8-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       Pursuant to Section 13 or 15(d) of

                       THE SECURITIES EXCHANGE ACT OF 1934


       Date of Report (Date of earliest event reported): November 16, 2001



                         Commission File Number: 0-18942

                           ILM II SENIOR LIVING, INC.
                           --------------------------
             (Exact name of registrant as specified in its charter)


        Virginia                                                 06-1293758
 ------------------------                                     (I.R.S. Employer
  (State of organization)                                   --------------------
                                                             Identification No.)

1750 Tysons Boulevard, Suite 1200, Tysons Corner, Virginia         22102
- ----------------------------------------------------------  --------------------
(Address of principal executive office)                          (Zip Code)

                   (888) 257-3550
- ---------------------------------------------------
(Registrant's telephone number, including area code)



                                 (Page 1 of 5)
                         Exhibit Index Appears on Page 5




ITEM 5.  OTHER EVENTS

      Pursuant to its obligation to liquidate and distribute its assets on
December 31, 2001 in accordance with its Articles of Incorporation, on November
16, 2001, ILM II Senior Living, Inc., a Virginia finite-life corporation ("ILM
II") and its subsidiary, ILM II Holding, Inc., a Virginia corporation (together
with ILM II, the "Company") entered into a purchase and sale agreement (the
"Agreement") with BRE/Independent Living, LLC, a Delaware limited liability
company ("BRE"), pursuant to which the Company agreed to sell, and BRE agreed to
purchase, all of the Company's right, title and interest in and to its senior
and assisted living facilities and certain other related assets (the
"Facilities"). In consideration for the sale of these Facilities, BRE agreed,
subject to certain conditions and apportionments, to pay the Company a purchase
price of $45.5 million, approximately $2.275 million of which has been paid as a
refundable deposit, into escrow (the "Deposit").

      Each of the parties' respective obligations under the Agreement is subject
to customary closing conditions and includes a broad "diligence out" for BRE
through December 31, 2001, which may be extended until March 1, 2002, providing
BRE with the right, in its sole discretion, to terminate the Agreement and
receive a refund of the Deposit if BRE is not satisfied with any aspect of the
Facilities as a result of its review, inspection and study of the Facilities
conducted during the diligence period. In the event BRE fails to terminate the
Agreement on or before January 31, 2002 pursuant to the termination right
mentioned above, unless BRE elects for the Deposit to become non-refundable, the
Company will be permitted to enter into a back-up agreement with a third party
for the sale of the Facilities, which third party agreement will become
effective in the event BRE terminates the Agreement. Further, under certain
circumstances, BRE is entitled to terminate the Agreement and receive up to $2.4
million from the Company as liquidated damages and in certain other
circumstances, the Company would be entitled to terminate the Agreement and
retain the Deposit as liquidated damages.

      Prior to entering into the Agreement and in view of the pending
termination of the Company's finite life corporate existence, the Company
thought it was prudent to conduct an auction of the Company and the Facilities
and accordingly authorized management to work expeditiously with the Company's
legal and financial advisors to identify prospective purchasers of the Company's
capital stock or assets (by means of merger, strategic business combination,
tender offer or sale of the Company's senior and assisted living properties) and
to elicit bona fide offers for transactions to be consummated on or prior to
December 31, 2001 which would maximize current shareholder value. As part of a
five week auction process that ended on October 24, 2001, liquidation
announcements for ILM II were published in the Wall Street Journal and The
Washington Post. Through the process, 160 potential purchasers were identified,
comprehensive due diligence packages were distributed, and 126 potential
purchasers expressed interest in reviewing information relating to one or more
of the Company's senior and assisted living facilities. Of those potential
purchasers, 17 provided formal indications of interest, including eight parties
who were interested in acquiring only a single senior or assisted living
facility. Initial indications of interest for the Facilities, in terms of
purchase price, ranged from a low of $34.0 million to a high of $51.0 million,
the highest indication having been withdrawn



                                 (Page 2 of 5)



shortly after it was made. Based upon the non-withdrawn indications of interest
received, the Company's Board of Directors, with the advice of its legal and
financial advisors, concluded that the BRE indication of interest was the
highest in terms of a proposed purchase price and was most likely to maximize
current shareholder value. Accordingly, the Company immediately entered into
negotiations with BRE which culminated in the execution of the Agreement.

      Upon consummation of the transactions contemplated by the Agreement or
otherwise upon sale of the Facilities to a third party, the Company intends to
liquidate and distribute its assets in accordance with the Virginia Stock
Corporation Act, which provides for the distribution of the Company's assets
first to the Company's creditors for purposes of discharging all of the
Company's liabilities, and then, to the extent assets are remaining, to the
Company's shareholders in accordance with their respective rights and interests.

      There can be no assurance as to whether the transactions contemplated by
the Agreement will be consummated or, if consummated, as to the exact timing
thereof. Similarly, there can be no assurance as to the timing of a liquidation
and distribution of the Company's assets or the amount of assets that will be
distributed to the Company's shareholders, if any.

      The foregoing description is qualified in its entirety by the full text of
the Agreement filed as Exhibit 99.2 hereto and incorporated herein by reference.

      This report contains "forward-looking statements" based on our current
expectations and projections about future events. These forward-looking
statements are subject to a number of risks and uncertainties which could cause
our actual results to differ materially from historical results or those
anticipated and certain of which are beyond our control. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

      (a)   Not Applicable

      (b)   Not Applicable

      (c)   The following Exhibits are filed as part of this Current Report on
Form 8-K:

            99.1   Press Release of ILM II Senior Living,  Inc. dated November
                   28, 2001.

            99.2   Sale-Purchase  Agreement by and among ILM II Senior Living,
                   Inc., ILM II Holding, Inc. and BRE/Independent Living, LLC.


                                 (Page 3 of 5)



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                    ILM II SENIOR LIVING, INC.


                                    By:   /s/ J. William Sharman, Jr.
                                          ---------------------------
                                          J. William Sharman, Jr.
                                          Chairman of the Board of Directors,
                                          President and Chief Executive
                                          Officer

Dated:  November 28, 2001


                                 (Page 4 of 5)



                                  EXHIBIT INDEX

                                                                   Page No.


99.1  Press Release of ILM II Senior Living, Inc.                     6
      dated November 28, 2001.

99.2  Sale-Purchase Agreement by and among ILM II                     8
      Senior Living, Inc., ILM II Holding, Inc.
      and BRE/Independent Living, LLC.



                                 (Page 5 of 5)

EX-99.1

                                                                    EXHIBIT 99.1

              ILM II ANNOUNCES SALE OF ITS SENIOR LIVING FACILITY
                  PORTFOLIO TO BRE/INDEPENDENT LIVING, L.L.C.

FOR IMMEDIATE RELEASE:

      November 28, 2001, Tysons Corner, Virginia: ILM II Senior Living, Inc.
announced today that, pursuant to its obligation to liquidate and distribute its
assets on December 31, 2001 in accordance with its Articles of Incorporation,
that on November 16, 2001, it and its subsidiary, ILM II Holding, Inc., a
Virginia corporation entered into a purchase and sale agreement with
BRE/Independent Living, LLC, a Delaware limited liability company, pursuant to
which ILM II agreed to sell, and BRE agreed to purchase, all of ILM II's right,
title and interest in and to its senior and assisted living facilities and
certain other related assets. In consideration for the sale of these facilities,
BRE agreed, subject to certain conditions and apportionments, to pay ILM II a
purchase price of $45.5 million, approximately $2.275 million of which has been
paid as a refundable deposit, into escrow.

      ILM II further announced that each of the parties' respective obligations
under such agreement is subject to customary closing conditions and includes a
broad "diligence out" for BRE through December 31, 2001, which may be extended
until March 1, 2002, providing BRE with the right, in its sole discretion, to
terminate the agreement and receive a refund of the deposit if BRE is not
satisfied with any aspect of the senior and assisted living facilities as a
result of its review, inspection and study of such facilities conducted during
the diligence period. In the event BRE fails to terminate the agreement on or
before January 31, 2002 pursuant to the termination right mentioned above,
unless BRE elects for the deposit to become non-refundable, ILM II will be
permitted to enter into a back-up agreement with a third party for the sale of
the facilities, which third party agreement will become effective in the event
BRE terminates the agreement. Further, under certain circumstances, BRE is
entitled to terminate the agreement and receive up to $2.4 million from ILM II
as liquidated damages and in certain other circumstances, ILM II would be
entitled to terminate the agreement and retain the aforementioned deposit as
liquidated damages.

      Prior to entering into the agreement and in view of the pending
termination of ILM II's finite life corporate existence, ILM II thought it was
prudent to conduct an auction for ILM II and the senior and assisted living
facilities and accordingly authorized management to work expeditiously with ILM
II's legal and financial advisors to identify prospective purchasers of ILM II's
capital stock or assets (by means of merger, strategic business combination,
tender offer or sale of ILM II's senior and assisted living properties) and to
elicit bona fide offers for transactions to be consummated on or prior to
December 31, 2001 which would maximize current shareholder value. As part of a
five week auction process that ended on October 24, 2001, liquidation
announcements for ILM II were published in the Wall Street Journal and The
Washington Post. Through the process, 160 potential purchasers were identified,





comprehensive due diligence packages were distributed, and 126 potential
purchasers expressed interest in reviewing information relating to one or more
of ILM II's senior or assisted living facilities. Of those potential purchasers,
17 provided formal indications of interest, including eight parties who were
interested in acquiring only a single senior or assisted living facility.
Initial indications of interest for the senior and assisted living facilities,
in terms of purchase price, ranged from a low of $34.0 million to a high of
$51.0 million, the highest indication having been withdrawn shortly after it was
made. Based upon the non-withdrawn indications of interest received, ILM II's
Board of Directors, with the advice of its legal and financial advisors,
concluded that the BRE indication of interest was the highest in terms of a
proposed purchase price and was most likely to maximize current shareholder
value. Accordingly, ILM II immediately entered into negotiations with BRE which
culminated in the execution of the agreement.

      Upon consummation of the transactions contemplated by the agreement or
otherwise upon sale of the senior and assisted living facilities to a third
party, ILM II intends to liquidate and distribute its assets in accordance with
the Virginia Stock Corporation Act, which provides for the distribution of ILM
II's assets first to ILM II's creditors for purposes of discharging all of ILM
II's liabilities, and then, to the extent assets are remaining, to ILM II's
shareholders in accordance with their respective rights and interests.

      There can be no assurance as to whether the transactions contemplated by
the agreement will be consummated or, if consummated, as to the exact timing
thereof. Similarly, there can be no assurance as to the timing of a liquidation
and distribution of ILM II's assets or the amount of assets that will be
distributed to ILM II's shareholders, if any.

      If you have any questions regarding this press release, please call ILM
II, toll free at 1-888-257-3550.

                                     * * *

      This press release contains "forward-looking statements" based on our
current expectations and projections about future events. These forward-looking
statements are subject to a number of risks and uncertainties which could cause
our actual results to differ materially from historical results or those
anticipated and certain of which are beyond our control. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

EX-99.2

                                                                    EXHIBIT 99.2

==============================================================================

                             SALE-PURCHASE AGREEMENT

                                     between

                           ILM II SENIOR LIVING, INC.


                                    (ILM II)

                                       and

                              ILM II HOLDING, INC.


                                    (Seller)

                                       and

                          BRE/INDEPENDENT LIVING L.L.C.

