-10.9

CORNERSTONE HEALTHCARE PARTNERS LLC

a Delaware limited liability company

OPERATING AGREEMENT

June 11, 2012

TABLE OF CONTENTS

Article I DEFINITIONS		1
Article II FORMATION OF THE COMPANY		4
2.01	Formation	4
2.02	Name	4
2.03	Registered Office and Registered Agent	4
2.04	Foreign Qualification	5
2.05	Term	5
2.06	Purposes	5
2.07	No State Law Partnership	5
2.08	Partnership Classification	5
Article III MEMBERS		5
3.01	Initial Members	5
3.02	Membership Units & Member Voting Rights	5
3.03	Certificates of Units	5
3.04	Additional Members	6
3.05	Liability of Members	6
3.06	Indemnification	6
3.07	Representations and Warranties	6
3.08	Withdrawal	7
3.09	Loans by or to Members	7
3.10	No Exclusive Duty to Company	7
Article IV CAPITAL CONTRIBUTIONS		7
4.01	Initial Capital Contributions	7
4.02	Additional Capital Contributions	7
4.03	Failure to Pay Capital Contributions	7
4.04	Interest on Capital Contributions	8
4.05	Limitation on Member’s Deficit Make-Up	8
4.06	Capital Accounts.	8
Article V ALLOCATIONS		9
5.01	Profits and Losses	9
5.02	Limitations on Losses and Profit Chargeback.	9
5.03	Qualified Income Offset.	9
5.04	Nonrecourse Deductions; Minimum Gain; Minimum Gain Chargeback.	10
5.05	Nonrecourse Debt of the Company Where a Member Bears the Economic Risk of Loss.	10
5.06	Tax Allocations:  Code Section 704(c).	11
5.07	Other Allocation Rules.	11
5.08	Construction.	12
Article VI DISTRIBUTIONS		12
6.01	Distributions	12

6.02	Amounts Withheld	12
6.03	Limitation on Distributions	12
Article VII MEETING OF MEMBERS		13
7.01	Annual Meeting	13
7.02	Special Meetings	13
7.03	Place of Meetings	13
7.04	Notice of Meetings	13
7.05	Meeting of All Members	13
7.06	Record Date	13
7.07	Quorum	13
7.08	Manner of Acting	14
7.09	Proxies	14
7.10	Action by Members Without a Meeting	14
7.11	Waiver of Notice	14
Article VIII RIGHTS DUTIES AND POWERS OF MANAGER		14
8.01	Management.	14
8.02	Number, Tenure, and Qualifications	15
8.03	Limitations on Powers of Manager	15
8.04	Liability for Certain Acts	16
8.05	No Exclusive Duty to Company	16
8.06	Delegation of Authority	16
8.07	Bank Accounts	17
8.08	Indemnity of the Manager, Employees, and Other Agents	17
8.09	Resignation	17
8.10	Removal	17
8.11	Vacancies	17
8.12	Compensation of the Manager	17
8.13	Contracting with Affiliates	18
Article IX TRANSFER OF MEMBER’S UNITS AND DISASSOCIATION		18
9.01	Assignment and Transfer.	18
9.02	Disassociation	18
9.03	Restraining Order	19
Article X DISSOLUTION AND LIQUIDATION		19
10.01	Dissolution	19
10.02	Liquidation	19
10.03	Compliance With Timing Requirements of Regulations	20
Article XI BOOKS, REPORTS, ACCOUNTING, AND TAX ELECTIONS		20
11.01	Books and Records	20
11.02	Fiscal Year and Method of Accounting	21
11.03	Reports and Statements.	21
11.04	Tax Elections.	21
11.05	Tax Matters Partner	22

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Article XII MISCELLANEOUS		22
12.01	Amendments	22
12.02	Bank Accounts	22
12.03	Binding Effect	22
12.04	Rules of Construction	22
12.05	Parties Entered Agreement Voluntarily	22
12.06	Choice of Law and Severability	22
12.07	Counterparts	22
12.08	Entire Agreement	23
12.09	Last Day for Performance Other Than a Business Day	23
12.10	Notices	23
12.11	Title to Property; No Partition	23
12.12	Resolutions of Disputes	23
12.13	Creditors	23
12.14	Execution of Additional Instruments	23
12.15	Waivers	23
12.16	Rights and Remedies Cumulative	24

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CORNERSTONE HEALTHCARE PARTNERS LLC

OPERATING AGREEMENT

THIS OPERATING AGREEMENT (this “Agreement”) is effective as of June 11, 2012, and is executed by the undersigned parties (each individually, a “Member” and collectively, the “Members”).

WITNESSETH:

WHEREAS, the Members have formed a limited liability company known as CORNERSTONE HEALTHCARE PARTNERS LLC (the “Company”), by filing a Certificate of Formation (the “Certificate”) pursuant to the Delaware Limited Liability Company Act (the “Act”); and

WHEREAS, the parties hereto desire to set forth in full all of the terms and conditions of their agreements and respective rights and obligations in this Operating Agreement (hereinafter, the “Agreement”);

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:

Article I
DEFINITIONS

As used in this Agreement, the following capitalized terms shall have the respective meanings set forth below:

1.01         “Act” means the Delaware Limited Liability Company Act, Title 6, Chapter 18 of the Delaware Code and any successor provisions or acts thereto.

1.02         “Affiliate” means any of the following Persons or Entities: (a) any Person directly or indirectly controlling, controlled by, or under common control with the Person in question; (b) any Person owning any interest in the Person in question; (c) any officer, director, employee, or partner of the Person in question; and (d) if the Person in question or any partner of the Person in question is an officer, director, or partner, any company for which such Person in question or any partner of the Person acts in any such capacity.

1.03         “Agreement” means this Operating Agreement and any amendments hereto.

1.04         “Business Day” means a day other than a Saturday, a Sunday, or a legal holiday on which federally chartered banks are generally closed for business.

1.05         “Capital Account” means the separate account maintained for each Member pursuant to Section 4.06 hereof.

1.06         “Capital Contribution” means any contribution to the capital of the Company in cash or property by a Member whenever made.

1.07         “Code” means the Internal Revenue Code of 1986, and any successor provisions or codes thereto.

1.08         “Company” means CORNERSTONE HEALTHCARE PARTNERS LLC, a Delaware limited liability company.

1.09         “Depreciation” means, for each taxable year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period is zero, Depreciation shall be determined with reference to such beginning Value using any reasonable method selected by the Manager.

1.10         “Economic Interest” means the share of a Member or of an Economic Interest Owner in one or more of Profits, Losses, and distributions of the Company’s assets pursuant to this Agreement and/or the Act, but it shall not include any right to participate in the management or affairs of the Company, including the right to vote on, consent to, or otherwise participate in any decision of the Members or the Manager.

1.11         “Economic Interest Owner” means the owner of an Economic Interest who is not a Member.

1.12         “Entity” means any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association, foreign trust or foreign business organization.

1.13         “Majority” means greater than fifty percent (50%).

1.14         “Manager” or “Managers” means each Manager of the Company chosen as provided in Article VIII hereof.

1.15         “Member” shall mean each of the parties who executes this Agreement or a counterpart hereof and owns one or more Units, and each of the parties who may hereafter become a Member of the Company according to the terms of this Agreement.

1.16          “Membership Interest” means a Member’s entire interest in the Company including the Member’s Economic Interest and, if applicable, the right to participate in the management of the business and affairs of the Company (including the right to vote on, consent to, or otherwise participate in any decision or action of or by the Members granted pursuant to this Agreement and/or the Act).

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1.17         “Net Cash from Operations” means the gross cash proceeds from Company operations less the portion thereof used to pay or establish reserves for all Operating Expenses, all as determined by the Manager. “Net Cash from Operations” shall not be reduced by depreciation, amortization of intangible assets, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established.

1.18         “Person” means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such “Person” where the context so permits.

1.19         “Operating Expenses” shall mean the Company’s expenses (including compensation of the Manager), debt payments, and costs of capital improvements, replacements, and contingencies.

1.20         “Profits and Losses” means, for each taxable year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a)          Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss;

(b)          Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this definition, shall be subtracted from such taxable income or loss;

(c)          Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Value;

(d)          In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such taxable year or other period hereof; and

(e)          Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Article V of this Agreement shall not be taken into account in computing Profits or Losses.

1.21          “Transfer” means, with respect to a Unit, to sell, give, assign, bequeath, pledge or otherwise encumber, divest, dispose of, or transfer ownership or control of all, any part of, or any interest in the Unit, whether voluntarily or involuntarily; provided, however, that the term “Transfer” does not include a pledge of the Units to a financial institution solely as security for indebtedness; provided, further, that in the case of such a pledge of a Unit to a financial institution, the term “Transfer” includes any action (including, without limitation, an action in foreclosure) that is taken by the secured party in order to transfer any interest in the Unit from the pledgor in connection with the enforcement of the security interest in the Unit after an event of default under the security agreement.

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1.22         “Treasury Regulations” means the regulations promulgated under the Code, as such regulations may be amended from time to time. All references herein to specific sections of the Treasury Regulations shall be deemed also to refer to any corresponding provisions of succeeding Treasury Regulations, and any references to Temporary Regulations shall be deemed also to refer to any corresponding provisions of final Treasury Regulations.

1.23         “Units” means one or more Units authorized and issued by the Company, representing an ownership interest in the Company and rights as specifically described in this Agreement.

1.24         “Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a)          The initial Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Members;

(b)          The Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Members as of the following times: (1) the acquisition of any additional interest in the Company by any new or existing Member in exchange for more than a de minimis capital contribution; (2) the distribution by the Company to a Member of more than a de minimis amount of Company property, unless all Members receive simultaneous distributions of undivided interests in the distributed property in proportion to their interests in the Company; and (3) the termination of the Company for federal income tax purposes pursuant to Code Section 708(b)(1)(B); and

(c)          If the Value of an asset has been determined or adjusted pursuant to (a) or (b) above, such Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

Article II
FORMATION OF THE COMPANY

2.01         Formation. The Company was organized as a Delaware limited liability company by filing the Certificate with the Delaware Secretary of State on June 11, 2012 in accordance with and pursuant to the Act.

2.02         Name. The name of the Company is CORNERSTONE HEALTHCARE PARTNERS LLC.

2.03         Registered Office and Registered Agent. The name of the initial registered agent and the address of the initial registered office of the Company are set forth in the Certificate. The registered office and registered agent may be changed from time to time by filing the address of the new registered office and/or the name of the new registered agent with the Delaware Secretary of State pursuant to the Act. The Company may locate its principal place of business at such place or places as it shall deem desirable. The location of its principal place of business may or may not be the same as the registered office and may or may not be in the State of Delaware.

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2.04         Foreign Qualification. Prior to the Company’s conducting business in any jurisdiction other than Delaware, the Manager shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Manager, with all requirements necessary to qualify the Company as a foreign limited liability company in that jurisdiction. Each Member shall execute, acknowledge, swear to, and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue, and terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business.

2.05         Term. The Company’s term shall continue until terminated by operation of law or by some provision of this Agreement.

2.06         Purposes. The Company may engage in any lawful business permitted by the Act or the laws of any jurisdiction in which the Company may do business.

2.07         No State Law Partnership. The Members intend that the Company be operated in a manner consistent with its treatment as a partnership for federal and state income tax purposes, but shall not be operated or treated as a “partnership” for any other purpose, including, but not limited to, Section 303 of the Federal Bankruptcy Code.

2.08         Partnership Classification. The Members hereby agree that the Company shall not be operated as an “association” taxed as a corporation under the Code and that no election shall be made under the Treasury Regulations by the Members, the Manager, or any officer to treat the Company as an “association” taxable as a corporation without the prior unanimous written consent of the Members.

Article III
MEMBERS

3.01         Initial Members. The names and business addresses of the initial Members of the Company and the number of Units to be issued to each such Member are set forth on Exhibit A attached hereto.

3.02         Membership Units & Member Voting Rights. The Company is authorized to issue one (1) class of Units. Each outstanding Unit shall be entitled to one vote upon each matter submitted to a vote at a meeting of the Members. Except as otherwise required by this Agreement or by the Act, a matter submitted to a vote of the Members shall be deemed approved if Members holding a Majority of the outstanding Units vote in favor of the matter.

3.03         Certificates of Units. Certificates representing ownership of the Units may be executed and delivered by the Manager or other designated officer of the Company on behalf of the Company and the form of any such certificates shall be as determined by the Members. Notwithstanding the foregoing, if certificates are executed and delivered by the Company, such certificates shall be in the name of the Company and shall set forth the name of the Member and the number of Units owned or held by each such Member. All certificates shall be consecutively numbered or otherwise identified. All certificates for the Units, whenever and to whomever issued, shall be endorsed on the reverse thereof with a legend reading substantially as follows:

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“ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR ANY OTHER DISPOSITION OF THE MEMBERSHIP UNITS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY, AND SUBJECT TO, THE TERMS AND PROVISIONS OF AN OPERATING AGREEMENT, DATED AS OF JUNE 11, 2012. A COPY OF SUCH AGREEMENT AND OF ALL AMENDMENTS OR SUPPLEMENTS THERETO IS ON FILE IN THE PRINCIPAL OFFICE OF THE COMPANY. BY ACCEPTANCE OF THIS CERTIFICATE THE HOLDER HEREOF AGREES TO BE BOUND BY THE TERMS OF SAID AGREEMENT AND ALL AMENDMENTS OR SUPPLEMENTS THERETO.”

3.04        Additional Members. The Company may not issue additional Units, or admit any other Person as an additional Member, without the consent of all of the Members. No Person shall be admitted as a Member of the Company until such Person has agreed in writing to become bound by and a party to this Agreement. No new Member shall be entitled to any retroactive allocation of Profits or Losses. The Manager may, at its option, at the time a Member is admitted, close the Company books (as though the Company’s taxable year had ended) or make pro rata allocations of Profits and Losses to a new Member for that portion of the Company’s taxable year in which a Member was admitted in accordance with the provisions of Code Section 706(d) and the Treasury Regulations promulgated thereunder.

3.05        Liability of Members. No Member shall be personally liable for any debt, obligation or liability of the Company. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Members or Manager for liabilities of the Company.

3.06        Indemnification. The Company shall indemnify the Members for all costs, losses, liabilities, and damages paid or accrued by such Member in connection with the business of the Company to the fullest extent provided or allowed by the Act.

3.07        Representations and Warranties. Each Member hereby represents and warrants to the Company and to each other Member that: (a) the Member is acquiring the Member’s interest in the Company for the Member’s own account as an investment; (b) the Member acknowledges that the interests have not been registered under the Securities Act of 1933 or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements; and (c) the Member agrees to the terms of the Agreement and to perform the Member’s obligations hereunder.

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3.08         Withdrawal. Except as otherwise provided in this Agreement, no Member shall be entitled to (a) voluntarily withdraw from the Company, (b) withdraw any part of his or her Capital Contribution from the Company, (c) demand return of his or her Capital Contribution, or (d) receive property other than cash in return for his or her Capital Contribution.

3.09         Loans by or to Members. No provision of this Agreement shall be construed so as to prevent a Member from making secured or unsecured loans to the Company on arm’s-length terms or guaranteeing any loan or debt of the Company, except that no Member shall make any loan to the Company without the prior consent or approval of all of the Members. The Company shall not make any loans to any Member or to any Affiliate of a Member without the prior consent or approval of all of the Members. Any loan hereunder shall not increase the Member’s Capital Contribution or entitle the Member to an increased share of the Company’s Cash Distribution (other than repayment of the loan).

3.10         No Exclusive Duty to Company. No Member shall be required to devote its full energy, time, and skill to the Company as its sole and exclusive occupation, and each Member may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any other Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of a Member or in the income or proceeds derived therefrom.

Article IV
CAPITAL CONTRIBUTIONS

4.01         Initial Capital Contributions. Each Member shall pay to the Company, as such Member’s initial Capital Contributions, the amount set forth opposite such Member’s name on Exhibit A.

4.02         Additional Capital Contributions. From time to time, as deemed necessary by the Manager, and approved by the Members holding a Majority of the Units, the Company shall call for additional Capital Contributions and give written notice thereof to the Members (each, a “Capital Call”). The total amount of each Capital Call shall equal the amount reasonably determined by the Manager as being necessary for the Company to pay the Operating Expenses then due or soon becoming due, first taking into account available cash proceeds from operations and established reserves. Within thirty (30) days of the date of a Capital Call, the Members shall pay to the Company, pro rata according to their ownership of Units, as additional Capital Contributions, a total amount equal to the Capital Call.

4.03         Failure to Pay Capital Contributions. In addition to any other remedies available under this Agreement, the Act, or any other applicable law, if a Member fails to pay when due all or any part of such Member’s portion of any Capital Contribution according to this Article IV, the Manager may request the nondefaulting Members to pay the unpaid amount of the defaulting Member’s Capital Contribution (the “Unpaid Contribution”). To the extent the Unpaid Contribution is contributed by any other Member, the defaulting Member’s ownership of Units shall be reduced and the Units of each Member who makes up the Unpaid Contribution shall be increased, so that each Member owns that number of Units equal to the product of the total number of outstanding Units multiplied by a fraction, the number of which is that Member’s total Capital Contributions and the denominator of which is the total Capital Contributions of all Members. The Manager shall amend Exhibit A accordingly and issue new Unit certificates, if necessary.

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4.04        Interest on Capital Contributions. Capital Contributions to the Company shall not earn interest.

4.05        Limitation on Member’s Deficit Make-Up. The Members shall have no obligation to restore any deficit in their Capital Accounts, except as specifically provided by this Agreement.

4.06        Capital Accounts.

(a)          Maintenance of Capital Accounts. A separate Capital Account shall be maintained and adjusted for each Member on the books and records of the Company in accordance with the Code and the Treasury Regulations.

(1)         Increase. To each Member’s Capital Account there shall be added the amount of any cash and the Value of any property contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume, or take subject to, under Code Section 752), such Member’s distributive share of Profits, any other items in the nature of income or gain that are allocated pursuant to Article V hereof, and the amount of any Company liabilities that are assumed by such Member or that are secured by any Company property distributed to such Member.

(2)         Decrease. From each Member’s Capital Account there shall be deducted the amount of cash and the Value of any Company property (net of liabilities secured by the property that the Member is considered to assume, or take subject, under Code Section 752) distributed to such Member pursuant to any provision of this Agreement, such Member’s distributive share of Losses, any other items in the nature of expenses or losses that are specially allocated pursuant to Article V hereof, and the amount of any liabilities of such Member that are assumed by the Company or that are secured by any property contributed by such Member to the Company.

(b)          Transfers. In the event any interest in the Company is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest in accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations.

(c)          Revaluation. In the event the Values of the Company assets are adjusted pursuant to the definition of the term “Value” in Article I hereof, the Capital Accounts of all Members shall be adjusted simultaneously to reflect the aggregate net adjustment as if the Company recognized gain or loss equal to the amount of such aggregate net adjustment, and such adjustment shall be allocated to the Members in accordance with Article V hereof.

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(d)          Interpretation. The manner in which Capital Accounts are to be maintained pursuant to this Section 4.06 is intended to and shall be construed so as to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder.

Article V
ALLOCATIONS

5.01        Profits and Losses. Except as otherwise provided in Sections 5.02, 5.03, 5.04, 5.05, 5.06 and 5.07 hereof, Profits and Losses shall be allocated among the Members in proportion to the number of Units owned by the Members as of the first day of the Company’s taxable year. If the number of Units owned by any Member changes during any taxable year of the Company, each Member’s distributive share of Profits and Losses for such year shall be determined by using any permissible method chosen by the Manager that is provided for in Code Section 706 and the Treasury Regulations issued thereunder.

5.02        Limitations on Losses and Profit Chargeback.

(a)          Allocation of Losses. To the extent the allocation of any Losses to a Member would cause the Member to have an adjusted capital account deficit at the end of any fiscal year of the Company, then such Losses shall not be allocated to such Member, but rather shall be specially allocated to other Members having positive capital account balances in proportion to such positive balances.

(b)          Profit Chargeback. To the extent any Losses have been specially allocated to one or more Members in accordance with subparagraph (a) of this Section 5.02, then Profits shall thereafter first be specially allocated to such Members in proportion to the cumulative amount of Losses previously allocated to such Members until the cumulative amount of Profits allocated to such Members under this subparagraph (b) equals the cumulative amount of Losses previously allocated to such Members under such subparagraph (a).

5.03        Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations, then items of Company income and gain (consisting of a pro rata portion of each item of income, including gross income and gain) shall be specially allocated to such Member in an amount and manner sufficient to eliminate the deficit balance (but only to the extent such deficit balance exceeds the sum of the Member’s share of Company Minimum Gain and the amount of any deficiency that such Member is required to restore in its Capital Account upon the liquidation of the Company) in its Capital Account created by such adjustment, allocation, or distribution as quickly as possible to the extent required by the Treasury Regulations promulgated under Code Section 704. Any special allocations of items of income or gain pursuant to this Section 5.03 shall be taken into account in computing subsequent allocations of Profits and Losses pursuant to this Article V, so that the net amount of any items so allocated and the Profits, Losses, and other items allocated to each Member pursuant to this Article V shall, to the extent possible, be equal to the net amount that would have been allocated to each such Member pursuant to the provisions of this Article V if such unexpected adjustment, allocation, or distribution had not occurred.

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5.04        Nonrecourse Deductions; Minimum Gain; Minimum Gain Chargeback.

(a)          Allocation of Nonrecourse Deductions. Nonrecourse Deductions shall be allocated pro rata to each Member in accordance with such Members’ proportionate interest in the Profits and Losses of the Company as set forth in Section 5.01.

(b)          Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain for a fiscal year of the Company, then each Member shall be allocated items of income and gain for such year (and, if necessary, for subsequent years) in accordance with Section 1.704-2(f) of the Treasury Regulations.

(c)          Definitions. For purposes of this Agreement:

(1)         Nonrecourse Deductions. “Nonrecourse Deductions” shall be determined in accordance with and have the meaning ascribed to such term by Sections 1.704-2(b)(1) and -2(c) of the Treasury Regulations.

(2)         Member’s Share of Company Minimum Gain. A Member’s share of Company Minimum Gain shall be determined in accordance with and have the meaning ascribed to such term by Section 1.704-2(g) of the Treasury Regulations.

5.05        Nonrecourse Debt of the Company Where a Member Bears the Economic Risk of Loss.

(a)          General Allocation. Any item of loss, deduction, or expenditure described in Code Section 705(a)(2)(B) that is attributable to a Member Nonrecourse Debt shall be allocated to the Member that bears the Economic Risk of Loss with respect to such Member Nonrecourse Debt, in accordance with this Section 5.05.

(b)          Determination of Member Nonrecourse Deduction. The amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt shall be determined in accordance with Section 1.704-2(i) of the Treasury Regulations.

(c)          Chargeback of Items of Income and Gain. If there is a net decrease during a fiscal year of the Company in the Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt, then any Member with a share of Member Nonrecourse Debt Minimum Gain attributable to such debt at the beginning of such year shall be allocated items of Company income and gain for such year (and, if necessary, for subsequent years) equal to that Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain.

(d)          Member’s Share of Minimum Gain Attributable to Member Nonrecourse Debt. A Member’s share of Member Nonrecourse Debt Minimum Gain attributable to Member Nonrecourse Debt shall be determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations.

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(e)          Definitions. For purposes of this Agreement:

(1)         Member Nonrecourse Debt. “Member Nonrecourse Debt” means any Nonrecourse Debt of the Company for which any Member (or related person within the meaning of Section 1.752-4(b) of the Treasury Regulations) bears the Economic Risk of Loss.

(2)         Nonrecourse Debt. “Nonrecourse Debt” shall have the meaning ascribed to such term by Section 1.752-1(a)(2) of the Treasury Regulations.

(3)         Economic Risk of Loss. The determination of whether a Member bears the “Economic Risk of Loss” with respect to any liability of the Company shall be made in accordance with Section 1.752-2 of the Treasury Regulations.

(4)         Member Nonrecourse Debt Minimum Gain. “Member Nonrecourse Debt Minimum Gain” shall have the meaning ascribed to such term by Section 1.704-2(i) of the Treasury Regulations.

5.06        Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Value (computed in accordance with Part (a) of the definition of the term “Value” in Article I hereof); using the “Traditional Method” of making Code Section 704(c) allocations. In the event the Value of any Company property is adjusted pursuant to Part (b) of the definition of the term “Value” in Article I hereof, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Members in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 5.06 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing any Member’s Capital Account or share of Profits, Losses, or other items, or distributions pursuant to any provision of this Agreement.

5.07        Other Allocation Rules.

(a)          Allocations Upon the Admission of Additional Members. In the event additional Members are admitted to the Company pursuant to Section 3.02 hereof on different dates during any fiscal year, the Profits (or Losses) allocated to the Members for each such fiscal year shall be allocated among the Members in proportion to the interest in the Company each holds from time to time during such fiscal years in accordance with Code Section 706, using any convention permitted by law and selected by the Board of Managers.

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(b)          Items Not Specifically Dealt With. Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided by allocating such items to each Member in accordance with such Member’s percentages in the Profits and Losses of the Company as set forth in Section 5.01.

(c)          Allocations Within Periods. For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Board of Managers using any permissible method under Code Section 706 and the Treasury regulations thereunder.

(d)          Allocations Binding on Members. The Members are aware that they are subject to income tax on their share of the Profits and Losses of the Company and they hereby agree to be bound by the provisions of this Article V in reporting their percentage of Company income and loss for income tax purposes.

5.08        Construction. The provisions of this Article V (and other related provisions in this Agreement) pertaining to the allocation of items of Company income, gain, loss, deductions, and credits shall be interpreted consistently with the Treasury Regulations issued under Code Section 704, and to the extent unintentionally inconsistent with such Treasury Regulations, shall be deemed to be modified to the extent necessary to make such provisions consistent with the Treasury Regulations.

Article VI
DISTRIBUTIONS

6.01        Distributions. Net Cash from Operations shall be distributed to the Members monthly in the following order:

(a)          First, in proportion to the remaining balance of Capital Contributions which were paid by each Member and not returned to such Member, until the cumulative amount of Capital Contributions paid by each Member has been returned to such Member; then

(b)          Second, in proportion to the Units held by the Members.

6.02        Amounts Withheld. All amounts withheld pursuant to the Code or any provision of any state or local tax law with respect to any payment or distribution to the Members shall be treated as amounts distributed to the Members pursuant to this Article VI for all purposes under this Agreement.

6.03        Limitation on Distributions. Notwithstanding any other provision contained herein to the contrary, no distributions may be declared and made if, after giving effect to such distributions, any of the following would occur: (a) the Company would not be able to pay its debts as they become due in the usual course of business; (b) the Company’s total assets would be less than its total liabilities; (c) such distribution would otherwise be in violation of the Act or (d) the distribution exceeds a Member’s Capital Account, if other Members have a positive Capital Account.

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Article VII
MEETING OF MEMBERS

7.01         Annual Meeting. Annual meetings of the Members shall be held at such time as shall be determined by resolution of all of the Members, for the purpose of the transaction of such business as may come before the meeting.

7.02         Special Meetings. Special meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Manager.

7.03         Place of Meetings. The Manager may designate any place as the place of meeting for any meeting of the Members. If no such designation is made and the Members do not agree on another location, then the place of meeting shall be the principal executive office of the Company. Meetings may be held telephonically.

7.04         Notice of Meetings. Except as provided in Section 7.05 hereof, written notice stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called shall be delivered no fewer than five (5) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Manager or Member(s) calling the meeting, to each Member required or permitted to vote on any matter expected to be addressed at such meeting. If mailed, the notice shall be deemed to be delivered three (3) calendar days after being deposited in the United States mail, addressed to the Member at the address of the Member as it appears on the books of the Company, with postage thereon prepaid.

7.05         Meeting of All Members. If all of the Members required or permitted to vote on a matter shall meet at any time and place, and consent to the holding of a meeting at that time and place, then the meeting shall be valid without call or notice, and at the meeting any lawful action may be taken with respect to such matter. Such meetings may be held telephonically.

7.06         Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment of the meeting, or Members entitled to receive payment of any distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring the distribution is adopted, as the case may be, shall be the record date for the determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Section, the determination shall apply to any adjournment of the meeting.

7.07         Quorum. A quorum of the Members shall be required at every meeting of the Members. Members holding at least a Majority of the Units, represented in person or by proxy, at any meeting of Members shall constitute a quorum of the Members. In the absence of a quorum at any meeting of Members, Members holding a Majority of the Units so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if adjournment is for more than sixty (60) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each Member of record. At an adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed.

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7.08         Manner of Acting. If a quorum of Members is present at a meeting, the affirmative vote of the Members holding a Majority of the Units represented at such meeting shall be the act of the Members, except as otherwise required by the Act, by the Articles, or by this Agreement.

7.09         Proxies. At all meetings of Members, a Member entitled to vote may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. The proxy shall be filed with the Manager before or at the time of the meeting. No proxy shall be valid after three (3) months from the date of its execution, unless otherwise provided in the proxy.

7.10         Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, and signed by all of the Members. All such consents shall be delivered to the Manager for inclusion in the minutes or for filing with the Company records. Action taken under this Section is effective when the Members required hereby have signed the consent, unless the consent specifies a different effective date.

7.11         Waiver of Notice. When any notice is required to be given to any Member, a waiver of the notice in writing signed by the person entitled to the notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of the notice.

Article VIII
RIGHTS DUTIES AND POWERS OF MANAGER

8.01        Management.

(a)          General Authority and Powers. The business and affairs of the Company shall be directed, managed, and controlled by the Manager. The Manager shall have full and complete authority, power, and discretion to, and shall, manage, direct, and control the business, affairs, and properties of the Company, make all decisions regarding the same, and perform any and all acts or activities customary or incident to the Company’s business, all without obtaining the consent of the Members, except as required by Section 8.03 hereof and as required by nonwaivable provisions of applicable law. Unless authorized to do so by this Agreement or by the Manager, no attorney-in-fact, employee, or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it liable for any purpose. No Member shall have any power or authority to bind the Company and no Member shall purport to speak for or act on behalf of the Company, unless such Member has been authorized by the Manager to act as an agent of the Company and then only in accordance with such authorization.

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(b)          Reliance by Third Parties. Any person dealing with the Company, other than a Member, may rely on the authority of the Manager or any officer of the Company in taking any action that is in the name of the Company without inquiry into the provisions of this Agreement or compliance therewith. Every instrument purporting to be the action of the Company and executed by the Manager or any officer of the Company shall be conclusive evidence in favor of any person relying thereon or claiming thereunder that, at the time of delivery thereof, this Agreement was in full force and effect and that the execution and delivery of that instrument is duly authorized by the Manager and the Company.

8.02        Number, Tenure, and Qualifications. The Company shall have one Manager. The Manager shall so serve until its resignation or removal. The Manager need not be a resident of the State of Delaware or a Member of the Company. The initial Manager of the Company shall be CORNERSTONE CORE PROPERTIES REIT, INC.

8.03        Limitations on Powers of Manager. Notwithstanding any other provision of this Agreement, the Manager shall have no authority to take any of the following actions on behalf of the Company without obtaining the written consent of all of the Members (which consent will be deemed given by a Member if such Member fails to respond to a request for such consent hereof within thirty (30) days after receipt of such a request):

(a)          Sell, finance, convey, assign, transfer or otherwise dispose of or refinance all or a substantial portion of the assets of the Company;

(b)          Enter into any merger or consolidation of the Company with or into any other business entity;

(c)          Change the name of the Company, or the location of its principal office to a location outside the state of its current location;

(d)          Amend or cancel the Certificate of Formation of the Company or change the state of organization of the Company;

(e)          Admit a new Member;

(f)          Add an additional Manager;

(g)          Incur any lease (as lessee), conveyance, mortgage or other indebtedness not included in any budget approved by the Members holding a Majority of the Units in excess of $10,000.00 in principal amount in the aggregate or requiring aggregate payments by the Company in excess of $20,000.00 in any year;

(h)          Make a loan on behalf of the Company, except for the extension of credit to customers for the purchase of goods or services of the Company in the ordinary course of business of the Company, or cause the Company to guarantee the obligations of another Person;

(i)          Incur or enter into any lease, conveyance, mortgage or other agreement or indebtedness on behalf of the Company which requires the personal guarantee of any Member or any Affiliate of any Member;

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(j)          Settle any claims or lawsuits against the Company (other than negligence cases covered by insurance) or commence or overtly threaten any lawsuit or other legal action on behalf of the Company against a third party;

(k)          Do any act which is in contravention of this Agreement or any other agreement to which the Company is a party;

(l)          Do any act which would make it impossible to carry on the ordinary business of the Company;

(m)        Make an election or take any action that would cause the Company to be treated for federal income purposes as an association taxable as a corporation; or

(n)          Except as permitted by this Agreement, take any action that would cause the dissolution of the Company.

8.04        Liability for Certain Acts. The Manager shall perform its managerial duties in good faith, in a manner it reasonably believes to be in the best interests of the Company, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. A Manager who so performs the duties of the Manager shall not be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss shall have been the result of fraud, deceit, gross negligence, willful misconduct or a wrongful taking by the Manager.

8.05        No Exclusive Duty to Company. The Manager shall not be required to manage the Company as its sole and exclusive function, and the Manager may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Manager or in the income or proceeds derived therefrom. If the Manager complies with the requirements of Section 8.04 hereof, the Manager shall incur no liability to the Company or to any of the Members as a result of engaging in any such other business or venture.

8.06        Delegation of Authority. The Manager may, from time to time, delegate to one or more individuals such authority and duties as the Manager may deem advisable to carry out the day-to-day business of the Company and may enter into contracts with such individuals for such purpose. In addition, the Manager may, from time to time, assign titles (including, president, vice president, secretary and treasurer) to any such individuals selected by the Manager. Unless the Manager decides otherwise, if the title is one commonly used for officers of a business corporation, the assignment of such title shall constitute the delegation of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties made pursuant to this Section 8.06. Any number of titles may be held by the same individual. Any delegation pursuant to this Section 8.06 may be revoked at any time by the Manager. Persons so delegated under this Section 8.06 need not be residents of the State of Delaware or Members of the Company.

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8.07         Bank Accounts. The Manager may from time to time open, maintain, and close bank accounts in the name of the Company, and the Manager shall be the sole signatory thereon, unless all of the Members determine otherwise.

8.08         Indemnity of the Manager, Employees, and Other Agents. The Company shall, to the maximum extent provided by law, indemnify, defend, and hold harmless the Manager, to the extent of the Company’s assets, for, from, and against any liability, damage, cost, expense, loss, claim, or judgment incurred by the Manager arising out of any claim based upon acts performed or omitted to be performed by the Company, its Members, the Manager or any of its or their employees or agents in connection with the business of the Company acting in capacity as the Manager, including without limitation, attorneys’ fees and costs incurred by the Manager in settlement or defense of such claims. The Manager shall determine, in its sole discretion, whether and to what extent the Company will indemnify any employees or other agents of the Company. Notwithstanding the foregoing, no Manager, or employee or agent of the Company (each, an “Actor”) shall be so indemnified, defended, or held harmless for claims based upon acts or omissions in the breach of this Agreement or which constitute fraud, willful misconduct, or breach of a fiduciary duty to the Company or to the Members. Amounts incurred by an Actor in connection with any action or suit arising out of or in connection with Company affairs shall be reimbursed by the Company if such action or suit does arise in a matter for which indemnification is available under this Section 8.08 (provided that the Company shall in all events advance expenses of defense but only if the Actor undertakes in writing to repay the advanced funds to the Company if the Actor is finally determined by a court of competent jurisdiction to not be entitled to indemnification pursuant to the provisions of this Section 8.08).

8.09         Resignation. The Manager may resign at any time by giving written notice to the Members of the Company. The resignation of the Manager shall take effect upon receipt of notice thereof or at such later date specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The resignation of a Manager who is also a Member shall not affect the Manager’s rights as a Member and shall not constitute a withdrawal of a Member.

8.10         Removal. The Manager may be removed at any time, with or without cause, by the affirmative vote of Members holding a Majority of the Units. The removal of a Manager who is also a Member shall not affect the Manager’s rights as a Member and shall not constitute a withdrawal of a Member. The Members other than any Member who serves as Manager may remove such Manager for cause in the event of a breach of such Manager of the terms of this Agreement, or in the event of the gross negligence or willful misconduct thereof in the performance of such Manager’s obligations hereunder.

8.11         Vacancies. If a Manager resigns or is removed, its successor shall be chosen by the affirmative vote of Members holding a Majority of the Units (excluding, in the event a Member is removed as Manager, the vote of such Member).

8.12         Compensation of the Manager. The Company shall pay the Manager, as compensation for the Manager’s services as such, such amounts with such frequency as shall be determined by consent of all of the Members. No Manager shall be prevented from receiving such compensation because it is also a Member of the Company.

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8.13         Contracting with Affiliates. The Manager is expressly authorized to contract with any Member or an Affiliate of any Member relating to the operation of the Company, provided only that the fees under any such contract are at market rates and the other terms are in all respects reasonable and fair to the Company.

Article IX
TRANSFER OF MEMBER’S UNITS
AND DISASSOCIATION

9.01        Assignment and Transfer.

(a)          Generally. Except as otherwise provided herein, the Members agree and covenant not to Transfer or permit to be Transferred all or any portion of the Units that they now own or hereafter acquire, except with the prior written consent of all of the Members.

(b)          No Membership. A Transfer of any Units in the Company entitles the Transferee of such Units to receive only the Economic Interest to which the Transferor of such Units in the Company would have otherwise been entitled. The Transferee obtains no right to vote or participate in the management of the business and affairs of the Company. Notwithstanding the foregoing, a Transferee shall be included within the term “Member” for all purposes of this Article IX, except for purposes of the rights of a Member to purchase Units of other Members/Transferees.

(c)          Membership. The Transferor remains a Member of the Company with all rights to vote and manage unless and until nontransferring Members owning a Majority of the outstanding Units in the Company (other than the Units held by the Transferor or the Transferee) consent, in their sole discretion, which can be unreasonably withheld, to make the Transferee a Member. A Member may not withdraw from the Company except with the consent of nonwithdrawing Members owning a Majority of the outstanding Units in the Company (other than the Units held by the Member seeking to withdraw). If a Member dies or transfers all of the Member’s Units during lifetime and any Transferee is not approved as a Member pursuant to this Section 9.01(c), the Units held by such Transferee under the terms of Section 9.01(c) hereof shall be voted for all purposes hereunder by the remaining Members in the same manner as and in proportion to the Units voted by such Members.

(d)          No Dissolution. A mere Transfer of a Unit or Units does not result in dissolution of the Company.

