HEALTHCARE FINANCIAL PARTNERS REIT INC, S-11, 1998-08-28

HEALTHCARE FINANCIAL PARTNERS REIT INC
S-11, 1998-08-28
REAL ESTATE INVESTMENT TRUSTS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHCARE FINANCIAL
PARTNERS REIT, INC.
(Exact name of registrant as specified in its governing instrument)

2 WISCONSIN CIRCLE, SUITE 402
CHEVY CHASE, MARYLAND 20815
(301) 347-3100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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JOHN K. DELANEY
CHAIRMAN AND CEO
HEALTHCARE FINANCIAL PARTNERS REIT, INC.
2 WISCONSIN CIRCLE, SUITE 402
CHEVY CHASE, MARYLAND 20815
(301) 347-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
G. WILLIAM SPEER, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E., SIXTEENTH FLOOR
ATLANTA, GEORGIA 30303
TELEPHONE: (404) 572-6722
FACSIMILE: (404) 572-6999

Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this registration statement.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Units, each consisting of five
shares of Common Stock, par
value $0.0001 per share, and
one warrant to purchase one
share of Common Stock......... 1,450,000 Units $100.00 $145,000,000 $42,775
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Common Stock, par value $0.0001
per share, comprising a
portion of the Units.......... 7,250,000 shares (3) (3) (3)
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Warrants, comprising a portion
of the Units.................. 1,450,000 Warrants (3) (3) (3)
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Common Stock, $0.0001 par value
per share, issuable upon
exercise of the Warrants...... 1,450,000 shares $20.00 $29,000,000 $8,555
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</TABLE>

(1) Plus such additional number of shares of Common Stock as may be required in
the event of a stock dividend, stock split, recapitalization or other
similar event.
(2) Estimated based on a bona fide estimate of the maximum aggregate offering
price solely for the purposes of calculating the registration fee pursuant
to Rule 457(a) of the Securities Act of 1933.
(3) Such securities will be offered at no additional cost. As a result, no
additional registration fee is required with respect therein.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER
NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH JURISDICTION.

SUBJECT TO COMPLETION, DATED AUGUST 28, 1998

Healthcare Financial Partners Reit, Inc. Logo

This Prospectus relates to 1,450,000 Units (the "Units") of HealthCare
Financial Partners REIT, Inc., a Maryland corporation (the "Company"), issued
and sold in a private placement (the "Private Placement") on May 6, 1998 (the
"Closing Date"), of which 1,150,000 Units were sold to NationsBanc Montgomery
Securities LLC and Lehman Brothers (collectively, the "Initial Purchasers") and
were simultaneously resold by the Initial Purchasers in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), to persons reasonably believed by the Initial Purchasers to
be Qualified Institutional Buyers (as defined in Rule 144A under the Securities
Act) and to a limited number of Accredited Investors (as defined in Rule 501
under the Securities Act). The remaining 300,000 Units were sold directly by the
Company to certain Accredited Investors (collectively, the "Initial
Subscribers") on the Closing Date.

Each Unit consists of five shares of common stock, $0.0001 par value per
share, of the Company (the "Common Stock") and one stock purchase warrant (a
"Warrant"). The Warrants included in the Units are not detachable from shares of
the Common Stock until November 5, 1998. Each Warrant entitles the holder to
purchase one share of Common Stock (a "Warrant Share"), subject to certain
anti-dilution adjustments. The Warrants will become exercisable after November
4, 1998 and will remain exercisable until 5:00 p.m. New York time on April 29,
2001 at an exercise price of $20 per Warrant Share. For purposes of this
Prospectus, the term "Securities" shall mean the Units until November 5, 1998,
and from and after November 5, 1998, shall mean the shares of Common Stock
comprising a portion of the Units, the Warrants and the Warrant Shares. Prior to
automatic separation of the related Warrant, each Unit will be represented by
the Common Stock which bears an endorsement representing ownership of the
related Warrant.

The Securities offered hereby (the "Offered Securities") may be offered and
sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling
Securityholders") pursuant to this Prospectus. The Offered Securities may be
sold by the Selling Securityholders from time to time directly to purchasers or
through agents, underwriters or dealers. See "Selling Securityholders" and "Plan
of Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Securityholders will receive all of the net proceeds
from the sale of the Offered Securities and will pay all underwriting discounts,
selling commissions and transfer taxes, if any, applicable to any such sale. The
Company is responsible for payment of all other expenses incident to the
registration of the Offered Securities. The Selling Securityholders and any
broker-dealers, agents or underwriters that participate in the distribution of
the Offered Securities may be deemed to be "Underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.

The Company invests in income producing real estate and real estate related
assets in the healthcare industry. The Company's investments include real estate
acquisitions, permanent real estate mortgages and other real estate secured
debt. The Company primarily targets investments in skilled nursing facilities,
assisted living facilities, medical office buildings and hospitals, and also
pursues opportunities in other types of healthcare facilities, such as mental
health facilities, outpatient facilities and other specialty healthcare
facilities. The Company's day to day operations are managed by HCFP REIT
Management, Inc. (the "Manager"), a wholly-owned subsidiary of HealthCare
Financial Partners, Inc. ("HCFP"), a leading publicly-traded provider of
asset-based financing to the healthcare industry. The Company intends to qualify
as a real estate investment trust ("REIT") for federal income tax purposes.

To assist the Company in complying with certain federal income tax
requirements applicable to REITs, the Company's charter and bylaws contain
certain restrictions relating to the ownership and transfer of the Common Stock,
including redemption under certain circumstances. See "Description of Capital
Stock -- Restrictions on Transfer."

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR MATERIAL RISKS RELEVANT TO AN
INVESTMENT IN THE SECURITIES, INCLUDING, AMONG OTHERS:

- The Company has limited operating experience and is substantially
dependent on the services of external management;

- Appropriate investments may not be available;

- The Company, HCFP and the Manager have certain common officers and
directors, which may present conflicts of interest;

- A significant portion of the revenues of the Company's borrowers and
lessees will be dependent upon reimbursement from third-party payors,
including federal and state Medicare and Medicaid programs;

- Operators of healthcare facilities are subject to extensive federal, state
and local regulations;

- Income from properties and yields from investments in healthcare-related
real estate may be affected by many factors, including changes in
governmental regulation, general or local economic conditions, the
existence of competing facilities, a reduction in rental income as the
result of an inability to maintain occupancy levels, natural disasters or
similar factors;

- Most of the Company's properties will be "special purpose" properties
which are not readily convertible to other uses;

- Yield on the Company's investments may be adversely affected by changes in
interest rates, rates of prepayment and credit losses;

- The Company makes mezzanine loans secured by subordinate mortgages and
construction loans which are considered to involve a higher degree of risk
than permanent mortgage loans secured by a first lien on income-producing
real property; and

- To avoid being taxed as a regular corporation, the Company must satisfy
certain requirements relating to its assets and income, which may restrict
the Company's investment opportunities, and the Company must distribute at
least 95% of its taxable income each year, which could result in the
Company needing to sell assets or borrow money in order to satisfy this
requirement.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The Date of this Prospectus is , 1998.
<PAGE> 3

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") (of which
this Prospectus forms a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. This Prospectus contains summaries of the material terms of the
documents referred to herein and therein, but does not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits as well as reports and other information filed by the
Company can be inspected without charge and copied at prescribed rates at the
public reference facilities maintained by the Commission at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its Regional Offices located as follows: Chicago Regional Office, Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511; and
New York Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048. The Commission maintains a Web site that contains reports, proxy,
and information statements and other information regarding registrants that file
electronically with the Commission. The Web site is located at
http://www.sec.gov.

Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document. The Company will be
required to file reports and other information with the Commission pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition to applicable legal requirements, if any, holders of Common Stock will
receive annual reports containing information regarding the business and
performance of the Company, including audited financial statements with a report
thereon by the Company's independent certified public accountants, and quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year.

CAUTIONARY STATEMENTS FOR PURPOSES OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Prospectus on the cover page and under the
captions "Prospectus Summary," "Risk Factors," "Business and Growth Strategy,"
"Management's Discussion and Analysis of Liquidity and Capital Resources" and
elsewhere constitute forward-looking statements. When used in this Prospectus,
the words "anticipate," "believe," "estimate," "expect" and similar expressions
are generally intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry trends; competition; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in, or the failure or inability to comply with, government
regulation; and other factors referenced in this Prospectus. See "Risk Factors."
These forward-looking statements speak only as of the date of this Prospectus.
The Company expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.

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<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.............................. 1
The Company................................... 1
Business and Growth Strategies................ 2
Investment Programs........................... 3
Portfolio..................................... 4
Equity Investment Program..................... 5
Permanent Mortgage Loan Program............... 6
Other Real Estate Secured Debt Program........ 7
Risk Factors.................................. 8
The Manager and HCFP.......................... 9
The Management Agreement...................... 10
Conflicts of Interest......................... 11
Proposed Initial Public Offering.............. 11
Use of Proceeds............................... 12
Distribution Policy........................... 12
Tax Status of the Company..................... 12
Organization and Relationships................ 13
Summary Financial Data........................ 14
Risk Factors.................................... 15
Limited Operating History; Dependence on
External Management......................... 15
Risks Associated with the Healthcare
Industry.................................... 15
Real Estate Investment Risks.................. 17
Financing Risks............................... 20
Conflicts of Interest......................... 21
Legal and Tax Risks........................... 22
Other Risks................................... 26
Conflicts of Interest........................... 26
Use of Proceeds................................. 27
Distribution Policy............................. 27
Capitalization.................................. 29
Business........................................ 30
Investment Opportunities...................... 30
Business and Growth Strategies................ 30
Types of Facilities........................... 32
Investment Programs........................... 33
Management of Operations........................ 35
The Manager................................... 35
The Management Agreement...................... 37
Management of the Company....................... 40
Directors and Executive Officers.............. 40
1998 Stock Option Plan........................ 43
Director Plan................................. 44
Certain Relationships; Conflicts of
Interest.................................... 45
Portfolio....................................... 46
Equity Investment Program..................... 46
Purchase Leaseback Transactions............... 46
Real Estate Acquisitions...................... 49
Permanent Mortgage Loan Program............... 50
Other Real Estate Secured Debt Program........ 52
Equity Investment Program..................... 56
Permanent Mortgage Loan Program............... 57
Other Real Estate Secured Debt Program........ 58
Selected Financial Data......................... 59
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 60
Overview...................................... 60
Pro Forma Results of Operations............... 60
Results of Operations......................... 61
Liquidity and Capital Resources............... 61
Funds from Operations......................... 62
Year 2000..................................... 62
Inflation..................................... 63
Operating Partnership Agreement................. 64
Management.................................... 64
Transferability of Interests.................. 64
Capital Contribution.......................... 64
</TABLE>

<TABLE>
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PAGE
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Redemption Rights............................. 65
Operations.................................... 65
Distributions................................. 66
Allocations................................... 66
Term.......................................... 66
Fiduciary Duty................................ 67
Preemptive Rights............................. 67
Tax Matters................................... 67
Policies with Respect to Certain Activities..... 67
Investment Policies........................... 67
Financing Policies............................ 68
Policies with Respect to Certain Other
Activities.................................. 68
Policies with Respect to Interested
Directors................................... 68
Policies with Respect to Transaction Approval
Requirements................................ 68
Policies with Respect to Intercreditor
Arrangements................................ 69
Principal Stockholders.......................... 70
Description of Capital Stock.................... 72
General....................................... 72
Common Stock.................................. 72
Preferred Stock............................... 72
Warrants...................................... 73
Restrictions on Transfer...................... 74
Book-Entry Only Issuance -- The Depository
Trust Company............................... 76
Dividend Reinvestment Plan.................... 77
Reports to Stockholders....................... 77
Transfer Agent and Registrar.................. 78
Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws.................. 78
Board of Directors............................ 78
Amendment..................................... 78
Business Combinations......................... 78
Control Share Acquisitions.................... 79
Operations.................................... 79
Advance Notice of Director Nominations and New
Business.................................... 79
Federal Income Tax Considerations............... 80
Taxation of the Company....................... 80
Requirements for Qualification................ 82
Taxation of Taxable U.S. Stockholders......... 88
Taxation of Stockholders on the Disposition of
the Common Stock............................ 90
Capital Gains and Losses...................... 90
Information Reporting Requirements and Backup
Withholding................................. 91
Taxation of Tax-Exempt Stockholders........... 92
Taxation of Non-U.S. Stockholders............. 93
State and Local Taxes......................... 94
Sale of the Company's Property................ 94
Tax Aspects of the Company's Ownership of
Interests in the Operating Partnership...... 94
ERISA Considerations............................ 96
Employee Benefit Plans, Tax-Qualified
Retirement Plans, and IRAs.................. 96
Status of the Company Under ERISA............. 97
Shares Eligible for Future Sale................. 99
Sales of Restricted Shares.................... 99
Options....................................... 100
Registration Rights........................... 100
Selling Securityholders....................... 101
Plan of Distribution.......................... 101
Legal Matters................................... 102
Experts......................................... 102
Glossary of Terms............................... 103
Index to Financial Statements................... F-1
</TABLE>

ii
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. Although the Company and HCFP
REIT Operating Partnership, L.P. (the "Operating Partnership"), are separate
entities, unless the context otherwise requires, all references in this
Prospectus to the Company refer to the Company and the Operating Partnership,
collectively. Unless otherwise indicated, the information contained in this
Prospectus assumes that the Warrants have not been exercised. Capitalized terms
used but not defined herein shall have the meanings set forth in the Glossary of
Terms beginning on page .

THE COMPANY

The Company was formed in January 1998 to invest in income producing real
estate and real estate related assets in the healthcare industry. The Company's
investments include real estate acquisitions, permanent real estate mortgages
and other real estate secured debt. The Company primarily targets investments in
skilled nursing facilities, assisted living facilities, medical office buildings
and hospitals, and also pursues opportunities in other types of healthcare
facilities, such as mental health facilities, outpatient facilities and other
specialty healthcare facilities. The Company believes that projected growth in
the long-term care industry, anticipated deconsolidation in the hospital
industry and continued consolidation in the physician practice management
industry will, among other factors, continue to provide investment opportunities
for the Company. At July 31, 1998, the Company had actual and probable
investments of $119.4 million, consisting of $55.6 million in income-producing
real estate, $27.0 million in permanent real estate mortgages and $36.8 million
in other real estate secured debt. Of the Company's total dollar amount of
actual and probable investments at July 31, 1998, 58.8%, 25.5% and 15.7% related
to skilled nursing facilities, assisted living facilities and medical office
buildings, respectively.

The Company's day to day operations are managed by the Manager, a
subsidiary of HCFP, a leading publicly-traded provider of asset-based financing
to the healthcare industry. HCFP has an established brand name and reputation in
the healthcare industry which the Company believes uniquely positions HCFP to
assist the Company in identifying investment opportunities and expanding its
business base. The Company seeks to originate investments through joint
marketing efforts with HCFP, direct marketing through its staff of experienced
healthcare real estate professionals and referrals from, and purchases of
mortgage loans under, its arrangement with GMAC Commercial Mortgage Corporation
("GMACCM"). The Company's goal is to use its relationship with HCFP and its
independent origination channels to establish a diversified portfolio of high
quality healthcare real estate related investments.

The Company's activities are conducted through three distinct programs. The
Company's Equity Investment Program includes real estate acquisitions and
purchase leaseback transactions involving healthcare facilities. Its Permanent
Mortgage Loan Program provides traditional, term real estate financing to
operators of healthcare facilities. The Company's Other Real Estate Secured Debt
Program includes construction and expansion loans, mezzanine loans, bridge
financings and other types of non-permanent real estate financings of healthcare
facilities. The Company expects to finance a portion of its permanent mortgage
loans and other real estate secured debt under a $150 million repurchase
facility (the "Repurchase Facility") which is being negotiated with Merrill
Lynch Mortgage Capital, Inc. ("MLMCI"), and may securitize a portion of its
permanent mortgage loans in the future.

The Company intends to qualify as a REIT for federal income tax purposes.
The Company's executive offices are located at 2 Wisconsin Circle, Suite 402,
Chevy Chase, Maryland 20815 and its telephone number is (301) 347-3100.

1
<PAGE> 6

BUSINESS AND GROWTH STRATEGIES

The Company's principal business objectives are to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order to
maximize total return to its stockholders. The Company believes it can achieve
these objectives by implementing the following business and growth strategies
and by capitalizing on its competitive advantages and the investment programs
described below.

Capitalize on Relationships with HCFP and its Affiliates. The Company will
continue to capitalize on its relationships with HCFP and its affiliates. In
their marketing efforts on behalf of the Company, HCFP and its affiliates
recommend the Company as a source for the long-term real estate financing needs
of HCFP's clients. In addition, in an effort to meet all or substantially all of
the financing needs of potential borrowers or lessees, the Company and HCFP may
jointly market their respective financing products through: (i) the officers and
senior managers of HCFP; (ii) HCFP's internal staff of seven marketing
professionals who coordinate advertising in trade magazines and attendance at
trade shows and conferences; and (iii) HCFP's five telemarketers who solicit
clients directly. In addition, HCFP obtains referrals through its network of
professionals such as lawyers, accountants and venture capital firms, and, to a
lesser extent, from paid brokers. Significant referral sources of HCFP own
Common Stock and therefore have an incentive to provide referrals to the
Company. Approximately $65.1 million, or 54.5%, of the Company's actual and
probable investments at July 31, 1998, resulted from leads provided by HCFP. The
Company also utilizes the expertise and resources of HCFP and its affiliates,
including HealthCare Analysis Corporation ("HCAC"), a subsidiary of HCFP, which
specializes in healthcare due diligence and audit services for HCFP and other
lenders, to assist it in evaluating the credit quality of potential borrowers
and lessees of the Company. From its inception in 1993 through June 30, 1998,
HCFP advanced over $3.0 billion to its clients in over 800 transactions. At June
30, 1998, HCFP had approximately $352 million of financing outstanding
(including $80 million of short-term real estate financing) for approximately
195 clients and currently reviews approximately 100 potential asset-based
healthcare related financings each month.

Market Directly and Originate Independently of HCFP. In addition to
utilizing HCFP's marketing and origination capabilities, the Company directly
markets its services through employees of the Manager. Although recently
organized, the Manager has employed real estate investment and investment
management professionals who have an aggregate of over 60 years of experience in
the origination and management of various types of real estate related
investments in the healthcare industry. Through its direct marketing activities,
the Company expects to develop new and expanded relationships with owners and
operators of healthcare facilities which will produce referrals and inquiries
relating to potential investments by the Company. Approximately $54.3 million,
or 45.5%, of the Company's actual and probable investments at July 31, 1998 were
originated by the Manager on behalf of the Company.

Capitalize on Relationship with GMACCM. In May 1998, the Company entered
into a three year agreement (the "GMACCM Agreement") with GMACCM pursuant to
which the Company has a right of first refusal to purchase certain mortgage
loans secured by healthcare facilities which have a loan-to-value ("LTV") ratio
in excess of 80% and which GMACCM determines to sell. The maximum principal
amount of loans to which this right applies in any annual period under the
GMACCM Agreement is $100 million. As of July 31, 1998, the Company had purchased
$14.9 million in principal amount of mortgage loans from GMACCM. The Company
also entered into a Servicing Agreement with GMACCM with respect to all of the
mortgage payments pursuant to which GMACCM receives, holds and applies certain
deposits provided for under such mortgage loans. Although GMACCM has no formal
referral agreement with the Company, GMACCM is also a source of investment leads
for the Company. William E. Shine, the Executive Vice President for the
Healthcare Lending Group of GMACCM, is a member of the Board of Directors of the
Company. See "Management of the Company."

Invest in High Quality Assets. The Company will continue to leverage the
extensive underwriting experience of HCFP and the Manager as it seeks to invest
in healthcare facilities that are operated or managed by established operators
who present an appropriate credit risk. The Company thoroughly underwrites its
investments utilizing the expertise, processes and experience developed and
utilized by HCFP

2
<PAGE> 7

and its affiliates and selectively chooses its investments in compliance with
the Company's investment and operating policies (the "Policies"). See "Policies
with Respect to Certain Activities -- Investment Policies."

Provide Traditional and Innovative Financing. The Company intends to
continue its focus on the acquisition of equity interests in, and mortgages
secured by, skilled nursing facilities, assisted living facilities, medical
office buildings and hospitals, although the Company also pursues opportunities
in other types of healthcare facilities, such as mental health facilities,
outpatient facilities and other specialty healthcare facilities. The Company
offers a broad range of financing products designed to meet the needs of a
variety of potential borrowers and lessees of such facilities. The Company
believes that it is more flexible than most traditional real estate lenders in
its effort to provide solutions for the financing needs of its borrowers and
lessees and is willing to negotiate customized financing terms to fit the
particular needs of such borrowers and lessees. In addition, the Company has the
ability to offer units ("Partnership Units") in the Operating Partnership to
sellers of healthcare facilities who would otherwise recognize taxable gain upon
a sale of assets, which may facilitate purchase leaseback transactions on a tax
deferred basis. The Company believes that its flexible and innovative approach
produces a higher value-added component which should result in more advantageous
terms for the Company as well as for its borrowers and lessees.

Leverage Assets. The Company will borrow against or leverage its assets to
the extent consistent with the Policies in order to increase the size of its
portfolio and increase potential returns to the Company's stockholders. The
Company may engage in a variety of interest rate risk management techniques for
the purpose of managing the effective maturities and interest rates of its
assets.

Manage and Maintain Credit Quality of Portfolio. The Company will manage
and maintain the credit quality of its portfolio by: (i) conducting semi-annual
on-site audits; (ii) monitoring compliance with financial covenants; (iii)
assessing regulatory changes and compliance with clinical standards; (iv)
maintaining appropriate capital levels and allowances for credit losses; and (v)
maintaining regular contact with its borrowers and lessees regarding their
business activities. The Company believes that proactive portfolio management
will enable it to detect and manage potential credit deterioration within its
lending programs, to react promptly to circumstances that may impair the value
of equity investments and to assess and implement changes in its investment
programs to reflect economic and industry trends.

INVESTMENT PROGRAMS

Equity Investment Program. Investments under the Company's equity
investment program (the "Equity Investment Program") may include real estate
acquisitions in which the Company leases the acquired facility, such as a
medical office building, to various tenants, and purchase leaseback transactions
in which the Company acquires a facility and then leases such facility to the
seller or to a different operator under a long-term, triple net lease. These
investments involve all of the risks and benefits of ownership of real estate
and the Company seeks to make a return on such investments commensurate with the
risks involved. At July 31, 1998, the Company had 11 actual and probable
investments under its Equity Investment Program in an aggregate amount of $55.6
million. See "Portfolio."

Permanent Mortgage Loan Program. Mortgage loans under the Company's
permanent mortgage loan program (the "Permanent Mortgage Loan Program") are
issued to finance the acquisition or the refinancing of existing facilities and
are secured by a first mortgage on the facility. Such loans generally have a
ten-year term, bear interest at a fixed rate (providing, in certain
circumstances, for annual rate increases in a set amount or based upon a change
in the CPI), and require monthly installments of principal and interest. The
interest rate is based upon a number of factors including the loan-to-value
("LTV") ratio and debt service coverage ratio. Permanent mortgage loans are
generally underwritten by the Company with the expectation that such loans will
be eligible for leveraging under the Repurchase Facility and for future
securitization by the Company. Although the interest rate on permanent mortgage
loans generally is lower than that charged on other real estate secured debt,
because of the credit characteristics of such loans and because such loans may
be eligible for leveraging or securitization, the Company believes that it will
earn an appropriate risk adjusted return on such loans. At July 31, 1998, the
Company had seven actual and probable investments under its

3
<PAGE> 8

Permanent Mortgage Loan Program in an aggregate original principal amount of
$27.0 million. See "Portfolio."

Other Real Estate Secured Debt Program. Investments under the Company's
other real estate secured debt program (the "Other Real Estate Secured Debt
Program") may include construction and expansion loans, mezzanine loans, bridge
financings and other types of non-permanent real estate financing of healthcare
facilities. Construction and expansion loans may be provided to finance
construction of or an addition to (or renovation of) a facility. Such loans are
secured by a first mortgage on the facility to which the financing relates, and
in some instances by an assignment of licenses and subordination of management
contracts. Mezzanine loans are subordinated in right of payment to senior
mortgage loans and are secured by a second lien mortgage. Construction and
mezzanine loans generally entail greater risks than permanent mortgage loans and
therefore are priced to generate a higher yield to the Company. Bridge financing
is temporary financing secured by a first mortgage. The Company often obtains a
right of first refusal to provide a permanent mortgage loan to refinance bridge
financing provided by the Company. Investments under the Other Real Estate
Secured Debt Program may also include acquisition financing products such as
loans to provide capital to operators of multiple facilities to finance
acquisitions of additional facilities by such operators through lines of credit.
At July 31, 1998, the Company had nine actual and probable investments under its
Other Real Estate Secured Debt Program that, when fully funded, will aggregate
$36.8 million. See "Portfolio."

PORTFOLIO

As of July 31, 1998, the Company had made or expects to make the
investments described below. As indicated in such descriptions, certain of the
investments have not been funded in whole or in part and there can be no
assurance that any of such investments will be funded. See "Portfolio" for
additional information concerning such investments.

4
<PAGE> 9

ACTUAL AND PROBABLE INVESTMENTS
AS OF JULY 31, 1998

EQUITY INVESTMENT PROGRAM:
<TABLE>
<CAPTION>
APPROX.
YEAR PURCHASE RENTABLE
NUMBER BUILT/ TYPE OF PRICE TYPE OF SQUARE ANNUALIZED
NAME AND LOCATION OF BEDS RENOVATED FACILITY(1) ($ MILLIONS) INVESTMENT FEET RENT
- ----------------- ------- ----------- ----------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Colonial Manor Home of Crofton
Crofton, MD(2)................... 15 1995/N/A ALF (3) Purchase 7,100 $133,000
Leaseback
Colonial Manor Home of Bel-Air
Bel-Air, MD(2)................... 15 1996/N/A ALF (3) Purchase 8,600 $133,000
Leaseback
Colonial Manor Home of Severna Park
Severna Park, MD(2).............. 16 1997/N/A ALF (3) Purchase 7,100 $133,000
Leaseback
Sherman Oaks Medical Center
Sherman Oaks, CA(2).............. N/A 1953/1997 MOB $10.5 Real Estate 69,700 $1,310,000
Acquisition
Meadowood Nursing Home
South Hadley, MA(4).............. 120 1987/N/A SNF $ 6.8 Purchase 40,000 $645,000
Leaseback
Winslow Convalescent Center
Winslow, AZ(4)................... 120 Proposed SNF $ 4.0 Purchase N/A N/A
Leaseback
Gulf Health Care Center of
Galveston, TX(4)................. 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Gulf Health Care Center of Texas
City, TX(4)...................... 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Gulf Health Care Center of Port
Arthur, TX(4).................... 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Valencia Medical Center
Valencia, CA(4).................. N/A 1983/NA MOB $ 4.3 Real Estate 27,900 $552,000
Acquisition
Vista Village Shopping Center
Valencia, CA(4).................. N/A 1973,1979, Other $ 3.9 Real Estate 37,500 $461,000
1988/1985 Acquisition

<CAPTION>
ANNUALIZED REMAINING
RENT PER LIFE OF
LEASED ORIGINAL
SQUARE LEASE
NAME AND LOCATION FOOT (YEARS)
- ----------------- ---------- ---------
<S> <C> <C>
Colonial Manor Home of Crofton
Crofton, MD(2)................... $18.73 10
Colonial Manor Home of Bel-Air
Bel-Air, MD(2)................... $15.47 10
Colonial Manor Home of Severna Park
Severna Park, MD(2).............. $18.73 10
Sherman Oaks Medical Center
Sherman Oaks, CA(2).............. $18.79 3 (5)
Meadowood Nursing Home
South Hadley, MA(4).............. $16.13 10
Winslow Convalescent Center
Winslow, AZ(4)................... N/A N/A
Gulf Health Care Center of
Galveston, TX(4)................. $16.56 20
Gulf Health Care Center of Texas
City, TX(4)...................... $16.56 20
Gulf Health Care Center of Port
Arthur, TX(4).................... $16.56 20
Valencia Medical Center
Valencia, CA(4).................. $19.78 3.1
Vista Village Shopping Center
Valencia, CA(4).................. $12.29 4.1
</TABLE>

- ---------------

(1) Skilled nursing facilities ("SNFs") provide extended care and a variety of
acute-care healthcare facilities to the elderly. Assisted living facilities
("ALFs") provide a combination of housing, support services and healthcare
designed to respond to individual needs for daily living. Medical office
buildings ("MOBs") contain individual physician, physician group and other
healthcare provider offices for the administration and treatment of
patients. See "Business -- Investment Programs."
(2) Actual investment as of July 31, 1998.
(3) An aggregate purchase price of $3,750,000 was paid for all three facilities.
(4) Probable investment as of July 31, 1998.
(5) Weighted average remaining term (by rentable square feet).

5
<PAGE> 10

PERMANENT MORTGAGE LOAN PROGRAM:
<TABLE>
<CAPTION>

YEAR
NAME AND LOCATION NUMBER BUILT/ TYPE OF TYPE OF
NAME OF BORROWER OF FACILITY OF BEDS RENOVATED FACILITY INVESTMENT
- ---------------- --------------------------- ------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Applegate Lane, Inc.(1).................. St. Elizabeth Health Care 180 1970/N/A SNF Refinancing,
Center Renovation
East Hartford, CT and
Construction
Loan
Cromwell Crest Convalescent Home,
Inc.(1)................................ Cromwell Crest Convalescent 180 1986/N/A SNF Refinancing,
Center Renovation
Cromwell, CT and
Construction
Loan
JoJeff, Inc. and Alymatt, Inc.(1)........ Nova Gardens Assisted 40 1912/1995 ALF Acquisition
Living Community and
E. Lansdowne, PA Refinancing
Loan
Haskins Personal Care 22 1910/1960 ALF (3)
Center
Secane, PA
Waban Realty Trust
(J. Dennis Morgan, as Trustee)(1)...... Braeburn Nursing Home 84 1962/N/A SNF Acquisition
Newton, MA Loan
Pennswood Manor Assisted Living and
Healthcare Center, Inc.(1)............. Pennswood Manor 68 1968/1988, ALF Acquisition
Scranton, PA 1996 Loan
Mountainside Manor, Inc.(2).............. Mountainside Manor 96 1958/1993, ALF Acquisition
Wilkes-Barre, PA 1994,1997 Loan
Medicore, LLC(2)......................... Kingston Health Care Center 50 1960 SNF Acquisition
Kingston, OH Loan
Twin Oaks 42 1946/1996, SNF (4)
Living/Learning & Care 1997
Center
Mansfield, OH
Chenita Group Home 8 1900/1990 SNF (4)
Mansfield, OH
Whispering Oaks Care 60 1960/1995 SNF (4)
Center
Peshtigo, WI
</TABLE>
<TABLE>
<CAPTION>
TOTAL
AMOUNT AMOUNT
TO BE INVESTED
INVESTED TO DATE MATURITY
NAME OF BORROWER ($ MILLIONS) ($ MILLIONS) DATE
- ---------------- ------------ ------------- --------
<S> <C> <C> <C>
Applegate Lane, Inc.(1).................. $7.1 $7.1 2/20/08
Cromwell Crest Convalescent Home,
Inc.(1)................................ $7.8 $7.8 2/20/08
JoJeff, Inc. and Alymatt, Inc.(1)........ $2.0 $2.0 6/1/04
(3) (3) (3)
Waban Realty Trust
(J. Dennis Morgan, as Trustee)(1)...... $2.5 $2.5 7/1/08
Pennswood Manor Assisted Living and
Healthcare Center, Inc.(1)............. $1.7 $1.7 8/1/03
Mountainside Manor, Inc.(2).............. $2.3 None 5-year
term
Medicore, LLC(2)......................... $3.7 None 10-year
term
(4) (4) (4)
(4) (4) (4)
(4) (4) (4)
</TABLE>

- ---------------

(1) Actual investment as of July 31, 1998.
(2) Probable investment as of July 31, 1998.
(3) Included in data shown for Nova Gardens Assisted Living Community.
(4) Included in data shown for Kingston Health Care Center.

6
<PAGE> 11

OTHER REAL ESTATE SECURED DEBT PROGRAM:
<TABLE>
<CAPTION>
YEAR
NAME AND LOCATION NUMBER BUILT/ TYPE OF TYPE OF
NAME OF BORROWER OF FACILITY OF BEDS RENOVATED FACILITY INVESTMENT
- ---------------- -------------------- ------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C>
ACMC Friendswood, Inc.(1).......................... Park Place of 119 Proposed ALF Acquisition
Friendswood and
Friendswood, TX Construction
Loan
ALCO XII, LLC(1)................................... To-be-named facility 82 Proposed ALF Construction/Term
in Hattiesburg, MS Loan
Hildebran Health Investors, LLC(1)................. Cambridge House 60 Proposed ALF Construction/Term
Hildebran, NC Loan
St. Andrews Health Center, Inc.(1)................. Waterbury 120 1966/N/A SNF Acquisition
Convalescent Loan
Center
Waterbury, CT
Construction/Term
Loan
Transylvania Health Investors, LLC(1).............. Kingsbridge House 60 Proposed ALF Construction/Term
Brevard, NC Loan
Cedar Lawn
Investments, LLC(1).............................. Cedar Lawn 120 1966/1996 SNF Acquisition
Convalescent Loan
Center
Abington, VA
Lincolnton Health Investors, LLC(1)................ Lincolnton House 60 Proposed ALF Construction/Term
Lincolnton, NC Loan
Astoria Pines Holding Co., LLC(2).................. New York Center 280 Proposed SNF Mezzanine
for Rehabilitation Loan
Care
Queens, NY
Chancellor Health Services, LLC(2)................. Various SNFs N/A N/A SNFs Mezzanine
Loan

<CAPTION>
TOTAL AMOUNT AMOUNT
TO BE INVESTED INVESTED MATURITY
NAME OF BORROWER ($ MILLIONS) TO DATE DATE
- ---------------- -------------- ------------ --------
<S> <C> <C> <C>
ACMC Friendswood, Inc.(1).......................... $9.1 $ 925,000 10-year
term
ALCO XII, LLC(1)................................... $6.0 $ 498,000 6/10/03
Hildebran Health Investors, LLC(1)................. $1.9 $ 394,000 7/1/09
St. Andrews Health Center, Inc.(1)................. $2.6 $2,600,000 6/1/08
$2.0 $ 181,000 6/1/08
Transylvania Health Investors, LLC(1).............. $1.9 $ 328,000 7/1/09
Cedar Lawn
Investments, LLC(1).............................. $5.7 $5,700,000 7/20/00
Lincolnton Health Investors, LLC(1)................ $1.9 $ 715,000 8/1/09
Astoria Pines Holding Co., LLC(2).................. $2.2 None 4-year
term
Chancellor Health Services, LLC(2)................. $3.5 None 5-year
term
</TABLE>

- ---------------

(1) Actual investment as of July 31, 1998.
(2) Probable investment as of July 31, 1998.

7
<PAGE> 12

RISK FACTORS

An investment in the Offered Securities involves various risks, and
prospective investors should consider carefully the matters discussed under
"Risk Factors" beginning on page 16 prior to an investment in the Company. Such
risks include, among others, the following:

- The Company was formed in January 1998 and has limited operating
experience.

- The Company has contracted with the Manager to advise the Board of
Directors of the Company and direct the day-to-day business affairs of
the Company. The Company's success therefore substantially depends on the
experience and expertise of the Manager. The Manager is a newly organized
entity with limited management history.

- At July 31, 1998, only $119.4 million of the Company's investments had
been identified, and the Company will face significant competition in
making additional investments, which may adversely affect the Company's
ability to acquire assets that meet its investment objectives.

- The Company, HCFP and the Manager have common officers and directors,
which may present conflicts of interest in the Company's dealings with
the Manager, HCFP and their respective affiliates.

- A significant portion of the revenues of the Company's borrowers and
lessees are and will be dependent upon reimbursement from third-party
payors, including federal and state Medicare and Medicaid programs and
other government finance programs and private insurers. These programs
are highly regulated and subject to frequent and substantial changes
resulting from legislation, adoption of rules and regulations, and
administrative and judicial interpretations.

- Operators of healthcare facilities are subject to extensive federal,
state and local regulations relating to their operations and the failure
of the Company's borrowers or lessees to comply with such regulations
could adversely affect their ability to meet obligations to the Company.

- The possibility that the facilities in which the Company invests will not
generate income sufficient to meet operating expenses, will generate
income and capital appreciation, if any, at rates lower than those
anticipated or will yield returns lower than those available through
investments in comparable real estate or other investments are risks of
investing in real estate.

- Substantially all of the facilities in which the Company invests are and
will be "special purpose" properties that could not be readily converted
to general residential, retail or office use. Transfers of operations of
certain healthcare facilities are subject to regulatory approvals not
required for transfers of other types of commercial operations and other
types of real estate. Therefore, if the operation of any of the
facilities in which the Company invests becomes unprofitable due to
competition, age of improvements or other factors such that the borrower
or lessee becomes unable to meet its obligations on the debt or lease,
the liquidation value of the property may be substantially less than
would be the case if the property were readily adaptable to other uses.

- The yield on the Company's investments may be adversely affected by
changes in prevailing interest rates, rates of prepayment and credit
losses.

- In periods of declining interest rates, prepayments on mortgage loans
generally increase, and the Company likely will have to reinvest such
funds in lower-yielding investments. Conversely, in periods of rising
interest rates, prepayments on mortgage loans generally decrease and the
value of the Company's fixed-rate investments generally will decline.

- The Company makes mezzanine loans secured by subordinated mortgages and
construction loans. Such loans are considered to involve a higher degree
of risk than permanent mortgage loans secured by a first lien on
income-producing real property. The higher degree of risk results from a
variety of factors, including, in the case of construction loans,
dependency on successful completion and operation of the project for
repayment of loan, and, in the case of mezzanine loans, the fact that a
foreclosure by the holder of the senior loan could result in the
Company's inability to recover the full amount of its investment.

8
<PAGE> 13

- Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property or a secured lender may be liable
in certain circumstances for the costs of removal or remediation of
certain hazardous or toxic substances at, under, or disposed of in
connection with, such property, as well as certain other potential costs
relating to hazardous or toxic substances (including governmental fines
and damages for injuries to persons and adjacent property).

- Certain property and liability risks may be uninsurable or not
economically insurable and there can be no assurance the Company's
borrowers or lessees will have adequate funds to cover all contingencies
themselves. Should such an uninsured loss occur, the Company could lose
its invested capital.

- The organizational documents and investment guidelines of the Company and
the Operating Partnership do not expressly limit the amount of
indebtedness the Company or the Operating Partnership can incur. The
Company intends to leverage its investments in an amount to be determined
by the Manager and, ultimately, the Board of Directors. If borrowing
costs increase, or if the cash flow generated by the Company's assets
decreases, the Company's use of leverage will increase the likelihood
that the Company will experience reduced or negative cash flow and
reduced liquidity.

- The Company may be taxed as a regular corporation if it fails to qualify
as a REIT.

- In order to qualify as a REIT, the Company must satisfy certain
requirements concerning the nature of its assets and income, which may
restrict the Company's ability to invest in various types of assets.

- In order to maintain REIT status, the Company must distribute at least
95% of its taxable income each year, which could result in the Company
needing to sell assets or borrow money in order to satisfy this
requirement.

- Ownership of Common Stock by each stockholder is limited to 9.9% of the
outstanding Common Stock, which may deter third parties from seeking to
control or acquire the Company.

THE MANAGER AND HCFP

In managing the business and investment affairs of the Company, the Board
of Directors is advised by the Manager. The Board of Directors of the Company
consists of seven members, four of whom are unaffiliated with the Manager or
HCFP (the "Independent Directors").

The Manager assists the Board of Directors in the formulation of operating
strategies for the Company, advises the Company concerning investments, monitors
the performance of the Company's investments and provides certain administrative
and managerial services in connection with the operation of the Company. The
Manager currently employs a team of real estate investment and investment
management professionals who have an aggregate of over 60 years of experience in
the origination and management of various types of real estate related
investments in the healthcare industry.

Pursuant to the Management Agreement between the Company and the Manager
(the "Management Agreement"), the Manager may not, directly or through an
affiliate (including HCFP), invest in real estate or originate or acquire loans
secured by real estate which mature in more than three years. The Manager relies
on the employees and other resources of HCFP and its affiliates for much of its
operations, and the Company believes that it will continue to benefit from
HCFP's extensive knowledge of the healthcare industry and from HCFP's
relationships with its clients and other healthcare providers which are
potential borrowers and lessees of the Company.