                                   (Purchaser)



                              As of November 16, 2001


==============================================================================



      SALE-PURCHASE AGREEMENT (this "Agreement"), made as of the 16th day of
November, 2001, between ILM II SENIOR LIVING, INC., a Virginia finite-life
corporation, with principal offices at 1750 Tysons Boulevard, Suite 1200, Tysons
Corner, Virginia 22102 ("ILM II"), ILM II Holding, Inc., a Virginia corporation
having the same address as ILM II ("Seller") and BRE/INDEPENDENT LIVING L.L.C.,
with principal offices at c/o The Blackstone Group, 345 Park Avenue, New York,
New York 10154 ("Purchaser").

                                R E C I T A L S:
                                ---------------

A.    Seller is the owner in fee of a  portfolio of four independent living
      facilities and one assisted  living facility located in California,
      Florida, Kansas, Missouri and Nebraska.

B.    Seller is a wholly-owned subsidiary of ILM II and ILM II has agreed to
      guaranty all of Seller's obligations hereunder.

C.    Purchaser desires to purchase, and Seller desires to sell, Seller's
      interest in the "Assets" (as hereinafter defined) on the terms and
      conditions set forth in this Agreement.

      NOW, THEREFORE, in consideration of the representations and covenants
set forth in this Agreement and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, ILM II, Seller
and Purchaser, intending to be legally bound, hereby agree as follows:

                                   ARTICLE 1.

      Certain Definitions. Certain capitalized terms used in this Agreement
shall, for the purposes of this Agreement, have the meanings ascribed to such
terms in this Article 1. Other capitalized terms used in this Agreement and not
defined in this Article 1 shall have the meanings ascribed to such terms
elsewhere in this Agreement.

      A.   Real Property. The "Real Property" shall mean collectively, the five
parcels of real property legally described on Exhibit 1 (the "Land"), together
with: (i) all buildings, facilities, improvements located on the Land including
without limitation the four independent living facilities and one assisted
living facility located thereon, all replacements or additions thereto between
the date hereof and the Closing Date (as hereinafter defined) (the
"Improvements"); (ii) all systems, facilities, fixtures, machinery, equipment
and conduits to provide fire protection, security, heat, exhaust, ventilation,
air conditioning, electrical power, light, plumbing, refrigeration, gas, sewer
and water to the Real Property (including all replacements or additions thereto
between the date hereof and the Closing Date) (the "Fixtures"); (iii) all
privileges, development and other rights, easements, hereditaments, and
appurtenances thereto belonging; and (iv) all right, title and interest of
Seller in and to any streets, alleys, passages and other rights-of-way included
therein or adjacent thereto (before or after the vacation thereof).

      B.   Assets.  The "Assets" shall mean the aggregate of the following:

                  (i)   The Real Property;

                  (ii)  All site plans, architectural renderings, plans and
specifications, engineering plans, as-built drawings, floor plans and other
similar plans or diagrams, if any, which are in ILM II's or Seller's possession
or under ILM II's or Seller's reasonable control as of the date of this
Agreement (and any hereafter acquired which are in ILM II's or Seller's
possession or under ILM II's or Seller's reasonable control on the Closing Date)
and relate to the Real Property (the "Plans");

                  (iii)  All equipment, appliances, tools, machinery, supplies,
building materials, furnishings, vehicles, computer hardware and other tangible
property (including, without limitation, general operating inventory,
maintenance and operating supplies, fuel and spare parts for such machinery and
equipment) which is (a) owned by ILM II or Seller as of the date of this
Agreement and (b) attached to, appurtenant to or located in the Improvements or
used in the day-to-day operation or maintenance of the Improvements, but
expressly excluding the Fixtures and any and all personal property owned by
tenants in possession, public or private utilities licensees or contractors (the
"Equipment", together with the Plans, the "Personal Property");

                  (iv)   All of the following owned by ILM II or Seller or
exclusively issued or licensed to ILM II or Seller and used in connection with
the operation of the Assets: (1) trademarks, trade names, service marks and
other intellectual property rights, (2) warranties and guaranties; (iii)
computer software used in connection with any computer systems located at the
Real Property; (iv) direct dial telephone numbers for the Real Property; and (v)
all goodwill in connection with the ownership, operation and maintenance of the
Real Property (collectively, the "Intangible Property");

                  (v)    All of ILM II's or Seller's right, claims, credits,
causes of action, or right of setoff against third parties relating to the Real
Property, including, without limitation, unliquidated rights under
manufacturers' and vendors' warranties and guaranties but excluding all amounts
representing reimbursements for items paid by ILM II or Seller (collectively,
the "Claims");

                  (vi)   All leases and purchase money security agreements for
any equipment, machinery, vehicles, furniture or other personal property located
at the Real Property and used in the operation of the Real Property which are
held by or on behalf of Seller; all maintenance, service and supply contracts,
and all other contracts and agreements which are held by Seller or its
affiliates in connection with the operation of the Real Property (collectively,
the "Contracts"), together with all deposits made or held by ILM II or Seller
thereunder;

                  (vii)  All agreements in place whereby residents ("Residents")
are in occupancy at the Real Property (the "Resident Agreements") together with
all deposits held by ILM II or Seller thereunder;

                  (viii) All leases, sublease, licenses, concessions, and
similar agreements granting an interest to any other person or entity for the
use and occupancy of any portion of the


                                       2



Real Property (the "Leases") excluding the Resident Agreements, together with
all security deposits held by ILM II or Seller thereunder;

                  (ix)   All certificates of occupancy and other transferable
licenses, permits, registrations, authorizations, use agreements, orders, or
approvals of governmental or quasi-governmental agencies and authorities
(whether federal, state, local, municipal, or foreign) or private parties
relating to the construction, use, operation, or enjoyment of the Assets
(collectively, the "Permits"); and

                  (x)    Originals or copies of all books, records, files, and
papers, whether in hard copy or computer format, used in connection with the
operation of the Real Property, including without limitation, sales, marketing
and advertising materials, Resident Agreements, leases and all related
correspondence, lists of present suppliers, and personnel and employment records
(collectively, the "Files and Records").

      C.   Hazardous Materials. "Hazardous Materials" shall mean any solid
wastes, toxic or hazardous substances, wastes or contaminants, polychlorinated
biphenyls, paint containing lead and urea formaldehyde foam insulation, as any
of those terms is currently defined in or for the purposes of any Relevant
Environmental Laws (as hereinafter defined).

      D.   Relevant Environmental Laws. "Relevant Environmental Laws" shall
mean all requirements of law currently applicable to the Real Property or any
part thereof with respect to:

           (i)    the  installation, existence or removal of or exposure to
asbestos or asbestos-containing materials;

           (ii)   the  existence, discharge or removal of or exposure to
Hazardous Materials;

           (iii)  air emissions, water discharges,  noise emissions and any
other environmental, health or safety matter; and

           (iv)   effects on the environment of the Real Property or any part
thereof or of any activity heretofore, now or hereafter conducted on the Real
Property; including, without limitation, the following:

                  (a)   the Comprehensive Environmental Response,
      Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.;

                  (b)   the  Superfund  Amendments  and  Reauthorization  Act,
      Public Law 99-499, 100 Stat. 1613;

                  (c)   the Resource Conservation and Recovery Act, 42 U.S.C.
      Section 6901 et seq.;

                  (d)   the  National Environmental Policy Act, 42 U.S.C.
      Section 4321;



                                       3



                  (e)   the Safe Drinking Water Act, 42 U.S.C. Section 300F
      et seq.;

                  (f)   the Toxic Substances Control Act, 15  U.S.C.
      Section 2601

                  (g)   the Hazardous Materials Transportation Act, 49 U.S.C.
      Section 1801;

                  (h)   the Federal Water Pollution Control Act, 33 U.S.C.
      Section 1251 et seq.;

                  (i)   the Clean Air Act, 42 U.S.C. Section 7401 et seq.;

                  (j)   applicable State and City statutes where each property
      is located, and the rules and regulations promulgated pursuant thereto,
      regulating the storage, use and disposal of Hazardous Materials;

                  (k)   Environmental Protection Agency regulations pertaining
      to Asbestos (including, without limitation, 40 C.F.R.
      Part 61, Subpart M); and

                  (l)   Occupational Safety and Health Administration regula-

      tions pertaining to Asbestos (including, without limitation, 29 C.F.R.
      Sections 1910.1001 and 1926.58).

                                   ARTICLE 2.

      Sale-Purchase. In consideration of, and upon and subject to, the mutual
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the mutual receipt and legal sufficiency of which is
hereby acknowledged, Seller agrees to sell and convey all of Seller's right,
title and interest in and to the Assets to Purchaser, and Purchaser agrees to
purchase the Assets from Seller. If an affiliate of ILM II and/or Seller holds
an interest in any portion of the Assets, Seller shall cause such affiliate to
transfer and assign such Assets to Purchaser or its designee.

                                   ARTICLE 3.

      Purchase Price. The purchase price for the Assets (the "Purchase Price")
is Forty-five Million Five Hundred Thousand Dollars ($45,500,000) allocated in
the sole discretion of Purchaser and payable as follows:

            A. If Purchaser elects in its sole discretion to proceed with the
transactions contemplated hereby, Purchaser shall deposit the sum of Two Million
Two Hundred Seventy-five Thousand Dollars ($2,275,000) (together with all
interest accrued thereon, the "Deposit") on or prior to seven days of the date
hereof to Fidelity National Title Insurance Company ("Escrow Agent"), by wire
transfer of immediately available federal funds to an account designated by
Escrow Agent (the "Escrow Account"), to be held by Escrow Agent pursuant to and
in


                                       4



accordance with the provisions of this Agreement. The failure of Purchaser to
deposit the Deposit shall be deemed Purchaser's election to terminate this
Agreement and neither party shall have any obligations hereunder;

            B. Subject to the apportionments and other credits provided for in
this Agreement, the balance of the Purchase Price on the Closing Date by wire
transfer (with receipt confirmed by 2:00 p.m. Eastern Standard Time on the
Closing Date) of immediately available federal funds to an account or accounts
designated by Seller.

            C. The Deposit shall be completely refundable during the Inspection
Period (as hereinafter defined). The Deposit, once delivered, shall be
nonrefundable after the Inspection Period as set forth in Article 10 E. except
(i) if this Agreement is terminated pursuant to Article 11 due to the existence
of a title or survey matter which is not a Permitted Exception; (ii) if any Real
Property is presently not in compliance in all material respects with applicable
laws and regulations or if the sale of the Assets to Purchaser requires the
approval of any Government Authority and such approval is not obtained on or
prior to the Closing Date; or (iii) if Purchaser is entitled to the return of
the Deposit pursuant to any provision of this Agreement.

                                   ARTICLE 4.

      Assets.

            A.   The  Assets shall be sold, and title thereto conveyed,
subject only to the "Permitted Exceptions" (as defined herein).

            B.   Title to the Real Property shall be such title as Chicago Title
Insurance Company (in such capacity, the "Title Company") shall be prepared to
insure as provided in Article 11 hereof, subject only to the Permitted
Exceptions.

                                   ARTICLE 5.

      Closing.

            A.   The "Closing" shall mean the consummation of each of the
actions enumerated in Article 8 of this Agreement, or the waiver of such action
by the party in whose favor such action is intended. The Closing shall take
place at 10:00 A.M., Eastern Standard Time, at the offices of Greenberg Traurig,
LLP, 200 Park Avenue, New York, New York 10166, upon five (5) days notice from
Purchaser to Seller provided that the Closing shall take place no later than
December 31, 2001 (the date established for the Closing under this Agreement is
hereinafter referred to as the "Closing Date"), time being of the essence as to
Purchaser's and Seller's obligation to close on or before the Closing Date,
subject to Purchaser's right to adjourn the Closing as is permitted under this
Agreement, including in accordance with Article 10 E.