9.02        Disassociation. A person ceases to be a Member of the Company upon the occurrence of, and at the time of, any Event of Bankruptcy (as defined below), unless the Members unanimously consent to continue the person as a Member. For purposes of this Agreement, an “Event of Bankruptcy” shall mean the occurrence of any of the following events:

(a)          An assignment for the benefit of creditors;

(b)          The filing of a voluntary petition of bankruptcy;

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(c)          The adjudication of bankruptcy or insolvency or the entry of an order for relief in any bankruptcy or insolvency proceeding;

(d)          The filing of a petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation;

(e)          Seeking, consenting to, or acquiescence to the appointment of a trustee for, receiver for, or liquidation of all or any substantial part of the property of the Shareholder; or

(f)          Any proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation that continues for one hundred twenty (120) days after the commencement thereof, or the appointment of a trustee, receiver, or liquidator of all or any substantial part of the property thereof without agreement or acquiescence, which appointment is not vacated or stayed during the 120-day period, or, if the appointment is stayed, for 120 days after the expiration of the stay during which period the appointment is not vacated.

9.03        Restraining Order. In the event that any Member shall at any time Transfer or attempt to Transfer its Units in violation of the provisions of this Agreement and any rights hereby granted, then the other Members and the Company shall, in addition to all rights and remedies at law and in equity, be entitled to a decree or order restraining and enjoining such Transfer (including reimbursement by such Member of all fees and expenses incurred by the other Members and the Company in obtaining such decree or order), and the offending Member shall not plead in defense thereto that there would be an adequate remedy at law; it being hereby expressly acknowledged and agreed that damages at law will be an inadequate remedy for a breach or threatened breach of the violation of the provisions concerning transfer set forth in this Agreement.

Article X
DISSOLUTION AND LIQUIDATION

10.01      Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the happening of the first of the following:

(a)          The written consent of all of the Members;

(b)          The sale of all of the assets of the Company;

(c)          The Company being adjudicated insolvent or bankrupt; or

(d)          Entry of a decree of judicial dissolution.

10.02      Liquidation. Upon dissolution of the Company, the Manager shall liquidate the Company’s assets and shall do so as promptly as is consistent with obtaining fair value for them, and shall apply and distribute the assets of the Company as follows:

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(a)          First, to the payment and discharge of all of the Company’s debts and liabilities to creditors of the Company other than the Members;

(b)          Second, to the payment and discharge of all of the Company’s debts and liabilities to creditors of the Company that are Members; and

(c)          Third, to the Members in accordance with their Capital Accounts, after giving effect to all contributions, distributions, and allocations required by this Agreement for all periods.

10.03       Compliance With Timing Requirements of Regulations. In the event the Company is “liquidated” within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article X by the end of the fiscal year in which such liquidation occurs, or if later, within ninety (90) days of such liquidation. Distributions pursuant to the preceding sentence may be distributed to a trust established for the benefit of the Members for the purposes of liquidating Company assets, collecting amounts owed to the Company and paying any contingent or unforeseen liabilities or obligations of the Company or of the Manager arising out of or in connection with the Company. The assets of any such trust shall be distributed to the Members from time to time, in the reasonable discretion of the Manager in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to this Operating Agreement; provided, however, that such trust may only be created if the Company has received an opinion from counsel, which is generally recognized as being capable and qualified in the area of federal income taxation, that such trust will not be classified as an association which would be taxed as a corporation for federal income tax purposes.

Article XI
BOOKS, REPORTS, ACCOUNTING,
AND TAX ELECTIONS

11.01       Books and Records. The Company shall maintain or cause to be maintained, at the Company’s principal place of business, complete and accurate books and records with respect to all Company business and transactions. Such books and records shall be at all times during normal business hours open to inspection by any Member upon reasonable advance notice. At a minimum, the Company shall keep the following books and records at the principal place of business of the Company: (a) a list of the full name(s) and last known business addresses of each current and former Member and Manager in alphabetical order, setting forth the date on which such person became a Member or Manager and the date, if applicable, on which the person ceased to be a Member or Manager; (b) a copy of the Certificate and all articles of amendment, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; (c) a copy of all operating agreements and all amendments thereof, including any prior operating agreements no longer in effect; (d) copies of the Company’s federal, state, and local income tax returns and reports for the three (3) most recent years; (e) copies of any effective written Company agreements and of any financial statements of the Company for the three (3) most recent years; (f) all such other records as may be required by law; and (g) full and true books of account.

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11.02       Fiscal Year and Method of Accounting. The Company’s fiscal year for both tax and financial reporting purposes shall be the calendar year. The method of accounting for both tax and financial reporting purposes shall be the cash method.

11.03       Reports and Statements.

(a)          Annual Tax Reports. Within the first ninety (90) days following the end of each taxable year of the Company, the Company shall deliver to the Members the following information with respect to the just completed taxable year of the Company:

(1)         Preparation of Returns. Such information as shall be necessary for the preparation by the Members of their federal, state, and local income and other tax returns; and

(2)         Tax Information. A copy of all income tax and information returns to be filed by the Company for the preceding taxable year of the Company.

(b)          Annual Financial Reports. Within the first ninety (90) days following the end of each fiscal year of the Company, the Company shall deliver to the Members unaudited financial statements of the Company for the just completed fiscal year, prepared at the expense of the Company, which financial statements shall set forth, as of the end of and for the preceding fiscal year, the following:

(1)         A profit and loss statement and a balance sheet of the Company;

(2)         Members’ equity and changes in financial position;

(3)         The balances in the Capital Accounts of each Member; and

(4)         Such other information as, in the judgment of the Members, shall be reasonably necessary for the Members to be advised of the financial status and results of operations of the Company.

11.04       Tax Elections.

(a)          General. Upon the written consent of all of the Members, the Manager shall have the authority to make or revoke any elections on behalf of the Company for tax purposes.

(b)          Section 754 Election. In the event of a Transfer of all or part of the interest of a Member in the Company, at the request of the transferee, the Manager may, upon the written consent of all of the Members, cause the Company to elect, pursuant to Code Section 754, or the corresponding provision of subsequent law, to adjust the basis of the Company property as provided by Code Sections 734 and 743.

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11.05         Tax Matters Partner. The Member designated from time to time by consent of the Members holding a Majority of the Units shall be the “tax matters partner” of the Company, as provided in regulations pursuant to Code Section 6231, and shall perform such duties as are required or appropriate thereunder. The tax matters partner shall give to the other Members prompt written notice upon receipt of information that the Internal Revenue Service or any other taxing authority intends to examine any Company tax return or the books and records of the Company. The tax matters partner shall promptly furnish to the other Members copies of all notices or other written communications received by the tax matters partner from the Internal Revenue Service (except such notices or communications as are sent directly to the other Members by the Internal Revenue Service). The Manager shall be the initial tax matters partner.

Article XII
MISCELLANEOUS

12.01         Amendments. No amendment to this Agreement shall be effective or binding upon the Members unless the same shall have been approved by all of the Members.

12.02         Bank Accounts. Company funds shall be deposited in the name of the Company in accounts designated by the Manager and withdrawals shall be made only by persons duly authorized by the Manager.

12.03         Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of all the Members and, to the extent permitted by this Agreement, their legal representatives, heirs, successors, and permitted assigns.

12.04         Rules of Construction. The captions in this Agreement are inserted only as a matter of convenience and in no way affect the terms or intent of any provision of this Agreement. All defined phrases, pronouns, and other variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural, as the actual identity of the subject may require. No provision of this Agreement shall be construed against any party hereto by reason of the extent to which such party or its counsel participated in the drafting hereof.

12.05         Parties Entered Agreement Voluntarily. The parties represent and agree that each of them fully understands this Agreement and all of the documents executed in connection herewith, that they are entering into this Agreement voluntarily, and that they have been represented by and relied upon the advice of counsel of their choice or hereby have waived the opportunity to seek individual counsel.

12.06         Choice of Law and Severability. This Agreement shall be construed in accordance with the internal laws of the State of Delaware. If, and to the extent that, any provision of this Agreement shall be contrary to the internal laws of the State of Delaware or any other applicable law, at the present time or in the future, such provision shall be deemed null and void, but shall not affect the legality or enforceability of the remaining provisions of this Agreement. This Agreement shall be deemed to be modified and amended so as to be in compliance with applicable law.

12.07         Counterparts. This Agreement may be executed in one or more counterparts. Each such counterpart shall be considered an original and all of such counterparts shall constitute a single agreement binding all the parties as if all had signed a single document.

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12.08         Entire Agreement. This Agreement supersedes all prior negotiations, representations, understandings, and agreements among the Members with respect to its subject matter, and (together with the Certificate) constitutes a complete and exclusive statement of the terms of the agreement among the Members regarding the terms and operations of the Company.

12.09         Last Day for Performance Other Than a Business Day. In the event that the last day for performance of an act or the exercise of a right hereunder falls on a day other than a Business Day, then the last day for such performance or exercise shall be the first Business Day thereafter.

12.10         Notices. Except as otherwise provided in this Agreement, all notices or other communications under this Agreement shall be given in writing and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by facsimile transmission, (b) one (1) day after having been delivered, shipping charges prepaid, to a reputable national overnight air courier service, or (c) three (3) days after having been deposited, postage prepaid, in the mails as certified or registered matter addressed to the recipient’s most recent address as reflected in the Company’s records.

12.11         Title to Property; No Partition. All real and personal property owned by the Company shall be owned by it as an entity and no Member shall have any ownership interest in such property in its individual right or name, and each Member’s Units represented thereby shall be personal property.

12.12         Resolutions of Disputes. Any dispute, controversy, or claim arising out of or relating to this Agreement or the performance of the parties of its terms shall be referred to representatives of the parties for resolution between them, if possible. Such representatives may, if they so desire, consult outside experts for assistance in arriving at a resolution. Any such matter that is not resolved pursuant to the foregoing provisions or otherwise by agreement between the parties will be submitted for resolution by mediation. Any such matter that is not thereafter resolved by mediation shall be referred to and settled by binding arbitration. The arbitration will be held in Irvine, California, or at such other place as the parties shall mutually agree, and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Any award rendered shall be final and conclusive upon the parties, and a judgment may be entered in any court having jurisdiction. The costs and expenses of any such arbitration shall be charged equally among all participants in the arbitration proceedings.

12.13         Creditors. The provisions of this Agreement are not for the benefit of and may not be specifically enforced by any creditors of the Company or of any Member.

12.14         Execution of Additional Instruments. Each Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney, and other instruments as may be necessary to comply with any applicable laws, rules, or regulations.

12.15         Waivers. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, that would have originally constituted a violation, from having the effect of an original violation.

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12.16         Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance, or otherwise.

[Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned have caused this Operating Agreement of CORNERSTONE HEALTHCARE PARTNERS LLC to be executed this 11th day of June, 2012.

MEMBERS:
CORNERSTONE OPERATING PARTNERSHIP, LP, a Delaware limited partnership
By: CORNERSTONE CORE PROPERTIES REIT, INC., a Maryland corporation, its general partner
By:	/s/ Don B. Saulic
Print:	Don B. Saulic
Title:	Specially Authorized Signatory
CORNERSTONE PRIVATE EQUITY FUND OPERATING PARTNERSHIP, LP, a Delaware limited partnership
By: CORNERSTONE HEALTHCARE REAL ESTATE FUND, INC., a Maryland corporation, its general partner
By:	/s/ Don B. Saulic
Print:	Don B. Saulic
Title:	Specially Authorized Signatory

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Exhibit A

Members & Initial Capital Contributions

Members	Initial Capital Contributions	Units
CORNERSTONE OPERATING PARTNERSHIP, LP			950
CORNERSTONE PRIVATE EQUITY FUND OPERATING PARTNERSHIP, LP			50
Totals:			1,000

EX-10.10

EXECUTION
VERSION

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

NANTUCKET ACQUISITION LLC

AND

NORTHBRIDGE COMMUNITIES, LLC

ARTICLE 1:	DEFINITIONS	1
1.1.	Definitions	1
ARTICLE 2:	CONSIDERATION, DEPOSIT AND ESCROW PROVISIONS	1
2.1.	Purchase Price	1
2.2.	Deposit; Escrow Agent	1
2.3.	Escrow Provisions	2
2.4.	Payment of Monies	2
ARTICLE 3:	ACCESS; INSPECTIONS	2
3.1.	Seller’s Delivery of Specified Documents	2
3.2.	Access and Inspection Rights	2
3.3.	Title and Survey Review	3
3.4.	Condition of Property; AS-IS SALE	3
ARTICLE 4:	OPERATIONS; RISK OF LOSS; LICENSING	4
4.1.	Ongoing Operations	4
4.2.	Damage	6
4.3.	Condemnation	7
4.4.	Operations Transfer Agreement	7
ARTICLE 5:	CLOSING	7
5.1.	Closing	7
5.2.	Conditions to the Parties’ Obligations to Close	8
5.3.	Failure of Condition	9
5.4.	Seller’s Deliveries	10
5.5.	Buyer’s Deliveries	11
5.6.	Possession	12

ARTICLE 6:	PRORATIONS; COSTS; ADJUSTMENTS	12
6.1.	Prorations	12
6.2.	Sales, Transfer, and Documentary Taxes; Closing Costs	12
6.3.	Brokerage Commissions	13
6.4.	Post-Closing Corrections	13
6.5.	No Other Obligations	13
ARTICLE 7:	REPRESENTATIONS AND WARRANTIES	13
7.1.	Seller’s Representations and Warranties	13
7.2.	Buyer’s Representations and Warranties	16
7.3.	Indemnity	18
7.4.	Survival of Representations, Warranties and Indemnity; Holdback Deposit	19
ARTICLE 8:	DEFAULT AND REMEDIES	20
8.1.	Buyer’s Remedies	20
8.2.	Seller’s Remedies	20
8.3.	Other Expenses	20
ARTICLE 9:	NON SOLICITATION; NON COMPETE	20
9.1.	Non-Solicitation	20
9.2.	Non-Compete	20
9.3.	Enforcement	21
ARTICLE 10:	MISCELLANEOUS	21
10.1.	Parties Bound	21
10.2.	Headings	21
10.3.	Invalidity and Waiver	21
10.4.	Governing Law	22

10.5.	Survival	22
10.6.	No Third Party Beneficiary	22
10.7.	Entirety and Amendments	22
10.8.	Time	22
10.9.	Confidentiality	22
10.10.	Enforcement Expenses	22
10.11.	Notices	22
10.12.	Construction	23
10.13.	Calculation of Time Periods	23
10.14.	Execution in Counterparts	23
10.15.	Further Assurances	23
10.16.	Waiver of Jury Trial	23
10.17.	Bulk Sales	23

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”) is made as of __________, 2012, by and between NANTUCKET ACQUISITION LLC, a Delaware limited liability company authorized to transact business in Massachusetts under the name "Nantucket Senior Housing Acquisition” (“Seller”), and NORTHBRIDGE COMMUNITIES, LLC, a Massachusetts limited liability company (“Buyer”).

RECITALS

A.           Seller owns the Property which includes the Senior Housing Facility described on Exhibit B attached hereto; and

B.           Seller desires to sell and Buyer desires to purchase the Property upon and subject to the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller hereby agrees to sell and Buyer hereby agrees to purchase the Property upon and subject to the following terms and conditions:

ARTICLE 1: DEFINITIONS

1.1.         Definitions. Initially capitalized terms which are used but not otherwise defined in this Agreement shall have the meanings ascribed to them in Exhibit A attached hereto and incorporated herein by this reference.

ARTICLE 2: CONSIDERATION, DEPOSIT AND ESCROW PROVISIONS

2.1.         Purchase Price. The Purchase Price, subject to the prorations and adjustments set forth herein, shall be paid as follows:

(a)          Buyer shall pay a deposit to Escrow Agent in the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) (such amount, together with any Additional Deposit paid under Article 5 hereof, collectively, the “Deposit”) on or before the date which is two (2) business days after the execution and delivery of this Agreement by both Seller and Buyer; and

(b)          The balance of the Purchase Price shall be paid in cash at the time of Closing.

The Deposit shall be applied to the Purchase Price at Closing, notwithstanding any provision hereof as to the non-refundability of the Deposit or any portion thereof.

2.2.         Deposit; Escrow Agent.

(a)          Upon receipt from Buyer of the Deposit, Escrow Agent shall invest the Deposit in an interest-bearing account or money market fund mutually acceptable to Seller and Buyer. Escrow Agent shall agree to hold and dispose of the Deposit in accordance with the terms and provisions of this Agreement. If the Closing occurs, any interest on the Deposit shall be credited to Buyer and applied to the Purchase Price. If the Closing does not occur, any interest earned on the Deposit shall follow the Deposit.

(b)          The parties hereto do hereby certify that they are aware that the Federal Deposit Insurance Corporation (“FDIC”) coverages may apply only to a cumulative maximum amount of $250,000 for each individual deposit for all of depositor’s accounts at the same or related institution. The parties hereto further understand that certain banking instruments such as, but not limited to, repurchase agreements and letters of credit are not covered at all by FDIC insurance. Further the parties hereto understand that Escrow Agent assumes no responsibility for, nor will the parties hereto hold Escrow Agent liable for, any loss occurring which arises from the fact that the amount of the above account may cause the aggregate amount of any individual depositor’s accounts to exceed $250,000 and that the excess amount is not insured by the Federal Deposit Insurance Corporation or that FDIC insurance is not available on certain types of bank instruments.

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2.3.          Escrow Provisions. Escrow Agent agrees to hold, keep and deliver the Deposit and all other sums delivered to it pursuant hereto in accordance with the terms and provisions of this Agreement. Escrow Agent shall not be entitled to any fees or compensation for its services hereunder other than its customary one-time escrow fee. Escrow Agent shall be liable only to hold said sums and deliver the same to the parties named herein in accordance with the provisions of this Agreement, it being expressly understood that by acceptance of this Agreement Escrow Agent is acting in the capacity of a depository only and shall not be liable or responsible to anyone for any damages, losses or expenses unless same shall have been caused by the gross negligence or willful malfeasance of Escrow Agent. In the event of any disagreement between Buyer and Seller resulting in any adverse claims and demands being made in connection with or for the monies involved herein or affected hereby, Escrow Agent shall be entitled to refuse to comply with any such claims or demands so long as such disagreement may continue; and in so refusing Escrow Agent shall make no delivery or other disposition of any of the monies then held by it under the terms of this Agreement, and in so doing Escrow Agent shall not become liable to anyone for such refusal; and Escrow Agent shall be entitled to continue to refrain from acting until (a) the rights of the adverse claimants shall have been finally adjudicated in a court of competent jurisdiction of the monies involved herein or affected hereby, or (b) all differences shall have been adjusted by agreement between Seller and Buyer, and Escrow Agent shall have been notified in writing of such agreement signed by the parties hereto. Escrow Agent shall not be required to disburse any of the monies held by it under this Agreement unless in accordance with either a joint written instruction of Buyer and Seller or an Escrow Demand from either Buyer or Seller in accordance with the provisions hereinafter. Upon receipt by Escrow Agent from either Buyer or Seller (the “Notifying Party”) of any notice or request (an “Escrow Demand”) to perform any act or disburse any portion of the monies held by Escrow Agent under the terms of this Agreement, Escrow Agent shall give written notice to the other party (the “Notified Party”). If within five (5) days after the giving of such notice, Escrow Agent does not receive any written objection to the Escrow Demand from the Notified Party, Escrow Agent shall comply with the Escrow Demand. If Escrow Agent does receive written objection from the Notified Party in a timely manner, Escrow Agent shall take no further action until the dispute between the parties has been resolved pursuant to either clause (a) or (b) above. Further Escrow Agent shall have the right at all times to pay all sums held by it (i) to the appropriate party under the terms hereof, or (ii) into any court of competent jurisdiction after a dispute between or among the parties hereto has arisen, whereupon Escrow Agent's obligations hereunder shall terminate. Seller and Buyer, jointly and severally agree to indemnify and hold harmless said Escrow Agent from any and all costs, damages and expenses, including reasonable attorneys' fees, that said Escrow Agent may incur in compliance with and in good faith in accordance with the terms of this Agreement; provided, however, this indemnity shall not extend to any act of gross negligence or willful malfeasance on the part of the Escrow Agent.

2.4.          Payment of Monies. Any monies payable under this Agreement, unless otherwise specified in this Agreement, shall be paid by wire transfer or certified or cashier’s check.

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ARTICLE 3: ACCESS; INSPECTIONS

3.1.          Seller’s Delivery of Specified Documents. On or before the date hereof, Seller has delivered to Buyer true, correct and complete originals or copies of each item described in Exhibit C attached hereto (the "Seller Deliverables") in Seller's possession or control.

3.2.          Access and Inspection Rights. Buyer and its agents, employees and representatives, contractors and consultants shall at any time, and from time to time, between the Effective Date and the Closing Date, have reasonable access during normal business hours to the Facility and all books and records for the Facility that are in Seller’s or the Existing Manager’s possession or control for the purpose of conducting surveys, inspections, tests and studies, including, without limitation, engineering, geotechnical and environmental inspections and tests; provided, however, that Buyer will work directly with the Existing Manager to conduct any and all investigations necessary of all books and records for the Facility that are in the possession or control of the Existing Manager. In the course of its investigation of the Property, Buyer may make inquiries to third parties, including, without limitation, lenders, contractors, Existing Manager (including, without limitation, employees thereof), parties to any service contracts affecting the Facility, and municipal, local and other government officials and representatives. Seller shall cooperate with Buyer's due diligence during normal business hours so long as Buyer gives at least forty-eight (48) hours' notice to Seller and the Existing Manager, conducts such due diligence during normal business hours and is not disruptive to the operation of the business at the Facility or the quiet enjoyment thereof by its residents, and shall be paid for by Buyer as and when due. Buyer shall indemnify, defend, protect and hold Seller harmless from any and all claims, liabilities, losses, expenses (including reasonable attorneys' fees), damages, including those for injury to person or to the Property, arising out of or relating to Buyer's due diligence activities (except for any pre-existing conditions). If Buyer is not satisfied in its sole discretion with any of survey, inspection, test or study or with any other matter concerning the Property, then Buyer may terminate this Agreement by written notice given to Seller on before the date of expiration of the Due Diligence Period, whereupon the Deposit plus accrued interest shall be refunded to Buyer, and neither party shall have any further rights or obligations pursuant to this Agreement, except those that survive the termination of this Agreement as expressly stated herein. If the written notice of termination is not given to Seller and the Escrow Holder prior to the expiration of the Due Diligence Period, then (a) any due diligence contingency, and any and all objections with respect to the review and inspection of the Property, shall be deemed to have been waived by Buyer for all purposes hereof; provided, however, that Buyer's closing contingencies set forth in Section 5.2(a) below shall remain; and (b) the Deposit shall be nonrefundable to Buyer except in the event of the failure of any of Buyer's closing contingencies set forth in Section 5.2(a) below, or a breach of this Agreement by Seller. If this Agreement is terminated pursuant to this Section 3.2, the cost for cancellation of Escrow and all title company costs shall be borne by Buyer

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3.3.         Title and Survey Review.

(a)          Buyer shall have the right to obtain a title commitment for owner's title insurance policy (the "Title Commitment") and survey of the Real Property (the "Survey"). No later than ten (10) business days prior to the expiration of the Due Diligence Period, Buyer shall give notice to Seller of any objection to any exception or other matter shown in the Title Commitment or Survey on or before the date of expiration of the Due Diligence Period. Within five (5) business days of Seller's receipt of Buyer's notice of objection(s), Seller shall notify Buyer in writing of Seller's election to either (i) remove such exceptions (in which case Buyer's objections shall be deemed waived), or (ii) terminate this Agreement. Seller's failure to make an election shall be deemed an election to terminate. Without limiting the foregoing, Seller shall be obligated to fully discharge on or before Closing all mortgages, security interests and other monetary liens and encumbrances of a definite and ascertainable amount (each a "Monetary Lien"). In the event that any additional title exceptions are discovered after the reports are issued, then if Buyer is not willing to accept such exceptions as-is, then Seller shall elect in writing to either eliminate such exceptions (in which case this Agreement shall remain in effect) or terminate this Agreement (in which case the Deposit shall be returned to Buyer). If Buyer fails to give written notice to Seller of any objection to title or survey within the Due Diligence Period, then Buyer shall be deemed to have approved the state of title and survey as of the date of such title and survey reports are issued, except for Monetary Liens.

(b)          If Seller fails to cure an objection to title or survey in the manner set forth above, then Buyer may elect, on or prior to the Closing Date, to (i) terminate this Agreement, in which event the Deposit and all interest earned thereon shall be returned to Buyer and no party shall have any further obligations hereunder, except as specifically set forth herein, or (ii) accept the Property subject to such objections and proceed to Closing, with the further right to deduct from the Purchase Price amounts secured by any Monetary Lien which Seller has failed to remove as provided herein. If Buyer makes no such election, then Buyer shall be deemed to have elected to waive its right to terminate this Agreement as provided above in this Section 3.3(b).

3.4.         Condition of Property; AS-IS SALE. BUYER ACKNOWLEDGES AND REPRESENTS THAT THEY HAVE CONDUCTED OR WILL CONDUCT THEIR OWN INSPECTION AND INVESTIGATION OF THE PROPERTY, AND OF PUBLIC RECORDS PERTAINING TO SELLER AND THE FACILITY AND AGREES TO ACCEPT AT CLOSING, SUBJECT TO THE REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 7.1, THE PROPERTY IN ITS "AS IS, WHERE IS" CONDITION AS OF THE EFFECTIVE DATE, AND "WITH ALL FAULTS"; AND FURTHER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER HAS NOT MADE AND DOES NOT MAKE, AND SELLER HEREBY EXPRESSLY DISCLAIMS, ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED WITH RESPECT TO THE PROPERTY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (A) THE COMPLIANCE OF THE PROPERTY, INCLUDING ITS USE OR OPERATION, WITH THE AMERICANS WITH DISABILITIES ACT, ANY OTHER DISCRIMINATION LAW, OR ANY FEDERAL, STATE OR LOCAL LAW, RULE OR REGULATION RELATING TO THE LICENSING AND CERTIFICATION OF THE PROPERTY AS A SENIOR HOUSING FACILITY OR PARTICIPATION IN THE MEDICARE AND MEDICAID PROGRAMS, (B) THE ASSIGNMENT OR TRANSFERABILITY OF ANY OF THE GOVERNMENTAL LICENSES, CERTIFICATES OR PERMITS TO OPERATE THE PROPERTY AS A SENIOR HOUSING FACILITY, AND (C) THE EFFECT ON THE PROPERTY, CONDITION OF THE PROPERTY (FINANCIAL OR OTHERWISE), OR THE RESULTS OF ANY ENACTED, PUBLISHED OR REPORTED LAWS, RULES, REGULATIONS OR JUDICIAL OR ADMINISTRATIVE DECISIONS OR ACTIONS OF ANY GOVERNMENTAL OR QUASI-GOVERNMENTAL AGENCY HAVING REGULATORY OR OTHER AUTHORITY (WHETHER HAVING RETROACTIVE OR PROSPECTIVE EFFECT) RESPECTING MATTERS OF LICENSURE, SURVEY, OR REIMBURSEMENT. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING.

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ARTICLE 4: OPERATIONS; RISK OF LOSS; LICENSING

4.1.         Ongoing Operations. From the Effective Date through the Closing Date:

(a)          Operation of Property; Construction. Seller shall continue to own the Property and shall not terminate the Existing Management Agreement with the Existing Manager; provided, however, that the parties hereto acknowledge that they might enter into future discussions relating to the replacement of the Existing Manager with an Affiliate of Buyer, but any definitive arrangement relating thereto will be subject to the mutual written agreement of the parties. Seller shall not make (or suffer or permit to be made) any renovations, alterations, or capital expenditures to the Facility or any portion thereof costing more than $10,000, individually or in the aggregate, or enter into any contracts or agreements (whether binding or not) regarding any such renovations, alterations, or capital expenditures. Seller will perform all of the obligations of Seller under the Ground Lease and the Existing Management Agreement.

(b)          Ground Lease. Seller shall comply in all material respects with the terms and conditions of the Ground Lease and shall not do or permit anything to be done, the doing of which, or refrain from doing anything, the omission of which, will be grounds for declaring a default or forfeiture of the Ground Lease. Seller shall not modify, cancel, change, waive, supplement, alter or amend the Ground Lease in any respect.

(c)          Listings and Other Offers. Seller will not list the Property with any broker or otherwise solicit or make or accept any offers to sell all or any part of the Property or any direct or indirect interest therein, engage in any discussions or negotiations with any third party with respect to the sale or other disposition of the Property or any direct or indirect interest therein, or enter into any contracts or agreements (whether binding or not) regarding any disposition of all or any part of the Property or any direct or indirect interest therein, except as provided in Section 4.1(a) above.

(d)          Removal and Replacement of Tangible Personal Property; Transfer or Conveyance of Other Property. Seller will not remove or suffer or permit to be removed on Seller's behalf any Personal Property from the Facility except as may be required for necessary repair or replacement in the ordinary course of business. Without limiting the foregoing, all repairs and replacements shall be of equivalent quality and quantity as existed as of the time of removal of the applicable Personal Property. Except as permitted by the preceding sentence, Seller shall not make (or suffer or permit to be made on Seller's behalf) any transfers or conveyances of the Property.

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(e)          Maintenance of Insurance. Seller shall carry commercial general liability insurance in the amounts it currently holds and property damage insurance for the full replacement value of the Improvements through the Closing Date. Seller shall not allow any breach, default, termination or cancellation of any such insurance policies or agreements to occur or exist prior to Closing.

(f)          Incurrence of Indebtedness. Seller shall not incur any indebtedness or other liabilities other than in the ordinary course of business and consistent with past practices or enter into any contracts or agreements (whether binding or not) regarding the incurrence of any such indebtedness or other liabilities.

(g)          Approvals. Seller shall work diligently and cooperate with Buyer to obtain all waivers, consents, approvals and authorizations required in connection with the transactions contemplated hereunder, including without limitation those required with respect to the Ground Lease and all licenses and approvals required by governmental agencies charged with regulating or licensing senior housing facilities.

(h)          Agreements to Effect Prohibited Actions. Seller will not enter into any contracts or agreements (whether binding or not) regarding any of the matters prohibited by paragraphs above.

4.2.         Damage. Risk of loss with respect to the Real Property up to and including the Closing Date shall be borne by Seller.  Seller shall promptly give Buyer written notice of any damage to the Facility, describing such damage, stating whether such damage and loss of rents is covered by insurance and the estimated cost of repairing such damage. In the event of any material damage (described below) to or destruction of the Facility or any portion thereof, Buyer may, at its option, by notice to Seller given within ten (10) business days after Seller has provided the above described notice to Buyer together with all relevant information concerning the nature and extent of such damage (and if necessary the Closing Date shall be extended to give Buyer the full ten (10) business day period to make such election): (i) terminate this Agreement, in which event the Deposit and all interest earned thereon shall be returned to Buyer and no party shall have any further obligations hereunder, except as expressly set forth herein, or (ii) proceed under this Agreement as to all of the Property, receive any insurance proceeds (including any rent loss insurance applicable to any period on and after the Closing Date) due Seller as a result of such damage or destruction and assume responsibility for such repair. If Buyer fails to timely make such election, Buyer shall be deemed to have elected to proceed under clause (ii) above. If the Facility is not materially damaged, then (A) Buyer shall not have the right to terminate this Agreement, (B) Seller shall, to the extent requested and directed by Buyer, repair the damage before the Closing in a manner reasonably satisfactory to Buyer utilizing any available insurance proceeds, and (C) at Closing, Buyer shall receive any insurance proceeds (including any rent loss insurance applicable to any period on and after the Closing Date) due Seller as a result of such damage or destruction. To the extent Seller has incurred reasonable costs in effecting the repairs requested and directed in writing by Buyer (which costs have not been assumed by Buyer), Seller shall be paid a portion of such insurance proceeds in an amount equal to such costs. “Material damage” and “materially damaged” means, with respect to the Facility, damage (x) which, in Buyer’s reasonable estimation, exceeds $150,000 to repair, or (y) which, in Buyer’s reasonable estimation, will take longer than ninety (90) days to repair or restore.

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4.3.          Condemnation. In the event any proceedings in eminent domain are contemplated, threatened or instituted by any body having the power of eminent domain with respect to the Real Property or any portion thereof, Buyer may, at its option, by notice to Seller given within ten (10) business days after Seller provides written notice to Buyer of such proceedings together with all relevant information concerning such proceedings (and if necessary the Closing Date shall be extended to give Buyer the full ten (10) business day period to make such election): (i) terminate this Agreement, in which event the Deposit and all interest earned thereon shall be returned to Buyer and no party shall have any further obligations thereunder, except as expressly set forth herein, or (ii) proceed under this Agreement as to all of the Property, in which event Seller shall, at the Closing, assign to Buyer its entire right, title and interest in and to any condemnation award, and Buyer shall have the sole right during the pendency of this Agreement to negotiate and otherwise deal with the condemning authority in respect of such matter. If Buyer fails to timely make such election, Buyer shall be deemed to have elected to proceed under clause (ii) above.

4.4.          Operations Transfer Agreement. Seller shall use commercially reasonable efforts to cause the Operations Transfer Agreement (in the form approved as of the date hereof by Buyer) to be executed (with all schedules and exhibits thereto completed) by the parties thereto (other than Buyer, who agrees to execute the Operations Transfer Agreement promptly following its execution by the other parties thereto). The execution and delivery of the Operations Transfer Agreement by the other parties thereto shall be a condition precedent to Buyer’s obligation to close on its purchase of the Property.

ARTICLE 5: CLOSING

5.1.          Closing. The consummation of the transactions contemplated herein (the “Closing”) shall occur on the date that is the forty-fifth (45th) day after the Town Lease Amendment Approval Date. The date of Closing shall be referred to herein as the “Closing Date.” Closing shall be effectuated through an escrow with the Escrow Agent. Buyer and Seller shall execute such supplemental escrow instructions as may be reasonably requested by either party or Escrow Agent to comply with the terms of this Agreement, so long as such instructions are not in conflict with this Agreement. Buyer shall have the right to accelerate the Closing Date to such earlier date as may be selected by Buyer on ten (10) days’ written notice to Seller. In addition, Buyer shall have the right to extend the Closing Date for up to thirty (30) days if necessary in connection with financing of the acquisition of the Property (it being acknowledged and agreed that Buyer does not have any contingency for financing). Within two (2) business days of Buyer's exercise of its extension option, Buyer shall deposit an additional sum of Fifty Thousand Dollars ($50,000) ("Additional Deposit") with Title Company, which Additional Deposit shall be non-refundable except in the event that the Closing does not occur due to Seller's default or the failure of one or more of Buyer's closing conditions set forth in Section 5.2(a) below, in which case the Additional Deposit and Deposit plus interest accrued thereon shall be returned to Buyer

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5.2.         Conditions to the Parties’ Obligations to Close.

(a)          Conditions to Buyer’s Obligation to Close. As a condition to Buyer’s obligation to close with respect to the Property on the Closing Date:

(i)          All instruments and other documents required to be delivered by Seller and described in Section 5.5 have been delivered to the Escrow Agent.

(ii)         The representations and warranties of Seller contained herein shall be true and correct in all material respects as of the Effective Date and as of the Closing Date.

(iii)        There shall be no default with respect to any material obligation of Seller hereunder which Seller has not cured within thirty (30) days after written notice from Buyer.

(iv)        There shall be no notice issued after the Effective Date of any violation or alleged violation of any law, rule, regulation or code, including, without limitation, any building code, with respect to the Facility, which has not been corrected to the satisfaction of the issuer of the notice.

(v)         There shall be no material default on the part of Seller or any other party under any agreement to be assigned to, or obligation to be assumed by, Buyer under this Agreement, including, without limitation the Ground Lease.

(vi)        All licenses, consents, approvals or other authorizations from third parties or governmental authorities required in connection with the transactions contemplated hereunder, including, without limitation, all consents and approvals of the ground lessor under the Ground Lease and all licenses and approvals by agencies charged with regulating or licensing Senior Housing Facilities, shall have been obtained by, and issued in the name of, Buyer or its property manager or designee.

(vii)       There shall have been no material adverse change in the business, properties, operations or condition (financial, physical, title, licensing, environmental or otherwise) of Seller or the Facility since the Effective Date.

(viii)      As of the Closing Date, the number of residents in the Facility (based upon the number of beds in the Facility) who receive any assistance under any government assistance program shall not be more than the number of such residents for the Facility set forth in the Rent Roll attached hereto, and the number of beds or units in the Facility which are subject to affordability or income-based restrictions shall not be more than the number of such beds or units for the Facility as required by the Ground Lease.

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(ix)         No proceedings shall be pending or threatened that could or would involve the change, redesignation, redefinition or other modification of the zoning classifications (or any building, environmental or code requirements applicable to) in a manner that would adversely affect the Property.

(x)          Seller shall have obtained payoff letters good through the Closing Date from all holders of mortgages or other indebtedness encumbering the Property stating the amount required to pay off such debt as of the Closing Date. Such letters shall be referred to as the “Payoff Letters.”

(xi)         The representations and warranties of the parties to the Operations Transfer Agreement (other than Buyer) shall be true and correct in all material respects as of the Effective Date and as of the Closing Date.

(xii)        There shall be no default with respect to any material obligation of any party to the Operations Transfer Agreement (other than Buyer) which such party has not cured within thirty (30) days after written notice from Buyer.

(b)          Conditions to Seller’s Obligation to Close. As a condition to Seller’s obligation to close with respect to the Property on the Closing Date:

(i)          All funds, instruments and other documents required to be delivered by Buyer and described in Section 5.5 have been delivered to the Escrow Agent.

(ii)         The representations and warranties of Buyer contained herein shall be true and correct in all material respects as of the Effective Date and as of the Closing Date.

(iii)        There shall be no default with respect to any material obligation of Buyer hereunder which Buyer has not cured within thirty (30) days after written notice from Seller.

5.3.         Failure of Condition. Provided that a party is not in default of any material obligation of such party, if any condition to such party’s obligation to proceed with the Closing set forth in this Agreement has not been satisfied as of the Closing Date, then such party may, in its sole discretion, elect, by notice given to the other party on or before the Closing Date, to: (i) terminate this Agreement, in which event the Deposit and all interest earned thereon shall be paid to the party whose condition was not met and no party shall have any further obligation hereunder, except as expressly set forth herein; (ii) extend the time available for the satisfaction of such condition by up to a total of thirty (30) days; or (iii) close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived such condition. If such party elects to proceed pursuant to clause (ii) above, and such condition remains unsatisfied after the end of such extension period, then, at such time, such party may elect to proceed pursuant to either clause (i) or (iii) above. Any failure to timely elect to proceed under clauses (i), (ii) or (iii) above, shall be deemed an election to proceed under clause (ii) above.