In their marketing efforts on behalf of the Company, HCFP and its
affiliates recommend the Company as a source for the long-term real estate
financing needs of HCFP's clients. In addition, in an effort to meet all or
substantially all of the financing needs of potential borrowers or lessees, the
Company and HCFP may jointly market their respective financing products through:
(i) the officers and senior managers of HCFP; (ii) HCFP's internal staff of
seven marketing professionals who coordinate advertising in trade magazines and
attendance at trade shows and conferences; and (iii) HCFP's five telemarketers
who solicit clients directly. In addition, HCFP obtains referrals through its
network of professionals such as lawyers, accountants and venture

9
<PAGE> 14

capital firms, and, to a lesser extent, from paid brokers. Significant referral
sources of HCFP own Common Stock and therefore have an incentive to provide
referrals to the Company. Approximately $65.1 million, or 54.5%, of the
Company's actual and probable investments at July 31, 1998, resulted from leads
provided by HCFP.

In addition to the extensive marketing efforts of HCFP on behalf of the
Company, employees of the Manager engage in direct and indirect marketing
activities for the Company. Although recently organized, the Manager has
employed real estate investment and investment management professionals who have
an aggregate of over 60 years of experience in the origination and management of
various types of real estate related investments in the health care industry.
Marketing activities of the Manager on behalf of the Company include attendance
at trade shows and conferences, advertising in trade magazines and development
of referral sources similar to those utilized by HCFP. Approximately $54.3
million, or 45.5%, of the Company's actual and probable investments at July 31,
1998 were originated by officers of the Manager.

As a result of HCFP's market focus, lending experience and audit and
underwriting capabilities, the Company believes that HCFP is well positioned to
understand and assess financing issues unique to the healthcare industry,
including compliance with Medicare, Medicaid and other governmental regulations.
This understanding assists the Manager in evaluating and monitoring the credit
quality of the Company's borrowers and lessees. The personnel and services of
HCAC, which specializes in due diligence and audit services for HCFP and other
lenders, is also available to the Manager for the benefit of the Company. HCAC
currently employs 23 healthcare auditors who are trained in audit, financial
modeling and reimbursement processing. Consistent with the policies applicable
to clients of HCFP, to the extent possible, HCAC charges borrowers and lessees
of the Company for services provided by HCAC. The price for such services are
competitive with the price charged by other entities offering similar services.
HCAC will not charge the Company directly for any such services.

THE MANAGEMENT AGREEMENT

The Company and the Manager have entered into the Management Agreement
which has an initial term expiring on May 6, 2001 and allows for successive
extensions, each for a period not to exceed one year, by agreement between the
Company and the Manager. See "Management of Operations -- The Management
Agreement." The Management Agreement has been approved by the Independent
Directors, and any decision not to extend the term of the Management Agreement
will also require the approval of the Independent Directors.

For performing services under the Management Agreement, the Manager will
receive the following compensation, fees and other benefits (including
reimbursement of out-of-pocket expenses):

<TABLE>
<CAPTION>
RECIPIENT PAYOR AMOUNT
- --------- ----- ------
<S> <C> <C>
Manager Company Base management fee (the "Base Management Fee") equal to
1.50% per annum of the first $300 million of Average
Invested Assets, 1.25% of the next $300 million of Average
Invested Assets, 1.00% of the next $300 million of Average
Invested Assets, 0.75% of the next $300 million of Average
Invested Assets, and 0.50% of Average Invested Assets above
$1.20 billion.
Manager Company Incentive compensation (the "Incentive Compensation") based
on the amount, if any, by which the Company's Funds From
Operations and certain net gains exceed a hurdle rate. See
"Management of Operations -- The Management Agreement."
</TABLE>

10
<PAGE> 15

costs and expenses are not paid by the Company's borrowers and lessees. See
"Risk Factors -- Conflicts of Interests," "Conflicts of Interests" and
"Management of Operations."

CONFLICTS OF INTEREST

As a result of the Company's relationship with the Manager and HCFP, the
Company will be subject to various potential conflicts of interest. Although the
Company's Board of Directors includes four Independent Directors, the other
three directors and each of the executive officers of the Company also serve as
directors or executive officers of the Manager, and a number of the executive
officers are directors, executive officers and/or employees of HCFP and devote
substantial time to HCFP's business. The Manager receives a management fee for
services rendered to the Company. The Board of Directors may not terminate the
Management Agreement without cause before May 6, 2001. If the Management
Agreement is terminated or is not renewed thereafter, the Company is required to
pay a substantial termination or nonrenewal fee to the Manager, or to acquire
the Manager from HCFP for a substantial purchase price. These provisions may
adversely affect the Company's ability to terminate or elect not to renew the
Management Agreement without cause. See "Management of Operations -- The
Management Agreement."

The Company expects that it will from time to time provide permanent
mortgage loan financing to clients of HCFP which will be used to refinance
short-term real estate financing provided by HCFP. The Company and HCFP may also
make loans to the same borrower or to borrowers which are under common control.
Although the Company and HCFP have separate credit committees which review each
investment or financing transaction, such committees have common members.
Directors and officers of the Company who are also employed by or affiliated
with HCFP have fiduciary obligations to act in the best interest of the
stockholders of the Company. The Board of Directors has adopted policies with
respect to approval requirements for these and other transactions. In addition,
the Company's policies require the Company and HCFP to enter into an
intercreditor agreement in situations where loans of the Company and HCFP are
made to the same borrower and require the unanimous approval of the Independent
Directors who consider the matter (with the approval of at least three
Independent Directors being required) for any transaction other than certain
permanent mortgage loans which meet designated criteria established by the
Independent Directors involving the purchase or refinancing by the Company of
any investment originated and initially closed by HCFP or an affiliate of HCFP.
See "Policies with Respect to Certain Activities -- Policies with Respect to
Conflicts of Interest."

In order to increase the amount of its Incentive Compensation, the Manager
may place undue emphasis on the maximization of funds from operations at the
expense of other criteria, such as preservation of capital, which could result
in increased risk to the Company.

William E. Shine, a director of the Company, is an officer of GMACCM. The
Company expects to purchase mortgage loans from time to time from GMACCM
pursuant to the terms of the GMACCM Agreement. Pursuant to an agreement with the
Company, Joshua B. Gillon, a director of the Company, will be paid a finder's
fee of $50,000 by the Company for each full year the Repurchase Facility is in
effect, up to a maximum of $150,000. The Policies require Mr. Shine and Mr.
Gillon to abstain from voting as a member of the Board of Directors on any
matters relating to GMACCM or the Repurchase Facility, respectively. See
"Policies with Respect to Certain Activities -- Policies with Respect to
Interested Directors."

The Independent Directors have approved the execution of the Management
Agreement and the Policies. Although the Manager performs the day-to-day
operations of the Company, the Independent Directors review all transactions on
a quarterly basis to ensure compliance with the Policies. In such review and
approval, the Independent Directors are expected to rely primarily on
information provided by the Manager. See "Policies with Respect to Certain
Activities -- Policies with Respect to Conflicts of Interest."

PROPOSED INITIAL PUBLIC OFFERING

On August 7, 1998, the Company filed with the Commission a Registration
Statement under the Securities Act with respect to a proposed initial public
offering of Common Stock (the "Initial Public

11
<PAGE> 16

Offering"). The Company expects to raise approximately $ million,
before deduction of underwriting discounts and commissions and offering
expenses, in the Initial Public Offering (approximately $ million,
before deduction of underwriting discounts and commissions and offering
expenses, in the event the underwriters' over-allotment option is exercised in
full). The Company expects to use the net proceeds of the Initial Public
Offering to make investments in the Company's Equity Investment Program,
Permanent Mortgage Loan Program and Other Real Estate Security Debt Program.
There can be no assurance, however, that the Initial Public Offering will be
consummated or as to the amount of net proceeds which will be available to the
Company if the Initial Public Offering is consummated.

USE OF PROCEEDS

The Selling Securityholders will receive all of the net proceeds from the
sale of the Securities offered hereby. The Company will not receive any of such
proceeds.

DISTRIBUTION POLICY

The Company intends to make distributions to its stockholders of at least
95% of the Company's taxable income each year (subject to certain adjustments)
so as to qualify for the tax benefits accorded to REITs under the Code. The
Company intends to make distributions at least quarterly. It is anticipated that
the first distribution to stockholders will be made promptly after September 30,
1998. See "Distribution Policy."

TAX STATUS OF THE COMPANY

The Company intends to qualify and will elect to be taxed as a REIT under
sections 856 through 860 of the Code, commencing with its short first taxable
year ending December 31, 1998. If the Company qualifies for taxation as a REIT,
the Company generally will not be subject to federal corporate income tax on its
taxable income that is distributed to its stockholders. A REIT is subject to a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its annual taxable income. Although
the Company does not intend to request a ruling from the Internal Revenue
Service (the "Service") as to its REIT status, the Company has received an
opinion of Powell, Goldstein, Frazer & Murphy LLP that the Company will qualify
as a REIT, which opinion is based on certain assumptions and representations
about the Company's ongoing businesses, investment activities, and other
matters. No assurance can be given that the Company will be able to comply with
such assumptions and representations in the future. Furthermore, such opinion is
not binding on the Service or on any court. Failure to qualify as a REIT would
render the Company subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
distributions to the Company's stockholders would not be deductible but
generally would remain taxable to the Company's stockholders to the extent of
the Company's earnings. Even if the Company qualifies for taxation as a REIT,
the Company may be subject to certain federal, state, and local taxes on its
income and property. The Company's Bylaws provide for the Company's taxable year
to be the calendar year. In connection with the Company's election to be taxed
as a REIT, the Company's Charter imposes restrictions on the transfer and
ownership of its Common Stock. See "Risk Factors -- Legal and Tax
Risks -- Adverse Consequences of Failure to Maintain REIT Status May Include the
Company Being Subject to Taxation as a Regular Corporation" and "Federal Income
Tax Considerations -- Taxation of the Company."

12
<PAGE> 17

ORGANIZATION AND RELATIONSHIPS

The Company's assets may be owned in whole or in part by, and its
operations may be conducted through, the Operating Partnership and special
purpose limited liability companies and limited partnerships wholly-owned by the
Company and its affiliates. The Company is the sole general partner of the
Operating Partnership.

The Manager manages the day-to-day operations of the Company, subject to
the supervision of the Board of Directors. The relationship among the Company,
the Operating Partnership, the Manager, HCFP and its affiliates is depicted in
the organization chart shown below, which assumes completion of this Offering.

(ORGANIZATION CHART)
- ---------------

(1) HCFP owns 100,000 Units (representing an aggregate of 500,000 shares of
Common Stock and 100,000 Warrants) and 141,665 shares of Common Stock.
(2) HCFP Limited, Inc. (the "Initial Limited Partner") is a qualified REIT
subsidiary, wholly owned by the Company. The Initial Limited Partner holds a
99% limited partnership interest in the Operating Partnership, and the
Company holds a 1% general partnership interest in the Operating
Partnership.
(3) The Company may conduct all or part of its business, including the
acquisition of real estate and real estate related assets, through the
Operating Partnership.
(4) HCFP REIT Management, Inc. (the "Manager") is a wholly-owned subsidiary of
HCFP.
(5) The Company may, from time to time, form additional subsidiaries (such as
limited liability companies) for purposes of carrying out its investment
activities. The Company may also form additional limited partnerships, the
limited partnership interests in which would be exchangeable into shares of
Common Stock, for the purpose of enabling the Company to seek to acquire
real estate or interests therein from real estate owners on a tax deferred
basis in exchange for such limited partnership interests therein.

13
<PAGE> 18

SUMMARY FINANCIAL DATA

The following table sets forth selected historical and pro forma financial
data of the Company as of June 30, 1998 and for the period January 30, 1998
(inception) through June 30, 1998. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical and pro forma consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 30, 1998 (INCEPTION)
THROUGH JUNE 30, 1998
-----------------------------
HISTORICAL PRO FORMA
------------- -------------
<S> <C> <C>
STATEMENT OF INCOME DATA
Revenues:
Interest on cash and cash equivalents..................... $ 1,078,494 $ 1,042,446
Interest on mortgage notes receivable..................... 45,961 1,819,066
Rental income............................................. 70,678 2,453,003
------------ ------------
Total revenues..................................... 1,195,133 5,314,515
Expenses:
Management fee............................................ 237,923 868,521
Other..................................................... 99,139 656,918
Depreciation.............................................. 6,042 537,636
------------ ------------
Total expenses..................................... 343,104 2,063,075
------------ ------------
Net income.................................................. $ 852,029 $ 3,251,440
============ ============
Earnings per share.......................................... $ .24 $ .40
Weighted average shares outstanding......................... 3,494,297 8,055,555
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------
HISTORICAL PRO FORMA
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA
Income-producing real estate, net........................... $ 10,535,281 $ 50,092,562
Mortgage notes receivable, net.............................. 21,048,755 41,235,099
Cash and cash equivalents................................... 106,882,119 45,681,775
Other assets................................................ 497,289 1,954,008
------------ ------------
Total assets................................................ $138,963,444 $138,963,444
============ ============
Total liabilities........................................... $ 1,565,538 $ 1,565,538
Total stockholders' equity.................................. 137,397,906 137,397,906
------------ ------------
Total liabilities and stockholders' equity.................. $138,963,444 $138,963,444
============ ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 30, 1998
(INCEPTION)
THROUGH JUNE 30, 1998
---------------------------
HISTORICAL PRO FORMA
------------ ------------
<S> <C> <C>
OTHER OPERATING DATA
Cash flows provided by operating activities................. $ 2,205,135 $ 5,136,140
Cash flows used in investing activities..................... (31,868,893) (93,069,237)
Cash flows provided by financing activities................. 136,545,877 136,545,877
Funds from operations....................................... 858,071 3,789,076
</TABLE>

Industry analysts generally consider funds from operations ("FFO") to be an
appropriate measure of the performance of a REIT. The Company uses the concept
of FFO as defined in NAREIT's White Paper on Funds from Operations approved by
the Board of Governors of NAREIT in March 1995. The White Paper defines FFO as
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of properties, plus real estate
related depreciation and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that in order to facilitate a clear
understanding of the operating results of the Company, FFO should be examined in
conjunction with the Company's net income as presented in the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included elsewhere
herein. The Company computes FFO in accordance with standards established by
NAREIT which may not be comparable to FFO reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. FFO does
not represent cash generated from operating activities in accordance with GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.

14
<PAGE> 19

RISK FACTORS

An investment in the Offered Securities involves various risks. Before
purchasing any Offered Securities offered hereby, prospective investors should
consider carefully the information set forth below, in addition to the
information set forth elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; DEPENDENCE ON EXTERNAL MANAGEMENT

Uncertainty as to the Company's Ability to Successfully Implement Its
Operating Policies and Strategies Resulting from Its Limited Operating
History. The Company was organized in January 1998 and received funds to make
investments from the Private Placement on May 6, 1998. The Company therefore has
limited operating history and has not fully implemented its operating policies
and strategies. The Company is dependent upon the experience and expertise of
the Manager and the affiliates of the Manager in advising the Company and
administering its day-to-day operations.

The Company's Success Will Substantially Depend on the Services of External
Management. The Company has contracted with the Manager to advise the Board of
Directors and direct the day-to-day business affairs of the Company. The
Company's success, therefore, depends on the services of the Manager and its
officers and employees. Certain officers, directors and employees of the Company
and the Manager and its affiliates have experience in creating, evaluating,
acquiring and managing mortgage loans and real estate investments. However,
until joining the Manager, such officers, directors and employees had never
directly managed a REIT. Moreover, the Manager, a newly organized company, will
need to subcontract with third parties or with employees of HCFP and its
affiliates to provide certain services on behalf of the Company. There can be no
assurance that the Company and the Manager will be able to implement
successfully the strategies that the Company intends to pursue. Subject to the
Guidelines, the Manager has significant latitude as to the types of assets it
determines to be proper investments for the Company. No assurance can be made
that the Manager's decisions in this regard will result in a profit for the
Company. Moreover, certain of the Manager's personnel are employees of HCFP or
its affiliates, and accordingly the Company's success may depend in part on the
continuing ability of HCFP and its affiliates, including the Manager, to hire
and retain knowledgeable personnel and the Manager's ability to cause such
personnel to focus their attention to the affairs of the Company rather than the
affairs of HCFP and its affiliates. The ability of HCFP and its affiliates to
attract and retain such personnel may be affected, in turn, by HCFP's continued
financial strength. Finally, the Company is subject to the risk that the Manager
will terminate the Management Agreement and that no suitable replacement will be
found to manage the Company.

RISKS ASSOCIATED WITH THE HEALTHCARE INDUSTRY

Dependence On Reimbursement By Third-Party Payors. A substantial portion
of the revenue of the Company's borrowers and lessees are and will be dependent
upon reimbursement from third-party payors, including federal and state Medicaid
and Medicare programs and other government finance programs and private
insurers. These programs are highly regulated and subject to frequent and
substantial changes resulting from legislative, regulative and judicial
developments. Any reduction in Medicare or Medicaid rates could have an adverse
impact on the Company's borrowers and lessee. The revenues of the Company's
borrowers and lessees will also be affected by the continuing efforts of
third-party payors to contain or reduce the costs of healthcare by lowering
reimbursement rates, increasing case management review of services, negotiating
reduced contract pricing and shifting the risk of adequate funding to the
facilities by capitated plans and other devices. Changes in the mix of patients
of the Company's borrowers and lessees among the Medicaid, Medicare and private
pay categories, and among different types of private pay sources, can
significantly affect the revenues of the operations of such borrowers and
lessees. Any changes in reimbursement levels under Medicaid, Medicare or private
payor programs and any changes in applicable government regulations could
adversely affect the borrowers and the lessees and, therefore, the profitability
of the Company.

Failure by the Company's Borrowers or Lessees to Comply with Applicable
Government Regulations Could Adversely Affect their Ability to Meet Their
Obligations to the Company. Both the Medicaid and Medicare programs contain
specific requirements which must be adhered to at all times by healthcare

15
<PAGE> 20

facilities in order to qualify under the programs. These conditions of
participation are very detailed and demanding. Failure to adhere to these
conditions and requirements may result in borrowers and lessees of the Company
losing Medicaid and Medicare reimbursement.

The Medicaid and Medicare programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy, intermediary
determinations and governmental funding restrictions, all of which may
materially increase or decrease program reimbursement to healthcare facilities.
No assurance can be given that the future funding of such programs will remain
at levels comparable to the present levels.

In addition to the requirements to be met by healthcare facilities for
participation in the Medicaid and Medicare programs, the Company's borrowers and
lessees are and will be subject to regulatory and licensing requirements of
state and local authorities. Each healthcare facility is inspected and licensed
on a regular schedule by the licensing agency in each state. In granting and
renewing licenses, a licensing agency considers, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facility. Local
agencies may also have a role inspecting and enforcing such requirements. State
licensing of healthcare facilities is a prerequisite to certification under
Medicaid and Medicare programs.

The United States government and states in which the Company may own
facilities or in which its borrowers or lessees may operate facilities regulate
various aspects of the Company's business. Various federal and state laws
regulate relationships among providers of services to the healthcare industry,
including employment or service contracts and investment relationships. The
operation of healthcare facilities and the provision of healthcare services are
also subject to extensive federal, state and local laws relating to, among other
things, the adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel, operating policies, environmental compliance, compliance
with the Americans with Disabilities Act of 1990 ("ADA"), fire prevention and
compliance with building codes. The failure of its borrowers or lessees to
obtain or renew any required regulatory approvals or licenses could adversely
affect the Company's growth. In addition, healthcare is an area of extensive and
frequent regulatory change. Changes in the laws or new interpretations of
existing laws can have a significant effect on methods and costs of doing
business and amounts of payments received from governmental and other payors.
The Company could be adversely affected by, among other things, regulatory
developments such as mandatory increases in the scope and quality of care to be
afforded patients and revisions in licensing and certification standards.

Government at both the federal and state levels has continued in its
efforts to reduce, or at least limit the growth of, spending for healthcare
services. On August 5, 1997, President Clinton signed into law The Balanced
Budget Act of 1997 (the "BBA") which contains numerous Medicare and Medicaid
cost-saving measures. The BBA has been projected to save $115 billion in
Medicare spending over the next five years, and $13 billion in the Medicaid
program. Section 4711 of the BBA, entitled "Flexibility in Payment Methods for
Hospital, Nursing Facility, ICF/MR, and Home Health Services," repealed the
Boren Amendment, which had required that state Medicaid programs pay to nursing
home providers amounts reasonable and adequate to meet the costs which must be
incurred by efficiently and economically operated facilities in order to provide
care and services in conformity with applicable state and federal laws,
regulations and quality and safety standards and to assure access to hospital
services. The Boren Amendment was previously the foundation of litigation by
healthcare facilities seeking rate increases. In place of the Boren Amendment,
the BBA requires only that, for services and items furnished on or after October
1, 1997, a state Medicaid program must provide for a public process for
determination of Medicaid rates of payment for nursing facility services, under
which proposed rates, the methodologies underlying the establishment of such
rates, and justification for the proposed rates are published, and which gives
providers, beneficiaries and other concerned state residents a reasonable
opportunity for review and comment on the proposed rates, methodologies and
justifications. States are actively seeking ways to reduce Medicaid spending for
healthcare by such methods as capitated payments and substantial reductions in
reimbursement rates.

The BBA also requires that nursing homes transition to a prospective
payment system under the Medicare program during a three-year "transition
period" commencing with the first cost reporting period beginning on or after
July 1, 1998. The BBA also contains several new antifraud provisions. Given the
recent

16
<PAGE> 21

enactment of the BBA, the Company is unable to predict the impact of the BBA and
potential changes in state Medicaid reimbursement methodologies on the revenues
of operators of facilities; however, any significant reduction in either
Medicare or Medicaid payments could adversely affect such operators and
therefore the profitability of the Company.

Various state and federal laws also regulate the relationships between
providers of healthcare services, physicians and other clinicians. These laws
impose restrictions and impose monetary penalties on physicians who make
referrals for designated health services to entities with which they have
financial relationships. These laws also prohibit healthcare fraud in the form
of the offering, payment, solicitation or receipt of any form of remuneration in
return for the referral of Medicare or state healthcare program patients or
patient care opportunities. There can be no assurance that the operations of the
Company's borrowers or lessees will not be subject to review, scrutiny,
penalties or civil and criminal enforcement actions under these laws, or that
these laws will not change in the future. Violations of these laws may result in
substantial civil or criminal penalties for individuals or entities, including
large civil monetary penalties and exclusion from participation in the Medicare
or Medicaid programs. Such exclusions or penalties, if applied to the Company's
borrowers or lessees, could have an adverse effect on the profitability of the
Company.

The BBA and the Health Insurance Portability and Accountability Act of 1996
both expanded enforcement efforts designed to prevent healthcare fraud. Funding
for enforcement activities has been increased, and many state and federal
agencies have increased their enforcement activities. These activities can
result in triple damage claims and penalties as high as $50,000 per fraudulent
claim. Increased enforcement activities can, therefore, result in potentially
significant financial impact on the Company's borrowers and lessees should they
engage in fraudulent activities.

Changes in certification and participation requirements of the Medicare and
Medicaid programs have restricted, and are likely to continue to restrict
further, eligibility for reimbursement under those programs. Programs demanding
that providers accept discounted fees or assume all or a portion of the
financial risk for the delivery of healthcare services are being implemented by
private payors, including managed care payors. Such measures may include
capitated payments whereby the provider is responsible for providing, for a
fixed fee, all services needed by certain patients. Capitated payments can
result in significant losses to the provider if patients require expensive
treatment not adequately covered by the capitated rate. Efforts to impose
reduced payments, greater discounts and more stringent cost controls by
government and other payors are expected to continue. Any reforms that
significantly limit rates of reimbursement under the Medicare or Medicaid
programs, could have a material adverse effect on the revenues of the Company's
borrowers and lessees and, therefore, on the Company's profitability. The
Company is unable to predict what reform proposals or reimbursement limitations
will be adopted in the future or the effect such changes will have on its
operations. No assurance can be given that such reforms will not have a material
adverse effect on the Company.

Many states have adopted certificate of need ("CON") or similar laws that
generally require that a state agency approve certain acquisitions and determine
that a need exists for certain new services, the addition of beds and capital
expenditures or other changes. To the extent that CON or other similar approvals
are required for expansion of Facilities owned by the Company or operated by its
borrowers or lessees, either through facility acquisitions or expansion or
provision of new services or other changes, such expansion could be adversely
affected by the failure or inability to obtain the necessary approvals, changes
in standards applicable to such approvals and possible delays and expenses
associated with obtaining such approvals. CON laws are also subject to being
repealed or modified which could increase competition by lowering competitors'
barriers to enter certain markets.

REAL ESTATE INVESTMENT RISKS

Appropriate Investments May Not Be Available. As of July 31, 1998, only
approximately $119.4 million of the Company's investments had been identified.
See "Portfolio." There can be no assurance that the Company will identify
mortgage loans or real property investments that meet its investment criteria or
that any such assets will produce a return on the Company's investments.
Moreover, the Company and the Manager have broad investment discretion and may
change the current investment and operating policies of the

17
<PAGE> 22

Company without a vote of the stockholders. Such deviations from current
policies might expose the Company to increased risks of loss or liability, which
could affect adversely the Company or the market price of the Securities.

Significant Competition May Adversely Affect the Company's Ability to
Acquire Assets at Favorable Spreads Relative to Borrowing Costs. The Company
will engage in a business that may become increasingly competitive in the future
as more people enter the market, which may affect adversely the Company's
ability to achieve its investment objectives. In making investments, the Company
will compete with numerous financing sources, including other REITs, investment
banking firms, savings and loan associations, banks, mortgage bankers, insurance
companies, mutual funds and other lenders, and other entities purchasing similar
assets, many of which have established operating histories and procedures, may
have greater access to capital and other resources and may have other advantages
over the Company in conducting certain businesses and providing certain
services. There are several REITs similar to the Company and others may be
organized in the future. The effect of the existence of additional REITs may be
to increase competition for the available supply of investments contemplated to
be made by the Company. The Company's net income will depend, in large part, on
the Company's ability to acquire and originate investments having yields that
produce favorable spreads over the Company's borrowing costs. Increased
competition for the acquisition and origination of mortgage loans and purchase
leaseback transactions involving healthcare facilities or a reduction in the
available supply could result in higher prices and thus lower yields on such
investments, which could narrow (or make negative) the yield spread relative to
the Company's borrowing costs. There can be no assurance that the Company will
be able to make significant investments at favorable spreads relative to the
Company's borrowing costs to achieve the Company's objectives.

Volatility of Value of Real Estate Could Adversely Affect Value of the
Company's Investments. Real property investments in the healthcare industry are
subject to varying degrees of risk. The economic performance and values of
healthcare real estate can be affected by many factors including governmental
regulation, economic conditions and demand for healthcare services. There can be
no assurance that the value of any property acquired by the Company will
appreciate or that the value of property securing any of the Company's mortgage
loans or any property acquired by the Company will not depreciate.

Volatility of Income and Returns Could Adversely Affect Yield on the
Company's Investments. The possibility that facilities in which the Company
invests will not generate income sufficient to meet operating expenses, will
generate income and capital appreciation, if any, at rates lower than those
anticipated or will yield returns lower than those available through investments
in comparable real estate or other investments are risks of investing in real
estate. Income from such properties and yields from investments in such
properties may be affected by many factors, including the existence of and
changes in governmental regulations (such as zoning laws), general or local
economic conditions (such as fluctuations in interest rates and employment
conditions), the existence of competing facilities, a reduction in rental income
as the result of an inability to maintain occupancy levels, natural disasters or
similar factors.

Interest Rate Changes and Prepayments May Adversely Affect the Value of the
Company's Investments. The value of the Company's mortgage loans will be
affected by the prepayment rates on such mortgage loans. Although the mortgage
loans will generally provide for lock-out periods and prepayment penalties that
reduce this risk, no assurance can be made that prepayment penalties will deter
prepayments. Prepayment rates on mortgage loans are influenced by changes in
current interest rates and a variety of economic, geographic and other factors
and cannot be predicted with certainty. In periods of declining mortgage
interest rates, prepayments on mortgage loans generally increase. If general
interest rates also decline, the funds available for reinvestment by the Company
during such periods are likely to be reinvested at lower interest rates than the
Company was earning on the mortgage loans that were prepaid. Mortgage loans may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed-income securities from declining interest rates because of
the risk of prepayment. In general, changes in both interest rates and
prepayment rates will affect the total return on the Company's mortgage loans,
which in turn will affect the amount available for distribution to the Company's
stockholders. Under certain interest rate and prepayment rate scenarios, the
Company may not recover fully its investment in such assets.

18
<PAGE> 23

Illiquidity of Real Estate Investments Could Adversely Affect the Company's
Ability to Liquidate Investments. Real estate investments are relatively
illiquid and, therefore, tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. All
of the healthcare facilities in which the Company will invest are and will be
"special purpose" properties that could not be readily converted to general
residential, retail or office use. Transfers of operations of healthcare
facilities are often subject to regulatory approvals not required for transfers
of other types of commercial operations and other types of real estate.
Therefore, if the operation of such facilities becomes unprofitable due to
competition, age of improvements or other factors such that the borrower or
lessee becomes unable to meet its obligation on the debt or lease, the
liquidation value of such facility may be substantially less than would be the
case if it were readily adaptable to other uses. The receipt of liquidation
proceeds could be delayed by the approval process of any state agency necessary
for the transfer of the property. In addition, certain significant expenditures
associated with real estate investment (such as real estate taxes and
maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investment. Should such event occur, the Company's
income and funds available for distribution would be adversely affected.

Uninsured Loss Could Adversely Affect the Company's Financial
Condition. The Company currently requires, and it is the intention of the
Company to continue to require, all borrowers and lessees to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the borrower and/or lessee. Certain risks may, however, be uninsurable or not
economically insurable and there can be no assurance the Company or a borrower
or lessee will have adequate funds to cover all contingencies itself. Should
such an uninsured loss occur, the Company could lose its invested capital.

Dependence on Lease Income and Mortgage Payments from Real Property.
Since a substantial portion of the Company's income will be derived from
mortgage payments and lease income from real property, the Company's income
would be adversely affected if a significant number of the Company's borrowers
or lessees were unable to meet their obligations to the Company or if the
Company were unable to lease its properties or make mortgage loans on
economically favorable terms.

Liability for Environmental Matters Could Adversely Affect the Company's
Financial Condition. Under various federal, state and local environmental laws,
ordinances and regulations, an owner of real property or a secured lender may be
liable in certain circumstances for the costs of removal or remediation of
certain hazardous or toxic substances at, under or disposed of in connection
with such property, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and damages for
injuries to persons and adjacent property). Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence or disposal of such substances and may be imposed on the owner in
connection with the activities of an operator of the property or a third party.
The cost of any required remediation, removal, fines or personal or property
damages could be substantial and the owner's liability, therefore, could exceed
the value of the property and/or the assets of the owner. In addition, the
presence of such substances, or the failure to properly dispose of or remediate
such substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn, would
reduce the Company's revenues. Although it is the Company's policy to require an
acceptable Phase I environmental survey for all real property in which it
invests, such surveys are limited in scope and there can be no assurance that
are no hazardous or toxic substances on such property. In addition, although the
Company's mortgage loans and leases require the borrower and the lessee to
indemnify the Company for certain environmental liabilities, the scope of such
obligations may be limited and there can be no assurance that any such borrower
or lessee would be able to fulfill its indemnification obligations.

Construction and Mezzanine Loans Involve Greater Risks of Loss than Loans
Secured by Income Producing Properties. The Company has made construction loans
and mezzanine loans secured by subordinated mortgages. At July 31, 1998,
approximately 23.8% of the Company's actual and probable investments consisted
of construction and mezzanine loans. Construction loans and mezzanine loans are
considered to involve a higher degree of risk than term conventional mortgage
lending secured by income-producing real property. This is because of a variety
of factors, including, in the case of construction loans, dependency on
successful completion and operation of the project for repayment, difficulties
in estimating construction or rehabilitation costs and loan terms that often
require little or no amortization, providing instead for additional

19
<PAGE> 24

advances to be made and for a balloon payment at a stated maturity date. In
addition, construction loans are subject to the risk that construction and
renovation may not be completed on schedule or within budget, resulting in
increased debt service expense and delays in leasing and cash flow generation,
and risks relating to the inability to obtain, or delays in obtaining, necessary
zoning, occupancy and other required governmental permits and authorizations. To
the extent that new or renovated properties perform below anticipated levels,
reduced cash flow will be produced. In the case of mezzanine loans, the factors
include, among other things, that a foreclosure by the holder of the senior loan
could result in the Company's inability to recover the full amount, or indeed
any, of its investment in such mezzanine loan. The occurrence of one or more of
the foregoing in connection with the Company's construction and mezzanine loans
could have an adverse effect on the Company's financial condition, results of
operations and cash flow.

Adverse Changes in General Economic Conditions Can Adversely Affect the
Company's Business. The Company's success is dependent upon the general
economic conditions in the geographic areas in which a substantial number of its
investments are located. Adverse changes in national economic conditions or in
the economic conditions of the regions in which the Company conducts substantial
business would likely have an adverse effect on real estate values, interest
rates and, accordingly, the Company's business, income and ability to make
distributions to its stockholders. The general economic conditions in the
geographic areas in which the Company's investments are located will be beyond
the control of the Company.

One Action Rules May Limit the Company's Rights Following
Defaults. Several states have laws that prohibit more than one "judicial
action" to enforce a mortgage obligation, and some courts have construed the
term "judicial action" broadly. The mortgagee may be required to foreclose first
on properties located in states where such "one action" rules apply (and when
non-judicial foreclosure is permitted) before foreclosing on properties located
in states where judicial foreclosure is the only permitted method of
foreclosure.

FINANCING RISKS

Maturity Mismatch between Asset Maturities and Borrowing Maturities May
Adversely Affect the Company's Net Income. The Company's anticipated use of
short-term borrowings under the Repurchase Facility to acquire long term assets,
including mortgage loans, may expose the Company to a maturity mismatch. As a
consequence, in periods of rising interest rates the Company's borrowing costs
could exceed the income earned on the Company's assets acquired with the
borrowed funds, thereby reducing the Company's income and ability to make
distributions to its stockholders.

Interest Rate Mismatch between Asset Yields and Borrowing Rates May
Adversely Affect the Company's Net Income. The Company's borrowings may be at
interest rates based on indexes and repricing terms similar to, but of somewhat
shorter maturities than, the interest rate indexes and repricing terms of
various of the Company's variable rate assets. While the historical spread
between relevant short-term interest rate indexes has been relatively stable,
there have been periods, such as the 1979 through 1982 high interest rate
environment, when the spread between those indexes was volatile. Further,
certain of the Company's assets will bear fixed rates of interest and have long
term maturities. There can be no assurance that such fixed rates of interest
will exceed the variable rates of interest on related borrowings. Interest rate
mismatches could impact the Company's financial condition in a material way, and
affect adversely the Company's income and ability to make distributions to its
stockholders, dividend yield and the market price of the Common Stock. See
"-- Leverage Can Reduce Income Available for Distribution and Cause Losses" and
"-- The Company May Not Be Able to Borrow Money on Favorable Terms."

The Company's Performance May Be Adversely Affected if Its Hedging Strategy
Is Not Successful. The Company may, from time to time, enter into hedging
transactions in an effort to protect itself from interest rate and prepayment
rate fluctuations. There can be no assurance that the Company will enter into
hedging activities or that, if entered into, such activities will have the
desired beneficial impact on the Company's results of operations or financial
condition. Moreover, no hedging activity can completely insulate the Company
from the risks associated with changes in interest rates and prepayment rates.
Hedging involves risks and typically involves costs, including transaction
costs. Such costs increase dramatically as the period covered by the hedging
increases and during periods of rising and volatile interest rates. The Company
may increase its

20
<PAGE> 25

hedging activity and, thus, increase its hedging costs during such periods when
interest rates are volatile or rising and hedging costs have increased. The
Company intends generally to hedge as much of the interest rate risk as the
Manager determines is in the best interests of the stockholders of the Company
given the cost of such hedging transactions and the need to maintain the
Company's status as a REIT. See "Federal Income Tax
Considerations -- Requirements for Qualification -- Income Tests."

Leverage Can Reduce Income Available for Distribution and Cause Losses.
The Company's Charter and Bylaws do not limit the amount of indebtedness the
Company can incur. The Company intends to leverage its assets through
securitizations and other borrowings, including the Repurchase Facility. The
Company will leverage its assets only when it expects that such leverage will
enhance returns, although there can be no assurance that the Company's use of
leverage will prove to be beneficial. In addition, the Repurchase Facility is
expected to impose maximum leverage limitations on the Company. The extent to
which the Company uses leverage will be determined by the Manager pursuant to
the Policies and ultimately, by the Board of Directors, who may act at any time
without the approval of or notice to the stockholders. The percentage of
leverage used will vary depending on, among other things, the Company's estimate
of the cash flow that its assets will generate, and the stability of that cash
flow. Leverage can reduce the cash flow available for distributions to
stockholders. Moreover, there can be no assurance that the Company will be able
to meet its debt service obligations resulting from leverage and, to the extent
that it cannot, the Company risks the loss of some or all of its assets. If the
returns on the mortgage loans purchased with funds under the Repurchase Facility
fail to cover the cost of such borrowings, the Company will experience net
interest losses and may experience net losses.

The Company May Not Be Able to Borrow Money on Favorable Terms. The
ability of the Company to achieve its investment objectives through leverage
will depend on the Company's ability to borrow money on favorable terms and on
its ability to renew or replace its maturing borrowings on a continuing basis.
Although the Company expects to be able to enter into and renew the Repurchase
Facility or to find alternative sources to borrow money on favorable terms,
there can be no assurance that the Company will be able to do so. Under the
Repurchase Facility, MLMCI will not be obligated to purchase any specific amount
of loans or to purchase loans at any particular discount to face value. In the
event that MLMCI declines to purchase loans at a discount acceptable to the
Company, the Company will be required to seek alternative sources of debt,
securitization or equity financing for a portion of its portfolio. There can be
no assurance that such financing will be available at all or on terms which
would not have an adverse effect on the Company's net income. It is anticipated
that a majority of the loans eligible for the Repurchase Facility will be
generated under the Company's Permanent Mortgage Loan Program. These loans have
relatively lower yields than the Company's other investments. To the extent that
such loans are ultimately funded with equity because of the failure of MLMCI to
purchase such loans, the Company's overall net interest spread could decline.

CONFLICTS OF INTEREST

The Company is subject to various potential conflicts of interests arising
from its relationship with the Manager and its affiliates. The Company has
adopted certain procedures to resolve any conflicts which arise. See "Conflicts
of Interest." There is no assurance that these procedures will be effective or
will not be changed, or that conflicts will be resolved in the best interests of
the Company and its stockholders. Any failure to so resolve conflicts could have
a material adverse effect on the Company's financial condition and ability to
make distributions to stockholders.

Potential conflicts include the following:

Takeout Financing and Loans to Common Borrowers. The Company expects
that it will from time to time provide permanent mortgage loan financing to
clients of HCFP which will be used to refinance short-term real estate
financing provided by HCFP. The Company and HCFP may also make loans to the
same borrower or to borrowers which are under common control. Although the
Company and HCFP have separate credit committees which will review each
investment or financing transaction, such committees have common members.
Directors and officers of the Company who are also employed by or
affiliated with HCFP have fiduciary obligations to act in the best interest
of the stockholders of the

21
<PAGE> 26

Company. In addition, the Company's policies require the Company and HCFP
to enter into an intercreditor agreement in situations where loans by the
Company and HCFP are made to the same borrower and require the unanimous
approval of the Independent Directors who consider the matter (with the
approval of at least three Independent Directors being required) for any
transaction other than certain permanent mortgage loans meeting certain
designated criteria established by the Independent Directors involving the
purchase or refinancing by the Company of any investment originated and
initially closed by HCFP or an affiliate of HCFP. See "Policies with
Respect to Certain Activities -- Policies with Respect to Conflicts of
Interest."

Competition for Management Time. Certain officers and directors of
each of the Manager and the Company currently are engaged in other
businesses, including HCFP. They will devote only so much of their time to
the business of the Company as they, in their judgment, determine is
reasonably required, which will be substantially less than full-time. These
officers and directors may experience conflicts of interest in allocating
management time, services and functions among the Company, the Manager and
HCFP.

Compensation of the Manager. In order to increase the amount of its
Incentive Compensation, the Manager may place undue emphasis on the
maximization of Funds From Operations at the expense of other criteria,
such as preservation of capital, which could result in increased risk to
the Company.

Termination of Management Agreement. The Management Agreement was
unanimously approved by the Independent Directors. The renewal of the
Management Agreement after the initial three-year term will require the
affirmative vote of a majority of the Independent Directors, and a majority
of the Independent Directors may terminate the Management Agreement at any
time after May 6, 2001 upon 90 days' notice. However, the Company will be
required to pay a substantial termination or nonrenewal fee to HCFP, or to
acquire the Manager from HCFP for a substantial purchase price, prior to
termination or nonrenewal of the Management Agreement without cause. See
"Management of Operations -- The Management Agreement." This requirement
may adversely affect the Company's ability to terminate or elect not to
renew the Management Agreement without cause.