                                       5



                                   ARTICLE 6.

      Violations.  The Assets are sold and Purchaser shall accept same subject
to any and all violations of law, rules, regulations, ordinances, orders or
requirements noted in or issued by any Federal, state, county, municipal or
other department or governmental agency having jurisdiction against or affecting
the Assets whenever noted or issued and which matters are set forth in Schedule
6 attached hereto (collectively, "Violations"). Seller shall have no obligation
to cure or remove any Violations.

                                   ARTICLE 7.

      Apportionments.

            A.  The following shall be apportioned between Seller and Purchaser
at the Closing with respect to the Assets as of 11:59 p.m., Eastern Standard
Time, of the day immediately preceding the Closing Date, and the net amount
thereof either shall increase the amount to be paid by Purchaser to Seller or be
credited against the amount to be paid by Purchaser, as the case may be, at the
Closing:

                  (i) Real property taxes and assessments (or installments
      thereof), and payments required to be made to any business improvement
      district and vault charges;

                  (ii)  Water rates and charges;

                  (iii) Sewer taxes and rents;

                  (iv)  Permit, license and inspection fees, if any, on the
      basis of the fiscal year for which levied, if the rights with respect
      thereto are transferable and being transferred to Purchaser;

                  (v)   Fuel, if any, at the cost per gallon most recently
      charged to Seller, based on the supplier's measurements thereof, plus
      sales taxes thereon;

                  (vi)  Amounts paid or payable by Seller to merchants' and
      other associations, to promotional funds and other similar contributions
      or payments;

                  (vii)  Deposits on account with any utility company servicing
      the Real Property, to the extent transferred to Purchaser shall not be
      apportioned, but Seller shall receive a credit in the full amount thereof
      (including accrued interest thereon, if any);

                  (viii)  Any rents or other amounts prepaid or payable under
      the Resident Agreements and the Leases shall be apportioned between the
      parties. All security deposits or reserves (and all interest earned
      thereon as required by either Legal Requirements or by the terms of the
      applicable Resident Agreements and the Leases) deposited under any of the
      Resident Agreements and the Leases shall be transferred or credited to
      Purchaser. As used in this Agreement, the term "rents" includes all
      rentals,


                                       6



additional rentals and any other sums and charges payable under the Resident
Agreements and the Leases or in the normal course by Residents and tenants under
the Resident Agreements and the Leases for services rendered in connection with
the occupancy or use of the Real Property or the services provided at the Real
Property or in connection with the occupancy of the Real Property by such
tenants and the Residents. Delinquent rents for the period prior to the Closing
Date shall remain the property of Seller. Purchaser shall deliver to Seller any
rents, received by Purchaser which are properly allocable to rental periods
occurring before the Closing Date. It shall be conclusively presumed between
Purchaser and Seller that all rents received after the Closing Date from
Residents and/or tenants under the Leases and the Resident Agreements with
rental delinquencies on the Closing Date shall be applied as follows: (i) first,
to rent then due and payable to Purchaser (including any previously unpaid or
delinquent rent then due and payable to Purchaser), (ii) second, to rent due for
the period in which the Closing occurs, to be apportioned as provided above;
(iii) third, to the delinquent rents of such Residents and/or tenants under the
Leases and Resident Agreements attributable to the period prior to the Closing
Date due to Seller, and (iv) fourth, to future rent due and payable to
Purchaser. The amount of any refund or credit due to tenants under the Leases or
as the result of the collection by or on behalf of Seller prior to the Closing
Date of contributions by such tenants for operating expenses and/or taxes
(collectively, "Tenant Items") which exceed the actual amount of such operating
expenses and/or taxes payable by such tenants with respect to periods prior to
the Closing Date shall be prorated as soon as such actual operating expenses
and/or taxes are known, and Seller shall promptly pay to Purchaser upon demand
the amount due as a result of such proration. Seller shall not have the right to
sue for or take any other legal action relating to unpaid rents attributable to
periods preceding the Closing Date. Seller agrees to cooperate with Purchaser in
the preparation of the financial statements and other financial data respecting
the ownership and operation of the Real Property for calendar year 2001, and if
practicable 2002, and subsequent periods for which such statements and data must
be prepared in order to compute, charge and prorate the Tenant Items. As soon as
reasonably possible after the preparation of the aforesaid financial statements
and data, Purchaser will render statements for the Tenant Items to the tenants
and Residents of the Real Property under their respective Leases and Resident
Agreements. From time to time as Purchaser receives payment of the Tenant Items
from the tenants and/or Residents, Purchaser will retain amounts attributable to
Tenant Items due Purchaser and will promptly remit to Seller that portion of the
Tenant Items allocable to the Real Property prior to the Closing Date; and

                  (ix)  All other items customarily apportioned in connection
      with the sale of similar properties similarly located.

            B.  Apportionment of real property taxes, water rates and charges,
sewer taxes and rents and vault charges shall be made on the basis of the most
recently ended fiscal year of Seller for which such taxes, rents and charges
were assessed. Purchaser agrees to assume liability for any real property tax
rate, water rates or charges, sewer taxes or rents or vault charges fixed, for
periods after the Closing Date.


                                       7



            C.  The amount of any of the unpaid taxes, assessments, water
charges, sewer rents and vault charges which Seller is obligated to pay and
discharge, with interest and penalties thereon (if any) to the Closing Date may,
at Seller's option, be credited to Purchaser out of the balance of the Purchase
Price, provided that official invoices therefor with interest and penalties
thereon (if any) are furnished by Seller at the Closing and provided that the
Title Company will mark same as paid and omit same as exceptions from
Purchaser's title insurance policy.

            D.  If any refund of real property taxes, water rates or charges,
sewer taxes or rents or vault charges is made after the Closing Date covering a
period prior to the Closing Date, the same shall be applied first to the
reasonable out-of-pocket costs incurred in obtaining same and the balance, if
any, of such refund shall, to the extent received by Purchaser, be paid to
Seller (for the period prior to the Closing Date) and to the extent received by
Seller, be paid to Purchaser (for the period commencing with the Closing Date).

            E.  If there shall be any meters measuring water consumption or
sewer usage at the Real Property (other than meters measuring water consumption
or sewer usage for which Seller is obligated to pay directly to the taxing
authority or utility), Seller shall attempt to obtain readings to a date not
more than thirty (30) days prior to the Closing Date. If such readings are not
obtained (and if such readings are obtained, then with respect to any period
between such reading and the Closing Date), water rates and charges and sewer
taxes and rents, if any, shall be apportioned based upon the last meter
readings, subject to reapportionment when readings for the relevant period are
obtained after the Closing Date.

            F.  If any adjustment or apportionment is miscalculated at the
Closing, or the complete and final information necessary for any adjustment is
unavailable at the Closing, the affected adjustment shall be calculated as soon
as practicable after the Closing. The provisions of this Article 7 shall survive
through and including the date that is 120 days after the Closing Date.

                                   ARTICLE 8.

      Closing Deliveries.

            A.  At the Closing, Seller shall deliver to Purchaser or shall cause
the appropriate affiliate of Seller, including without limitation ILM II and
Lease Corporation (as defined below), with an interest in the Assets to deliver,
executed and acknowledged, as applicable:

                  (i)  A Special Warranty Deed (or local equivalent in each
      relevant State) for each Real Property, reasonably acceptable to
      Purchaser;

                  (ii)  A general bill of sale for the Personal Property,
      reasonably acceptable to Purchaser, conveying, as more particularly set
      forth therein, to Purchaser all of Seller's right, title and interest in
      and to the Personal Property;


                                       8



                  (iii)  Security deposits deposited under the Resident
      Agreements and the Leases (if any, together with accrued interest thereon)
      by, at Purchaser's option, (a) payment of the aggregate amount thereof to
      Purchaser, or (b) a credit to Purchaser against the Purchase Price;

                  (iv)  A certification of nonforeign status, in form required
      by Section 1445 of the Internal Revenue Code of 1986, as amended, (the
      "Code") and the regulations issued thereunder;

                  (v)  Notice of Cancellation of Facilities Lease Agreement to
      ILM II Lease Corporation ("Lease Corporation") and termination of any
      management and leasing agreements relating to the Assets;

                  (vi)  Evidence of authority, good standing and due
      authorization of ILM II and Seller to entering into the within transaction
      and to perform all of its obligations hereunder, including, without
      limitation, the execution and delivery of all of the closing documents
      required by this Agreement, and setting forth such additional facts, if
      any, as may be needed to show that the transaction is duly authorized and
      is in conformity with ILM II's and Seller's organizational documents and
      applicable laws and to enable the Title Company to omit all exceptions and
      satisfy all requirements regarding Seller's standing, authority and
      authorization;

                  (vii)  If required by the Title Company in order for the Title
      Company to issue the Title Policy to Purchaser with no exception for
      matters regarding Seller's authority to sell the Assets, the legal opinion
      of Greenberg Traurig, LLP in form and substance acceptable to the Title
      Company for such purpose (the "Authority Opinion");

                  (viii)  Notice letter to Residents reasonably acceptable to
      Purchaser (the "Residents Notification Letter");

                  (ix)  such title affidavits and indemnities required by the
      Title Company to enable the Title Company to issue the Title Policies as
      required hereby;

                  (x)  a General Assignment and Assumption Agreement in form
      reasonably acceptable to Purchaser, assigning to Purchaser Seller's right,
      title and interest in and to the Surviving Contracts (as hereinafter
      defined), Intangible Property, the Claims, the Permits, and the Files and
      Records;

                  (xi)  an Assignment of Leases in form reasonably acceptable to
      Purchaser, assigning to Purchaser Seller's right, title and interest in
      and to all of the Leases;

                  (xii)  an Assignment of Resident Agreements in form reasonably
      acceptable to Purchaser, assigning to Purchaser Seller's and Lease
      Corporation's right, title and interest in and to all of the Resident
      Agreements;


                                       9



                  (xiii)  any required real estate transfer tax declaration or
      similar documents required in connection with any tax imposed by any
      governmental authority in connection with the transaction contemplated
      hereunder;

                  (xiv)  a termination of the Master Lease between Seller and
      Lease Corporation, dated September 1, 1995, in form reasonably acceptable
      to Purchaser;

                  (xv)  all originals (or copies if originals are not available)
      of the Leases, Resident Agreements, Contracts, Permits, keys and lock
      combinations with respect to the Real Property in the possession of ILM II
      and Seller;

                  (xvi)  a Closing Statement setting forth the Purchase Price,
      the amounts of all prorated items and all credits, debits and costs
      contemplated by this Agreement; and

                  (xvii)  such other instruments or documents which by the terms
      of this Agreement are to be delivered by ILM II and Seller at Closing.

            B.    At the Closing,  Purchaser shall deliver to Seller, executed
and acknowledged, as applicable:

                  (i)  The balance of the Purchase Price, less the Deposit (as
      prorated in accordance with Article 7) and all other amounts payable by
      Purchaser to Seller at the Closing pursuant to this Agreement;

                  (ii)  Evidence of authority, good standing (if applicable) and
      due authorization of Purchaser to enter into the within transaction and to
      perform all of its obligations hereunder, including, without limitation,
      the execution and delivery of all of the closing documents required by
      this Agreement, and setting forth such additional facts, if any, as may be
      needed to show that the transaction is duly authorized and is in
      conformity with Purchaser's organizational documents and applicable laws;

                  (iii)  A  receipt  for the  security  deposits  paid  over or
      credited to Purchaser at the Closing; and

                  (iv)  Such other instruments or documents which by the terms
      of this Agreement are to be delivered by Purchaser at Closing.