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5.4.         Seller’s Deliveries. On or before the Closing Date, Seller shall deliver in escrow to the Escrow Agent or outside of escrow to Buyer the following, each duly executed and, where appropriate, in recordable form and notarized:

(a)          Assignment of Ground Lease. An assignment of the Ground Lease in the form of Exhibit D attached hereto (the “Ground Lease Assignment”), executed and acknowledged by Seller, vesting in Buyer good, indefeasible and marketable title to the Ground Lease, subject only to the Permitted Exceptions;

(b)          Bill of Sale and Assignment Agreement. A bill of sale and assignment agreement in the form of Exhibit E attached hereto (the “Bill of Sale”), executed and acknowledged by Seller, vesting in Buyer good title to the Personal Property described therein free of any claims, except for the Permitted Personal Property Liens;

(c)          Payoff Letters. The Payoff Letters;

(d)          Notice to Residents. A notice to each resident in form as reasonably requested by Buyer;

(e)          State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property;

(f)          FIRPTA. An affidavit of Seller substantially in the form of Exhibit F attached hereto. If Seller fail to provide the necessary affidavit and/or documentation of exemption on the Closing Date, Buyer may proceed in accordance with the withholding provisions imposed by Section 1445 of the Internal Revenue Code of 1986, as amended;

(g)          Certificates of Title. Certificates of title (if applicable) and leases (if applicable) for each Vehicle.

(h)          Authority. Evidence of the existence, organization and authority of Seller and of the authority of the persons executing documents on behalf of Seller reasonably satisfactory to the Title Company and Buyer;

(i)          Title Documents. Affidavits required by the Title Company sufficient to have the general exceptions deleted together with such other documents and instruments required by the Title Company in order to issue the Title Policy;

(j)          Due Diligence Materials. To the extent not previously delivered to Buyer, true, correct and complete originals, or copies, if originals are not available, of each Seller Deliverable.

(k)          Closing Certificate. A certificate, signed by Seller, certifying to Buyer that the representations and warranties of Seller contained in this Agreement are true and correct in all material respects as if made on and as of the Closing Date and that all covenants required to be performed by Seller prior to the Closing Date have been performed in all material respects;

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(l)          Settlement Statement. A settlement statement, duly executed by Seller;

(m)          Permits and Approvals. All licenses, permits and approvals in Seller’s possession related to the construction, development ownership, operation and use of the Property, including without limitation, certificate(s) of occupancy and all licenses required to operate the Facility as a Senior Housing Facility;

(n)          Plans and Specifications. All material plans and specifications relating to the Property in Seller’s possession and control or otherwise reasonably available to Seller;

(o)          Ground Lease Matters. (i) A consent executed and acknowledged by the ground lessor under the Ground Lease, in form and substance reasonably acceptable to Buyer, evidencing the consent of the ground lessor to the Ground Lease Assignment, (ii) an estoppel certificate executed and acknowledged by the ground lessor as to such matters relating to the Ground Lease as reasonably requested by Buyer and its lender, and (iii) an amendment to the Ground Lease executed and acknowledged by the ground lessor, in the form of Exhibit G attached hereto;

(p)          Other Deliveries. Such other documents, certificates and instruments as are reasonably necessary in order to effectuate the transaction described herein, including, without limitation, gap indemnity agreements, transfer tax declarations, broker lien waivers and any documents or representations necessary to comply with any applicable environmental transfer disclosure laws and any other Closing deliveries required to be made by or on behalf of Seller.

5.5.         Buyer’s Deliveries. On or before the Closing Date, Buyer shall deposit the balance of the Purchase Price, plus or minus applicable prorations and adjustments as set forth herein, in immediately available, same-day federal funds wired for credit into the Escrow Agent’s escrow account. In addition, except as specified below, on or before the Closing Date, Buyer shall deliver in escrow to the Escrow Agent or outside of escrow to Seller the following, each duly executed and, where appropriate, in recordable form and notarized:

(a)          Bill of Sale. The Bill of Sale, executed by Buyer;

(b)          Authority. Evidence of the existence, organization and authority of Buyer and of the authority of the persons executing documents on behalf of Buyer reasonably satisfactory to the Title Company and Seller;

(c)          Assignment of Residency Agreements. The Assignment of Residency Agreements, executed by Buyer;

(d)          State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property;

(e)          Settlement Statement. A settlement statement, duly executed by Buyer;

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(f)          Other Deliveries. Such other documents, certificates and instruments reasonably necessary in order to effectuate the transactions described herein and any other Closing deliveries required to be made by or on behalf of Buyer.

5.6.         Possession. Seller shall deliver possession of the Property to Buyer at the Closing, subject only to the Permitted Exceptions.

ARTICLE 6: PRORATIONS; COSTS; ADJUSTMENTS

6.1.         Prorations. Not less than three (3) business days prior to Closing, Seller shall provide to Buyer such information and verification reasonably necessary to support the prorations under this Article 6. The items in this Section 6.1 shall be pro rated between Seller and Buyer as of the close of business on the day immediately preceding the applicable Closing Date, the Closing Date being a day of income and expense to Buyer. Credits to Buyer shall be credited against the Purchase Price to be paid hereunder and, if such amount is exhausted, shall be paid in cash by Seller to Buyer at the Closing. Post-closing re-prorations and adjustments shall be paid in cash. Subject to the foregoing and for the other provisions of this Article 6, the following items shall be pro rated and adjusted at Closing:

(a)          Taxes and Assessments. Buyer shall receive a credit for any accrued but unpaid real estate taxes, personal property taxes, special assessments and betterments (“Taxes”) (including, without limitation, any assessments imposed by private covenant) applicable to any period before the Closing Date, whether or not such Taxes are not yet due and payable, and Seller shall receive a credit for any Taxes applicable to any period after the Closing Date paid in advance by Seller. If the amount of any such Taxes have not been determined as of the Closing Date, then such credit shall be based on the most recent ascertainable taxes. Such undetermined Taxes shall be reprorated upon issuance of the final tax bill. Notwithstanding the foregoing, (i) Buyer shall receive from Seller a credit for any special assessments and betterments which are levied or charged against the Property or the Real Property with respect to any infrastructure improvements specifically made to serve the Facility, whether or not then due and payable, and (ii) any other special assessments and betterments shall be prorated only for the year of Closing.

(b)          Ground Rent. Buyer shall receive from Seller a credit for any rent and other charges under the Ground Lease accrued or payable on or before Closing that applies to any period prior to Closing but is unpaid as of Closing.

6.2.         Sales, Transfer, and Documentary Taxes; Closing Costs.

(a)          Seller shall pay all sales, gross receipts, conveyancing, stamp, excise, documentary, transfer, deed or similar taxes or fees imposed in connection with this transaction under applicable state, county or local law. Seller and Buyer shall execute any applicable city, county and state transfer tax or other declarations.

(b)          Buyer shall pay: (i) one-half of the Escrow Agent’s escrow fee, closing charges and any cancellation fee, (ii) the costs associated with Buyer’s due diligence activities, (iii) the cost of the Title Policy and Survey. Seller shall pay (x) one-half of the Escrow Agent’s escrow fee, closing charges and any cancellation fee, and (y) all recording fees or other charges incurred in connection with clearing title, including without limitation any prepayment or release fees. Each party shall be responsible for its own attorney’s and other professional fees.

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6.3.         Brokerage Commissions. Seller and Buyer each represents and warrants to the other that it has not dealt with any real estate broker, sales person or finder in connection with this transaction other than Cushman & Wakefield, Inc. (“Broker”). Seller shall be responsible for any fee or commission due to Broker pursuant to a separate agreement between Seller and Broker. Buyer shall indemnify, defend and hold harmless Seller from and against any claim to a broker’s or finder’s fee or commission by any party other than Broker based upon any actual or alleged statement, representation or agreement of Buyer. Seller shall indemnify, defend and hold harmless Seller from and against any claim to a broker’s or finder’s fee or commission made by Broker or by any other party based upon any actual or alleged statement, representation or agreement of Seller.

6.4.         Post-Closing Corrections. Notwithstanding any provision hereof to the contrary, within sixty (60) days after Closing, the parties shall complete a good faith reconciliation of all closing costs, prorations and adjustments under this Article 6 and shall make any payments due to the other party pursuant thereto.

6.5.         No Other Obligations. No other expense related to the ownership or operation of the Property prior to the Closing Date shall be charged to or paid or assumed by Buyer under this Agreement, other than those obligations expressly assumed by Buyer in writing.

ARTICLE 7: REPRESENTATIONS AND WARRANTIES

7.1.         Seller’s Representations and Warranties. As a material inducement to Buyer to execute this Agreement and consummate this transaction, Seller represents and warrants to Buyer as follows as of the date hereof (which representations, warranties shall also be true on the Closing Date as if made on the Closing Date):

(a)          Organization and Authority of Seller. Seller has been duly organized, is validly existing, and is in good standing as a limited liability company in the State of Delaware. Seller is in good standing and is qualified to do business in the Commonwealth of Massachusetts under the name "Nantucket Senior Housing Acquisition”. Seller has the full right, power and authority and has obtained any and all consents required to enter into this Agreement, all of the documents to be delivered by Seller at the Closing and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Seller at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligation of Seller, enforceable in accordance with its terms subject to applicable bankruptcy and insolvency laws and laws affecting creditor’s rights generally.

(b)          Pending Actions or Proceedings. There is no action or proceeding pending or, to Seller’s knowledge, threatened against Seller. To Seller’s knowledge, no condemnation, eminent domain or similar proceedings are pending or threatened with regard to the Facility. Seller has not received any notice and has no knowledge of any pending or threatened liens, special assessments, impositions or increases in assessed valuations to be made against the Facility. This Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms.

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(c)          Conflicts; Filings. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will: (i) violate any law to which Seller is subject, or any provision of its operating agreement or certificate of formation; or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which it is bound or to which any of its assets is subject other than the notices and consents which constitute conditions precedent under this Agreement. Except for such notices and consents which constitute conditions precedent under this Agreement, Seller is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement.

(d)          Title. Seller has good, clear record and marketable title to the Property, free and clear of all liens, encumbrances and restrictions, other than the matters described in Exhibit H attached hereto.

(e)          Ground Lease. The Ground Lease has not been modified, altered or terminated. No default or event of default now exists, or, but for the passage of time, will exist, under the Ground Lease.

(f)          Operating Statements. The operating statements of Seller and Existing Manager with respect to the Facility for the fiscal year ended December 31, 2011 and the year-to-date interim operating statements for the period through August 31, 2012, delivered to Buyer pursuant to this Agreement show all items of income and expense incurred in connection with the ownership, operation, and management of the Property for the periods indicated and are true, correct, and complete in all material respects. No material adverse change has occurred from the respective dates of such operating statements to the date hereof.

(g)          Permits, Legal Compliance, and Notice of Defects. Seller has all licenses, permits and certificates necessary to be held by Seller for the ownership of the Property, including, without limitation, all certificates of occupancy necessary for the occupancy of the Property (the "Permits"). All of the Permits are in full force and effect, and Seller has not taken or failed to take any action that would result in their revocation, suspension or limitation, nor received any written notice of an intention to revoke, suspend or limit any of them. Neither the Property nor the use thereof violates any Permit, governmental law or regulation or any covenants or restrictions encumbering the Property. Seller has not received any written notice from any insurance company or underwriter, or is otherwise aware, of any defects that would materially adversely affect the insurability of the Property or cause an increase in insurance premiums. Seller has not received notice from any governmental authority or other person of, nor has any knowledge of, any violation of zoning, building, fire, health, environmental, or other statutes, ordinances, regulations or orders (including, without limitation, those respecting the Americans with Disabilities Act), or any restriction, condition, covenant or consent in regard to the Property or any part thereof which have not been corrected to the satisfaction of the issuer.

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(h)          Environmental. Seller has no knowledge of any violation of any Environmental Law related to the Real Property or the presence or release of any Hazardous Materials on or from the Real Property except as disclosed in the environmental reports listed in Exhibit I attached hereto (the "Environmental Reports"). Except for de minimis amounts of Hazardous Materials used, stored and disposed of in accordance with Environmental Laws, and used in connection with the ordinary maintenance and operation of the Property, Seller has no knowledge of any Hazardous Materials or any toxic wastes, substances or materials (including, without limitation, asbestos) manufactured, introduced, released or discharged from or onto the Property and Seller has no knowledge of the generation, treatment, storage, handling or disposal of any Hazardous Materials at the Property. Except as set forth in the Environmental Reports, there are no underground storage tanks located on the Real Property. Seller is not aware of any environmental assessments or studies which exist with respect to the Real Property except for the Environmental Reports.

(i)          Bankruptcy Matters. Seller has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of all or substantially all of its assets, suffered the attachment or other judicial seizure of all or substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally.

(j)          PATRIOT Act. Seller is in compliance with the requirements of Executive Order No. 133224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation, or orders are collectively called the “Orders”). Further, Seller covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Buyer for its review and inspection during normal business hours and upon reasonable prior notice. Neither Seller nor any beneficial owner of Seller:

(i)          is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”);

(ii)         is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

(iii)        is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

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Seller hereby covenants and agrees that if Seller obtains knowledge that Seller or any of its beneficial owners becomes listed on the Lists or is indicted, arraigned, or custodially detained on charges involving money laundering or predicate crimes to money laundering, Seller shall immediately notify Buyer in writing, and in such event, Buyer shall have the right to terminate this Agreement without penalty or liability to Seller immediately upon delivery of written notice thereof to Buyer.

(k)          Utilities. Public utility services (including, without limitation, all applicable electric lines, sewer and water lines, gas, cable, television and telephone lines) are available to service the Property at the property line without the need for any non public utility easements over land of others, and, to Seller’s knowledge, said public utility services are adequate to service the requirements of the Property and its tenants and occupants as presently operated, and, to Seller’s knowledge, all payments currently due for the same have been made, and, to Seller’s knowledge, all necessary easements, permits, licenses and agreements in respect of any of the foregoing exist and are in full force and effect and are installed and operating and all installation and connection charges have been paid for in full. Neither Seller, nor to Seller’s knowledge, any prior owner of the Property has received notice of any fact or condition existing and would or could result in the termination or reduction of the current access from the Property to existing roads and highways, or to sewer or other utility services available to the Property.

(l)          Disclosure. Other than this Agreement, the documents delivered at Closing pursuant hereto, the Permitted Exceptions, the Residency Agreements, there are no contracts or agreements of any kind relating to the Property to which Seller is a party and which would be binding on Buyer after Closing. Seller has delivered to Buyer all written materials in Seller’s possession or control which contain information or disclose facts or conditions that would have a material adverse impact on the use, operation or marketability of the Property. The originals and copies of Seller Deliverables delivered to Buyer pursuant to Section 3.1 hereof are true, correct and complete originals or copies of the respective documents, instruments, agreements or other items, and Seller is not aware of any material inaccuracy or omission in the information in Seller Deliverables.

(m)          Bankruptcy Matters. Seller has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of all or substantially all of its assets, suffered the attachment or other judicial seizure of all or substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally.

As used in this Agreement, the "knowledge" of Seller means the actual knowledge of Kent Eikanas, and shall not include any imputed or constructive knowledge, or any implied duty to investigate or verify any matters represented to herein.

7.2.         Buyer’s Representations and Warranties. As a material inducement to Seller to execute this Agreement and consummate this transaction, Buyer represents and warrants to Seller as follows as of the date hereof (which representations, warranties shall also be true on the Closing Date as if made as of the date thereof):

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(a)          Organization and Authority. Buyer has been duly organized and is validly existing as a Massachusetts limited liability company. Buyer has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Buyer at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligation of Buyer, enforceable in accordance with their terms.

(b)          Pending Action. There is no agreement to which Buyer is a party or to Buyer's knowledge binding on Buyer which is in conflict with this Agreement. There is no action or proceeding pending or, to Buyer's knowledge, threatened against Buyer which challenges or impairs Buyer's ability to execute or perform its obligations under this Agreement. This Agreement constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms.

(c)          Bankruptcy Matters. Buyer has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of all or substantially all of its assets, suffered the attachment or other judicial seizure of all or substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally.

(d)          Conflicts; Filings. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will: (i) violate any law to which Buyer is subject, or any provision of its operating agreement or certificate of formation; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement.

(e)          PATRIOT Act. Buyer is in compliance with the requirements of the Order and other similar requirements contained in the rules and regulations of OFAC and in any enabling legislation or other Orders. Further, Buyer covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Seller for its review and inspection during normal business hours and upon reasonable prior notice. Neither Buyer nor any beneficial owner of Buyer:

(i)          is listed on the Lists;

(ii)         is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

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(iii)        is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

(f)          Buyer hereby covenants and agrees that if Buyer obtains knowledge that Buyer or any of its beneficial owners becomes listed on the Lists or is indicted, arraigned, or custodially detained on charges involving money laundering or predicate crimes to money laundering, Buyer shall immediately notify Seller in writing, and in such event, Seller shall have the right to terminate this Agreement without penalty or liability to Buyer immediately upon delivery of written notice thereof to Buyer.

7.3.         Indemnity.

(a)          Seller hereby agrees to indemnify, defend and hold Buyer harmless from any liability, claim, demand, loss, expense or damage, including, without limitation, attorneys' fees and costs (collectively, "Claims") arising out of (i) any breach of any representation or warranty of Seller set forth herein; (ii) any act or omission of Seller or any of its agents, employees or contractors; (iii) the ownership of the Property accruing prior to the Closing Date, including, without limitation, any Claims made under or relating to the Ground Lease; (iv) any breach by Seller, Principal or any of their respective Affiliates of the covenants set forth in Section 9.1 and Section 9.2 hereof; (v) any breach of any representation or warranty of any party to the Operations Transfer Agreement (other than Buyer); and (vi) any default with respect to any material obligation of any party to the Operations Transfer Agreement (other than Buyer) which such party has not cured within thirty (30) days after written notice from Buyer. Notwithstanding the foregoing or anything to the contrary in this Agreement, with respect to any Claims arising under the foregoing subsections (v) and (vi), Buyer hereby agrees that (i) Buyer will first pursue its remedies and indemnification rights under the Operations Transfer Agreement prior to any indemnification rights it is entitled to under this Agreement, and (ii) the aggregate liability of Seller shall not exceed the Holdback Deposit set forth in Section 7.4(c) below.

(b)          Buyer hereby agrees to indemnify, defend and hold Seller harmless from any Claim arising out of (i) any breach of any of representation or warranty of Buyer set forth herein, (ii) any act or omission of Buyer, its agents, employees or contractors, or (iii) the ownership or operation of the Property accruing on or after the Closing Date, including, without limitation, any Claims made by or relating to any employee accruing on or after the Closing Date.

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(c)          The following provisions govern all actions for indemnity under this Section 7.3 and any other provision of this Agreement. Promptly after receipt by an indemnitee of notice of any claim, such indemnitee will, if a claim in respect thereof is to be made against the indemnitor, deliver to the indemnitor written notice thereof. After such notice, the indemnitor shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same unless the named parties to such action or proceeding include both the indemnitor and the indemnitee and the indemnitee has been advised in writing by counsel that there exists a bona fide and recognized ethical conflict which would require that such counsel obtain a waiver or similar consent from each of the indemnitor and the indemnitee to undertake such joint defense, in which event the indemnitor shall be entitled, at the indemnitor’s cost, risk and expense, to separate counsel of its own choosing only if it reasonably determines in good faith that such waiver or consent cannot be given, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the indemnitee, such consent not to be unreasonably withheld. If the indemnitor fails to assume the defense of such claim within thirty (30) calendar days after receipt of the claim notice, the indemnitee against which such claim has been asserted will (upon delivering notice to such effect to the indemnitor) have the right to undertake, at the indemnitor’s sole cost and expense (to be reimbursed as accrued), the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnitor. In the event the indemnitee assumes the defense of the claim, the indemnitee will keep the indemnitor reasonably informed of the progress of any such defense, compromise or settlement. The indemnitor shall be liable for any settlement of any action effected pursuant to and in accordance with this Section 7.3 subject to the written consent of the indemnitor and for any final judgment (subject to any right of appeal), and the indemnitor agrees to indemnify and hold harmless an indemnitee from and against any losses by reason of such settlement or judgment; provided, however, that if an indemnitee settles a claim without the prior written consent of the indemnitor, then the indemnitor shall be released from liability with respect to such claim unless the indemnitor has unreasonably withheld such consent. The failure of indemnitee to deliver written notice to the indemnitor within a reasonable time after indemnitee receives notice of any such claim shall relieve such indemnitor of any liability to the indemnitee under this indemnity only if and to the extent that such failure is prejudicial to the indemnitor’s ability to defend such action, and the omission so to deliver written notice to the indemnitor will not relieve it of any liability that it may have to any indemnitee other than under this indemnity.

7.4.         Survival of Representations, Warranties and Indemnity; Holdback Deposit.

(a)          The representations and warranties set forth in this Article 7 are made as of the Effective Date, and each party shall be deemed to have remade all of their respective representations and warranties as of the Closing Date. No representations or warranties shall be deemed to be merged into or waived by the instruments of Closing, but shall survive the Closing for a period of six (6) months.

(b)          The indemnity obligations of the parties under Section 7.3 shall survive the Closing for a period of six (6) months.

(c)          At the Closing Seller shall deposit with Escrow Agent the sum of $100,000 (the “Holdback Deposit”) to serve as a source of payment of any Claims that may become due or owing from Seller under Section 7.3(a) above. Upon receipt of the Holdback Deposit, Escrow Agent shall invest the Holdback Deposit in an interest-bearing account or money market fund mutually acceptable to Seller and Buyer. Escrow Agent shall agree to hold and dispose of the Holdback Deposit in accordance with the terms and provisions of Section 2.3 hereof and this Section 7.4. Any interest earned on the Holdback Deposit shall follow the Holdback Deposit. In the event of any Claim, Buyer shall be entitled to make an Escrow Demand for the payment of such Claim under Section 2.3 above. Any insufficiency in the amount of the Holdback Deposit shall not limit or release Seller’s obligations under Section 7.3(a) above. Subject to the other terms in this Section 7.5 or Section 2.3 above, and if not sooner exhausted through the payment of Escrow Demands, the escrow of the Holdback Deposit shall terminate six (6) months after the Closing Date, whereupon Escrow Agent shall pay and distribute the then available amount of the Holdback Deposit to Seller, unless any Escrow Demands are then unresolved or pending, in which case an amount equal to the aggregate dollar amount of such Escrow Demands shall be retained by Escrow Agent and the balance (if any) paid to Seller. Any amount so retained by Escrow Agent shall continue to be held by Escrow Agent until the dispute between the parties has been resolved pursuant to either clause (a) or (b) of Section 2.3 above.

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ARTICLE 8: DEFAULT AND REMEDIES

8.1.          Buyer’s Remedies. If this transaction fails to close as a result of any default on the part of Seller which has not been cured by the earlier of the thirtieth (30th) day after written notice thereof from Buyer or the Closing Date, then Buyer shall be entitled to such remedies for breach of contract as may be available at law and in equity, including, without limitation, immediate refund of the Deposit and all interest earned thereon and the remedy of specific performance.

8.2.          Seller’s Remedies. If this transaction fails to close as a result of any default on the part of Buyer which has not been cured within thirty (30) days after written notice thereof from Seller, then Seller’s sole remedy shall be to terminate this Agreement and receive the Deposit, as liquidated damages, as Seller’s sole and exclusive remedy at law or in equity (Seller waiving all other rights or remedies in the event of such default by Buyer and the parties hereby acknowledging that Seller’s actual damages in the event of a default by Buyer under this Agreement will be difficult to ascertain, and that such liquidated damages represent the parties’ best estimate of such damages).

8.3.          Other Expenses. If this Agreement is terminated due to the default of any party, then the defaulting party shall pay any fees due to the Escrow Agent.

ARTICLE 9: NON SOLICITATION; NON COMPETE

9.1.          Non-Solicitation. In consideration of the premises contained herein, the consideration to be received hereunder and in consideration of and as an inducement to Buyer to consummate the transactions contemplated hereby, Seller hereby agrees that until the first (1^st) anniversary of the Closing Date, Seller shall not and shall not suffer or permit any of its Affiliates to, directly or indirectly (i) solicit or attempt to induce any employee of Buyer or any Affiliate of Buyer to terminate his or her employment with Buyer or any Affiliate of Buyer; or (ii) hire or attempt to hire any employee of Buyer or any Affiliate of Buyer except on an unsolicited basis at the request of such employee.

9.2.          Non-Compete. In consideration of the premises contained herein, the consideration to be received hereunder and in consideration of and as an inducement to Buyer to consummate the transactions contemplated hereby, Seller hereby agrees that, if the Closing hereunder occurs, Seller shall not, and shall not suffer or permit the Principal to, develop, construct, own, lease, acquire, manage, operate or otherwise directly or indirectly participate in any Competing Project prior to the first (1^st) anniversary of the Closing Date.

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9.3.          Enforcement. Seller acknowledges and recognizes the highly competitive nature of the senior housing industry. Seller has carefully considered the nature and extent of the restrictions set forth herein and acknowledges that the same are reasonable with respect to scope, duration and territory. It is the desire and intent of the parties that the provisions of this Article 9 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Article 9 shall be adjudicated to be invalid or unenforceable, such provision without any action by any party shall be deemed amended to delete therefrom or to modify the provisions thereof so as to restrict (including, without limitation, a reduction in duration, geographical area or prohibited business activity) the portion adjudicated to be invalid or unenforceable, such deletion or modification to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made, and such deletion or modification to be made only to the extent necessary to cause the provision as amended to be valid and enforceable. The parties hereto recognize and acknowledge that a breach by Seller of this Article 9 will cause irreparable and material loss and damage to Buyer as to which Buyer will not have an adequate remedy at law or in damages. Accordingly, each party acknowledges and agrees that the issuance of an injunction or other equitable remedy is an appropriate remedy for any such breach in addition to, and without limiting, any other remedies that the Buyer may have at law or in equity.

ARTICLE 10: MISCELLANEOUS

10.1.          Parties Bound. Neither party may assign this Agreement without the prior written consent of the other, and any such prohibited assignment shall be void; provided, however, that Buyer may assign its rights and obligations under this Agreement without Seller's consent, but with prior written notice to Seller, to any entity which is owned by or under common control with Buyer. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs, and devises of the parties.

10.2.          Headings. The article and paragraph headings of this Agreement are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof.

10.3.          Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Agreement shall not be deemed to be a waiver of such party’s right to enforce against the other party the same or any other such term or provision in the future.

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10.4.          Governing Law. This Agreement shall, in all respects, be governed, construed, applied, and enforced in accordance with the laws of the Commonwealth of Massachusetts.

10.5.          Survival. The provisions of this Agreement that contemplate performance after the Closing including, without limitation, Section 5.7, Article 6, Article 7 and Article 9, the obligations of the parties not fully performed at the Closing, and all indemnities set forth in this Agreement shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing, subject to the provisions of Section 7.4 hereof.

10.6.          No Third Party Beneficiary. This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions, or remedies to any person or entity as a third party beneficiary, decree, or otherwise.

10.7.          Entirety and Amendments. This Agreement embodies the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Property. This Agreement may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought.

10.8.          Time. Time is of the essence in the performance of this Agreement.

10.9.          Confidentiality. Neither party shall make any public announcement or other disclosure of this Agreement or any information related to this Agreement to outside brokers or third parties, before or after the Closing, without the prior written consent of the other party; provided, however, that each party may make disclosure of this Agreement to its lenders, creditors, officers, employees, representatives, investors, consultants and agents as necessary or appropriate to consummate the transactions contemplated herein.

10.10.         Enforcement Expenses. Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges, and expenses, including attorneys’ fees and costs, expended or incurred in connection therewith.

10.11.         Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth in Exhibit J. Any such notices shall be either (i) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered on the date of deposit with such courier, (ii) sent by certified or regular U.S. mail, postage prepaid, in which case notice shall be deemed delivered on the date of deposit with the U.S. Postal Service, (iii) sent by email or facsimile, in which case notice shall be deemed delivered upon transmission thereof so long as a copy thereof is also sent by overnight delivery using a nationally recognized overnight courier by depositing such copy on such date of delivery by email or facsimile with such courier, or (iv) sent by personal delivery, in which case notice shall be deemed delivered upon receipt or refusal of delivery. A party’s address may be changed to another address in the United States by written notice to the other party; provided, however, that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. Notices given by counsel to Buyer shall be deemed given by Buyer and notices given by counsel to Seller shall be deemed given by Seller.

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10.12.         Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and the documents to be executed at the Closing and agree that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement, the documents to be delivered at Closing or any exhibits or amendments thereto.

10.13.         Calculation of Time Periods. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of such period is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the Commonwealth of Massachusetts, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, nor legal holiday.

10.14.         Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Agreement. To facilitate execution of this Agreement, the parties may execute and exchange by telephone facsimile counterparts of the signature pages.

10.15.         Further Assurances. In addition to the acts and deeds recited herein and contemplated to be performed, executed and/or delivered by either party at Closing, each party agrees to perform, execute and deliver, but without any obligation to incur any additional liability or expense, on or after the Closing any further deliveries and assurances as may be reasonably necessary to consummate the transactions contemplated hereby or to further perfect the conveyance, transfer and assignment of the Property to Buyer.

10.16.         Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.

10.17.         Bulk Sales. If any applicable provisions of law require that any state or local taxation authorities be notified of the transactions contemplated herein, or if clearance is required of such authorities, each in order to permit the transfer of the Real Property as contemplated herein without liability to Buyer for any state or local taxes required to be paid or collected by Seller prior to the Closing Date, it shall be a condition precedent to the obligations of Buyer hereunder that all such notification and clearance requirements shall have complied with and the Buyer shall have received the requisite clearances and releases from further liability. Seller shall, within ten (10) days after the Effective Date make all filings necessary to obtain such clearances, and shall contemporaneously provide Buyer with copies of all such filings.

[Remainder of this page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement on the day and year written below.

	SELLER:
	NANTUCKET ACQUISITION LLC, a Delaware limited liability company
Dated:	By:
		Name:
		Title:

	BUYER:
	NORTHBRIDGE COMMUNITIES, LLC, a Massachusetts limited liability company
Dated:	By:
		Name:
		Title:

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JOINDER

Commonwealth Land Title Insurance Company hereby joins this Agreement for the sole purpose of agreeing to be bound by the provisions of Sections 2.2 and 2.3 hereof.

COMMONWEALTH LAND TITLE INSURANCE COMPANY
By:
	Name:
	Title:

JOINDER

Kent Eikanas, as owner of beneficial interests in Seller (“Principal”), hereby acknowledges and agrees that he will derive substantial benefits from the consummation of the transactions herein described. Accordingly, Principal hereby agrees to comply with the covenants and requirements of Article 9 of the Agreement as though each reference therein to “Seller” were instead a reference to “Principal.” The provisions of this Joinder shall survive Closing.

Executed under seal as of the date first above written.

PRINCIPAL:

Name: Kent Eikanas

List of Exhibits

Exhibit	Description
A	Definitions
B	Property Information
C	Seller Deliverables
D	Form of Ground Lease Assignment
E	Form of Bill of Sale and General Assignment
F	Form of FIRPTA Affidavit
G	Form of Ground Lease Amendment
H	Title Matters
I	Environmental Reports
J	Notice Addresses
K	Description of Land

Exhibit A

Definitions

"Affiliate" shall mean (i) as to Seller: Principal, any entity that directly or indirectly controls, is controlled by, or is under common control with Seller or Principal, or any entity at least a ten percent (10%) of whose economic interest is owned, directly or indirectly, by Seller or Principal; and (ii) as to Buyer: James C. Coughlin, Wendy A. Nowokunski, any entity that directly or indirectly controls, is controlled by, or is under common control with Buyer, James C. Coughlin, or Wendy A. Nowokunski, or any entity at least a ten percent (10%) of whose economic interest is owned, directly or indirectly, by Buyer, James C. Coughlin, or Wendy A. Nowokunski; and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations.

"Competing Project" shall mean, as to the Facility, any Senior Housing Facility located within the town of Nantucket, Massachusetts.

"Due Diligence Period" shall mean the period beginning on the Effective Date and ending at 11:59 p.m. on the thirtieth (30th) day following the Effective Date; provided, however that if Buyer does not receive the Operations Transfer Agreement (with all schedules and exhibits thereto completed) executed and delivered by the other parties thereto on or before the fifteenth (15th) day following the Effective Date, then the last day of the Due Diligence Period shall be extended on a day-for-day basis for each day beyond said fifteenth (15th) day until Buyer receives the Operations Transfer Agreement (with all schedules and exhibits thereto completed) executed and delivered by the other parties thereto.

"Effective Date" shall mean the date that this Agreement has been executed and delivered by all parties hereto.

"Environmental Laws" shall mean all applicable federal, state, county, municipal and other local laws governing or relating to Hazardous Materials or the environment, together with their implementing regulations, ordinances and guidelines, including without limitation, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response Compensation and Liability Act.

"Escrow Agent" shall mean Commonwealth Land Title Insurance Company (Boston Office).

"Existing Management Agreement" shall mean the Pre-Acquisition Services and Management Agreement dated November 2, 2009, by and between Seller’s tenant, Sherburne Commons Residences, LLC dba Sherburne Commons, a Massachusetts limited liability company and Existing Manager with respect to the Facility, as amended.

"Existing Manager" shall mean Riverwood Retirement Management, Incorporated, a Florida corporation.

"Facility" shall mean the Senior Housing Facility operated by Existing Manager set forth on Exhibit B attached hereto.

Exhibit A-1

"Ground Lease" shall mean that certain Second Amended and Restated Ground Lease dated as of December 9, 2009, by and among Seller, as lessee, Town of Nantucket, Massachusetts, as lessor, and Sherburne Commons, Inc., a notice of lease of which is recorded in Book 1213 at Page 226 of the Nantucket Registry of Deeds.

"Hazardous Materials" shall mean, without limitation, polychlorinated biphenyls, urea formaldehyde, radon gas, lead paint, radioactive matter, medical waste, asbestos, petroleum products, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas or such synthetic gas), and any substance, material, waste, pollutant or contaminant listed or defined as hazardous, infectious or toxic under any applicable federal, state or local law.

"Improvements" shall mean all buildings, improvements, fixtures, structures, parking areas and landscaping located on or appurtenant to the Land, including, but not limited to, the Facility and the buildings currently used for employee housing on the easterly portion of the Land along South Shore Road.

"Intangible Property" shall mean all right, title and interest of Seller in and to all intangible personal property owned by Seller and now or hereafter used in connection with the ownership of the Facility, including, without limitation, any and all of the following: trade names and trademarks associated with the Facility, including, without limitation, the name "Sherburne Commons" and the trade names set forth on Exhibit B attached hereto; web sites, domain names, and web addresses; the plans and specifications for the Improvements, including as-built plans; warranties, guarantees, indemnities and claims against third parties benefiting Seller; contract rights related to the ownership of the Facility; pending permit or approval applications as well as existing permits, approvals and licenses (to the extent assignable); and insurance proceeds and condemnation awards to the extent provided in Sections 4.2 or 4.3 of this Agreement.

"Land" shall mean all of the land described in and subject to the Ground Lease and all and singular the rights, benefits, privileges, easements, tenements, hereditaments, and appurtenances thereon or in anywise appertaining to such land, including any and all mineral rights, development rights, water rights and the like; and all right, title, and interest of Seller in and to all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such land.

"Lease" shall mean and refer to any lease, license or other agreement other than residency agreements, pursuant to which any person or entity has the right to occupy or use the Real Property or any portion thereof.

"Operations Transfer Agreement" shall mean that certain Operations Transfer Agreement dated on or after the date hereof, by and among Buyer, the Existing Manager, and Sherburne Commons Residences, LLC.

"Permitted Exceptions" shall mean: (i) title and survey exceptions approved by Buyer pursuant to Section 3.3 of this Agreement; (ii) provisions of existing building and zoning laws; (iii) any liens for municipal betterments assessed after the date of this Agreement; (iv) existing rights and obligations in party walls which are not the subject of written agreement; (v) such taxes for the then current year as are not due and payable on the Closing Date; and (vi) parties in possession of individual senior housing units as residents only.

Exhibit A-2

"Permitted Personal Property Liens" shall mean, for the Property (i) leases, license rights or restrictions incurred in the ordinary course of business which do not in any case materially detract from the value of the property subject thereto; (ii) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under self-insurance arrangements; (iii) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; and (iv) purchase money security interest in respect of new equipment in an aggregate amount not in excess of $50,000 at any time, provided Buyer shall receive a credit against the Purchase Price in an amount equal to any such purchase money indebtedness.

"Personal Property" shall mean all Tangible Personal Property and Intangible Personal Property.

"Principal" shall mean Kent Eikanas.

"Property" shall mean the Real Property and the Personal Property.

"Purchase Price" shall mean, subject to adjustments and prorations as set forth herein, the sum of Four Million and 00/100 Dollars ($4,000,000.00).

"Real Property" shall mean (i) all right, title and interest of Seller, as lessee, in and to the leasehold estate created pursuant to the Ground Lease and (ii) the Improvements.

"Rents" shall mean all rental income from the Real Property, including without limitation, base rent and additional rent or fees paid by residents pursuant to the Residency Agreements.

"Residency Agreements" shall mean all residency agreements or other occupancy agreements between Seller or its agents and any other person or entity with respect to the Facility.

"Senior Housing Facility" shall mean a facility which provides any one or more of the following types of senior housing: independent living for seniors, assisted living for seniors or Alzheimer's/memory care for seniors.

"Tangible Personal Property" shall mean all right, title and interest of Seller in and to all tangible personal property now or hereafter used in connection with the use, operation, maintenance or management of the Real Property, including, without limitation, all tools, equipment, machinery, heating, ventilating and air conditioning units, furniture, art work, furnishings, trade fixtures, office equipment and supplies.

"Title Company" shall mean Commonwealth Land Title Insurance Company (Boston office).

“Town Lease Amendment Approval Date” shall mean the date that the Town of Nantucket has informed the parties hereto in writing that it has approved the form of the ground lease amendment required under Section 5.4 hereof and has authorized the execution and delivery thereof (subject only to such reasonable and customary contingencies that Seller and Buyer deem to be capable of satisfaction within the succeeding 30-day period) and the expiration of all appeal periods that may be applicable with respect to such actions of the Town of Nantucket.

Exhibit A-3

Exhibit B

Property Information

Facility/Address	Tradename	Units
Sherburne Commons, 40 Sherburne Commons, Nantucket, MA	Sherburne Commons	60 Units in total: 38 Independent Living Units; 14 Assisted Living Units; and 8 Alzheimer’s /Memory Care Units

Exhibit B-1

Exhibit C

Seller Deliverables

1. All title insurance policies or other evidence of title, together with copies of all encumbrances, easements and restrictions and other matters referenced therein or otherwise affecting the property.

2. Current ALTA survey.

3. Copies of real estate tax bills and other municipal, county, state or other assessments for current and up to two prior years.

4. Evidence of connection and operating of all gas, water, electric, sewer and other utility services (may be shown of survey). Copies of utility invoices for prior twelve months.