Interested Director Transactions. William E. Shine, a director of the
Company, is an officer of GMACCM. The Company expects to purchase mortgage
loans from time to time from GMACCM pursuant to the GMACCM Agreement.
Pursuant to an agreement with the Company, Joshua B. Gillon, a director of
the Company, will be paid a finder's fee of $50,000 by the Company for each
full year the Repurchase Facility is in effect, up to a maximum of
$150,000. The Policies require Mr. Shine and Mr. Gillon to abstain from
voting as a member of the Board of Directors on any matters relating to
GMACCM or the Repurchase Facility, respectively. See "Policies with Respect
to Certain Activities -- Policies with Respect to Interested Directors."

Independent Directors Will Not Participate in Day-To-Day
Operations. Although the Management Agreement has been approved by the
Independent Directors, daily interactions between the Company and the
Manager and a majority of its affiliates are not required to be approved by
a majority of the Independent Directors. Instead, the Manager conducts the
day-to-day operations of the Company in accordance with the Policies that
were unanimously approved by a majority of the Independent Directors. On a
quarterly basis, the Independent Directors review transactions engaged in
by the Company to monitor compliance with the Policies and will review the
Policies at least annually. Investors should be aware that, in conducting
this review, the Independent Directors are expected to rely primarily on
information provided to them by the Manager.

LEGAL AND TAX RISKS

Adverse Consequences of Failure to Maintain REIT Status May Include the
Company Being Subject to Taxation as a Regular Corporation. The Company intends
to operate in a manner so as to qualify as a REIT for federal income tax
purposes. A REIT that satisfies all REIT qualification tests generally is exempt
from federal taxation on its income with certain limited exceptions. Although
the Company does not intend to request a ruling from the Service as to its REIT
status, the Company has received an opinion of its legal

22
<PAGE> 27

counsel to the effect that the Company is organized in conformity with the
requirements for qualification as a REIT and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a
REIT. See "Federal Income Tax Considerations -- Taxation of the Company." Such
legal opinion, however, is based on certain assumptions and factual
representations by the Company regarding the Company's business and assets and
the Company's ability to meet various requirements for qualification as a REIT,
and no assurance can be given that actual operating results will meet these
requirements. In addition, investors should be aware that opinions of counsel
are not binding on the Service or any court. The REIT qualification opinion only
represents the view of counsel as to the status of the Company based on
counsel's review and analysis of existing law. Furthermore, both the validity of
the opinion and the continued qualification of the Company as a REIT will depend
on the Company's satisfaction of certain asset, income, organizational,
distribution, and stockholder ownership requirements on a continuing basis. If
the Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to federal income tax (including any applicable alternative
minimum tax) on all of its taxable income at regular corporate rates, and
distributions to stockholders would not be deductible by the Company in
computing its taxable income but generally would remain taxable to the
stockholders to the extent of the Company's earnings. Any such corporate tax
liability could be substantial and would reduce the amount of cash available for
distribution to stockholders, which in turn could have an adverse impact on the
value of, and trading prices for, the Securities. Unless entitled to relief
under certain Code provisions, the Company also would be disqualified from
taxation as a REIT for the four taxable years following the year during which
the Company ceased to qualify as a REIT.

The Company must distribute annually at least 95% of its taxable income
including income from foreclosure property net of any tax imposed on such
property, (but excluding any net capital gain and excess net income) in order to
avoid corporate income taxation of the earnings that it distributes. In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of (i) 85% of its ordinary income for that
year, (ii) 95% of its net capital gain for that year and (iii) 100% of its
undistributed taxable income from prior years.

The Company intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
However, there may be differences in timing between the recognition of taxable
income and the actual receipt of cash, requiring the Company to borrow funds,
issue capital stock or sell assets on a short-term basis to meet the 95%
distribution requirement and to avoid the nondeductible excise tax. The
requirement to distribute a substantial portion of the Company's taxable income
could cause the Company (i) to sell assets in adverse market conditions, (ii) to
distribute amounts that represent a return of capital, or (iii) to distribute
amounts that would otherwise be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt. Gain from disposition of any assets
sold to provide adequate funds to meet the distributions requirement could
subject the Company to the 100% tax on the net income from prohibited
transactions. See "Federal Income Tax Considerations -- Requirements for
Qualification -- Income Tests."

In addition, in order to qualify as a REIT, the Company must satisfy
certain requirements concerning the nature of its assets and income, which may
restrict the Company's ability to invest in various types of assets. See
"Federal Income Tax Considerations -- Requirements for Qualification -- Asset
Tests." Without limiting the generality of the foregoing, the Company will not
be able to acquire securities (other than securities which are treated as an
interest in real property) of any single issuer which would represent either
more than 5% of the total value of the Company's assets or 10% of the voting
securities of such issuer. In addition, in order to satisfy the income
requirements of a REIT, the Company generally will be restricted to acquiring
assets which generate qualifying income for purposes of certain income tests.
See "Federal Income Tax Considerations Requirements for Qualification -- Income
Tests." These restrictions could affect adversely the Company's ability to
optimize its portfolio of assets.

The Company may acquire at less than their face amount mortgage loans and
other debt obligations that are deemed to have market discount for federal
income tax purposes, which generally is equal to the excess of an obligation's
redemption price over the holder's basis in the obligation at the time of
acquisition. All or a

23
<PAGE> 28

portion of the gain recognized by the Company from the disposition of, or
principal payments on, an obligation which has market discount would be treated
as ordinary income and not capital gain, so that the Company would be required
to make a distribution to its stockholders in order to satisfy the requirement
that a REIT distribute 95% of its taxable income to its stockholders each
taxable year.

If a mortgage loan or other debt obligation with market discount is held by
a REMIC in which the Company acquires a REMIC Residual Interest, a portion of
the market discount would be recognized as income each year by the REMIC and,
hence, the Company. As a result, the market discount on obligations held by a
REMIC in which the Company holds a REMIC Residual Interest could increase the
Company's annual distribution requirement.

Certain Special Considerations Will Apply Due to the Nature of the
Company's Assets. The manner in which the Company will derive income from
healthcare facilities in which it has an equity or mortgage interest will be
governed by special considerations in satisfying the requirements for REIT
qualification. The Company would not qualify as a REIT if it directly operated a
healthcare facility. Healthcare facilities owned by the Company will be leased
to healthcare providers. It is essential to the Company's qualification as a
REIT that these arrangements be respected as leases for federal income tax
purposes and that the lessees not be regarded as "related parties" of the
Company (as determined under the applicable Code provisions). See "Federal
Income Tax Considerations -- Requirements for Qualifications as a REIT -- Income
Tests." In the event a lease expires and is not renewed, the Company will be
required to find a new "unrelated" lessee to lease and operate the property
subject to such lease in order to continue to qualify as a REIT. In the event of
a default on either a lease of, or a mortgage secured by, a healthcare facility,
the Company, to maintain its REIT qualification, will be required to engage a
new healthcare provider to operate the facility after the Company takes
possession of such facility. This requirement could deter the Company from
exercising its remedies in the event of a default even though such exercise
otherwise would be in the Company's best interest. Although the Company would be
permitted to operate the facilities for 90 days after taking possession of the
facility without jeopardizing its REIT status, the fact that the facility
licenses would be held by lessees or borrowers could preclude the Company from
doing so under applicable healthcare regulatory requirements.

Investment in the Offered Securities by Certain Plans May Give Rise to a
Prohibited Transaction Under ERISA and the Code. ERISA prohibits certain
transactions that involve (i) pension, profit-sharing or other employee benefit
plans subject to Title I of ERISA (each a "Plan") and (ii) any person who is a
"party in interest" with respect to a Plan. Section 4975 of the Code contains
similar prohibitions against transactions that involve Plans or similar
arrangements, such as individual retirement accounts ("IRAs") and any person who
is a "disqualified person" with respect to any such Plan or similar arrangement.
Consequently, the fiduciary of a Plan or person making investment decisions on
behalf of a similar arrangement who is contemplating an investment in the
Offered Securities should consider whether the Company, any other person
associated with the issuance of the Securities, or any affiliate of the
foregoing is or might become a "party in interest" or "disqualified person" with
respect to the Plan or similar arrangement and, if so, whether an exemption from
such prohibited transaction rules is applicable. See "ERISA
Considerations -- The Treatment of the Company's Underlying Assets Under ERISA."

Ownership Limitation May Restrict Business Combination Opportunities. In
order for the Company to maintain its qualification as a REIT, not more than 50%
in value of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). For the purpose of preserving its REIT qualification, the
Charter generally prohibits direct or indirect ownership of more than 9.9% of
the number of outstanding shares of Common Stock or any series of preferred
stock (the "Ownership Limitation"). The Ownership Limitation could have the
effect of discouraging a takeover or other transaction in which holders of some,
or a majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then prevailing market price or which such
holders might believe to be otherwise in their best interests. See "Description
of Capital Stock -- Restrictions on Transfer" and "Federal Income Tax
Considerations -- Requirements for Qualification."

Preferred Stock May Prevent Change in Control. The Charter authorizes the
Board of Directors to classify and reclassify unissued capital stock into shares
of preferred stock of one or more series and to

24
<PAGE> 29

establish the preferences and rights of any shares of preferred stock issued.
Although the Company has no current intention to issue any series of preferred
stock in the foreseeable future, the issuance of any series of preferred stock
could have the effect of delaying or preventing a change in control of the
Company even if a majority of the holders of the Company's Common Stock believed
such change of control was in their best interest. See "Description of Capital
Stock -- Preferred Stock."

Maryland Anti-Takeover Statutes May Restrict Business Combination
Opportunities. As a Maryland corporation, the Company is subject to various
provisions of Maryland law, which impose certain restrictions and require
certain procedures with respect to certain stock purchases and business
combinations. See "Certain Provisions of Maryland Law and of the Company's
Charter and Bylaws -- Business Combinations" and "-- Control Share
Acquisitions."

Board of Directors May Change Certain Policies without Stockholder
Consent. The major policies of the Company, relating to the purchase and sale
of assets, financing, operations, debt and distributions, are determined by its
Board of Directors. The Board of Directors, and in certain cases, the
Independent Directors, may amend or revise these and other policies, or approve
transactions that deviate from these policies, from time to time without a vote
of the stockholders. The effect of any such changes may be positive or negative.
The Company cannot change its policy of seeking to maintain its qualification as
a REIT without the affirmative vote of two-thirds of all of the votes ordinarily
entitled to be cast in the election of directors, voting together as a single
class. See "Investment and Other Policies" and "Certain Provisions of Maryland
Law and of the Company's Charter and Bylaws."

Loss of Investment Company Act Exemption Would Adversely Affect the
Company. The Company believes that it will not be, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act. The Investment Company Act exempts entities that,
directly or through majority-owned subsidiaries, are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interests"). Under current
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), in order to qualify for this exemption, the Company, among other
things, must maintain at least 55% of its assets in Qualifying Interests and
also may be required to maintain an additional 25% in Qualifying Interests or
other assets related to real estate. The assets that the Company may acquire
therefore may be limited by the provisions of the Investment Company Act.

The Company's Responsibility to Indemnify the Manager and Officers and
Directors of the Company May Result in Liability for the Actions of the Manager
and Officers and Directors of the Company. Maryland law permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Charter contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law. See "Management of the Company -- Directors
and Executive Officers."

The Company will indemnify the Manager and its officers and directors from
any action or claim brought or asserted by any party by reason of any allegation
that the Manager or one or more of its officers or directors is otherwise
accountable or liable for the debts or obligations of the Company or its
affiliates. In addition, the Manager and its officers and directors will not be
liable to the Company, and the Company will indemnify the Manager and its
officers and directors, for acts performed in good faith pursuant to the
Management Agreement, except for claims arising from acts constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. See "Management of Operations -- The
Management Agreement." In addition, the Company will indemnify, hold harmless
and pay reasonable expenses in advance of final disposition of a proceeding to
present or former directors and officers and certain other parties to the
fullest extent permitted from time to time by Maryland Law. See "Management of
the Company."

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<PAGE> 30

OTHER RISKS

A Market for the Offered Securities May Not Develop. There has been no
public market for the Offered Securities. Application has been made to list the
Common Stock on the NYSE, subject to official notice of issuance. Quotation
through the NYSE does not ensure, however, that an active market will develop
for the Common Stock. Accordingly, no assurance can be given as to (i) the
likelihood that an actual market for the Securities will develop, (ii) the
liquidity of any such market, (iii) the ability of any holder to sell the
Securities, or (iv) the prices that may be obtained for the Securities.

Increases in Interest Rates May Adversely Affect the Yield of the Common
Stock. The Company's earnings are derived in part from the expected positive
spread between the yield on the Company's investments and the costs to the
Company of its borrowings. This expected positive spread will not necessarily be
larger in high interest rate environments than in low interest rate
environments. In periods of high interest rates, however, the net income of the
Company, and therefore the dividend yield on the Common Stock, may be less
attractive compared to alternative investments of equal or lower risk, which
could impact adversely the prices that stockholders may obtain for their Common
Stock.

Future Offerings of Capital Stock May Result in Dilution of the Book Value
or Earnings Per Share of the Outstanding Common Stock. The Company may increase
its capital resources in the future by making additional offerings of its Common
Stock, securities convertible into its Common Stock or preferred stock. The
actual or perceived effect of such offerings may be the dilution of the book
value or earnings per share of the Common Stock outstanding, which may result in
the reduction of the prices that stockholders may obtain for their Common Stock.

Year 2000. The Company relies upon the computer software programs and
operating systems of the Manager and its affiliates as well as the Company's
borrowers and lessees and third-party payors. The Company has been advised by
the Manager that the Manager has implemented a program designed to ensure that
all software used by the Manager and its affiliates in connection with their
services for the Company will manage and manipulate data involving transition of
dates from 1999 to 2000 without functional or data abnormality and without
inaccurate results related to such data. The Company does not anticipate that
the execution of this program will have a material effect on its operating
results. However, the Company does not know whether its existing or prospective
borrowers and lessees and their respective third-party payors have implemented
programs designed to ensure that all software used will manage and manipulate
data involving the transition of dates from 1999 to 2000 without functional or
data abnormality and without inaccurate results relating to such data.
Disruption of the computerized billing and collection systems of the Company's
borrowers and lessees or their respective third-party payors could result in
material reductions in income to the Company's borrowers and lessees, which
could cause defaults under the Company's leases and/or mortgage loans and could
have an adverse effect on the Company. The Company is in the process of
developing a contingency plan for any disruption in the computerized billing and
collection systems of the Company's borrowers and lessees and their respective
third-party payors, and the Company expects to have such a contingency plan in
place by mid-1999.

CONFLICTS OF INTEREST

As a result of the Company's relationship with the Manager and HCFP, the
Company will be subject to various potential conflicts of interest. Although the
Company's Board of Directors includes four Independent Directors, the other
three directors and each of the executive officers of the Company also serve as
directors or executive officers of the Manager, and a number of the executive
officers are directors, officers and/or employees of HCFP and devote substantial
time to HCFP's business. The Manager receives a management fee for services
rendered to the Company. The Board of Directors may terminate, or decline to
renew, the Management Agreement without cause at any time after the first three
years upon 90 days written notice. However, the Company will be required to pay
a substantial termination or nonrenewal fee to the Manager, or to acquire the
Manager from HCFP for a substantial purchase price, prior to such termination or
nonrenewal, which may adversely affect the Company's ability to terminate or
elect not to renew the Management Agreement without cause. See "Management of
Operations -- The Management Agreement." To protect the

26
<PAGE> 31

Company's stockholders from risks related to potential conflicts, the Management
Agreement provides that HCFP and its affiliates are prohibited from investing in
real estate or purchasing or providing term loans secured by real estate which
mature in more than three years.

The Company expects that it will from time to time provide permanent
mortgage loan financing to clients of HCFP which will be used to refinance
short-term real estate financing provided by HCFP. The Company and HCFP may also
make loans to the same borrower or to borrowers which are under common control.
Although the Company and HCFP have separate credit committees which will review
each investment or financing transaction, such committees have common members.
Directors and officers of the Company who are also employed by or affiliated
with HCFP have fiduciary obligations to act in the best interest of the
stockholders of the Company. In addition, the Policies require the Company and
HCFP to enter into an intercreditor agreement in situations where loans of the
Company and HCFP are made to the same borrower and require the unanimous
approval of the Independent Directors who consider the matter (with the approval
of least three Independent Directors being required) for any transaction (other
than a permanent mortgage loan that meets designated criteria established by the
Independent Directors) involving the purchase or refinancing by the Company of
any investment originated and initially closed by HCFP or an affiliate of HCFP.
See "Policies with Respect to Certain Activities -- Policies with Respect to
Conflicts of Interest."

In order to increase the amount of its Incentive Compensation, the Manager
may place undue emphasis on the maximization of FFO at the expense of other
criteria, such as preservation of capital, which could result in increased risk
to the Company.

William E. Shine, a director of the Company, is an officer of GMACCM. The
Company expects to purchase mortgage loans from time to time from GMACCM
pursuant to the GMACCM Agreement. Pursuant to an agreement with the Company,
Joshua B. Gillon, a director of the Company, will be paid a finder's fee of
$50,000 by the Company for each full year the Repurchase Facility is in effect,
up to a maximum of $150,000. The Company's policies require Mr. Shine and Mr.
Gillon to abstain from voting as a member of the Board of Directors on any
matters relating to GMACCM or the Repurchase Facility, respectively. See
"Policies with Respect to Certain Activities -- Policies with Respect to
Interested Directors."

The Independent Directors have unanimously approved the Management
Agreement and the Policies. Although the Manager performs the day-to-day
operations of the Company, the Independent Directors review all transactions on
a quarterly basis to ensure compliance with the Policies. In such review and
approval, the Independent Directors are expected to rely primarily on
information provided by the Manager. See "Policies with Respect to Certain
Activities -- Policies with Respect to Conflicts of Interest."

USE OF PROCEEDS

The Selling Securityholders will receive all of the net proceeds from sale
of the Securities offered hereby. The Company will not receive any of such
proceeds.

DISTRIBUTION POLICY

In order to avoid corporate income taxation on the earnings that it
distributes, the Company must distribute to its stockholders an amount at least
equal to (i) 95% of its REIT taxable income (determined before the deduction for
dividends paid and excluding any net capital gain but including any market
discount) plus (ii) 95% of the excess of its net income from foreclosure
property over the tax imposed on such income by the Code less (iii) any excess
noncash income (as determined under the Code). See "Federal Income Tax
Considerations." The actual amount and timing of distributions, however, will be
at the discretion of the Board of Directors and will depend upon the financial
condition of the Company in addition to the requirements of the Code. It is
anticipated that the first distribution will be made after September 30, 1998.

27
<PAGE> 32

It is anticipated that distributions generally will be taxable as ordinary
income to non-exempt stockholders of the Company, although a portion of such
distributions may be designated by the Company as long-term capital gain or may
constitute a return of capital. The Company will furnish annually to each of its
stockholders a statement setting forth distributions paid during the preceding
year and their federal income tax status. For a discussion of the federal income
tax treatment of distributions by the Company, see "Federal Income Tax
Considerations -- Taxation of the Company", "-- Taxation of Taxable U.S.
Stockholders," "-- Taxation of Tax-Exempt Stockholders" and "-- Taxation of
Non-U.S. Stockholders."

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<PAGE> 33

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1998:

<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Common Stock, par value $.0001 per share; 500,000,000 shares
authorized; 8,055,555 shares issued and outstanding(1).... $ 806
Paid-in capital............................................. 136,545,071
Cumulative net income....................................... 852,029
------------
Total stockholders' equity........................ $137,397,906
============
</TABLE>

- ---------------

(1) Does not include Warrants to purchase 1,450,000 shares of Common Stock at
$20 per share exercisable after November 4, 1998.

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<PAGE> 34

BUSINESS

The Company was formed in January 1998 to invest in income producing real
estate and real estate related assets in the healthcare industry. The Company's
investments include real estate acquisitions, permanent real estate mortgages
and other real estate secured debt. The Company primarily targets investments in
skilled nursing facilities, assisted living facilities, medical office buildings
and hospitals, and also pursues opportunities in other types of healthcare
facilities, such as mental health facilities, outpatient facilities and other
specialty healthcare facilities. At July 31, 1998, the Company had outstanding
actual and probable investments of $119.4 million, consisting of $55.6 million
in income-producing real estate, $27.0 million in permanent real estate
mortgages and $36.8 million in other real estate secured debt. Of the Company's
total dollar amount of outstanding actual and probable investments at July 31,
1998, 58.8%, 25.5% and 15.7% related to skilled nursing facilities, assisted
living facilities and medical office buildings, respectively.

The Company's day to day operations, are managed by the Manager, a
subsidiary of HCFP, a leading publicly-traded provider of asset-based financing
to the healthcare industry. HCFP has an established brand name and reputation in
the healthcare industry which the Company believes uniquely positions HCFP to
assist the Company in identifying investment opportunities and expanding its
business base. The Company seeks to originate investments through joint
marketing efforts with HCFP, direct marketing through its staff of experienced
healthcare real estate professionals and referrals from, and purchases of
mortgage loans under, its arrangement with GMACCM. The Company's goal is to use
its relationship with HCFP and its independent origination channels to establish
a diversified portfolio of high quality healthcare real estate related
investments.

The Company's principal business objectives are to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order to
maximize total returns to its stockholders. The Company believes it can achieve
these objectives by capitalizing on the investment opportunities and by
implementing its business and growth strategies described below.

INVESTMENT OPPORTUNITIES

The Company believes that the following trends in the healthcare industry
will continue to create investment opportunities for the Company:

- The projected growth in the annual expenditures in the long-term care
industry from $87.2 billion in 1996 to a projected $121.2 billion by the
year 2000((1)) will continue to offer the Company opportunities to
finance skilled nursing facilities, assisted living facilities and
retirement facilities.

- Anticipated deconsolidation in the hospital industry will create
opportunities for the Company to finance the acquisition of hospitals.

- Continued consolidation in the physician practice management industry
will create more opportunities for the Company to finance medical office
buildings.

In addition, the Company believes that traditional lenders generally do not
target certain types of healthcare facilities, including mental health
facilities, out-patient surgery centers and other specialty healthcare
facilities which presents opportunities for the Company to provide financing
with respect to such facilities.

BUSINESS AND GROWTH STRATEGIES

Capitalize on Relationships with HCFP and its Affiliates. The Company will
continue to capitalize on its relationship with HCFP and its affiliates. In
their marketing efforts on behalf of the Company, HCFP and its affiliates
recommend the Company as a source for the long-term real estate financing needs
of HCFP's clients. In addition, in an effort to meet all or substantially all of
the financing needs of potential borrowers or

- ---------------

(1)Source: Healthcare Finance Administration ("HCFA")

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<PAGE> 35

lessees, the Company and HCFP may jointly market their respect financing
products through: (i) the officers and senior managers of HCFP; (ii) HCFP's
internal staff of seven marketing professionals who coordinate advertising in
trade magazines and attendance at trade shows and conferences; and (iii) HCFP's
five telemarketers who solicit clients directly. In addition, HCFP obtains
referrals through its network of professionals such as lawyers, accountants and
venture capital firms, and, to a lesser extent, from paid brokers. Significant
referral sources of HCFP own Common Stock and therefore have an incentive to
provide referrals to the Company. Approximately $65.1 million, or 54.5%, of the
Company's actual and probable investments at July 31, 1998, resulted from leads
provided by HCFP. The Company also utilizes the expertise and resources of HCFP
and its affiliates, including HCAC which specializes in healthcare due diligence
and audit services for HCFP and other lenders, to assist it in evaluating the
credit quality of potential borrowers and lessees of the Company. From its
inception in 1993 through June 30, 1998, HCFP advanced over $3.0 billion to its
clients in over 800 transactions. At June 30, 1998, HCFP had approximately $352
million of financing outstanding (including $80 million of short-term real
estate financing) for approximately 195 clients and currently reviews
approximately 100 potential asset-based healthcare related financings each
month.

Capitalize on Relationship with GMACCM. In May 1998, the Company entered
into the GMACCM Agreement with GMACCM pursuant to which the Company has a right
of first refusal to purchase certain mortgage loans secured by healthcare
facilities which have a LTV ratio in excess of 80% and which GMACCM determines
to sell. The maximum principal amount of loans to which this right applies in
any annual period under the GMACCM Agreement is $100 million. The purchase price
for mortgage loans under the GMACCM Agreement is 100% of the principal amount of
the loan plus accrued and unpaid interest to the date of purchase. As
consideration for the GMACCM Agreement, the Company will grant to GMACCM options
to purchase up to 10,000 shares of Common Stock at the end of each annual period
under the GMACCM Agreement, with the exact number of options to be calculated
based upon the ratio that the aggregate principal amount of mortgage loans
purchased by the Company pursuant to the GMACCM Agreement bears to $100 million.
The Company believes that the stock option-based structure of the GMACCM
Agreement provides an appropriate incentive for GMACCM to make mortgage loans
available for purchase by the Company. As of July 31, 1998, the Company had
purchased $14.9 million in principal amount of mortgage loans from GMACCM. The
Company also entered into a Servicing Agreement with GMACCM with respect to all
of the mortgage payments pursuant to which GMACCM receives, holds and applies
certain deposits provided for under such mortgage loans. Although GMACCM has no
formal referral agreement with the Company, GMACCM is also a source of
investment leads for the Company. William E. Shine, the Executive Vice President
for the Healthcare Lending Group of GMACCM, is a member of the Board of
Directors of the Company. See "Management of the Company."

Provide Traditional and Innovative Financing. The Company intends to
continue its focus on the acquisition of equity interests in and mortgages
secured by skilled nursing facilities, assisted living facilities, medical
office buildings and hospitals, although the Company also pursues opportunities
in other types of

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<PAGE> 36

healthcare facilities, such as mental health facilities, outpatient facilities
and other specialty healthcare facilities. The Company offers a broad range of
financing products designed to meet the needs of a variety of potential
borrowers and lessees of such facilities. The Company believes that it is more
flexible than most traditional real estate lenders in its effort to provide
solutions for the financing needs of its borrowers and lessees and is willing to
negotiate customized financing terms to fit the particular needs of such
borrowers and lessees. In addition, the Company has the ability to offer
Partnership Units to sellers of healthcare facilities who would otherwise
recognize taxable gain upon a sale of assets, which may facilitate purchase
leaseback transactions on a tax deferred basis. The Company believes that its
flexible and innovative approach produces a higher value-added component which
should result in more advantageous terms for the Company as well as for its
borrowers and lessees.

Manage and Maintain Credit Quality of Portfolio. The Company will manage
and maintain the credit quality of its portfolio by: (i) conducting semi-annual
on-site audits; (ii) monitoring compliance with financial covenants; (iii)
assessing regulatory changes and compliance with clinical standards; and (iv)
maintaining appropriate capital levels and allowances for credit losses; and (v)
maintaining regular contact with its borrowers and lessees regarding their
business activities. The Company believes that proactive portfolio management
will enable it to detect and manage potential credit deterioration within its
lending programs, to react promptly to circumstances that may impair the value
of equity investments and to assess and implement changes in its investment
programs to reflect economic and industry trends.

TYPES OF FACILITIES

The Company intends to continue investing in and financing facilities in
the healthcare industry, which may include the following:

Nursing Facilities. Nursing facilities provide a broad range of
healthcare services, which may include skilled or intermediate nursing
care, subacute care, rehabilitation therapy, occupational therapy, speech
therapy and other specialized services to the elderly and to other patients
with medically complex needs who can be cared for outside of the acute care
hospital environment and generally cannot be efficiently and effectively
cared for at home.

Assisted Living Facilities. Assisted living facilities provide a
combination of housing, supportive services and healthcare designed to
respond to individual needs for daily living.

Medical Office Buildings. Medical office building facilities contain
individual physician, physician group and other healthcare provider offices
for the administration and treatment of patients, usually in close
proximity to the general service acute care hospital with which the
physicians are affiliated, and may also include facilities for out-patient
services such as same day surgery, diagnostic radiology, rehabilitative
therapy, clinical laboratory, and pharmaceutical.

Acute Care Hospitals. Acute care hospitals provide services that may
include, among others, general surgery, internal medicine, obstetrics,
emergency room care, radiology, diagnostic services, coronary care,
pediatric services and psychiatric services. On an outpatient basis, the
services include, among others, same day surgery, diagnostic radiology
(e.g., magnetic resonance imaging, CT scanning, X-ray), rehabilitative
therapy, clinical laboratory, pharmaceutical and psychiatric services.

Mental Health Facilities. Mental health facilities offer
comprehensive multidisciplinary adult, adolescent and substance abuse and
psychiatric programs.

Rehabilitation Hospitals. Rehabilitation hospitals provide treatment
to restore physical, psycho-social, educational, vocational and economic
usefulness and independence to disabled persons.

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Retirement Living Facilities. Retirement living facilities offer
specially designed residential units for active and ambulatory elderly
residents and provide various ancillary services and may contain nursing
facilities to provide a continuum of care.

Continuing Care Retirement Communities ("CCRCs"). CCRCs generally
combine congregate care (independent living), assisted living and nursing
facilities in one campus to create a convenient "age in place" environment.

Out-Patient Facilities. Out-patient facilities are facilities which
offer healthcare services on an out-patient basis which may include same
day surgery, diagnostic radiology, rehabilitative therapy and clinical
laboratory and infusion services.

INVESTMENT PROGRAMS

The Company intends to continue to invest primarily in income producing
real estate and real estate related assets in the healthcare industry with a
view to realizing its principal business objectives of maximizing growth in cash
available for distribution and enhancing the value of its portfolio, consistent
with levels of risk that are perceived by the Company to be acceptable. Pending
investment of its funds in longer term investments, the Company invests those
funds in readily marketable securities or interest-bearing deposit accounts,
consistent in each case with maintaining the Company's status as a REIT. The
Company takes an opportunistic approach to its investments, and may acquire any
of the types of investments described below in any amounts if the Company and
the Manager determine that to do so would be in the Company's best interests.

Equity Investment Program

Real Estate Acquisitions. The Company may acquire and operate facilities
such as medical office buildings, and lease such facilities to various tenants.
The Company will seek to acquire such facilities in markets where there is a
demonstrated demand for healthcare services and a limited supply of available
medical office space. Such facilities will typically be located on or near
hospital campuses or other medical complexes. Consistent with requirements of
the Code applicable to REITs, the Company expects to own such facilities for at
least five years. The returns that the Company expects to earn on its equity
investments in such facilities will depend upon the predictability of the rent
streams for any such facility and other market forces. Initially the Company
will hire third parties to manage the day-to-day operations of such facilities
but over time will hire appropriate personnel to internally manage such
operations.

Purchase Leaseback Transactions. The Company may participate in purchase
leaseback transactions in which the Company will acquire a facility and then
lease such facility to the seller or to a different operator under a long-term,
triple net lease. Purchase leaseback transactions will typically be utilized to
finance the acquisition or the refinancing of existing facilities, and carry
base rents with escalators that provide the Company with unleveraged yields
greater than those earned on permanent mortgage loans.

Permanent Mortgage Loan Program

Permanent mortgage loans are issued to finance the acquisition or the
refinancing of existing facilities and are secured by a first mortgage on the
facility. Such loans typically have a ten-year term, bear interest at a fixed
rate, and require monthly installments of principal and interest. The interest
rate is based upon a number of factors including the LTV ratio and debt service
coverage ratio. Permanent mortgage loans are generally underwritten by the
Company with the expectation that such loans will be eligible for leveraging
under the Repurchase Facility and for future securitization by the Company.
Although the interest rate on permanent mortgage loans generally is lower than
that charged on other real estate secured debt, because of the credit
characteristics of such loans and because such loans may be eligible for
leveraging or securitization, the Company believes that it will earn an
appropriate risk-adjusted equity return on such loans.

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<PAGE> 38

Other Real Estate Secured Debt Program

Construction and Expansion Loans. Construction and expansion loans may be
provided to finance construction of or an addition to (or renovation of) a
facility. Such loans are short term variable rate loans secured by a first
mortgage on the facility and, in some instances, by an assignment of licenses
and subordination of management contracts.

Mezzanine Loans. Mezzanine loans are subordinated in right of payment to
senior mortgage loans and are secured by a second lien mortgage. Mezzanine loans
typically mature in five years or less and generally entail greater risk than
permanent mortgage loans and are therefore priced to generate a higher yield to
the Company.

Bridge Financing. Bridge financing is temporary financing secured by a
first mortgage. Bridge financing loans typically mature in two years or less.
The Company often obtains a right of first refusal to provide a permanent
mortgage loan to refinance bridge financing provided by the Company.

Acquisition Financing Products. Acquisition financing products offered by
the Company may include loans to provide capital to operators of multiple
facilities to finance acquisitions of additional facilities by such operators
through lines of credit under which the Company will agree to fund such
transactions provided certain agreed upon criteria are met.

Other Investments. The Company may invest in various classes of interests
in mortgage-backed securities involving real estate in the healthcare industry.
Such investments may include senior or subordinated interests and may be
investment grade, sub-investment grade or unrated. Subordinated interests are
subordinated in right of payment of principal and interest to more senior
classes of interests and generally afford a higher yield and entail greater
risks than more senior investment grade securities.

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<PAGE> 39

MANAGEMENT OF OPERATIONS

THE MANAGER

The Manager was incorporated in March 1998. The following tables set forth
certain information about the directors and executive officers of the Manager.
Each of the directors of the Manager is also a director of the Company. No
director or executive officer is related by blood, marriage or adoption to any
other director or executive officer of the Company or the Manager or any of
their respective affiliates, except Miriam M. Leder who is the sister of Ethan
D. Leder.

Directors and Executive Officers of The Manager

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John K. Delaney............................ 35 Chairman of the Board and Chief Executive
Officer and Director
Ethan D. Leder............................. 35 Vice Chairman of the Board and President
and Director
Edward P. Nordberg, Jr..................... 38 Executive Vice President, Chief Financial
Officer and Director
Steve M. McGee............................. 34 Executive Vice President
Mark H. Hamermesh.......................... 41 Senior Vice President of Development and
Acquisitions
Steven W. Bolen............................ 34 Vice President of Underwriting and
Portfolio Management
Thomas M. Gilmore.......................... 37 Vice President of Acquisitions
Miriam M. Leder............................ 37 Vice President, General Counsel and
Secretary
Daryl McCombs.............................. 30 Vice President
Daniel L. Willison......................... 36 Vice President of Underwriting and
Portfolio Management
</TABLE>

John K. Delaney serves as Chairman of the Board, Chief Executive Officer
and a Director of the Manager and HCFP. Mr. Delaney co-founded HCFP in 1993 and
served as Chairman of the Board, Chief Executive Officer and President from the
formation of HCFP until March 1997. From 1990 through 1992, Mr. Delaney co-owned
and operated American Home Therapies, Inc., a provider of home care and home
infusion therapy services, which was sold in 1992. Prior to 1990, Mr. Delaney
was a practicing attorney with Shaw, Pittman, Potts & Trowbridge in Washington,
D.C. Mr. Delaney received his A.B. degree from Columbia University in 1985 and
his J.D. degree from Georgetown University Law Center in 1988.

Ethan D. Leder serves as Vice-Chairman of the Board, President and a
Director of the Manager and HCFP. Mr. Leder co-founded HCFP in 1993 and served
as Vice-Chairman of the Board and Executive Vice President from the formation of
HCFP until March 1997. From 1993 through September 1996, Mr. Leder also served
as Treasurer of HCFP. From 1990 through 1992, Mr. Leder co-owned and operated
American Home Therapies, Inc., a provider of home care and home infusion therapy
services, which was sold in 1992. Prior to 1990, Mr. Leder was engaged in the
private practice of law in Baltimore, Maryland and Washington, D.C. Mr. Leder
received his B.A. degree from Johns Hopkins University in 1984 and his J.D.
degree from the Georgetown University Law Center in 1987.

Edward P. Nordberg, Jr. serves as Executive Vice President, Chief Financial
Officer and a Director of the Manager and HCFP. Mr. Nordberg co-founded HCFP in
1993 and served as a Senior Vice President and Secretary of HCFP from its
formation until March 1997. From 1993 through April 1996, Mr. Nordberg also
served as General Counsel of HCFP. Prior to 1993, Mr. Nordberg was a practicing
attorney with Williams & Connolly in Washington, D.C. Mr. Nordberg received his
B.A. degree from Washington College in 1982, his

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<PAGE> 40

M.B.A. degree from Loyola College in 1985, and his J.D. degree from Georgetown
University Law Center in 1989.

Steve M. McGee serves as Executive Vice President of the Manager. Mr. McGee
was Vice President of Acquisitions and Development at Capstone Capital
Corporation, a Birmingham, Alabama based REIT, from June 1996 until early 1998,
when he joined the Manager. Mr. McGee was responsible for overseeing Capstone's
investment in the long-term care industry. From February 1989 until June 1996,
Mr. McGee was employed by the Specialized Healthcare Lending Group of SouthTrust
Bank of Alabama, most recently as Group Vice President and Manager. Mr. McGee
received his B.B.A. degree in Finance from Texas A&M University in 1986.

Mark H. Hamermesh serves as Senior Vice President of Development and
Acquisitions of the Manager. From July 1996 until joining the Manager in early
1998, Mr. Hamermesh was Senior Vice President of G&L Realty Corp., a California
based healthcare REIT, where he was responsible for loan origination and
analysis for that REIT's Senior Care Division. From July 1991 to July 1996, Mr.
Hamermesh served as Executive Vice President of American Capital Resource, Inc.
At American Capital, Mr. Hamermesh served as Director of Marketing during which
period that company opened six branch offices throughout the United Stated.
During his tenure at American Capital, Mr. Hamermesh also was a member of the
Board of Directors and its Investment and Executive Committees. Mr. Hamermesh
received his B.A. degree from the University of California at Los Angeles in
1978 and his M.B.A. degree from Harvard University Graduate School of Business
in 1982.

Thomas M. Gilmore serves as Vice President of the Manager. Mr. Gilmore was
Senior Vice President, Healthcare Financial Services of Signet Bank from January
1996 until joining the Manager in early 1998. From August 1988 to January 1996,
Mr. Gilmore held various officer positions at Signet Bank. In 1994, Mr. Gilmore
formed the Healthcare Financial Services Group at Signet Bank, which specialized
in financing long-term care facilities. From 1984 until joining Signet Bank, Mr.
Gilmore was a National Account Manager with Sovran Bank, N.A. Mr. Gilmore
received his B.A. degree in Economics from the College of William and Mary in
1983 and his M.B.A. degree from George Mason University in 1993.

Steven W. Bolen serves as Vice President of the Manager. Mr. Bolen joined
the Manager in early 1998. From January 1993 to December 1997, Mr. Bolen was a
Vice President and Regional Manager of the Real Estate Appraisal and Market
Analysis Division of Signet Bank where he specialized in commercial and
healthcare property analysis. From 1991 to 1992, Mr. Bolen was Vice President of
Riggs National Bank, Washington, D.C. From 1990 to 1991, Mr. Bolen was an
Associate Consultant in the Real Estate Management Consulting Division of
Kenneth Leventhal & Company. From 1986 to 1989, Mr. Bolen was a Financial
Wholesaler with VMS Realty Partners where he specialized in debt and equity
commercial real estate syndications. From 1985 to 1986, Mr. Bolen was a Mortgage
Loan Officer with Travelers Mortgage. Mr. Bolen received his B.S. degree in
Finance from The University of Maryland at College Park in 1984. Mr. Bolen is a
state certified real estate appraiser and a certified public accountant.

Miriam M. Leder serves as Vice President, General Counsel, and Secretary of
the Manager. Prior to joining the Manager, Ms. Leder was Associate Dean for
Administration of the Stanford University School of Medicine where she had been
employed since January 1995. From December 1990 until January 1995, Ms. Leder
was Assistant General Counsel with the National Science Foundation in Arlington,
Virginia. From February 1988 to December 1990, Ms. Leder was a practicing
attorney with Hale & Dorr in Washington, D.C. where she was a member of the Real
Estate Department. From September 1985 until January 1988, Ms. Leder was a
practicing attorney with Semmes, Bowen & Semmes in Baltimore, Maryland where she
was a member of the Real Estate and Municipal Finance Departments. Ms. Leder
received her B.A. degree from Johns Hopkins University in 1982 and her J.D.
degree from the University of Pennsylvania Law School in 1985. Ms. Leder is the
sister of Ethan D. Leder.

Daryl McCombs serves as Vice President of the Manager. From November 1996
until joining the Manager in early 1998, Mr. McCombs was employed as Assistant
Vice President of Acquisitions and Development at Capstone Capital Corporation,
a Birmingham, Alabama based REIT, where he assisted Mr. McGee in overseeing
Capstone's investment in long-term care industry. From July 1993 until joining

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<PAGE> 41

Capstone, Mr. McCombs was a member of the Specialized Health Care Lending Group
at SouthTrust Bank of Alabama. Mr. McCombs received his B.A. from the University
of Alabama in 1990 and his M.B.A. from such University in 1993.

Daniel L. Willison serves as Vice President of Underwriting and Portfolio
Management of the Manager. From May 1997 until joining the Manager in May 1998,
Mr. Willison was a Vice President, Real Estate Risk Assessment, for NationsBank
Corporation. In that capacity he was responsible for overseeing asset valuation
and investment analysis for the bank's lending activities relative to healthcare
facilities in the eastern United States as well as office and industrial
property markets in the northeastern states. From 1992 to 1997, Mr. Willison was
a Vice President and Regional Manager at Signet Bank with responsibilities in
health care and commercial real estate analysis. Mr. Willison received his B.A.
degree from George Mason University in 1985 and holds the MAI designation from
the Appraisal Institute.