            C.  The acceptance of title to the Real Property by Purchaser shall
be deemed to be full performance and discharge of any and all obligations on the
part of Seller to be performed pursuant to the provisions of this Agreement,
except as set forth in this Agreement including without limitation where such
agreements and obligations are specifically stated to survive the Closing.


                                       10


                                    ARTICLE 9

      Cancellation of Contracts. Within ten (10) days after receipt by Purchaser
of a list of all Contracts, Purchaser shall provide to Seller in writing a list
of any Contracts that Purchaser desires cancelled (the "Cancelled Contracts").
Seller shall, prior to the Closing Date, cancel the Cancelled Contracts,
provided, however, Seller shall not be obligated to cancel any Cancelled
Contract which provides by its terms that such contract is cancelable upon no
more than sixty (60) days' notice by Seller and without payment of a
cancellation fee or any other consideration. The "Surviving Contracts" shall
mean any Contracts, excluding the Cancelled Contracts. It is understood that the
Management Agreement encumbering all of the Assets with Capital Senior
Management 2, Inc., dated as of July 29, 1996 will be cancelled by Seller at or
prior to Closing.

                                   ARTICLE 10.

      Right of Inspection.

            A.  Purchaser, from time-to-time prior to the Closing and during
regular business hours, upon reasonable notice to Seller, may inspect the Real
Property, provided that (i) Purchaser shall not communicate with the Residents
without the prior written consent of Seller, which consent shall reasonably be
given by Seller, and (ii) Purchaser shall not perform any invasive tests with
respect to the Real Property without the prior written consent of Seller in each
instance, which consent shall be reasonably given. Any entry upon the Real
Property shall be performed in a manner which is not materially disruptive to
the Residents or the normal operation of the Real Property and shall be subject
to the rights of the Residents. Purchaser shall (i) exercise reasonable care at
all times that Purchaser shall be present upon the Real Property, (ii) at
Purchaser's expense, observe and comply with all applicable laws and any
conditions imposed by any insurance policy then in effect with respect to the
Real Property and (iii) not engage in any activities which would violate the
provisions of any permit or license pertaining to the Real Property. Seller
shall have the right to have a representative of Seller accompany Purchaser
during any such communication or entry upon the Real Property and shall make
such representative available at all reasonable times.

            B.  Purchaser hereby agrees to indemnify, defend and hold Seller,
its officers, shareholders, directors, employees, advisors, attorneys and agents
harmless from and against any and all liability, loss, cost, judgment, claim,
damage or expense (including, without limitation, attorneys' fees and expenses),
resulting from or arising out of the entry upon the Real Property by Purchaser
and any of its employees, agents, consultants, contractors or advisors. The
foregoing indemnification shall survive for a period of six months from the
Closing or the termination of this Agreement.

            C.  As a condition precedent to entering the Real Property in
connection with any inspection, Purchaser shall maintain or cause to be
maintained, at Purchaser's sole cost and expense, a policy of comprehensive
general public liability and property damage insurance by an insurer or
syndicate of insurers reasonably acceptable to Seller: (a) with a combined
single limit of not less than One Million Dollars ($1,000,000.00) general
liability and Two Million Dollars ($2,000,000.00) excess umbrella liability, (b)
insuring Purchaser, Seller, their respective affiliates, Seller's lender and any
other person or entity related to Seller or involved with the transaction
contemplated by this Agreement (such additional persons or entities to be
designated


                                       11



in writing by Seller), as additional insureds, against any injuries or damages
to persons or property that may result from or are related to (x) Purchaser's
entry upon the Real Property and (y) any inspection or other activity conducted
thereon by representatives or agents of Purchaser and (c) containing a provision
that "insurance provided by Purchaser hereunder shall be primary and
noncontributing with any other insurance available to Seller." Purchaser shall
deliver evidence of such insurance coverage to Seller prior to the commencement
of the first inspection and evidence of continued coverage prior to any
subsequent inspection, which evidence shall be acceptable to Seller in its
reasonable discretion.

            D.  Notwithstanding any provision in this Agreement to the contrary,
unless required by applicable law or regulation, or except in the course of
conducting a customary Phase I Environmental Assessment of the Real Property,
neither Purchaser nor any representative or agent of Purchaser shall contact any
Federal, state, county, municipal or other department or governmental agency
regarding any Hazardous Materials on, or the environmental condition of, the
Real Property without Seller's prior written consent thereto. In addition, if
Seller's consent is obtained by Purchaser, Seller shall be entitled to receive
at least five (5) business days prior written notice of the intended contact and
shall be entitled to have a representative present when Purchaser has any such
contact with any governmental official or representative.

            E.  Concurrently with the Inspection Period (as defined below),
Purchaser is entitled to make any other reviews and studies of the Assets,
including market studies, physical inspections, compliance with laws reviews and
other analysis to determine if the Assets are suitable for Purchaser's purposes,
at which time the Deposit is not at risk. Purchaser can extend the Closing Date
one or more times (with a resulting extension of the Inspection Period) for an
aggregate of an additional sixty (60) days from the originally scheduled Closing
Date if timely reports, materials, surveys, licenses are not received or any
other matters are not satisfactory to Purchaser in Purchaser's sole discretion.
The "Inspection Period" shall mean the period beginning on the date of this
Agreement and ending five (5) days prior to the Closing Date, as such Closing
Date may be extended as provided above. Notwithstanding the foregoing, if
Purchaser elects to extend the Inspection Period beyond January 31, 2002, on
January 31, 2002 Purchaser at its sole option will either waive its right to
terminate this Agreement in accordance with this Section 10 E. or permit Seller
to enter into a backup contract with a third party purchaser, which contract
shall be expressly subject and subordinate in all respects to the terms and
conditions of this Agreement and shall allow the purchaser thereunder to acquire
the Assets only if Purchaser terminates this Agreement. If Purchaser is not
satisfied with any aspect of the Assets, Purchaser shall have the right, in its
sole and absolute discretion and upon notice to Seller (the "Termination
Notice"), to terminate this Agreement at any time during the Inspection Period,
in which event the Deposit plus accrued interest shall be immediately paid to
Purchaser and neither party shall have any additional obligations under this
Agreement other than those obligations that expressly survive termination.
Notwithstanding anything to the contrary set forth in this Agreement, upon
delivery by Purchaser of the Termination Notice as provided above, Escrow Agent
shall be required and is hereby authorized to deliver the Deposit and all
accrued interest to Purchaser without the prior consent, notice or approval of
Seller.

                                       12



                                  ARTICLE 11.

      Title Insurance.

            A.  Survey.  Within  three days of the date hereof  Seller shall
deliver to Purchaser whatever surveys that Seller has in its file of each
Property (the "Surveys") showing the location of all improvements, easements,
encroachments and other matters.

            B.  Evidence of Title. Purchaser shall obtain as expeditiously as
possible, but in no event later than twenty-one (21) days after the date hereof,
a report of title for the Real Property issued by the Title Company (the "Title
Report"). At Closing, Purchaser and Seller shall each pay one half to the Title
Company (with Seller's portion not to exceed $75,000.00) of the entire amount of
the premium payable for an ALTA owner's title insurance policy and endorsements
reasonably required by Purchaser, without standard exceptions for parties in
possession, mechanics' liens, and matters of survey, and subject only to the
Permitted Exceptions, in the amount of the Purchase Price, naming Purchaser as
the insured (the "Title Policy"), and Title Company shall mark up and
acknowledge the Title Report so as to constitute a Title Policy as of the
Closing Date. The legal descriptions embodied within said Title Reports shall
conform in all respects to the Surveys. Seller, to the extent available, will
deliver to Purchaser any ALTA survey and title policy it may have in its
possession.

            C.  Objections to Title. For purposes of this Agreement, the term
"Permitted Exceptions" means those exceptions set forth in the Title Reports
which are not objected to by Purchaser pursuant to this Paragraph C. In no event
shall Permitted Exceptions include the standard exceptions set forth in the
Title Reports for parties in possession mechanics' liens, and matters of survey.
In the event the Title Reports contain any exceptions to title, Purchaser shall
have fifteen (15) days from and after the receipt of all of the Title Reports to
approve or object to the condition of title disclosed in the Title Reports.
Purchaser's approval of any such exceptions to title which are not Permitted
Exceptions shall be a condition precedent to Purchaser's obligation to close the
transaction contemplated by this Agreement, which condition Purchaser reserves
the right to waive. Any exceptions to which Purchaser does not object in writing
during the 15-day period shall be deemed approved. If objection to the title is
made, Purchaser shall give Seller ten (10) days from the date it is notified in
writing of the particular defects claimed, either, as Seller shall elect, (a) to
remedy the title matter or (b) to obtain title insurance as required above, and
(c) to decline to remedy (if permitted below and under Paragraph E) the title
matter or obtain title insurance as required above. If Seller elects the option
described in clause (c) above and, if Purchaser has not elected to waive such
defect, the Deposit, plus accrued interest, shall be refunded to Purchaser
forthwith in full termination of this Agreement. Provided all other conditions
precedent set forth in Article 8 of this Agreement have been met to Purchaser's
satisfaction or have been waived by Purchaser, if Seller remedies the title or
obtains a Title Policy acceptable to Purchaser within the time specified,
Purchaser agrees to complete the sale, and if Seller is unable to remedy the
title matter or obtain title insurance within the time specified, or obtain a
waiver from Purchaser, the Deposit plus accrued interest, shall be refunded
forthwith in full termination of this Agreement. Other than as set forth under
Paragraph E below and (i) mechanics' liens for which Seller or any occupant of
the Real Property is liable, (ii) judgment liens against Seller and (iii) any
mortgages or deeds of trust encumbering all or any


                                       13



portion of the Assets, which Seller must cure ("Seller's Encumbrances"), Seller
shall have no obligation to cure Purchaser's objections. The termination of this
Agreement and the refund of the Deposit shall be Purchaser's sole remedy for
Seller's failure to cure an objection other than Seller's Encumbrances and those
matters required to be satisfied pursuant to Paragraph E below. Purchaser shall
have the right to notify Title Company of any matters materially affecting the
titles to the Real Property which have not been disclosed by the Title Reports
after reviewing same with Seller and permitting Seller the opportunity to cure
or dispose of same. In the event such matters, in the opinion of Purchaser
adversely affect the title to Property, Purchaser shall have the right to object
to the condition of the title as provided herein promptly within three days
after Purchaser has actual notice or knowledge thereof. If Seller has not cured
any of Seller's Encumbrances, then Purchaser has the right to pay off the
encumbrance and deduct the amounts paid from the Purchase Price.

            D.  Notwithstanding anything to the contrary contained in Article
11(A) of this Agreement, if the Title Report discloses judgments, bankruptcies
or other returns against other persons or entities having names the same as or
similar to that of Seller, Seller, on reasonable request, shall deliver to
Purchaser or Title Company affidavits, if truthful, to the effect that such
judgments, bankruptcies or other returns are not against Seller, in form and
substance sufficient to permit removal of same as exceptions in Purchaser's
title policy.