5. All building and occupancy permits and licenses and all other governmental permits, licenses and approvals and notices of violation. This should include zoning opinions and other evidence of compliance with zoning (use, building dimensions, parking, loading and access), variances, special permits, site plan approvals, subdivision, building code, wetlands, curb cuts, historic regulations, environmental and similar land use laws and regulations as well as operational licenses for the facility.

6. All plans and specifications prepared in connection with the property including as-built plans, site plans, floor plans and model unit plans.

7. The Ground Lease.

8. All leases, license agreements or similar agreements for use and occupancy allowing any lessees or third parties to use or occupy any portion of the property, together with all amendments, notices, estoppel certificates or agreements or documentation regarding security deposits.

9. All environmental reports on the property, including Phase I reports, Phase II reports; repairs re: air quality, asbestos, lead; all logs of borings and testing wells and test results on the property. Any notices, citations or correspondence to or from the DEP, DEQE, local, state or national agencies; all environmental opinions on the property.

10. Roof study and any other engineering or structural studies performed on the property over the past five (5) years.

11. Any existing geotechnical, engineering, ADA or other reports or documentation regarding the status of the land and structures and the mechanical, electrical, utility and other building systems.

12. A list of all personal property and equipment used in the operation and management of the property and included in the sale, including all on site vehicles.

Exhibit C-1

13. All management contracts or other service agreements regarding maintenance or operation of the property. Agreements to include: elevator maintenance, landscaping, snow removal, fire alarm systems, and all other service agreements or contracts related to the property.

14. Copies of all warranties of guarantees for HVAC, roof, elevators and equipment.

15. Aerial photographs (if available).

16. List of all outstanding litigation.

Financial Due Diligence

17. Current Rent Roll, including prepaid rent and security/last month’s rent deposits.

18. Current listing of ancillary revenue utilization and charges by unit/resident.

19. Lease expiration report.

20. Current year capital budget.

21. Capital expenditure recap for last two years.

22. Current operating budgets broken down by month, including detailed staffing schedules.

23. Current month and prior 12 months detailed internal operating statements.

24. Staffing patterns by month for past two years including hours by position, wages by position and wage totals.

Operations Due Diligence

25. Standard form and all residency agreements including any modifications, addendum’s attachments and Resident Handbooks or House Rules.

26. Incident reports for the prior one year.

27. Outline of existing benefits for all associates (including health, vacation, 401k etc.).

28. Current site organizational chart and job descriptions.

29. Property Bonus Program.

30. Prior two years inspection reports and correspondence from licensing agencies; including department of health, state licensing/certification and all other regulatory agencies.

31. All service agreements related to the operations, including but not limited to pharmacy, beauty shop, transfer, and medical services.

Exhibit C-2

Information Systems

32. An inventory of computers, hardware, software applications per community and home office.

33. Outline payroll process to include pay periods, process, vendors, inventory of time clocks, etc.

Marketing & Sales

34. All marketing materials including collaterals, schedule of fees, current and past one-year ads, brochures, newsletters, direct mailings and disclosure statements.

35. Financial and medical criteria for move-in.

36. 24-month occupancy trend on a monthly basis or from opening to the present, itemized by unit type (i.e. IL, AL).

37. Market feasibility studies; demographics, target markets, etc.

38. One complete collateral kit per project.

39. New resident move in packet; lease, forms, handbooks, etc.

Insurance Due Diligence

40. General and Professional Liability Long Term Care Applications for various insurers, completed for each location.

41. Statement of property values by location.

42. Construction, protection and exposure information by property.

43. Vehicle schedule.

44. Driver schedule.

45. Workers Compensation remuneration, by location, by classification.

46. Copy of the most recent Workers Compensation experience modification and accompanying worksheets.

47. Detailed descriptions of all open and closed claims over $25,000 in the last five years (minimum).

48. Most recent State Surveys including re-visits and compliance letters.

49. Admission Material and Agreements.

50. Copy of all Licenses.

51. Contracts with Vendors.

52. Copy of Safety Program.

Exhibit C-3

Exhibit D

GROUND LEASE ASSIGNMENT

ASSIGNMENT OF GROUND LEASE

THIS ASSIGNMENT OF GROUND LEASE (this “Assignment”) is made as of ____________, 20___ (“Effective Date”) by and among THE TOWN OF NANTUCKET, MASSACHUSETTS, acting by and through its Board of Selection (“Landlord”), NANTUCKET ACQUISITION, LLC, a Delaware limited liability company (“Assignor”), and ______________________________ (“Assignee”), with reference to the following facts:

RECITALS

A.           By Second Amended and Restated Ground Lease dated as of December 9, 2009, as amended to date (the “Lease”), Landlord leased to Assignor certain property located at 21 South Shore Road, Nantucket, Massachusetts as such property is further described therein (the “Property”).

B.           Assignor has entered into a purchase and sale agreement (the “Purchase Agreement”) to sell the Property to Assignee.

C.           Pursuant to the Purchase Agreement, Assignor is obligated to assign to Assignee all of Assignor’s right, title and interest in and to the Lease.

D.           Assignor and Assignee desire to enter into this Assignment to set forth their respective rights and obligations with respect to the Lease.

AGREEMENT

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

1.          Incorporation of Recitals. The Recitals are incorporated herein by this reference as though fully set forth.

2.          Definitions. Except as otherwise expressly provided in this Assignment to the contrary, any capitalized words shall have the meaning ascribed to them in the Lease.

Exhibit D-1

3.          Assignment of Lease. Assignor hereby grants, sells, bargains, conveys, transfers and assigns to Assignee all of Assignor’s right, title and interest in the Lease.

4.          Assumption of Lease. Assignee hereby accepts the sale, bargain, conveyance, transfer and assignment by Assignor to Assignee, its successors and assigns, of all of Assignor’s right, title and interest in the Lease and hereby assumes all of Assignor’s obligations and liabilities under the Lease arising on or after the Effective Date (the “Assumed Obligations”), notwithstanding the later execution and delivery of this Agreement.

5.          Consent. Landlord hereby consents to the assignment made herein from Assignor to Assignee and confirms that it has waived its right of first refusal relating thereto contained in the Lease and that no assignment or transfer fee is due and payable to Landlord under Section 12 of the Lease on account of such transfer.

6.          Indemnity. Assignee shall indemnify, protect, defend and hold harmless Assignor from and against any and all Assumed Obligations from and after the Effective Date. Assignors shall indemnify, protect, defend and hold Assignee harmless from and against any and all liabilities and obligations under the Lease arising and accruing prior to the Effective Date.

7.          Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors in interest and assigns.

8.          Counterparts. This Assignment may be executed in one (1) or more counterparts, each of which shall be deemed an original, but all of which when assembled together shall constitute one (1) and the same instrument.

Exhibit D-2

IN WITNESS WHEREOF, the parties have executed this Assignment as of the date first written above.

ASSIGNOR:		ASSIGNEE:
NANTUCKET ACQUISITION, LLC, a Delaware limited liability company		_____________________________, a ________________________
By:	Cornerstone Ventures, Inc., a California corporation, its ______________	By:
		Name:

By:
Name:
	LANDLORD:
	TOWN OF NANTUCKET
	By its Board of Selectmen

Exhibit D-3

Exhibit E

BILL OF SALE AND GENERAL ASSIGNMENT

THIS BILL OF SALE AND GENERAL ASSIGNMENT (this “Assignment”) is made as of the ___ day of ______________, 20___ (the “Transfer Date”), by and between ____________________, a _________________ (“Assignor”), and ____________________, a _________________ (“Assignee”).

A.           Assignor and certain affiliates thereof, as seller, and Northbridge Communities, LLC (“Northbridge”), as buyer, entered into that certain Purchase and Sale Agreement dated as of ___________, 20___ (the “Purchase Agreement”) in connection with, inter alia, that certain senior housing facility commonly known as ____________, located in ________________ (the “Facility”).

B.           Northbridge’s rights under the Purchase Agreement with respect to the Facility have been assigned to Assignee pursuant to an assignment agreement by and between Northbridge and Assignee of even date herewith.

C.           Pursuant to the Purchase Agreement, Assignor has agreed to assign, transfer and convey all of its rights, title and interest in, to and under the Personal Property with respect to the Facility to Assignee.

AGREEMENT

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

1.          Personal Property. Assignor hereby sells, assigns, transfers and conveys unto Assignee all of Assignor’s rights, title and interest in, to and under all Personal Property, including, without limitation, (i) all trade names and trademarks associated with the Facility, including, without limitation, the name "Sherburne Commons" and the trade names set forth in Exhibit B to the Purchase Agreement, and (ii) all vehicles and equipment listed on Exhibit A attached hereto, subject only to the Permitted Personal Property Liens, as is, where is and without warranty, express or implied, of merchantability or fitness for a particular purpose, except as set forth in the Purchase Agreement, TO HAVE AND TO HOLD all of said Personal Property unto Assignee, its successors and assigns, to its own use forever.

2.          Indemnity by Assignor. Assignor agrees to indemnify, defend and hold Assignee harmless from and against any and all losses, costs, claims, damages, liabilities and expenses, including, without limitation, reasonable attorneys’ fees and expenses, accruing prior to the Transfer Date relating to the Personal Property.

3.          Indemnity of Assignee. Assignee agrees to indemnify, defend and hold Assignor harmless from and against any and all losses, costs, claims, damages, liabilities and expenses, including, without limitation, reasonable attorneys’ fees and expenses, accruing on or after the Transfer Date relating to the Personal Property.

Exhibit E-1

4.          Prevailing Party. In the event of any legal or equitable proceeding to enforce any of the terms or conditions of this Assignment, or any alleged disputes, breaches, defaults or misrepresentations in connection with any provision of this Assignment, the prevailing party in such proceeding shall be entitled to recover its reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and costs of defense paid or incurred in good faith.

5.          Counterparts. This Assignment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this Assignment to physically form one document.

6.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement.

Exhibit E-2

IN WITNESS WHEREOF, the parties have executed this Assignment as of the __________ day of __________, 20___.

ASSIGNOR:
___________________________, a
___________________________
By:      _______________________, a                    _______________________
By:	___________________________
	Name:
	Title:

ASSIGNEE:
____________________________, a                                       _________________ limited liability company
By:	___________________________
	Name:
	Title:

Exhibit E-3

Exhibit F

FIRPTA Affidavit

Section 1445 of the Internal Revenue Code of 1986, as amended, provides that a transferee of a United States real property interest must withhold tax if the transferor is a foreign person. To inform the Transferee (hereinafter defined) that withholding of tax is not required upon the disposition of a United States real property interest by _________________________________, a __________ (the “Transferor”) to ___________________________________, a ___________ (the “Transferee”), the undersigned, being first duly sworn upon oath, does hereby depose and say, and does hereby certify the following on behalf of the Transferor:

1.          The undersigned is the ____________________ of the Transferor and is familiar with the business of the Transferor;

2.          The Transferor is not a foreign person; that is, the Transferor is not a nonresident alien, a foreign corporation, foreign partnership, foreign trust or foreign estate (as all such terms are defined in the Internal Revenue Code of 1986, as amended, and United States Treasury Department Income Tax Regulations in effect as of the date hereof);

3.          The Transferor is a corporation duly organized, validly existing and in good standing under the laws of the State of ____________;

4.          The Transferor’s United States employer identification number is __________;

5.          The Transferor’s office address and principal place of business is ___________________; and

6.          This certificate and affidavit is made to induce the Transferee to consummate the transactions contemplated by the Transferor and Transferee.

The Transferor understands that this affidavit and certification may be disclosed to the United States Internal Revenue Service by the Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury, the undersigned declares that he has examined this affidavit and certificate, and to the best of the undersigned’s knowledge and belief, it is true, correct and complete. The undersigned further declares that he has authority to sign this affidavit and certificate on behalf of the Transferor.

Exhibit F-1

This affidavit and certificate is executed and delivered as of the ___ day of _______________, 20___.

	,
a

By:
	Name:
	Title:

STATE OF ____________ )

                              ) SS.

COUNTY OF                     )

I, _____________________, a notary public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that ______________________ personally known to me to be the __________________ of _______________________________________, a _________, and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that as such _____________, he/she signed and delivered the said instrument, pursuant to authority, given by the Board of Directors of said corporation as his/her free and voluntary act, and as the free and voluntary act of said corporation, for the uses and purposes herein set forth.

GIVEN under my hand and official seal this _____ day of ___________, 20__.

Notary Public

My Commission Expires:__________

Exhibit F-2

Exhibit G

Form of Ground Lease Amendment

AMENDMENT TO SECOND AMENDED AND RESTATED GROUND LEASE

This AMENDMENT TO SECOND AMENDED AND RESTATED GROUND LEASE (this “Amendment”) is dated as of ___________, 2012 and is made by and between THE TOWN OF NANTUCKET, MASSACHUSETTS, acting by and through its Board of Selection (the “Landlord”) and NANTUCKET ACQUISITION, LLC, a Delaware limited liability company (“Ground Tenant”).

RECITALS

A.           WHEREAS, by Second Amended and Restated Ground Lease dated as of December 9, 2009 (the “Lease”), Landlord leased to Ground Tenant certain property located at 21 South Shore Road, Nantucket, Massachusetts as such property is further described therein (the “Property”).

B.           WHEREAS, Ground Tenant desires to market for sale all of its right, title and interest in the Lease and, in connection with such marketing, has requested that the Landlord enter into this amendment of the Lease; and

NOW, THEREFORE, in consideration of the foregoing recitals, the obligations, rights and benefits contained herein, and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, Landlord and Ground Tenant (collectively, the “Parties”) hereby agree as follows:

1.          Side Letter re: Adult Community Day Care and Skilled Nursing. Landlord and Tenant acknowledge and agree that the undertakings set forth in Paragraph 4(p) of the Lease have been satisfied and that said Paragraph 4(p) is hereby deleted from the Lease.

2.          Assignments and Transfers. The Lease is hereby amended by adding the following as a new sentence at the end of the fourth full paragraph of Paragraph 12 of the Lease:

“Notwithstanding anything herein to the contrary contained in this Amended Ground Lease, the Ground Tenant shall be permitted, without the Landlord’s prior written consent, to: (i) mortgage, collaterally assign, or grant security interests in its leasehold estate and other interests in the Property and this Amended Ground Lease pursuant to Paragraph 23 hereof and (ii) to enter into leases, subleases, and occupancy agreements with commercial tenants or service providers for less than 500 square feet of space or with tenants or occupants of any residential units.”

3.          Condemnation. If title to, or the permanent or temporary use of, all or a part of the Property is taken under the exercise of the power of eminent domain to such extent that in the Ground Tenant’s reasonable determination, (i) the Property and the improvements thereon cannot reasonably be expected to be restored, within a period of six months from the commencement of restoration, to a condition of usefulness comparable to that existing prior to the taking, or (ii) as a result of the taking, normal use and operation of the Project is reasonably expected to be prevented for a period of six consecutive months or more, then, within 90 days following the date of entry of a final order in any eminent domain proceeding, the Ground Tenant may elect to terminate this Amended Ground Lease by giving at least 30 days written notice to Landlord. In the event of such termination, the net proceeds or award of such eminent domain shall be applied as follows: first, to payment of the outstanding principal balance, unpaid interest and other amounts due under any Leasehold Mortgages; second, to reimburse the Ground Tenant in an amount equal to the Ground Tenant's unamortized cost of acquiring, constructing, installing and/or equipping any buildings and other improvements on the Property; and the balance to the Landlord and Ground Tenant to be apportioned between them based on their respective interests in the Property as encumbered by this Amended Ground Lease. If the Ground Tenant does not elect to terminate this Amended Ground Lease, the net proceeds or award of such eminent domain shall be paid to the Ground Tenant and/or its Leasehold Mortgagee and used to repair and replace the Property and the buildings and other improvements thereon as nearly as practicable to the condition and character thereof existing immediately prior to such taking, with such changes or alterations, however, as the Ground Tenant may reasonably deem necessary for proper operation of the Property.

4.          Skilled Nursing Facility. The parties hereto agree that notwithstanding anything to the contrary contained in Section 13 of the Lease regarding the footprint for any skilled nursing facility, the location of such footprint and the portion of Ground Tenant’s leasehold interest that may be taken back by Landlord shall be located in and limited to the area designated as “Possible Future Skilled Nursing Facility” on the map attached hereto as Exhibit A and made a part hereof. If Ground Tenant does not exercise its right to develop such skilled nursing facility, the following costs incurred by Ground Tenant and necessitated by the development, construction or operation of such skilled nursing facility shall be paid for or reimbursed by Landlord and the developer and operator of such facility: (a) architectural, engineering, construction and legal services or work; (b) utilities, access, parking, landscaping, or other site work; and (c) redevelopment, replacement and reconstruction of any buildings, improvements or appurtenances used or owned by Ground Tenant and located within the footprint of such skilled nursing facility or affected by its development, construction or operation.

5.          Leasehold Mortgages. The Lease is hereby amended by adding the following as a new Paragraph 23 of the Lease:

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“23.        Leasehold Mortgages.

Ground Tenant shall have the right to mortgage any or all of its interest in this Amended Ground Lease. If Ground Tenant shall mortgage its leasehold interest hereunder pursuant to any leasehold mortgage or similar security instrument (each, a “Leasehold Mortgage”), and if the holder of any such Leasehold Mortgage (together with its successors and/or assigns, a “Leasehold Mortgagee”) shall forward written notice setting forth the name and address of said Leasehold Mortgagee, then, until the time that said mortgage has been irrevocably satisfied:

(a)          This Lease shall not be amended, amended, modified, subordinated, cancelled, or surrendered without the prior written consent of Leasehold Mortgagee.

(b)          If Landlord shall give any notice, demand, election or other communication (hereafter in this Paragraph (only) collectively referred to as “Notices”, and individually, as a “Notice”) to Ground Tenant hereunder, Landlord shall at the same time give a copy of each such Notice to said Leasehold Mortgagee at the address theretofore designated by said Leasehold Mortgagee. Such copies of Notices shall be given in the same manner and subject to the same terms and conditions as other notices given under this Amended and Restated Lease. No Notice given by Landlord to Ground Tenant shall be binding upon or affect said Leasehold Mortgagee unless a copy of said Notice shall be given to said Leasehold Mortgagee pursuant to this Paragraph.

(c)          Until such time as any leasehold mortgage has been irrevocably satisfied in full, Leasehold Mortgagee shall have the right, but not the obligation, to perform any term, covenant, condition or agreement, to exercise any and all of Ground Tenant’s rights under this Amended Ground Lease (specifically including, but not limited to, the option to extend the term as provided for in this Amended and Restated Lease), and to remedy any default by Ground Tenant hereunder. Landlord shall accept such performance by said Leasehold Mortgagee with the same force and effect as if performed, exercised and/or remedied by Ground Tenant.

(d)          In case of a default by Ground Tenant in the performance or observance of any term, covenant, condition or agreement on Ground Tenant’s part to be performed under this Amended and Restated Lease, then Landlord shall not serve a notice of election to terminate this Amended and Restated Lease pursuant to this Amended and Restated Lease, or otherwise terminate the leasehold estate of Ground Tenant hereunder by reason of such default, if and so long as:

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(i)          in the case of a default in the payment of basic rent, said Leasehold Mortgagee shall make such payment, together with any late fee or penalty, if any (collectively, the “Rent”) within thirty (30) days after written notice thereof by Landlord;

(ii)         in the case of a default which can be practicably cured by said Leasehold Mortgagee without taking possession of the Property, said Leasehold Mortgagee shall cure such default within ninety (90) days after written notice thereof by Landlord or if such default is not reasonably susceptible of being cured within such ninety (90) day period, such longer period of time as is necessary to cure such default so long as Leasehold Mortgagee has commenced and is diligently pursuing said cure;

(iii)        in the case of a default which cannot practicably be cured by said Leasehold Mortgagee without taking possession of the Property, said Leasehold Mortgagee shall proceed diligently to obtain possession of the Property as mortgagee (including possession by a receiver), and, upon obtaining such possession, shall proceed diligently to cure such default; and

(iv)        in the case of default which is not susceptible of being cured by said Leasehold Mortgagee, said Leasehold Mortgagee shall institute foreclosure proceedings and diligently prosecute the same to completion (unless in the meantime said Leasehold Mortgagee shall acquire Ground Tenant’s estate hereunder, either in its own name or through a nominee, by assignment in lieu of foreclosure).

Notwithstanding anything to the contrary contained herein, Leasehold Mortgagee shall not be required to continue to proceed to obtain possession, or to continue in possession as mortgagee, of the Property pursuant to Paragraph 23(d)(iii) above, or to continue to prosecute foreclosure proceedings pursuant to Paragraph 23(d)(iv) above, if and when such default shall be cured. If said Leasehold Mortgagee, or its nominee, or a purchaser at a foreclosure sale, shall acquire title to Ground Tenant’s leasehold estate hereunder, and shall cure all defaults of Ground Tenant hereunder which are susceptible of being cured by said Leasehold Mortgagee, or by said purchaser, as the case may be, then the defaults of any prior holder of Ground Tenant’s leasehold estate hereunder which are not susceptible of being cured by said Leasehold Mortgagee (or by said purchaser) shall no longer be deemed to be defaults hereunder. Leasehold Mortgagee shall have no liability under this Amended Ground Lease unless it forecloses and actually operates the Property after such foreclosure or assignment in lieu of foreclosure.

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(e)          If Ground Tenant shall reject or disaffirm this Amended and Restated Lease pursuant to any bankruptcy law, Landlord shall give to Leasehold Mortgagee written notice of such rejection or disaffirmance, together with a statement of all Rent then due and payable by Ground Tenant under this Amended and Restated Lease (without giving effect to any acceleration of the due date of any such payment of Rent), and of all other defaults under this Amended and Restated Lease. Leasehold Mortgagee shall have the right (but not the obligation), to give to Landlord within thirty (30) days after receipt by such Leasehold Mortgagee of such notice from Landlord, a notice that such Leasehold Mortgagee elects to (a) assume this Amended and Restated Lease, and (b) cure all then-existing outstanding balance of Rent concurrently with such assumption of all non-monetary defaults (except for defaults of the type specified in Section 365(b)(2) of the Bankruptcy Code or which are impossible for Leasehold Mortgagee to cure) with reasonable diligence. In the event of such election, (i) Ground Tenant’s rejection or disaffirmance of this Amended and Restated Lease shall not constitute a termination of this Amended and Restated Lease, (ii) Ground Tenant and such Leasehold Mortgagee’s interest in the Facility shall remain in effect (except to the extent Ground Tenant’s interest therein shall have terminated or been transferred in connection with any enforcement of any Leasehold Mortgage) and shall not be terminated or subjected to any divestiture or defeasance as a result of such rejection or disaffirmance, (iii) such Leasehold Mortgagee may assume the obligations of Ground Tenant without any instrument of assignment or transfer from Ground Tenant, (iv) such Leasehold Mortgagee’s rights under this Amended and Restated Lease shall be free and clear of all rights, claims and encumbrances of or in respect of Ground Tenant, (v) such Leasehold Mortgagee shall consummate the assumption of this Amended and Restated Lease and the payment of the amounts payable by it to Landlord as provided above at a closing to be held at the office of such Leasehold Mortgagee on the thirtieth (30^th) business day after such Leasehold Mortgagee shall have given to Landlord the notice hereinabove provided for, and (vi) upon an assignment of this Amended and Restated Lease by such Leasehold Mortgagee, such Leasehold Mortgagee shall be relieved of all obligations and liabilities arising from and after the date of such assignment.

(f)          If Landlord (whether as debtor in possession or otherwise) or any trustee of Landlord shall reject or disaffirm this Amended and Restated Lease pursuant to the Bankruptcy Code, (i) Ground Tenant, without further act or deed, shall be deemed to have elected to remain in possession of the Property for the balance of the term hereof (including any extension or renewal terms) (unless Leasehold Mortgagee shall otherwise consent in writing), and (ii) this Amended and Restated Lease shall not be terminated, or be deemed to have terminated, unless Ground Tenant (with the written consent of Leasehold Mortgagee) shall elect to treat this Amended and Restated Lease as terminated under Section 365 of the Bankruptcy Code. Any exercise or attempted exercise by Ground Tenant of any right to treat this Amended and Restated Lease as terminated after any rejection or disaffirmance of this Amended and Restated Lease by Landlord (whether as debtor in possession or otherwise) or any trustee of Landlord shall be void unless consented to in writing by Leasehold Mortgagee. In the absence of such election with such consent, this Amended and Restated Lease shall not be treated as terminated under any provision of the Bankruptcy Code, and this Amended and Restated Lease shall continue in full force and effect in accordance with its terms (except that Ground Tenant shall have the rights conferred under Section 365 of the Bankruptcy Code), and the rights of any Leasehold Mortgagee shall not be affected or impaired by such rejection or disaffirmance.

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(g)          If this Amended and Restated Lease shall terminate pursuant to the terms hereof, or shall otherwise terminate by reason of a default of Ground Tenant hereunder, and if within thirty (30) days after such termination said Leasehold Mortgagee, by written notice to Landlord, shall request Landlord to enter into a new lease pursuant to this Paragraph, then Landlord shall enter into a new lease of the Property and all improvements thereon with said Leasehold Mortgagee (or its nominee which is approved by Landlord), within thirty (30) days after the giving of said written notice by said Leasehold Mortgagee, if said Leasehold Mortgagee shall comply with the following provisions of this Paragraph. Leasehold Mortgagee shall agree to cure all of the defaults of the Ground Tenant under this Amended and Restated Lease which are susceptible of being cured by said Leasehold Mortgagee. Said new lease shall commence, and rent and all obligations of the Ground Tenant under the new lease shall accrue, as of the date of termination of this Amended and Restated Lease. The term of said new lease shall continue for the period which would have constituted the remainder of the term of this Amended and Restated Lease had this Amended and Restated Lease not been terminated, and shall be upon all of the terms, covenants, conditions, conditional limitations and agreements contained herein which were in force and effect on the date of termination of this Amended and Restated Lease, but excluding such terms, covenants, agreements and conditions which have been fully performed prior to that time or which are not reasonably susceptible to being kept, observed or performed by such Leasehold Mortgagee or which are otherwise inapplicable. Said new lease, and this covenant, shall be superior to all rights, liens and interests intervening between the date of this Amended and Restated Lease and the granting of said new lease, and shall be free of any and all rights of Ground Tenant hereunder. The provisions of the immediately preceding sentence shall be self-executing, and Landlord shall have no obligation to do anything, other than to execute said new lease as herein provided, to assure to said Leasehold Mortgagee or to the Ground Tenant under the new lease good title to the leasehold estate granted thereby. Each subtenant of space in the Property, if any, whose sublease was in force and effect immediately prior to the delivery of said new lease shall attorn to the Ground Tenant under the new lease, unless said Ground Tenant shall, at its option, elect to dispossess said subtenant or otherwise terminate the sublease held by said subtenant. Each subtenant who hereafter subleases space within the Property shall be deemed to have agreed to the provisions of this paragraph. The foregoing shall not be deemed to obligate Landlord to keep any sublease in force and effect after the termination of this Amended and Restated Lease, nor shall Landlord have any obligation to terminate any sublease simultaneously with the termination of this Amended and Restated Lease. Said Leasehold Mortgagee shall, simultaneously with the delivery of the new lease by Landlord, pay to Landlord all Rent due under this Amended and Restated Lease on the date of termination of this Amended and Restated Lease and then remaining unpaid. Simultaneously therewith, Landlord shall pay or credit to said Leasehold Mortgagee any rentals, less costs and expenses of collection, received by Landlord between the date of termination of this Amended and Restated Lease and the date of execution of said new lease, from subtenants or other occupants of the Property, if any, which shall not theretofore have been applied by Landlord towards the payment of rent or any other sum of money payable by Ground Tenant hereunder or towards the cost of operating the Property and all buildings and improvements thereon or performing the obligations of Ground Tenant hereunder.

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(h)          Except as provided in the foregoing Paragraph 23(g) no mortgage now or hereafter a lien upon this Amended and Restated Lease shall extend to or affect in any manner whatsoever the reversionary interest and estate of Landlord in and to the Property or in any manner attach to or affect the Property from and after any expiration or termination of this Amended and Restated Lease.

(i)          Notwithstanding anything to the contrary contained herein, in the event of any foreclosure proceeding or deed-in-lieu of foreclosure transaction: (A) Landlord’s consent shall not be required for the sale, purchase, conveyance, transfer or acquisition of the Property or any interest in this Amended Ground Lease pursuant to any such proceeding or transaction; (B) Leasehold Mortgagee, or any other party who purchases or acquires the Property or any interest in this Amended Ground Lease in such proceeding or transaction shall not be obligated to pay to Landlord the fee specified in Paragraph 12 hereof and payment of such fee is hereby waived by Landlord; and (C) the ROFR set forth in Paragraph 12 hereof shall not apply to such proceeding or transaction and is hereby waived by Landlord.

(j)          There shall be no merger of Ground Tenant’s leasehold estate under this Amended and Restated Lease with the fee estate in the Property by reason of the fact that Ground Tenant’s leasehold estate may be held directly or indirectly by or for the account of any person who shall also hold directly or indirectly the fee estate, or any interest in such fee estate, no shall there be any such merger by reason of the fact that all or any part of Ground Tenant’s leasehold estate may be conveyed or mortgaged to a Leasehold Mortgagee who shall also hold directly or indirectly the fee estate, or any part thereof, in the Property or any interest of Landlord under this Amended and Restated Lease.

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(k)          Landlord waives and relinquishes any landlord’s lien, all rights of levy, distress or distraint and all claims and demands of every kind against any of the Ground Tenant’s property now or hereafter located at the Property, including, without limitation, Ground Tenant’s present and future inventory, equipment and all tangible property now owned or hereafter acquired by the Ground Tenant (collectively, the “Goods”, which term, as used herein, shall not include any property owned by the Landlord or required to support the structure of, or to heat or cool as a whole, the building located on the Property or which would cause material structural damage or constitute a material adverse alteration to the structure of the Property if removed). Without limiting the foregoing provisions of this Paragraph, Leasehold Mortgagee or its receiver or any officer or other representative of Leasehold Mortgagee, may, at its option, from time to time enter the Property for the purpose of inspecting, possessing, removing, selling (by way of public or private auction), advertising for sale or otherwise dealing with the Goods, and such license shall be irrevocable and shall continue from the date the Leasehold Mortgagee enters the Property for as long as it deems necessary but not to exceed a period of ninety (90) days after the receipt by the Leasehold Mortgagee of written notice by the Landlord directing removal of the Goods.

(l)          Landlord hereby represents and warrants that there are no fee mortgages encumbering the Property as of the date hereof. Landlord shall not grant any fee mortgage after the date hereof unless and until the Landlord’s mortgagee shall have entered into a satisfactory non-disturbance agreement with Leasehold Mortgagee providing, among other things, that the Landlord’s mortgagee shall not take any action to terminate this Amended Ground Lease as a result of a default thereunder unless and until Leasehold Mortgagee shall have first been given notice and opportunity to cure such default as is required herein.

(m)          In the case of any casualty or similar event, any proceeds from the policies of insurance maintained by Ground Tenant or otherwise for the benefit of said Leasehold Mortgagee shall be applied to pay the costs of repair and restoration resulting from such casualty or similar event, provided that any and all conditions contained in the Leasehold Mortgage and the loan documents related thereto regarding the disposition of insurance proceeds have been satisfied; otherwise, such insurance proceeds shall be applied and used as provided for in the Leasehold Mortgage and the loan documents related thereto. In the case of any condemnation, any awards for a total taking received by Ground Tenant shall be paid to the Leasehold Mortgagee and any awards for a partial taking shall be payable to the Leasehold Mortgagee or an insurance trustee for restoration with the excess, if any, to be payable to the Leasehold Mortgagee, provided that any and all conditions contained in the Leasehold Mortgage and the loan documents related thereto regarding the disposition of condemnation awards have been satisfied; otherwise, such condemnation awards shall be applied and used as provided for in the Leasehold Mortgage and the loan documents related thereto.

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(n)          Leasehold Mortgagee shall be named as an additional insured on each and every hazard-type insurance policy required hereunder.

(o)          Landlord and Ground Tenant will from time to time upon not less than twenty (20) days’ prior written request deliver an estoppel certificate in favor of the other party to this Amended Ground Lease or any proposed mortgagee or purchaser certifying (i) whether this Amended Ground Lease is in full force and effect, (ii) whether this Amended Ground Lease has been modified or amended and, if so, describing any such modification or amendment, (iii) the date to which rent and other charges have been paid and the amounts and due dates of the remaining installments of rent due under the Lease, (iv) whether the party furnishing such certificate knows of any default on the part of the other party or has any claim against such party and, if so, specifying the nature of such default or claim, (v) if applicable, Landlord’s receipt of the name and address of any Leasehold Mortgagee and that the terms and conditions of this Agreement shall exist for the benefit of said Leasehold Mortgagee, and (v) any other matters reasonably requested concerning the Lease.”

6.            Condominium.

(a)          Subparagraph d. of Paragraph 4 of the Lease is hereby deleted and replaced with the following: “d. Intentionally Omitted.”

(b)          The Lease is hereby amended by adding the following as a new Paragraph 24 of the Lease:

“24.        Condominimum. Ground Tenant shall have the right to adopt one or more condominium, co-operative, tenancy in common, or other similar forms of multiple owner ownership of the Facility or units therein and to market, sell or lease parts of the Facility or units therein or other rights; provided, however, that in each case: (a) this Amended Ground Lease shall be superior to any such condominiums, co-operatives, tenancies in common, and other forms of ownership, which shall remain subject and subordinate to the terms and conditions of this Amended Ground Lease; (b) Ground Tenant shall be liable for the payment of any remaining amounts due to “EF Current Residents” to the extent required under Section 4.7 of the Liquidating Trust Agreement dated as of December __, 2009 entered in the Chapter 11 Case No. 08-18026-WCH of the U.S. Bankruptcy Court for the District of Massachusetts as a result of re-sales of the residential units of such “EF Current Residents”; and (c) any and all documents and actions executed and taken by Ground Tenant in connection with such condominiums, co-operatives, tenancies in common, and other forms of ownership shall be done in compliance with all applicable statutes, regulations, and other legal requirements.”

9

7.          On or after the date hereof, each reference in the Lease to this “Lease”, “this Amended and Restated Lease”, “hereunder”, “herein”, “hereof” or words of similar meaning shall mean and be a reference to the Lease as amended hereby.

8.          Except as specifically set forth herein, the Lease shall remain in full force and effect and is hereby ratified and confirmed.

9.          If any term or provision of this Agreement is to any extent held invalid or unenforceable, the remaining terms of this Agreement will not be affected thereby, but each term and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts and shall be binding upon and inure to the benefit of the successors and assigns of each party hereto.

[Remainder of this page intentionally left blank; Signature Page follows]

10

IN WITNESS WHEREOF, the undersigned have executed this Amendment of the Lease on and as of the date first above set forth.

LANDLORD:

TOWN OF NANTUCKET

By its Board of Selectmen

GROUND TENANT:

NANTUCKET ACQUISITION, LLC, a Delaware limited liability company

By: Cornerstone Ventures, Inc., a California corporation, its ________________

By:
	Name:
	Title:

Exhibit G-1

Exhibit H

Title Matters

1. Rights of residents under Residency Agreements.

2. Liens for taxes and municipal charges not yet due and payable as of the Closing Date.

3. Terms and provisions of that certain Amended and Restated Lease, dated December 9, 2009, among the Town of Nantucket, as Landlord, Sherburne Commons, Inc. and Nantucket Acquisition LLC, as Ground Tenant, Notice of which is recorded with said Deeds, Book 1213, Page 226.

4. Terms and provisions of an Order of Taking for Sewer Easement to the Town of Nantucket dated August 12, 1981, recorded in Book 185, Page 6.

5. Terms and provisions of a License Agreement between Sherburne Commons, Inc., and Nantucket Electric Company, dated August 4, 2006 and recorded in Book 1036, Page 168.

6. Terms and provisions of a License Agreement between Sherburne Commons, Inc., and Verizon New England, Inc., dated October 10, 2006 and recorded in Book 1049, Page 281.

7. Terms and provisions of an Order Confirming First Amended Plan of Liquidation filed November 30, 2009 with the United States Bankruptcy Court District of Massachusetts as Case 08-18026 recorded on December 28, 2009 in Book 1213, page 163.

8. Order of Conditions (SE48-1643) dated August 8, 2003 and recorded at Book 870, Page 43.

Exhibit H-1

Exhibit I

List of Environmental Reports

None

Exhibit I-1

Exhibit J

Notice Addresses

(a)	Seller:	With a copy to:
	Nantucket Acquisition LLC	Jennifer R. Berland, Esq.
	c/o Cornerstone	425 Market St., 26th Floor
	1920 Main St, Suite 400,	San Francisco, CA 90275
	Irvine, California 92614	Phone: 415-995-5837
	Attention: Kent Eikanas	Fax: 415-995-3409
	Facsimile: (949) 852-2729	Email: JBerland@hansonbridgett.com
	E-Mail: KEikanas@crefunds.com
(b)	Buyer:	With a copy to:
	Northbridge Communities, LLC
	15 Third Avenue	Frank A. Appicelli, Esq.
	Burlington, MA 01803	Bingham McCutchen LLP
	Attn:  James C. Coughlin, Managing Member	One State Street, Hartford, CT 06103
	Phone: (781) 238-4851	Phone:  860-240-2984
	Fax: (781) 272-0846	Fax:  860-240-2540
	Email: jcoughlin@northbridgecos.com	Email: frank.appicelli@bingham.com
(c)	Escrow Agent and Title Company:
	Commonwealth Land Title Insurance Company
	265 Franklin Street, 8th Floor
	Boston, MA 02110
	Attn:  Robert Capozzi
	Phone: (617) 619-4810
	Fax: (617) 851-8294
	Email: Robert.Capozzi@fnf.com

Exhibit J-1

EX-31.1

Exhibit 31.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

I, Kent Eikanas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Core Properties REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ KENT EIKANAS
Date: November 14, 2012	Kent Eikanas
	President / Chief Operating Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER

I, Timothy C. Collins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Core Properties REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ TIMOTHY C. COLLINS
Date: November 14, 2012	Timothy C. Collins
	Chief Financial Officer and Treasurer (Principal Financial Officer )

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Kent Eikanas and Timothy C. Collins do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge, the Quarterly Report of Cornerstone Core Properties REIT, Inc. on Form 10-Q for the three-month period ended September 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Cornerstone Core Properties REIT, Inc.