THE MANAGEMENT AGREEMENT

The Management Agreement has an initial term expiring on May 6, 2001.
Thereafter, successive extensions, each for a period not to exceed one year, may
be made by agreement between the Company and the Manager, subject to the
affirmative vote of a majority of the Independent Directors. The Company may
terminate, or decline to renew the term of, the Management Agreement without
cause at any time after the first three years upon 90 days written notice by a
majority vote of the Independent Directors; provided that the Company will be
required upon such termination or nonrenewal, at the option of the Company,
either (i) to acquire the Manager from HCFP for a purchase price equal to the
Acquisition Price, as defined below, or (ii) to pay the Manager a termination or
nonrenewal fee equal to 80% of the Acquisition Price. The "Acquisition Price" is
an amount equal to 10 times the Manager's earnings before taxes for the latest
12 calendar months immediately preceding the date of termination or nonrenewal.

In addition, the Company has the right at any time during the term of the
Management Agreement to terminate the Management Agreement without the payment
of any termination or nonrenewal fee and without acquiring the Manager upon,
among other things, a material breach by the Manager of any provision contained
in the Management Agreement that remains uncured at the end of the applicable
cure period (including the failure of the Manager to use reasonable efforts to
comply with the Policies).

Pursuant to the provisions of the Management Agreement, the Manager at all
times will be subject to the supervision of the Board of Directors and will have
only such functions and authority as the Company delegates to it. The Manager
advises the Board of Directors as to the activities and operations of the
Company. The Manager may enter into sub-contracts with other parties, including
HCFP and its affiliates, to provide certain services to the Company. The Manager
is responsible for the day-to-day operations of the Company pursuant to the
authority granted to it by the Board of Directors under the Management
Agreement, and the Manager will perform (or cause to be performed) such services
and activities relating to the assets and operations of the Company as may be
directed by the Board of Directors or as the Manager otherwise considers
appropriate, including:

(i) serving as the Company's consultant with respect to formulation of
investment criteria and preparation of Policies by the Board of Directors;

(ii) advising and representing the Company in connection with the
acquisition and commitment to acquire assets, the sale and commitment to
sell assets, and the maintenance and administration of its portfolio of
assets and making available to the Company its knowledge and experience
with respect to the healthcare industry, mortgage loans, real estate and
real estate related assets;

(iii) advising and representing the Company in connection with
defaults by the Company's borrowers and lessees, including the exercise of
remedies and collection of amounts owed to the Company;

(iv) advising the Company regarding, and arranging for, borrowings and
the raising of equity capital, as appropriate;

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<PAGE> 42

(v) furnishing reports and statistical and economic research to the
Company regarding the Company's activities and the services performed for
the Company by the Manager and regarding market conditions in the area in
which the Company proposes to invest;

(vi) providing executive and administrative personnel, office space
and office services required in rendering services to the Company;
administering the day-to-day operations of the Company; establishing and
maintaining records of the Company's activities; and performing and
supervising the performance of such other administrative functions
necessary in the management of the Company, including the collection of
revenues and the payment of the Company's debts and obligations and the
maintenance of appropriate data processing and computer services to perform
such administrative functions;

(vii) providing marketing services and assistance to the Company;

(viii) communicating on behalf of the Company with the holders of any
equity or debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies or
trading markets and to maintain effective relations with such holders;

(ix) to the extent not otherwise subject to an agreement executed by
the Company, designating a servicer for mortgage loans held by the Company
and arranging for the monitoring and administering of such servicer;

(x) counseling the Company in connection with policy decisions to be
made by the Board of Directors;

(xi) engaging in hedging activities on behalf of the Company which are
consistent with the Company's status as a REIT and with the Policies; and
upon request by the Board of Directors and in accordance with the Policies,
investing or reinvesting any money of the Company;

(xii) counseling the Company regarding (A) the maintenance of its
exemption from the Investment Company Act and monitoring compliance with
the requirements for maintaining exemption from that Act; (B) the
maintenance of its status as a REIT and monitoring compliance with the
various REIT qualification tests and other rules set out in the Code and
the income tax regulations promulgated thereunder (the "Treasury
Regulations"); and (C) compliance with all applicable laws, including those
that would require the Company to qualify to do business in particular
jurisdictions;

(xiii) assisting the Company in complying with all regulatory
requirements applicable to the Company in respect of its business
activities, including preparing or causing to be prepared all financial
statements required under applicable regulations and contractual
undertakings and all reports and documents, if any, required under the
Exchange Act;

(xiv) taking all necessary actions to enable the Company to make
required tax filings and reports, including soliciting stockholders for
required information to the extent provided in the Code and the Treasury
Regulations;

(xv) handling and resolving all claims, disputes or controversies
(including all litigation, arbitration, settlement or other proceedings or
negotiations) in which the Company may be involved or to which the Company
may be subject arising out of the Company's day-to-day operations, subject
to such limitations or parameters as may be imposed from time to time by
the Board of Directors;

(xvi) using commercially reasonable efforts to cause expenses incurred
by or on behalf of the Company to be reasonable or customary and within any
budgeted parameters or the Policies set by the Board of Directors from time
to time;

(xvii) performing such other services as may be required from time to
time for management and other activities relating to the assets of the
Company as the Board of Directors shall reasonably request or the Manager
shall deem appropriate under the particular circumstances; and

(xviii) using commercially reasonable efforts to cause the Company to
comply with all applicable laws.

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<PAGE> 43

Management Fees. Under the Management Agreement, the Manager receives the
following compensation:

(i) The Base Management Fee payable and calculated quarterly in an
amount equal to the Percentage Amount (as hereinafter defined) of the
Average Invested Assets for such quarter. The term "Average Invested
Assets" for any quarter means the average of the aggregate book value of
the consolidated assets of the Company, before reserves for depreciation or
bad debts or other non-cash reserves, computed by dividing the sum of such
values for each of the three months during such quarter (based on the book
value of such assets on the last day of such month) by three. The
"Percentage Amount" is 1.50% for assets up to and including $300 million;
1.25% for assets in excess of $300 million up to and including $600
million; 1.00% for assets in excess of $600 million up to and including
$900 million; 0.75% for assets in excess of $900 million up to and
including $1.2 billion; and 0.50% for assets in excess of $1.2 billion. The
Base Management Fee is intended to compensate the Manager, among other
things, for its costs in providing management services to the Company.

(ii) Incentive Compensation for each quarter in an amount equal to the
product of (A) 25% of the dollar amount by which (1) (a) Funds From
Operations of the Company (before the Incentive Compensation) per share of
Common Stock (based on the weighted average number of shares outstanding)
for such quarter plus (b) gains (or minus losses) from debt restructuring
and sales of property per share of Common Stock (based on the weighted
average number of shares outstanding), exceeds (2) an amount equal to the
weighted average of the prices per share of Common Stock issued by the
Company (including shares of Common Stock issued upon exercise of options
or warrants and assuming a price of $20 per share for shares sold in the
Private Placement), multiplied by (b) the Ten Year Treasury Rate for such
quarter plus 3.50% multiplied by (B) the weighted average number of shares
of Common Stock outstanding during such quarter. "Funds From Operations" as
defined by NAREIT means net income (computed in accordance with generally
accepted accounting principles) ("GAAP") excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization on real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures. Funds From Operations does
not represent cash generated from operating activities in accordance with
GAAP and should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity or ability to make distributions.

The Manager is expected to use the proceeds from its Base Management Fee
and Incentive Compensation in part to pay compensation to its officers and
employees who, notwithstanding that certain of them are officers of the Company,
will initially receive no cash compensation directly from the Company. The Base
Management Fee and Incentive Compensation are payable in arrears. The Manager's
Base Management Fee and Incentive Compensation and reimbursable costs and
expenses will be calculated by the Manager within 45 days after the end of each
of quarter, and such calculation will be promptly delivered to the Company. The
Company is obligated to pay such fees, costs and expenses within 60 days after
the end of each fiscal quarter. See "Risk Factors -- Conflicts of Interests" and
"Conflicts of Interests."

Costs and Expenses. The Company does not currently employ full-time
personnel. Instead it relies on the facilities, personnel and resources of the
Manager to conduct its operations. The Manager will be reimbursed for (or charge
the Company directly for) the Manager's costs and expenses in employing third-
parties to perform due diligence tasks on assets purchased or considered for
purchase by the Company. Expense reimbursement will be made quarterly.

Limits of Responsibility. Pursuant to the Management Agreement, the
Manager does not assume any responsibility other than to render the services
called for thereunder and is not responsible for any action of the Board of
Directors in following or declining to follow its advice or recommendations. The
Manager and its directors and officers will not be liable to the Company, any
subsidiary of the Company, the Independent Directors, the Company's stockholders
or any subsidiary's equity holders for acts performed in accordance with and
pursuant to the Management Agreement, except by reason of acts constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. The Company has agreed to indemnify the
Manager, its stockholders, directors, officers and employees with

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respect to all expenses, losses, damages, liabilities, demands, charges and
claims arising from acts of the Manager, its stockholders, directors, officers
and employees made in good faith in performance of the Manager's duties under
the Management Agreement and not constituting bad faith, willful misconduct,
gross negligence or reckless disregard of duties.

The Management Agreement does not limit or restrict the right of the
Manager or any of its officers, directors, employees or affiliates to engage in
any business or to render services of any kind to any other person, including
the purchase of, or rendering advice to others purchasing, assets that meet the
Company's policies and criteria, except that the Manager may not manage or
advise another REIT or other entity that invests or intends to invest primarily
in permanent mortgage loans or purchase leaseback transactions with respect to
healthcare facilities, and may not, directly or through an affiliate, invest in
real property or originate or acquire loans secured by such real property
collateral with initial terms of more than three years.

MANAGEMENT OF THE COMPANY

The Company was incorporated in the State of Maryland on January 30, 1998
and will elect to be taxed as a REIT under the Code. The principal executive
offices of the Company are located at 2 Wisconsin Circle, Suite 402, Chevy
Chase, Maryland 20815. The Company's telephone number is (301) 347-3100.

DIRECTORS AND EXECUTIVE OFFICERS

The following tables set forth certain information about the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John K. Delaney(1)(2)...................... 35 Chairman of the Board and Chief Executive
Officer
Ethan D. Leder(1)(2)....................... 35 Vice Chairman of the Board and President
Edward P. Nordberg, Jr.(1)(2).............. 38 Executive Vice President, Chief Financial
Officer and Director
Steve M. McGee(2).......................... 34 Executive Vice President
Mark H. Hamermesh(2)....................... 41 Senior Vice President of Development and
Acquisitions
Steven W. Bolen............................ 34 Vice President of Underwriting and
Portfolio Management
Thomas M. Gilmore.......................... 37 Vice President of Acquisitions
Miriam M. Leder............................ 37 Vice President, General Counsel and
Secretary
Daryl McCombs.............................. 30 Vice President
Daniel L. Willison......................... 36 Vice President of Underwriting and
Portfolio Management
Donald S. Franyo(3)(4)..................... 56 Director
Joshua B. Gillon(3)(4)..................... 35 Director
Andrew Shoenfeld(3)(5)..................... 36 Director
William E. Shine(3)(5)..................... 46 Director
</TABLE>

- ---------------

(1) Member of Executive Committee
(2) Member of Credit Committee
(3) Independent Director
(4) Member of Compensation Committee
(5) Member of Audit Committee

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<PAGE> 45

For biographical information on Messrs. Delaney, Leder, Nordberg, McGee,
Hamermesh, Bolen, Gilmore and McCombs and Ms. Leder, who also are directors
and/or officers of the Manager, see "Management of Operations -- The Manager."

Donald S. Franyo has served as a Director of the Company since May 1998.
Mr. Franyo is a private investor involved in the ownership and development of
real estate properties in the Washington D.C. metropolitan area. From 1980 to
1996, Mr. Franyo was associated with Potomac Investment Associates and its
successor company, Natelli Communities, as a general partner and its vice
president of development, respectively, focused primarily on commercial real
estate development projects in the Washington D.C. metropolitan area. From 1964
to 1978, Mr. Franyo was employed by Southern Railway Systems, most recently as
Director of Commercial Real Estate. Mr. Franyo resigned this position in order
to associate with two private developers involved in the area of commercial real
estate. Mr. Franyo received his B.S. degree in business from the University of
Maryland in 1964.

Joshua B. Gillon has served as a Director of the Company since May 1998.
Mr. Gillon has been a corporate partner in the law firm of Schneck, Weltman &
Hashmall LLP, in New York, New York since 1996. Mr. Gillon was an associate at
Kronish Lieb Weiner & Hellman LLP in New York, New York from 1990 until 1996,
and an associate at Seward & Kissel LLP in New York, New York from 1988 until
1990. Mr. Gillon's legal practice has focused on corporate transactions,
including public and private securities as well as real estate securitizations.
Mr. Gillon received his B.A. degree from the University of Florida in 1984 and
his J.D. degree from the Georgetown University Law Center in 1988.

Andrew Schoenfeld has served as a Director of the Company since May 1998.
Mr. Schoenfeld has been a Director of Societe Generale Securities Corporation
since April 1997, where his responsibilities include assisting in the start-up
of a mortgage and asset backed securities sales, trading and origination
business for the corporation. From September 1996 until April 1997, Mr.
Schoenfeld was a Vice President with Union Bank of Switzerland. From October
1988 until September 1996, Mr. Schoenfeld was a Director of Nomura Securities
and from July 1986 until October 1988, Mr. Schoenfeld was a mortgage backed
securities broker with RMJ Securities. Mr. Schoenfeld received his B.A. degree
in Economics from Johns Hopkins University in 1984.

William E. Shine has served as a Director of the Company since May 1998.
Mr. Shine is Executive Vice President for the Health Care Lending Group with
GMACCM. Prior to joining GMACCM in March 1996, Mr. Shine held various management
positions with South Trust Bank from 1985 and March 1996. Mr. Shine received his
B.A. degree from Vanderbilt University in 1973.

The Company currently does not employ full-time personnel. Instead it
relies on the personnel of the Manager to conduct its operations.

Pursuant to the Charter, the Board of Directors has been divided into three
classes. Class I consists of Messrs. Nordberg, Gillon and Schoenfeld, whose
terms will expire at the annual meeting of stockholders in the 1999; Class II
consists of Messrs. Leder and Franyo, whose terms will expire at the annual
meeting of stockholders in 2000; and Class III consists of Messrs. Delaney and
Shine, whose terms will expire at the annual meeting of stockholders in 2001.

All officers serve at the discretion of the Board of Directors. In the
future the Company may have salaried employees, although it currently does not
have any such employees. The executive officers of the Company have no
employment agreements with the Company and do not receive any salaries or other
cash compensation directly from the Company. Each of the executive officers,
however, receives a salary and other compensation from the Manager or one of its
affiliates. The Company pays an annual director's fee to each Independent
Director equal to $12,500, paid quarterly. All directors are reimbursed for
their costs and expenses in attending all meetings of the Board of Directors and
for their expenses in connection with each property visit and any other service
or activity they perform or engage in as a director. Independent Directors also
participate in the Company's Director Plan, which provides for the issuance of
stock options to non-employee directors. See "Management of
Operations -- Director Plan."

Directors and executive officers of the Company are required to devote only
so much of their time to the Company's affairs as is necessary or required for
the effective conduct and operation of the Company's

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<PAGE> 46

business. Because the Management Agreement provides that the Manager will
assume, subject to the supervision of the Board of Directors, principal
responsibility for managing the day-to-day affairs of the Company, the officers
of the Company, in their capacities as such, are not expected to devote
substantial portions of their time to the affairs of the Company. However, in
their capacities as officers or employees of the Manager, or its affiliates,
they devote such portion of their time to the affairs of the Manager as is
required for the performance of the duties of the Manager under the Management
Agreement.

The Bylaws of the Company provide that a majority of members of the Board
of Directors will at all times be Independent Directors.

The Board of Directors has established an Executive Committee, a
Compensation Committee and an Audit Committee. The Executive Committee,
comprised of Messrs. Delaney, Leder and Nordberg, may exercise all of the powers
and authority of the Board of Directors during the periods between regularly
scheduled Board meetings, except that the Executive Committee may not approve a
merger or consolidation involving the Company, approve a sale of all or
substantially all of its assets, amend the Company's Charter or Bylaws,
authorize the issuance of capital stock of the Company or take action requiring
approval of the Independent Directors. The Compensation Committee, comprised of
Messrs. Franyo and Gillon, has the authority to determine compensation for the
Company's executive officers and to administer the Incentive Plan. Messrs.
Franyo and Gillon are "disinterested persons" within the meaning of Rule 16b-3,
as amended from time to time, under the Exchange Act and "outside directors"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Audit Committee, comprised of Messrs. Schoenfield and
Shine, has the authority to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plan and results of the audit engagement, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.

Although not a committee of the Board of Directors, the Company's Credit
Committee reviews each proposed investment by the Company and must approve each
proposed investment before it may be made. The Credit Committee receives a
detailed memorandum prepared by the Manager summarizing each proposed
investment, which generally includes information about the proposed transaction,
the nature of the transaction, the financing terms, the historical and projected
financial performance of the property and/or operator, the identity and
background of the other parties thereto, information regarding competitive
conditions affecting the facility, reports by HCAC and third parties regarding
the results of their underwriting and due diligence investigations and other
relevant information. Certain transactions approved by the Credit Committee are
subject to confirmatory appraisals, environmental assessments, building
condition surveys and market studies.

The Charter limits the liability of its directors and officers to the
Company and its stockholders to the fullest extent permitted from time to time
by Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.

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<PAGE> 47

rise to the proceeding and (x) was committed in bad faith or (y) was the result
of active and deliberate dishonesty, (ii) the indemnified party actually
received an improper personal benefit in money, property or services or (iii) in
the case of any criminal proceeding, the indemnified party had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding.
Indemnification is limited to court ordered reimbursement for expenses; however,
if the proceeding is one by or in the right of the corporation, and the director
or officer was adjudged to be liable to the corporation or if the proceeding is
one charging improper personal benefit to the director or officer and the
director or officer was adjudged to be liable on the basis that personal benefit
was improperly received. The termination of any proceeding by conviction, or
upon a plea of nolo contenders or its equivalent, or an entry of any order of
probation prior to judgment, creates a rebuttal presumption that the director or
officer did not meet the requisite standard of conduct required for
indemnification to be permitted. Maryland law requires a corporation (unless its
charter provides otherwise, which the Company's Charter does not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.

1998 STOCK OPTION PLAN

The Company has adopted the HealthCare Financial Partners REIT, Inc. 1998
Stock Option Plan (the "Option Plan") under which the Compensation Committee of
the Board or, if none, the Board (the "Committee") is authorized to grant
options to purchase shares of Common Stock ("Options"). The maximum number of
shares of Common Stock that may be subject to options granted under the Option
Plan is 900,000 shares. The maximum aggregate number of shares of Common Stock
with respect to which Options may be granted during any fiscal year of the
Company to any Company employee may not exceed 100,000.

Eligibility and Awards. All directors and employees (including officers),
of the Company, as well as the Manager, HCFP and HCAC, and directors and
employees (including officers) of the Manager, HCFP or HCAC (collectively, the
"Eligible Recipients"), are eligible to receive Options at the discretion of the
Committee. The Committee is authorized to determine which Eligible Recipients
shall receive Options and the terms and conditions on which Options shall be
granted. Options granted pursuant to the Option Plan may be either nonqualified
stock options or, if otherwise eligible for treatment as such, incentive stock
options. Options granted pursuant to the Option Plan generally are not
transferable except that, to the extent permitted by the Committee, a grantee
may transfer Options to members of his immediate family (including spouse,
parents, children and siblings). Grants of Options under the Option Plan to
persons or entities other than employees (including officers) of the Company may
result in a charge against the Company's earnings for financial reporting
purposes under GAAP. Any such charge to earnings will be recognized over the
period during which such Options become exercisable.

Exercise Price and Exercisability. The exercise price of all Options will
be not less than 100% of the fair market value of the Common Stock subject to
the Options on the date of grant. All Options will become exercisable not
earlier than one year following the date of award or as otherwise determined by
the Committee at the time of the award. Options granted on the Pricing Date
generally will be exercisable in equal installments on each of the first four
anniversaries of the date on which they are granted. The exercise price of an
Option may be paid by any one or more of the following: (i) cash or its
equivalent, (ii) shares of previously owned Common Stock, (iii) cancellation of
any indebtedness owed by the Company, (iv) a full-recourse promissory note, if
approved by the Committee, or (v) a "cashless" exercise pursuant to a sale
through a broker of all or a portion of the shares covered by the option.

Grants. At the closing of the Private Placement, the Committee granted
Options for 460,000 shares to certain officers of the Company and the Manager at
a per share exercise price of $20.00. Of such amount, options with respect to
100,000, 100,000, 100,000, 50,000, and 50,000 shares of Common Stock were
granted to Messrs. Delaney, Leder, Nordberg, McGee and Hamermesh, respectively.
All Options granted on such

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<PAGE> 48

date will become exercisable to the extent of 25% of such Options on each of the
first four anniversaries of the date of grant and will terminate on April 1,
2008.

Termination of Employment. Except in the case of incentive options, any
option awarded under the Option Plan to an Eligible Recipient who suffers a
Termination of Service (as defined in the Option Plan) may be canceled,
accelerated, paid or continued, as provided in the particular option agreement,
or in the absence of such a provision, as the Committee may determine. In the
case of incentive stock options, the option or portion thereof that is
unexercised at the time of the Termination of Service will expire, terminate an
become unexercisable no later than the expiration of three months after the date
of termination; provided, however, that in the case of a holder whose
Termination of Service is due to death or disability, the option or portion
thereof that is unexercised will expire, terminate and become unexercisable no
later than the expiration of one year after the date of Termination of Service.

Amendment and Termination. The Board generally may amend the Option Plan
at any time, except that approval by the Company's stockholders will be required
for any amendment that increases the aggregate number of shares of Common Stock
that may be issued pursuant to the Option Plan, that materially changes the
class of persons eligible to receive such Options, that extends the maximum
Option term, that decreases the exercise price of any Option to less than the
fair market value of the Common Stock on the date of grant or that materially
increases benefits accruing to the participants under the Option Plan. Shares of
Common Stock subject to Options that expire, are terminated or otherwise are
surrendered to the Company will be available for issuance in connection with
future awards under the Option Plan. The Option Plan will expire on April 1,
2008, the tenth anniversary of the date on which it was adopted by the Board.

DIRECTOR PLAN

The Company maintains the Healthcare Financial Partners REIT, Inc. 1998
Director Incentive Plan (the "Director Plan"). The Board of Directors has
reserved 100,000 shares of Common Stock for issuance pursuant to awards that may
be made under the Director Plan, subject to adjustment as provided therein.

Awards under the Director Plan are determined by the express terms of the
Director Plan. Rules, regulations and interpretations necessary for the ongoing
administration of the Director Plan will be made by the full membership of the
Board of Directors.

Only non-employee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates three types of non-statutory
option awards: (a) initial appointment awards that will be granted upon a
non-employee director's initial appointment to the Board of Directors providing
an option to purchase 10,000 shares of Common Stock at a per share exercise
price equal to the then fair market value of a share of Common Stock (options to
purchase an aggregate of 40,000 shares were granted to the Independent Directors
at the closing of the Private Placement at a per share exercise price of
$20.00); (b) annual service awards that will be granted to each non-employee
director who continues to serve as a non-employee director as of each annual
meeting of the stockholders of the Company following his or her initial
appointment providing an option to purchase 5,000 shares of Common Stock at a
per share exercise price equal to the then fair market value of a share of
Common Stock; and (c) discount awards under which each non-employee director
also has the opportunity to elect annually, subject to rules established by the
Board of Directors, to forego receipt of the cash retainer paid to non-employee
members of the Board of Directors that would otherwise be paid during each
fiscal year of the Company, and in lieu thereof that the director be granted an
option to acquire shares of Common Stock with an exercise price per share equal
to 50% of the then fair market value of a share of Common Stock. The number of
shares of Common Stock subject to any option of this type granted for fiscal
year is determined by taking the amount of cash foregone by the director for the
fiscal year in question and dividing that amount by the per share option
exercise price.

Each option granted pursuant to the Director Plan is immediately vested;
becomes exercisable 12 months following the date of grant; and expires upon the
earlier to occur to the tenth anniversary of the grant date or 18 months
following the director's termination of service upon the Board of Directors for
any reason. The options generally are not transferable or assignable during a
holder's lifetime.

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<PAGE> 49

The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are subject
to adjustment in the event of any recapitalization of the Company or similar
event, effected without the receipt of consideration. The number of shares of
stock subject to the options granted in connection with the initial appointments
or as annual service awards are also subject to adjustment in such events. In
the event of certain corporate reorganizations and similar events, the options
may be adjusted or cashed-out, depending upon the nature of the event.

CERTAIN RELATIONSHIPS; CONFLICTS OF INTEREST

The Company, on the one hand, and HCFP and its affiliates, on the other,
have entered into a number of relationships other than those governed by the
Management Agreement, some of which may give rise to conflicts of interest.
Moreover, three of the members of the Board of Directors and all of its officers
are also employed by the Manager or one or more of its affiliates.

The relationships between the Company, on the one hand, and HCFP and its
affiliates, on the other, are governed by the Policies, which are described in
"Policies with Respect to Certain Activities." The Policies establish general
parameters for the Company's investments, borrowings and operations. The
Policies are to assist and instruct the Manager generally, and to establish
restrictions applicable to transactions with HCFP and its affiliates. The
Manager may enter into transactions on behalf of the Company with HCFP and its
affiliates based upon the Policies approved by the Independent Directors. Such
transactions will be reviewed on a quarterly basis to insure compliance with the
Policies.

Although the Independent Directors will review the Policies periodically
and will monitor compliance with the Policies, investors should be aware that,
in conducting this review, the Independent Directors will rely primarily on
information and analysis provided by the Manager to evaluate the Policies,
compliance therewith and other matters relating to the Company's investments.

If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the Policies,
then the Independent Directors will consider what corrective action, if any, can
be taken. If the transaction is one with HCFP or an affiliate, and if the
Independent Directors so direct, the Manager shall use its best reasonable
efforts to cause HCFP or the relevant affiliate to reverse or rescind the
transaction. Moreover, if transactions are consummated that materially deviate
from the Policies, then the Independent Directors will have the option, under
the terms of the Management Agreement, to terminate the Manager.

HCFP purchased 100,000 Units directly from the Company in the Private
Placement at the price to investors in the Private Placement. All of the
proceeds from such purchase, without reduction for any discounts or commissions,
were paid to the Company. This purchase increased HCFP's ownership, upon
completion of the Private Placement, to 9.2% of the total shares of Common Stock
outstanding. HCFP has agreed to retain its shares of Common Stock and its
Warrant Shares until at least May 6, 2001, but may dispose of such shares any
time thereafter. Notwithstanding the foregoing, if the Company terminates the
Management Agreement, HCFP may dispose of such shares at any time thereafter.

The market in which the Company expects to make investments is
characterized by rapid evolution of products and services and, thus, there may
in the future be relationships between the Company, the Manager, and affiliates
of the Manager in addition to those described herein.

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<PAGE> 50

PORTFOLIO

The following summary of the Company's actual and probable investments set
forth below is made as of July 31, 1998.

EQUITY INVESTMENT PROGRAM

PURCHASE LEASEBACK TRANSACTIONS

Actual Investments

Colonial Manor Properties. In July 1998, the Company acquired through the
Operating Partnership and a newly-formed, wholly-owned limited liability company
all of the partnership interests of three limited partnerships, each of which
owns an assisted living facility, for an aggregate purchase price of $3.8
million. The three assisted living facilities are known as Colonial Manor Home
of Crofton, Colonial Manor Home of Bel-Air and Colonial Manor Home of Severna
Park.

Colonial Manor Home of Crofton. Colonial Manor Home of Crofton is a
15-unit assisted living facility located in Crofton, Maryland. The facility
was constructed in 1995 and is comprised of a one-story building
(approximately 7,100 gross square feet), resident courtyards and a parking
lot. The facility is situated on 0.963 of an acre of land. The average unit
size is 189 square feet.

At July 31, 1998, Colonial Manor Home of Crofton was 100% occupied.
The average occupancy rate for 1997 was 86.7%.

The federal tax basis of Colonial Manor Home of Crofton is $1.3
million. Depreciation will be computed on a straight-line basis over a
period of 39 years. The real property tax rate applicable to Colonial Manor
Home of Crofton is $2.59 per $100 of assessed value. The estimated annual
real estate taxes are $6,800. Management of the Company believes that the
facility is adequately covered by insurance. There are currently no plans
for renovation of Colonial Manor Home of Crofton.

Colonial Manor Home of Bel-Air. Colonial Manor Home of Bel-Air is a
15-unit assisted living facility located in Bel-Air, Maryland. The facility
was constructed in 1996 and consists of a renovated house that was expanded
with two, one-story wings (approximately 8,600 gross square feet). The
first story of the original facility contains the resident communal areas
and the resident units are located in the newly-constructed wings. The
facility includes a parking lot and is situated on 1.079 acres of land. The
average unit size is 212 square feet.

At July 31, 1998, Colonial Manor Home of Bel-Air was fully occupied.
The average occupancy rate for 1997 was 91.4%.

The federal tax basis of Colonial Manor Home of Bel-Air is $1.4
million. Depreciation will be computed on a straight-line basis over a
period of 39 years. The real estate tax rate applicable to Colonial Manor
Home of Bel-Air is $2.55 per $100 of assessed value. The estimated annual
real estate taxes are $5,700. Management of the Company believes the
facility is adequately covered by insurance. There are currently no plans
for renovation of Colonial Manor Home of Bel-Air.

Colonial Manor Home of Severna Park. Colonial Manor Home of Severna
Park is a 16-unit assisted living facility located in Severna Park,
Maryland. The building was constructed in 1997. The facility is comprised
of a one-story building (approximately 7,100 gross square feet), resident
courtyards and a parking lot. The facility is situated on 1.44 acres of
land. The average unit size is 190 square feet.

Colonial Manor Home of Severna Park opened in March 1997. At July 31,
1998, the facility was 81.3% occupied. The average occupancy rate for the
nine months of operation in 1997 was 79.5%.

The federal tax basis of Colonial Manor Home of Severna Park is $1.1
million. Depreciation will be computed on a straight-line basis over a
period of 39 years. The real property tax rate applicable to Colonial Manor
Home of Severna Park is $2.59 per $100 of assessed value. The estimated
annual real estate taxes are $7,000. Management of the Company believes
that the facility is adequately covered by insurance. There are currently
no plans for renovation of Colonial Manor of Severna Park.

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Through the acquired limited partnerships, the Company holds fee simple
title to the respective properties and has leased the three facilities to
Colonial Manor Homes, LLC ("Colonial Manor") pursuant to three triple net leases
which require Colonial Manor to pay all costs and expenses including repairs,
maintenance, real property taxes, assessments and utilities. The respective
leases have ten-year terms with options for two five-year renewals. Colonial
Manor has an option to purchase all three facilities upon expiration of the
respective leases for a purchase price equal to the greater of the fair market
value of the facilities or the purchase price paid by the Company for the
facilities. The initial annual rental for each facility is $133,000, resulting
in an initial aggregate annual rental for the three facilities of $399,000. The
rental payments will increase annually by the greater of either 4% or the
increase in the CPI. The obligations of Colonial Manor under the three leases
have been guaranteed by George R. Wentz, Jr., President and primary owner of
Colonial Manor.

Probable Investments

Meadowood Nursing Home. In July 1998, the Company issued a commitment to
purchase Meadowood Nursing Home, which is a two-story, 120-bed skilled nursing
facility located in South Hadley, Massachusetts. The facility was constructed in
1987 and is comprised of approximately 40,000 square feet of building area on a
four-acre site. The proposed purchase price for the facility is approximately
$6.8 million. If funded, the facility will be acquired by the Company in a
newly-formed, wholly-owned limited liability company and will be leased to
NewCare Nursing of Massachusetts, Inc., a wholly-owned subsidiary of NewCare
Health Corporation, a publicly-traded nursing home company. Annual rent under
the proposed lease is an amount equal to the purchase price multiplied by a rate
equal to the Ten Year Treasury Rate plus 4% with such rate increasing by 12.5
basis points annually. Rent for the first year is estimated to be $645,000. The
proposed lease is a triple net lease with a term of ten years with two,
five-year renewal options.

There are currently no plans for renovation of Meadowood Nursing Home and
it is expected that the facility will continue to be operated as presently
operated. At July 31, 1998, the property was 95% occupied. The average occupancy
rates for 1997, 1996 and 1995 were 96%, 93% and 97%, respectively. The federal
tax basis of Meadowood Nursing Home will be approximately $6.8 million.
Depreciation will be computed on a straight line basis over a period of 39
years. The real property tax rate applicable to Meadowood Nursing Home is $17.21
per $1,000 of the assessed value. The estimated annual real estate taxes are
$52,000.

Winslow Convalescent Center. In July 1998, the Company issued a commitment
to enter into a purchase leaseback transaction with respect to a proposed
120-bed skilled nursing facility to be constructed in Winslow, Arizona. The
proposed purchase price is approximately $4.0 million. Upon completion, the
facility would be purchased from the developer and simultaneously leased to
Winslow Convalescent Center, Inc. The proposed facility is a one-story structure
to be developed on 4.686 acres. The construction period is anticipated to be 18
months. This property represents a replacement of an existing, smaller facility
which is nearing obsolesence (and will be converted for alternative use). The
Company expects that the approximately 40 residents in the existing facility
will be transferred to the proposed new facility. The proposed lease is a triple
net lease with a term of ten years. The initial annual rent is estimated to be
$444,000, increasing to $486,000 for the second through the fifth years and to
$539,000 for the sixth through the tenth years. The lessee would have two
five-year renewal options and a purchase option after the fifth year at a price
of $4.4 million.

Gulf Health Care Properties. In July 1998, the Company issued a commitment
to enter into a purchase-leaseback transaction (the "Gulf Health Care
Transaction") with respect to three skilled nursing facilities in Texas, which
are owned by M.N. Osborne Associates, Inc. ("Osborne"). The three facilities are
known as Gulf Health Care Center of Texas City, Gulf Health Care Center of
Galveston, and Gulf Health Care Center of Port Arthur. Each was constructed in
1994, has 150 beds and is located on approximately 4.5 acres. At April 30, 1998,
the Texas City facility was 82% occupied, the Galveston Facility was 91%
occupied and the Port Arthur facility was 83% occupied. At December 31, 1997,
occupancy rates for the Texas City facility, the Galveston facility and the Port
Arthur facility were 80.7%, 70.0% and 84.6%, respectively, and at December 31,
1996 were 80.5%, 86.9% and 88.0%, respectively. The real estate taxes applicable
to the Texas City facility, the Galveston facility and the Port Arthur facility
are $2.48, $2.71 and $2.96 per $100 of assessed

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value, respectively. The estimated annual real estate taxes for the Texas City
facility, the Galveston facility and the Port Arthur facility are $60,000,
$67,000 an $64,000, respectively.

The proposed aggregate purchase price for the Gulf Health Care Properties
is $22.3 million, representing an allocated purchase price of $7.4 million for
each facility. If the Gulf Health Care Transaction is consummated, each facility
will be acquired by the Company in a separate, newly-formed, wholly-owned
limited liability company, and will be leased to HealthMark Partners, L.L.C.
("HealthMark") for a term of 20 years. Upon consummation of the purchases, the
Company will receive a 9.9% equity interest in HealthMark. Under the proposed
leases, monthly rent for each facility for the first ten years is $60,000 and
for the remaining years is the greater of (i) one twelfth of 9.5% of the fair
market value of such facility or (ii) $72,000, but in no event will such rent
for any of the three facilities be more than $82,000 per month. The proposed
leases are triple net leases. As lessee, HealthMark would have an option in
years ten and 20 to purchase the three facilities together from the Company at a
purchase price equal to the greater of the fair market value of the facilities
at that time or the purchase price paid by the Company for the facilities.

According to the Guide to the Nursing Home Industry published in 1997 by
HCIA, Inc, a healthcare information services company, Texas' senior population
(75+) grew by 5.7% during 1997. Texas uses a prospective reimbursement system
with flat rates based upon the acuity levels of the resident patients. As of
December, 1997, the average per diem Medicaid rate for all acuity levels was
$71.90, a 7.8% increase from the 1996 level.

Gulf Health Care Center of Texas City and Gulf Health Care Center of
Galveston are located in Galveston County, Texas. Based upon information
provided in MAI appraisals, management of the Company believes the average
occupancy rate for skilled nursing facilities in Galveston County as of November
1997 (most recent data available) was 75.5%.

Gulf Health Care Center of Port Arthur is located in Jefferson County,
Texas. Based upon information provided in MAI appraisals, management of the
Company believes the average occupancy rate for skilled nursing facilities in
Jefferson County as of May 1998 was 73.1%.

The federal tax basis for each of the three facilities will be $7.4
million. Depreciation will be computed on a straight line basis over a period of
39 years.

In connection with the proposed Gulf Health Care Transaction the Company
will also lease from Osborne two additional skilled nursing facilities known as
the Arkansas Convalescent Center in Pine Bluff, Arkansas and the Arkansas
Nursing & Rehabilitation Center in Texarkana, Arkansas.

Arkansas Convalescent Center was built in 1988 and currently has 93 beds.
An additional ten beds are being added in a soon-to-be completed addition. At
April 30, 1998 the facility was 95% occupied. If this transaction is
consummated, the Company will lease the facility from Osborne under a proposed
20-year lease that provides for monthly rental of $36,000 and will sublease the
facility to HealthMark under a proposed 20-year sublease that provides for
monthly rental during the first ten years of $41,200 and for the remaining years
the monthly rental under the proposed sublease is an amount equal to the greater
of (i) one twelfth of 9.5% of the fair market value of the facility or (ii)
$49,900, but in no event more than $56,400 per month. The lease and sublease are
triple net leases.

Arkansas Nursing & Rehabilitation Center was built in 1988, and was
expanded in 1989 and 1994 to 173 beds. At April 30, 1998 the facility was 79%
occupied. If this transaction is consummated, the Company will lease the
facility from Osborne under a proposed 20-year lease that provides for monthly
rental of $60,100, and will sublease the facility to HealthMark under a proposed
20-year sublease that provides for monthly rental during the first ten years of
$69,200 and for the remaining years the monthly rental under the proposed
sublease is an amount equal to the greater of (i) one twelfth of 9.5% of the
fair market value of the facility or (ii) $83,800, but in no event more than
$94,700 per month. The lease and sublease are triple net leases.

In connection with the proposed Gulf Health Care Transaction, Osborne will
grant the Company the option to purchase the two Arkansas facilities. Osborne
will have the absolute right to cancel this purchase option at any time prior to
March 31, 1999. If the option is not cancelled on or before March 31, 1999, it
may

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be exercised by the Company between that date and September 30, 1999. Because
the option is cancellable by Osborne until March 31, 1999, the Company does not
consider the acquisition of the Arkansas facilities to be probable. In the event
the purchase option is terminated by Osborne, the Company will have the right,
but not the obligation, to terminate its leases with Osborne at no cost. The
total purchase price under the option is $13.7 million, which is allocated $5.1
million to the Arkansas Convalescent Center and $8.6 million to the Arkansas
Nursing & Rehabilitation Center. If the purchase option is not cancelled and is
exercised by the Company, HealthMark will obtain a purchase option to acquire
the two Arkansas facilities together from the Company at the end of lease years
ten and 20 for a purchase price equal to the greater of the fair market value of
the two facilities at that time or the purchase price paid by the Company for
the facilities.

REAL ESTATE ACQUISITIONS

Actual Investments

Sherman Oaks Medical Center. In June 1998, through the Operating
Partnership the Company acquired Sherman Oaks Medical Center in a newly-formed,
wholly-owned limited liability company for a purchase price of approximately
$10.5 million. The building is located in Sherman Oaks, California. The property
includes a two-story medical office building containing a net rentable area of
approximately 69,700 square feet. The building is situated on 2.92 acres of land
and has parking facilities that accommodate nearly 400 vehicles. The property
was constructed in 1953 and has undergone several renovations, the most recent
of which occurred in 1996-97. At July 31, 1998, the building had a total of 34
tenants, with the following tenants occupying 10% or more of the rentable square
footage:

Mark Greenspan, M.D., leases 9,608 square feet of the building for his
medical practice. Dr. Greenspan has occupied his space since September 1995. His
lease term expires in August 2000. The lease to Dr. Greenspan is a full service
lease with a 1995 operating expense year base stop. The annual rent is $17.16
per square foot and is fixed at that rate for the term of the lease. Dr.
Greenspan has an option to extend the lease for one, five-year term.