            E.  If the Title Report discloses exceptions (other than the
Permitted Exceptions) which (i) may be removed solely by reference to Seller's
existing title policy, or (ii) became of record subsequent to the date hereof
and are attributable to the action or inaction of Seller, or (iii) may be
removed or satisfied by the payment of a liquidated sum of money not in excess
of One Million Dollars ($1,000,000) in the aggregate, then Seller shall remove
such exceptions. Notwithstanding the foregoing, Seller, at its option in lieu of
satisfying such exceptions, may deposit with Title Company such amount of money
and provide such documentation, affidavits and indemnities as may be reasonably
requested by Title Company to induce it to insure Purchaser in a manner
reasonably acceptable to Purchaser against collection of such liens and/or
encumbrances, including interest and penalties, out of or against the Assets, in
which event such exceptions shall not be objections to title.

            F.  Seller shall be entitled to one or more adjournments, not to
exceed thirty (30) days in the aggregate, of the Closing Date to remove any
exceptions to title which Seller is obligated to remove, provided that such
adjournment may not extend beyond the expiration of any financing commitment
provided to Purchaser or an affiliate of Purchaser in connection the
transactions contemplated by this Agreement ("Financing Commitment").

            G.  Seller and Purchaser shall each pay one-half of (not to exceed
$75,000 on the part of Seller) of the costs of examination of title and any
owner's or mortgagee's policy of title insurance to be issued insuring
Purchaser's title to the Assets, as well as all other title charges, survey
fees, and recording charges incident to the Closing.



                                       14


                                  ARTICLE 12.

      Return of Deposit.  Subject to Seller's obligations under Article 11 of
this Agreement and subject to Article 20 of this Agreement, if Seller is unable
to convey title in accordance with the terms of this Agreement or if, in
accordance with the terms of this Agreement, Purchaser is entitled to and elects
to terminate this Agreement, then this Agreement shall terminate and neither
party to this Agreement shall have any further rights or obligations hereunder,
except that Escrow Agent shall refund to Purchaser the Deposit (together with
all interest thereon, if any) and neither party to this Agreement shall
thereafter have any further right or obligation hereunder, except for the rights
and obligations hereunder, which survive the termination hereof.

                                   ARTICLE 13.

      Purchaser's Default.  After the expiration of the Inspection Period, if
Purchaser shall default hereunder or shall fail or refuse to perform its
obligations in accordance with this Agreement, the parties hereto agree that
Seller's sole remedy shall be to terminate this Agreement and retain the Deposit
as liquidated damages. Upon such termination, neither party to this Agreement
shall have any further rights or obligations hereunder except subject to Article
16, Escrow Agent shall deliver to Seller and Seller shall retain the Deposit as
liquidated damages. It is expressly understood and agreed that in the event of
Purchaser's default, Seller's damages would be impossible to ascertain and that
the Deposit constitutes a fair and reasonable amount of compensation in such
event and in no event shall the delivery of the Deposit be construed as punitive
damages.

                                  ARTICLE 14.

      Representations and Warranties.

            A.    Seller hereby  represents  and warrants to Purchaser that as
of the date hereof and also at the Closing Date:

                  (i)  Schedule 14(A)(i) sets forth a true, correct and complete
list of the Leases and Resident Agreements. Seller has delivered to Purchaser a
true and correct copy of all of the Leases and if requested will provide copies
of all Resident Agreements. With respect to each Lease and Resident Agreement,
(i) the agreement is legal, valid, binding, enforceable, and in full force and
effect; (ii) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (iii) except as set forth
in the rent roll delivered to Purchaser, to the best of Seller's knowledge no
party is in breach or default, and no event has occurred which with notice or
lapse of time, or both, would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (iv) no
party has repudiated any provision of the agreement;

                  (ii)  Schedule 14(A)(ii) sets forth a true and correct list of
the Contracts. Seller has made available to Purchaser a true and correct copy of
all of the Contracts and if requested will provide copies regarding same. With
respect to each Contract, to Seller's


                                       15



knowledge (i) the agreement is legal, valid, binding, enforceable, and in full
force and effect; and (ii) to the best of Seller's knowledge no party is in
breach or default, and no event has occurred which with notice or lapse of time,
or both, would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement;

                  (iii)  Attached hereto as Schedule 14(A)(iii) are true and
correct copies of an audited balance sheet and statement of income for Seller
and a statement of income and statement of cash flows (including rent rolls) for
the most recent fiscal year on an individual Property basis (the "Financial
Statements"). The Financial Statements present fairly, in all material respects,
the financial position and results of the Real Property, as of such dates and
its results of operations and cash flows for such periods, in accordance with
applicable law and generally accepted accounting principles consistently
applied.

                  (iv)  Seller is duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Virginia; Seller has taken
all action required to authorize, execute, deliver and, subject to obtaining any
consents or waivers required to be obtained prior to Closing in order to
transfer any licenses, perform this Agreement and to make all of the provisions
of this Agreement valid and enforceable and has caused this Agreement to be
executed by a duly authorized officer of Seller;

                  (v)  This Agreement and all documents to be delivered to
Purchaser by Seller at the Closing: are, and at the time of the Closing will be,
duly authorized, validly executed and delivered by Seller; do, and at the time
of the Closing will, constitute the legal, valid and binding obligations of
Seller enforceable in accordance with their respective terms, subject to general
principles of equity and bankruptcy, insolvency, reorganization, moratorium or
other similar laws presently or hereafter in effect affecting the rights of
creditors or debtors generally; do not conflict with any provision of any law or
regulation to which Seller is subject or violate any provision of any agreement,
Permit or judicial order to which Seller is a party or to which Seller or the
Real Property is subject and do not require any approval or consent of or notice
to any person entity, or governmental agency or authority, other than those
actions relating to the transfer of licenses for the Assets to Purchaser. The
representations and warranties contained in this Article 14 A. (v) shall survive
Closing;

                  (vi)  Seller is not a "foreign  person"  within the  meaning
of Section 1445(f)(3) of the Code;

                  (vii)  Seller has not received written notice of any pending
or threatened condemnation actions with respect to the Real Property or any part
thereof;

                  (viii) Except as set forth in Schedule 14(A)(vii) there are no
actions, suits or proceedings pending against Seller or the Real Property in any
court of law or in equity or before any court, administrative agency, commission
or other public governmental authority;

                  (ix)  To Seller's knowledge, all of the Real Property is duly
licensed and currently complies with licensing under applicable state and local
laws to operate the Assets


                                       16



in the manner it is presently being operated. Other than the Violations, Seller
has not received any notices of violations of any laws or regulations;

                  (x)  There are no unsatisfied judgments, orders or decrees of
any kind against Seller and no legal action, suit or other legal or
administrative proceeding pending, threatened or reasonably anticipated which
could be filed before any Governmental Authority which has, or is likely to
have, any material adverse effect on (a) the business or assets or the
condition, financial or otherwise, of Seller or (b) the ability of Seller to
perform its respective obligations under this Agreement; and

                  (xi)  Seller has not filed any petition seeking or acquiescing
in any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law relating to bankruptcy or
insolvency, nor has any such petition been filed against Seller. No general
assignment of any of Seller's property has been made for the benefit of
creditors, and no receiver, master, liquidator or trustee or similar appointee
has been appointed for Seller or any of Seller`s respective properties. Seller
is not insolvent and the consummation of the transactions contemplated by this
Agreement shall not render Seller insolvent. Seller has now and will have as of
the Closing Date sufficient capital or net worth to meet its current obligations
as they come due.

                  (xii)  Environmental Matters.

                         (a)   To Seller's  knowledge,  Seller has not violated
any Relevant Environmental Laws with respect to the Real Property or otherwise
and neither Seller nor, to Seller's knowledge any other person has been or is
involved in activities at any portion of the Real Property that could reasonably
be expected to result in (x) any violations of Relevant Environmental Laws, or
(y) the creation of a lien under any Relevant Environmental Law on any portion
of the Real Property;

                         (b)   Seller has not  received any notice of any claim
or citation of noncompliance with respect to any violation of Relevant
Environmental Laws and, to Seller's knowledge, there are no facts,
circumstances, conditions or occurrences on the Real Property that could
reasonably be expected to result in the violation of any such Relevant
Environmental Laws or cause to be subject to any restrictions on the existing or
contemplated development, use or transferability thereof under any Relevant
Environmental Laws.

                  (xiii)  To Seller's knowledge, the Real Property and the uses
thereof comply in all material respects with all applicable building and zoning
ordinances and codes.

                  (xiv)  No Governmental Authority having jurisdiction over
Seller or the Real Property has issued any citations with respect to any
material deficiencies or other matters that fail to conform to applicable
statutes, regulations or ordinances and that have not been corrected as of the
date hereof or that shall not have been corrected on or prior to the Closing.
Seller has not received written or oral notice from any agency supervising or
having authority over the Real Property or services provided at the Real
Property requiring such Property or any service, staff, or practice provided at
the Real Property to be modified, restricted or conditioned


                                       17



as to service or eligibility or be reworked or redesigned or additional
furniture, fixtures, equipment or inventory to be provided at the Real Property
so as to conform or comply with any existing in any applicable law, code or
standard.

                  (xv)  Seller  has  no  employees  who  work  at  or  provide
services to the Real Property.
                  (xvi) Seller does not directly or indirectly  own any assets
other than the Assets.

            B.    ILM II hereby  represents  and warrants to Purchaser that as
of the date hereof and also at the Closing Date:

                  (i)  ILM II is duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Virginia; ILM II has taken all
action required to authorize, execute, and deliver this Agreement and each
document to be delivered by ILM II and/or Seller hereunder and to make all of
the provisions of this Agreement valid and enforceable and has caused this
Agreement to be executed by a duly authorized officer of ILM II;

                  (ii)  This Agreement and all documents to be delivered to
Purchaser by ILM II and/or Seller at the Closing: are, and at the time of the
Closing will be, duly authorized, validly executed and delivered by ILM II; do,
and at the time of the Closing will constitute the legal, valid and binding
obligations of ILM II enforceable in accordance with their respective terms,
subject to general principles of equity and bankruptcy, insolvency,
reorganization, moratorium or other similar laws presently or hereafter in
effect affecting the rights of creditors or debtors generally; do not conflict
with any provision of any law or regulation to which ILM II is subject or
violate any provision of any agreement, Permit or judicial order to which ILM II
is a party or to which ILM II or the Real Property is subject and do not require
any approval or consent of or notice to any person entity, or governmental
agency or authority, other than those actions relating to the transfer of
licenses for the Assets to Purchaser. The execution and delivery of this
Agreement and the sale of Assets hereunder do not require the approval of the
shareholders of ILM II. The representations and warranties contained in Article
14 B. (i) and (ii) shall survive Closing;

                  (iii)  There are no unsatisfied judgments, orders or decrees
of any kind against ILM II and no legal action, suit or other legal or
administrative proceeding pending, threatened or reasonably anticipated which
could be filed before any Governmental Authority which has, or is likely to
have, any material adverse effect on (a) the business or assets or the
condition, financial or otherwise, of ILM II or (b) the ability of ILM II to
perform its obligations under this Agreement;

                  (iv)  ILM II has not filed any petition seeking or acquiescing
in any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law relating to bankruptcy or
insolvency, nor has any such petition been filed against ILM II. No general
assignment of any of ILM II's property has been made for the benefit of
creditors, and no receiver, master, liquidator or trustee or similar


                                       18



appointee has been appointed for ILM II or any of ILM II's respective
properties. ILM II is not insolvent and the consummation of the transactions
contemplated by this Agreement shall not render ILM II insolvent. ILM II has now
and will have as of the Closing Date sufficient capital or net worth to meet its
current obligations as they come due; and

                  (v)  ILM II does not directly or indirectly own any assets
other than its interests in Seller.