	KENT EIKANAS
Date: November 14 , 2012	/s/ Kent Eikanas
	President / Chief Operating Officer
	/s/ TIMOTHY C. COLLINS
Date: November 14, 2012	Timothy C. Collins
	Chief Financial Officer and Treasurer (Principal Financial Officer )

XML

Summary of Significant Accounting Policies (Details Textual) (USD $)				9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	May 31, 2008	Sep. 30, 2012 Furniture and Fixtures [Member]	Sep. 30, 2012 Maximum [Member]	Sep. 30, 2012 Minimum [Member]
Notes Receivable, Fair Value Disclosure	$ 900,000	$ 900,000
Financing Receivable, Net	908,000	908,000	10,000,000
Fair Value Inputs Discount Rate Notes Receivable	10.00%				5.00%	3.50%
Notes Payable	21,990,000	21,070,000
Notes Payable, Fair Value Disclosure	$ 44,700,000	$ 21,300,000
Property, Plant and Equipment, Useful Life				5 years	39 years	15 years

XML

Consolidation of Variable Interest Entity (Details Textual) (USD $)	3 Months Ended	12 Months Ended		9 Months Ended
	Mar. 31, 2012 Sherburne Commons Property [Member]	Dec. 31, 2011 Sherburne Commons Property [Member]	Sep. 30, 2012 Nantucket Acquisition [Member]	Sep. 30, 2012 Cornerstone Healthcare Partners [Member]	Sep. 30, 2012 Cornerstone Healthcare Real Estate Fund [Member]
Variable Interest Entity, Consolidated, Carrying Amount, Assets			$ 9,000,000
Impairment of Real Estate Asset Held for Sale	$ 1,100,000	$ 4,800,000
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest				95.00%
Limited Liability Company Llc Or Limited Partnership Lp Members Or Advisors Ownership Interest					5.00%

XML

Concentration of Risk (Details Textual) (USD $)	1 Months Ended	9 Months Ended
	Jul. 21, 2010	Sep. 30, 2012
Cash, FDIC Insured Amount	$ 250,000
Concentration Risk, Credit Risk, Financial Instruments	unlimited federal deposit insurance until January 1, 2013
Concentration Risk, Geographic		As of September 30, 2012, we owned three properties in the state of California, six properties in the state of Florida three properties in the state of Oregon and one property in the state of Texas. Accordingly, there is a geographic concentration of risk subject to economic conditions in these states.
Maximum [Member]
Cash, FDIC Insured Amount	250,000
Minimum [Member]
Cash, FDIC Insured Amount	$ 100,000

XML

Subsequent Events (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:	$ 1,522,000	$ 1,155,000	$ 3,623,000	$ 3,675,000
Variable Interest Entity, Primary Beneficiary [Member]
Revenues:			$ 4,000,000

XML

Equity (Details) (USD $)	3 Months Ended												9 Months Ended
	Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Sep. 30, 2011		Jun. 30, 2011		Mar. 31, 2011		Sep. 30, 2012	Sep. 30, 2011
Dividends Declared Cash	$ 0	[1]	$ 0	[1]	$ 0	[1]	$ 0	[1]	$ 468,000	[2]	$ 454,000	[2]
Dividends Payable Reinvested	0	[1]	0	[1]	0	[1]	0	[1]	0	[1],[2]	0	[1],[2]
Dividends Declared and Paid	0	[1]	0	[1]	0	[1]	0	[1]	468,000	[2]	454,000	[2]
Net cash provided by operating activities	$ (2,400,000)		$ (953,000)		$ (800,000)		$ (323,000)		$ (219,000)	[2]	$ 481,000	[2]	$ (4,153,000)	$ (61,000)

[1] In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds.

[2] 100% of the distributions declared during the nine months ended September 30, 2011 represented a return of capital for federal income tax purposes.

XML

Business Combinations (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 14, 2012	Aug. 03, 2012
Business Acquisition, Percentage of Voting Interests Acquired					95.00%	95.00%
Business Acquisition, Cost of Acquired Entity, Purchase Price					$ 15,000,000	$ 8,600,000
Percentage Of Current Occupancy Of Oregon Properties			72.00%
Business Acquisition, Pro Forma Revenue	2,065,000	1,936,000	5,707,000	6,019,000
Business Acquisition, Pro Forma Net Income (Loss)	(376,000)	(1,088,000)	(2,423,000)	(27,869,000)
Business Combination, Acquisition Related Costs	737,000		737,000
Cornerstone Healthcare Real Estate Fund [Member]
Limited Liability Company Llc Or Limited Partnership Lp Members Or Advisors Ownership Interest			5.00%
Portland Oregon Properties [Member]
Business Acquisition, Cost of Acquired Entity, Purchase Price						8,500,000
Interest and Debt Expense	5,800,000
Portland Oregon Properties [Member] | Bed Intermediate Care Facility [Member]
Percentage Of Current Occupancy Of Oregon Properties			81.00%
Portland Oregon Properties [Member] | Bed Single Story Facility [Member]
Percentage Of Current Occupancy Of Oregon Properties			72.00%
Medford Oregon [Member]
Business Acquisition, Cost of Acquired Entity, Purchase Price					8,500,000
Percentage Of Current Occupancy Of Oregon Properties			90.00%
Galveston Texas [Member]
Business Acquisition, Cost of Acquired Entity, Purchase Price					$ 15,000,000
Percentage Of Current Occupancy Of Oregon Properties			90.00%

XML

Notes Payable (Tables)

9 Months Ended

Sep. 30, 2012

Wells Fargo Bank National Association [Member]

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt [Table Text Block]

The principal payments due on the Wells Fargo loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	90,000
2013	$	360,000
2014	$	6,139,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

Transamerica Life Insurance Company [Member]

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt [Table Text Block]

The principal payments due on the Loan Assumption Agreement for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	37,000
2013	$	230,000
2014	$	6,234,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

General Electric Capital Corporation Healthcare Properties [Member]

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt [Table Text Block]

The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	93,000
2014	$	384,000
2015	$	408,000
2016	$	430,000
2017 and thereafter	$	20,985,000

General Electric Capital Corporation Western Property [Member]

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt [Table Text Block]

The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	—
2014	$	8,900,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

XML

Equity (Details 2) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012		Dec. 31, 2011
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	40,000		40,000
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	$ 8.00		$ 8.00
Number of Securities Remaining Available for Future Issuance	0	[1]	0	[1]
Equity Compensation Plans Approved By Security Holders [Member]
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	40,000		40,000
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	$ 8.00		$ 8.00
Number of Securities Remaining Available for Future Issuance	0	[1]	0	[1]
Equity Compensation Plans Not Approved By Security Holders [Member]
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	0		0
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	$ 0		$ 0
Number of Securities Remaining Available for Future Issuance	0		0

[1] Our Employee and Director Incentive Stock Plan was approved by our security holders and provides that the total number of shares issuable under the plan is a number of shares equal to ten percent (10%) of our outstanding common stock. The maximum number of shares that may be granted under the plan with respect to "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code is 5,000,000. As of September 30, 2012 and December 31, 2011, there were 23,028,285 shares of our common stock issued and outstanding.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

19. Subsequent Events

Sale of Western Avenue Property

On October 9, 2012, our board of directors authorized us to actively market the Western Avenue property for sale. Commencing in the fourth quarter of 2012, the assets and liabilities of this property will be classified as real estate held for sale and liabilities associated with real estate held for sale on the accompanying condensed consolidated balance sheets and the results of operations will be presented in discontinued operations on the accompanying condensed consolidated statements of operations for all periods presented.

Nantucket Property PSA execution

On November 12, 2012, we, through our VIE, executed a purchase and sale agreement (the “ Nantucket Sale Agreement”) for the sale of the Nantucket Property, by the Northbridge Communities LLC (“Nantucket Buyer”) a non-related party, for a purchase price of approximately $4.0 million. Except with respect to specific contingencies, the Nantucket Buyer does not have the right to terminate the Nantucket Sale Agreement without our consent.

The disposition is anticipated to be completed in the first quarter of 2013. Although most contingencies have been satisfied and we expect to close in accordance with the terms of the Nantucket Sale Agreement, there can be no assurance that remaining contingencies will be satisfied or that events will not arise that could prevent us from disposing the property.

XML

Notes Receivable (Details Textual) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended			1 Months Ended		3 Months Ended			6 Months Ended	9 Months Ended			1 Months Ended	3 Months Ended		9 Months Ended
	Dec. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	May 31, 2008	Dec. 31, 2011 Servant Investment, Llc Notes Receivable [Member]	May 31, 2008 Servant Investment, Llc Notes Receivable [Member]	Sep. 30, 2012 Servant Investment, Llc Notes Receivable [Member]	Sep. 30, 2011 Servant Investment, Llc Notes Receivable [Member]	Jun. 30, 2010 Servant Investment, Llc Notes Receivable [Member]	Jun. 30, 2010 Servant Investment, Llc Notes Receivable [Member]	Sep. 30, 2011 Servant Investment, Llc Notes Receivable [Member]	May 31, 2010 Servant Investment, Llc Notes Receivable [Member]	Sep. 01, 2009 Servant Investment, Llc Notes Receivable [Member]	May 31, 2008 Servant Healthcare Investment, Llc Notes Receivable [Member]	Sep. 30, 2012 Servant Healthcare Investment, Llc Notes Receivable [Member]	Jun. 30, 2011 Servant Healthcare Investment, Llc Notes Receivable [Member]	Sep. 30, 2012 Servant Healthcare Investment, Llc Notes Receivable [Member]	Sep. 30, 2011 Servant Healthcare Investment, Llc Notes Receivable [Member]	Dec. 31, 2011 Servant Healthcare Investment, Llc Notes Receivable [Member]	May 31, 2010 Servant Healthcare Investment, Llc Notes Receivable [Member]
Notes receivable, net (Note 8)	$ 908,000	$ 908,000		$ 908,000		$ 10,000,000	$ 0	$ 6,000,000	$ 0					$ 8,750,000		$ 4,000,000	$ 900,000		$ 900,000		$ 1,000,000	$ 8,750,000
Receivable with Imputed Interest, Effective Yield (Interest Rate)	5.00%							10.00%								10.00%
Receivable with Imputed Interest, Due Date									May 19, 2013								May 19, 2013
Financing Receivable, Allowance for Credit Losses															4,700,000
Interest Income Note Receivable										0	0	0	0						40,000	300,000
Impairment of note receivable		0	0	0	1,650,000													1,700,000
Financing Receivable, Modifications, Recorded Investment							2,500,000														2,500,000
Proceeds from Collection of Notes Receivable				0	150,000		1,500,000
Amount Due On Twenty Second December 2013																	700,000		700,000
Amount Due on Twenty Second December 2014																	300,000		300,000
Notes Receivable Net Present Value																					900,000
Revised Note Receivable						$ 4,700,000

XML

Investments in Real Estate (Details 2) (USD $)	Sep. 30, 2012
Amortization ofIntangible Lease Assets, October 1, 2012 to December 31, 2012	$ 48,000
Amortization of Intangible Lease Assets, 2013	213,000
Amortization of Intangible Lease Assets, 2014	203,000
Amortization of Intangible Lease Assets, 2015	200,000
Amortization of Intangible Lease Assets, 2016	195,000
Amortization of Intangible Lease Assets, 2017 and thereafter	$ 1,295,000

XML

Public Offerings and Strategic Alternatives (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	9 Months Ended		1 Months Ended	0 Months Ended			12 Months Ended
	Dec. 01, 2010	Sep. 30, 2012	Sep. 30, 2011	Jun. 01, 2009 Ipo [Member]	Jan. 06, 2006 Ipo [Member]	Jan. 06, 2006 Ipo [Member] Maximum [Member]	Jan. 06, 2006 Ipo [Member] Minimum [Member]	Dec. 31, 2009 Follow On Offering [Member]
Issuance of common stock (in shares)		0	0	21,700,000	44,400,000	55,400,000	125,000	77,350,000
Stock Issued During Period, Shares, Dividend Reinvestment Plan					11,000,000			21,100,000
Proceeds from Issuance Initial Public Offering				$ 172.7
Stock Issued During Period, Shares, New Issues to Public								56,250,000
Distribution Policy, Members or Limited Partners, Description	Effective December 1, 2010, our board of directors reduce distributions on our common stock to an annualized rate of $0.08 per share (1% based on a share price of $8.00), from the prior annualized rate of $0.48 per share (6% based on a share price of $8.00), in order to preserve capital that may be needed for capital improvements, debt repayment or other corporate purposes including operations.
Sale of Stock, Description of Transaction		We had raised $167.1 million of gross proceeds from the sale of 20.9 million shares of our common stock in our Primary Offering and Follow-On Offering and had acquired thirteen properties, four of which were sold during 2011.

XML

Note Receivable from Related Party (Details Textual) (USD $)	3 Months Ended			6 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2009	Jun. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 14, 2009
Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity, Methodology for Determining Whether Entity is Primary Beneficiary						Nantucket Acquisition is considered a variable interest entity because the equity owners of Nantucket Acquisition do not have sufficient equity at risk.
Impairment of Real Estate Asset Held for Sale					$ 1,100,000	$ 0
Nantucket Acquisition Llc [Member]
Mortgage Loans on Real Estate, Face Amount of Mortgages								8,000,000
Mortgage Loans on Real Estate, Interest Rate			8.00%
Mortgage Loans on Real Estate, Final Maturity Date			Jan. 01, 2015
Interest and Fee Income, Loans, Commercial, Real Estate	0	0			0	55,000
Mortgage Loans on Real Estate, Period Increase (Decrease)				$ 300,000			$ 500,000
Mortgage Loans On Real Estate Additional Interest Rate								40.00%

XML

Discontinued Operations (Details Textual) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended			1 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2011 Hsh Nordbank Ag [Member]	Sep. 30, 2011 Goldenwest Property [Member]	Dec. 31, 2011 Mack Deer Valley and Pinnacle Park Business Center Properties [Member]	Dec. 22, 2011 South Industrial Park Property 2111 [Member]	Sep. 30, 2012 Sherburne Commons Property [Member]
Proceeds from Sale of Property Held-for-sale						$ 9,400,000	$ 23,900,000	$ 900,000
Line of Credit Facility Repayment		7,800,000			7,800,000
Gain (Loss) on Sale of Properties								29,000
Impairment of real estate	$ 0	$ 425,000	$ 0	$ 23,644,000					$ 1,100,000

XML

Notes Payable (Details 1) (Monroe North Commerce Center Mortgage Loan [Member], USD $)	Sep. 30, 2012
Monroe North Commerce Center Mortgage Loan [Member]
Principal payments due, October 1, 2012 to December 31, 2012	$ 37,000
Principal payments due, 2013	230,000
Principal payments due, 2014	6,234,000
Principal payments due, 2015	0
Principal payments due, 2016	0
Principal payments due, 2017 and thereafter	$ 0

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Allowance for Doubtful Accounts (Details Textual) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for Doubtful Accounts Receivable	$ 0.2	$ 0.2

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

3. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with generally accepted accounting principles of the United States of America (“GAAP”) and in conjunction with the rules and regulations of the SEC. Certain amounts have been reclassified for prior periods to conform to current period presentation. Assets sold or held for sale and associated liabilities have been reclassified on the condensed consolidated balance sheets and the related operating results reclassified from continuing to discontinued operations on the condensed consolidated income statements. Additionally certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying financial information reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2011 Annual Report on Form 10-K as filed with the SEC. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2011. Except as discussed in the “Summary of Significant Accounting Policies”, for the quarter and nine months ended September 30, 2012, there have been no material changes to such accounting policies.

Restricted Cash

Restricted cash represents cash held in interest bearing accounts related to impound reserve accounts for property taxes, insurance and capital improvements or commitments as required under the terms of mortgage loan agreements. Based on the intended use of the restricted cash, we have classified changes in restricted cash within the statements of cash flows as operating or investing activities.

Fair Value of Financial Instruments and Fair Value Measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value.

Fair value represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820, Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability.

Financial assets and liabilities recorded at fair value on the condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.  Quoted prices in active markets for identical instruments.

Level 2.  Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3.  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified according to the lowest level input that is significant to their valuation. A financial instrument that has a significant unobservable input along with significant observable inputs may still be classified as a Level 3 instrument.

We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets, when such information is available, or appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.

Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, notes receivable, certain other assets, deferred costs and deposits, payable to related parties, prepaid rent, security deposits and deferred revenue, and notes payable. With the exception of notes receivable and notes payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.

As of September 30, 2012 and December 31, 2011, the fair value of notes receivable was $0.9 million and $0.9 million, compared to the carrying value of $0.9 million and $0.9 million, respectively. The fair value of notes receivable was estimated by discounting the expected cash flows at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we discounted the expected cash flows using a rate of 10.00%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes receivable are classified as Level 3 assets within the fair value hierarchy.

As of September 30, 2012 and December 31, 2011, the fair value of notes payable was $44.7 million and $21.3 million compared to the carrying value of $44.3 million and $21.1 million, respectively. The fair value of notes payable is estimated by discounting the contractual cash payments at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we utilized discount rates ranging from 3.5% to 5.0%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes payable are classified as Level 3 assets within the fair value hierarchy.

As a result of our ongoing analysis for potential impairment of our investments in real estate and to value properties classified as held for sale, we were required to adjust the carrying value of certain assets to their estimated fair values, less selling costs, during the first quarter of 2012 (see Note 4). No impairments were recorded during the three months ended September 30, 2012.

The following table summarizes the asset measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Net Losses for the Nine Months Ended September 30, 2012
Variable interest entity held for sale	$	3,760,000	$	—	$	3,760,000	$	—	$	(1,140,000	)

The variable interest entity held for sale measured at fair value during the first quarter of 2012 was deemed to be a Level 2 asset as we have received a formal offer for the property. We do not believe that this asset was a Level 1 asset as of the valuation date as a purchase and sale agreement had not been signed, giving the potential buyer the right to opt out of the transaction at its discretion.

At September 30, 2012 and December 31, 2011, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

Variable Interest Entity Accounting

The Company analyzes its contractual and/or other interests to determine whether such interests constitute an interest in a variable interest entity (“VIE”) in accordance with ASC 810, Consolidation (“ASC 810”), and, if so, whether the Company is the primary beneficiary. If the Company is determined to be the primary beneficiary of a VIE, it must consolidate the VIE. A VIE is an entity with insufficient equity investment or in which the equity investors lack some of the characteristics of a controlling financial interest. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, including, but not limited to, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE (see Note 5).

Real Estate Purchase Price Allocation

We allocate the purchase price of our properties in accordance with ASC 805. Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, buildings, site improvements, furniture & fixtures and intangible lease assets or liabilities including in-place leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation of our assets is being charged to expense on a straight-line basis over the assigned useful lives. The value of the building and improvements are depreciated over estimated useful lives of 15 to 39 years. The value of the furniture & fixtures are depreciated over estimated useful lives of five years.

The estimated fair value of land is based on recent comparable transactions. The fair value of buildings, site improvements and equipment is estimated to be the cost to replace the assets, with appropriate adjustments to account for the age and condition of the assets.

In-place lease values are calculated based on management’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at estimated market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related costs.

We amortize the value of in-place leases and above and below market leases over the initial term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the tenant improvements, intangible lease assets or liabilities and the in-place lease value will be immediately charged to expense or recorded as income, as appropriate.

In an effort to control the rapidly escalating costs of health care, the state of Oregon has implemented a certificate of need (“CON”) program pertaining to skilled-nursing facilities. This program requires that a CON is obtained from the state prior to opening such facility. We valued the CON assets related to our Fernhill and Sheridan facilities using an income approach. As the CON does not expire and can be sold independently of the facilities, we determined that these assets have indefinite useful lives and consequently are not being amortized.

Reclassification

Assets sold or held for sale and their associated liabilities have been reclassified on the condensed consolidated balance sheets and operating results have been reclassified from continuing to discontinued operations.

Recently Issued Accounting Pronouncements

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments in this update provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years and interim periods beginning after September 15, 2012. The Company does not expect the adoption of ASU 2012-02 on January 1, 2013 to have an impact on its consolidated financial position or results of operations.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amendments in this update result in additional fair value measurement and disclosure requirements within U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The Company’s adoption of ASU 2011-04 on January 1, 2012 did not have a significant impact on its consolidated financial condition, results of operations, and/or its disclosures.

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Notes Payable (Details 2) (Medford and Galveston Facilities Loan [Member], USD $)	Sep. 30, 2012
Medford and Galveston Facilities Loan [Member]
Principal payments due, October 1, 2012 to December 31, 2012	$ 0
Principal payments due, 2013	93,000
Principal payments due, 2014	384,000
Principal payments due, 2015	408,000
Principal payments due, 2016	430,000
Principal payments due, 2017 and thereafter	$ 20,985,000

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Investments in Real Estate (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Numbers	Sep. 30, 2011	Sep. 30, 2012 Numbers		Sep. 30, 2011	Dec. 31, 2011
Number of Real Estate Properties	13		13
Property held for sale, leased (in percentage)			83.90%	[1]
Depreciation	$ 400,000	$ 300,000	$ 1,100,000		$ 1,700,000
Amortization of Intangible Assets	21,000	9,000	25,000		102,000
Asset Impairment Charges	1,100,000		0		0
Leasing Commissions	0		0			400,000
Capitalized Leasing Commissions	1,800,000	400,000	1,800,000		400,000
Amortization of Leasing Commissions	$ 51,000	$ 28,000	$ 118,000		$ 92,000
Leases, Acquired-In-Place, Market Adjustment [Member]
Property held for sale, leased (in percentage)			10.00%
Finite-Lived Intangible Assets, Remaining Amortization Period (in years)			11 Years 2 Months 12 Days
Above Market Leases [Member]
Finite-Lived Intangible Assets, Remaining Amortization Period (in years)			2 Years 1 Months 6 Days
Below Market Leases [Member]
Finite-Lived Intangible Assets, Remaining Amortization Period (in years)			3 Months 18 Days
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life (in years)			4 years
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life (in years)			1 month

[1] The table excludes Sherburne Commons, a variable interest entity (''VIE'') for which we became the primary beneficiary and began consolidating its financial results as of June 30, 2011. As of October 19, 2011, Sherburne Commons was classified as held for sale (see Notes 9 and 11).

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Schedule of Purchase Price Allocation [Table Text Block]

The following sets forth the preliminary allocation of the purchase prices of the acquired properties as well as the associated acquisitions costs, which have been expensed as incurred. These allocations are subject to change as we finalize our analysis. 

	Sheridan		Portland		Medford		Galveston		Total
Land	$	156,000	$	826,000	$	954,000	$	1,095,000	$	3,031,000
Buildings & improvements		1,343,000		1,244,000		6,353,000		11,101,000		20,041,000
Site improvements		74,000		45,000		233,000		509,000		861,000
Furniture & fixtures		223,000		350,000		434,000		1,263,000		2,270,000
In-place leases		283,000		299,000		526,000		1,032,000		2,140,000
Certificate of need		2,021,000		1,736,000		—		—		3,757,000
Real estate acquisitions	$	4,100,000	$	4,500,000	$	8,500,000	$	15,000,000	$	32,100,000
Real estate acquisition costs	$	109,000	$	109,000	$	297,000	$	222,000	$	737,000

Business Acquisition, Pro Forma Information [Table Text Block]

For the three and nine months ended September 30, 2012, acquisition-related costs of $0.7 million and $0.7 million, respectively, were excluded from pro forma net loss.

	Three Months ended September 30,						Nine Months ended September 30,
	2012			2011			2012			2011
Revenues	$	2,065,000		$	1,936,000		$	5,707,000		$	6,019,000
Net loss from continuing operations	$	(376,000	)	$	(1,088,000	)	$	(2,423,000	)	$	(27,869,000	)
Basic and diluted net loss per common share from continuing operations	$	(0.02	)	$	(0.05	)	$	(0.11	)	$	(1.21	)

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Investments in Real Estate (Tables)

9 Months Ended

Sep. 30, 2012

Real Estate [Abstract]

Schedule of Real Estate Properties [Table Text Block]

As of September 30, 2012, our portfolio consisted of thirteen purchased properties which were approximately 83.9% leased. The following table provides summary information regarding our properties.

Property (1)	Location	Date Purchased	Square Footage		Purchase Price		Debt			Sept 30 2012 %  Leased
Industrial:
Shoemaker Industrial Buildings	Santa Fe Springs, CA	June 30, 2006		18,921	$	2,400,000	$	—			75.7	%
20100 Western Avenue	Torrance, CA	December 1, 2006		116,433		19,650,000		8,900,000			100.0	%
Marathon Center	Tampa Bay, FL	April 2, 2007		52,020		4,450,000		—			37.6	%
Orlando Small Bay Portfolio:
Carter Commerce Center	Winter Garden, FL	November 15, 2007		49,125							64.9	%
Goldenrod Commerce Center	Orlando, FL	November 15, 2007		78,646							83.0	%
Hanging Moss Commerce Center	Orlando, FL	November 15, 2007		94,200							82.5	%
Monroe South Commerce Center	Sanford, FL	November 15, 2007		172,500							68.6	%
				394,471		37,128,000		6,589,000			74.3	%
Monroe North Commerce Center	Sanford, FL	April 17, 2008		181,348		14,275,000		6,501,000			97.3	%
1830 Santa Fe	Santa Ana, CA	August 5, 2010		12,200		1,315,000		—			100.0	%
Subtotal Industrial:				775,393		79,218,000		21,990,000
Healthcare:
Sheridan Care Center	Sheridan, OR	August 3, 2012		13,912		4,100,000		2,800,000			100.0	%
Fern Hill Care Center	Portland, OR	August 3, 2012		13,344		4,500,000		3,000,000	(2)		100.0	%
Farmington Square	Medford, OR	September 14, 2012		32,557		8,500,000		5,800,000	(2)		100.0	%
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012		53,826		15,000,000		10,700,000	(2)		100.0	%
Subtotal Healthcare:				113,639		32,100.000		22,300,000	(2)		100.0	%
Total				889,032	$	111,318,000	$	44,290,000			83.9	%

(1) The table excludes Sherburne Commons, a variable interest entity (“VIE”) for which we became the primary beneficiary and began consolidating its financial results as of June 30, 2011. As of October 19, 2011, Sherburne Commons was classified as held for sale (see Notes 9 and 11).

(2) Represents healthcare properties with single tenant leases which we report as 100% occupied from our (landlord’s) perspective. These properties were acquired in the third quarter of 2012 (see Note 5).

Real Estate and Accumulated Depreciation by Property [Table Text Block]

As of September 30, 2012, our adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities, including the CHP LLC acquisitions, were as follows:

	Land		Buildings and Improvements			Furniture and Fixture			Acquired Above- Market Leases			In-Place Lease Value			Certificate of Need		Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	55,135,000		$	2,269,000		$	1,401,000		$	3,321,000		$	3,757,000	$	(620,000	)
Less: accumulated depreciation and amortization		—		(1,932,000	)		(47,000	)		(1,377,000	)		(1,180,000	)		—		609,000
Net investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	53,203,000		$	2,222,000		$	24,000		$	2,141,000		$	3,757,000	$	(11,000	)

As of December 31, 2011, adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities were as follows:

	Land		Buildings and Improvements			Acquired Above- Market Leases			In-Place Lease Value			Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	34,180,000		$	1,401,000		$	1,181,000		$	(620,000	)
Less: accumulated depreciation and amortization		—		(850,000	)		(1,365,000	)		(1,134,000	)		576,000
Net investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	33,330,000		$	36,000		$	47,000		$	(44,000	)

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Estimated net amortization expense for October 1, 2012 through December 31, 2012 and for each of the five following years ended December 31 is as follows:

	Amortization of Intangible Lease Assets
October 1, 2012 to December 31, 2012	$	48,000
2013	$	213,000
2014	$	203,000
2015	$	200,000
2016	$	195,000
2017 and thereafter	$	1,295,000

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Equity (Details 1) (USD $)	1 Months Ended										9 Months Ended
	Sep. 30, 2011	Aug. 31, 2011	Jul. 31, 2011	Jun. 30, 2011	May 31, 2011	Apr. 30, 2011	Mar. 31, 2011	Feb. 28, 2011	Jan. 31, 2011		Sep. 30, 2011
Total Number of Shares Redeemed	0	0	0	0	0	0	0	0	46,096	[1]	46,096
Stock Redeemed Average Price Per Share	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 7.99	[1]

[1] In January 2011, share repurchases due to the death of a shareholder that were requested prior to the suspension of the stock repurchase program were fulfilled under the program.

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Business Combinations (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Real Estate acquisitions	$ 32,100,000	$ 32,100,000
Acquisition Expenses	737,000	737,000
Land [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	3,031,000	3,031,000
Building and Building Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	20,041,000	20,041,000
Site Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	861,000	861,000
Furniture and Fixtures [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	2,270,000	2,270,000
Assets Held Under Capital Leases [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	2,140,000	2,140,000
Certificate Of Need [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	3,757,000	3,757,000
Sheridan [Member]
Real Estate acquisitions	4,100,000	4,100,000
Acquisition Expenses	0	109,000
Sheridan [Member] | Land [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	156,000	156,000
Sheridan [Member] | Building and Building Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,343,000	1,343,000
Sheridan [Member] | Site Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	74,000	74,000
Sheridan [Member] | Furniture and Fixtures [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	223,000	223,000
Sheridan [Member] | Assets Held Under Capital Leases [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	283,000	283,000
Sheridan [Member] | Certificate Of Need [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	2,021,000	2,021,000
Portland [Member]
Real Estate acquisitions	4,500,000	4,500,000
Acquisition Expenses	0	109,000
Portland [Member] | Land [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	826,000	826,000
Portland [Member] | Building and Building Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,244,000	1,244,000
Portland [Member] | Site Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	45,000	45,000
Portland [Member] | Furniture and Fixtures [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	350,000	350,000
Portland [Member] | Assets Held Under Capital Leases [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	299,000	299,000
Portland [Member] | Certificate Of Need [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,736,000	1,736,000
Medford [Member]
Real Estate acquisitions	8,500,000	8,500,000
Acquisition Expenses	0	297,000
Medford [Member] | Land [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	954,000	954,000
Medford [Member] | Building and Building Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	6,353,000	6,353,000
Medford [Member] | Site Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	233,000	233,000
Medford [Member] | Furniture and Fixtures [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	434,000	434,000
Medford [Member] | Assets Held Under Capital Leases [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	526,000	526,000
Medford [Member] | Certificate Of Need [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	0	0
Galveston [Member]
Real Estate acquisitions	15,000,000	15,000,000
Acquisition Expenses	0	222,000
Galveston [Member] | Land [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,095,000	1,095,000
Galveston [Member] | Building and Building Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	11,101,000	11,101,000
Galveston [Member] | Site Improvements [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	509,000	509,000
Galveston [Member] | Furniture and Fixtures [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,263,000	1,263,000
Galveston [Member] | Assets Held Under Capital Leases [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	1,032,000	1,032,000
Galveston [Member] | Certificate Of Need [Member]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment	$ 0	$ 0

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Notes Receivable (Tables) (Notes Receivable Si and Shi [Member])

9 Months Ended

Sep. 30, 2012

Notes Receivable Si and Shi [Member]

Receivables [Abstract]

Reconciliation of Notes Receivable [Table Text Block]

The following table reconciles notes receivable from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012		2011
Balance at January 1,	$	908,000	$	4,000,000
Additions:
Additions to notes receivable		—		—
Deductions:
Notes receivable repayments		—		(150,000	)
Notes receivable impairments		—		(1,650,000	)
Balance at September 30,	$	908,000	$	2,200,000

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Note Receivable from Related Party (Tables)

9 Months Ended

Sep. 30, 2012

Note Receivable From Related Party [Abstract]

Reconciliation of Notes Receivable Related Party [Table Text Block]

The following table reconciles the note receivable from Nantucket Acquisition from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012			2011
Balance at January 1,	$	—		$	8,000,000
Additions:
Additions to note receivable from related party		435,000			318,000
Deductions:
Repayments of note receivable from related party		—			—
Elimination of balance in consolidation of VIE		(435,000	)		(8,318,000	)
Balance at September 30	$	—		$	—

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Public Offerings and Strategic Alternatives

9 Months Ended

Sep. 30, 2012

Public Offerings [Abstract]

Public Offerings [Text Block]

2. Public Offerings and Strategic Alternatives

On January 6, 2006, we commenced an initial public offering of a minimum of 125,000 shares and a maximum of 55,400,000 shares of our common stock, consisting of 44,400,000 shares for sale to the public (the “Primary Offering”) and 11,000,000 shares for issuance pursuant to our distribution reinvestment plan. We stopped making offers under our initial public offering on June 1, 2009 upon raising gross offering proceeds of approximately $172.7 million from the sale of approximately 21.7 million shares, including shares sold under the distribution reinvestment plan. On June 10, 2009, we commenced a follow-on offering of up to 77,350,000 shares of our common stock, consisting of 56,250,000 shares for sale to the public (the “Follow-On Offering”) and 21,100,000 shares for sale pursuant to our dividend reinvestment plan. The Primary Offering and Follow-On Offering are collectively referred to as the “Offerings.” We retained Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of our Advisor, to serve as the dealer manager for the Offerings. PCC was responsible for marketing our shares being offered pursuant to the Offerings.

As of September 30, 2012, we had raised $167.1 million of gross proceeds from the sale of 20.9 million shares of our common stock in our Primary and Follow-On Offerings which were used to fund operations, assist in acquiring the initial thirteen properties, four of which were sold during 2011, and pay for distributions. Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of each lease. Our growth depends, in part, on our ability to increase rental income and other earned income from leases by increasing rental rates, occupancy levels, controlling operating and other expenses. Our operations are impacted by our success in executing our repositioning strategy, property-specific, market-specific, general economic and other conditions.

Effective November 23, 2010, we stopped soliciting and accepting offers to purchase shares of our stock under our Follow-on Offering. On June 10, 2012, that offering expired.

Suspension of Distribution Reinvestment Plan - Our Offerings included a distribution reinvestment plan under which our stockholders could elect to have all or a portion of their distributions reinvested in additional shares of our common stock. We suspended our distribution reinvestment plan effective December 14, 2010. All distributions paid after December 14, 2010 have been and will be made in cash.

Distributions - Effective December 1, 2010, our board of directors reduced distributions on our common stock to an annualized rate of $0.08 per share (1% based on a share price of $8.00), from the prior annualized rate of $0.48 per share (6% based on a share price of $8.00), in order to preserve capital that may be needed for capital improvements, debt repayment or other corporate purposes including operations. Distributions at this $0.08 per share rate were declared for the first and second quarters of 2011. In June 2011, the board of directors decided, based on the financial position of the Company, to suspend the declaration of further distributions and to defer the payment of the second quarter 2011 distribution until our financial position improved. In the fourth quarter of 2011, we used a portion of the proceeds from the sale of properties in Arizona to pay the deferred second quarter 2011 distributions. No distributions have been declared or paid for periods after June 30, 2011. The rate and frequency of distributions is subject to the discretion of our board of directors and may change from time to time based on our operating results and cash flow. We can make no assurance when and if distributions will recommence.

Stock Repurchase Program - Our board of directors approved an amendment to our stock repurchase program to suspend repurchases under the program effective December 31, 2010. We can make no assurances as to whether and on what terms repurchases will resume. The share redemption program may be amended, resumed, suspended again, or terminated at any time.

Strategic Repositioning - Commencing in June 2011, together with our Advisor, we embarked upon an evaluation of options and repositioning that we believed could enhance shareholder value.

The initial steps of this “repositioning” strategy involved the sale of certain industrial properties (Goldenwest, Mack Deer Valley, Pinnacle Park and 2111 South Industrial Park). Proceeds from those sales transactions were used to “de-lever” the Company’s balance sheet by paying down certain short term and other higher cost debt, extending maturities and renegotiating lower interest rates on other loan obligations.

During the second and third quarters of 2012, the board of directors, in consultation with the Advisor, approved the reinvestment of the remaining proceeds from these 2011 property dispositions into four healthcare real property assets and acquired an option to purchase a fifth health care property. Diversification into healthcare real estate assets is expected to be accretive to the earnings and shareholder value of the combined portfolio. Such healthcare acquisitions were made through a joint venture with an affiliate of the Advisor and involved interim seller and/or long term third party lender financing. The Company intends to refinance such interim borrowings with long term financing. In the interest of further diversification of risk and to attract new capital partners, the Company may, in the future, reduce its ownership interest in the healthcare joint venture.

Healthcare-related properties include a wide variety of properties, including senior housing facilities, medical office buildings, and skilled nursing facilities. Senior housing facilities include independent living facilities, assisted living facilities and memory and other continuing care retirement communities. Each of these caters to different segments of the elderly population. Services provided by operators or tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare. Medical office buildings (“MOBs”) typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital ancillary service space, and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms. While these facilities are similar to commercial office buildings, they require more systems to accommodate special requirements. MOBs are typically multi-tenant properties leased to multiple healthcare providers (hospitals and physician practices) although there is a trend towards net leases to doctors and hospitals. Skilled Nursing Facilities (“SNFs”) offer nursing care for people not requiring the more extensive and sophisticated treatment available at hospitals. Sub-acute care services are provided to residents beyond room and board. Certain skilled nursing facilities provide some services on an outpatient basis. Skilled nursing services provided in these facilities and primarily paid for either by private sources or through the Medicare and Medicaid programs. SNFs are typically leased to single-tenant operators under net lease structures.

The Advisor has reported to the Company that it believes the outlook for the Company raising new property level joint venture equity capital to support its growth and further diversify both operator and healthcare property sector risk is currently favorable. Based in part on this advice, the board of directors continues to evaluate the repositioning strategy while pursuing other growth initiatives that lower capital costs and enables us to reduce or improve our ability to cover our general and administrative costs over a broader base of assets.

For the remainder of 2012 and in early 2013, the board of directors has requested that the Advisor raise new property level joint venture equity capital while management continues to evaluate opportunities for repositioning and growth and secures long term debt for recent and any future acquisitions.

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Equity (Tables)

9 Months Ended

Sep. 30, 2012

Equity [Abstract]

Schedule of Distributions Declared [Table Text Block]

The following table shows the distributions declared during the nine months ended September 30, 2012 and 2011:

	Distributions Declared (2)						Cash Flows Provided by (Used in) Operating
Period	Cash		Reinvested		Total		Activities
First quarter 2011 (1)	$	454,000	$	—	$	454,000	$	481,000
Second quarter 2011 (1)	$	468,000	$	—	$	468,000	$	(219,000	)
Third quarter 2011	$	—	$	—	$	—	$	(323,000	)
First quarter 2012	$	—	$	—	$	—	$	(800,000	)
Second quarter 2012	$	—	$	—	$	—	$	(953,000	)
Third quarter 2012	$	—	$	—	$	—	$	(2,400,000	)

(1) 100% of the distributions declared during the nine months ended September 30, 2011 represented a return of capital for federal income tax purposes.

(2) In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds.

Schedule of Redeemed Shares [Table Text Block]

During the nine months ended September 30, 2011, we repurchased shares pursuant to our stock repurchase program as follows:

Period	Total Number of Shares Redeemed		Average Price Paid per Share
January 2011 (1)	46,096		$7.99
February 2011		—	$	—
March 2011		—	$	—
April 2011		—	$	—
May 2011		—	$	—
June 2011		—	$	—
July 2011		—	$	—
August 2011		—	$	—
September 2011		—	$	—
		46,096

(1) In January 2011, share repurchases due to the death of a shareholder that were requested prior to the suspension of the stock repurchase program were fulfilled under the program.