The University of California at Los Angeles ("UCLA") leases 12,561 square
feet of the building. UCLA has occupied its space since December 1996. The UCLA
lease expires in November 2006. The lease to UCLA is a full service lease with a
1996 operating expense year base stop. The annual rent is $24.12 per square foot
and is fixed at that rate for the term of the lease. UCLA has an option to
extend the lease term for two, five-year periods.

There are currently no plans for renovation of the Sherman Oaks Medical
Center. At July 31, 1998, Sherman Oaks Medical Center was 98% occupied. The
average occupancy rate for 1997 was 95%. The annual rental per square foot at
July 31, 1998 was $22.92 and for 1997 was an average of $19.12.

The federal tax basis for Sherman Oaks Medical Center is approximately
$10.5 million. Depreciation will be computed on a straight-line basis over a
period of 39 years. The real property tax rate applicable to Sherman Oaks
Medical Center is 1.06% of assessed value. The real estate taxes are estimated
to be $111,000. Management of the Company believes that the facility is
adequately covered by insurance.

Probable Investments

Valencia Medical Center and Vista Village Shopping Center. In 1998 the
Company issued a commitment to acquire Valencia Medical Center and Vista Village
Shopping Center, a multi-tenant medical office building and an adjacent retail
center. The total proposed purchase price is estimated to be $8.2 million,
allocated $4.3 million to Valencia Medical Center and $3.9 million to Vista
Village Shopping Center.

Valencia Medical Center. Valencia Medical Center is a medical office
building located in Valencia, California on approximately 1.46 acres and has a
total net rentable area of 27,887 square feet. At July 31, 1998, the property
was 85.3% occupied. The building was constructed in 1983. At July 31, 1998, the
building had a total of 17 tenants. None of the existing tenants occupy 10% or
more of the rentable square footage. There are no current plans for renovation
of this facility.

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Vista Village Shopping Center. Vista Village Shopping Center is a retail
property adjacent to the Valencia Medical Center site. The property, consisting
of three buildings, is located in Valencia, California on 2.85 acres and has a
total net rentable area of 37,482 square feet. At July 31, 1998, the property
had an occupancy rate of 89.3%. The three buildings were constructed in 1973,
1979, and 1988. Two of the buildings were renovated in 1985. The property has a
total of 15 tenants in-place. Medical tenants include a dental practice and
chiropractor. The following tenants occupy 10% or more of the rentable square
footage:

JS Mulligan (retailer) leases 4,570 square feet. JS Mulligan has
occupied this space since September of 1979. The lease expires in August
1999. The annual rent is $14.28 per square foot and is fixed at that rate
for the term of the lease. The lease is structured on a net basis with the
tenant responsible for a pro rata share of all reimbursable operating
expenses.

Sunrise Market (retailer) leases 6,000 square feet. Sunrise Market has
occupied the space since December 1973. The lease expires in December of
2008. The annual rent is $7.71 per square foot and is fixed at that rate
for the term of the lease. The lease is structured on a net basis with the
tenant responsible for a pro rata share of all reimbursable operating
expenses.

PERMANENT MORTGAGE LOAN PROGRAM

Actual Investments

Applegate Lane, Inc. In June 1998, the Company purchased from GMACCM a
permanent mortgage loan in the principal amount of $7.1 million to Applegate
Lane, Inc., a wholly-owned subsidiary of Medway, Inc., to refinance existing
indebtedness on, and to provide funds for renovation of, a 180-bed skilled
nursing facility in East Hartford, Connecticut, known as St. Elizabeth
Healthcare Center and for construction of an outpatient facility. The loan bears
interest at a fixed rate of 9.15% and has a ten-year term maturing on February
20, 2008 with monthly principal and interest payments based on a 25-year
amortization schedule. The St. Elizabeth Healthcare Center was constructed in
1970 and has not undergone any material renovation since that time.
Approximately $4.2 million of the proceeds of the loan were used to refinance
existing indebtedness with respect to the facility and approximately $2.9
million of such proceeds are being used for renovation and for construction of
an outpatient facility. The loan to Applegate Lane, Inc. had a LTV ratio of
92.2% at origination based upon an appraisal prepared by an independent third
party. The occupancy rate of the St. Elizabeth Healthcare Center has averaged
97% during 1998.

Cromwell Crest Convalescent Home, Inc. In June 1998, the Company purchased
from GMACCM a permanent mortgage loan in the principal amount of $7.8 million to
Cromwell Crest Convalescent Home, Inc., a wholly-owned subsidiary of Medway,
Inc., to refinance existing indebtedness on, and to fund renovations and
construction of an addition to, a 180-bed skilled nursing facility in Cromwell,
Connecticut known as the Cromwell Crest Convalescent Center. The loan bears
interest at a fixed rate of 9.15% and has a ten-year term maturing on February
20, 2008 with monthly principal and interest payments based upon a 25-year
amortization schedule. The Cromwell Crest Convalescent Center was built in 1986
and has not undergone any material renovation since that time. Approximately
$5.1 million of the proceeds of the loan were used to refinance the existing
indebtedness and approximately $2.7 million will be used to finance renovations
and the construction of the addition to the facility. The LTV ratio for this
loan was 84.4% at origination based upon an appraisal prepared by an independent
third party. The occupancy rate at the Cromwell Crest Convalescent Center has
averaged 97% during 1998.

JoJeff, Inc. and Alymatt, Inc. In May 1998, the Company funded a permanent
mortgage loan in the principal amount of $1.9 million to JoJeff, Inc. and
Alymatt, Inc. to purchase a 40-bed assisted living facility in East Lansdowne,
Pennsylvania known as the Nova Gardens Assisted Living Community (the "Nova
Gardens Facility") and to refinance existing debt on a 22-bed assisted living
facility in the Philadelphia, Pennsylvania suburb of Secane known as the Haskins
Personal Care Center (the "Haskins Facility"). The loan bears interest at a
fixed rate of 9.4% initially, which rate will increase annually thereafter by
multiplying the rate then in effect by 1.02 up to a cap of 10.25%, and has a
six-year term maturing on June 1, 2004 with monthly principal and interest
payments based on a 25-year amortization schedule. The Nova Gardens Facility was
constructed in 1912, with additions constructed in 1975 and renovations in 1995.
No renovation or

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development is contemplated for the Nova Gardens Facility in the near future.
The occupancy rate of the Nova Garden Facility has averaged 88.3% during 1998.
The Haskins Facility was constructed in 1910 with additions constructed in the
1960s. No renovation or development is contemplated for the Haskins Facility in
the near future. The occupancy rate for the Haskins Facility has averaged 97%
during 1998. The loan to JoJeff, Inc. and Alymatt, Inc. is one loan secured by a
first mortgage on both of the facilities. The LTV ratio for the loan to JoJeff,
Inc. and Alymatt, Inc. was 67.2% at origination based upon an appraisal prepared
by an independent third party measuring the value of the two properties
together.

Waban Realty Trust. In July 1998, the Company funded a permanent mortgage
loan in the principal amount of $2.5 million to J. Dennis Morgan, as Trustee of
the Waban Realty Trust, to provide financing for the acquisition of a 84-bed
skilled nursing facility in Newton, Massachusetts known as the Braeburn Nursing
Home. The loan bears interest at a fixed rate of 9.75% initially, which rate
will increase annually to a rate calculated by multiplying the interest rate
then in effect by the greater of 1.03 or the increase in the CPI. The loan has a
ten-year term maturing on July 1, 2008 with monthly principal and interest
payments based upon a 25-year amortization schedule. The Braeburn Nursing Home
was constructed in 1962 and has not undergone any material renovation since that
time. No renovation or development is contemplated for the Braeburn Nursing Home
in the near future. The LTV ratio for the Waban Realty Trust loan was 83.3% at
origination based upon an appraisal prepared by an independent third party. The
occupancy rate of the Braeburn Nursing Home has averaged 91% over the last two
years.

Pennswood Manor Assisted Living and Healthcare Center, Inc. In July 1998,
the Company funded a permanent mortgage loan in the principal amount of $1.7
million (the "Pennswood Loan") to Pennswood Manor Assisted Living and Healthcare
Center, Inc., a subsidiary of Covenant Care Corporation, to finance the
acquisition of a 68-bed assisted living facility in Scranton, Pennsylvania known
as Pennswood Manor. The loan bears interest at a fixed rate of 9.5% initially,
which rate will increase annually by multiplying the rate then in effect by
1.0275, and has a five-year term maturing on August 1, 2003, with monthly
principal and interest payments based upon a 25-year amortization schedule. In
addition to all interest, fees, prepayment premiums and all other amounts
payable to the Company, the Company is entitled to receive 50% of the residual
equity in connection with the sale or refinancing of Pennswood Manor. Pennswood
Manor was constructed in 1968 and was renovated in 1988 with further
improvements in 1996. The LTV ratio for the Pennswood Loan was 73.0% at
origination based upon an appraisal prepared by an independent third party.
Pennswood Manor was 88% occupied at March 31, 1998.

Probable Investments

Mountainside Manor, Inc. In July 1998, the Company issued a commitment to
make a permanent mortgage loan in the principal amount of $2.3 million to
Mountainside Manor, Inc., a subsidiary of Covenant Care Corporation, to finance
the acquisition of a 96-bed assisted living facility known as Mountainside
Manor. If funded, the loan will bear interest at a fixed rate of 9.5% initially,
which rate will increase annually by multiplying the rate then in effect by
1.0275, and will have a 5-year term with monthly principal and interest payments
based upon 25-year amortization schedule. In addition to all interest, fees,
prepayment premiums and all other amounts payable to the Company, the Company is
entitled to receive 50% of the residual equity in connection with the sale or
refinancing of Mountainside Manor. Mountainside Manor is a 48-unit, 96-bed
assisted living facility in Wilkes-Barre, Pennsylvania. The facility was
constructed in 1958 and was renovated in 1993, 1994 and 1997. At July 31, 1998
the facility was 90% occupied. No further renovations of the facility are
planned except for capital improvements, primarily cosmetic in nature,
aggregating approximately $75,000 to be completed by February 1999. The LTV
ratio for the loan will be limited to 90% of market value as determined by an
independent third-party appraisal.

Medicore, LLC. In May 1998, the Company issued a commitment to provide
permanent mortgage loan financing in an aggregate principal amount of $3.7
million to Medicore, LLC to finance the acquisition of four skilled nursing
facilities, three of which are located in Ohio and one of which is located in
Wisconsin. If funded, the loan will bear interest at a fixed rate equal to the
Ten Year Treasury Rate plus 4% initially, which rate will increase annually by
multiplying the rate then in effect by 1.03, and will have a ten-year term with
monthly principal and interest payments based upon a 25-year amortization
schedule. Kingston Healthcare

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Center, located in Kingston, Ohio, is a 50-bed, one-story skilled nursing
facility that was constructed in 1960. Twin Oaks Living/Learning & Care Center,
located in Mansfield, Ohio, contains 18 nursing home beds and 24 intermediate
care beds for the mentally retarded. It comprises a total of approximately
19,000 square feet, was constructed in 1946 with additions and/or renovations in
1960 and 1997. Chenita Group Home, located in Mansfield, Ohio, is a two-story,
eight-bed intermediate care facility for the mentally retarded. The facility was
built in 1900 with additions and renovations in 1978 and 1990. Whispering Oaks
Care Center, located in Peshtigo, Wisconsin, is a 60-bed, one-story skilled
nursing home that was built in 1960 with additions and renovations in 1995. The
seller of these facilities is providing financing of $700,000 at 11% (interest
only) for a five-year term. Only minor capital improvements are planned. The LTV
ratio for the loan to Medicore, LLC will be approximately 77.9% at origination,
based upon the aggregate value assigned to all four facilities in an appraisal
prepared by an independent third party.

OTHER REAL ESTATE SECURED DEBT PROGRAM

Actual Investments

ACMC Friendswood, Inc. In May 1998, the Company funded $925,000 of a $9.1
million commitment to ACMC Friendswood, Inc., a subsidiary of Adult Care
Management Corp. (collectively "ACMC"). The amount funded was for the
acquisition of a parcel of land in Friendswood, Texas upon which ACMC plans to
construct a 119-bed assisted living facility to be known as Park Place of
Friendswood. The Company will fund the remainder of the $9.1 million commitment
in the form of a construction loan to ACMC to finance the development and
construction of Park Place of Friendswood.

The Company expects that total development costs will be approximately $9.1
million and that the construction period will last approximately one year. Upon
completion, the construction loan will convert to a permanent mortgage loan.
During the construction phase, the loan bears interest at the floating rate of
prime plus 2% with interest only due and payable monthly. Upon conversion to a
permanent mortgage loan, the rate will become fixed to equal the Ten Year
Treasury Rate prevailing at that time plus 3.75%, but in no event will the fixed
rate be less than 9.5%. The interest rate will increase annually thereafter by
multiplying the rate then in effect by the greater of 1.03 or the increase in
the CPI. The loan will mature ten years after converting to a permanent mortgage
loan and will require principal and interest payments based on a 25-year
amortization schedule. The LTV for this loan will be limited to 90% of the
prospective market value at stabilized occupancy, as determined in an appraisal
prepared by an independent third party.

ALCO XII, LLC. In June 1998, the Company funded the initial draw on a $6.0
million commitment to ALCO XII, LLC to finance the construction of an 82-unit
assisted living facility in Hattiesburg, Mississippi. During the twelve-month
proposed construction period, the loan bears interest at a fixed rate of 10%,
with interest only due and payable monthly. Upon completion of construction, the
loan will convert to a two-year mortgage loan bearing interest at the fixed rate
of 10%, with interest only due and payable monthly until maturity. ALCO XII, LLC
has engaged Emeritus Corporation, a publicly-traded operator of such facilities,
to operate the facility for a management fee which will be subordinate to the
interest payable during the term of the loan.

The loan may result in a purchase-leaseback transaction for the Company. A
single-purpose partnership, in which the Company holds a 1% general partnership
interest and a 69% limited partnership interest, has the option to purchase the
facility after the twelve-month construction period upon the earlier to occur of
(i) break even occupancy at the facility, or (ii) two years from the end of the
construction period. The purchase price in connection with the option shall be
the total project costs at the date of purchase plus $40,000. If the option is
exercised, Emeritus Corporation, the operator, would be obligated to lease the
facility from the Company for an initial term of ten years, with the initial
lease rate established by applying the Ten Year Treasury Rate then in effect
plus 3.5% to an amount equal to the purchase price multiplied by approximately
1.09.

As of July 31, 1998, $498,000 of such loan had been advanced by the
Company. The total cost of development and construction of the facility is
estimated to be $6.2 million including land cost of $346,000. At origination,
the prospective LTV ratio for this loan was 89.4% based upon prospective market
value at

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stabilized occupancy, effective July 1, 2001, as determined in an appraisal
prepared by an independent third party.

Hildebran Health Investors, L.L.C. In June 1998, the Company funded the
initial draw on a $1.9 million commitment for a construction loan to Hildebran
Health Investors, L.L.C. a subsidiary of Chancellor Health Services, LLC, to
finance the construction of a 60-bed assisted living facility in Hildebran,
North Carolina to be known as Cambridge House. The remaining cost of development
and construction is estimated to be $1.5 million. During the 12-month proposed
construction period, the Hildebran Loan will bear interest at a floating rate
equal to prime plus 2%. Upon completion of construction, the loan will convert
to a permanent mortgage loan with a fixed interest rate equal to the Ten Year
Treasury Rate prevailing at that time plus 4%, but in no event will the fixed
rate be less than 9.75%. The fixed rate will increase annually to a rate
calculated by multiplying the rate then in effect by the greater of 1.03 or the
increase in the CPI. After completion of construction and conversion of the
interest rate, the loan is required to be repaid with monthly installments of
principal and interest calculated on the basis of a 25-year amortization
schedule, and matures on July 1, 2009. As of July 31, 1998, $394,000 had been
advanced by the Company on this loan. The LTV ratio for this loan was 82.6% at
origination based upon prospective market value at stabilized occupancy,
effective November 1, 2000, as determined in an appraisal prepared by an
independent third party.

St. Andrews Health Center, Inc. In June 1998, the Company funded $2.6
million of a $4.6 million commitment to St. Andrews Health Center, Inc. (the
"St. Andrews Loan") to finance the acquisition of a 120-bed skilled nursing
facility in Waterbury, Connecticut (the "Waterbury Facility") and the expansion
and renovation of such facility. The Waterbury Facility was built in 1966 and
has undergone renovation as needed as part of a regular maintenance program. The
Waterbury Facility was placed in bankruptcy by the former owner in March 1996.
The Waterbury Facility had average occupancy rates of 87.0%, 92.0% and 81.8% in
1995, 1996 and 1997, respectively. Currently the Waterbury Facility is
configured with 40, three-bed rooms for a total of 120 beds. St. Andrews Health
Center, Inc. plans to de-certify 30-beds, construct a 5,000 square foot
addition, substantially renovate the existing resident rooms and common areas
and reconfigure the facility to 90 beds. In anticipation of such
de-certification, the occupancy of the facility has been allowed to decline to
73%. As part of the renovation, most of the three-bed rooms will be converted to
two-bed rooms, resulting in a maximum capacity of 90 beds. The proposed
expansion includes five new resident rooms and a rehabilitation area. The LTV
ratio for the loan was 92.0% at origination based upon an appraisal prepared by
an independent third party. The St. Andrews Loan is in the form of an
acquisition loan (the "St. Andrews Acquisition Loan") in the principal amount of
$2.6 million (which represents 100% of the "as is" market value of the facility
as determined by an MAI Appraisal), and a construction loan (the "St. Andrews
Construction Loan") in the amount of $2.0 million (which represents 100% of the
proposed construction and renovation costs).

The St. Andrews Acquisition Loan bears interest at a rate equal to 11.5%
initially, which rate will increase annually by multiplying the rate then in
effect by 1.03, and has a ten-year term maturing on June 1, 2008 with monthly
principal and interest payments based upon an 25-year amortization schedule. The
St. Andrews Construction Loan bears interest at a floating rate equal to prime
plus 2% during the twelve-month proposed construction period with interest only
due and payable monthly. After completion of construction, the loan will convert
to a permanent mortgage loan at a fixed rate of interest equal to the Ten Year
Treasury Rate prevailing at that time plus 4.25%, but in no event will the fixed
rate be less than 11.5%. The fixed rate will increase annually by multiplying
the rate then in effect by 1.03. At completion of construction and conversion of
the interest rate, the loan will be required to be repaid over a ten-year term
maturing on June 1, 2008 with monthly payments of principal and interest based
upon a 25-year amortization schedule. At July 31, 1998, the St. Andrews
Acquisition Loan was fully funded in the amount of $2.6 million and $181,000 of
the St. Andrews Construction Loan had been advanced by the Company.

Transylvania Health Investors, L.L.C. In June 1998, the Company funded the
initial draw of a $1.9 million commitment for a construction loan to
Transylvania Health Investors, L.L.C., a subsidiary of Chancellor Health
Services, LLC, to finance the construction of a 60-bed assisted living facility
in Brevard, North Carolina to be known as the Kingsbridge House. During the
12-month proposed construction period, the loan bears interest at a floating
rate equal to prime plus 2%. Upon completion of construction, the loan will
convert to a permanent mortgage loan with a fixed interest rate equal to the Ten
Year Treasury Rate plus 4%, but in no event will the fixed rate be less than
9.75%. The fixed rate will increase annually thereafter to a rate

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calculated by multiplying the rate then in effect by the greater of 1.03 or the
increase in the CPI. After conversion of the interest rate, the loan is required
to be repaid with monthly principal and interest payments based on a 25-year
amortization schedule. The loan matures on July 1, 2009. At July 31, 1998,
$328,000 of such loan had been advanced by the Company. The remaining cost of
development and construction is estimated to be $1.6 million. The LTV ratio for
this loan is 82.6%, based upon prospective market value at stabilized occupancy,
effective November 1, 2000, as determined in an appraisal prepared by an
independent third party.

Cedar Lawn Investments, LLC. In July 1998, the Company funded a mortgage
loan in the principal amount of $5.7 million to finance the acquisition of a
skilled nursing facility located in Abington, Virginia. The loan is a bridge
financing that bears interest at a fixed rate of 10% and has a two-year term,
with interest only payable prior to maturity on July 20, 2000. Cedar Lawn
Convalescent Home is a 36,247 square foot single-story nursing home facility
originally constructed in 1966 which has undergone several expansions and
renovations, the latest of which was an addition built in 1996. A portion of the
building is leased to a physical therapy company. The facility was 83.3%
occupied at July 31, 1998. The LTV ratio for the loan to Cedar Lawn Investments,
LLC at origination was 106.7% "as is" and 78.1% assuming Medicare certification,
based upon an appraisal prepared by an independent third party. Medicaid
certification has been applied for and is being considered by HCFA.

Lincolnton Health Investors, LLC. In July 1998, the Company funded the
initial draw on a $1.9 million commitment for a construction loan to Lincolnton
Health Investors, LLC, a subsidiary of Chancellor Health Services, LLC, to
finance the construction of a 60-bed assisted living facility in Lincolnton,
North Carolina. The loan bears interest at a floating rate equal to prime plus
2% during the twelve month proposed construction period, and upon completion of
construction, the interest rate will convert to a fixed rate equal to the Ten
Year Treasury Rate prevailing at that time plus 4%, but in no event will the
fixed rate be less than 9.75%. The fixed rate will increase annually to a rate
calculated by multiplying the rate then in effect by the greater of 1.03 or the
increase in the CPI. At the completion of construction and conversion of the
interest rate, the loan will be required to be repaid over a ten-year term
maturing on August 1, 2009 with monthly payments of principal and interest based
upon a 25-year amortization schedule. The proposed facility will total
approximately 18,000 square feet and will contain 30 semi-private rooms. Funding
by the Company will be limited to 90% of prospective market value at stabilized
occupancy. As of July 31, 1998, $715,000 had been advanced by the Company. The
remaining cost of development and construction is estimated to be $1.2 million.
The LTV ratio for this loan was 82.6% at origination, based upon prospective
market value at stabilized occupancy, effective November 1, 2000, as determined
in an appraisal prepared by an independent third party.

Probable Investments

Astoria Pines Holding, Inc. In July 1998, the Company issued a commitment
to provide a $2.2 million mezzanine loan to Astoria Pines Holding, Inc.
("Astoria"). This $2.2 million commitment will represent a 50% participation in
the total mezzanine loan being provided to Astoria. The loan will serve to
provide the additional financing required to complete the construction of a
280-bed skilled nursing facility in Queens, New York which has a total estimated
project cost of $44.0 million and for which the primary construction loan is
being provided by Key Bank. The construction loan provided by Key Bank will be
refinanced upon completion with a permanent loan provided by Dynex Healthcare,
Inc., which is participating in the other 50% of the total mezzanine loan.

The total mezzanine loan of $4.4 million will be advanced approximately 18
months after the construction of the project has begun. The terms of the
Company's investment provide for a $300,000 commitment fee paid at the loan's
closing. The loan initially bears interest at 12% and increases one-half of one
percent annually over its four-year term. The loan has scheduled principal and
interest payments over such term sufficient to provide a payoff balance of
approximately $797,000 upon maturity.

The aggregate LTV ratio for the first mortgage and the mezzanine loan will
be 89.8% at origination, of which 79.8% is the LTV ratio for the first mortgage
and 10.0% is the LTV ratio for the mezzanine loan. All of

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<PAGE> 59

the foregoing LTV ratios for the loan to Astoria are based upon prospective
market value at stabilized occupancy, effective June 1, 2001, as determined in
an appraisal prepared by an independent third party.

Chancellor Health Services, LLC. In July 1998, the Company made a
commitment to purchase a 50% participation in a mezzanine loan for Chancellor
Health Services, LLC for the repayment of existing indebtedness, to fund certain
reserves and to provide working capital for 13 existing long-term care
facilities, ten of which are skilled nursing facilities and the remaining three
of which are dually licensed with skilled nursing and personal care beds. These
facilities are located in North Carolina and Florida. The principal amount of
the Company's commitment is $3.5 million. The loan will bear interest at a rate
of 12% in the first year, increasing by one-half of one percent annually over
its five-year term with monthly principal and interest payments based on a
25-year amortization schedule. Additional interest on this loan will accrue such
that the yield to the Company as computed by discounting the loan's cash flows
over the term of the loan will equal 22%. This additional interest may be paid
during the term of the loan at any time but is due in full upon maturity.

The properties are generally located in secondary and rural markets. Ten of
the facilities are at stabilized occupancy with rates ranging from 84% to 96%.
Three facilities were opened within the last 12 months and occupancy at such
facilities ranges from 15% to 73%. These facilities contain from 60 to 185 beds
and comprise a total of 1,532 beds located in the nine leased facilities and
four owned facilities. The leased properties have remaining terms of nine to 25
years. The aggregate LTV ratio for the first mortgage and the mezzanine loan is
61.2%, of which 41.4% is the LTV ratio for the first mortgage and 19.8% is the
LTV ratio for the mezzanine loan. All of the foregoing LTV ratios for the loan
to Chancellor Health Services, LLC are based on an aggregate market value of
$34.0 million assigned to the 13 facilities in an appraisal prepared by an
independent third party.

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<PAGE> 60

ACTUAL AND PROBABLE INVESTMENTS
AS OF JULY 31, 1998

EQUITY INVESTMENT PROGRAM:
<TABLE>
<CAPTION>

APPROX.
YEAR PURCHASE RENTABLE
NUMBER BUILT/ TYPE OF PRICE TYPE OF SQUARE ANNUALIZED
NAME AND LOCATION OF BEDS RENOVATED FACILITY(1) ($ MILLIONS) INVESTMENT FEET RENT
- ----------------- ------- ----------- ----------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Colonial Manor Home of Crofton
Crofton, MD(2)................... 15 1995/N/A ALF (3) Purchase 7,100 $133,000
Leaseback
Colonial Manor Home of Bel-Air
Bel-Air, MD(2)................... 15 1996/N/A ALF (3) Purchase 8,600 $133,000
Leaseback
Colonial Manor Home of Severna Park
Severna Park, MD(2).............. 16 1997/N/A ALF (3) Purchase 7,100 $133,000
Leaseback
Sherman Oaks Medical Center
Sherman Oaks, CA(2).............. N/A 1953/1997 MOB $10.5 Real Estate 69,700 $1,310,000
Acquisition
Meadowood Nursing Home
South Hadley, MA(4).............. 120 1987/N/A SNF $ 6.8 Purchase 40,000 $645,000
Leaseback
Winslow Convalescent Center
Winslow, AZ(4)................... 120 Proposed SNF $ 4.0 Purchase N/A N/A
Leaseback
Gulf Health Care Center of
Galveston, TX(4)................. 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Gulf Health Care Center of Texas
City, TX(4)...................... 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Gulf Health Care Center of Port
Arthur, TX(4).................... 150 1994/N/A SNF $ 7.4 Purchase 43,300 $720,000
Leaseback
Valencia Medical Center
Valencia, CA(4).................. N/A 1983/NA MOB $ 4.3 Real Estate 27,900 $552,000
Acquisition
Vista Village Shopping Center
Valencia, CA(4).................. N/A 1973,1979, Other $ 3.9 Real Estate 37,500 $461,000
1988/1985 Acquisition

- ---------------

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<PAGE> 61

PERMANENT MORTGAGE LOAN PROGRAM:
<TABLE>
<CAPTION>

<CAPTION>
TOTAL
AMOUNT AMOUNT
TO BE INVESTED
INVESTED TO DATE MATURITY
NAME OF BORROWER ($ MILLIONS) ($ MILLIONS) DATE
- ---------------- ------------ ------------- --------
<S> <C> <C> <C>
Applegate Lane, Inc.(1).................. $7.1 $7.1 2/20/08
Cromwell Crest Convalescent Home,
Inc.(1)................................ $7.8 $7.8 2/20/08
JoJeff, Inc. and Alymatt, Inc.(1)........ $2.0 $2.0 6/1/04
(3) (3) (3)
Waban Realty Trust
(J. Dennis Morgan, as Trustee)(1)...... $2.5 $2.5 7/1/08
Pennswood Manor Assisted Living and
Healthcare Center, Inc.(1)............. $1.7 $1.7 8/1/03
Mountainside Manor, Inc.(2).............. $2.3 None 5-year
term
Medicore, LLC(2)......................... $3.7 None 10-year
term
(4) (4) (4)
(4) (4) (4)
(4) (4) (4)
</TABLE>

- ---------------

57
<PAGE> 62

- ---------------

(1) Actual investment as of July 31, 1998.
(2) Probable investment as of July 31, 1998.

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<PAGE> 63

SELECTED FINANCIAL DATA

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<PAGE> 64

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
"Notes to Consolidated Financial Statements" and "Selected Financial and Other
Data" of the Company. Statements contained herein that are not historical facts
may be forward-looking statements. Such statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.

OVERVIEW

The Company, a Maryland corporation, was organized on January 30, 1998, and
intends to make an election to qualify under the Code as a REIT. The Company was
initially capitalized with the proceeds of a private placement of 805,555 shares
of Common Stock, totaling approximately $309,000. In May 1998, the Company
completed the Private Placement, wherein 1,450,000 Units were sold for net
proceeds of approximately $136.2 million. Following the Private Placement, the
Company began investing net proceeds thereof through its Equity Investment
Program, Permanent Mortgage Loan Program, and the Other Real Estate Secured Debt
Program.

Substantially all of the Company's revenues are, and are expected to be,
derived from: (i) rents received under leases of healthcare-related real estate,
(ii) interest earned from permanent mortgage loans and other real estate secured
loans made by the Company and (iii) interest earned from the temporary
investment of funds in short-term instruments. The Company's leases are
generally structured as either (i) master leases with numerous tenants or (ii)
long-term triple net leases to facility operators. The Company's master leases
are generally short-term and provide for fixed rental payments. The Company's
triple net leases generally provide that the lessee will pay all costs and
expenses of the property (including maintenance, repairs, taxes, assessments and
utilities) and generally provide for annual rent increases. The Company's loans
under its permanent mortgage loan program generally bear interest at fixed rates
ranging from 9% to 11%, or at rates based on the Ten Year Treasury Note rate
plus 4%, and are generally subject to annual interest rate increases. The
Company's loans under its Other Real Estate Secured Debt Program bear interest
at fixed or floating rates depending on the type of loan. Some fixed rate loans
include annual rate escalation clauses.

The Company will incur operating and administrative expenses, including
principally amounts paid to the Manager pursuant to the Management Agreement and
amounts paid to GMACCM under the Company's servicing agreement with GMACCM.

The Company also expects to leverage its portfolio and thus to incur long
and short-term indebtedness, and related interest expense, from time to time.
The extent to which the Company uses leverage will be determined by the Manager
pursuant to the Policies and, ultimately, by the Board of Directors. The
percentage of leverage used will vary depending on, among other things,
estimates of cash flow that the Company's assets will generate and the stability
of that cash flow. See "Risk Factors -- Leverage Can Reduce Income Available for
Distribution and Cause Losses."

The Company intends to declare and pay distributions to its stockholders in
amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's ability
to pay distributions will depend upon its cash available for distribution.

PRO FORMA RESULTS OF OPERATIONS

Period January 30, 1998 (inception) to June 30, 1998

The pro forma results of operations for the period January 30, 1998
(inception) to June 30, 1998 were prepared as if the Company's investments had
been made on January 30, 1998. The investments include those made during the
period from inception to June 30, 1998; those made subsequent to June 30, 1998
but before the date of this filing; and those investments the Company has
concluded are probable.

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<PAGE> 65

The Company's pro forma revenue for this period was $5.3 million. Total pro
forma revenue included $2.5 million in rental revenue, $1.8 million in interest
on mortgage notes receivable, and $1.0 million of interest earned on investments
in short-term government securities. Pro forma expenses were $2.1 million,
including management fee expenses of $869,000, depreciation of $538,000, and
other expenses of $657,000. Of the $657,000 of other expenses, $403,000 or 61.3%
of the amount was attributable to operating expenses of real estate operating
properties that were acquired in the Equity Investment Program. The remaining
$254,000 or 38.7% was attributable to other administrative and portfolio
development costs. The resulting pro forma net income was $3.3 million or $0.40
per share based on the pro forma weighted average shares outstanding of
8,055,555.

RESULTS OF OPERATIONS

Period January 30, 1998 (inception) to June 30, 1998

For the period from January 30, 1998 (inception) to June 30, 1998, the
Company's total revenues were $1.2 million. Of the $1.2 million earned for the
period indicated, $1.1 million related to interest earned on short-term
government securities acquired with the net proceeds of the Private Placement.

During May and June 1998, the Company originated mortgage loans aggregating
$21.3 million under both the Permanent Mortgage Loan Program and Other Real
Estate Secured Debt Program. The related interest earned for the period was
approximately $46,000. In mid-June 1998, the Company acquired, under its Equity
Investment Program, the Sherman Oaks Medical Center, a medical office building
in southern California for $10.5 million. Rental income from this property
during the partial month of ownership was $71,000. As mentioned above, the
Company pays the Manager a fee for advisory and management services. The
management fee recognized for this period was $238,000 or 69.3% of the period's
total expenses. The resulting net income for the period was $852,000 or $0.24
per share, based on the weighted average shares outstanding of 3,494,297.

LIQUIDITY AND CAPITAL RESOURCES

The $309,000 proceeds of the Company's initial private placement and the
$136.2 million net proceeds of the Private Placement have been the sole sources
of cash for the Company's investment programs from inception through June 30,
1998. Management of the Company believes that the net proceeds of the proposed
Initial Public Offering, together with the uninvested net proceeds of the
Private Placement, cash flows provided by operations and funds expected to be
available through the Repurchase Facility, will be sufficient to consummate the
purchase of properties and to fund loans with respect to which the Company has
commitments. Management of the Company believes that its sources of working
capital, including credit expected to be available under the Repurchase
Facility, will be adequate to meet its liquidity needs for the twelve-month
period following the effective date of this Registration Statement.

Capital Resources

Although structured as a sale and repurchase obligation, the Repurchase
Facility is expected to effect a financing under which the Company pledges
mortgage loans as collateral to secure advances made by MLMCI to the Company.
The amount advanced on any single mortgage loan generally is expected to be 63%
of the MAI appraised value of the property securing the mortgage. Loans eligible
for the Repurchase Facility will be subject to certain LTV, debt service and
diversification requirements. The term of any advance under the Repurchase
Facility may not exceed 180 days. Under the facility, the Company will be
subject to other operating and financial covenants, including leverage
restrictions and equity requirements. Advances made pursuant to this facility
will subject the Company to the interest rate risk resulting from differences
between the yield on investments funded on a long term basis with this facility
and the facility's short term cost of funds. The Company may enter into
derivative instruments in order to mitigate its exposure to this risk.

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<PAGE> 66

Liquidity

At June 30, 1998, the Company had approximately $106.9 million in cash and
cash equivalents. The Company intends to use remaining net proceeds of the
Private Placement and net proceeds of the proposed Initial Public Offering, cash
from operations and available borrowings under the expected Repurchase Facility
to fund its lending activities, acquisitions and capital expenditures and to
provide for general working capital requirements.

Capital Commitments

As of July 31, 1998, the Company had agreements to purchase five skilled
nursing facilities for an aggregate price of $33.1 million and two real estate
operating properties for an aggregate price of $8.2 million under the Equity
Investment Program. The Company also had commitments to fund $11.8 million in
new loans and $19.7 million committed to future draws on existing construction
loans. The Company presently expects to use remaining net proceeds of the
Private Placement and net proceeds of the proposed Initial Public Offering to
fund these obligations. The Company expects that these funds and funds available
under the Repurchase Facility will be sufficient to meet expected capital
commitments for the next twelve months.

FUNDS FROM OPERATIONS

Pro forma FFO for the period from inception to June 30, 1998 was $3.8
million. FFO was computed by taking the pro forma net income of $3.3 million for
the same period and adding to it the pro forma depreciation expense of $538,000
for the same period.

FFO for the period from inception to June 30, 1998 was $858,000. FFO was
computed by taking the net income of $852,000 for the same period and adding to
it the depreciation expense of $6,000 for the same period.

Industry analysts generally consider FFO to be an appropriate measure of
the performance of a REIT. The Company believes that in order to facilitate a
clear understanding of the operating results of the Company, FFO should be
examined in conjunction with the Company's net income as presented in the
Selected Financial Data and Consolidated Financial Statements and Notes thereto
included elsewhere herein.

The Company's computation of FFO may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. FFO does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions.

YEAR 2000

The Company relies upon the computer software programs and operating
systems of the Manager and its affiliates as well as the Company's borrowers and
lessees and third-party payors. The Company has been advised by the Manager that
the Manager has implemented a program designed to ensure that all software used
by the Manager and its affiliates in connection with their services for the
Company will manage and manipulate data involving transition of dates from 1999
to 2000 without functional or data abnormality and without inaccurate results
related to such data. The Company does not anticipate that the execution of this
program will have a material effect on its operating results. However, the
Company does not know whether its existing or prospective borrowers and lessees
and their respective third-party payors have implemented programs designed to
ensure that all software used will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality and
without inaccurate results relating to such data. Disruption of the computerized
billing and collection systems of the Company's borrowers and lessees or their
respective third-party payors could result in material reductions in income to
the Company's borrowers and lessees, which could cause defaults under the
Company's leases and/or mortgage loans and could have an

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<PAGE> 67

adverse effect on the Company. The Company is in the process of developing a
contingency plan for any disruption in the computerized billing and collection
systems of the Company's borrowers, lessees or their respective third-party
payors, and the Company expects to have such a contingency plan in place by
mid-1999.

INFLATION

The Company's investments generally contain provisions which mitigate the
adverse impact of inflation. In certain instances, both leases and loans provide
for periodic rent increases and interest rate increases, respectively, in the
forms of fixed increases and/or indexation to the CPI. In addition, under the
equity investment program, leases initiated under sale leaseback transactions
require the lessee to pay all operating costs and expenses including repairs,
maintenance, real property taxes, assessments, utilities, and insurance, thereby
substantially reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. Also, under the equity investment
program, leases in connection with medical office buildings generally contain
provisions whereby certain common area and other expenses are payable by the
various tenants.

Loans, both under the Permanent Mortgage Loan Program and under the Other
Real Estate Secured Debt Program generally bear interest at fixed rates, and as
explained above, in certain instances, contain provisions that provide for rate
increases. However, the yield of such instruments may not positively correlate
with changes in interest rates. See "Risk Factors."

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OPERATING PARTNERSHIP AGREEMENT

The following summary of the Operating Partnership Agreement, including the
descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

MANAGEMENT

The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Agreement of Limited Partnership of the
Operating Partnership (the "Operating Partnership Agreement"). The Company, as
the sole general partner of the Partnership, has exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the limited partners have no authority in their capacity as
limited partners to transact business for, or participate in the management
activities or decisions of, the Operating Partnership except as required by
applicable law. However, any amendment to the Operating Partnership Agreement
that would (i) adversely affect operation of the Conversion Factor or the
Redemption Rights (as hereinafter defined), (ii) adversely affect the limited
partners' rights to receive cash distributions, except in the case of the
issuance of additional Partnership Units, (iii) alter the Operating
Partnership's allocations of income or loss, except in the case of the issuance
of additional Partnership Units, (iv) impose on the limited partners any
obligations to make additional contributions to the capital of the Operating
Partnership, or (v) alter the rights respecting transfer by a limited partner of
a partnership interest, or any of the rights set forth in (i) through (v) above,
requires the consent of limited partners (other than the Initial Limited
Partner) holding more than two-thirds of the Partnership Units.

TRANSFERABILITY OF INTERESTS

The Company may not transfer all or any portion of its general interest in
the Operating Partnership or withdraw as general partner except pursuant to: (i)
a merger, consolidation or other combination or sale of substantially all of the
Company's assets in which either (x) consent of limited partners (other than the
Initial Limited Partner) holding more than 50% of the Partnership Units is
obtained, (y) limited partners receive an amount equal to the product of the
Conversion Factor and the greatest amount paid to a holder of Common Stock in
consideration for one share of Common Stock in the transaction, or (z) the
Company is the surviving entity and either holders of Common Stock do not
receive cash, securities or other property in the transaction or all limited
partners (other than the Initial Limited Partner) receive no less than the
product of the Conversion Factor and the greatest amount received by any holder
of the Common Stock; (ii) a merger or consolidation with another entity in which
(x) substantially all of the assets of the successor or surviving entity are
contributed to the Operating Partnership in exchange for Partnership Units and
(y) the successor or surviving entity expressly agrees to assume all of the
Company's obligations under the Operating Partnership Agreement; or (iii) a
transfer to a wholly owned subsidiary of the Company or to the owner of all of
the ownership interests in the Company. With certain limited exceptions, the
limited partners may not transfer their interests in the Operating Partnership,
in whole or in part, without the written consent of the Company, which consent
the Company may withhold in its sole discretion. The Company may not consent to
any transfer that would cause the Operating Partnership to be treated as a
corporation for federal income tax purposes.