            C.    Purchaser  represents and warrants to Seller that, as of the
date hereof:

                  (i)  Purchaser is a limited liability company duly organized,
validly existing in and good standing under the laws of the State of Delaware
and, is and in good standing and qualified to do business under the laws of
Delaware; and Purchaser has taken all action required to execute, deliver and
perform this Agreement and to make all of the provisions of this Agreement valid
and enforceable obligations against Purchaser has caused this Agreement to be
executed by a duly authorized officer of Purchaser, as applicable;

                  (ii)  This Agreement and all documents which are to be
delivered to Seller by Purchaser, as applicable, at the Closing: are, or at the
time of Closing will be, duly authorized, executed and delivered by Purchaser,
as applicable; are, or at the time of Closing will be, legal, valid and binding
obligations of Purchaser, as applicable, enforceable in accordance with their
terms against Purchaser, as applicable, subject to general principles of equity
and bankruptcy, insolvency, reorganization, moratorium or other similar laws
presently or hereafter in effect affecting the rights of creditors or debtors
generally; and do not conflict with any provision of any law or regulation to
which Purchaser is subject, violate any provision of any judicial order to which
Seller is a party or to which Seller is subject;

                  (iii)  There are no unsatisfied judgments, orders or decrees
of any kind against Purchaser and no legal action, suit or other legal or
administrative proceeding pending, threatened or reasonably anticipated which
could be filed before any Governmental Authority which has, or is likely to
have, any material adverse effect on (a) the business or assets or the
condition, financial or otherwise, of Purchaser or (b) the ability of Purchaser
to perform its respective obligations under this Agreement; and

                  (iv)  Purchaser has filed no petition seeking or acquiescing
in any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law relating to bankruptcy or
insolvency, nor has any such petition been filed against Purchaser. No general
assignment of any of Purchaser's property has been made for the benefit of
creditors, and no receiver, master, liquidator or trustee or similar appointee
has been appointed for Purchaser or any of their respective properties.
Purchaser is not insolvent and the consummation of the transactions contemplated
by this Agreement shall not render Purchaser insolvent. Purchaser has now and
will have as of the Closing Date sufficient capital or net worth to meet its
current obligations as they come due. Purchaser certifies that any financial
statements and any financial statements of Purchaser or any affiliate of
Purchaser, as applicable, submitted to Seller have been prepared in accordance
with generally accepted accounting principles


                                       19



recognized by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board, or any successors thereto, and are true
and correct and that no circumstances have occurred or come to the attention of
Purchaser since the date thereof which would have a material adverse effect on
the financial condition of Purchaser or such affiliate as indicated on any such
financial statements delivered to Seller.

                  (v)  Purchaser has never been denied a license to operate
assisted living facilities by any state, county or municipal regulatory agency.

            D.  Except as otherwise provided in this Agreement, all
representations and warranties of Seller contained in this Agreement or in any
certificate or instrument delivered by Seller to Purchaser pursuant to or in
connection with this Agreement shall be true and correct at the Closing (without
regard to any knowledge or similar qualifier) but shall not survive the Closing.
No action based on any representation, warranty or obligation that survives the
Closing shall be commenced after the expiration of the period of time by which
such representation or obligation survives the Closing, if any.

                                  ARTICLE 15.

      Condemnation and Destruction.

            A.  If, prior to the Closing Date, all or any "Significant Portion"
(as hereinafter defined) of all or any of the Real Property is taken, or
rendered unusable for its current purpose or reasonably inaccessible by eminent
domain (or is the subject of a pending or contemplated taking which has not been
consummated), Seller shall notify Purchaser of such fact and Purchaser shall
have the option to terminate this Agreement upon written notice to Seller
delivered not later than five (5) days after receipt of Seller's notice. For
purposes of this Article 15(A) and Article 15(B) hereof, a "Significant Portion"
shall mean twenty-five percent (25%) or more in the aggregate of the area of any
parcel of the Land when used in the context of a taking and $50,000 of damages
to one or more Facilities when used in the context of a casualty. If this
Agreement is terminated as aforesaid, neither party shall have any further
rights or obligations hereunder except that Escrow Agent shall refund to
Purchaser the Deposit. If Purchaser does not elect to terminate this Agreement,
or if the portion of the Real Property which is taken or rendered unusable or
reasonably inaccessible by eminent domain (or is the subject of a pending or
contemplated taking which has not been consummated) is not a Significant Portion
of the Real Property, Purchaser shall accept so much of the Real Property as
remains after such taking with no abatement of the Purchase Price, and at the
Closing, Seller shall assign and turn over to Purchaser, and Purchaser shall be
entitled to receive and keep, all of Seller's interest in and to all awards for
such taking by eminent domain.

            B.  If, prior to the Closing Date, a Significant Portion of any or
all of the Real Property is destroyed by fire or other casualty, Seller shall
notify Purchaser of such fact and Purchaser shall have the option to terminate
this Agreement upon ten (10) days notice to Seller given not later than five (5)
days after receipt of Seller's notice. If Purchaser shall elect to terminate
this Agreement as aforesaid and Seller shall not notify Purchaser within such
ten (10)


                                       20



day period of its intention to make such repairs, this Agreement shall terminate
and neither party shall have any further rights or obligations hereunder except
that Escrow Agent shall refund to Purchaser the Deposit (together with all
interest thereon, if any). If Purchaser does not elect to terminate this
Agreement as provided above, or if the portion of the Real Property so damaged
or destroyed is not a Significant Portion of the Real Property, Purchaser shall
accept the Real Property in its then "as is" condition with no abatement of the
Purchase Price, and at the Closing, Seller shall assign to Purchaser, and
Purchaser shall be entitled to receive, all of Seller's interest in and to all
casualty insurance proceeds payable in connection with such casualty (except
that the proceeds of any business interruption or rental value insurance payable
to Seller shall be apportioned as of the Closing Date), and, Purchaser shall
receive a credit against the Purchase Price at the Closing in the amount of any
loss deductible in connection with casualty coverage.

                                   ARTICLE 16.

      Escrow.

            A.    The  Deposit  shall be held in escrow by Escrow  Agent  upon
the following terms and conditions:

                  (i)   Escrow   Agent   shall   deposit  the  Deposit  in  an
interest-bearing  account or invest the Deposit in a money  market or monetary
fund;

                  (ii)  Escrow Agent shall deliver to Seller the Deposit
(together with all interest thereon, if any) at and upon the Closing; and

                  (iii)  If this Agreement is terminated in accordance with the
terms hereof, or if the Closing does not take place under this Agreement by
reason of the failure of either party to comply with such party's obligations
hereunder, Escrow Agent shall pay the Deposit (together with all interest
thereon, if any) to Seller and/or Purchaser, as the case may be, in accordance
with the provisions of this Agreement.

            B.    It is agreed that:

                  (i)  The duties of Escrow Agent are only as herein
specifically provided, and, except for the provisions of Article 16(C) hereof,
are purely ministerial in nature, and Escrow Agent shall incur no liability
whatsoever except for its own willful misconduct or gross negligence;

                  (ii)  Escrow  Agent shall not be liable or  responsible  for
the collection of the proceeds of any checks used to pay the Deposit;

                  (iii)  In the performance of its duties hereunder, Escrow
Agent shall be entitled to rely upon any document, instrument or signature
believed by it to be genuine and signed by either of the other parties or their
successors;

                  (iv)  Escrow Agent may assume that any person purporting to
give any notice of instructions in accordance with the provisions hereof has
been duly authorized to do so;


                                       21



                  (v)  Escrow Agent shall not be bound by any modification,
cancellation or rescission of this Agreement unless in writing and signed by it,
Seller and Purchaser;

                  (vi)  Except as otherwise provided in Article 16(C) hereof,
Seller and Purchaser shall jointly and severally reimburse and indemnify Escrow
Agent for, and hold it harmless against, any and all loss, liability, costs or
expenses in connection herewith, including reasonable attorneys' fees and
disbursements, incurred without willful misconduct or gross negligence on the
part of Escrow Agent arising out of or in connection with its acceptance of, or
the performance of its duties and obligations under, this Agreement, as well as
the reasonable costs and expenses of defending against any claim or liability
arising out of or relating to this Agreement;

                  (vii)  Each of Seller and Purchaser hereby releases and
forever discharges Escrow Agent from any liability arising out of any act done
or omitted to be done by Escrow Agent in good faith in the performance of its
duties hereunder; and

                  (viii)  Escrow Agent may resign for any reason upon ten (10)
days written notice to Seller and Purchaser. If a successor Escrow Agent is not
appointed by Seller and Purchaser within such ten (10) day period, Escrow Agent
may petition a court of competent jurisdiction to name a successor.

            C.  Escrow Agent is acting as a stakeholder only with respect to the
Deposit. Escrow Agent, except (i) in the event of the Closing, (ii) in
connection with a Termination Notice by Purchaser in accordance with Article 10
E. or (iii) if the Deposit is required to be delivered to Purchaser pursuant to
Article 20 B., shall not deliver the Deposit except on seven (7) days' prior
written notice to the parties and only if neither party shall object within such
seven (7) day period. If there is any dispute as to whether Escrow Agent is
obligated to deliver all or any portion of the Deposit or as to whom such
Deposit is to be delivered, Escrow Agent shall not make any delivery, but in
such event Escrow Agent may hold the same until receipt by Escrow Agent of an
authorization in writing, signed by all of the parties having any interest in
such dispute, directing the disposition of the Deposit (together with all
interest thereon, if any), or in the absence of such authorization, Escrow Agent
may hold the Deposit (together with all interest thereon, if any), until the
final determination of the rights of the parties in an appropriate proceeding.
Notwithstanding the foregoing if Purchaser delivers a Termination Notice in
accordance with Article 10 E. or if Purchaser delivers notice to Escrow Agent
that the Deposit is required to be paid to Purchaser pursuant to Article 20 B.
of the Agreement, Seller authorizes and directs Escrow Agent to immediately
deliver the Deposit to Purchaser without the necessity of any prior notice or
consent by Seller. If such written authorization is not given or proceedings for
such determination are not initiated within thirty (30) days after the date
Escrow Agent shall have received written notice of such dispute, and thereafter
diligently continued, Escrow Agent may, but is not required to, bring an
appropriate action or proceeding for leave to deposit the Deposit (together with
all interest thereon, if any), with a court of competent jurisdiction pending
such determination. Escrow Agent shall be reimbursed for all costs and expenses
of such action or proceeding including, without limitation, reasonable
attorneys' fees and disbursements, by the party determined not to be entitled to
the Deposit, or if the Deposit is split between the parties


                                       22



hereto, such costs of Escrow Agent shall be split, pro rata, between Seller and
Purchaser, in inverse proportion to the amount of the Deposit received by each.
Upon making delivery of the Deposit (together with all interest thereon, if
any), in the manner provided in this Agreement, Escrow Agent shall have no
further obligation or liability hereunder.

            D.  Escrow Agent has executed this Agreement solely to confirm that
Escrow Agent has received the Deposit (if the Deposit is made by check, subject
to collection) and will hold the Deposit, in escrow, pursuant to the provisions
of this Agreement.

                                  ARTICLE 17.

      Covenants.