Schedule of Equity Compensation Plan Information [Table Text Block]

Our equity compensation plan information as of September 30, 2012 and December 31, 2011 is as follows:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders		40,000	$	8.00		See footnote	(1)
Equity compensation plans not approved by security holders		—		—		—
Total		40,000	$	8.00		See footnote	(1)

(1) Our Employee and Director Incentive Stock Plan was approved by our security holders and provides that the total number of shares issuable under the plan is a number of shares equal to ten percent (10%) of our outstanding common stock. The maximum number of shares that may be granted under the plan with respect to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code is 5,000,000. As of September 30, 2012 and December 31, 2011, there were 23,028,285 shares of our common stock issued and outstanding.

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Investments in Real Estate (Details) (USD $)	9 Months Ended
	Sep. 30, 2012 sqft
Area of Real Estate Property	889,032	[1]
Purchase Price of Property	$ 111,318,000	[1]
Mortgage Loans on Real Estate	44,290,000	[1]
Property held for sale, leased (in percentage)	83.90%	[1]
Subtotal Level 1 [Member]
Area of Real Estate Property	775,393	[1]
Purchase Price of Property	79,218,000	[1]
Mortgage Loans on Real Estate	21,990,000	[1]
Subtotal Level 2 [Member]
Area of Real Estate Property	113,639	[1]
Purchase Price of Property	32,100.000	[1]
Mortgage Loans on Real Estate	22,300,000	[1],[2]
Property held for sale, leased (in percentage)	100.00%	[1]
Shoemaker Industrial Buildings [Member]
Location Real Estate Property	Santa Fe Springs, CA	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Jun. 30, 2006	[1]
Area of Real Estate Property	18,921	[1]
Purchase Price of Property	2,400,000	[1]
Mortgage Loans on Real Estate	0	[1]
Property held for sale, leased (in percentage)	75.70%	[1]
20100 Western Avenue [Member]
Location Real Estate Property	Torrance, CA	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Dec. 01, 2006	[1]
Area of Real Estate Property	116,433	[1]
Purchase Price of Property	19,650,000	[1]
Mortgage Loans on Real Estate	8,900,000	[1]
Property held for sale, leased (in percentage)	100.00%	[1]
Marathon Cente [Member]
Location Real Estate Property	Tampa Bay, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Apr. 02, 2007	[1]
Area of Real Estate Property	52,020	[1]
Purchase Price of Property	4,450,000	[1]
Mortgage Loans on Real Estate	0	[1]
Property held for sale, leased (in percentage)	37.60%	[1]
Orlando Small Bay Portfolio [Member]
Area of Real Estate Property	394,471	[1]
Purchase Price of Property	37,128,000	[1]
Mortgage Loans on Real Estate	6,589,000	[1]
Property held for sale, leased (in percentage)	74.30%	[1]
Orlando Small Bay Portfolio [Member] | Carter Commerce Center [Member]
Location Real Estate Property	Winter Garden, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Nov. 15, 2007	[1]
Area of Real Estate Property	49,125	[1]
Property held for sale, leased (in percentage)	64.90%	[1]
Orlando Small Bay Portfolio [Member] | Goldenrod Commerce Center [Member]
Location Real Estate Property	Orlando, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Nov. 15, 2007	[1]
Area of Real Estate Property	78,646	[1]
Property held for sale, leased (in percentage)	83.00%	[1]
Orlando Small Bay Portfolio [Member] | Hanging Moss Commerce Center [Member]
Location Real Estate Property	Orlando, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Nov. 15, 2007	[1]
Area of Real Estate Property	94,200	[1]
Property held for sale, leased (in percentage)	82.50%	[1]
Orlando Small Bay Portfolio [Member] | Monroe South Commerce Center [Member]
Location Real Estate Property	Sanford, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Nov. 15, 2007	[1]
Area of Real Estate Property	172,500	[1]
Property held for sale, leased (in percentage)	68.60%	[1]
Monroe North Commerce Center [Member]
Location Real Estate Property	Sanford, FL	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Apr. 17, 2008	[1]
Area of Real Estate Property	181,348	[1]
Purchase Price of Property	14,275,000	[1]
Mortgage Loans on Real Estate	6,501,000	[1]
Property held for sale, leased (in percentage)	97.30%	[1]
1830 Santa Fe [Member]
Location Real Estate Property	Santa Ana, CA	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Aug. 05, 2010	[1]
Area of Real Estate Property	12,200	[1]
Purchase Price of Property	1,315,000	[1]
Mortgage Loans on Real Estate	0	[1]
Property held for sale, leased (in percentage)	100.00%	[1]
Sheridan Care Center [Member]
Location Real Estate Property	Sheridan, OR	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Aug. 03, 2012	[1]
Area of Real Estate Property	13,912	[1]
Purchase Price of Property	4,100,000	[1]
Mortgage Loans on Real Estate	2,800,000	[1]
Property held for sale, leased (in percentage)	100.00%	[1]
Fern Hill Care Center [Member]
Location Real Estate Property	Portland, OR	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Aug. 03, 2012	[1]
Area of Real Estate Property	13,344	[1]
Purchase Price of Property	4,500,000	[1]
Mortgage Loans on Real Estate	3,000,000	[1],[2]
Property held for sale, leased (in percentage)	100.00%	[1]
Farmington Square [Member]
Location Real Estate Property	Medford, OR	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Sep. 14, 2012	[1]
Area of Real Estate Property	32,557	[1]
Purchase Price of Property	8,500,000	[1]
Mortgage Loans on Real Estate	5,800,000	[1],[2]
Property held for sale, leased (in percentage)	100.00%	[1]
Friendship Haven Healthcare and Rehabilitation Center [Member]
Location Real Estate Property	Galveston County, TX	[1]
Real Estate and Accumulated Depreciation, Date Acquired	Sep. 14, 2012	[1]
Area of Real Estate Property	53,826	[1]
Purchase Price of Property	15,000,000	[1]
Mortgage Loans on Real Estate	$ 10,700,000	[1],[2]
Property held for sale, leased (in percentage)	100.00%	[1]

[1] The table excludes Sherburne Commons, a variable interest entity (''VIE'') for which we became the primary beneficiary and began consolidating its financial results as of June 30, 2011. As of October 19, 2011, Sherburne Commons was classified as held for sale (see Notes 9 and 11).

[2] Represents healthcare properties with single tenant leases which we report as 100% occupied from our (landlord’s) perspective. These properties were acquired in the third quarter of 2012 (see Note 5).

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Receivable from Related Party (Details Textual) (USD $)	9 Months Ended		9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Advisor To Follow On Offering [Member]	Jun. 10, 2012 Advisor To Follow On Offering [Member]
Organisational and Offering Costs Reimbursed				$ 1,100,000
Organisational and Offering Costs In Excess Of Contractual Limit	1,000,000
Receivable from related party (Note 10)	$ 0	$ 0	$ 1,000,000
Percentage of Offering Expenses			3.50%

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 4,789,000	$ 17,388,000
Investments in real estate:
Land	11,733,000	11,733,000
Buildings and improvements, net	32,355,000	33,330,000
Intangible lease assets, net	44,000	83,000
Net real estate (Note 4)	44,132,000	45,146,000
Notes receivable, net (Note 8)	908,000	908,000
Receivable from related party (Note 10)	0	0
Deferred costs and deposits	370,000	27,000
Deferred financing costs, net	628,000	91,000
Tenant and other receivables, net	730,000	567,000
Restricted cash	379,000	0
Prepaid and other assets, net	2,107,000	625,000
Total assets	90,190,000	70,124,000
LIABILITIES AND EQUITY
Notes payable	21,990,000	21,070,000
Accounts payable and accrued liabilities	1,342,000	785,000
Payable to related parties	12,000	20,000
Prepaid rent, security deposits and deferred revenue	1,244,000	460,000
Intangible lease liabilities, net	11,000	44,000
Liabilities held in variable interest entity:
Total liabilities	49,159,000	24,498,000
Commitments and contingencies (Note 16)
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2012 and December 31, 2011	0	0
Common stock, $0.001 par value; 290,000,000 shares authorized; 23,028,285 shares issued and outstanding at September 30, 2012 and December 31, 2011 respectively	23,000	23,000
Additional paid-in capital	117,226,000	116,238,000
Accumulated deficit	(74,135,000)	(68,748,000)
Total stockholders' equity	43,114,000	47,513,000
Noncontrolling interests	(2,083,000)	(1,887,000)
Total equity	41,031,000	45,626,000
Total liabilities and equity	90,190,000	70,124,000
Variable Interest Entity [Member]
Investments in real estate:
Land	3,031,000	0
Buildings and improvements, net	20,848,000	0
Furniture & Fixtures, net	2,222,000	0
Intangible lease assets, net	2,121,000	0
Certificate Of Need	3,757,000	0
Assets of variable interest entity held for sale	4,168,000	5,372,000
Total assets	31,979,000	0
Liabilities held in variable interest entity:
Loan payable	22,300,000	0
Liabilities of variable interest entity held for sale	2,260,000	2,119,000
Total liabilities	$ 22,300,000	$ 0

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Business Combinations (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 2,065,000	$ 1,936,000	$ 5,707,000	$ 6,019,000
Net loss from continuing operations	$ (376,000)	$ (1,088,000)	$ (2,423,000)	$ (27,869,000)
Basic and diluted net loss per common share from continuing operations	$ (0.02)	$ (0.05)	$ (0.11)	$ (1.21)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities
Net loss	$ (6,174,000)	$ (47,195,000)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of deferred financing costs	99,000	357,000
Depreciation and amortization	1,294,000	2,043,000
Straight-line rents and amortization of acquired above (below) market leases, net	(264,000)	(171,000)
Reserve for excess advisor obligation	988,000	0
Impairment of note receivable	0	1,650,000
Impairment of real estate	1,140,000	42,977,000
Provision for bad debt	(19,000)	(2,000)
Change in operating assets and liabilities:
Tenant and other receivables	95,000	62,000
Prepaids and other assets	(1,590,000)	179,000
Restricted cash	(379,000)	0
Accounts payable and accrued liabilities	708,000	325,000
Payable to related parties, net	(9,000)	(6,000)
Prepaid rent, security deposit and deferred revenues	(42,000)	(280,000)
Net cash used in operating activities	(4,153,000)	(61,000)
Cash flows from investing activities
Real estate acquisitions	(32,100,000)	0
Real estate improvements	(54,000)	(509,000)
Acquired cash of VIE		236,000
Real estate disposition	0	9,130,000
Acquisition deposits	(348,000)	0
Notes receivable proceeds	0	150,000
Notes receivable disbursements to affiliated parties (See Note 9)	0	(318,000)
Net cash (used in) provided by investing activities	(32,502,000)	8,689,000
Cash flows from financing activities
Redeemed shares	0	(369,000)
Proceeds from issuance notes payable	37,000,000	0
Repayment of notes payable	(13,780,000)	(8,873,000)
Security deposit refunded/received, net	826,000	0
Offering costs	0	(12,000)
Distributions paid to stockholders	0	(611,000)
Distributions paid to noncontrolling interest	0	(9,000)
Noncontrolling interest contribution	591,000	0
Deferred financing costs	(636,000)	(329,000)
Net cash provided by (used in) financing activities	24,001,000	(10,203,000)
Net decrease in cash and cash equivalents	(12,654,000)	(1,575,000)
Cash and cash equivalents - beginning of period	17,388,000	2,014,000
Cash and cash equivalents - end of period (including cash of VIE)	4,789,000	439,000
Cash and cash equivalents of VIE - end of period (see Note 17)	(40,000)	0
Cash and cash equivalents - end of period	4,789,000	439,000
Supplemental disclosure of cash flow information:
Cash paid for interest	728,000	760,000
Supplemental disclosure of non-cash financing and investing activities:
Accrual for distribution declared	0	468,000
Accrued leasing commissions	0	18,000
Deferred loan origination fees	0	54,000
Accrued real estate improvements	0	43,000
Payable to related party	0	3,000
Reduction of excess offering costs	988,000	0
Elimination of note receivable from related party through consolidation of variable interest entity (See Note 9)
Assets acquired	0	10,069,000
Liabilities assumed	0	1,806,000
Elimination of note receivable	$ 0	$ 8,263,000

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Related Party Transactions (Details Textual) (USD $)	1 Months Ended			3 Months Ended		6 Months Ended	9 Months Ended		12 Months Ended	24 Months Ended
	Jul. 31, 2012	Nov. 30, 2011	Aug. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Mar. 31, 2012
Advisors and Offering Cost Description							On June 10, 2012, our Follow-on Offering was terminated. Our advisory agreement provides for reimbursement to the Advisor for organizational and offering costs in excess of 3.5% of the gross proceeds from our Primary Offering and Follow-On Offering. Under the Advisory Agreement, within 60 days after the end of the month in which our Follow-on Offering terminated, the Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit. Consequently, in the second quarter of 2012, we recorded a receivable from the Advisor for $1.0 million reflecting the Excess Reimbursement. As a result of our evaluation of various factors related to collectability of this receivable, we recorded a reserve for the full amount of the receivable as of June 30, 2012. The repayment by the Advisor is scheduled to occur in quarterly payments over a 24 month period commencing January 1, 2013.
Advisors and Offering Cost Expenses							$ 5,600,000
Organisationl Cost Expenses						100,000
Offering Cost				5,500,000			5,500,000
Reduction in Proceeds from Issuance Primary Offering				4,400,000			4,400,000
Reduction in Proceeds from Issuance Follow on Offering				1,100,000			1,100,000
Advisory Acquisition Fees Description							Advisor acquisition fees in an amount equal to 2.0% of the gross proceeds from our Offerings.
Advisor Fees Description			The current asset management fee is 0.75% of the Average Invested Assets (as defined in the Advisory Agreement).				Prior to October 1, 2011, the Advisory Agreement required us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the Average Invested Assets (as defined in the Advisory Agreement).
Asset management fees and expenses				240,000	388,000		662,000	1,215,000
General and administrative				757,000	713,000		2,489,000	2,083,000
Total Operating Expenses Towars Advisory Cost Description				For the nine-fiscal-quarter period ended September 30, 2012, our total operating expenses again exceeded the greater of 2% of our average invested assets and 25% of our net income. We incurred operating expenses of approximately $9.3 million and incurred an Excess Amount of approximately $6.7 million during the nine quarters ended September 30, 2012.			Pursuant to provisions contained in our charter and in our Amended and Restated Advisory Agreement with our Advisor, our board of directors has the ongoing responsibility of limiting our total operating expenses for the trailing four consecutive quarters to amounts that do not exceed the greater of 2% of our average invested assets or 25% of our net income, calculated in the manner set forth in our charter, unless a majority of the directors (including a majority of the independent directors) has made a finding that, based on unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified (the "2%/25% Test").			We incurred operating expenses of approximately $8.3 million and incurred an Excess Amount of approximately $5.7 million during the eight quarters ended March 31, 2012, which has been carried over and included in the total operating expenses for the nine-fiscal-quarter period ended September 30, 2012 for purposes of the 2%/25% Test.
Property operating and maintenance				380,000	427,000		1,173,000	1,246,000
Additional Fees to Advisors for Sale of Property, Description							0
Subordinate Participation Fees to Advisors for Sale of Property, Description							After stockholders have received cumulative distributions equal to $8.00 per share (less any returns of capital) plus cumulative, non-compounded annual returns on net invested capital, the Advisor will be paid a subordinated participation in net sale proceeds ranging from a low of 5% of net sales proceeds provided investors have earned annualized returns of 6% to a high of 15% of net sales proceeds if investors have earned annualized returns of 10% or more.
Subordinate Participation Fees to Advisors for Termination							Upon termination of the Advisory Agreement, the Advisor will receive the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the appraised value of our assets minus our liabilities on the date the Advisory Agreement is terminated plus total distributions (other than stock distributions) paid prior to termination of the Advisory Agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the appraised value of our assets minus our liabilities plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.
Subordinate Participation Fees to Advisors for Listing of Shares, Description							In the event we list our stock for trading, the Advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds. This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.
Commission and Fees Payable to Dealer Manager, Description							PCC, as dealer manager, is entitled to receive sales commissions of up to 7% of gross proceeds from sales in our Offerings. PCC, as dealer manager, is also entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the Offerings.
Reimbursement for Expenses, Description				The Advisory Agreement requires the Advisor to reimburse us to the extent that offering expenses including sales commissions, dealer manager fees and organization and offering expenses (but excluding acquisition fees and acquisition expenses discussed above) are in excess of 13.5% of gross proceeds from the Offerings when combined with the shares sold under the related distribution reinvestment plan.			The dealer manager is also entitled to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the gross proceeds from sales in the Offerings.
Legal Fees							400,000	0
Legal Fees Percentage	2.00%
Property Management Fee, Percent Fee				3.00%			2.50%
Reimbursement Of Advisory Fees				58,000	44,000		138,000	129,000
Reimbursement Obligation With Respect To Amounts Due For Excess Resulting									3,200,000
Payments for Leasing Costs				1,000,000				0
Disposition Fees Percentage		3.00%
Disposition Fees Description		This disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by us for each property shall not exceed an amount equal to the lesser of (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property. Subsequent to November 11, 2011, the disposition fee was reduced from an amount up to 3% of the sales price of properties sold to an amount up to 1% of the sales price of properties sold if the Advisor or its affiliates provide a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors).
Advisory Agreement [Member]
Date of Amendment of Agreement							Aug. 31, 2011
Advisors and Offering Cost Description							Our Advisory Agreement provides for reimbursement to the Advisor for organizational and offering costs in excess of 3.5% of the gross proceeds from our Primary Offering and Follow-on Offering.
Asset management fees and expenses				2,000	2,000	0	7,000	13,000
General and administrative				300,000	200,000		1,000,000	700,000
Total Operating Expenses Towars Advisory Cost Description							For the four-fiscal-quarter period ended September 30, 2012, our total operating expenses again exceeded the greater of 2% of our average invested assets and 25% of our net income. We incurred operating expenses of approximately $4.2 million and incurred an Excess Amount of approximately $2.3 million during the four-fiscal-quarters ended September 30, 2012.
Property operating and maintenance				0	5,000		0	11,000
Leasing Fees				1,000,000			1,000,000
Advisors Fees Reimbursed [Member]
Asset management fees and expenses				0	400,000		0	800,000
General and administrative				$ 0	$ 40,000		$ 0	$ 85,000

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended September 30, 2012							Three Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	961,000	$	298,000	$	1,259,000		$	849,000	$	—	$	849,000
Tenant reimbursements and other income		226,000		24,000		250,000			204,000		—		204,000
	$	1,187,000	$	322,000	$	1,509,000		$	1,053,000	$		$	1,053,000
Property operating and maintenance		347,000		33,000		380,000			427,000		—		427,000
Net operating income	$	840,000	$	289,000	$	1,129,000		$	626,000	$	—	$	626,000
Interest income from notes receivable						(13,000	)						(102,000	)
General and administrative expenses						757,000							713,000
Asset management fees and expenses						240,000							388,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						524,000							384,000
Interest expense						299,000							408,000
Impairment of real estate						—							425,000
Loss (income) from discontinued operation						156,000							(106,000	)
Net loss					$	(1,571,000	)					$	(1,484,000	)
Net loss attributable to  noncontrolling interests						(258,000	)						(352,000	)
Net loss attributable to common stockholders					$	(1,313,000	)					$	(1,132,000	)

	Nine Months Ended September 30, 2012							Nine Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	2,613,000	$	298,000	$	2,911,000		$	2,640,000	$	—	$	2,640,000
Tenant reimbursements and other income		649,000		23,000		672,000			669,000		—		669,000
	$	3,262,000	$	321,000	$	3,583,000		$	3,309,000	$	—	$	3,309,000
Property operating and maintenance expenses		1,141,000		32,000		1,173,000			1,246,000		—		1,246,000
Net operating income	$	2,121,000	$	289,000	$	2,410,000		$	2,063,000	$	—	$	2,063,000
Interest income from notes receivable						(40,000	)						(366,000	)
General and administrative expenses						2,489,000							2,083,000
Asset management fees and expenses						662,000							1,215,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						1,294,000							1,457,000
Reserve for advisor obligation						988,000							—
Interest expense						733,000							1,019,000
Impairment of notes receivable						—							1,650,000
Impairment of real estate						1,140,000							23,644,000
Loss from discontinued operation						581,000							18,556,000
Net loss					$	(6,174,000	)					$	(47,195,000	)
Net loss attributable to noncontrolling interests						(787,000	)						(404,000	)
Net loss attributable to common stockholders					$	(5,387,000	)					$	(46,791,000	)

Reconciliation of Net Operating Income from Net Loss [Table Text Block]

The following table reconciles NOI from net loss for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net loss	$	(1,571,000	)	$	(1,484,000	)	$	(6,174,000	)	$	(47,195,000	)
Interest income from notes receivable		(13,000	)		(102,000	)		(40,000	)		(366,000	)
General and administrative		757,000			713,000			2,489,000			2,083,000
Asset management fees and expenses		240,000			388,000			662,000			1,215,000
Real estate acquisition costs		737,000			—			737,000			—
Depreciation and amortization		524,000			384,000			1,294,000			1,457,000
Reserve for excess advisor obligation		—			—			988,000			—
Interest expense		299,000			408,000			733,000			1,019,000
Impairment of notes receivable		—			—			—			1,650,000
Impairment of real estate		—			425,000			—			23,644,000
Loss from discontinued operations		156,000			(106,000	)		1,721,000			18,556,000
Net operating income	$	1,129,000		$	626,000		$	2,410,000		$	2,063,000

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Discontinued Operations (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Rental revenues, tenant reimbursements and other income	$ 1,522,000	$ 1,155,000	$ 3,623,000	$ 3,675,000
Operating expenses and real estate taxes	2,638,000	2,337,000	7,343,000	31,295,000
Depreciation and amortization	524,000	384,000	1,294,000	1,457,000
Impairment of real estate	0	(19,145,000)	(1,140,000)	(19,145,000)
Income (loss) from discontinued operation	(156,000)	106,000	(1,721,000)	(18,556,000)
Discontinued Operations [Member]
Rental revenues, tenant reimbursements and other income	577,000	1,316,000	1,522,000	3,065,000
Operating expenses and real estate taxes	733,000	947,000	2,103,000	1,702,000
Depreciation and amortization	0	110,000	0	586,000
Impairment of real estate	0	153,000	1,140,000	19,333,000
Income (loss) from discontinued operation	$ (156,000)	$ 106,000	$ (1,721,000)	$ (18,556,000)

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

16. Commitments and Contingencies

We monitor our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our consolidated financial condition, results of operations or cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial condition, results of operations, and cash flows. We are also subject to contingent losses related to notes receivable as further described in Notes 8 and 9. We are not presently subject to any material litigation nor, to our knowledge, any material litigation threatened against us which, if determined unfavorably to us, would have a material effect on our consolidated financial statements.

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Organization (Details Textual)	9 Months Ended
	Sep. 30, 2012
Entity Incorporation, Date Of Incorporation	Oct. 22, 2004
Cornerstone Realty Advisors [Member]
Limited Liability Company or Limited Partnership, Business, Formation Date	Nov. 30, 2004
Cornerstone Operating Partnership [Member]
Limited Liability Company or Limited Partnership, Business, Formation Date	Nov. 30, 2004
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	99.88%
Limited Liability Company Llc Or Limited Partnership Lp Members Or Advisors Ownership Interest	0.12%
Cornerstone Healthcare Partners [Member]
Limited Liability Company or Limited Partnership, Business, Formation Date	Jun. 11, 2012
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	95.00%
Cornerstone Healthcare Real Estate Fund [Member]
Limited Liability Company Llc Or Limited Partnership Lp Members Or Advisors Ownership Interest	5.00%

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

18. Segment Reporting

As of September 30, 2012, we operate in two business segments for management and internal financial reporting purposes: industrial and healthcare. Prior to the third quarter of 2012, we operated only in the industrial business segment. These operating segments are the segments for which separate financial information is available and for which operating results are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. Our healthcare segment consists of the four skilled-nursing and assisted-living properties acquired in the third quarter of 2012 (see Note 4). These properties are leased to healthcare operating companies under long-term “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our industrial segment consists of nine multi-tenant industrial properties offering a combination of warehouse and office space adaptable to a broad range of tenants and uses typically catering to local and regional businesses.

We evaluate performance of the combined properties based on net operating income (“NOI”). NOI is a non-GAAP supplemental measure used to evaluate the operating performance of real estate properties. We define NOI as total rental revenues, tenant reimbursements and other income less property operating and maintenance expenses. NOI excludes interest income from notes receivable, general and administrative expense, asset management fees and expenses, real estate acquisition costs, depreciation and amortization, impairments, interest income, interest expense, and income from discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of the REIT’s real estate at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess and compare property-level performance. We believe that net income (loss) is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect the aforementioned excluded items. Additionally, NOI as we define it may not be comparable to NOI as defined by other REITs or companies, as they may use different methodologies for calculating NOI.

	Three Months Ended September 30, 2012							Three Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	961,000	$	298,000	$	1,259,000		$	849,000	$	—	$	849,000
Tenant reimbursements and other income		226,000		24,000		250,000			204,000		—		204,000
	$	1,187,000	$	322,000	$	1,509,000		$	1,053,000	$		$	1,053,000
Property operating and maintenance		347,000		33,000		380,000			427,000		—		427,000
Net operating income	$	840,000	$	289,000	$	1,129,000		$	626,000	$	—	$	626,000
Interest income from notes receivable						(13,000	)						(102,000	)
General and administrative expenses						757,000							713,000
Asset management fees and expenses						240,000							388,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						524,000							384,000
Interest expense						299,000							408,000
Impairment of real estate						—							425,000
Loss (income) from discontinued operation						156,000							(106,000	)
Net loss					$	(1,571,000	)					$	(1,484,000	)
Net loss attributable to  noncontrolling interests						(258,000	)						(352,000	)
Net loss attributable to common stockholders					$	(1,313,000	)					$	(1,132,000	)

	Nine Months Ended September 30, 2012							Nine Months Ended September 30, 2011
	Industrial		Healthcare		Consolidated			Industrial		Healthcare		Consolidated
Rental revenues	$	2,613,000	$	298,000	$	2,911,000		$	2,640,000	$	—	$	2,640,000
Tenant reimbursements and other income		649,000		23,000		672,000			669,000		—		669,000
	$	3,262,000	$	321,000	$	3,583,000		$	3,309,000	$	—	$	3,309,000
Property operating and maintenance expenses		1,141,000		32,000		1,173,000			1,246,000		—		1,246,000
Net operating income	$	2,121,000	$	289,000	$	2,410,000		$	2,063,000	$	—	$	2,063,000
Interest income from notes receivable						(40,000	)						(366,000	)
General and administrative expenses						2,489,000							2,083,000
Asset management fees and expenses						662,000							1,215,000
Real estate acquisition costs						737,000							—
Depreciation and amortization						1,294,000							1,457,000
Reserve for advisor obligation						988,000							—
Interest expense						733,000							1,019,000
Impairment of notes receivable						—							1,650,000
Impairment of real estate						1,140,000							23,644,000
Loss from discontinued operation						581,000							18,556,000
Net loss					$	(6,174,000	)					$	(47,195,000	)
Net loss attributable to noncontrolling interests						(787,000	)						(404,000	)
Net loss attributable to common stockholders					$	(5,387,000	)					$	(46,791,000	)

The following table reconciles NOI from net loss for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net loss	$	(1,571,000	)	$	(1,484,000	)	$	(6,174,000	)	$	(47,195,000	)
Interest income from notes receivable		(13,000	)		(102,000	)		(40,000	)		(366,000	)
General and administrative		757,000			713,000			2,489,000			2,083,000
Asset management fees and expenses		240,000			388,000			662,000			1,215,000
Real estate acquisition costs		737,000			—			737,000			—
Depreciation and amortization		524,000			384,000			1,294,000			1,457,000
Reserve for excess advisor obligation		—			—			988,000			—
Interest expense		299,000			408,000			733,000			1,019,000
Impairment of notes receivable		—			—			—			1,650,000
Impairment of real estate		—			425,000			—			23,644,000
Loss from discontinued operations		156,000			(106,000	)		1,721,000			18,556,000
Net operating income	$	1,129,000		$	626,000		$	2,410,000		$	2,063,000

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Segment Reporting (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Rental revenues	$ 1,259,000	$ 849,000	$ 2,911,000	$ 2,640,000
Tenant reimbursements and other income	250,000	204,000	672,000	669,000
Revenues:	1,522,000	1,155,000	3,623,000	3,675,000
Property operating and maintenance	380,000	427,000	1,173,000	1,246,000
Net operating income	1,129,000	626,000	2,410,000	2,063,000
Interest income from notes receivable	(13,000)	(102,000)	(40,000)	(366,000)
General and administrative expenses	757,000	713,000	2,489,000	2,083,000
Asset management fees and expenses	240,000	388,000	662,000	1,215,000
Real estate acquisition costs	737,000	0	737,000	0
Depreciation and amortization	524,000	384,000	1,294,000	1,457,000
Reserve for excess advisor obligation	0	0	988,000	0
Interest income	299,000
Interest expense	299,000	408,000	733,000	1,019,000
Impairment of notes receivable	0	0	0	1,650,000
Impairment of real estate	0	425,000	0	23,644,000
Loss from discontinued operations	156,000	(106,000)	1,721,000	18,556,000
Net loss	(1,313,000)	(1,132,000)	(5,387,000)	(46,791,000)
Net loss attributable to noncontrolling interests	(258,000)	(352,000)	(787,000)	(404,000)
Net loss attributable to common stockholders	(1,356,000)
Industrial Operations [Member]
Rental revenues	961,000	849,000	2,613,000	2,640,000
Tenant reimbursements and other income	226,000	204,000	649,000	669,000
Revenues:	1,187,000	1,053,000	3,262,000	3,309,000
Property operating and maintenance	347,000	427,000	1,141,000	1,246,000
Net operating income	840,000	626,000	2,121,000	2,063,000
Interest income from notes receivable	(13,000)	(102,000)	(40,000)	(366,000)
Healthcare Properties [Member]
Rental revenues	298,000	0	298,000	0
Tenant reimbursements and other income	24,000	0	23,000	0
Revenues:	322,000	0	321,000	0
Property operating and maintenance	33,000	0	32,000	0
Net operating income	289,000	0	289,000	0
Interest income from notes receivable	0	0	0	0
Consolidated Properties [Member]
Rental revenues	1,259,000	849,000	2,911,000	2,640,000
Tenant reimbursements and other income	250,000	204,000	672,000	669,000
Revenues:	1,509,000	1,053,000	3,583,000	3,309,000
Property operating and maintenance	380,000	427,000	1,173,000	1,246,000
Net operating income	1,129,000	626,000	2,410,000	2,063,000
Interest income from notes receivable	(13,000)	(102,000)	(40,000)	(366,000)
General and administrative expenses	757,000	713,000	2,489,000	2,083,000
Asset management fees and expenses	240,000	388,000	662,000	1,215,000
Real estate acquisition costs	737,000	0	737,000	0
Depreciation and amortization	524,000	384,000	1,294,000	1,457,000
Reserve for excess advisor obligation			988,000	0
Interest expense	299,000	408,000	733,000	1,019,000
Impairment of notes receivable			0	1,650,000
Impairment of real estate	0	425,000	1,140,000	23,644,000
Loss from discontinued operations	156,000	(106,000)	581,000	18,556,000
Net loss	(1,571,000)	(1,484,000)	(6,174,000)	(47,195,000)
Net loss attributable to noncontrolling interests	(258,000)	(352,000)	(787,000)	(404,000)
Net loss attributable to common stockholders	$ (1,313,000)	$ (1,132,000)	$ (5,387,000)	$ (46,791,000)

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Organization

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Organization

Cornerstone Core Properties REIT, Inc., a Maryland Corporation, was formed on October 22, 2004 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate. As used in this report, the “Company”, “we”, “us” and “our” refer to Cornerstone Core Properties REIT, Inc. and its consolidated subsidiaries except where the context otherwise requires. Subject to certain restrictions and limitations, our business is managed pursuant to an advisory agreement (the “Advisory Agreement”) by an affiliate, Cornerstone Realty Advisors, LLC (the “Advisor”); a Delaware limited liability company that was formed on November 30, 2004.

Cornerstone Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership, was formed on November 30, 2004. At September 30, 2012, we owned a 99.88% general partner interest in the Operating Partnership while the Advisor owned a 0.12% limited partnership interest. We conduct substantially all of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements. These financial statements include consolidation of variable interest entities (see Note 11). All intercompany accounts and transactions have been eliminated in consolidation.

Cornerstone Healthcare Partners LLC (“CHP LLC”), a Delaware limited liability company, was formed on June 11, 2012. At September 30, 2012, we owned a 95% interest in CHP LLC and Cornerstone Healthcare Real Estate Fund, Inc. (“CHREF”), an affiliate of the Advisor owned approximately 5%. During the third quarter of 2012, CHP LLC acquired, through various wholly-owned subsidiaries, four skilled-nursing and assisted-living properties (see Notes 5 and 11).

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	290,000,000	290,000,000
Common stock, shares issued	23,028,285	23,028,285
Common stock, shares outstanding	23,028,285	23,028,285

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Consolidation of Variable Interest Entity

9 Months Ended

Sep. 30, 2012

Consolidation Of Variable Interest Entity [Abstract]

Consolidation of Variable Interest Entity [Text Block]

11. Consolidation of Variable Interest Entity

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

In compliance with ASC 810, Consolidation, we continuously analyze and reconsider our initial determination of VIE status to determine whether we are the primary beneficiary by considering, among other things, whether we have the power to direct the activities of the VIE that most significantly impact its economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. We also consider whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.

Nantucket Acquisition

As of September 30, 2012, we had a variable interest in a VIE in the form of a note receivable from Nantucket Acquisition in the amount of $9.0 million (see Note 9).

As a result of our issuing a notice of default with respect to the note, we determined that we were the primary beneficiary of the VIE. Therefore, we consolidated the operations of the VIE beginning June 30, 2011. Assets of the VIE may only be used to settle obligations of the VIE and creditors of the VIE have no recourse to the general credit of the Company. As of October 19, 2011, the Sherburne Commons property was reclassified to real estate held for sale (See Note 4). Consequently, the related assets and liabilities of the property are classified as assets of variable interest entity held for sale and liabilities of variable interest entity held for sale on our condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011. Operating results for the property have been reclassified to discontinued operations on our condensed consolidated statement of operations for the nine months ended September 30, 2012.

Because the Sherburne Commons property was reclassified to held for sale in the fourth quarter of 2011, the real estate is recorded at the lower of carrying value or the estimated fair value of the asset, net of estimated selling costs. Since June 30, 2011, leasing activity has been lower than originally anticipated and we continue to provide funds to meet Sherburne Commons’ operating shortfalls. As a result, we reduced our cash flow forecasts for purposes of determining whether the property was impaired. As a result of expected reduced leasing activity which reduced our cash flow forecasts for Sherburne Commons, we were required to adjust the property to its estimated fair value, net of estimated selling costs resulting in an impairment charge of $4.8 million, which is classified in discontinued operations as impairment of real estate sold and asset held for sale on our consolidated statement of operations for the year ended December 31, 2011.

Since the fourth quarter of 2011, the Sherburne Commons property has been actively marketed to prospective third-party buyers. In the second quarter of 2012, we received a formal offer from an independent third party to acquire the property. Based upon this evidence and management’s plan to sell the property, we determined that the offer, less estimated selling costs, approximates fair value. Consequently, we recorded an impairment charge of $1.1 million in the first quarter of 2012. As of the valuation date, our property interest was deemed to be a Level 2 asset as our estimate of fair value was based on a non-binding purchase offer. We do not believe that this asset was a Level 1 asset as a purchase and sale agreement had not been signed as of the valuation date, giving the potential buyer the right to opt out of the transaction at its discretion.

Cornerstone Healthcare Partners LLC

On June 11, 2012, we formed CHP LLC, a Delaware limited liability company, with CHREF, an affiliate of the Advisor. The entity was formed to purchase healthcare related properties as part of the Company’s repositioning strategy (see Note 5). At September 30, 2012, we owned a 95% interest in CHP LLC and CHREF owned a 5% interest in the entity. As the equity holders are related parties and have voting rights that are disproportionate to their economic interests in CHP LLC, we determined that entity is a VIE. As we have control over the entity, along with the right to receive a majority of the expected residual returns and the obligation to absorb a majority of the expected losses of the entity, we determined that we were the primary beneficiary of the VIE. Consequently, we have consolidated the operations of the VIE.

As of September 30, 2012, the Company has not provided, and is not required to provide, financial support to the VIE except for the services provided to the VIE in its capacity as manager. There are no arrangements requiring the Company to provide additional financial support to the VIE, including circumstances in which the VIE could be exposed to further losses. The properties that were purchased through the VIE are mortgaged by a secured loan (see Note 15). This loan is secured by the healthcare properties purchased through the VIE and has no recourse to our general credit.

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DOCUMENT AND ENTITY INFORMATION	9 Months Ended
	Sep. 30, 2012	Nov. 13, 2012
Entity Registrant Name	Cornerstone Core Properties REIT, Inc.
Entity Central Index Key	0001310383
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		23,028,285
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

XML

Payable to Related Parties

9 Months Ended

Sep. 30, 2012

Related Party Transaction, Due From (To) Related Party [Abstract]

Payable to Related Party [Text Block]

12. Payable to Related Parties

Payable to related parties at September 30, 2012 and December 31, 2011 consists of expense reimbursements payable to the Advisor.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Rental revenues	$ 1,259,000	$ 849,000	$ 2,911,000	$ 2,640,000
Tenant reimbursements and other income	250,000	204,000	672,000	669,000
Interest income from notes receivable	13,000	102,000	40,000	366,000
Revenues	1,522,000	1,155,000	3,623,000	3,675,000
Expenses:
Property operating and maintenance	380,000	427,000	1,173,000	1,246,000
General and administrative	757,000	713,000	2,489,000	2,083,000
Asset management fees	240,000	388,000	662,000	1,215,000
Real estate acquisition costs	737,000	0	737,000	0
Depreciation and amortization	524,000	384,000	1,294,000	1,457,000
Reserve for excess advisor obligation	0	0	988,000	0
Impairment of note receivable	0	0	0	1,650,000
Impairment of real estate	0	425,000	0	23,644,000
Costs and Expenses	2,638,000	2,337,000	7,343,000	31,295,000
Operating loss	(1,116,000)	(1,182,000)	(3,720,000)	(27,620,000)
Interest expense	299,000	408,000	733,000	1,019,000
Loss from continuing operations	(1,415,000)	(1,590,000)	(4,453,000)	(28,639,000)
Discontinued operations:
(Loss) income before impairments	(156,000)	259,000	(581,000)	777,000
Impairment of real estate asset held for sale	0	(153,000)	(1,140,000)	(19,333,000)
(Loss) income from discontinued operations	(156,000)	106,000	(1,721,000)	(18,556,000)
Net loss	(1,571,000)	(1,484,000)	(6,174,000)	(47,195,000)
Noncontrolling interest's share in losses	(258,000)	(352,000)	(787,000)	(404,000)
Net loss applicable to common shares	$ (1,313,000)	$ (1,132,000)	$ (5,387,000)	$ (46,791,000)
Basic and diluted (loss) income per common share
Continuing operations (in dollars per share)	$ (0.06)	$ (0.07)	$ (0.19)	$ (1.24)
Discontinued operations (in dollars per share)	$ 0	$ 0.02	$ (0.04)	$ (0.79)
Net loss applicable to common shares (in dollars per share)	$ (0.06)	$ (0.05)	$ (0.23)	$ (2.03)
Weighted average shares used to calculate basic and diluted net loss per common share (in shares)	23,028,284	23,028,284	23,028,284	23,032,894
Distributions declared per common share	$ 0	$ 0.02	$ 0	$ 0.04

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Allowance for Doubtful Accounts

9 Months Ended

Sep. 30, 2012

Allowance For Doubtful Accounts [Abstract]

Allowance for Doubtful Accounts [Text Block]

6. Allowance for Doubtful Accounts

Allowance for doubtful accounts was $0.2 million as of September 30, 2012 and December 31, 2011.