CAPITAL CONTRIBUTION

The Operating Partnership Agreement provides that if the Company determines
that it is in the best interest of the Operating Partnership to provide for
funds for any partnership purpose, the Company may cause the Operating
Partnership to obtain such funds from outside borrowings or elect to provide
such funds to the Operating Partnership through loans or otherwise. The Company
is authorized under the Operating Partnership Agreement to cause the Operating
Partnership to issue partnership interests for less than fair market value if
the Company has concluded in good faith that such issuance is in the best
interest of the Company and the Operating Partnership. Under the Operating
Partnership Agreement, the Company may

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<PAGE> 69

contribute the proceeds of any offering by the Company of Common Stock as
additional capital to the Operating Partnership subject to the requirement that
capital contributions by the Company to the Operating Partnership be made in a
manner, to the extent possible, to avoid classification of the Operating
Partnership as an "investment company" for federal income tax purposes. Upon
such contribution, the Company will receive additional Partnership Units and the
Company's percentage interest in the Operating Partnership will be increased on
a proportionate basis based upon the amount of such additional capital
contributions. Conversely, the percentage interests of the limited partners will
be decreased on a proportionate basis in the event of additional capital
contributions by the Company. In addition, if the Company contributes additional
capital to the Operating Partnership, the Company will revalue the property of
the Operating Partnership to its fair market value (as determined by the
Company) and the capital accounts of the partners will be adjusted to reflect
the manner in which the unrealized gain or loss inherent in such property (that
has not been reflected in the capital accounts previously) would be allocated
among the partners under the terms of the Operating Partnership Agreement if
there were a taxable disposition of such property for such fair market value on
the date of the revaluation.

REDEMPTION RIGHTS

Pursuant to the Operating Partnership Agreement, the limited partners have
redemption rights ("Redemption Rights") that enable them to cause the Operating
Partnership to redeem their Partnership Units for cash, or at the option of the
Company, shares of Common Stock. At the option of the Company, the redemption
price will be paid in cash or the exercise of the Redemption Rights refused in
the event that the issuance of shares of Common Stock to the redeeming limited
partner (the "Redeeming Partner") would (i) result in any person owning,
directly or indirectly, shares of Common Stock in excess of the Ownership
Limitation, (ii) result in shares of beneficial interest of the Company being
owned by fewer than 100 persons (determined without reference to any to rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, directly
or constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Operating Partnership's or a subsidiary partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, or (v) cause
the acquisition of shares of Common Stock by such Redeeming Partner to be
"integrated" with any other distribution of shares of Common Stock for purposes
of complying with the Securities Act. The Redemption Rights may be exercised by
the limited partners at any time beginning after May 5, 1999, provided that the
ability of the limited partners to exercise their redemption rights may be
further restricted if, in the opinion of counsel, the restrictions are necessary
in order to avoid the Operating Partnership being classified as a "publicly
traded partnership" under Section 7704 of the Code. In addition, each limited
partner may not exercise the Redemption Rights for less than 1,000 Partnership
Units or, with respect to any limited partner holding less than 1,000
Partnership Units, all of the Partnership Units held by such limited partner.
The number of shares of Common Stock issuable upon exercise of the Redemption
Rights will be based upon a Conversion Factor, that initially will equal 1.0,
but which will be adjusted upon the occurrence of share splits, mergers,
consolidations or similar pro rata share transactions, which otherwise would
have the effect of diluting the ownership interests of the limited partners or
the stockholders of the Company.

OPERATIONS

The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT for federal tax purposes, to avoid any federal
income or excise tax liability imposed by the Code, and to ensure that the
Operating Partnership will not be classified as a "publicly traded partnership"
for purposes of Section 7704 of the Code.

In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, once fully funded, the Operating Partnership will
pay all administrative costs and expenses of the Company (collectively, the
"Company Expenses") and the Company Expenses will be treated as expenses of the
Operating Partnership. The Company Expenses generally will include, without
limitation, the following: (i) all expenses relating to the formation and
continuity of existence of the Company and any subsidiaries thereof;

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<PAGE> 70

(ii) all expenses relating to the public offering and registration of securities
by the Company; (iii) costs and expenses associated with any repurchase of any
securities by the Company; (iv) all expenses associated with the preparation and
filing of any periodic reports by the Company under federal, state or local laws
or regulations, including filings with the Commission; (v) all expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body, including the Commission and any securities
exchange; (vi) costs and expenses associated with any 401(k) plan, incentive
plan, bonus plan or other plan providing for compensation for the employees of
the Company; (vii) costs and expenses incurred by the Company relating to any
issuance or redemption of Partnership Units; (viii) costs and expenses
associated with management of the Company by the Manager; and (ix) all other
operating or administrative costs of the Company incurred in the ordinary course
of its business on behalf of the Operating Partnership, including fees and other
amounts paid pursuant to the Management Agreement.

DISTRIBUTIONS

The Operating Partnership Agreement requires the Operating Partnership to
distribute cash on a quarterly (or, at the election of the Company, more
frequent) basis, in amounts determined by the Company in its sole discretion, to
the partners in accordance with their respective percentage interests in the
Operating Partnership. The Operating Partnership Agreement requires that the
Company use its reasonable discretion to distribute an amount on a quarterly (or
more frequent) basis so that each limited partner receives a cash amount equal
in value to the aggregate cash dividends that would have been payable to such
limited partner in the event that such limited partner owned shares of Common
Stock; provided however, that in the event that the Company and its subsidiaries
own fewer Partnership Units than the number of outstanding shares of Common
Stock, then all distributions will be paid first to those limited partners that
are not subsidiaries of the Company. Until such time as the Operating
Partnership is fully funded, the Company may be required to make additional
contributions to the Operating Partnership in order to enable the Operating
Partnership to make distributions in the required amounts to such limited
partners. Upon liquidation of the Operating Partnership, after payment of, or
adequate provision for, debts and obligations of the Operating Partnership,
including any partner loans, any remaining assets of the Operating Partnership
will be distributed to all partners with positive capital accounts in accordance
with their respective positive capital account balances.

ALLOCATIONS

Subject to compliance with the provisions of Section 704(b) and (c) of the
Code and Treasury Regulations promulgated thereunder, income, gain and loss of
the Operating Partnership for each fiscal year generally will be allocated among
the partners, proportionately, so that each partner has been allocated income or
profit in an amount equal to the cumulative distributions received by each
partner, and loss shall be allocated to the partners in accordance with their
respective interests in the Operating Partnership. Any income or gain in excess
of the cumulative distributions of the Operating Partnership shall be allocated
in accordance with the partners' respective interests in the Operating
Partnership. Notwithstanding the foregoing, in the event of a sale or other
disposition of all or substantially of the Operating Partnership's assets, any
income, gain or loss shall be allocated in a manner that causes each capital
account to equal zero after the distribution of proceeds to the partners from
such sale or other disposition. Any difference between the amount of income,
gain or loss required to reduce each partner's capital account to zero and the
actual amount of income, gain or loss resulting from such a sale or other
disposition is generally allocated to the partners in accordance with their
respective interests in the Operating Partnership.

TERM

The Operating Partnership will remain in existence until December 31, 2098,
or until sooner dissolved upon (i) the occurrence of an Event of Bankruptcy (as
defined in the Operating Partnership Agreement) as to the Company or the
dissolution, death, removal or withdrawal of the Company as general partner
(unless the business of the Operating Partnership is continued), (ii) the
passage of 90 days after the sale or other disposition of all or substantially
all of the Operating Partnership's assets, or (iii) at any time after June 5,
1999, the election by the Company to dissolve the Operating Partnership.

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FIDUCIARY DUTY

The Operating Partnership Agreement provides that in the event of a
conflict between the interests of the Company's stockholders on the one hand and
the Operating Partnership's limited partners on the other, the Company shall
endeavor to resolve the conflict in a manner not adverse to either the Company's
stockholders or the Operating Partnership's limited partners. For so long as the
Company, as general partner, owns a controlling interest in the Operating
Partnership, any such conflict that the Company determines cannot be resolved in
a manner not adverse to either the Company's stockholders or the Operating
Partnership's limited partners shall be resolved in the favor of the Company's
stockholders.

PREEMPTIVE RIGHTS

None of the limited partners nor any other person shall have any
preemptive, preferential or other similar right to make additional capital
contributions or loans to the Operating Partnership, or to purchase additional
Partnership Units to be issued by the Operating Partnership.

TAX MATTERS

Pursuant to the Operating Partnership Agreement, the Company is the tax
matters partner of the Operating Partnership and, as such, has authority to
handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a summary of the Policies, which set forth the general
parameters for the Company's investments, borrowings and operations. The
Policies may be changed by the Board of Directors without a vote of the
stockholders. The Manager is empowered to make the day-to-day investment
decisions of the Company based on the Policies. Such investment decisions will
include decisions to issue commitments on behalf of the Company to purchase
mortgage loans, healthcare facilities and other assets meeting the investment
criteria of the Company. The Independent Directors will review all transactions
of the Company on a quarterly to ensure compliance with the Policies. The
Independent Directors are expected to rely substantially on information and
analysis provided by the Manager to evaluate the Policies, compliance therewith
and other matters relating to the Company's investments.

The Company intends to invest in a variety of healthcare facilities,
including nursing facilities, assisted living facilities, medical office
buildings, acute care hospitals, mental health facilities, rehabilitation
hospitals, retirement living facilities, CCRCs and out-patient service centers.
The Company's investments may be structured using various types of mortgage
loans, purchase leaseback transactions, joint ventures and partnerships, or any
combination of the foregoing that will best suit the particular investment.

INVESTMENT POLICIES

The Company, in consultation with the Manager, may establish underwriting
criteria for evaluating potential investments and, if such underwriting criteria
are established, the Company, in consultation with the Manager, may modify such
underwriting criteria at any time and from time to time. The Company's policy
generally is to offer a price for each asset that it contemplates acquiring not
greater than the price that the Manager estimates to be sufficient to generate
an acceptable risk-adjusted return to the Company from the acquisition of that
asset.

In evaluating potential investments, the Company will consider such factors
as (i) the type of facility, (ii) the location, construction quality, condition
and design of the facility, (iii) the facility's current and anticipated cash
flow and its adequacy to meet operational needs and lease obligations or debt
service obligations, (iv) the quality and reputation of the facility's owner or
operator, (v) the growth, tax and regulatory environments of the communities in
which the facilities are located, (vi) the occupancy and demand for similar
facilities in the area surrounding the facility, and (vii) the reimbursement
policies and plans of the state in which the facility is located. The Company
prefers to invest in facilities that have a

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<PAGE> 72

significant market presence in the community and where state licensing
procedures limit the entry of competing facilities.

Prior to every investment, the Manager or an affiliate will conduct a
facility site review to access the general physical condition of the facility
and the quality of care the operator provides. In addition, the Manager or an
affiliate will review the environmental reports, real estate survey and
financial statements of the facility before the investment is made.

Although the Company intends to diversify its portfolio over the long term
by type of facility, there are no limitations on the amount or percentage of the
Company's total assets that may be invested in any one facility or type of
facility.

FINANCING POLICIES

The Company expects to enter into the Repurchase Facility with MLMCI.
Although structured as a sale and repurchase obligation, the proposed Repurchase
Facility would effect a financing under which the Company pledges mortgage loans
as collateral to secure advances made by MLMCI to the Company. The maximum
amount that may be advanced to the Company under the proposed Repurchase
Facility is $150 million.

The Company may incur indebtedness when, in the opinion of the Board of
Directors, it is advisable. The Company may incur indebtedness to make
investments in additional facilities or to meet the distribution requirements
imposed upon REITs under the Code (see "Taxation of the Company -- Requirements
for Qualification"). For short-term purposes, the Company may, from time to
time, negotiate lines of credit, or arrange for other short-term borrowings from
banks or otherwise. The Company may also arrange for long-term borrowings
through public offerings or from institutional investors.

In addition, the Company may incur mortgage indebtedness on real estate
which it has acquired through purchase, foreclosure or otherwise. The Company
may also obtain mortgage financing for unleveraged or underleveraged properties
in which it has invested or may refinance properties acquired on a leveraged
basis. There is no limitation on the number or amount of mortgages which may be
placed on any one property, and the Company has no policy with respect to
limitations on borrowing, whether secured or unsecured.

POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES

The Company currently does not intend to invest in the securities of other
issuers for the purpose of exercising control, to issue any series of senior
securities, to underwrite securities of other issuers, to offer securities in
exchange for property (other than the exchange of limited partnership interests
in the Operating Partnership for properties in the Company's Equity Investment
Program). The Company may repurchase or otherwise reacquire shares of its Common
Stock when, in the opinion of the Board of Directors, it is advisable.

POLICIES WITH RESPECT TO INTERESTED DIRECTORS

William E. Shine, a director of the Company, is an officer of GMACCM. The
Company has purchased and expects to purchase mortgage loans from time to time
from GMACCM pursuant to the GMACCM Agreement. In addition, Joshua B. Gillon, a
director of the Company, will be paid a finder's fee with respect to the
Repurchase Facility. The Company's policies require Mr. Shine and Mr. Gillon to
abstain from voting as a member of the Board of Directors on matters relating to
GMACCM or the Repurchase Facility, respectively.

POLICIES WITH RESPECT TO TRANSACTION APPROVAL REQUIREMENTS

The Board of Directors has established the following policies regarding
approval requirements for certain types of transactions.

The following transactions require approval of Board of Directors: (i)
mortgage loans where the principal amount thereof exceeds 20% of the Company's
total assets; (ii) purchase leaseback transactions which are in the nature of
financing transactions (i.e., a triple net lease) and where the purchase price
exceeds 20% of the Company's total assets; (iii) mortgage loans or purchase
leaseback transactions involving a triple net lease, regardless of the amount
involved, if the amount of the loan or purchase price would cause loans or
leases to a

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<PAGE> 73

single borrower/lessee (or to a group of related parties or parties under common
control) to exceed 25% of the Company's total assets; (iv) a real estate
purchase of $10 million or more (e.g., of a medical office building, hospital,
etc.), even if a triple net lease is contemplated; (v) extension or commitment
of a line of credit exceeding 20% of the Company's total assets to a single
borrower or 25% in the aggregate to related parties or parties under common
control; and (vi) any transaction involving the purchase or assumption (or take
out) by the Company of a transaction originated and initially closed by HCFP or
an affiliate of HCFP and in such instance requires approval of the Independent
Directors (a majority of those persons and unanimity among all Independent
Directors who considered the matter). Certain permanent mortgage loans which
fully meet certain specified criteria established by the Independent Directors
do not require submission to the Board of Directors for approval, nor approval
by Independent Directors even where such mortgage loan is used to take out or
refinance debt owed to HCFP or an affiliate of HCFP.

Transactions not requiring approval of Board of Directors include: (i)
certain permanent mortgage loans which fully meet certain specified criteria,
which require approval only of the Credit Committee; (ii) other mortgage loans
(other than those within (vi) above) and real estate acquisitions and purchase
leaseback transactions below the thresholds set forth above require approval
only of the Credit Committee; and (iii) in some instances, particularly where
requested or required by the borrower/seller/lessee, transactions not requiring
approval of the Board of Directors may be submitted to the Executive Committee
for approval.

POLICIES WITH RESPECT TO INTERCREDITOR ARRANGEMENTS

The Company's policies require that the Company and HCFP enter into an
intercreditor agreement in situations where loans of the Company and HCFP are
made to the same borrower. These intercreditor agreements will provide that all
of the Company's rights will be (x) senior to the rights of HCFP with respect to
collateral consisting of interests in real estate (including fixtures) and
related proceeds; and (y) subject and subordinate to the rights of HCFP with
respect to the following collateral: (i) all of the borrower's owned and
after-acquired accounts receivable (the "Receivables"), and any contract rights
with respect to the Receivables; (ii) all of the borrowers owned and
after-acquired general intangibles relating to the Receivables and other rights
to payment for delivery of medical and other goods and services; (iii) all of
borrower's property at any time in the possession of or under the control of
HCFP or a bailee or affiliate of HCFP pursuant to the terms of the loan and
security agreement or agreements between HCFP and the borrower; and (iv) the
proceeds of any or all of the foregoing. See "Conflicts of Interest."

The Company may change its policies in connection with any of the foregoing
without the approval of the stockholders.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of July 31, 1998, assuming
the exercise of each of the Warrants, by: (i) each person or entity known by the
Company to own beneficially five percent or more of the outstanding Common
Stock, (ii) each member of the Board of Directors of the Company, (iii) each
executive officer of the Company, and (iv) all executive officers of the Company
and all members of the Board of Directors as a group. Unless otherwise
indicated, the business address of the stockholders listed below is that of the
Company's principal executive offices. Except as indicated in the footnote to
the table, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned. The following
information was determined in accordance with Rule 13d-3 under the Exchange Act
and is not designed to reflect ownership as determined under the provisions of
the Code.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENT
- ------------------------ --------- -------
<S> <C> <C>
Och-Ziff(2)................................................. 870,000 10.6
Wallace Weitz & Company(3).................................. 870,000 10.6
McGlinn Capital Management(4)............................... 870,000 10.6
Fleet Investment Management(5).............................. 870,000 10.6
Wellington Management Company, LLP(6)....................... 870,000 10.6
HealthCare Financial Partners, Inc.......................... 841,665 10.3
Bricoleur Partners(7)....................................... 600,000 7.4
Credit Suisse First Boston Corporation(8)................... 600,000 7.4
Farallon Capital Partners, L.P.(9).......................... 350,157 4.3
Farallon Capital Institutional Partners, L.P.(9)............ 332,565 4.1
Farallon Capital Institutional Partners II, L.P.(9)......... 83,447 1.0
Farallon Capital Institutional Partners III, L.P.(9)........ 72,815 1.0
Tinicum Partners, L.P.(9)................................... 72,000 1.0
R.R. Capital Partners L.P.(9)............................... 408 *
Farallon Capital Management, L.L.C.(9)...................... 9,000 *
John K. Delaney............................................. 83,247 *
Ethan D. Leder.............................................. 83,247 *
Edward P. Nordberg, Jr...................................... 83,247 *
Steve M. McGee.............................................. 18,825 *
Mark H. Hamermesh........................................... 19,862 *
Steve W. Bolen.............................................. 5,098 *
Thomas M. Gilmore........................................... 5,098 *
Miriam M. Leder............................................. 5,098 *
Daryl McCombs............................................... 4,706 *
Daniel L. Willison.......................................... 0
Donald S. Franyo(10)........................................ 0
Joshua B. Gillon(11)........................................ 1,111 *
Andrew Schoenfeld(12)....................................... 1,274 *
William E. Shine(13)........................................ 0
All directors and executive officers as a group (14
persons).................................................. 310,813 3.9
</TABLE>

- ---------------

* Less than one percent.
(1) Includes Warrant Shares for each stockholder, if any, which may be acquired
upon the exercise of Warrants.
(2) Och-Ziff's address is 153 East 53rd Street, 43rd Floor, New York, NY 10022.
(3) Wallace Weitz & Company's address is 1125 South 103rd Street, Suite 600,
Omaha, NE 68124.
(4) McGlinn Capital Management's address is 850 N. Wyomissing Boulevard,
Wyomissing, PA 19610.
(5) Fleet Investment Management's address is 75 State Street, 5th Floor,
Boston, MA.
(6) Wellington Management Company, LLP ("WMC"), in its capacity as investment
adviser, may be deemed to beneficially own 870,000 shares of the Common
Stock. Such shares are owned by numerous investment advisory clients of
WMC, none of which is known to beneficially own more than five percent of
the Common Stock. The foregoing is based solely upon information furnished
to the Company by WMC. WMC's address is 75 State Street, 19th Floor,
Boston, MA 02109.
(7) Bricoleur Partners' address is 8910 University Center Lane, Suite 570, San
Diego, CA 92122.

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(8) Credit Suisse First Boston Corporation's address is c/o Credit Suisse First
Boston, 11 Madison Avenue, New York, NY 10010.
(9) Farallon Capital Partners, L.P., Farallon Capital Institutional Partners,
L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital
Institutional Partners III, L.P., Tinicum Partners, L.P. and R.R. Capital
Partners, L.P. (collectively, the "Farallon Partnerships") each directly
holds the shares listed opposite its name. As the general partner of each
of the Farallon Partnerships, Farallon Partners, L.L.C. ("FPLLC") may be
deemed to own beneficially, for purposes of Rule 13d-3 under the Exchange
Act, the 911,057 shares held by the Farallon Partnerships. By virtue of an
investment management agreement between Farallon Capital Management,
L.L.C., a registered investment adviser ("FCMLLC"), and a managed account,
FCMLLC may be deemed the beneficial owner, for purposes of Rule 13d-3 under
the Exchange Act, of the 9,000 shares held, in aggregate, by such account.
As the managing members of FPLLC, each of Enrique H. Boilini, David I.
Cohen, Joseph F. Downes, Fleur E. Fairman, Jason M. Fish, Andrew B.
Fremder, William F. Mellin, Stephen L. Millham, Meridee A. Moore and Thomas
F. Steyer may, for purposes of Rule 13d-3 under the Exchange Act, be deemed
to own beneficially the 911,057 shares held, in aggregate, by the Farallon
Partnerships. As the managing members of FCMLLC, each of Enrique H.
Boilini, David I. Cohen, Joseph F. Downes, Jason M. Fish, Andrew B.
Fremder, William F. Mellin, Stephen L. Millham, Meridee A. Moore and Thomas
F. Steyer may, for purposes of Rule 13d-3 under the Exchange Act, be deemed
the beneficial owner of the 9,000 shares held in such account managed by
FCMLLC. Each of FCMLLC and FPLLC, and each managing member thereof,
disclaim any beneficial ownership of such shares. All of the above-
mentioned entities and persons disclaim group attribution. The foregoing is
based solely upon information furnished to the Company by the Farallon
Partnerships and FCMLLC. The address of the Farallon Partnerships is One
Maritime Plaza, Suite 1325, San Francisco, CA 94111.
(10) Mr. Franyo's address is 12514 Perryfield Lock Road, Potomac, MD 20854.
(11) Includes 555 shares owned by the spouse of Mr. Gillon.
(12) Mr. Schoenfeld's address is 207 West 106th Street, Apartment 17D, New York,
NY 10025.
(13) Mr. Shine's address is c/o GMACCM, 2200 Woodcrest Place, Suite 305,
Birmingham, AL 35209.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The Charter provides that the Company may issue up to 500,000,000 shares of
capital stock, all of which shall initially be classified as Common Stock
($0.0001 par value). The Board of Directors may classify and reclassify any
unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of capital stock. At June 30, 1998, 8,055,555
shares of Common Stock were issued and outstanding, and 2,450,000 shares of
Common Stock were reserved for issuance upon exercise of options and the
Warrants, and no preferred stock was issued and outstanding.

COMMON STOCK

All outstanding shares of Common Stock have been duly authorized and are
fully paid and nonassessable. Subject to the preferential rights of any other
shares or series of shares of capital stock, holders of Common Stock are
entitled to receive non-cumulative dividends if and when authorized and declared
by the Board of Directors out of assets legally available therefore and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company intends to pay quarterly dividends.

Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of capital stock, the holders of
Common Stock will possess the exclusive voting power. There is no cumulative
voting in the election of directors, which means in all elections of directors,
each holder of Common Stock has the right to cast one vote for each share of
stock for each candidate. For a discussion of the voting rights of holders of
the Common Stock, including the provisions specifying the vote required by
security holders to take action, see "Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws."

No holder of any Common Stock shall have any preemptive right to subscribe
for a purchase any stock or other securities of the company other than such, if
any, as the Board of Directors, in its sole discretion, may determine.

Certain provisions of the Charter and Bylaws and certain provisions of
Maryland law could have the effect of delaying, deferring or preventing a change
in control of the Company. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."

PREFERRED STOCK

The Charter authorizes the Board of Directors to classify and reclassify
unissued capital stock into shares of preferred stock ("Preferred Stock") of one
or more series without the approval of the stockholders. Because the Board of
Directors has the power to establish the preferences and rights of each class or
series of Preferred Stock, the Board of Directors may afford the holders of any
series or class of Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of the holders of Common Stock. The Board of
Directors could authorize the issuance of Preferred Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which holders of some, or a majority, of the shares of Common Stock
might believe to be in their best interests or in which holders of some, or a
majority, of the shares of Common Stock might receive a premium for their shares
of Common Stock over the then market price of such shares of Common Stock. As of
the date hereof, no shares of Preferred Stock are outstanding and the Company
has no current plans to issue Preferred Stock.

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WARRANTS

The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and the warrant agent (the "Warrant Agent"). The
Bank of New York acts as Warrant Agent. The following is a brief summary of
certain provisions of the Warrant Agreement and does not purport to be complete
and is qualified in its entirety by reference to the Warrant Agreement including
the definitions therein of certain terms used below.

Each Unit consists of five shares of Common Stock and one Warrant. Each
Warrant, when exercised, will entitle the holder thereof to receive one share of
Common Stock. The Warrants will not become detachable from shares of Common
Stock until November 5, 1998. Prior to automatic separation of the related
Warrant, the Units will be represented by the Common Stock, which bears an
endorsement representing beneficial ownership of the related Warrants on deposit
with the Warrant Agent as custodian for the registered holders of the Common
Stock. Prior to automatic separation, transfer of a share of Common Stock will
also constitute transfer of a holder's beneficial interest in the related
Warrant.

The Warrants will become exercisable on November 5, 1998 and will remain
exercisable until 5:00 p.m. New York City Time on April 29, 2001 (the
"Expiration Date") at an initial exercise price per Warrant Share equal to
$20.00 and will be subject to certain anti-dilution protection.

The Warrants held in certificated form may be exercised by presenting and
surrendering to the Warrant Agent the definitive Warrant certificates evidencing
such Warrants, with the accompanying notice of exercise properly completed and
executed, together with payment of the exercise price and any other amounts
required to be paid in connection with such exercise. Warrants held in
book-entry form may be exercised only in accordance with procedures established
among DTC and its Participants (as defined below). Pursuant to such procedures,
a Beneficial Owner (as defined below) wishing to exercise a Warrant is required
to give notice, through its Participant, to the Warrant Agent, and to effect
delivery of the Warrant by causing the Participant to transfer the Participant's
interest in the Warrant, on DTC's records, to the Warrant Agent. See"-- Book-
Entry Only Issuance -- The Depository Trust Company." The requirement for
physical delivery of the Warrant in connection with the exercise thereof will be
deemed satisfied when the ownership rights in the Warrant are transferred by
Participants on DTC's records and followed by a book-entry credit of the
tendered Warrant to the Warrant Agent's account.

Payment of the exercise price may be made (a) in the form of cash or by
certified or official bank check payable to the order of the Company, or (b) by
surrendering additional Warrants or shares of Common Stock for cancellation to
the extent the Company may lawfully accept shares of Common Stock, with the
value of such shares of Common Stock for such purpose equal to the average
trading price of the Common Stock during the 20 trading days preceding the date
surrendered and the value of the Warrants to equal the difference between such
value of a share of Common Stock and the exercise price.

No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The holders of the Warrants have no right to vote on matters submitted
to the stockholders of the Company and have no right to receive dividends. The
holders of the Warrants not yet exercised are not entitled to share in the
assets of the Company in the event of liquidation, dissolution or the winding up
of the affairs of the Company.

The exercise price of the Warrants will be appropriately adjusted if the
Company (i) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock or makes certain other dividends or distributions on
its Common Stock (other than cash dividends out of funds legally available
therefor), (ii) subdivides its outstanding shares of Common Stock into a greater
number of shares, (iii) combines its outstanding shares of Common Stock into a
smaller number of shares, (iv) issues by reclassification of its Common Stock
any other shares of its capital stock.

In case of certain consolidations or mergers of the Company, or the
liquidation of the Company or the sale of all or substantially all of the assets
of the Company to another person or entity, each Warrant will thereafter be
deemed exercised for the right to receive the kind and amount of shares of stock
or other securities or property to which such holder would have been entitled as
a result of such consolidation, merger or sale ha the Warrants been exercised
immediately prior thereto, less the exercise price.

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<PAGE> 78

RESTRICTIONS ON TRANSFER

Restrictions under Charter. For the Company to qualify as a REIT under the
Code, it must meet certain requirements concerning the ownership of its
outstanding shares of capital stock. Specifically, not more than 50% in value of
the Company's outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than its 1998 taxable year), and
the Company must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (other than its 1998 taxable year). See "Federal Income Tax
Considerations -- Requirements for Qualification."

Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions and
waivers described below, provides that no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.9% of the number
of outstanding shares of Common Stock or of any series of Preferred Stock (the
"Ownership Limitation").

Subject to certain exceptions described below, the Charter provides that
any purported transfer of shares of Common Stock or Preferred Stock (or certain
other events) that would (i) result in any person owning, directly or
indirectly, shares of Common Stock or Preferred Stock in excess of the Ownership
Limitation, (ii) result in the shares of Common Stock or Preferred Stock,
collectively, being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (iii) result in the Company being
"closely held" within the meaning of section 856(h) of the Code, (iv) cause the
Company to own, actually or constructively, 10% or more of the ownership
interests in a tenant of the Company's real property, within the meaning of
section 856(d)(2)(B) of the Code or (v) result in such shares being owned by a
disqualified organization, (each of the foregoing shall be referred to herein as
a "Prohibited Transfer Event"), shall be void ab initio as to the transfer of
that number of shares that would otherwise be beneficially owned (determined
without reference to any rules of attribution) by the transferee, and the
intended transferee shall acquire no rights in such shares of Common Stock or
Preferred Stock. For purposes of the foregoing, a "Disqualified Organization"
means (A) the United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentally of the foregoing, (B) any organization (other than a cooperative
described in section 521 of the Code) which is exempt from tax unless such
organization is subject to the tax imposed by section 511 of the Code and (C)
any organization described in section 1381(a)(2)(C) of the Code.

The Board of Directors may, however, exempt a person from the Ownership
Limitation upon receipt of a satisfactory ruling from the Service or an opinion
of counsel, provided that (i) the Board of Directors obtains such
representations and undertakings from such person as are reasonably necessary to
ascertain that no individual's beneficial or constructive ownership of Common
Stock will result in the Company being "closely held" within the meaning of
Section 856(h) of the Code or cause the Company to constructively own 10% or
more of the interests in a tenant of the real property of the Company, the
Operating Partnership or a subsidiary, within the meaning of Section 856(d) (2)
(B) of the Code, and (ii) such person agrees in writing that any violation or
attempted violation will result in such transfer becoming a transfer to the
Trust (as defined below).

If there is a Prohibited Transfer Event, except as described below, the
purported transferor shall cease to own any right or interest in the number of
shares that would otherwise be transferred and such shares will be designated as
"Shares-in-Trust" and transferred automatically to a trust (the "Trust")
effective on the day before the purported transfer of such shares of Common
Stock or Preferred Stock. The record holder of the shares of Common Stock or
Preferred Stock that are designated as Shares-in-Trust (the "Prohibited Owner")
will be required to submit such number of shares of Common Stock or Preferred
Stock to the Company for registration in the name of the Trust. The trustee of
the Trust (the "Trustee") will be designated by the Company, but will not be
affiliated with the Company. The beneficiary of the Trust (the "Beneficiary")
will be one or more charitable organizations that are named by the Company.

Shares-in-Trust will remain issued and outstanding shares of Common Stock
or Preferred Stock and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Trustee will

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receive all dividends and distributions on the Shares-in-Trust and will hold
such dividends or distributions in trust for the benefit of the Beneficiary. The
Trustee will vote all Shares-in-Trust. The Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Trust.

The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares became
Shares-in-Trust. The Prohibited Owner generally will receive from the Trustee
the lesser of (i) the price per share such Prohibited Owner paid for the shares
of Common Stock or Preferred Stock that were designated as Shares-in-Trust (or,
in the case of a gift or devise, the Market Price (as defined below) per share
on the date of such transfer) or (ii) the price per share received by the
Trustee from the sale of such Shares-in-Trust. Any amounts received by the
Trustee in excess of the amounts to be paid to the Prohibited Owner will be
distributed to the Beneficiary.

The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept such
offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.

"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last reported price
on any national securities exchange on which the Common Stock is then listed or
if the Common Stock is not listed on a national securities exchange, shall mean
the average of the high bid and low asked prices in the over-the-counter market,
as last reported by The Nasdaq Stock Market, or, if such system is no longer in
use, the principal other automated quotations system that may then be in use or,
if the shares of Common Stock are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the shares of Common Stock selected by the Board
of Directors. "Trading Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.

Any person who acquires or attempts to acquire shares of Common Stock or
Preferred Stock in violation of the foregoing restrictions, or any person who
owned shares of Common Stock or Preferred Stock that were transferred to a
Trust, will be required (i) to give immediate written notice to the Company of
such event and (ii) to provide to the Company such other information as it may
request in order to determine the effect, if any, of such transfer on the
Company status as a REIT.

All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock or Preferred Stock must, within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
shares of Common Stock or Preferred Stock owned directly or indirectly, and a
description of how such shares are held. In addition, each direct or indirect
stockholder shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such ownership
on the Company's status as a REIT and to insure compliance with the Ownership
Limitation.

The Ownership Limitation generally will not apply to the acquisition of
shares of Common Stock or Preferred Stock by an underwriter that participates in
a public offering of such shares. In addition, the Board of Directors, upon
receipt of a ruling from the Service or an opinion of counsel and upon such
other conditions as the Board of Directors may direct, may exempt a person from
the Ownership Limitation under certain circumstances. The foregoing restrictions
will not be removed until the Board of Directors determines that it is

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no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT and there is an affirmative vote of two-thirds of
all of the votes ordinarily entitled to be cast in the election of directors,
voting together as a single class at a regular or special meeting of the
stockholders of the Company.

All certificates representing shares of Common Stock or Preferred Stock
will bear a legend referring to the restrictions described above.

The Ownership Limitation could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of shares of
Common Stock might receive a premium for their shares of Common Stock over the
then prevailing market price or which such holders might believe to be otherwise
in their best interest.

BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY

The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of an interest in the global certificate or certificates issued in connection
with sales of Units to Qualified Institutional Buyers in the Private Placement.
One or more fully registered global certificates (the "Global Certificates")
were issued, representing, in the aggregate, Units sold to Qualified
Institutional Buyers in the Private Placement and were deposited with DTC. Prior
to automatic separation of the related Warrant, each Unit will be represented by
the Common Stock, which bears an endorsement representing beneficial ownership
of the related Warrants on deposit with the Warrant Agent as custodian for the
registered holders of the Common Stock. Prior to automatic separation, transfer
of a share of Common Stock comprising a portion of a Unit will also constitute
transfer of a holder's beneficial interest in the related Warrant.

DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.

Purchases of the Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of the Securities
("Beneficial Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased the Securities. Transfers of
ownership interests in the Securities held in book-entry form are accomplished
by entries made on the books of Participants and Indirect Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in such Securities, except in the event
that use of the book-entry system for the Securities is discontinued.

DTC has no knowledge of the actual Beneficial Owners of the Securities held
in book-entry form; DTC's records reflect only the identity of the Participants
to whose accounts such Securities are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
So long as DTC, or its partnership nominee, Cede & Co., is the owner of the
Global Certificates, DTC or Cede & Co., as the case may be, will be considered
the sole owner and holder of record of the Securities represented by such Global
Certificates for all purposes.

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Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.

Although voting with respect to the Securities is limited to the holders of
record of the Securities, in those cases where a vote is required, neither DTC
nor Cede & Co. will itself consent or vote with respect to the Securities held
in book-entry form. Under its usual procedures, DTC would mail an omnibus proxy
to the registrar as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those Participants to whose
accounts the Securities are credited on the record date (identified in a listing
attached to such omnibus proxy).

Distributions on the Securities held in a book-entry form will be made to
Cede & Co., as nominee of DTC, in immediately available funds. DTC's practice is
to credit Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and Indirect Participants and not of DTC or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
Company, disbursement of such payments to Participants is the responsibility of
DTC and disbursement of such payments to the Beneficial Owners is the
responsibility of Participants and Indirect Participants.

Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of the Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.

Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. The Company will not have any
responsibility for the performance by DTC or its Participants or Indirect
Participants under the rules and procedures governing DTC. DTC may discontinue
providing its services as securities depository with respect to the Securities
at any time by giving notice to the registrar and the Company. Under such
circumstances, in the event that a successor securities depository is not
obtained, certificates for the Securities then held in book-entry form are
required to be printed and delivered. Additionally, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the Securities will be
printed and delivered. In each of the above circumstances, the Company will
appoint a paying agent with respect to the Securities.

The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Securities as
represented by a Global Certificate.

DIVIDEND REINVESTMENT PLAN

The Company may implement a dividend reinvestment plan whereby stockholders
may automatically reinvest their dividends in the Common Stock. Details about
any such plan would be sent to the Company's stockholders following adoption
thereof by the Board of Directors.

REPORTS TO STOCKHOLDERS

The Company will furnish its stockholders with annual reports containing
information regarding the business and performance of the Company, including
audited financial statements certified by independent public accountants and
distribute quarterly reports containing unaudited financial information for each
of the first three quarters of the year.

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TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The Bank of New
York. The Bank of New York also serves as Warrant Agent.

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS

The Company believes that the following is a summary of the material
provisions of Maryland law and of the Charter and Bylaws. Such summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to Maryland law and the Charter and Bylaws. Certain provisions of
Maryland law and the Charter and Bylaws are described elsewhere in this
Prospectus.

BOARD OF DIRECTORS

The Bylaws provide that the number of Directors of the Company may be
increased or decreased by the Board of Directors but may not be fewer than the
minimum number required by Maryland law nor more than nine. Any vacancy on the
Board of Directors may be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining directors,
except that a vacancy resulting from an increase in the number of Directors may
be filled by a majority of the entire Board of Directors.

The Company's Charter provides that a director may be removed from office
at any time, but only for cause and then only by the affirmative vote of at
least two-thirds of all of the votes ordinarily entitled to be cast in the
election of directors voting together as a single class.

The Charter provides for a Board of Directors divided into three classes of
directors serving staggered three-year terms. The classification of directors
has the effect of marking it more difficult for stockholders to change the
composition of the Board of Directors in a short period of time. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in a majority of the Board of Directors. See "Management of the
Company -- Directors and Executive Officers."

AMENDMENT

The Company reserves the right from time to time to make any amendment to
its Charter now or hereafter authorized by law, including any amendments which
alter the contract rights as expressly set forth in the Charter of any shares of
outstanding stock, provided that no such amendment which changes the terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
outstanding shares entitled to vote thereon. The Charter provides that
provisions relating to the Company's election to be taxed as a REIT, approval of
certain matters by the Independent Directors, dissolution of the Company and
certain restrictions on the transferability of Common Stock or Preferred Stock
cannot be amended without the affirmative vote of at least two-thirds of all of
the votes ordinarily entitled to be cast in the election of directors voting
together as a single class. The Bylaws may be amended by the Board of Directors
or by the affirmative vote of at least two-thirds of all of the votes ordinarily
entitled to be cast in the election of directors voting together as a single
class. The Charter provides that any amendment of its provisions relating to
indemnification of officers and directors shall not retroactively affect any act
or failure to act that occurred prior to the amendment.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested

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Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of voting stock of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquirer, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquirer or in respect of which the acquirer is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquirer to exercise voting power in electing directors within
one of the following ranges of voting power: (1) one-fifth or more but less than
one-third, (2) one-third or more but less than a majority, or (3) a majority or
more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders' meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquirer or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquirer
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquirer in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation. The Charter and Bylaws do not approve any such
acquisition or exempt any acquisition from the control share acquisition
statute.

OPERATIONS

The Company is generally prohibited from engaging in certain activities and
acquiring or holding property or engaging in any activity that would cause the
Company to fail to qualify as a REIT.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws provide (a) with respect to an annual meeting of stockholders,
nominations of persons for election to the Board of Directors and the proposal
of business to be considered by such stockholders may be

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made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board
of Directors or (iii) by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of meeting, (ii)
by the Board of Directors or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations that
may be relevant to a prospective holder of the Securities is based upon current
law and is for general information only. The discussion contained herein does
not address all aspects of taxation that may be relevant to particular holders
in light of their personal investment or tax circumstances, or to certain types
of stockholders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign corporations, and persons who
are not citizens or residents of the United States) subject to special treatment
under the federal income tax laws.

The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions
(collectively, "applicable tax laws"). No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.

EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

The Company has made an election to be taxed as a REIT under sections 856
through 860 of the Code, commencing with its taxable year ending on December 31,
1998.

The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.