            A.    ILM II and Seller each agrees  that,  prior to the  Closing,
it shall:

                  (i)  Not allow any new Resident Agreement to be entered into
other than at market rate rent and in the ordinary course of business, and which
Resident Agreement contains provisions consistent with the current standard form
of Resident Agreement;

                  (ii)  Not  allow  any new Lease or  Contract  to be  entered
into or amend, modify or terminate any existing Lease or Contract;

                  (iii)  Not create, incur or suffer to exist any mortgage, deed
of trust, lien, pledge or other encumbrance in any way affecting any portion of
the Real Property;

                  (iv)  Maintain and operate the current  insurance  coverages
on the Real Property;

                  (v)  Maintain and operate the Assets in its current condition,
reasonable wear and tear excepted; provided, however, that notwithstanding the
foregoing, Seller shall not be required to spend more than One Hundred Thousand
Dollars ($100,000) between the date of this Agreement and the Closing Date on
repairs and replacements to the Improvements, including, but not limited to,
materials, labor, supervision and overhead;

                  (vi)  Continue to have paid all payroll expenses, taxes and
assessments, water and sewer charges, utilities and obligations under the
Contracts; and

                  (v)  Not (and not permit any agent, partner or affiliate to)
offer to sell, finance, joint venture or otherwise dispose of (or solicit or
accept any such offer involving the sale, financing, joint venture or
disposition of) the Assets or any interest therein (whether directly or
indirectly, debt or equity) or negotiate or otherwise enter into discussions for
the sale, financing, joint venture or disposition of all or any part of the
Assets or any interest therein (whether directly or indirectly, debt or equity)
as applicable, with any other party.

            B.  Each of ILM II, Seller and Purchaser shall take all reasonable
actions necessary to comply promptly with all Legal Requirements which may be
imposed on it with


                                       23



respect to this Agreement (including furnishing all information in connection
with approvals of or filings with any Governmental Entity) and shall cooperate
with and furnish information in connection with any such requirements imposed
upon ILM II, Seller, and/or Purchaser. Each of ILM II, Seller and Purchaser
shall take all reasonable actions necessary to obtain (and shall cooperate with
the other in obtaining) each consent, authorization, order or approval of, and
each exemption by, each Governmental Entity and other person or entity, required
to be obtained or made by the parties hereto in connection with this Agreement
or the taking of any action contemplated hereby or thereby. If Purchaser at the
Closing Date has not been issued any necessary licenses from applicable state or
local government entities required to operate the Assets as senior living
facilities in the manner currently operated, Purchaser may terminate this
Agreement. Notwithstanding the foregoing, if a required license is not obtained
on not more than one of the Real Properties (such Real Property, the "Excluded
Asset"), Purchaser and Seller agree to have a closing on those Real Properties
which have received the necessary licenses and satisfied all other closing
requirements and the Purchase Price shall be reduced in an amount equal to the
allocated Purchase Price of the Excluded Asset. Closing on the Excluded Asset,
shall occur within ten (10) business days after receipt of the necessary
licenses for such Asset and the satisfaction of all conditions to Closing
applicable to such Excluded Asset.

            C.  Until Closing, Seller may modify or update any representation or
warranty in this Agreement which reflects any matters arising subsequent to the
date hereof by giving written notice to Purchaser of such modification or update
("Seller's Update Notice"). The representations and warranties contained in
Article 14 as so modified or updated shall be continuing and shall be true and
correct on and as of the Closing Date with the same force and effect as if made
at the Closing. If Purchaser receives notice or knowledge (pursuant to Seller's
Update Notice or otherwise) after the date hereof and prior to the Closing Date
of any matter which would make any of the representations and warranties set
forth in Article 14 untrue or inaccurate in any respect materially adverse to
Purchaser, Purchaser shall promptly notify Seller of such matter ("Purchaser's
Update Notice"), except if such matter was set forth in Seller's Update Notice.
Seller shall have until the date that is the later of the originally scheduled
Closing Date or thirty (30) days from the date of delivery of Seller's Update
Notice or the receipt of Purchaser's Update Notice to cure such untruth or
inaccuracy. The Closing Date automatically shall be extended to such thirtieth
(30th) day after delivery of Seller's Update Notice to Seller or receipt of
Purchaser's Update Notice by Seller to permit such cure by Seller, provided that
such date shall not be later than the expiration of any Financing Commitment and
provided further that Seller shall have no such cure or extension right if the
applicable matter is not reasonably capable of being cured during such period.
If such untruth or inaccuracy is not cured by the Closing Date (as same may be
extended in accordance with this Agreement), then Purchaser, as its sole and
exclusive remedy (provided Seller has complied with its obligations in the prior
sentence) but without limiting Purchaser's remedies set forth in Article 20 B.
shall have the right to either: (a) terminate this Agreement by written notice
to Seller, in which case Escrow Agent shall return the Deposit (together with
all interest thereon, if any) to Purchaser and neither party to this Agreement
shall thereafter have any further rights or obligations hereunder; or (b)
consummate all actions contemplated to be completed at the Closing and receive a
credit in the lesser of: (I) the amount of actual damages sustained by Purchaser
due to any and all such materially adverse untruths and inaccuracies; and (II)
the difference between Five Hundred Thousand Dollars ($500,000) and all
documented, out-of-pocket costs, in the aggregate,


                                       24



previously incurred by Seller to cure any and all such materially adverse
untruths and inaccuracies. Purchaser's failure to notify Seller that any of
Seller's representations or warranties are materially untrue or incorrect or
that Seller has not materially complied with any of its agreements on or before
the Closing Date shall be deemed a waiver by Purchaser thereof, if Purchaser had
actual knowledge of such inaccuracy or breach as of the Closing Date. For the
purposes of this Article 17(B) "material" shall mean any state of facts the
restoration of which to the condition represented or warranted by Seller under
this Agreement would cost in excess of $50,000 or could decrease the value of
the Assets by Fifty Thousand Dollars ($50,000) or more.

                                  ARTICLE 18.

      Closing Costs.

            A.  Closing Costs. Seller shall pay all charges required under
applicable law or customarily attributable to sellers of assets similar to
Assets including without limitation, state, county, or municipal transfer taxes
which are not required to be paid by Purchaser under applicable law or custom.
Purchaser shall pay all charges required under applicable law or customarily
attributable to purchasers including, without limitation, all recordation
charges for the Deeds, and state, county or municipal transfer taxes and fees
which are not required to be paid by Seller under applicable law or custom.
Seller and Purchaser shall equally share the cost of the premiums for the title
insurance with Seller's portion not to exceed $75,000. The parties shall each be
solely responsible for the fees and disbursements of their respective counsel
and other professional advisers.

            B.  The provisions of this Article 18 shall survive the Closing.

                                  ARTICLE 19.

            A.  Conditions Precedent To Seller's Obligations.  The obligation
of Seller to consummate the Closing is subject to the satisfaction (or waiver
by Seller) as of Closing of the following conditions:

                (i)  Each of the representations and warranties made by
     Purchaser in this Agreement shall be true and correct in all material
     respects when made and on and as of the Closing Date as though such
     representations and warranties were made on and as of the Closing Date.

                (ii)  Seller shall have received all of the deliveries required
     under Article 8(B).

            B.  Conditions Precedent to Purchaser's Obligations.  The obligation
of Purchaser to consummate the Closing is subject to the satisfaction (or waiver
by Purchaser) as of Closing of the following conditions:


                                       25



                (i)  Each of the representations and warranties made by Seller
      in this Agreement shall be true and correct in all material respects
      (without regard to any knowledge or similar qualifiers) when made and on
      and as of the Closing Date as though such representations and warranties
      were made on and as of the Closing Date.

                (ii)  Seller shall have performed or complied with each
      obligation and covenant required by this Agreement to be performed or
      complied with by Seller on or before Closing.

                (iii)  If the sale of the Assets or any portion thereof to
      Purchaser requires the approval of any Government Authority, such approval
      shall have been obtained.

                (iv)  Purchaser shall have received all of the documents
      required to be delivered by Seller under Article 8 (A).

                                  ARTICLE 20.

      A.    Seller's Inability to Perform; Seller's Default. If Seller shall
default in its obligation to convey the Assets to Purchaser in accordance with
the terms of this Agreement, then Purchaser, at its sole option, may either (i)
terminate this Agreement, in which event Escrow Agent shall refund to Purchaser
the Deposit (and all interest thereon, if any) and neither party shall
thereafter have any further rights or obligations hereunder or (ii) bring an
action against Seller for specific performance. In the event of Seller's Willful
Default (as defined below), Purchaser shall be entitled to all remedies at law
or at equity. In addition to all rights and remedies of Purchaser contained
herein, in the event Seller shall default in its obligation to convey the Assets
to Purchaser in accordance with the terms of this Agreement including without
limitation as set forth in Article 20 B. below, then Purchaser shall be entitled
(i) to receive the promissory note in the amount of $400,000 made by ILM II (the
"Escrowed Note") and held by TSNY Agency of New York City, Inc., as agent for
Fidelity National Title Insurance Company, pursuant to the letter agreement
dated September 24, 2001 between Blackstone Real Estate Acquisitions III L.L.C.
and ILM II and Purchaser and (ii) to make demand upon the Escrowed Note and
receive payment of the $400,000 due under the Escrowed Note. "Seller's Willful
Default" shall mean Seller's willful refusal to perform its obligation to convey
the Assets to Purchaser in accordance with the terms of this Agreement,
provided: (1) the reasons for such refusal do not include conditions beyond
Seller's control or the unmarketability of title; and (2) Purchaser has
satisfied all conditions required to be satisfied by it under this Agreement, is
not otherwise in default under this Agreement and is ready, willing and able to
deliver the Purchase Price due Seller under this Agreement.

      B.   Breach of Certain Representations and Warranties; Shareholder Event.
Notwithstanding any provision of this Agreement (i) In the event that any
shareholder of ILM II or Seller or any other party (other than Purchaser) seeks
to void or otherwise invalidate this Agreement or to enjoin the transactions
contemplated hereby for any reason whatsoever (any such event, a "Shareholder
Action") then Purchaser shall be entitled to terminate this Agreement and
receive the return of the Deposit (and all interest thereon, if any), and ILM II
and Seller (on a


                                       26



joint and several basis) shall pay to Purchaser the amount of $2,000,000 (the
"Shareholder Event Payment") as liquidated damages and not as a penalty.
Notwithstanding the foregoing, ILM II and Seller shall not be required to pay
the Shareholder Event Payment if on the Closing Date (a) no court order
enjoining or otherwise impeding the transactions contemplated by this Agreement
is in effect and (b) no action is pending (i) which, if adversely determined,
could result in the unwinding of the sale of the Assets or subject Purchaser to
damages or other liabilities or (ii) which challenges the validity of this
Agreement or the transactions contemplated hereby. If a Shareholder Action is
pending on the then scheduled Closing Date and the then scheduled Closing Date
is prior to March 1, 2002, the Inspection Period and the Closing Date shall
automatically be extended through and including March 1, 2002.

           (ii)  The Shareholder Event Payment shall be paid to Purchaser in
     immediately available funds by wire transfer on the earlier to occur of (a)
     March 1, 2002 and (b) the date of an order by a court of competent
     jurisdiction ordering that the transactions contemplated by this Agreement
     shall not be completed in accordance with this Agreement. Upon a
     termination of this Agreement as provided above, neither party to this
     Agreement shall have any further rights or obligations hereunder except,
     Escrow Agent shall deliver to Purchaser and Purchaser shall retain the
     Deposit and the Escrowed Note and ILM II and Seller shall deliver to
     Purchaser the Shareholder Event Payment as set forth herein. It is
     expressly understood and agreed that in the event of such Shareholder
     Action or the failure of the Authority Opinion to be delivered if required
     as provided below, damages would be impossible to ascertain and that the
     Shareholder Event Payment constitutes a fair and reasonable amount of
     compensation in such events and in no event shall the delivery of the
     Shareholder Event Payment be construed as punitive damages.