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Business Combinations

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

5. Business Combinations

In the third quarter of 2012, we acquired through CHP LLC, an interest in four healthcare properties. CHREF, an affiliate of the Advisor, owns a 5% interest in CHP LLC. As CHP LLC’s equity holders have voting rights disproportionate to their economic interests in the entity, CHP LLC is considered to be a VIE. As we are the primary beneficiary of the VIE, we have consolidated the operations of the VIE beginning in the third quarter of 2012 (see Note 11).

Portland, Oregon Properties (Sheridan and Fernhill)

On August 3, 2012, through CHP LLC we acquired two skilled nursing facilities located in the Portland, Oregon metropolitan area for a purchase price of $8.6 million in cash. 411 SE Sheridan Road (“Sheridan”), located approximately fifty miles southwest of Portland in Sheridan, Oregon, is a 51-bed intermediate care facility with a current occupancy of approximately 81%. This 13,912 square foot single-story facility was constructed in multiple phases between 1960 and 1970. 5737 NE 37^th Avenue (“Fernhill”) located in Portland, Oregon, is a 13,344 square foot, originally constructed to be a 51-bed facility with current occupancy of approximately 72%. The facility was built in 1960 and has obtained approval to expand to 63 beds. The operator of the Sheridan and Fernhill properties has served in that capacity since 2005, and has over twenty years of experience operating skilled nursing facilities in the Pacific Northwest. Upon the closing of the acquisitions, the existing operator is continuing to operate the properties under new long-term, triple-net leases. Including the Sheridan and Fernhill properties, the operator manages four skilled nursing facilities in Oregon. We acquired our interest in these properties subject to a secured loan with the seller in the aggregate amount of approximately $5.8 million secured by security interests in Sheridan and Fernhill. On September 14, 2012, we repaid the entire principal balance of the seller loan with proceeds from a loan from General Electric Capital Corporation which is secured, in part, by the Sheridan and Fernhill properties (see Note 15).

Medford, Oregon

On September 14, 2012, through CHP LLC, we acquired Farmington Square Medford, a memory care facility with 52 units and 71 licensed beds located within the Medford, Oregon city limits, for a purchase price of $8.5 million in cash. The facility, consisting of four separate wood-framed, single-story buildings totaling 32,557 square feet, was constructed in phases between 1990 and 1997 and currently operates at approximately 90% occupancy. The operator of the Medford Facility has served in that capacity since 1991, and has over twenty years of experience operating senior-living facilities in the Pacific Northwest. The manager of the facility is continuing to operate the facility under a new long-term, triple-net lease. The acquisition was funded from a loan from an unaffiliated third party lender.

Galveston, Texas

On September 14, 2012, through CHP LLC, we acquired Friendship Haven Healthcare and Rehabilitation Center, a skilled-nursing facility with 150 licensed beds located in Galveston County, Texas, for a purchase price of $15.0 million. The facility, a single-story, 53,826 square foot wood-frame building, was constructed in 1997 and currently operates at 90% occupancy. The manager of the Galveston Facility has served in that capacity since February 2012, and has over twenty years of experience operating senior-living facilities in Texas and Louisiana. The licensed operator is continuing to operate the Galveston facility under a new long-term, triple-net lease. Including the Galveston Facility, the manager manages fifteen skilled-nursing facilities in Texas. The acquisition was funded from a loan from an unaffiliated third party lender.

The following summary provides the allocation of the acquired assets and liabilities of the Sheridan, Portland, Medford, and Galveston properties (the “Third Quarter 2012 Acquisitions”) as of the respective dates of acquisition. We have accounted for the acquisitions as business combinations under U.S. GAAP. Under business combination accounting, the assets and liabilities of acquired properties are recorded as of the acquisition date, at their respective fair values, and consolidated in our financial statements. The following sets forth the preliminary allocation of the purchase prices of the acquired properties as well as the associated acquisitions costs, which have been expensed as incurred. These allocations are subject to change as we finalize our analysis.

	Sheridan		Portland		Medford		Galveston		Total
Land	$	156,000	$	826,000	$	954,000	$	1,095,000	$	3,031,000
Buildings & improvements		1,343,000		1,244,000		6,353,000		11,101,000		20,041,000
Site improvements		74,000		45,000		233,000		509,000		861,000
Furniture & fixtures		223,000		350,000		434,000		1,263,000		2,270,000
In-place leases		283,000		299,000		526,000		1,032,000		2,140,000
Certificate of need		2,021,000		1,736,000		—		—		3,757,000
Real estate acquisitions	$	4,100,000	$	4,500,000	$	8,500,000	$	15,000,000	$	32,100,000
Real estate acquisition costs	$	109,000	$	109,000	$	297,000	$	222,000	$	737,000

The Company recorded revenues and net income for the three and nine months ended September 30, 2012 of approximately $0.3 million related to the Third Quarter 2012 Acquisitions. The following unaudited pro forma information for the three and nine months ended September 30, 2012 and 2011 has been prepared to reflect the incremental effect of the properties acquired during the third quarter of 2012 as if all such transactions took place on January 1, 2011. For the three and nine months ended September 30, 2012, acquisition-related costs of $0.7 million and $0.7 million, respectively, were excluded from pro forma net loss.

	Three Months ended September 30,						Nine Months ended September 30,
	2012			2011			2012			2011
Revenues	$	2,065,000		$	1,936,000		$	5,707,000		$	6,019,000
Net loss from continuing operations	$	(376,000	)	$	(1,088,000	)	$	(2,423,000	)	$	(27,869,000	)
Basic and diluted net loss per common share from continuing operations	$	(0.02	)	$	(0.05	)	$	(0.11	)	$	(1.21	)

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Discontinued Operations

9 Months Ended

Sep. 30, 2012

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

17. Discontinued Operations

Divestitures

In accordance with FASB ASC 360, Property, Plant & Equipment, we report results of operations from real estate assets that meet the definition of a component of an entity that have been sold, or meet the criteria to be classified as held for sale, as discontinued operations.

On June 14, 2011, one of our wholly-owned subsidiaries sold the Goldenwest property to Westminster Redevelopment Agency, a non-related party, for a purchase price of $9.4 million. Approximately $7.8 million in proceeds from the sale were used to pay down a portion of the HSH Nordbank credit facility. The operations of Goldenwest are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

On November 28, 2011, two of our wholly-owned subsidiaries sold the Mack Deer Valley and Pinnacle Park Business Center properties to a non-related party for a purchase price of $23.9 million. The proceeds were used, in part, to pay down the entire balance of the HSH Nordbank credit facility. The operations of these properties are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

On December 22, 2011, our wholly-owned subsidiary sold the 2111 South Industrial Park property for a purchase price of $0.9 million. A loss on sale of $29,000 was recognized in the fourth quarter of 2011. The proceeds were used to pay down the Wells Fargo loan. The operations of this property are presented in discontinued operations on our condensed consolidated statement of operations for the three and nine months ended September 30, 2011.

Assets of Variable Interest Entity Held for Sale

In the fourth quarter of 2011, our board of directors authorized us to actively market the Sherburne Commons property, a VIE that we began consolidating on June 30, 2011 (see Note 11).

The assets and liabilities of properties for which we have initiated plans to sell, but have not yet sold as of September 30, 2012 and December 31, 2011 have been classified as assets of variable interest entity held for sale and liabilities of variable interest entity held for sale on the accompanying condensed consolidated balance sheets. As of September 30, 2012 and December 31, 2011, this represents the assets and liabilities of the Sherburne Commons property. The results of operations for the variable interest entity held for sale are presented in discontinued operations on the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2012.

The following is a summary of the components of (loss) income from discontinued operations for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Rental revenues, tenant reimbursements and other income	$	577,000		$	1,316,000	$	1,522,000		$	3,065,000
Operating expenses and real estate taxes		733,000			947,000		2,103,000			1,702,000
Depreciation and amortization		—			110,000		—			586,000
Impairment of real estate		—			153,000		1,140,000			19,333,000
Income (loss) from discontinued operation	$	(156,000	)	$	106,000	$	(1,721,000	)	$	(18,556,000	)

FASB ASC 360 requires that assets classified as held for sale be carried at the lesser of their carrying amount or estimated fair value, less estimated selling costs. Accordingly, we recorded an impairment charge of $1.1 million in the first quarter of 2012 to record the Sherburne Commons property at its estimated fair value; less estimated selling costs (see Notes 4 and 11).

The following table presents balance sheet information for the properties classified as held for sale as of September 30, 2012 and December 31, 2011.

	September 30, 2012		December 31, 2011
Assets of variable interest entity held for sale:
Cash and cash equivalents	$	40,000	$	95,000
Investments in real estate, net		3,905,000		5,045,000
Accounts receivable, inventory and other assets		223,000		232,000
Assets of variable interest entity held for sale	$	4,168,000	$	5,372,000
Liabilities of variable interest entity held for sale:
Note payable	$	1,332,000	$	1,332,000
Loan payable		131,000		127,000
Accounts payable and accrued liabilities		408,000		373,000
Intangible lease liabilities, net		145,000		145,000
Interest payable		244,000		142,000
Liabilities of variable interest entity held for sale	$	2,260,000	$	2,119,000

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Equity

9 Months Ended

Sep. 30, 2012

Equity [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

13. Equity

Common Stock

Our articles of incorporation authorize 290,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. As of September 30, 2012 and December 31, 2011, we had cumulatively issued 20.9 million shares of common stock for a total of $167.1 million of gross proceeds, exclusive of shares issued under our distribution reinvestment plan. On November 23, 2010, we stopped making and accepting offers to purchase shares of our stock and on June 10, 2012, it expired (see Note 2).

Distributions

Distributions paid to stockholders for the three months ended September 30, 2012 and 2011 were $0. Distributions paid to stockholders for the nine months ended September 30, 2012 and 2011 were $0 and $0.5 million, respectively, all of which was paid in cash. Total cash distributions paid for the six months ended June 30, 2011 were 100% funded from cash provided by operating activities.

We adopted a distribution reinvestment plan that allows our stockholders to have their distributions invested in additional shares of our common stock. As of September 30, 2012 and December 31, 2011, 2.3 million shares had been issued under the distribution reinvestment plan. On November 23, 2010, our board of directors suspended the distribution reinvestment plan indefinitely effective December 14, 2010. As a result, distributions were paid entirely in cash after December 14, 2010. Commencing with the April 2011 distributions, the board of directors elected to pay distributions on a quarterly basis. However, due to cash constraints, the board of directors elected to defer the second quarter 2011 distribution payment until the Company’s cash position improved. The second quarter distribution of $0.5 million was paid in the fourth quarter of 2011. We cannot provide any assurance as to if or when we will resume our distribution reinvestment plan.

The following table shows the distributions declared during the nine months ended September 30, 2012 and 2011:

	Distributions Declared (2)						Cash Flows Provided by (Used in) Operating
Period	Cash		Reinvested		Total		Activities
First quarter 2011 (1)	$	454,000	$	—	$	454,000	$	481,000
Second quarter 2011 (1)	$	468,000	$	—	$	468,000	$	(219,000	)
Third quarter 2011	$	—	$	—	$	—	$	(323,000	)
First quarter 2012	$	—	$	—	$	—	$	(800,000	)
Second quarter 2012	$	—	$	—	$	—	$	(953,000	)
Third quarter 2012	$	—	$	—	$	—	$	(2,400,000	)

(1) 100% of the distributions declared during the nine months ended September 30, 2011 represented a return of capital for federal income tax purposes.

(2) In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Some of our distributions have been paid from sources other than operating cash flow, such as offering proceeds.

The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis, if any. The amount, rate, frequency of distributions will depend on operating results and cash flow, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant. No distributions have been declared for periods after June 30, 2011.

From our inception in October 2004 through September 30, 2012, we declared aggregate distributions of $32.8 million. Our cumulative net loss and cumulative net cash provided by operating activities during the same period were $74.1 million and $0.5 million, respectively.

Stock Repurchase Program

On November 23, 2010, our board of directors concluded that we would not have sufficient funds available to us to continue funding share repurchases. Accordingly, our board of directors suspended repurchases under the program effective December 31, 2010. In January 2011, repurchases of 46,096 shares due to the death of a shareholder that were requested in 2010, prior to the suspension of the stock repurchase program were funded. Our board of directors has the authority to resume, suspend again, or terminate the share redemption program at any time upon 30 days written notice to our stockholders. Our board of directors may modify our stock repurchase program so that we can repurchase stock using the proceeds from the sale of our real estate investments or other sources. We can make no assurance as to when and on what terms repurchases will resume.

During the nine months ended September 30, 2012, we did not repurchase any shares pursuant to our stock repurchase program. We have received requests to repurchase 14,528 shares during the three months ended September 30, 2012. However, due to the current suspension of the stock repurchase program, we were not able to fulfill any of these requests.

During the nine months ended September 30, 2011, we repurchased shares pursuant to our stock repurchase program as follows:

Period	Total Number of Shares Redeemed		Average Price Paid per Share
January 2011 (1)	46,096		$7.99
February 2011		—	$	—
March 2011		—	$	—
April 2011		—	$	—
May 2011		—	$	—
June 2011		—	$	—
July 2011		—	$	—
August 2011		—	$	—
September 2011		—	$	—
		46,096

(1) In January 2011, share repurchases due to the death of a shareholder that were requested prior to the suspension of the stock repurchase program were fulfilled under the program.

Employee and Director Incentive Stock Plan

We have adopted an Employee and Director Incentive Stock Plan (the “Plan”) which provides for the grant of awards to directors, full-time employees, and other eligible participants that provide services to us. We have no employees, and we do not intend to grant awards under the Plan to persons who are not directors. Awards granted under the Plan may consist of nonqualified stock options, incentive stock options, restricted stock, share appreciation rights, and distribution equivalent rights. The term of the Plan is ten years. The total number of shares of common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of stock at any time.

As of September 30, 2012, we had granted to our independent, non-employee directors nonqualified stock options to purchase an aggregate of 80,000 shares of common stock at an exercise price of $8.00 per share. Of these shares, 15,000 shares lapsed and were canceled on November 8, 2008 due to the resignation of one director from the board of directors on August 6, 2008. On April 6 and July 3, 2012, an additional 20,000 and 5,000 shares, respectively, lapsed and were canceled due to the resignation of two additional members from the board of directors.

Outstanding stock options became immediately exercisable on the grant date, were issued with a ten-year life, and have no intrinsic value as of September 30, 2012. We recorded compensation expense for non-employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. No stock options were exercised during the nine months ended September 30, 2012 and 2011. We did not incur any non-cash compensation expense for the nine months ended September 30, 2012 and 2011.

In connection with the registration of the shares in our Follow-On Offering, we suspended the issuance of options to our independent, non-employee directors under the Plan, and we do not expect to issue additional options to our independent, non-employee directors. As of June 10, 2012, our Follow-on Offering was terminated (see Note 2).

Our equity compensation plan information as of September 30, 2012 and December 31, 2011 is as follows:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders		40,000	$	8.00		See footnote	(1)
Equity compensation plans not approved by security holders		—		—		—
Total		40,000	$	8.00		See footnote	(1)

(1) Our Employee and Director Incentive Stock Plan was approved by our security holders and provides that the total number of shares issuable under the plan is a number of shares equal to ten percent (10%) of our outstanding common stock. The maximum number of shares that may be granted under the plan with respect to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code is 5,000,000. As of September 30, 2012 and December 31, 2011, there were 23,028,285 shares of our common stock issued and outstanding.

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Note Receivable from Related Party

9 Months Ended

Sep. 30, 2012

Note Receivable From Related Party [Abstract]

Note Receivable from Related Party [Text Block]

9. Note Receivable from Related Party

On December 14, 2009, we made a participating first mortgage loan commitment of $8.0 million to Nantucket Acquisition LLC (“Nantucket Acquisition”), a Delaware limited liability company owned and managed by Cornerstone Ventures Inc., an affiliate of our Advisor. The loan was made in connection with Nantucket Acquisition’s purchase of a 60-unit senior-living community, Sherburne Commons Residences, LLC (“Sherburne Commons”), located on the island of Nantucket, MA. The loan matures on January 1, 2015, with no option to extend and bears interest at a fixed rate of 8.0% for the term of the loan. Interest is payable monthly with the principal balance due at maturity. Under the terms of the loan, we are entitled to receive additional interest in the form of a 40% participation in the appreciation in value of the property, which is calculated based on the net sales proceeds if the property is sold, or the property’s appraised value, less ordinary disposition costs, if the property has not been sold by the time the loan matures. Prepayment of the loan is not permitted without our consent and the loan is not assumable.

Leasing activity at Sherburne Commons has been lower than originally anticipated and to preserve cash flow for operating requirements, Nantucket Acquisition suspended interest payments to us beginning in the first quarter of 2011. Consequently, we began recognizing interest income on a cash basis as of the first quarter of 2011. For the three months ended September 30, 2012 and 2011, interest income recognized on the note was $0. For the nine months ended September 30, 2012 and 2011, interest income recognized on the note was $0 and $55,000, respectively.

During 2011 and in the first half of 2012, the loan balance was increased by $0.5 million and $0.3 million, respectively, to provide funds for Sherburne Commons’ operating shortfalls. It is anticipated that additional disbursements to Nantucket Acquisitions may be required while efforts are made to dispose of the property.

Nantucket Acquisition is considered a variable interest entity for which we are the primary beneficiary due to our enhanced ability to direct the activities of the VIE. Consequently, we have consolidated the operations of the VIE as of June 30, 2011 and, accordingly, eliminated the note receivable from related party in consolidation (see Note 11).

On a quarterly basis, we evaluate the collectability of our note receivable from Nantucket Acquisition. Our evaluation of collectability involves judgment, estimates, and a review of the underlying collateral and Nantucket Acquisition’s business models and future cash flows from operations. For the three months ended September 30, 2011 and 2012, we recorded no impairment charge attributed to the VIE held for sale (see Note 11). For the nine months ended September 30, 2012 and 2011, we recorded impairment changes of $1.1 million and $0, respectively.

The following table reconciles the note receivable from Nantucket Acquisition from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012			2011
Balance at January 1,	$	—		$	8,000,000
Additions:
Additions to note receivable from related party		435,000			318,000
Deductions:
Repayments of note receivable from related party		—			—
Elimination of balance in consolidation of VIE		(435,000	)		(8,318,000	)
Balance at September 30	$	—		$	—

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Notes Payable (Details) (Wells Fargo Bank Loan [Member], USD $)	Sep. 30, 2012
Wells Fargo Bank Loan [Member]
Principal payments due, October 1, 2012 to December 31, 2012	$ 90,000
Principal payments due, 2013	360,000
Principal payments due, 2014	6,139,000
Principal payments due, 2015	0
Principal payments due, 2016	0
Principal payments due, 2017 and thereafter	$ 0

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Concentration of Risk

9 Months Ended

Sep. 30, 2012

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

7. Concentration of Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily notes receivable and the note receivable from related party. Refer to Notes 8 and 9 with regard to credit risk evaluation of notes receivable and the note receivable from related party, respectively. Our cash is generally invested in investment-grade short-term instruments.

On July 21, 2010, President Obama signed into law the “Dodd-Frank Wall Street Reform and Consumer Protection Act” that implements significant changes to the regulation of the financial services industry, including provisions that made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000, and provided unlimited federal deposit insurance until January 1, 2013, for non-interest bearing demand transaction accounts at all insured depository institutions. As of September 30, 2012, we had cash accounts in excess of FDIC-insured limits. However, we do not believe the risk associated with this excess is significant.

Concentrations of credit risk also arise when a number of tenants or obligors related to one investment are engaged in similar business activities or activities in the same geographic regions, have similar economic features that would cause their ability to meet contractual obligations, including those of the Company, to be similarly affected by changes in economic conditions. We regularly monitor our portfolio to assess potential concentration risk.

As of September 30, 2012, excluding the VIE, we owned three properties in the state of California, six properties in the state of Florida three properties in the state of Oregon and one property in the state of Texas. Accordingly, there is a geographic concentration of risk subject to economic conditions in these states.

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Notes Receivable

9 Months Ended

Sep. 30, 2012

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8. Notes Receivable

In May 2008, we agreed to loan up to $10.0 million at an interest rate of 10% per year to two real estate operating companies, Servant Investments, LLC (“SI”) for approximately $6.0 million and Servant Healthcare Investments, LLC (“SHI”) for approximately $4.0 million (collectively “Servant”). In May 2010, the combined loan commitments were reduced to $8.75 million with the commitment reduction impacting SI only. SI’s revised loan commitment was $4.7 million. The loans were scheduled to mature on May 19, 2013. At the time the loans were negotiated, Servant was a sub-advisor in an alliance with the managing member of our Advisor.

On a quarterly basis, we evaluate the collectability of our notes receivable. Our evaluation of collectability involves judgment, estimates, and a review of the underlying collateral and borrower’s business models and future cash flows from operations. During the third quarter of 2009, we concluded that the collectability of the SI note could not be reasonably assured. Therefore, we recorded a reserve of $4.7 million against the note balance. For the three and nine months ended September 30, 2011 and 2010, no interest income related to the SI note receivable was recorded. As of September 30, 2012 and December 31, 2011, the SI note receivable had a net balance of $0. It is our policy to recognize interest income on the reserved loan on a cash basis.

In the second quarter of 2011, after evaluating the expected effects of changes in SHI’s business prospects, including the uncertainty surrounding the realization of the fees pursuant to a sub-advisory agreement, we concluded that it was probable that we would be unable to collect all amounts due according to the terms of the SHI note and consequently, we recorded a note receivable impairment of $1.7 million against the balance of that note.

In December 2011, the notes receivable were restructured to provide for the combined settlement of the notes in the amount of $2.5 million of which $1.5 million was received from Servant in December 2011. The remaining $1.0 million is payable pursuant to a promissory note from SHI which provides for interest at a fixed rate of 5.00% per annum. A principal payment of $0.7 million, plus any accrued and unpaid interest, is due on December 22, 2013 and the remaining balance of $0.3 million, plus any accrued and unpaid interest, is due on December 22, 2014. The note receivable was recorded at its present value of $0.9 million on our consolidated balance sheet as of December 31, 2011.

The following table reconciles notes receivable from January 1, 2012 to September 30, 2012 and from January 1, 2011 to September 30, 2011:

	2012		2011
Balance at January 1,	$	908,000	$	4,000,000
Additions:
Additions to notes receivable		—		—
Deductions:
Notes receivable repayments		—		(150,000	)
Notes receivable impairments		—		(1,650,000	)
Balance at September 30,	$	908,000	$	2,200,000

As of September 30, 2012 and December 31, 2011, the SHI note receivable had a balance of $0.9 million. For the nine months ended September 30 2012 and 2011, interest income related to the note receivable was $40,000 and $0.3 million, respectively and the collection is current. We determined that Servant is not a variable interest entity and there is no requirement to include this entity in our condensed consolidated balance sheets and condensed consolidated statements of operations.

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Receivable from Related Party

9 Months Ended

Sep. 30, 2012

Receivable From Related Party [Abstract]

Receivable from Related Party [Text Block]

10. Receivable from Related Party

The receivable from related party consists of the “excess organization and offering costs” reimbursed to the Advisor related to our Follow-on Offering. Our Follow-on Offering was terminated on June 10, 2012. Pursuant to the Advisory Agreement with our Advisor, within 60 days after the end of the month in which our Follow-on Offering terminated, our Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our Advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit set forth in the advisory agreement. Therefore, we recorded a receivable of approximately $1.0 million for which we then reserved the full amount based on our analysis of collectability (see Note 14).

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Notes Payable (Details Textual) (USD $)	1 Months Ended				3 Months Ended		9 Months Ended		12 Months Ended		0 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended		1 Months Ended			3 Months Ended		9 Months Ended	1 Months Ended				3 Months Ended		9 Months Ended		1 Months Ended	0 Months Ended	9 Months Ended	0 Months Ended	3 Months Ended	9 Months Ended			3 Months Ended		9 Months Ended
	Feb. 29, 2012	Dec. 31, 2011	Aug. 31, 2011	Nov. 30, 2009	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Nov. 28, 2009	Aug. 01, 2012 Seller Loan [Member]	Sep. 30, 2012 Seller Loan [Member]	Sep. 30, 2012 Seller Loan [Member]	Sep. 30, 2012 Transamerica Life Insurance Company [Member]	Sep. 30, 2011 Transamerica Life Insurance Company [Member]	Sep. 30, 2012 Transamerica Life Insurance Company [Member]	Sep. 30, 2011 Transamerica Life Insurance Company [Member]	Dec. 31, 2008 Transamerica Life Insurance Company [Member]	Dec. 31, 2011 Transamerica Life Insurance Company [Member]	Sep. 30, 2011 Hsh Nordbank Ag [Member]	Aug. 31, 2011 Hsh Nordbank Ag [Member]	Jul. 31, 2011 Hsh Nordbank Ag [Member]	Sep. 30, 2012 Hsh Nordbank Ag [Member]	Sep. 30, 2011 Hsh Nordbank Ag [Member]	Sep. 30, 2012 Hsh Nordbank Ag [Member]	Feb. 29, 2012 Wells Fargo Bank National Association [Member]	Dec. 31, 2011 Wells Fargo Bank National Association [Member]	Aug. 31, 2011 Wells Fargo Bank National Association [Member]	Nov. 30, 2009 Wells Fargo Bank National Association [Member]	Sep. 30, 2012 Wells Fargo Bank National Association [Member]	Sep. 30, 2011 Wells Fargo Bank National Association [Member]	Sep. 30, 2012 Wells Fargo Bank National Association [Member]	Sep. 30, 2011 Wells Fargo Bank National Association [Member]	Dec. 22, 2011 South Industrial Park Property 2011 [Member]	Sep. 13, 2012 General Electric Capital Corporation Healthcare Properties [Member]	Sep. 30, 2012 General Electric Capital Corporation Healthcare Properties [Member]	Sep. 07, 2012 General Electric Capital Corporation Western Property [Member]	Sep. 30, 2012 General Electric Capital Corporation Western Property [Member]	Sep. 30, 2012 General Electric Capital Corporation Western Property [Member]	Sep. 30, 2012 Notes Payable [Member]	Sep. 30, 2011 Notes Payable [Member]	Sep. 30, 2012 Notes Payable [Member] Amortization Of Financial Cost [Member]	Sep. 30, 2011 Notes Payable [Member] Amortization Of Financial Cost [Member]	Sep. 30, 2012 Notes Payable [Member] Amortization Of Financial Cost [Member]	Sep. 30, 2011 Notes Payable [Member] Amortization Of Financial Cost [Member]
Long Term Debt With Maturity In February 2014					$ 44,300,000		$ 44,300,000
Long Term Debt With Maturity In November 2014					0		0
Debt Issuance Cost																																								0	900,000
Amortization of deferred financing costs					27,000	156,000	99,000	357,000																																		0	84,000	0	84,000
Credit Facility Agreement Description																							We amended our credit agreement with HSH Nordbank AG, New York Branch ("HSH Nordbank") in a series of amendments extending the credit facility maturity date from September 20, 2010 to December 16, 2011.		The July 2011 amendment to this credit agreement extended the maturity date from September 30, 2011 to December 16, 2011 and increased the margin spread over LIBOR from a range of 350 to 375 basis points to a fixed 375 basis points from June 1, 2011 to September 30, 2011 and to 400 basis points from October 1, 2011 to the maturity date.
Line of Credit Facility, Decrease, Forgiveness																				300,000	300,000	300,000
Line of Credit Facility Repayment						7,800,000																		7,800,000
Line of Credit Facility, Amount Outstanding										0
Line of Credit Facility, Increase (Decrease) for Period, Description																													Borrowing amount of up to $22.4 million, which was reduced to $15.9 million
Line of Credit Facility, Interest Rate Description	The interest rate on amended loan decreased from 300 basis points over one-month LIBOR to 200 basis points over one-month LIBOR, with the one-month LIBOR floor remaining fixed at 150 basis points.		Interest on the amended loan increased to 300 basis points over one-month LIBOR with a 150 basis point LIBOR floor.	At an interest rate of 140 basis points over one-month LIBOR																								Interest on the amended loan increased to 300 basis points over one-month LIBOR with a 150 basis point LIBOR floor.	At an interest rate of 140 basis points over one-month LIBOR
Debt Instrument Maturity Date Extension																										Feb. 13, 2014		Feb. 13, 2012	Aug. 13, 2011
Debt Instrument Principal Repayment	7,500,000	900,000	500,000		7,500,000																					7,500,000	900,000	500,000		7,500,000				900,000
Loan Expenses																										65,000
Long-term Debt, Gross		14,400,000			6,600,000		6,600,000		14,400,000										6,700,000								14,400,000			0		0
Debt Instrument, Interest Rate During Period							3.71%		2.54%
Long-term Debt, Weighted Average Interest Rate														5.89%		5.89%											2.54%			0.00%		0.00%
Interest expense					(299,000)	(408,000)	(733,000)	(1,019,000)				23,000	23,000	0	100,000	0	200,000													0	64,000	0	130,000
Business Acquisition, Name of Acquired Entity																		Monroe North Commerce Center
Business Acquisition, Date of Acquisition Agreement																Apr. 17, 2008
Loans Assumed																		7,400,000
Line of Credit Facility, Expiration Date																Nov. 01, 2014
Line of Credit Facility, Periodic Payment							50,370
Secured Debt											5,800,000																								16,500,000		8,900,000
Debt Instrument, Interest Rate, Effective Percentage											5.00%
Debt Instrument, Maturity Date											Mar. 15, 2013																										Sep. 30, 2014
Repayments of Secured Debt																																			5,800,000
Debt Instrument, Description of Variable Rate Basis																																			interest at LIBOR, with a floor of 50 basis points, plus a spread of 4.50		LIBOR plus 4.30%, with a LIBOR floor of 0.25
Long-term Debt, Maturities, Repayment Terms																																			After the lockout period, principal and interest payments are due on monthly based on a 25 year amortization schedule.
Debt Instrument, Periodic Payment																																				90,000			34,000
Interest Expense, Debt					59,000	51,000	200,000	300,000						96,000	99,000	300,000	300,000																			66,000		28,000	28,000
Debt Instrument, Convertible, Remaining Discount Amortization Period																																					30 years
Early Repayment of Subordinated Debt																																					$ 96,200

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Discontinued Operations (Details 1) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Cash and cash equivalents	$ 4,789,000	$ 17,388,000	$ 439,000	$ 1,544,000	$ 2,014,000
Note payable	21,990,000	21,070,000
Accounts payable and accrued liabilities	1,342,000	785,000
Discontinued Operations [Member]
Cash and cash equivalents	40,000	95,000
Investments in real estate, net	3,905,000	5,045,000
Accounts receivable, inventory and other assets	223,000	232,000
Assets of variable interest entity held for sale	4,168,000	5,372,000
Note payable	1,332,000	1,332,000
Loan payable	131,000	127,000
Accounts payable and accrued liabilities	408,000	373,000
Intangible lease liabilities, net	145,000	145,000
Interest payable	244,000	142,000
Liabilities of variable interest entity held for sale	$ 2,260,000	$ 2,119,000

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Notes Payable (Details 3) (Wholly Owned Subsidiary Loan [Member], USD $)	Sep. 30, 2012
Wholly Owned Subsidiary Loan [Member]
Principal payments due, October 1, 2012 to December 31, 2012	$ 0
Principal payments due, 2013	0
Principal payments due, 2014	8,900,000
Principal payments due, 2015	0
Principal payments due, 2016	0
Principal payments due, 2017 and thereafter	$ 0

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2012

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Component of Income (Loss) from Discontinued Operation [Table Text Block]

The following is a summary of the components of (loss) income from discontinued operations for the three months and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Rental revenues, tenant reimbursements and other income	$	577,000		$	1,316,000	$	1,522,000		$	3,065,000
Operating expenses and real estate taxes		733,000			947,000		2,103,000			1,702,000
Depreciation and amortization		—			110,000		—			586,000
Impairment of real estate		—			153,000		1,140,000			19,333,000
Income (loss) from discontinued operation	$	(156,000	)	$	106,000	$	(1,721,000	)	$	(18,556,000	)

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

The following table presents balance sheet information for the properties classified as held for sale as of September 30, 2012 and December 31, 2011.

	September 30, 2012		December 31, 2011
Assets of variable interest entity held for sale:
Cash and cash equivalents	$	40,000	$	95,000
Investments in real estate, net		3,905,000		5,045,000
Accounts receivable, inventory and other assets		223,000		232,000
Assets of variable interest entity held for sale	$	4,168,000	$	5,372,000
Liabilities of variable interest entity held for sale:
Note payable	$	1,332,000	$	1,332,000
Loan payable		131,000		127,000
Accounts payable and accrued liabilities		408,000		373,000
Intangible lease liabilities, net		145,000		145,000
Interest payable		244,000		142,000
Liabilities of variable interest entity held for sale	$	2,260,000	$	2,119,000

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Note Receivable from Related Party (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Balance at January 1,	$ 0	$ 8,000,000
Additions to note receivable from related party	435,000	318,000
Repayments of note receivable from related party	0	0
Elimination of balance in consolidation of VIE	(435,000)	(8,318,000)
Balance at September 30	$ 0	$ 0

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Notes Payable

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

15. Notes Payable

We have total debt obligations of $44.3 million that will mature in 2014 and 2017. In connection with our notes payable, we incurred financing costs totaling $0.9 million, as of September 30, 2012 and December 31, 2011, respectively. These financing costs have been capitalized and are being amortized over the life of their respective financing agreements. For the three months ended September 30, 2012 and 2011, $27,000 and $156,000, respectively, of deferred financing costs were amortized and included in interest expense in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, $99,000 and $357,000, respectively, of deferred financing costs were amortized and included in interest expense in our condensed consolidated statements of operations.

HSH Nordbank AG

We amended our credit agreement with HSH Nordbank AG, New York Branch (“HSH Nordbank”) in a series of amendments extending the credit facility maturity date from September 20, 2010 to December 16, 2011. As a part of these amendments, we made a principal reduction payment and paid extension fees.

The July 2011 amendment to this credit agreement extended the maturity date from September 30, 2011 to December 16, 2011 and increased the margin spread over LIBOR (London Interbank Offered Rate) from a range of 350 to 375 basis points to a fixed 375 basis points from June 1, 2011 to September 30, 2011 and to 400 basis points from October 1, 2011 to the maturity date. Additionally, this amendment eliminated our requirement to make principal reduction payments of $0.3 million in July, August, and September of 2011, respectively. In connection with this extension and the sale of the Goldenwest property (see Note 17), we made a principal payment of $7.8 million.

On November 28, 2011, this loan was repaid in its entirety with a portion of the proceeds from the sale of the Mack Deer Valley and Pinnacle Park Business Center properties.

Wells Fargo Bank, National Association

On November 13, 2007, we entered into a loan agreement with Wells Fargo, successor-by-merger to Wachovia Bank, N.A., to facilitate the acquisition of properties during our offering period. The terms of the loan agreement provided for a borrowing amount of up to $22.4 million, which was reduced to $15.9 million as of November 30, 2009, at an interest rate of 140 basis points over one-month LIBOR, secured by specified real estate properties. The loan agreement had a maturity date of November 13, 2010, and provided for prepayment without penalty. Through a series of amendments executed through June 30, 2011, we extended the maturity date from November 13, 2010 to August 13, 2011.

On August 12, 2011, the loan agreement was amended to extend the maturity to February 13, 2012. In connection with this amendment, the 2111 South Industrial Park property and Shoemaker Industrial Buildings were added to the loan collateral, and we made a principal payment of $0.5 million. The terms of the amended loan provide for two one-year extensions, subject to meeting certain loan-to-value and debt service coverage ratios and require monthly principal payments. Interest on the amended loan increased to 300 basis points over one-month LIBOR with a 150 basis point LIBOR floor.

On December 22, 2011, in connection with the sale of the 2111 South Industrial Park property (see Note 17), we made a principal payment of approximately $0.9 million.

On February 13, 2012, we amended our loan agreement with Wells Fargo, extending the maturity date from February 13, 2012 to February 13, 2014. In connection with this amendment, we made a principal payment of $7.5 million and paid fees and expenses totaling approximately $65,000. The interest rate on the amended loan decreased from 300 basis points over one-month LIBOR to 200 basis points over one-month LIBOR, with the one-month LIBOR floor remaining fixed at 150 basis points. Any amounts repaid under the loan agreement may not be re-borrowed. All other terms of the loan agreement remain in full force and effect.

As of September 30, 2012 and December 31, 2011, we had net borrowings of approximately $6.6 million and $14.4 million under the loan agreement, respectively. The weighted-average interest rate for the nine months ended September 30, 2012 and the year ended December 31, 2011 was 3.71% and 2.54%, respectively. During the three months ended September 30, 2012 and 2011, we incurred $59,000 and $51,000 of interest expense, respectively, related to this loan agreement. During the nine months ended September 30, 2012 and 2011, we incurred $0.2 million and $0.3 million of interest expense, respectively, related to this loan agreement.

The loan agreement contains various reporting covenants, including providing periodic balance sheets, statements of income and expenses of borrower and each guarantor, statements of income and expenses and changes in financial position of each secured property and cash flow statements of the borrower and each guarantor. As of September 30, 2012, we were in compliance with all financial covenants.