Powell, Goldstein, Frazer & Murphy LLP acted as counsel to the Company in
connection with the Private Placement and the Company's election to be taxed as
a REIT. In the opinion of Powell, Goldstein, Frazer & Murphy LLP delivered at
the closing of the Private Placement, assuming that the elections and other
procedural steps described in this discussion of "Federal Income Tax
Considerations" are completed by the Company in a timely fashion, commencing
with the Company's taxable year ending December 31, 1998, the Company will
qualify to be taxed as a REIT pursuant to sections 856 through 860 of the Code,
and the Company's organization and proposed method of operation will enable it
to continue to meet the requirements for qualification and taxation as a REIT
under the Code. Investors should be aware, however, that opinions of counsel are
not binding upon the Service or any court. It must be emphasized that Powell,
Goldstein, Frazer & Murphy LLP's opinion is based on various assumptions, is
conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties

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and the future conduct of its business, and addresses the applicable tax laws as
of the date of such opinion. Such factual assumptions and representations are
described below in this discussion of "Federal Income Tax Considerations" and
are set out in the federal income tax opinion delivered by Powell, Goldstein,
Frazer & Murphy LLP at the closing of the Private Placement. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet
on a continuing basis, through actual annual operating results, asset ownership,
distribution levels, and stock ownership, the various qualification tests
imposed under the Code discussed below. Powell, Goldstein, Frazer & Murphy LLP
will not review the Company's compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT, see
"-- Failure to Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its stockholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and stockholder levels)
that generally results from an investment in a regular corporation. However, the
Company will be subject to federal income tax in the following circumstances.
First, the Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains. However,
stockholders are entitled to an income tax credit for their proportionate share
of any tax paid with respect to long-term capital gain as designated by the
Company. In addition, each stockholder's basis in the Common Stock is increased
by such stockholder's proportionate share of the Company's undistributed capital
gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its undistributed items of tax preference, if any.
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions,
(which includes, in general, certain sales or other dispositions of property
(other than foreclosure property) held primarily for sale to customers in the
ordinary course of business), such income will be subject to a tax equal to 100%
of such net income. Fifth, if the Company should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and nonetheless
has maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income attributable
to the greater of the amount by which the Company fails the 75% or 95% gross
income test. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a merger or other transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other asset) in the hands of the Corporation and the Company recognizes gain on
the disposition of such asset during the 10-year period beginning on the date on
which it acquired such asset, then the Company will be subject to tax at the
highest regular corporate rate applicable to the extent of such asset's
"built-in-gain" (i.e., the excess of the fair market value of such asset at the
time of acquisition by the Company over the adjusted basis in such asset at such
time as provided in Treasury Regulations that have not yet been promulgated).
The tax described above that is imposed on "built-in-gains" assumes that the
Company will elect pursuant to IRS Notice 88-19 to be subject to the rules
described in the preceding sentence if it were to make any such acquisition.
Finally, the Company will be subject to tax at the highest marginal corporate
rate on the portion of any Excess Inclusion derived by the Company from REMIC
Residual Interests equal to the percentage of the stock of the Company held by
the United States, any state or political subdivision thereof, any foreign
government, any international organization, any agency or instrumentality of any
of the foregoing, any other tax-exempt organization (other than a farmer's
cooperative described in section 521 of the Code) that is exempt from taxation
under the unrelated business taxable income provisions of the Code, or any rural
electrical or telephone cooperative (each, a "Disqualified Organization"). Any
such tax on the portion of any Excess Inclusion allocable to stock of the
Company held by a Disqualified Organization will reduce the cash available for
distribution from the Company to all stockholders.

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REQUIREMENTS FOR QUALIFICATION

The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and maintain REIT status; (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the Code
and Treasury Regulations promulgated thereunder; and (ix) that meets certain
other tests, described below, regarding the nature of its income and assets.
Conditions (i) to (iv), inclusive, must be met during the entire taxable year
and condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made by the Company to be taxed as a REIT. Prior to 1998, a
REIT that failed to comply with certain regulations regarding condition (v) was
subject to disqualification as a REIT. Recent legislative changes now impose a
$25,000 penalty ($50,000 for intentional violations) for failing to comply with
the ownership recordkeeping regulations, instead of a loss of the REIT's special
tax status. See "-- Recordkeeping Requirements." Finally, for purposes of
determining stock ownership under the 5/50 Rule set forth in condition (vi), a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actual interests in such trust for purposes of the
5/50 Rule.

The Company anticipates issuing sufficient Common Stock with sufficient
diversity of ownership pursuant to the Offering to allow it to continue to
satisfy requirements (v) and (vi). In addition, the Charter provides for
restrictions regarding the transfer of the Common Stock that are intended to
assist the Company in continuing to satisfy the share ownership requirements
described in clauses (v) and (vi) above. See "Description of Capital
Stock -- Restrictions on Transfer."

The Company has established a wholly-owned subsidiary, HCFP Limited, Inc.,
to hold all of its limited partnership interests in the Operating Partnership.
In addition, the Company anticipates that it may establish and acquire all of
the stock of one or more corporate subsidiaries in the future. Code section
856(i) provides that a corporation that is a "qualified REIT subsidiary" shall
not be treated as a separate corporation, and all assets, liabilities, and items
of income, deduction, and credit of a "qualified REIT subsidiary" shall be
treated as assets, liabilities, and items of income, deduction, and credit of
the REIT. A "qualified REIT subsidiary" is a corporation, all of the capital
stock of which has been held by the REIT at all times during the period such
corporation was in existence. Thus, in applying the requirements described
herein, any "qualified REIT subsidiaries" of the Company will be ignored, and
all assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities, and items of income,
deduction, and credit of the Company.

The Company also has decided that, in the future, all or a portion of its
operations will be carried on through an operating partnership. Accordingly, the
Company has organized the Operating Partnership and currently owns (directly and
indirectly) 100% of its Partnership Units. Pursuant to Treasury Regulations
effective January 1, 1997 relating to entity classification (the "Check-the-Box
Regulations"), an unincorporated entity that has two or more owners and that
does not elect to be classified as a corporation is classified as a partnership
for federal income tax purposes. The Company intends that the Operating
Partnership will be characterized as a partnership for federal income tax
purposes, and has represented that the Operating Partnership will not elect to
be treated as an association taxable as a corporation under the "Check-the-Box"
Regulation.

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In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. If formed, when the operating
partnership admits a partner other than the Company or a qualified REIT
subsidiary of the Company, the Company's proportionate share of the assets and
gross income of the operating partnership will be treated as assets and gross
income of the Company for purposes of applying the requirements described
herein.

Income Tests. In order for the Company to qualify and to maintain its
qualification as a REIT, two requirements relating to the Company's gross income
must be satisfied annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and interest on obligations secured by mortgages on
real property or on interests in real property) or temporary investment income.
Second, at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property, mortgages on real property, or temporary investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing. The specific
application of these tests to the Company is discussed below.

The term "interest," as defined for purposes of the 75% and 95% gross
income tests, generally does not include any amount received or accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as rents from real property if received by a REIT.

Interest on obligations secured by mortgages on real property or on
interests in real property is qualifying income for purposes of the 75% gross
income test. Any amount includible in gross income with respect to a regular or
residual interest in a REMIC generally is treated as interest on an obligation
secured by a mortgage on real property. If, however, less than 95% of the assets
of a REMIC consists of real estate assets (determined as if the Company held
such assets), the Company will be treated as receiving directly its
proportionate share of the income of the REMIC. In addition, if the Company
receives interest income with respect to a mortgage loan that is secured by both
real property and other property and the highest principal amount of the loan
outstanding during a taxable year exceeds the fair market value of the real
property on the date the Company purchased the mortgage loan, the interest
income will be apportioned between the real property and the other property,
which apportionment may cause the Company to recognize income that is not
qualifying income for purposes of the 75% gross income test.

Most of the income that the Company recognizes with respect to its
investments in mortgage loans will be qualifying income for purposes of both the
75% and 95% gross income tests. In some cases, however, the loan amount of a
mortgage loan may exceed the value of the real property securing the loan, which
will result in a portion of the income from the loan being classified as
qualifying income for purposes of the 95% gross income test, but not for
purposes of the 75% gross income test. The Company also may originate or acquire
construction loans or mezzanine loans that have shared appreciation provisions.
To the extent interest from a loan that is based on the cash proceeds from the
sale of property constitutes a "shared appreciation provision" (as defined in
the Code), income attributable to such participation feature will be treated as
gain from the sale of the secured property, which generally is qualifying income
for purposes of the 75% and 95% gross income tests. In addition, the Company may
be required to recognize income from a shared appreciation provision over the
term of the related loan using the constant yield method pursuant to certain
Treasury Regulations.

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The Company may acquire and originate mortgage loans and securitize such
loans through the issuance of non-REMIC CMOs. As a result of such transactions,
the Company will retain an ownership interest in the mortgage loans that has
economic characteristics similar to those of a mortgage backed security. In
addition, the Company may resecuritize mortgage backed securities (or non-REMIC
CMOs) through the issuance of non-REMIC CMOs, retaining an interest in the
mortgage backed securities used as collateral in the resecuritization
transaction. Such transactions will not cause the Company to fail to satisfy the
gross income tests or the asset tests described below.

The Company may receive income not described above that is not qualifying
income for purposes of the 75% and 95% gross income tests. The Company will
monitor the amount of nonqualifying income produced by its assets and has
represented that it will manage its portfolio in order to comply at all times
with the two gross income tests.

The rent received by the Company from the lessees of its real property
("Rent") will qualify as "rents from real property" in satisfying the gross
income tests for a REIT described above only if several conditions are met.
First, the amount of Rent must not be based, in whole or in part, on the income
or profits of any person. However, an amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. Second,
the Code provides that the Rent received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the Company,
or a direct or indirect owner of 10% or more of the Company, owns 10% or more of
the ownership interests in such tenant, taking into account both direct and
constructive ownership (a "Related Party Tenant"). Third, if Rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total Rent received under the lease, then the portion of
Rent attributable to such personal property will not qualify as "rents from real
property." Finally, for the Rent to qualify as "rents from real property," the
Company generally must not operate or manage the real property or furnish or
render services to the tenants of such real property, other than through an
"independent contractor" who is adequately compensated and from whom the Company
derives no revenue. The "independent contractor" requirement, however, does not
apply to the extent the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." A REIT is permitted
to render a de minimis amount of impermissible services to tenants, or to manage
or operate property, and still treat amounts received with respect to that
property as rent, as long as the amount received with respect to the
impermissible services or management does not exceed one percent of the REIT's
gross income from the property. For these purposes, the services may not be
valued at less than 150 percent of the REIT's direct cost of the services.

The Company has represented that it will not charge Rent for any portion of
any real property that is based, in whole or in part, on the income or profits
of any person (except by reason of being based on a fixed percentage or
percentages of receipts of sales, as described above) to the extent that the
receipt of such Rent would jeopardize the Company's status as a REIT. In
addition, the Company has represented that, to the extent that it receives Rent
from a Related Party Tenant, such Rent will not cause the Company to fail to
satisfy either the 75% or 95% gross income test. The Company also has
represented that it will not allow the Rent attributable to personal property
leased in connection with any lease of real property to exceed 15% of the total
Rent received under the lease, if the receipt of such Rent would cause the
Company to fail to satisfy either the 75% or 95% gross income test. Furthermore,
as a result of restrictions on the ownership of stock in the Company, no person
may own, directly or indirectly, more than 9.9% of the Company. The Company has
represented that neither HCFP nor any person constructively owned by HCFP will
pay any rent to the Company, so that the Company will not receive any rent from
a Related Party Tenant. Finally, the Company has represented that it will not
operate or manage its real property or furnish or render noncustomary services
to the tenants of its real property other than through an "independent
contractor," to the extent that such operation or the provision of such services
would jeopardize the Company's status as a REIT.

REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that

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is acquired by a REIT as the result of such REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or default
was imminent) on a lease of such property or on an indebtedness owed to the REIT
that such property secured, (ii) for which the related loan was acquired by the
REIT at a time when default was not imminent or anticipated, and (iii) for which
such REIT makes a proper election to treat such property as foreclosure
property. The Company does not anticipate that it will receive any income from
foreclosure property that is not qualifying income for purposes of the 75% gross
income test, but, if the Company does receive any such income, the Company will
make an election to treat the related property as foreclosure property. If
property is not eligible for the election to be treated as foreclosure property
("Ineligible Property") because the related loan was acquired by the REIT at a
time when default was imminent or anticipated, income received with respect to
such Ineligible Property may not be qualifying income for purposes of the 75% or
95% gross income test.

Any net income from a prohibited transaction is subject to a tax equal to
100% of such net income. The term "prohibited transaction" generally includes a
sale or other disposition of property that is held primarily for sale to
customers in the ordinary course of a trade or business. Excluded generally from
the definition of a "prohibited transaction" are sales of foreclosure property,
sales of any property that was involuntarily converted and sales under the
jurisdiction of a bankruptcy court of property subject to a shared appreciation
mortgage. The Company believes that no asset owned by the Company or, if it is
formed, the operating partnership, will be held for sale to customers and that a
sale of any such asset will not be in the ordinary course of the Company's or
the operating partnership's business. Whether property is held "primarily for
sale to customers in the ordinary course of a trade or business" depends,
however, on the facts and circumstances in effect from time to time, including
those related to a particular property. Nevertheless, the Company will attempt
to comply with the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company can comply with the
safe-harbor provisions of the Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the ordinary
course of a trade or business."

It is possible that, from time to time, the Company will enter into hedging
transactions with respect to one or more of its assets or liabilities. Any such
hedging transactions could take a variety of forms, including interest rate swap
contracts, interest rate cap or floor contracts, futures or forward contracts,
and options. To the extent that the Company enters into an interest rate swap or
cap contract to hedge any variable rate indebtedness incurred to acquire or
carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that the Company hedges
with other types of financial instruments or in other situations, the income
from those transactions also should be treated as qualifying income under the
95% (but not the 75%) gross income test so long as the transaction is entered
into to reduce the interest rate risk of any qualified indebtedness incurred or
to be incurred by the Company. The Company intends to structure any hedging
transactions in a manner that does not jeopardize its status as a REIT.

If the Company fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and the Company
anticipates that any incorrect information on the schedule will not be due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances the Company would be entitled to the benefit of such relief
provisions. As discussed in "Federal Income Tax Considerations -- Taxation of
the Company," even if such relief provisions apply, a 100% tax would be imposed
on the net income attributable to the greater of the amount by which the Company
fails the 75% or 95% gross income test.

Asset Tests. The Company, at the close of each quarter of each taxable
year, must satisfy, either directly or through partnerships in which it has an
interest, two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital

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through stock or long-term (at least five-year) debt offerings, temporary
investments in stock or debt instruments during the one-year period following
the Company's receipt of such capital. The term "real estate assets" includes
interests in real property, interests in mortgages on real property to the
extent the principal balance of a mortgage does not exceed the fair market value
of the associated real property, regular or residual interests in a REMIC
(except that, if less than 95% of the assets of a REMIC consists of "real estate
assets" (determined as if the Company held such assets), the Company will be
treated as holding directly its proportionate share of the assets of such
REMIC), and shares of other REITs. For purposes of the 75% asset test, the term
"interest in real property" includes an interest in mortgage loans or land and
improvements thereon, such as buildings or other inherently permanent structures
(including items that are structural components of such buildings or
structures), a leasehold of real property, and an option to acquire real
property (or a leasehold of real property). An "interest in real property" also
generally includes an interest in mortgage loans secured by controlling equity
interests in entities treated as partnerships for federal income tax purposes
that own real property, to the extent that the principal balance of the mortgage
does not exceed the fair market value of the real property that is allocable to
the equity interest. Second, of the investments not included in the 75% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities (except for
its interests in any partnership and any qualified REIT subsidiary).

The Company expects that any mortgage backed securities, real estate
related assets and temporary investments that it acquires generally will be
qualifying assets for purposes of the 75% asset test, except to the extent that
less than 95% of the assets of a REMIC in which the Company owns an interest
consists of "real estate assets" and the Company's proportionate share of those
assets includes assets that are nonqualifying assets for purposes of the 75%
asset test. Mortgage loans (including Construction Loans and Mezzanine Loans)
also will be qualifying assets for purposes of the 75% asset test to the extent
that the principal balance of each mortgage loan does not exceed the value of
the associated real property. The Company will monitor the status of the assets
that it acquires for purposes of the various asset tests and has represented
that it will manage its portfolio in order to comply at all times with such
tests.

The Company anticipates that it may securitize a portion of the mortgage
loans which it acquires. The securitization of the mortgage loans may be
accomplished through a non-REMIC securitization, either directly or through one
or more qualified REIT subsidiaries established by the Company. The
securitization of the mortgage loans either directly, or through one or more
qualified REIT subsidiaries, will not affect the qualification of the Company as
a REIT or result in the imposition of corporate income tax under the taxable
mortgage pool rules.

If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter
and (ii) the discrepancy between the value of the Company's assets and the asset
test requirements arose from changes in the market values of its assets and was
not wholly or partly caused by the acquisition of one or more non-qualifying
assets. If the condition described in clause (ii) of the preceding sentence were
not satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.

Distribution Requirements. The Company, in order to avoid corporate income
taxation of the earnings that it distributes, is required to distribute with
respect to each taxable year dividends (other than capital gain dividends) to
its stockholders in an aggregate amount at least equal to (i) the sum of (A) 95%
of its "REIT taxable income" (computed without regard to the dividends paid
deduction and its net capital gain) and (B) 95% of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Company
timely files its federal income tax return for such year and if paid on or
before the first regular dividend payment date after such declaration. To the
extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its "REIT taxable income," as
adjusted, it will be subject to tax thereon at regular ordinary and capital
gains corporate tax rates. However, if a REIT elects to retain and pay income
tax on its long-term capital gains, the REIT

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stockholders include in their income as long-term capital gains their
proportionate share of the long-term capital gains as designated by the REIT.
The stockholder is deemed to have paid the stockholder's share of the tax which
has been paid by the REIT with respect to the long-term capital gain. The
stockholder can receive a refund of such tax if his or her liability is less
than taxes withheld from or paid by (including the credit for the tax paid by
the REIT) the stockholder. The basis of the stockholder's shares is increased by
the amount of the undistributed long-term capital gains (less the amount of
capital gains tax paid by the REIT) included in the stockholder's long-term
capital gains. Furthermore, if the Company should fail to distribute during each
calendar year (or, in the case of distributions with declaration and record
dates falling in the last three months of the calendar year, by the end of the
January immediately following such year) at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% nondeductible excise tax on the excess of such
required distribution over the amounts actually distributed. The Company intends
to make timely distributions sufficient to satisfy the annual distribution
requirements.

It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, the Company may
recognize taxable market discount income upon the receipt of proceeds from the
disposition of, or principal payments on, loans that are "market discount bonds"
(i.e., obligations with a stated redemption price at maturity that is greater
than the Company's tax basis in such obligations), but not have any cash because
such proceeds may be used to make non-deductible principal payments on related
borrowings. Market discount income is treated as ordinary income and not as
capital gain and, thus, is subject to the 95% distribution requirement. The
Company also may recognize Excess Inclusion or other taxable income in excess of
cash flow from REMIC Residual Interests or its retained interests from non-REMIC
securitization transactions. It also is possible that, from time to time, the
Company may recognize net capital gain attributable to the sale of depreciated
property that exceeds its cash receipts from the sale. In addition, pursuant to
certain Treasury Regulations, the Company may be required to recognize the
amount of any payment to be made pursuant to a shared appreciation provision
over the term of the related loan using the constant yield method. Finally, the
Company may recognize taxable income without receiving a corresponding cash
distribution if it forecloses on or makes a "significant modification" (as
defined in Regulations section 1.1001-3(e)) to a loan, to the extent that the
fair market value of the underlying property or the principal amount of the
modified loan, as applicable, exceeds the Company's basis in the original loan.
Therefore, the Company may have less cash than is necessary to meet its annual
95% distribution requirement or to avoid corporate income tax or the excise tax
imposed on certain undistributed income. In such a situation, the Company may
find it necessary to arrange for short-term (or possibly long-term) borrowings
or to raise funds through the issuance of Preferred Stock or additional Common
Stock, or through the sale of assets.

As a result of the securitization or resecuritization of mortgage loans or
other debt instruments, and the subsequent sale of the senior (or most secure)
securities created in the securitization, the Company may retain subordinated
securities or a residual interest in the assets being securitized on which
interest or discount income will be accrued without the current payment of cash.
This situation could arise because cash payments received on the assets are
required to be paid to the holders of senior securitized interests. In addition,
the Company would have phantom income to the extent of the market discount
attributable to debt securities held by a REMIC in which the Company holds a
REMIC Residual Interest. In such situations, the income related to such
subordinate debt instruments will be subject to the 95% distribution
requirement. In order to satisfy the REIT distribution requirements, the Company
may need to distribute funds obtained through borrowing, the issuance of
additional capital stock or the sale of assets. As a result, the maintenance of
REIT status could affect the manner in which the REIT conducts its business
operations.

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirements for a year by paying "deficiency
dividends" to its stockholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest based upon the
amount of any deduction taken for deficiency dividends.

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Recordkeeping Requirements. Pursuant to applicable Treasury Regulations,
in order to be able to elect to be taxed as a REIT, the Company must maintain
certain records and request on an annual basis certain information from its
stockholders designed to disclose the actual ownership of its outstanding stock.
A penalty is now imposed (instead of immediate loss of REIT status) for any year
in which a REIT fails to comply with regulations to ascertain its ownership. The
penalty is $25,000 ($50,000 for intentional violations) for any year in which
the REIT did not comply with the ownership regulations. The REIT will also be
required, when requested by the IRS, to send curative demand letters. In
addition, a REIT that complied with the regulations for ascertaining its
ownership, and which did not know, or have reason to know, that it was so
closely held as to violate the 5/50 Rule would not be treated as violating the
5/50 Rule. The Company intends to comply with such requirements.

Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to the Company's stockholders
in any year in which the Company fails to qualify as a REIT will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of the Company's current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which the Company ceased to
qualify as a REIT. It is not possible to state whether in all circumstances the
Company would be entitled to such statutory relief.

TAXATION OF TAXABLE U.S. STOCKHOLDERS

Units. Those holders who purchase and sell, exchange, or otherwise dispose
of Units prior to the time that the Warrants become separately tradable will
compute the gain or loss recognized with respect to the disposition by comparing
the purchase price of the Units (as adjusted for non-taxable distributions, if
any, that may have been made by the Company with respect to its Common Stock)
and the amount realized as a result of such disposition. Such gain or loss will
be a capital gain or loss so long as the Unit is a capital asset in the hands of
the holder, and will be a long-term capital gain or loss if the Unit has been
held for more than one year as of the date of such disposition (or more than 18
months in order to be eligible for the more favorable 20%/10% capital gain
rate). See "-- Capital Gains and Losses." Once the Warrants become separately
tradable, a holder of a Unit will be required to allocate the amount paid for
the Unit between the Common Stock and the Warrant in order to determine the
holder's basis in the Common Stock and the Warrant. In order to determine the
holder's basis, the aggregate purchase price paid for the Unit must be allocated
between the shares of Common Stock and the Warrant in proportion to their
relative fair market values on the date the Unit is acquired. For those Units
acquired in the Private Placement, the allocation with respect to such
acquisitions of the purchase price of a Unit between the shares of Common Stock
and the Warrant was determined based upon discussions between the Company and
the Initial Purchasers. Although the Company expects that such allocation was
reasonable, there can be no assurance that the Service will respect such
allocation.

Common Stock. As long as the Company qualifies as a REIT, distributions
made to the Company's taxable U.S. stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by such U.S. stockholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. stockholder" means a holder of
Common Stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the U.S., (ii) a corporation, partnership, or other entity created
or organized in or under the laws of the U.S. or of any political subdivision
thereof, (iii) an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes regardless of
its connection with the conduct of a trade or business within the United States,
(iv) any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or more
U.S. persons have the authority to control all substantial decisions of the
trust or (v) certain electing trusts in existence on August 20, 1996 and treated
as "U.S. persons" prior to such date. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not

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exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held his Common Stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a stockholder's Common Stock, such
distributions will be included in income taxable at the maximum long-term
capital gain of 20% if the Common Stock has been held more than twelve months or
short-term capital gain taxable at ordinary income rates if the Common Stock had
been held for one year or less, assuming the Common Stock is a capital asset in
the hands of the stockholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the distribution is actually paid by the Company during
January of the following calendar year.

Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Stock will not be treated as passive
activity income and, therefore, stockholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types of limited
partnerships in which a stockholder is a limited partner) against such income.
In addition, taxable distributions from the Company generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of Common Stock (or distributions treated as such),
however, will be treated as investment income only if the stockholder so elects,
in which case such capital gains will be taxed at ordinary income rates. The
Company will notify stockholders after the close of the Company's taxable year
as to the portions of the distributions attributable to that year that
constitute ordinary income or capital gain dividends.

The Company's investment in certain types of assets may cause it under
certain circumstances to recognize phantom income and to experience an
offsetting excess of economic income over its taxable income in later years. As
a result, stockholders may from time to time be required to pay federal income
tax on distributions that economically represent a return of capital, rather
than a dividend. Such distributions would be offset in later years by
distributions representing economic income that would be treated as returns of
capital for federal income tax purposes. Accordingly, if the Company receives
phantom income, its stockholders may be required to pay federal income tax with
respect to such income on an accelerated basis, i.e., before such income is
realized by the stockholders in an economic sense. Taking into account the time
value of money, such an acceleration of federal income tax liabilities would
cause stockholders to receive an after-tax rate of return on an investment in
the Company that would be less than the after-tax rate of return on an
investment with an identical before-tax rate of return that did not generate
phantom income. For example, if an investor subject to an effective income tax
rate of 30% purchased a bond (other than a tax-exempt bond) with an annual
interest rate of 10% for its face value, his before-tax return on his investment
would be 10%, and his after-tax return would be 7%. However, if the same
investor purchased stock of the Company at a time when the before-tax rate of
return was 10%, his after-tax rate of return on his stock might be somewhat less
than 7% as a result of the Company's phantom income. In general, as the ratio of
the Company's phantom income to its total income increases, the after-tax rate
of return received by a taxable stockholder of the Company will decrease. The
Company will consider the potential effects of phantom income on its taxable
stockholders in managing its investments.

If the Company owns REMIC Residual Interests, it is possible that
stockholders would not be permitted to offset certain portions of the dividend
income they derive from the Company with their current deductions or net
operating loss carryovers or carrybacks. The portion of a stockholder's
dividends that would be subject to this limitation would equal his allocable
share of any Excess Inclusion income derived by the Company with respect to the
REMIC Residual Interests. The Company's Excess Inclusion income for any calendar
quarter will equal the excess of its income from REMIC Residual Interests over
its "daily accruals" with respect to such REMIC Residual Interests for the
calendar quarter. Daily accruals for a calendar quarter are computed

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by allocating to each day on which a REMIC Residual Interest is owned a ratable
portion of the product of (i) the "adjusted issue price" of the REMIC Residual
Interest at the beginning of the quarter and (ii) 120% of the long-term federal
interest rate (adjusted for quarterly compounding) on the date of issuance of
the REMIC Residual Interest. The adjusted issue price of a REMIC Residual
Interest at the beginning of a calendar quarter equals the original issue price
of the REMIC Residual Interest, increased by the amount of daily accruals for
prior quarters and decreased by all prior distributions to the Company with
respect to the REMIC Residual Interest. To the extent provided in future
Treasury regulations, the Excess Inclusion income with respect to any REMIC
Residual Interests owned by the Company that do not have significant value will
equal the entire amount of the income derived from such REMIC Residual
Interests. Furthermore, to the extent that the Company (or a qualified REIT
subsidiary) acquires or originates mortgage loans and uses those loans to
collateralize one or more multiple-class offerings of mortgage backed securities
for which no REMIC election is made ("Non-REMIC Transactions"), it is possible
that, to the extent provided in future Treasury regulations, stockholders will
not be permitted to offset certain portions of the dividend income that they
derive from the Company that are attributable to Non-REMIC Transactions with
current deductions or net operating loss carryovers or carrybacks. Although no
applicable Treasury regulations have yet been issued, no assurance can be
provided that such regulations will not be issued in the future or that, if
issued, such regulations will not prevent the Company's stockholders from
offsetting some portion of their dividend income with deductions or losses from
other sources.

Warrants. Upon the exercise of a Warrant, the holder will not recognize
gain or loss and will have a tax basis in the Common Stock received equal to the
holder's tax basis in the Warrant plus the exercise price of the Warrant. The
holding period for the Common Stock purchased by exercising a Warrant will begin
on the day following the date of exercise and will not include the period during
which the holder held the Warrant.

Upon the sale or other disposition of a Warrant (including a disposition of
a portion of the Warrants upon exercise of all or a portion of the remaining
Warrants of such holder), the holder will recognize capital gain or loss in an
amount equal to the difference between the amount realized and the holder's tax
basis in the Warrant. Such a gain or loss will be long-term if the holder's
holding period is more than one year (or more than 18 months in order to be
eligible for the more favorable 20%/10% capital gain rate.) See "-- Capital
Gains and Losses". In the event a Warrant lapses unexercised, the holder will
recognized a capital loss in an amount equal to his tax basis in the Warrant.
Such loss will be long-term if the Warrant has been held for more than one year.

TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK

In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a stockholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the Common Stock has been held for more
than one year (more than eighteen months in order to be eligible for the more
favorable 10%/20% capital gains tax rate applicable to a non-corporate taxpayer)
and otherwise as short-term capital gain or loss. However, any loss upon a sale
or exchange of Common Stock by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent of distributions from the Company
required to be treated by such stockholder as long-term capital gain. All or a
portion of any loss realized upon a taxable disposition of the Common Stock may
be disallowed if other shares of Common Stock are purchased within 30 days
before or after the disposition.

CAPITAL GAINS AND LOSSES

A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%,
and the maximum tax rate on long-term capital gains applicable to non-corporate
taxpayers is 20% for sales and exchanges of assets held for more than one year
(10% for taxpayers in the 15% ordinary income tax bracket) for sales and
exchanges of assets held for more than eighteen months. (Prior to the recent
enactment of the Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Act"), the maximum tax rate on long-term capital gains applicable to
non-corporate taxpayers was 28% for sales and exchanges of assets held for more
than one year but not more than eighteen months and 20% (10% for taxpayers in
the 15%

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bracket) for sales and exchanges of assets held for more than eighteen months.)
Thus, the tax rate differential between capital gain and ordinary income for
non-corporate taxpayers may be significant. In addition, the characterization of
income as capital gain or ordinary income may affect the deductibility of
capital losses. Capital losses not offset by capital gains may be deducted
against a non-corporate taxpayer's ordinary income only up to a maximum annual
amount of $3,000. Unused capital losses may be carried forward indefinitely by
non-corporate taxpayers. All net capital gain of a corporate taxpayer is subject
to tax at ordinary corporate rates. A corporate taxpayer can deduct capital
losses only to the extent of capital gains, with unused losses being carried
back three years and forward five years.

The Taxpayer Relief Act of 1997 (the "1997 Act") added provisions to the
Code reducing the maximum rate on long-term capital gains of non-corporate
taxpayers from 28% to 20% (10% for taxpayers in the 15% tax bracket). The lower
rates generally apply to sales or exchanges of capital assets occurring after
May 6, 1997. However, the reduced long-term capital gains rates are only
available for sales or exchanges of capital assets held for more than 18 months
(or more than 12 months if the sale or exchange occurred after May 6, 1997 and
before July 29, 1997). Any long-term capital gains from the sale or exchange of
depreciable real property that would be subject to ordinary income taxation
(i.e., "depreciation recapture") if it were treated as personal property will be
subject to a maximum tax rate of 25% instead of the 20% maximum rate for gains
taken into account after July 28, 1997. Also, under the legislation, for taxable
years beginning after December 31, 2000, the maximum capital gains rates for
assets which are held more than 5 years are 18% and 8% (rather than 20% and
10%). These rates will generally only apply to assets for which the holding
period begins after December 31, 2000.

The Service issued a notice (Notice 97-64) that temporary regulations will
be issued providing guidance to REITs as to the proper computation and reporting
of capital gain eligible for the taxation at the rates set forth in the previous
paragraph. The notice also provides for reporting of such gains in the interim
until such temporary regulations are issued. The notice provides that for
taxable years of a REIT ending on or after May 7, 1997, if a REIT designates to
its shareholders that a dividend is a capital gain dividend, then the REIT also
may designate the dividend as a 20% rate gain distribution, an unrecaptured
section 1250 gain distribution, or a 28% rate gain distribution. If no
additional designation is made regarding a capital gain dividend distributed by
a REIT, the capital gain is deemed to be a 28% rate gain distribution. If a
capital gain dividend is so designated by a REIT as falling in one of the three
(3) categories of capital gain for a taxable year of a shareholder ending on or
after May 7, 1997), then the REIT shareholder may treat the capital gain
dividend distribution so designated as: (1) long-term capital gain in the
20-percent group; (2) unrecaptured section 1250 gain in the 25-percent group;
and/or (3) long-term capital gain in the 28-percent group; as the case may be.
The notice also provides that the additional designations of capital gain shall
be effective only to the extent certain limitations and requirements are met,
including the requirement that the designations comply with the principles of
Rev. Rule. 89-81, 1989-1 C.B. 226. The Company intends to provide notice to its
shareholders designating any capital gain distributions as 20% rate gain
distributions, unrecaptured section 1250 gain distributions, and/or 28% rate
gain distributions, as the case may be, in compliance with the guidelines
established in Notice 97-64, until temporary regulations are issued.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

The Company will report to its U.S. stockholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide the Company with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any stockholders
who fail to certify their nonforeign status to the Company. The Treasury
Department recently finalized proposed regulations that were issued in April
1996 regarding the

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backup withholding rules as applied to Non-U.S. Stockholders (the "Final
Regulations"). The Final Regulations would alter the current system of backup
withholding compliance and would be effective for distributions made after
December 31, 1999. See "-- Taxation of Non-U.S. Stockholders."

TAXATION OF TAX-EXEMPT STOCKHOLDERS

Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions from a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the Common Stock with debt, a portion
of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17) and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, in certain circumstances, a
pension trust that owns more than 10% of the Company's stock is required to
treat a percentage of the dividends from the Company as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by the Company
from an unrelated trade or business (determined as if the Company were a pension
trust) divided by the gross income of the Company for the year in which the
dividends are paid. The UBTI rule applies to a pension trust holding more than
10% of the Company's stock only if (i) the UBTI Percentage is at least 5%, (ii)
the Company qualifies as a REIT by reason of the modification of the 5/50 Rule
that allows the beneficiaries of the pension trust to be treated as holding
shares of the Company in proportion to their actuarial interests in the pension
trust, and (iii) either (A) one pension trust owns more than 25% of the value of
the Company's stock or (B) a group of pension trusts individually holding more
than 10% of the value of the Company's stock collectively owns more than 50% of
the value of the Company's stock. The Company's ownership limitations should
prevent an Exempt Organization from owning more than 10% of the value of the
Company's stock.

Any dividends received by an Exempt Organization that are allocable to
Excess Inclusion will be treated as UBTI. In addition, the Company will be
subject to tax at the highest marginal corporate rate on the portion of any
Excess Inclusion income derived by the Company from REMIC Residual Interests
that is allocable to stock of the Company held by Disqualified Organizations.
Any such tax would be deductible by the Company against its income that is not
Excess Inclusion income.

If the Company derives Excess Inclusion income from REMIC Residual
Interests, a tax similar to the tax on the Company described in the preceding
paragraph may be imposed on stockholders who are (i) pass-through entities
(i.e., partnerships, estates, trusts, regulated investment companies, REITS,
common trust funds, and certain types of cooperatives (including farmers'
cooperatives described in section 521 of the Code)) in which a Disqualified
Organization is a record holder of shares or interests and (ii) nominees who
hold Common Stock on behalf of Disqualified Organizations. Consequently, a
brokerage firm that holds shares of Common Stock in a "street name" account for
a Disqualified Organization may be subject to federal income tax on the Excess
Inclusion income derived from those shares.

The Treasury Department has been authorized to issue regulations regarding
issuances by a REIT of multiple-class mortgage-backed securities in non-REMIC
transactions. If such Treasury regulations are issued in the future allocating
the Company's Excess Inclusion income from non-REMIC transactions pro rata among
its stockholders, some percentage of the dividends paid by the Company would be
treated as UBTI in the hands of stockholders that are Exempt Organizations. See
"-- Taxation of Taxable U.S. Stockholders."

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TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.

Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business (or, if an income tax treaty, to a U.S. permanent establishment), the
Non-U.S. Stockholder generally will be subject to federal income tax at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such distributions (and also may be subject to the 30% branch profits tax in
the case of a Non-U.S. Stockholder that is a non-U.S. corporation). The Company
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any such distributions made to a Non-U.S. Stockholder unless (i) a lower treaty
rate applies and any required form evidencing eligibility for that reduced rate
is filed with the Company or (ii) the Non-U.S. Stockholder files an IRS Form
4224 with the Company claiming that the distribution is effectively connected
income (or, if an income tax treaty applies, it is effectively connected to a
U.S. permanent establishment). The Treasury Department Final Regulations would
modify the manner in which the Company complies with these withholding
requirements.

Any portion of the dividends paid to Non-U.S. Stockholders that is treated
as Excess Inclusion income will not be eligible for exemption from the 30%
withholding tax or a reduced treaty rate. In addition, if Treasury regulations
are issued in the future allocating the Company's Excess Inclusion income from
non-REMIC transactions among its stockholders, some percentage of the Company's
dividends would not be eligible for exemption from the 30% withholding tax or a
reduced treaty withholding tax rate in the hands of non-U.S. Stockholders. See
"-- Taxation of Taxable U.S. Stockholders."

Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Stockholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. In August 1996, the
U.S. Congress passed the Small Business Job Protection Act of 1996, which
requires the Company to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that the Company does not do so, any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.

For any year in which the Company qualified as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests (which includes certain interests in real property but does
not include mortgage loans or MBS) will be taxed to a Non-U.S. Stockholder under
the

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provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of U.S.
real property interests are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Non-U.S. Stockholders thus would be
taxed at the normal capital gain rates applicable to U.S. Stockholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a non-U.S.
corporate stockholder not entitled to treaty relief or exemption. The Company is
required to withhold 35% of any distribution that is designated by the Company
as a capital gains dividend. The amount withheld is creditable against the Non-
U.S. Stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Stockholder upon a sale of his Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will be or remain a
"domestically controlled REIT." In addition, a Non U.S. Stockholder that owns,
actually or constructively, 5% or less of the Company's stock throughout a
specified "look-back" period will not recognize the gain on the sale of his
stock taxable under FIRPTA if the shares are traded on an established securities
market. Furthermore, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) investment in the Common Stock is effectively connected with
the Non-U.S. Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. Stockholders with
respect to such gain, or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the U.S. for 183 days or more during the taxable
year and certain other conditions apply, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of the Common Stock were to be subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
Stockholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations).

STATE AND LOCAL TAXES

The Company or the Company's stockholders may be subject to state and local
tax in various states and localities, including those states and localities in
which it or they transact business, own property, or reside. The state and local
tax treatment of the Company and its stockholders in such jurisdictions may
differ from the federal income tax treatment described above. Consequently,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws upon an investment in the Common Stock.

SALE OF THE COMPANY'S PROPERTY

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of its trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income also may have an adverse effect upon the Company's ability to satisfy the
income tests for REIT status. See "-- Requirements For Qualification -- Income
Tests" above. The Company, however, does not presently intend to acquire or hold
a material amount of property that represents inventory or other property held
primarily for sale to customers in the ordinary course of the Company's trade or
business.

TAX ASPECTS OF THE COMPANY'S OWNERSHIP OF INTERESTS IN THE OPERATING PARTNERSHIP

General. It is anticipated that all or substantially all of the Company's
investments eventually will be held indirectly through the Operating
Partnership. In general, partnerships are "pass-through" entities which are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. The Company
will include in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income

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tests and in the computation of its REIT taxable income. Moreover, for purposes
of the REIT asset tests, the Company will include its proportionate share of
assets held through the Operating Partnership.

Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would be
subject to an entity level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and would
preclude the Company from qualifying as a REIT (see "-- Requirements for
Qualification as a REIT -- Asset Tests" and "-- Income Tests"). The same result
could occur if any subsidiary partnership or limited liability company of the
Operating Partnership failed to qualify for treatment as a partnership.

Prior to January 1, 1997, an organization formed as a partnership or an LLC
was treated as a partnership for federal income tax purposes rather than as a
corporation only if it had no more than two of the four corporate
characteristics that the Treasury Regulations in effect at the time used to
distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
Treasury Regulations which became effective January 1, 1997, the four factor
test has been eliminated and an entity formed as a partnership or as an limited
liability company will be taxed as a partnership for federal income tax
purposes, unless it specifically elects otherwise or is subject to the rules
regarding publicly-traded partnerships. In general, under the "Check-the-Box"
regulations, an unincorporated entity with at least two owners may elect to be
classified as an association that is taxable as a corporation. If the entity
fails to make the election, it generally will be treated as a partnership for
federal income tax purposes. The Company intends that the Operating Partnership
will be characterized as a partnership for federal income tax purposes and has
represented that the Operating Partnership will not elect to be treated as an
association that is taxable as a corporation under the "Check-the-Box"
regulations.

Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.

If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocation of taxable income and
loss provided for in the Operating Partnership Agreement is intended to comply
with the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.

Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of such property
at such time (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership
will receive contributions of appreciate property. Consequently, the Operating
Partnership Agreement requires that such allocations be made in a manner
consistent with Section 704(c) of the Code.