           (iii)  In addition to the circumstances described above, if the
     Authority Opinion is required to be delivered in accordance with Article 8
     (a) (vii) and such Authority Opinion is not delivered, ILM and Seller (on a
     joint and several basis) shall pay the Shareholder Event Payment to
     Purchaser on the then scheduled Closing Date. If after the Closing, any
     shareholder of ILM II or any other party (other than Purchaser)
     successfully voids or unwinds the transactions contemplated hereby for any
     reason whatsoever, ILM II and Seller (on a joint and several basis) shall
     immediately pay the Shareholder Event Payment to Purchaser, which payment
     shall not be in limitation of any other rights and remedies that Purchaser
     may then have.

           (iv)  Upon the occurrence of a Shareholder Action or any action
     seeking to unwind the sale of the Assets, Seller and ILM II agree to
     diligently prosecute the defense of such action and to keep Purchaser
     informed of the progress of such action, including providing Purchaser with
     copies of all pleadings and decisions filed in the action. Neither Seller
     nor ILM II shall enter into any settlement of any such action which
     prevents the transactions contemplated by this Agreement from occurring in
     accordance with this Agreement or which would unwind the transaction
     without the prior written approval of Purchaser, which approval may be
     withheld in Purchaser's sole discretion. If Seller or ILM II breach the
     covenant set forth in the immediately preceding sentence, the Shareholder
     Event Payment shall be immediately due and payable to Purchaser by ILM II
     and Seller (on a joint and several basis) and Purchaser shall have all
     other remedies available to Purchaser at law or at equity.


                                       27


                                  ARTICLE 21.

      Condition of Real Property. Purchaser shall accept the Real Property at
the Closing in its "as is" condition as of the Closing Date, subject to the
terms of this Agreement including without limitation the representations and
warranties of Seller. Except as set forth in this Agreement and subject to the
representations and warranties of Seller, Seller shall not be liable for any
latent or patent defects in the Real Property or be bound in any manner
whatsoever by any guarantees, promises, projections, operating expenses, set-ups
or other information pertaining to the Real Property made, furnished or claimed
to have been made or furnished, whether orally or in writing, by Seller or any
other person or entity, or any partner, employee, agent, attorney or other
person representing or purporting to represent Seller. Purchaser acknowledges
that neither Seller nor any of the employees, agents or attorneys of Seller have
made and do not make any oral or written representations or warranties
whatsoever to Purchaser, whether express or implied, except as expressly set
forth in this Agreement. Purchaser has not relied and is not relying upon any
representations or warranties other than the representations and warranties
expressly set forth in this Agreement, or upon any statements made in any
informational materials with respect to the Real Property provided by Seller or
any other person or entity, or any shareholder, employee, agent, attorney or
other person representing or purporting to represent Seller.

                                  ARTICLE 22.

      Non-Liability. Purchaser agrees that in any suit against ILM II or Seller,
it shall look solely to the assets of ILM II and Seller, and not to the members,
managers, directors, officers, employees, shareholders, partners or agents of
ILM II and Seller or any other person, partnership, corporation or trust, as
principal of ILM II and Seller or otherwise, and whether disclosed or
undisclosed, to enforce its rights hereunder, and that none of the members,
managers, directors, officers, employees, shareholders, partners or agents of
ILM II and Seller or any other person, partnership, corporation or trust, as
principals of ILM II and Seller or otherwise, and whether disclosed or
undisclosed, shall have any personal obligation or liability hereunder, and
Purchaser shall not seek to assert any claim or enforce any of its rights
hereunder against such party.


                                       28


                                   ARTICLE 23.

      Notices. All notices, demands or requests made pursuant to, under or by
virtue of this Agreement (in each case, a "Notice") must be in writing and sent
to the party to which the Notice is being made by nationally recognized
overnight courier or delivered by hand or by facsimile with receipt acknowledged
in writing as follows:

      To ILM II and Seller:

      ILM II Senior Living, Inc.
      1750 Tysons Boulevard
      Suite 1200
      Tysons Corner, VA  22102
      Attention:  J. William Sharman, Jr.
      Facsimile:  (703) 749-1301

            with a copy to:

      Greenberg Traurig, LLP
      800 Connecticut Avenue
      Suite 500
      Washington, District of Columbia 20006
      Attention:  Jeffry R. Dwyer, Esq.
      Facsimile:  (202) 331-3101

      To Purchaser:

      BRE/Independent Living L.L.C.
      c/o The Blackstone Group
      345 Park Avenue
      New York, New York  10154
      Attention:  Stavros Galiotos
      Facsimile:  (212) 583-5726

             with copies to:

      Simpson Thacher & Bartlett
      425 Lexington Avenue
      New York, New York 10017
      Attention: Scott M. Kobak, Esq.
      Facsimile: (212) 455-2502


      All Notices (i) shall be deemed given upon the date of delivery of such
Notice or refusal to accept delivery of such Notice and (ii) may be given either
by a party hereto or by such party's attorney set forth above.


                                       29


                                   ARTICLE 24.

      Brokers.  Other than Cohen & Steers, the fees of which are the sole
responsibility of Seller, Seller has (i) dealt with no brokers, salesman,
finder, or consultant with respect to this Agreement and (ii) not entered into
any written agreements with any broker, salesman, finder or consultant or has
not agreed in writing with any real estate broker to pay any specific amount of
commissions with respect to this Agreement. Seller agrees to indemnify, protect,
defend and hold Purchaser harmless from and against all claims, losses, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
disbursements) and charges arising out of or in any way relating to the
foregoing representation being untrue.

                                  ARTICLE 25.

      Entire Agreement.  This Agreement contains all of the terms agreed upon
between the parties with respect to the subject matter hereof, and all
agreements heretofore had or made between the parties hereto are merged in this
Agreement which alone fully and completely expresses the agreement of said
parties.

                                  ARTICLE 26.

      Amendments.  This Agreement may not be changed,  modified or terminated,
nor may any  provision  hereunder  be waived,  except by a written  instrument
executed by the parties hereto.

                                  ARTICLE 27.

      No Waiver. No waiver by either party of any failure or refusal to comply
with its obligations under this Agreement shall be deemed a waiver of any other
or subsequent failure or refusal to so comply.

                                  ARTICLE 28.

      Successors and Assigns. This Agreement shall inure to the benefit of, and
shall bind, the heirs, executors, administrators, successors and permitted
assigns of the respective parties.

                                  ARTICLE 29.

      Partial Invalidity. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each


                                       30


term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.

                                  ARTICLE 30.

      Article Headings; Incorporation of Exhibits and Schedules. The headings of
the various articles and sections of this Agreement have been inserted only for
convenience, and are not part of this Agreement and shall not be deemed in any
manner to modify, explain or restrict any of the provisions of this Agreement.
Unless otherwise provided in this Agreement, any reference in this Agreement to
an Exhibit or Schedule is understood to be a reference to the Exhibits and
Schedules annexed to this Agreement. All Exhibits and Schedules annexed to this
Agreement shall be incorporated into this Agreement as if fully set forth
herein. Within 5 business days of the date hereof Seller shall deliver to
Purchaser Schedules 6 (Violations), 14(A)(i) (Leases and Resident Agreements),
14(A)(ii)(Contracts) and 14(A)(vii) (Actions, Suits, or Proceedings Pending
Against Seller or Property). Prior to December 10, 2001 Seller shall deliver to
Purchaser updated Financial Statements for the most recent fiscal year of ILM II
and Seller which shall replace the Financial Statements as Schedule 14(A)(iii).
In the event that Schedules 6, 14(A)(ii) and 14(A)(vii) are not delivered within
5 business days of the date hereof, such schedules shall be deemed to state the
word "None" on such schedules. Schedules delivered after the signing of this
Agreement in accordance with this Article 30 shall be incorporated into this
Agreement as if fully set forth herein.

                                  ARTICLE 31.

      Governing Law.  This Agreement shall be governed by, interpreted under
and construed and enforced in  accordance  with,  the laws of the State of New
York.

                                  ARTICLE 32.

      Confidentiality. Except as may be required by law or in connection with
any court or administrative proceeding, neither ILM II, Seller nor Purchaser nor
their respective agents or designees shall issue or cause the publication of any
press release or other public announcement (collectively, a "Public
Disclosure"), or cause, permit or suffer any other disclosure which sets forth
the terms of the transactions contemplated hereby (other than to the parties'
respective consultants and advisors and investors or potential investors, who,
in turn, shall be bound by this Article 32), without first obtaining the written
consent of the other party. If a party is required by law or in connection with
any court or administrative proceeding, to issue or cause the publication of a
Public Disclosure, such party shall provide the other parties with a copy of the
Public Disclosure for their reasonable approval prior to publication.

                                   ARTICLE 33.

      No Recording.  The parties  hereto agree that neither this Agreement nor
any memorandum hereof shall be recorded.


                                       31


                                   ARTICLE 34.

      Assignment.  Purchaser may not assign its rights or obligations under this
Agreement or any direct or indirect ownership or other interest in Purchaser
without the prior written consent of Seller, and any such assignment made
without Seller's consent shall be void ab initio. Notwithstanding the foregoing,
Purchaser may transfer to any affiliate of Purchaser or any public or private
fund where Purchaser is either the fund manager or managing partner (including
any entity controlled directly or indirectly by the private equity fund known as
the Blackstone Group).

                                  ARTICLE 35.

      Counterparts.  This Agreement may be executed in any number of counter-
parts each of which when so executed and delivered shall be deemed to be an
original, but all such counterparts shall constitute one and the same agreement.

                                   ARTICLE 36.

      No Third Party Beneficiary.  The provisions of this Agreement are not
intended to benefit any third parties.

                                  ARTICLE 37.

      Survivability.  Unless otherwise specifically stated to the contrary in
any Section or Article of this Agreement, no representations or warranties
contained herein shall survive after the Closing.

                    [remainder of page intentionally blank]




                                       32


IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the day and year first above written.

                              ILM II:

                              ILM II SENIOR LIVING, INC.


                              By: /s/ J. William Sharman, Jr.
                                  --------------------------------------------
                                   Name:  J. William Sharman, Jr.
                                   Title: President


                              SELLER:

                              ILM II HOLDING, INC.


                              By:  /s/ David Carlson
                                   -------------------------------------------
                                   Name:  David Carlson
                                   Title: President


                              PURCHASER:

                              BRE/INDEPENDENT LIVING L.L.C.


                              By:  /s/ Steven Galiotos
                                   -------------------------------------------
                                   Name:  Steven Galiotos
                                   Title: ____________________________________


                                    The undersigned has executed this Agreement
                                    solely to confirm its acceptance of the
                                    duties of Escrow Agent as set forth in
                                    Article 16 hereof.

                                    FIDELITY NATIONAL TITLE INSURANCE COMPANY


                                    By: /s/ Kenneth C. Cohen
                                        --------------------------------------
                                        Name:  Kenneth C. Cohen
                                        Title: Senior Vice President




                                       33


                                    Exhibit 1

                                LEGAL DESCRIPTION



                                   Schedule 6


                                   Violations



                               Schedule 14 (A)(i)

                         Leases and Resident Agreements



                              Schedule 14 (A)(ii)

                                   Contracts



                              Schedule 14 (A)(iii)

                              Financial Statements



                               Schedule 14 (A)(vii)

                              Actions, suits or proceedings