The principal payments due on the Wells Fargo loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	90,000
2013	$	360,000
2014	$	6,139,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

Transamerica Life Insurance Company

In connection with our acquisition of Monroe North Commerce Center, on April 17, 2008, we entered into an assumption and amendment of note, mortgage and other loan documents (the “Loan Assumption Agreement”) with Transamerica Life Insurance Company (“Transamerica”). Pursuant to the Loan Assumption Agreement, we assumed the outstanding principal balance of $7.4 million on the Transamerica secured mortgage loan. The loan matures on November 1, 2014 and bears interest at a fixed rate of 5.89% per annum. As of September 30, 2012 and December 31, 2011, we have an outstanding balance of $6.5 million and $6.7 million, respectively, under this Loan Assumption Agreement. This Loan Assumption Agreement contains various reporting covenants including an annual income statement, rent roll, operating budget and narrative summary of leasing prospects for vacant spaces. As of September 30, 2012, we were in compliance with all reporting covenants. The monthly principal and interest payment on this loan is $50,370. During the three months ended September 30, 2012 and 2011, we incurred $96,000 and $99,000 of interest expense, respectively, related to this Loan Assumption Agreement. During the nine months ended September 30, 2012 and 2011, we incurred $0.3 million and $0.3 million of interest expense, respectively, related to this loan agreement. The principal payments due on the Loan Assumption Agreement for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	37,000
2013	$	230,000
2014	$	6,234,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

Seller Loan

We acquired our interest in the Fernhill and Sheridan properties subject to a secured loan. On August 1, 2012, we entered into a loan agreement with the sellers, Sheridan Care Center LLC, Sheridan Properties LLC, Fernhill Estates LLC, and Fernhill Properties LLC, for a loan (the “Seller Loan”) in the aggregate amount of approximately $5.8 million secured by security interests in the Fernhill and Sheridan properties. The Seller Loan, which bears interest fixed at 5.0%, matures on March 15, 2013, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan agreement will become due. The Seller Loan was interest-only and could be voluntarily prepaid in its entirety prior to the maturity date without penalty. Interest payments on the Seller Loan are due monthly. The principal balance of the Seller Loan was paid off in full on September 14, 2012 with the proceeds of the GE Healthcare Loan. During the three and nine months ended September 30, 2012, we incurred $23,000 of interest expense related to this Seller Loan.

General Electric Capital Corporation – Healthcare Properties

In connection with our acquisition of the Medford and Galveston facilities, on September 13, 2012, we entered into a loan agreement with General Electric Capital Corporation (“GE Healthcare Loan”) for a loan in the aggregate amount of approximately $16.5 million secured by security interests in the Medford Facility and Galveston Facility. Additionally, we used part of the loan proceeds to repay the entire principal balance of the Seller Loan of $5.8 million. Consequently, the GE Healthcare Loan is secured, in part, by the Portland Properties. The loan bears interest at LIBOR, with a floor of 50 basis points, plus a spread of 4.50%, and matures on September 12, 2017, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan agreement will become due. The GE Healthcare Loan is interest-only for the first twelve months (known as the “lockout period”) and a combination of principal and interest thereafter. The loan may be voluntarily prepaid during lockout period provided the borrower pays a penalty equal to the sum of the LIBOR Breakage Amount, as defined in the, GE Healthcare Loan Agreement and two percent of the outstanding balance of the loan. The GE Healthcare Loan may be prepaid with no penalty after the expiration of the lockout period. Interest payments on the GE Healthcare Loan are due monthly. After the lockout period, principal and interest payments are due on monthly based on a 25 year amortization schedule. As of September 30, 2012, we were in compliance with all covenants. The monthly payment on this GE Healthcare Loan is approximately $90,000. During the three and nine months ended September 30, 2012, we incurred $66,000 of interest expense related to this loan agreement. The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows: 

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	93,000
2014	$	384,000
2015	$	408,000
2016	$	430,000
2017 and thereafter	$	20,985,000

General Electric Capital Corporation – Western Property

On September 7, 2012, through a wholly-owned subsidiary, we entered into a loan agreement (the “Western Loan”) with General Electric Capital Corporation for a loan in the aggregate amount of approximately $8.9 million, net of certain lender holdbacks, secured by a security interest in the 20100 Western Avenue property. The Western Loan, which bears interest at LIBOR plus 4.30%, with a LIBOR floor of 0.25%, matures on September 30, 2014, at which time all outstanding principal, accrued and unpaid interest and any other amounts due under the loan will become due. The Company has the option to extend the term of the loan for one additional 12-month period. The Western Loan is interest only through November 1, 2013, at which time it begins amortizing over a 30-year period. The Western Loan may be voluntarily prepaid in its entirety during the first year of the loan term subject to a prepayment penalty equal to the Spread Maintenance Amount, as defined in the loan agreement, plus the LIBOR Breakage Amount, as defined in the loan agreement. Subsequent to the first year of the loan term, the loan may be voluntarily prepaid in its entirety subject to a prepayment penalty equal to the Libor Breakage Amount. We paid certain customary financing fees from the proceeds of the Western Loan, and an exit fee of $96,200 is payable to the lender upon the earlier of the maturity of the loan or repayment of the Western Loan in full. In connection with this loan, we entered into an interest swap agreement. The fair value and any change in fair value are considered immaterial. As of September 30, 2012, we were in compliance with all reporting covenants. The monthly payment on this Western Loan is approximately $34,000. During the three and nine months ended September 30, 2012, we incurred $28,000 of interest expense related to this loan agreement. The principal payments due on the loan for October 1, 2012 to December 31, 2012 and for each of the five following years ended December 31 is as follows:

Year	Principal Amount
October 1, 2012 to December 31, 2012	$	—
2013	$	—
2014	$	8,900,000
2015	$	—
2016	$	—
2017 and thereafter	$	—

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Principles of Consolidation and Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with generally accepted accounting principles of the United States of America (“GAAP”) and in conjunction with the rules and regulations of the SEC. Certain amounts have been reclassified for prior periods to conform to current period presentation. Assets sold or held for sale and associated liabilities have been reclassified on the condensed consolidated balance sheets and the related operating results reclassified from continuing to discontinued operations on the condensed consolidated income statements. Additionally certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying financial information reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2011 Annual Report on Form 10-K as filed with the SEC. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2011. Except as discussed in the “Summary of Significant Accounting Policies”, for the quarter and nine months ended September 30, 2012, there have been no material changes to such accounting policies.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash represents cash held in interest bearing accounts related to impound reserve accounts for property taxes, insurance and capital improvements or commitments as required under the terms of mortgage loan agreements. Based on the intended use of the restricted cash, we have classified changes in restricted cash within the statements of cash flows as operating or investing activities.

Fair Value of Financial Instruments and Fair Value Measurements [Policy Text Block]

Fair Value of Financial Instruments and Fair Value Measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires the disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value.

Fair value represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820, Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability.

Financial assets and liabilities recorded at fair value on the condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.  Quoted prices in active markets for identical instruments.

Level 2.  Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3.  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified according to the lowest level input that is significant to their valuation. A financial instrument that has a significant unobservable input along with significant observable inputs may still be classified as a Level 3 instrument.

We generally determine or calculate the fair value of financial instruments using quoted market prices in active markets, when such information is available, or appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments and our estimates for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.

Our condensed consolidated balance sheets include the following financial instruments: cash and cash equivalents, notes receivable, certain other assets, deferred costs and deposits, payable to related parties, prepaid rent, security deposits and deferred revenue, and notes payable. With the exception of notes receivable and notes payable discussed below, we consider the carrying values to approximate fair value for such financial instruments because of the short period of time between origination of the instruments and their expected payment.

As of September 30, 2012 and December 31, 2011, the fair value of notes receivable was $0.9 million and $0.9 million, compared to the carrying value of $0.9 million and $0.9 million, respectively. The fair value of notes receivable was estimated by discounting the expected cash flows at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we discounted the expected cash flows using a rate of 10.00%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes receivable are classified as Level 3 assets within the fair value hierarchy.

As of September 30, 2012 and December 31, 2011, the fair value of notes payable was $44.7 million and $21.3 million compared to the carrying value of $44.3 million and $21.1 million, respectively. The fair value of notes payable is estimated by discounting the contractual cash payments at current market rates at which management believes similar loans would be made. To estimate fair value at September 30, 2012, we utilized discount rates ranging from 3.5% to 5.0%. As the inputs to our valuation estimate are neither observable in nor supported by market activity, our notes payable are classified as Level 3 assets within the fair value hierarchy.

As a result of our ongoing analysis for potential impairment of our investments in real estate and to value properties classified as held for sale, we were required to adjust the carrying value of certain assets to their estimated fair values, less selling costs, during the first quarter of 2012 (see Note 4). No impairments were recorded during the three months ended September 30, 2012.

The following table summarizes the asset measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Net Losses for the Nine Months Ended September 30, 2012
Variable interest entity held for sale	$	3,760,000	$	—	$	3,760,000	$	—	$	(1,140,000	)

The variable interest entity held for sale measured at fair value during the first quarter of 2012 was deemed to be a Level 2 asset as we have received a formal offer for the property. We do not believe that this asset was a Level 1 asset as of the valuation date as a purchase and sale agreement had not been signed, giving the potential buyer the right to opt out of the transaction at its discretion.

At September 30, 2012 and December 31, 2011, we do not have any financial assets or financial liabilities that are measured at fair value on a recurring basis in our condensed consolidated financial statements.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entity Accounting

The Company analyzes its contractual and/or other interests to determine whether such interests constitute an interest in a variable interest entity (“VIE”) in accordance with ASC 810, Consolidation (“ASC 810”), and, if so, whether the Company is the primary beneficiary. If the Company is determined to be the primary beneficiary of a VIE, it must consolidate the VIE. A VIE is an entity with insufficient equity investment or in which the equity investors lack some of the characteristics of a controlling financial interest. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, including, but not limited to, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE (see Note 5).

Real Estate, Policy [Policy Text Block]

Real Estate Purchase Price Allocation

We allocate the purchase price of our properties in accordance with ASC 805. Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, buildings, site improvements, furniture & fixtures and intangible lease assets or liabilities including in-place leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation of our assets is being charged to expense on a straight-line basis over the assigned useful lives. The value of the building and improvements are depreciated over estimated useful lives of 15 to 39 years. The value of the furniture & fixtures are depreciated over estimated useful lives of five years.

The estimated fair value of land is based on recent comparable transactions. The fair value of buildings, site improvements and equipment is estimated to be the cost to replace the assets, with appropriate adjustments to account for the age and condition of the assets.

In-place lease values are calculated based on management’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at estimated market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related costs.

We amortize the value of in-place leases and above and below market leases over the initial term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the tenant improvements, intangible lease assets or liabilities and the in-place lease value will be immediately charged to expense or recorded as income, as appropriate.

In an effort to control the rapidly escalating costs of health care, the state of Oregon has implemented a certificate of need (“CON”) program pertaining to skilled-nursing facilities. This program requires that a CON is obtained from the state prior to opening such facility. We valued the CON assets related to our Fernhill and Sheridan facilities using an income approach. As the CON does not expire and can be sold independently of the facilities, we determined that these assets have indefinite useful lives and consequently are not being amortized.

Reclassification, Policy [Policy Text Block]

Reclassification

Assets sold or held for sale and their associated liabilities have been reclassified on the condensed consolidated balance sheets and operating results have been reclassified from continuing to discontinued operations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments in this update provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years and interim periods beginning after September 15, 2012. The Company does not expect the adoption of ASU 2012-02 on January 1, 2013 to have an impact on its consolidated financial position or results of operations.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amendments in this update result in additional fair value measurement and disclosure requirements within U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The Company’s adoption of ASU 2011-04 on January 1, 2012 did not have a significant impact on its consolidated financial condition, results of operations, and/or its disclosures.

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Notes Receivable (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	May 31, 2008
Notes receivable impairments	$ 0	$ 0	$ 0	$ 1,650,000
Balance at September 30,	908,000		908,000		908,000	10,000,000
Notes Receivable SI and SHI [Member]
Balance at January 1,	908,000	4,000,000	908,000	4,000,000
Additions to notes receivable			0	0
Notes receivable repayments			0	(150,000)
Notes receivable impairments			0	(1,650,000)
Balance at September 30,	$ 908,000	$ 2,200,000	$ 908,000	$ 2,200,000

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Investments in Real Estate (Details 1) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Net investments in real estate and related intangible lease assets (liabilities)	$ 44,132,000	$ 45,146,000
Land [Member]
Investments in real estate and related intangible lease assets (liabilities)	14,764,000	11,733,000
Less: accumulated depreciation and amortization	0	0
Net investments in real estate and related intangible lease assets (liabilities)	14,764,000	11,733,000
Building Improvements [Member]
Investments in real estate and related intangible lease assets (liabilities)	55,135,000	34,180,000
Less: accumulated depreciation and amortization	(1,932,000)	(850,000)
Net investments in real estate and related intangible lease assets (liabilities)	53,203,000	33,330,000
Building Improvements [Member] | Leases, Acquired-In-Place [Member]
Investments in real estate and related intangible lease assets (liabilities)	3,321,000	1,181,000
Less: accumulated depreciation and amortization	(1,180,000)	(1,134,000)
Net investments in real estate and related intangible lease assets (liabilities)	2,141,000	47,000
Building Improvements [Member] | Below Market Leases [Member]
Investments in real estate and related intangible lease assets (liabilities)	(620,000)	(620,000)
Less: accumulated depreciation and amortization	609,000	576,000
Net investments in real estate and related intangible lease assets (liabilities)	(11,000)	(44,000)
Building Improvements [Member] | Above Market Leases [Member]
Investments in real estate and related intangible lease assets (liabilities)	1,401,000	1,401,000
Less: accumulated depreciation and amortization	(1,377,000)	(1,365,000)
Net investments in real estate and related intangible lease assets (liabilities)	24,000	36,000
Furniture and Fixtures [Member]
Investments in real estate and related intangible lease assets (liabilities)	2,269,000
Less: accumulated depreciation and amortization	(47,000)
Net investments in real estate and related intangible lease assets (liabilities)	2,222,000
Certificate Of Need [Member]
Investments in real estate and related intangible lease assets (liabilities)	3,757,000
Less: accumulated depreciation and amortization	0
Net investments in real estate and related intangible lease assets (liabilities)	$ 3,757,000

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (USD $)	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2010	$ 23,000	$ 117,520,000	$ (16,690,000)	$ 100,853,000	$ 117,000	$ 100,970,000
Balance (in shares) at Dec. 31, 2010	23,074,381
Redeemed shares	(46,096)	(369,000)	0	(369,000)	0	(369,000)
Redeemed shares (in shares)	0
Dividends declared	0	(922,000)	0	(922,000)	(9,000)	(931,000)
Reduction of excess offering costs						0
Net loss	0	0	(46,791,000)	(46,791,000)	(404,000)	(47,195,000)
Balance at Sep. 30, 2011	23,000	116,229,000	(63,481,000)	52,771,000	(296,000)	52,475,000
Balance (in shares) at Sep. 30, 2011	23,028,285
Balance at Dec. 31, 2011	23,000	116,238,000	(68,748,000)	47,513,000	(1,887,000)	45,626,000
Balance (in shares) at Dec. 31, 2011	23,028,285
Redeemed shares	0	0	0	0	0	0
Redeemed shares (in shares)	0
Dividends declared	0	0	0	0	0	0
Reduction of excess offering costs	0	988,000	0	988,000	0	988,000
Noncontrolling interest contribution		0	0	0	591,000	591,000
Net loss	0	0	(5,387,000)	(5,387,000)	(787,000)	(6,174,000)
Balance at Sep. 30, 2012	$ 23,000	$ 117,226,000	$ (74,135,000)	$ 43,114,000	$ (2,083,000)	$ 41,031,000
Balance (in shares) at Sep. 30, 2012	23,028,285

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Investments in Real Estate

9 Months Ended

Sep. 30, 2012

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

4. Investments in Real Estate

As of September 30, 2012, our portfolio consisted of thirteen purchased properties which were approximately 83.9% leased. The following table provides summary information regarding our properties.

Property (1)	Location	Date Purchased	Square Footage		Purchase Price		Debt			Sept 30 2012 %  Leased
Industrial:
Shoemaker Industrial Buildings	Santa Fe Springs, CA	June 30, 2006		18,921	$	2,400,000	$	—			75.7	%
20100 Western Avenue	Torrance, CA	December 1, 2006		116,433		19,650,000		8,900,000			100.0	%
Marathon Center	Tampa Bay, FL	April 2, 2007		52,020		4,450,000		—			37.6	%
Orlando Small Bay Portfolio:
Carter Commerce Center	Winter Garden, FL	November 15, 2007		49,125							64.9	%
Goldenrod Commerce Center	Orlando, FL	November 15, 2007		78,646							83.0	%
Hanging Moss Commerce Center	Orlando, FL	November 15, 2007		94,200							82.5	%
Monroe South Commerce Center	Sanford, FL	November 15, 2007		172,500							68.6	%
				394,471		37,128,000		6,589,000			74.3	%
Monroe North Commerce Center	Sanford, FL	April 17, 2008		181,348		14,275,000		6,501,000			97.3	%
1830 Santa Fe	Santa Ana, CA	August 5, 2010		12,200		1,315,000		—			100.0	%
Subtotal Industrial:				775,393		79,218,000		21,990,000
Healthcare:
Sheridan Care Center	Sheridan, OR	August 3, 2012		13,912		4,100,000		2,800,000			100.0	%
Fern Hill Care Center	Portland, OR	August 3, 2012		13,344		4,500,000		3,000,000	(2)		100.0	%
Farmington Square	Medford, OR	September 14, 2012		32,557		8,500,000		5,800,000	(2)		100.0	%
Friendship Haven Healthcare and Rehabilitation Center	Galveston County, TX	September 14, 2012		53,826		15,000,000		10,700,000	(2)		100.0	%
Subtotal Healthcare:				113,639		32,100.000		22,300,000	(2)		100.0	%
Total				889,032	$	111,318,000	$	44,290,000			83.9	%

(1) The table excludes Sherburne Commons, a variable interest entity (“VIE”) for which we became the primary beneficiary and began consolidating its financial results as of June 30, 2011. As of October 19, 2011, Sherburne Commons was classified as held for sale (see Notes 9 and 11).

(2) Represents healthcare properties with single tenant leases which we report as 100% occupied from our (landlord’s) perspective. These properties were acquired in the third quarter of 2012 (see Note 5).

As of September 30, 2012, our adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities, including the CHP LLC acquisitions, were as follows:

	Land		Buildings and Improvements			Furniture and Fixture			Acquired Above- Market Leases			In-Place Lease Value			Certificate of Need		Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	55,135,000		$	2,269,000		$	1,401,000		$	3,321,000		$	3,757,000	$	(620,000	)
Less: accumulated depreciation and amortization		—		(1,932,000	)		(47,000	)		(1,377,000	)		(1,180,000	)		—		609,000
Net investments in real estate and related intangible lease assets (liabilities)	$	14,764,000	$	53,203,000		$	2,222,000		$	24,000		$	2,141,000		$	3,757,000	$	(11,000	)

As of December 31, 2011, adjusted cost and accumulated depreciation and amortization related to investments in real estate and related intangible lease assets and liabilities were as follows:

	Land		Buildings and Improvements			Acquired Above- Market Leases			In-Place Lease Value			Acquired Below- Market Leases
Investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	34,180,000		$	1,401,000		$	1,181,000		$	(620,000	)
Less: accumulated depreciation and amortization		—		(850,000	)		(1,365,000	)		(1,134,000	)		576,000
Net investments in real estate and related intangible lease assets (liabilities)	$	11,733,000	$	33,330,000		$	36,000		$	47,000		$	(44,000	)

Depreciation expense associated with buildings and improvements, including real estate held for sale, for the three months ended September 30, 2012 and 2011 was $0.4 million and $0.3 million, respectively. Depreciation expense for the nine months ended September 30, 2012 and 2011 was $1.1 million and $1.7 million, respectively. We are required to make subjective assessments as to the useful lives of our depreciable assets. In making such assessments, we consider each asset’s expected period of future economic benefit to estimate the appropriate useful lives.

Net amortization expense associated with the intangible lease assets and liabilities, including those associated with real estate held for sale, for the three months ended September 30, 2012 and 2011 was $21,000 and $9,000, respectively. Net amortization expense for the nine months ended September 30, 2012 and 2011 was $25,000 and $102,000, respectively. Estimated net amortization expense for October 1, 2012 through December 31, 2012 and for each of the five following years ended December 31 is as follows:

	Amortization of Intangible Lease Assets
October 1, 2012 to December 31, 2012	$	48,000
2013	$	213,000
2014	$	203,000
2015	$	200,000
2016	$	195,000
2017 and thereafter	$	1,295,000

The estimated useful lives of intangible lease assets range from approximately one month to four years. As of September 30, 2012, the weighted-average amortization periods for in-place leases, acquired above-market leases and acquired below-market leases were 11.2 years, 2.1 years and 0.3 years, respectively.

Impairments

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we regularly conduct comprehensive reviews of our real estate assets for impairment. ASC 360 requires that asset values be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable.

The intended use of an asset, either held for sale or held and used, can significantly impact how impairment is measured. If an asset is intended to be held and used, the impairment analysis is based on a two-step test.

The first test measures estimated expected future cash flows (undiscounted and without interest charges) over the holding period, including a residual value, against the carrying value of the property. If the asset fails that test, the asset’s carrying value is compared to the estimated fair value from a market-participant standpoint, with the excess of the asset’s carrying value over the estimated fair value recognized as an impairment charge to earnings.

If an asset is intended to be sold, the asset is recorded at the lower of its carrying amount, or fair value net of estimated selling costs.

We recorded no impairment charges related to properties held and used for the nine months ended September 30, 2012 and 2011.

Real Estate Held for Sale

In the fourth quarter of 2011, we reclassified Nantucket Acquisition LLC, a VIE for which we are the primary beneficiary, to real estate held for sale. The financial results for this property have been reclassified to discontinued operations for all periods presented (see Note 17). In October 2012, we listed the 20100 Western Avenue (“Western Avenue”) property for sale. Therefore, in the fourth quarter of 2012, we will reclassify Western Avenue’s financial results for all periods presented to discontinued operations (See Note 19).

When assets are classified as held for sale, they are recorded at the lower of carrying value or the estimated fair value of the asset, net of estimated selling costs. Accordingly, we assessed Sherburne Commons, the property owned by Nantucket Acquisition LLC, to determine whether its carrying value exceeded its estimated fair value, net of estimated selling costs, as of September 30, 2012. We estimated fair value, net of estimated selling costs, for Sherburne Commons based on a formal offer to acquire the property received from an independent third party. Consequently, we recorded an impairment charge of $1.1 million in the first quarter of 2012. The property was deemed to be a Level 2 asset as our estimate of fair value was based on a non-binding purchase offer. We do not believe that this asset was a Level 1 asset as a purchase and sale agreement had not been signed as of the valuation date, giving the potential buyer the right to opt out of the transaction at its discretion (see Note 3).

Leasing Commissions

Leasing commissions are capitalized at cost and amortized on a straight-line basis over the related lease term. As of September 30, 2012 and December 31, 2011, the balance of capitalized leasing commissions was $1.8 million and $0.4 million, respectively. Amortization expense for the three months ended September 30, 2012 and 2011 was $51,000 and $28,000, respectively. Amortization expense for the nine months ended September 30, 2012 and 2011 was $118,000 and $92,000 respectively.

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Equity (Details Textual) (USD $)	1 Months Ended			3 Months Ended		9 Months Ended		93 Months Ended		9 Months Ended				93 Months Ended		9 Months Ended	12 Months Ended
	Jul. 31, 2012	Apr. 30, 2012	Jan. 31, 2012	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Maximum [Member]	Sep. 30, 2012 Minimum [Member]	Sep. 30, 2012 Stock Distribution [Member]	Sep. 30, 2012 Employee and Director Incentive Stock Plan [Member]	Jun. 30, 2012 Employee and Director Incentive Stock Plan [Member]	Jun. 30, 2012 Stockholders Distributions [Member]	Sep. 30, 2012 Distribution Reinvestment Plan [Member]	Dec. 31, 2011 Distribution Reinvestment Plan [Member]
Common Stock, Shares Authorized (in shares)				290,000,000		290,000,000			290,000,000
Common stock, par value (in dollars per share)				$ 0.001		$ 0.001			$ 0.001
Preferred Stock, Shares Authorized (in shares)				10,000,000		10,000,000			10,000,000
Preferred stock, par value (in dollars per share)				$ 0.001		$ 0.001			$ 0.001
Cummulative Common Stock Shares Issued (in shares)				20,900,000		20,900,000			167,100,000
Dividends, Common Stock, Cash				$ 0	$ 0	$ 0	$ 500,000
Percentage Dividends Common Stock Cash									100.00%
Distributions paid to stockholders					0	0	611,000								32,800,000
Proceeds from Issuance of Common Stock Excluding Shares Issued Under Distribution Plan						0	0
Shares, Issued																23,028,285	23,028,285
Accumulated deficit				(74,135,000)		(74,135,000)			(68,748,000)
Accumulated Net Cash Flow Provided by Operating Activities								500,000
Stock Repurchase Program, Number of Shares Authorized to be Repurchased (in shares)													0
Number of Common Stock Reserved Description													The total number of shares of common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of stock at any time.
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)													80,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in dollars per share)													$ 8.00
Share Based Compensation Arrangement By Share Based Payment Award Options Cancellations In Period Gross													15,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Intrinsic Value (in dollars per share)													$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award (in years)														10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	5,000	20,000
Stock Repurchases Due To Shareholder Death			46,096
Stock Repurchased During Period, Shares				14,528
Stock Issued During Period, Value, Dividend Reinvestment Plan																$ 2,300,000	$ 2,300,000
Payment Of Distribution Description												The second quarter distribution of $0.5 million was paid in the fourth quarter of 2011.
Payment Of Distribution Percentage										100.00%	90.00%

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Segment Reporting (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net loss	$ (1,571,000)	$ (1,484,000)	$ (6,174,000)	$ (47,195,000)
Interest income from notes receivable	(13,000)	(102,000)	(40,000)	(366,000)
General and administrative	757,000	713,000	2,489,000	2,083,000
Asset management fees and expenses	240,000	388,000	662,000	1,215,000
Real estate acquisition costs	737,000	0	737,000	0
Depreciation and amortization	524,000	384,000	1,294,000	1,457,000
Reserve for excess advisor obligation	0	0	988,000	0
Interest expense	299,000	408,000	733,000	1,019,000
Impairment of notes receivable	0	0	0	1,650,000
Impairment of real estate	0	425,000	0	23,644,000
Loss from discontinued operations	156,000	(106,000)	1,721,000	18,556,000
Net operating income	$ 1,129,000	$ 626,000	$ 2,410,000	$ 2,063,000

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

The following table summarizes the asset measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Net Losses for the Nine Months Ended September 30, 2012
Variable interest entity held for sale	$	3,760,000	$	—	$	3,760,000	$	—	$	(1,140,000	)

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Summary of Significant Accounting Policies (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Fair value on a nonrecurring basis, Variable interest entity held for sale	$ 3,760,000
Variable Interest Entity, Primary Beneficiary [Member]
Total Net Losses	(1,140,000)
Fair Value, Inputs, Level 1 [Member]
Fair value on a nonrecurring basis, Variable interest entity held for sale	0
Fair Value, Inputs, Level 2 [Member]
Fair value on a nonrecurring basis, Variable interest entity held for sale	3,760,000
Fair Value, Inputs, Level 3 [Member]
Fair value on a nonrecurring basis, Variable interest entity held for sale	$ 0

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Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

14. Related Party Transactions

Our company has no employees. Our Advisor is primarily responsible for managing our business affairs and carrying out the directives of our board of directors. We have an Advisory Agreement with the Advisor and a dealer manager agreement with PCC which entitle the Advisor and PCC to specified fees upon the provision of certain services with regard to the Offerings and investment of funds in real estate projects, among other services, as well as reimbursement for organizational and offering costs incurred by the Advisor and PCC, on our behalf and reimbursement of certain other reimbursable costs and expenses incurred by the Advisor in providing services to us.

Advisory Agreement

Under the terms of the Advisory Agreement, the Advisor will use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors. The Advisory Agreement calls for the Advisor to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties.

Organizational and Offering Costs. Organizational and offering costs of our Offerings have been paid by the Advisor on our behalf and have been reimbursed to the Advisor from the proceeds of our Offerings. Organizational and offering costs consist of all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with our Offerings, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to, (i) amounts to reimburse the Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of the Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the offering of our shares; (iii) the costs of conducting our training and education meetings; (iv) the costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses.

As of September 30, 2012 and December 31, 2011, the Advisor and its affiliates had incurred on our behalf organizational and offering costs totaling $5.6 million, including $0.1 million of organizational costs that were expensed and $5.5 million of offering costs which reduced net proceeds of our Offerings. Of this amount, $4.4 million reduced the net proceeds of our Primary Offering and $1.1 million reduced the net proceeds of our Follow-On Offering.

On June 10, 2012, our Follow-on Offering was terminated. Our Advisory Agreement provides for reimbursement to the Advisor for organizational and offering costs in excess of 3.5% of the gross proceeds from our Primary Offering and Follow-On Offering. Under the Advisory Agreement, within 60 days after the end of the month in which our Follow-on Offering terminated, the Advisor is obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeded 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed our Advisor a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit. Consequently, in the second quarter of 2012, we recorded a receivable from the Advisor for $1.0 million reflecting the excess reimbursement. The repayment by the Advisor is scheduled to occur in quarterly payments over a 24 month period commencing January 1, 2013. However, as a result of our evaluation of various factors related to collectability of this receivable, we recorded a reserve for the full amount of the receivable as of June 30, 2012 and no change has been made to the reserve as of September 30, 2012.

Acquisition Fees and Expenses. The Advisory Agreement requires us to pay to the Advisor acquisition fees in an amount equal to 2.0% of the gross proceeds from our Offerings. We have paid the acquisition fees upon receipt of the gross proceeds from our Primary Offering and Follow-On Offering (excluding gross proceeds related to sales pursuant to our distribution reinvestment plan). However, if the Advisory Agreement is terminated or not renewed, the Advisor must return acquisition fees not yet allocated to one of our investments. In addition, we are required to reimburse the Advisor for direct costs the Advisor incurs and amounts the Advisor pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired. For the nine months ended September 30, 2012 and 2011, the Advisor earned acquisition fees of $0.4 million and $0, respectively. On July 31, 2012, we executed an amendment to the terms of the Advisory Agreement to provide for payment of an Advisor acquisition fee in an amount not to exceed 2% of the contract purchase price, as defined, for new property acquisitions.

Asset Management Fees and Expenses. Prior to October 1, 2011, the Advisory Agreement required us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the “Average Invested Assets” (as defined in the Advisory Agreement). On August 31, 2011, we amended the Advisory Agreement to provide that, beginning on October 1, 2011, the asset management fee payable by us to our Advisor shall be reduced to a monthly rate of one-twelfth of 0.75% of our Average Invested Assets, as defined above. On July 31, 2012, we executed an amendment to the terms of the Advisory Agreement to provide for a Property Management and Leasing Fee payable to the Advisor if the Advisor provides such services with respect to new property acquisitions. The amount of the Property Management and Leasing Fee is to be market-based and in no case may exceed 3% of monthly gross revenue, as defined, and 2.5% of rent as defined. For the three months ended September 30, 2012 and 2011, the Advisor earned $0.2 million and $0.4 million, respectively, of asset management fees which were expensed and included in asset management fees and expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, the Advisor earned $0.7 million and $1.2 million, respectively, of asset management fees which were expensed and included in asset management fees and expenses in our condensed consolidated statements of operations.

In addition, we reimburse the Advisor for the direct and indirect costs and expenses incurred by the Advisor in providing asset management services to us, including personnel and related employment costs related to providing asset management services on our behalf. These fees and expenses are in addition to management fees that we pay to third-party property managers. For the three months ended September 30, 2012 and 2011, the Advisor was reimbursed $58,000 and $44,000, respectively, of such direct and indirect costs and expenses incurred on our behalf, which are included in asset management fees and expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011, the Advisor was reimbursed $138,000 and $129,000, respectively, of such direct and indirect costs and expenses incurred on our behalf, which are included in asset management fees and expenses in our condensed consolidated statements of operations.

Operating Expenses. The Advisory Agreement provides for reimbursement of the Advisor’s direct and indirect costs of providing administrative and management services to us. For the three months ended September 30, 2012 and 2011, $0.3 million and $0.2 million of such costs, respectively, were reimbursed and are included in general and administrative expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2012 and 2011 $1.0 million and $0.7 million of such costs, respectively, were reimbursed and are included in general and administrative expenses in our condensed consolidated statements of operations.

Pursuant to provisions contained in our charter and in our Advisory Agreement, the Advisor shall reimburse us by the amount by which the total operating expenses paid or incurred by us, in any four consecutive fiscal quarters, exceeds the greater of 2% of our average invested assets or 25% of our net income, calculated in the manner set forth in our charter, (the “Excess Amount” unless a majority of the board of directors (including a majority of the independent directors) has made a finding that, based on unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified (collectively, this limitation is the “2%/25% Test”).

As previously disclosed, for each of the fiscal quarters ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012 our board of directors conditioned its findings that such Excess Amounts for such quarters were justified upon the Advisor agreeing to carry over such Excess Amounts and include them in total operating expenses in subsequent periods for purposes of the 2%/25% Test. The board of directors including the independent directors of the Company have unanimously resolved to permanently waive the Advisor’s reimbursement obligation with respect to amounts due for excess resulting from the six-fiscal quarters ended September 30, 2011, which amount totals $3.2 million.

The Company’s board of directors, including all of the independent directors, reached their decision to waive the Advisor’s reimbursement obligation because such expenses were justified as unusual and non-recurring, including those due to unforeseeable conditions, namely the small asset base due to the suspension in November 2010 and subsequent termination in June 2012 of the Follow-On Offering. This negatively affected the Company’s growth and extended the start-up phase of the Company. Additionally, we were negatively impacted by the extended economic national recession that adversely impacted the industrial and residential real estate markets resulting in lower rental rates, occupancy rates and operating results in 2009, 2010 and 2011. In 2011, four of our industrial properties were sold primarily to pay down and/or restructure terms on current maturities of debt. These dispositions further negatively impacted the Company’s operating results and reduced the average invested assets measure, which is used in the 2%/25% test.

For the four-fiscal-quarter period ended September 30, 2012, our total operating expenses again exceeded the greater of 2% of our average invested assets and 25% of our net income. We incurred operating expenses of approximately $4.2 million and incurred an Excess Amount of approximately $2.3 million during the four-fiscal-quarters ended September 30, 2012. Our board of directors, including a majority of our independent directors, has determined that this Excess Amount is justified because of unusual and non-recurring factors such as our small size (for a public reporting company) and the costs of repositioning of our real estate investments. However, notwithstanding such justification, and as a condition to such justification, the Advisor has again agreed that the Excess Amount the four-fiscal-quarter period ended September 30, 2012 shall be carried over and included in total operating expenses in subsequent periods, with any waiver dependent on our Advisor’s satisfactory progress with respect to executing the strategic alternative to be chosen by the independent directors.

The Advisor has informed us that based on current conditions and the Company’s forecast, it believes that the Company’s projected operating expenses are likely to exceed the 2%/25% test while the Company and Advisor pursue the repositioning strategy and growth in assets under management. Accordingly, the board of directors has determined and the Advisor has concurred that any Excess Amounts in future quarters shall be carried over and included I the total operating expense for such subsequent periods, with any future waiver or adjustments dependent upon the Advisor satisfactorily continued progress with respect to accelerating growth and executing the strategic repositioning andcost containment initiatives. The board of directors will continue to monitor the appropriateness of the expenses and the Advisor’s fees and consider options to reduce the Company’s expense structure.

Property Management and Leasing Fees and Expenses. The Advisory Agreement provides that if we retain our Advisor or an affiliate to manage and lease some of our properties, we will pay a market-based property management fee or property leasing fee, which may include reimbursement of our Advisor’s or affiliate’s personnel costs and other costs of managing the properties. For the three months ended September 30, 2012 and 2011, the Advisor earned approximately $2,000 and $2,000, respectively, of such property management fees. For the nine months ended September 30, 2012 and 2011, the Advisor earned $7,000 and $13,000, respectively, of such property management fees. On July 31, 2012, we executed a Property Management and Leasing Agreement with the Advisor pursuant to which it will perform property management and leasing services with respect to our healthcare properties. This agreement stipulates that when the Advisor identifies tenants and negotiates a lease on our behalf for the healthcare properties, we will pay to the Advisor a market based leasing fee. For the three months ended September 30, 2012, the Advisor earned approximately $1.0 million of leasing fees. For the nine months ended September 30, 2012, the Advisor earned $1.0 million of leasing fees. No leasing fees were earned in 2011. These costs are included in property operating and maintenance expenses in our condensed consolidated statements of operations.

Disposition Fee. Prior to the second amendment to the Advisory Agreement executed on November 11, 2011, the Advisory Agreement provided that if the Advisor or its affiliates provide a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors) in connection with the sale of one or more properties, we will pay the Advisor or such affiliate a disposition fee up to 3% of the sales price of such property or properties upon closing. This disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by us for each property shall not exceed an amount equal to the lesser of (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property. Subsequent to November 11, 2011, the disposition fee was reduced from an amount up to 3% of the sales price of properties sold to an amount up to 1% of the sales price of properties sold if the Advisor or its affiliates provide a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors).We will pay the disposition fees for a property at the time the property is sold. For the three and nine months ended September 30, 2012 and 2011, the Advisor did not earn any disposition fees.

Subordinated Participation Provisions. The Advisor is entitled to receive a subordinated participation upon the sale of our properties, listing of our common stock or termination of the Advisor, as follows:

• After stockholders have received cumulative distributions equal to $8.00 per share (less any returns of capital) plus cumulative, non-compounded annual returns on net invested capital, the Advisor will be paid a subordinated participation in net sale proceeds ranging from a low of 5% of net sales proceeds provided investors have earned annualized returns of 6% to a high of 15% of net sales proceeds if investors have earned annualized returns of 10% or more.

• Upon termination of the Advisory Agreement, the Advisor will receive the subordinated performance fee due upon termination. This fee ranges from a low of 5% of the amount by which the sum of the appraised value of our assets minus our liabilities on the date the Advisory Agreement is terminated plus total distributions (other than stock distributions) paid prior to termination of the Advisory Agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the appraised value of our assets minus our liabilities plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

• In the event we list our stock for trading, the Advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds. This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

Dealer Manager Agreement

PCC, as dealer manager, was entitled to receive sales commissions of up to 7% of gross proceeds from sales in our Offerings. PCC was also entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the Offerings. The dealer manager was also entitled to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the gross proceeds from sales in the Offerings. For the nine months ended September 30, 2012 and 2011, our dealer manager earned no sales commissions or dealer manager fees. Dealer manager fees and sales commissions paid to PCC are a cost of capital raised and, as such, are included as a reduction of additional paid-in capital in the accompanying condensed consolidated balance sheets. Our Follow-on Offering was terminated on June 10, 2012 (see Note 2).