In general, the partners in the Operating Partnership who contribute
depreciable assets having adjusted tax basis less than their fair market values
at the time of contribution will be allocated depreciation deductions for tax
purposes which are lower than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have such a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
partners. The allocations will tend to eliminate the Book-Tax Difference over
the life of the Operating Partnership. However, the

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special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership may cause the
Company to be allocated lower depreciation and other deductions, and possibly an
amount of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it, as a result of such sale.
Such an allocation might cause the Company to recognize taxable income in excess
of cash proceeds, which might adversely affect the Company's ability to comply
with the REIT distribution requirements. See "-- Requirements for Qualification
as a REIT."

Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the properties initially contributed to the
Operating Partnership. This method is generally the most favorable method from
the perspective of the limited partners at the time of the contribution and will
be less favorable from the perspective of the Company to the extent it
subsequently contributes cash (such as the proceeds of the Offering) to the
Operating Partnership.

ERISA CONSIDERATIONS [BEING REVIEWED]

The following is a summary of material considerations arising under ERISA,
and the prohibited transaction provisions of section 4975 of the Code, that may
be relevant to a prospective purchaser of Common Stock (including, with respect
to the discussion contained in "-- Status of the Company under ERISA," to a
prospective purchaser that is not an employee benefit plan, another
tax-qualified retirement plan, or an IRA). The discussion contained herein does
not purport to deal with all aspects of ERISA or section 4975 of the Code that
may be relevant to particular stockholders (including plans subject to Title I
of ERISA, other retirement plans and IRAs subject to the prohibited transaction
provisions of section 4975 of the Code, and governmental plans or church plans
that are exempt from ERISA and section 4975 of the Code but that may be subject
to state law requirements) in light of their particular circumstances.

The statements in this discussion are based on current provisions of ERISA
and the Code, existing and currently proposed regulations promulgated under
ERISA and the Code, the legislative history of ERISA and the Code, existing
administrative rulings of the Department of Labor ("DOL"), and reported judicial
decisions. No assurance can be given that future legislative, judicial, or
administrative actions or decisions, which may be retroactive in effect, will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes.

A FIDUCIARY MAKING THE DECISION TO INVEST IN THE COMMON STOCK ON BEHALF OF
A PROSPECTIVE PURCHASER THAT IS A TAX-QUALIFIED RETIREMENT PLAN, ANOTHER
EMPLOYEE BENEFIT PLAN OR AN IRA SHOULD CONSULT HIS OWN LEGAL ADVISOR REGARDING
THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE, AND
STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE COMMON STOCK
BY SUCH PLAN OR IRA.

EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS, AND IRAS

Each fiduciary of a Plan subject to Title I of ERISA should consider
carefully whether an investment in the Common Stock is consistent with his
fiduciary responsibilities under ERISA. In particular, the fiduciary
requirements of Part 4 of Title I of ERISA require a Plan's investment to be (i)
prudent and in the best interests of the Plan, its participants, and its
beneficiaries, (ii) diversified in order to minimize the risk of large losses,
unless it is clearly prudent not to diversify, and (iii) permitted under the
terms of the Plan's governing documents (provided the documents are consistent
with ERISA). In determining whether an investment in the Common Stock is prudent
for purposes of ERISA, the appropriate fiduciary of a Plan should consider all
of the facts and circumstances, including whether the investment is reasonably
designed, as a part of the Plan's

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portfolio for which the fiduciary has investment responsibility, to further the
purposes of the Plan, taking into consideration the risk of loss and opportunity
for gain (or other return) from the investment, and the diversification, cash
flow, and projected return relative to the funding requirements of the Plan's
portfolio. The fiduciary of a Plan or of an IRA should also take into account
the possible recognition of UBTI as discussed under "Federal Income Tax
Considerations -- Taxation of Tax-Exempt Stockholders."

The persons making the investment decisions for an IRA or for a retirement
plan that is not subject to Title I of ERISA because it is a governmental plan
or a church plan that has not made the election under Section 410(d) of the Code
or because it does not cover common law employees (a "Non-ERISA Plan") should
consider that such an IRA or Non-ERISA Plan may only make investments that are
permitted by the appropriate governing documents and under applicable state law.
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of any
Plans, Non-ERISA Plans and IRAs investing in the general account (e.g., through
the purchase of an annuity contract), and the insurance company might be treated
as a party in interest or disqualified person by virtue of such investment.

Fiduciaries of Plans and persons making the investment decision for an IRA
or a Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to a Plan,
a Non-ERISA Plan or IRA subject to section 4975 of the Code is subject to (i) an
initial 15% excise tax on the amount involved in any prohibited transaction
involving the assets of the Plan, Non-ERISA Plan or IRA for each year or part
thereof during which the transaction is not corrected, and (ii) an excise tax
equal to 100% of the amount involved if any prohibited transaction is not
corrected. A "party in interest" or "disqualified person" includes any fiduciary
or person providing services to a Plan, Non-ERISA Plan or IRA, the employer
maintaining a Plan or Non-ERISA Plan (and a direct or indirect 50% or more owner
of the employer), a union representing employees covered by a Plan or Non-ERISA
Plan, and various individuals and entities related to any of the foregoing. A
"prohibited transaction" includes (subject to certain exceptions) any direct
sale or exchange of property, extension of credit, or furnishing of goods or
facilities, between a plan and the party in interest or disqualified person; and
also includes the use of plan assets for the benefit of a party in interest or
disqualified person, or a self-dealing or kickback transaction by a fiduciary.
If the disqualified person who engages in the transaction is the individual on
behalf of whom an IRA is maintained (or his beneficiary), the IRA will lose its
tax-exempt status and its assets will be deemed to have been distributed to such
individual in a taxable distribution (though no excise tax will be imposed) on
account of the prohibited transaction. In addition, a fiduciary who permits a
Plan or Non-ERISA Plan to engage in a transaction that the fiduciary knows or
should know is a prohibited transaction may be liable to the Plan or Non-ERISA
Plan for any loss the Plan or Non-ERISA Plan incurs as a result of the
transaction or for any profits earned by the fiduciary in the transaction.

STATUS OF THE COMPANY UNDER ERISA

The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA, and the prohibited
transaction provisions of ERISA and the Code, apply to an entity and to
transactions by the entity because one or more investors in the equity interests
in the entity is a Plan or Non-ERISA Plan or IRA. A Plan fiduciary also should
consider the relevance of those principles to ERISA's prohibition on improper
delegation of control over, or responsibility for, "plan assets" and ERISA's
imposition of co-fiduciary liability on a fiduciary who participates in, permits
(by action or inaction) the occurrence of, or fails to remedy, a known breach by
another fiduciary.

If the assets of the Company are deemed to be "plan assets" under ERISA,
(i) the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving the Company's assets, (ii)
persons who exercise any authority over the Company's assets, or who provide
investment advice to the Company, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each Plan that acquires
Common Stock, and transactions involving the Company's assets undertaken at
their direction or pursuant to their advice might violate their fiduciary
responsibilities under ERISA, especially with regard to conflicts of interest,
(iii) a fiduciary exercising his investment discretion

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over the assets of a Plan to cause it to acquire or hold the Common Stock could
be liable under Part 4 of Title I of ERISA for transactions entered into by the
Company that do not conform to ERISA standards of prudence and fiduciary
responsibility, and (iv) certain transactions that the Company might enter into
in the ordinary course of its business and operations might constitute
"prohibited transactions" under ERISA and the Code.

Regulations of the DOL defining "plan assets" (the "Plan Asset
Regulations") generally provide that when a Plan or Non-ERISA Plan or IRA
acquires a security that is an equity interest in an entity, and the security is
neither a "publicly-offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the Plan's or
Non-ERISA Plan's or IRA's assets include both the equity interest and an
undivided interest in each of the underlying assets of the issuer of such equity
interest, unless one or more exceptions specified in the Plan Asset Regulations
are satisfied.

The Plan Asset Regulations define a publicly-offered security as a security
that is "widely-held," "freely transferable," and either part of a class of
securities registered under the Exchange Act, or sold pursuant to an effective
registration statement under the Securities Act (provided the securities are
registered under the Exchange Act within 120 days after the end of the fiscal
year of the issuer during which the offering occurred). The Common Stock is
being sold in an offering registered under the Securities Act and will be
registered under the Exchange Act. The Plan Asset Regulations provide that a
security is "widely held" only if it is part of a class of securities that is
owned by 100 or more investors independent of the issuer and of one another. A
security will not fail to be widely held because the number of independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control. The Company anticipates that upon
completion of this offering, the Common Stock will be "widely held."

The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that where a security is part of an offering in which the minimum investment is
$10,000 or less (as is the case with this offering), certain restrictions
ordinarily will not, alone or in combination, affect a finding that such
securities are freely transferable. The restrictions on transfer enumerated in
the Plan Asset Regulations as not affecting that finding include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in the termination or reclassification of an entity for federal or state
tax purposes, or that otherwise would violate any federal or state law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the issuer, (iii) any administrative procedure that establishes an
effective date, , or an event (such as completion of an offering), prior to
which a transfer or assignment will not be effective, and (iv) any limitation or
restriction on transfer or assignment that is not imposed by the issuer or a
person acting on behalf of the issuer. The Company believes that the
restrictions imposed under the Charter on the transfer of the Company's stock
will not result in the failure of the Common Stock to be "freely transferable."
The Company also is not aware of any other facts or circumstances limiting the
transferability of the Common Stock that are not enumerated in the Plan Asset
Regulations as those not affecting free transferability. However, no assurance
can be given that the DOL or the Treasury Department could not reach a contrary
conclusion.

Assuming that the Common Stock will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding paragraph
exist that restrict transferability of the Common Stock, the shares of Common
Stock should be publicly offered securities and the assets of the Company should
not be deemed to be "plan assets" of any Plan, IRA, or Non-ERISA Plan that
invests in the Common Stock.

As noted above, based on the reasoning of the United States Supreme Court
in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517
(1993), an insurance company's general account may be deemed to include assets
of the Plans, Non-ERISA Plans and IRAs investing in the general account (e.g.,
through the purchase of an annuity contract), and the insurance company might be
treated as a party in interest by virtue of such investment. Any purchaser that
is an insurance company using the assets of an insurance company general account
should note section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and section 4975 of the Code.
Pursuant to section 401(c), the DOL is required to issue final regulations (the
"General Account Regulations") with respect

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to insurance policies issued on or before December 31, 1998 that are supported
by an insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and section 4975 of
the Code. Section 401(c) also provides that, except in the case of avoidance of
the General Account Regulation and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also constitute breaches
of state or federal criminal law, until the date that is 18 months after the
General Account Regulations become final, no liability under the fiduciary
responsibility and prohibited transaction provisions of ERISA and section 4975
may result on the basis of a claim that the assets of the general account of an
insurance company constitute the assets of any Plan, non ERISA Plan or IRA. The
plan asset status of insurance company separate accounts is unaffected by new
section 401(c) of ERISA, and separate account assets continue to be treated as
the plan assets of any such plan invested in a separate account.

Any fiduciary or other person making the investment decision on behalf of a
Plan, Non-ERISA Plan or IRA that proposes to purchase Common Stock should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment and determine on its own whether any exceptions
or exemptions are applicable and whether all conditions of any such exceptions
or exemptions have been satisfied.

Moreover each fiduciary or other person making the investment decision on
behalf of a Plan, Non-ERISA Plan or IRA should determine whether, under the
general fiduciary standards of investment prudence and diversification, an
investment in the Common Stock is appropriate for the Plan, Non-ERISA Plan or
IRA, taking into account the overall investment policy of the Plan, Non-ERISA
Plan or IRA, and the composition of its investment portfolio.

The sale of the Common Stock is in no respect a representation by the
Company or any other person that such an investment meets all relevant legal
requirements with respect to investments by Plans, Non-ERISA Plans or IRAs
generally or that such an investment is appropriate for any particular Plan,
Non-ERISA Plan or IRA.

SHARES ELIGIBLE FOR FUTURE SALE

At June 30, 1998, assuming the exercise of each of the Warrants, 9,505,555
shares of Common Stock were outstanding. Of these shares, the shares covered by
this Registration Statement will be freely tradable as set forth in "Plan of
Distribution."

SALES OF RESTRICTED SHARES

The remaining 805,555 shares of Common Stock are deemed "Restricted Shares"
under Rule 144. The Company and the Operating Partnership have agreed, subject
to certain exceptions, from the closing of the Private Placement until 180 days
from the closing of the proposed Initial Public Offering, not to, directly or
indirectly, sell, offer to sell, grant any option for the purchase or sale of,
or otherwise dispose of any Common Stock or Partnership Units, without the prior
written consent of NationsBanc Montgomery Securities LLC. HCFP and certain
executive officers of HCFP have agreed, subject to certain exceptions, until
April 29, 2001, not to, directly or indirectly, sell, offer to sell, grant any
option for the purchase or sale of, or otherwise dispose of any Common Stock or
Partnership Units, without the prior written consent of NationsBanc Montgomery
Securities LLC. Subject to these lock-up agreements, the Restricted Shares will
be eligible for sales pursuant to Rule 144 in the public market beginning 90
days after the Company becomes subject to the reporting requirements of Section
13 of the Exchange Act.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the Company
or any Affiliate of the Company, the acquiror or subsequent holder thereof is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then outstanding Common
Stock or the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also are subject to certain manner of sale

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provisions, notice requirements and the availability of current public
information about the Company which will require the Company to file periodic
reports under the Exchange Act. If two years have elapsed since the date of
acquisition of restricted shares from the Company or from any affiliate of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an Affiliate of the Company at any time during the three months preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

OPTIONS

Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the Company becomes subject to the
reporting requirements of Section 13 of the Exchange Act, subject only to the
manner of sale provisions of Rule 144, and by Affiliates under Rule 144 without
compliance with its one-year minimum holding period, subject to certain
limitations. The Company intends to file one or more registration statements on
Form S-8 under the Securities Act to register all of the shares of Common Stock
subject to outstanding stock options and Common Stock issuable pursuant to the
Company's stock option plans which do not qualify for an exemption under Rule
701 from the registration requirements of the Securities Act. The Company
expects to file these registration statements as soon as practicable after the
date on which this Registration Statement becomes effective, and such
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will thereupon be eligible for sale in
the public markets, subject to the lock-up agreements described above, if
applicable.

REGISTRATION RIGHTS

Pursuant to a Registration Rights Agreement with respect to the Securities
between the Company, the Initial Purchasers and the Initial Subscribers, the
Company has the right to suspend sales of the Offered Securities under this
Prospectus for the period beginning on the effective date of the Registration
Statement with respect to the proposed Initial Public Offering until the end of
the 30-day period during which the underwriters' over-allotment option with
respect to the proposed Initial Public Offering may be exercised.

No prediction can be made as to the effect, if any, that market sales of
shares or the availability of such securities for sale will have on the market
price of the Common Stock. Sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock. See
"Prospectus Summary -- Initial Public Offering."

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SELLING SECURITYHOLDERS

The Units were originally issued by the Company and sold in part by the
Initial Purchasers in transactions exempt from registration requirements of the
Securities Act, to persons reasonably believed by the Initial Purchasers to be
Qualified Institutional Buyers and to be Accredited Investors and in part
directly by the Company to the Initial Subscribers. The Selling Securityholders
may from time to time offer and sell pursuant to this Prospectus any or all of
the Offered Securities. The term Selling Securityholders includes the holders
listed below and the beneficial owners of the Offered Securities and their
transferees, pledges, donees or other successors.

The following table sets forth information with respect to the Selling
Securityholders and with respect to the Offered Securities beneficially owned by
each Selling Securityholder that may be offered pursuant to this Prospectus.

<TABLE>
<CAPTION>
NUMBER
SELLING SECURITYHOLDER OF SHARES
- ---------------------- ---------
<S> <C>

[INSERT CHART]

</TABLE>

Except as shown above, none of the Selling Securityholders has, or within
the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates. Because
the Selling Securityholders may, pursuant to this Prospectus, offer all or some
portion of the Offered Securities, no estimate can be given as to the amount of
the Offered Securities that will be held by the Selling Securityholders upon
termination of any such sales. In addition, the Selling Securityholders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Offered Securities since the date on which they provided the
information regarding their Offered Securities, in transactions exempt from the
registration requirements of the Securities Act, including transactions pursuant
to Rules 144 and 144A under the Securities Act.

PLAN OF DISTRIBUTION

The Offered Securities may be sold from time to time to purchasers directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer the Offered Securities to or through underwriters,
broker/ dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Securityholders or the purchasers of such securities for whom they may act as
agents. The Selling Securityholders and any underwriters, broker/ dealers or
agents that participate in the distribution of Offered Securities may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
the sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/ dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.

The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will be set forth the aggregate amount and type of Offered Securities
being offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts,

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commissions and other terms constituting compensation from the Selling
Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to broker/dealers.

To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.

The Selling Securityholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of the purchases and sales of any of the Offered Securities by
the Selling Securityholders. The foregoing may affect the marketability of such
securities.

All expenses of the registration of the Offered Securities will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Securityholders will pay all the underwriting discounts and selling
commissions, if any. The Selling Securityholders will be indemnified by the
Company against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
The Company will be indemnified by the Selling Securityholders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.

LEGAL MATTERS

The validity of the Common Stock offered in the Offering will be passed
upon for the Company by Powell, Goldstein, Frazer & Murphy LLP, Atlanta,
Georgia. In addition, the description of federal income tax consequences
contained in this Prospectus under the heading "Federal Income Tax
Considerations" is based upon the opinion of Powell, Goldstein, Frazer & Murphy
LLP. Members of Powell, Goldstein, Frazer & Murphy LLP own in the aggregate
7,647 shares of Common Stock.

EXPERTS

The consolidated financial statements of HealthCare Financial Partners
REIT, Inc. as of May 31, 1998 and for the period January 30, 1998 (inception)
through May 31, 1998 and the combining statement of revenue and certain expenses
of Valencia Medical Center and Vista Village Shopping Center for the year ended
December 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.

The statement of revenue and certain expenses of Sherman Oaks Medical
Center for the year ended December 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by Solomon, Ross, Grey & Company,
independent auditors, as stated in their report thereon appearing herein, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

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GLOSSARY OF TERMS

Except as otherwise specified or as the context may otherwise require, the
following terms used herein shall have the meanings assigned to them below. All
terms in the singular shall have the same meanings when used in the plural and
vice-versa.

"1996 Lender Liability Act" shall mean the Asset Conservation, Lender
Liability and Deposit Insurance Act of 1996.

"ADA" shall mean the Americans with Disabilities Act of 1990, as amended.

"ALF" shall mean an assisted living facility.

"Affiliate" shall mean (i) any person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner.

"Average Invested Assets" for any quarter shall mean the average of the
aggregate book value of the consolidated assets of the Company, before reserves
for depreciation or bad debts or other non-cash reserves, computed by dividing
the sum of such values for each of the three months during such quarter (based
upon the book value of such assets on the last day of such month) by three.

"BBA" shall mean the Balanced Budget Act of 1997.

"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended.

"Beneficiary" shall mean the beneficiary of the Trust.

"Board of Directors" shall mean the Board of Directors of the Company.

"Bylaws" shall mean the Bylaws of the Company.

"CCRC" shall mean Continuing Care Retirement Communities.

"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.

"CPI" shall mean the U.S. City Average Consumer Price Index for all Urban
Consumers.

"Charter" shall mean the corporate charter of the Company and amendments
thereto, as filed pursuant to MGCL.

"Closing" shall mean the closing of the Offering.

"Closing Date" shall mean the date of the Closing.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Commission" shall mean the Securities and Exchange Commission.

"Common Stock" shall mean the Common Stock, par value $0.0001 per share, of
the Company.

"Company" shall mean HealthCare Financial Partners REIT, Inc., a Maryland
corporation.

"Control Share Acquisition" shall mean the acquisition of control shares,
subject to certain exceptions.

"Control shares" shall mean voting shares of stock which, if aggregated
with all other such shares of stock previously acquired by the acquirer or in
respect of which the acquirer is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquirer to exercise voting power in electing directors within one of the
following ranges of voting power: (1) one-fifth or more but less

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<PAGE> 108

than one-third, (2) one-third or more but less than a majority, or (3) a
majority or more of all voting power; but "control shares" shall not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval.

"DSCR" shall mean debt service coverage ratio.

"Director Plan" shall mean the Company's 1998 Director Incentive Plan,
which provides for incentive awards to be made to non-employee directors of the
Company.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.

"Excess Inclusion" shall have the meaning specified in section 860E(c) of
the Code.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Exempt Organizations" shall mean tax-exempt entities, including, but not
limited to, charitable organizations, qualified employee pension and profit
sharing trusts and individual retirement accounts.

"FFO" as defined by NAREIT shall mean net income (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring or sales of
property, plus depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures.

"FIRPTA" shall mean the Foreign Investment in Real Property Tax Act of
1980.

"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.

"GMACCM" shall mean GMAC Commercial Mortgage Corporation.

"GMACCM Agreement" shall mean the Agreement Regarding First Right of
Purchase, dated April 29, 1998, between the Company and GMACCM, pursuant to
which, for a three-year term, the Company has a right of first refusal to
purchase certain mortgage loans secured by healthcare facilities which have a
loan-to-value ratio in excess of 80% and which GMACCM determines to sell,
assign, or otherwise transfer.

"HCAC" shall mean HealthCare Analysis Corporation, a Delaware corporation.

"HCFP" shall mean HealthCare Financial Partners, Inc., a Delaware
corporation.

"Identified Assets" shall mean the assets described under
"Portfolio -- Identified Assets".

"Initial Limited Partner" shall mean HCFP Limited, Inc., a Maryland
corporation and a wholly owned subsidiary of the Company.

"Independent Director" shall mean a person who is (i) independent of
management of the Company, HCFP, the Operating Partnership and the Manager, (ii)
not employed by or an officer of the Company, HCFP, the Operating Partnership or
the Manager, (iii) not an "affiliate" (as defined in Rule 405 under the
Securities Act of 1933, as amended) of the Company, HCFP, the Operating
Partnership, the Manager, or of any subsidiary of the Company, HCFP, the
Operating Partnership or the Manager, and (iv) not a person who acts on a
regular basis as an individual or representative of an organization serving as a
professional advisor, legal counsel or consultant to the management of the
Company, HCFP, the Operating Partnership or the Manager.

"Interested Stockholder" shall mean any person who beneficially owns 10% or
more of the voting power of a corporation's shares or an affiliate of a
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of a corporation.

"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended.

"IRA" shall mean an individual retirement account.

"MAI" shall mean Member, Appraisal Institute.

"MGCL" shall mean the Maryland General Corporation Law.

104
<PAGE> 109

"MLMCI" shall mean Merrill Lynch Mortgage Capital, Inc.

"MOB" shall mean a medical office building.

"Management Agreement" shall mean the Management Agreement, dated May 6,
1998, between the Company and the Manager, as amended, pursuant to which the
Manager performs various services for the Company.

"Manager" shall mean HCFP REIT Management, Inc., a Maryland corporation and
a wholly owned subsidiary of HCFP.

"Mortgage Loan Program" shall mean the program of the Company through which
it currently provides Eligible Mortgage Loans.

"NAREIT" shall mean the National Association of Real Estate Investment
Trusts, Inc.

"NYSE" shall mean the New York Stock Exchange.

"Non-ERISA Plan" shall mean a plan that does not cover common law
employees.

"OID" shall mean original issue discount.

"Offered Securities" shall mean the Securities offered hereby.

"Offering" shall mean the offering of the Securities hereby.

"Operating Partnership" shall mean HCFP REIT Operating Partnership, L.P., a
Delaware limited partnership.

"Operating Partnership Agreement" shall mean the Agreement of Limited
Partnership of HCFP REIT Operating Partnership, L.P.

"Option Plan" shall mean the Company's 1998 Stock Option Plan which
provides for options to purchase Common Stock of the Company.

"Ownership Limitation" shall mean the restriction on ownership (or deemed
ownership by virtue of the attribution provisions of the Code) of (a) more than
9.9% of the outstanding shares of Common Stock by any stockholder, or (b) more
than 9.9% of the shares of any series of Preferred Stock by any stockholder.

"Partnership Units" shall mean the units of ownership in the Operating
Partnership.

"Percentage Amount" shall mean, with respect to the Average Invested Assets
and the calculation of the Management Fee, 1.50% for assets up to and including
$300 million; 1.25% for assets in excess of $300 million up to and including
$600 million; 1.00% for assets in excess of $600 million up to and including
$900 million; 0.75% for assets in excess of $900 million up to and including
$1.2 billion; and 0.50% for assets in excess of $1.2 billion.

"Person" shall mean and include any natural person, corporation,
partnership, association, limited liability company or any other legal entity.
An indirect relationship shall include circumstances in which a person's spouse,
children, parents, siblings or mothers-, fathers-, sisters-, or brothers-in-law
is or has been associated with a person.

"Plan" shall mean a pension, profit-sharing or other employee benefit plans
subject to Title I of ERISA.

"Policies" shall mean policies that set forth general parameters for the
Company's investments, borrowings and operations.

"PORTAL Market" shall mean the Private Offering, Resales and Trading
through Automated Linkages Market of the National Association of Securities
Dealers, Inc.

"Preferred Stock" shall mean the preferred stock of the Company.

105
<PAGE> 110

"Private Placement" shall mean the private placement by the Company in May
1998 in which the Company sold 1,450,000 Units at a price to investors of $100
per Unit, resulting in net proceeds to the Company of approximately $136.2
million.

"Prohibited Owner" shall mean the record holder of the shares of Common
Stock or Preferred Stock that. are designated as Shares-in-Trust.

"Qualifying Interests" shall mean mortgages and other liens on and
interests in real estate.

"REIT" shall mean a real estate investment trust, as defined in section 856
of the Code.

"REMIC" shall mean a real estate mortgage investment conduit, as defined in
section 860D of the Code.

"REMIC Residual Interest" shall mean a class of mortgage backed securities
that is designated as the residual interest in one or more REMIC.

"RICO" shall mean the Racketeer Influenced and Corrupt Organizations Act,
18 U.S.C.A. (S) 1961, et seq.

"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated May 6, 1998, among the Company, NationsBanc Montgomery
Securities LLC, Lehman Brothers Inc. and certain other parties thereto, as
amended, pursuant to which the holders of Units issued in the Private Placement
are entitled to certain rights with respect to registration of such Units under
the Securities Act.

"Registration Statement" shall mean the Registration Statement filed with
the Commission of which this Prospectus forms a part.

"Repurchase Facility" shall mean the Company's proposed $150 million
reverse repurchase program with MLMCI.

"Rule 144" shall mean the rule promulgated under the Securities Act that
permits holders of restricted securities as well as affiliates of an issuer of
the securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under the
Securities Act.

"SNF" shall mean a skilled nursing facility.

"Securities" shall mean the Units until November 5, 1998, and from and
after November 5, 1998, shall mean the shares of Common Stock comprising a
portion of the Units, the Warrants and the Warrant Shares.

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Service" shall mean the Internal Revenue Service.

"Shares-in-Trust" shall mean shares of Common Stock or Preferred Stock the
purported transfer of which would result in a violation of the Ownership
Limitation, result in the stock of the Company being held by fewer than 100
persons, result in the Company being "closely held," or cause the Company to own
10% or more of the ownership interests in a tenant of the Company's real
property.

"Ten-Year Treasury Rate" shall mean the arithmetic average of the weekly
average yield to maturity for actively traded current coupon U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of ten years)
published by the Federal Reserve Board during a quarter, or, if such rate is not
published by the Federal Reserve Board, any Federal Reserve Bank or agency or
department of the federal government selected by the Company.

"Title V" shall mean Title V of the Depository Institutions Deregulation
and Monetary Control Act of 1980.

106
<PAGE> 111

"Trading Day" shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.

"Treasury Regulations" shall mean the income tax regulations promulgated
under the Code.

"Trust" shall mean a trust created in the event of an impermissible
transfer of shares of Common Stock.

"Trustee" shall mean a trustee of the Trust.

"UBTI" shall mean unrelated business taxable income.

"UBTI Percentage" shall mean the gross income derived by the Company from
an unrelated trade or business divided by the gross income of the Company for
the year in which the dividends are paid.

"UCC" shall mean the Uniform Commercial Code.

"Unit" shall mean a unit issued on May 6, 1998, comprised of five shares of
Common Stock and one Warrant.

"Warrant" shall mean one stock purchase warrant to purchase one share of
Common Stock, included in a Unit.

"Warrant Share" shall mean one share of Common Stock that each holder of a
Warrant is entitled to purchase.

107
<PAGE> 112

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1998.................................................. F-3
Pro Forma Condensed Consolidated Statement of Income for the
period January 30, 1998 (inception) through
June 30, 1998............................................. F-4
Notes to Pro Forma Condensed Consolidated Balance Sheet and
Statement of Income....................................... F-5

HEALTHCARE FINANCIAL PARTNERS REIT, INC.
Report of Independent Auditors.............................. F-9
Consolidated Balance Sheets as of May 31, 1998 and June 30,
1998 (unaudited).......................................... F-10
Consolidated Statements of Income for the period January 30,
1998 (inception) through May 31, 1998, for the one month
period ended June 30, 1998 (unaudited), and for the period
January 30, 1998 (inception) through June 30, 1998
(unaudited)............................................... F-11
Consolidated Statements of Stockholders' Equity as of May
31, 1998 and June 30, 1998 (unaudited).................... F-12
Consolidated Statements of Cash Flows for the period January
30, 1998 (inception) through May 31, 1998, for the one
month period ended June 30, 1998 (unaudited), and for the
period January 30, 1998 (inception) through June 30, 1998
(unaudited)............................................... F-13
Notes to Consolidated Financial Statements.................. F-14

SHERMAN OAKS MEDICAL CENTER
Report of Independent Auditors.............................. F-21
Statements of Revenue and Certain Expenses for the year
ended December 31, 1997 and the period January 1, 1998
through June 18, 1998 (unaudited)......................... F-22
Notes to Financial Statements............................... F-23

VALENCIA MEDICAL CENTER AND VISTA VILLAGE SHOPPING CENTER
Report of Independent Auditors.............................. F-24
Combining Statements of Revenue and Certain Expenses for the
year ended December 31, 1997 and six months ended June 30,
1998 (unaudited).......................................... F-25
Notes to Combining Statements of Revenue and Certain
Expenses.................................................. F-26
</TABLE>

F-1
<PAGE> 113

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The accompanying unaudited pro forma condensed consolidated balance sheet
is based on the historical consolidated balance sheet of the Company at June 30,
1998 included elsewhere in the Prospectus adjusted to give effect to the
acquisition or funding of income-producing real estate and mortgage notes
receivable, respectively, that were either acquired or funded, respectively,
prior to June 30, 1998 or were probable of being acquired or funded,
respectively, prior to the effective date of the Offering (collectively, the
"Initial Investments") as if they were made on June 30, 1998. The unaudited pro
forma condensed consolidated statement of income for the period January 30, 1998
(inception) through June 30, 1998 gives effect to the Initial Investments as if
they were made on January 30, 1998. The pro forma adjustments are based upon
available information and certain estimates and assumptions that management of
the Company believes are reasonable and factually supportable. The unaudited pro
forma condensed consolidated balance sheet and statement of income do not
purport to present what the Company's financial position or results of
operations would actually have been if the Initial Investments and related
transactions had occurred on June 30, 1998 or January 30, 1998, as the case may
be, or to project the Company's financial position or results of operations for
any future period.

The pro forma financial statements should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto, and
other financial information pertaining to the Company, including such
information contained under the sections captioned "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus. Capitalized terms used
herein and not defined herein have the respective meanings given them in the
Prospectus.

F-2
<PAGE> 114

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
HEALTHCARE FINANCIAL HEALTHCARE FINANCIAL
PARTNERS REIT, INC. PRO FORMA PARTNERS REIT, INC.
HISTORICAL ADJUSTMENTS PRO FORMA
-------------------- ------------ --------------------
<S> <C> <C> <C>
ASSETS
Income-producing real estate, net...... $ 10,535,281 $ 39,557,281(a) $ 50,092,562
Mortgage notes receivable, net......... 21,048,755 20,186,344(b) 41,235,099
Cash and cash equivalents.............. 106,882,119 (61,200,344)(a),(b) 45,681,775
Other assets........................... 497,289 1,456,719(a) 1,954,008
------------ ------------ ------------
Total Assets................. $138,963,444 $ $138,963,444
============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities.......................... $ 429,841 $ 429,841
Accounts payable to Manager............ 1,135,697 1,135,697
------------ ------------ ------------
Total liabilities............ 1,565,538 1,565,538
Stockholders' equity:
Common stock......................... 806 806
Paid-in capital...................... 136,545,071 136,545,071
Cumulative net income................ 852,029 852,029
------------ ------------ ------------
Total stockholders' equity... 137,397,906 137,397,906
------------ ------------ ------------
Total liabilities and
stockholders' equity....... $138,963,444 $138,963,444
============ ============ ============
</TABLE>

See notes to unaudited pro forma balance sheet and statements of income.

F-3
<PAGE> 115

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD JANUARY 30, 1998 (INCEPTION) THROUGH JUNE 30, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
HEALTHCARE FINANCIAL HEALTHCARE FINANCIAL
PARTNERS REIT, INC. PRO FORMA PARTNERS REIT, INC.
HISTORICAL ADJUSTMENTS PRO FORMA
-------------------- ----------- --------------------
<S> <C> <C> <C>
Revenues:
Interest on cash and cash equivalents....... $1,078,494 $ (36,048)(e) $1,042,446
Interest on mortgage notes receivable....... 45,961 1,773,105 (c) 1,819,066
Rental income............................... 70,678 2,382,325 (d) 2,453,003
---------- ---------- ----------
Total income........................ 1,195,133 4,119,382 5,314,515
Expenses:
Management fee.............................. 237,923 630,598 (f) 868,521
Other....................................... 99,139 402,779 (d) 656,918
155,000 (g)
Depreciation................................ 6,042 531,594 (d) 537,636
---------- ---------- ----------
Total expenses...................... 343,104 1,719,971 2,063,075
---------- ---------- ----------
Net income.................................... $ 852,029 $2,399,411 $3,251,440
========== ========== ==========
Basic and diluted earnings per share.......... $ .24 $ .40
========== ==========
Weighted average shares outstanding........... 3,494,297 8,055,555
========== ==========
</TABLE>

See notes to unaudited pro forma condensed consolidated balance sheet and
statement of income.

F-4
<PAGE> 116

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENT OF INCOME
JUNE 30, 1998 (UNAUDITED)

1. BACKGROUND AND BASIS OF PRESENTATION

HealthCare Financial Partners REIT, Inc. (the "Company"), a Maryland
corporation, was organized to qualify as a real estate investment trust ("REIT")
on January 30, 1998 ("Inception"). The Company's principal activity is investing
in income-producing real estate and real estate related assets in the healthcare
industry. Components of the Initial Investments include such income-producing
real estate and mortgage notes receivable that were originated under the
Company's permanent mortgage loan and other real estate secured debt programs.

For the purpose of the pro forma presentation, income-producing real estate
includes healthcare and other facilities acquired or probable of being acquired.
Certain of the facilities are leased to various tenants pursuant to fixed-term
operating leases which require the lessees to pay base rent, additional rent
commencing after the first year based on a set percentage increase in the
consumer price index, maintenance, and other operating costs associated with the
leased space. Other facilities are leased to third-party lessees pursuant to
triple net leases that require the lessees to pay all costs and expenses
including repairs, maintenance, real property taxes, assessments and utilities.

Mortgage loans under the Company's permanent mortgage loan program are
issued to finance the acquisition or the refinancing of existing facilities and
are secured by a first mortgage on the facility. Such loans generally have a
ten-year term, bear interest at a fixed rate (and may provide for an annual
increase to the initial interest rates based upon a contractual increase or a
change in the CPI), and require monthly installments of principal and interest.
Investments under the Company's other real estate secured debt program include
construction and expansion loans, mezzanine loans, bridge financings and other
types of non-permanent real estate financing of healthcare facilities.
Construction and expansion loans may be provided to finance construction of or
an addition to (or renovation of) a facility and, in certain cases, may convert
to permanent mortgages. Notes in this program may bear interest at fixed or
floating rates and generally require interest installments during the
construction term.

2. PRO FORMA ADJUSTMENTS

(a) To record the cost of income-producing real estate that are probable of
being acquired:

<TABLE>
<CAPTION>
LAND AND BUILDING PERSONAL
AND IMPROVEMENTS PROPERTY
----------------- ----------
<S> <C> <C>
Colonial Manor Properties................................. $ 3,591,310 $ 158,690
Gulf Health Care Properties............................... 21,313,765 1,000,235
Meadowood Nursing Home.................................... 6,452,206 297,794
Valencia Medical Center................................... 4,250,000
Vista Village Shopping Center............................. 3,950,000
----------- ----------
$39,557,281 $1,456,719
=========== ==========
</TABLE>

F-5
<PAGE> 117
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENT OF INCOME -- (CONTINUED)

(b) To record the mortgage loans probable of being funded and the actual
draws that have occurred on construction loans since June 30, 1998 and
through July 31, 1998:

<TABLE>
<S> <C>
Permanent Mortgage Loan Program:
Mountainside Manor, Inc................................... $ 2,298,780
Pennswood Manor Assisted Living and Healthcare Center,
Inc.................................................... 1,660,470
Medicore, LLC............................................. 3,702,600
Waban Realty Trust........................................ 2,450,000
-----------
Program total..................................... 10,111,850

Other Real Estate Secured Debt Program:
ALCO XII, LLC............................................. 60,616
Cedar Lawn Investments, LLC............................... 5,614,500
Chancellor Health Services, LLC........................... 3,360,000
Hildebran Health Investors, LLC........................... 53,891
Lincolnton Health Investors, LLC.......................... 715,235
St. Andrews Health Center, Inc............................ 180,980
Transylvania Health Investors, LLC........................ 89,272
-----------
Program total..................................... 10,074,494
-----------
$20,186,344
===========
</TABLE>

F-6
<PAGE> 118
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENT OF INCOME -- (CONTINUED)

(c) To record the interest on mortgage notes receivable that have been
funded or are probable of funding as if the notes were funded on
January 30, 1998. For the purposes of the pro forma presentation,
interest accrued on construction loans is computed according to the
actual draws as if the initial draw occurred on January 30, 1998, and
interest accrued on subsequent draws is calculated for the period
January 30, 1998 (inception) through June 30, 1998 less the number of
days' interest for days that had elapsed since the previous draw.

<TABLE>
<S> <C>
Permanent Mortgage Loan Program:
Applegate Lane, Inc....................................... $ 274,280
Cromwell Crest Convalescent Home, Inc..................... 302,803
JoJeff, Inc. and Alymatt, Inc............................. 82,707
Medicore, LLC............................................. 166,904
Mountainside Manor, Inc................................... 99,501
Pennswood Manor Assisted Living and Healthcare Center,
Inc.................................................... 71,953
Waban Realty Trust........................................ 119,995
Less applicable historical interest income................ (25,401)
----------
1,092,742
Other Real Estate Secured Debt Program:
ALCO XII, LLC............................................. 20,222
ACMC Friendswood, Inc..................................... 40,469
Cedar Lawn Investments, LLC............................... 246,587
Chancellor Health Services, LLC........................... 197,169
Hildebran Health Investors, LLC........................... 16,694
Lincolnton Health Investors, LLC.......................... 31,292
St. Andrews Health Center, Inc............................ 134,878
Transylvania Health Investors, LLC........................ 13,612
Less applicable historical interest income................ (20,560)
----------
680,363
----------
$1,773,105
==========
</TABLE>

F-7
<PAGE> 119
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENT OF INCOME -- (CONTINUED)

(d) To record the rental income, operating expenses and depreciation from
income-producing real estate acquired or probable of being acquired as
if the properties were acquired on January 30, 1998.

<TABLE>
<CAPTION>
RENTAL OPERATING DEPRECIATION
INCOME EXPENSES EXPENSE
------ --------- ------------
<S> <C> <C> <C>
Purchase lease back transactions:
Colonial Manor Homes.................. $ 166,407 $ 45,061
Gulf Health Care Properties........... 897,432 271,839
Meadowood Nursing Home................ 268,723 80,933
Real estate acquisitions:
Sherman Oaks Medical Center........... 627,899 $281,727 69,718
Valencia Medical Center............... 260,643 69,366 36,324
Vista Village Shopping Center......... 231,899 63,912 33,761
Less historical amounts................. (70,678) (12,226) (6,042)
---------- -------- --------
$2,382,325 $402,779 $531,594
========== ======== ========
</TABLE>

(e) To record the interest earned on cash and cash equivalents at a
short-term money market annual rate of 5.5% assuming all mortgage notes
and income-producing real estate were funded as of January 30, 1998.

(f) To record the Base Management Fee which accrues at an annual rate of
1.5% of the total average assets under management between January 30,
1998 and June 30, 1998 in accordance with the Management Agreement.

<TABLE>
<S> <C>
Pro forma total average assets............................. $138,963,444
Annual rate adjusted for the period January 30, 1998
(inception) through June 30, 1998........................ X .625%
------------
868,521
Historical management fee.................................. (237,923)
------------
Total Base Management Fee........................ $ 630,598
============
</TABLE>

(g) To record administrative expenses and the costs of being a public
company of $155,000 for the period January 30, 1998 (inception) through
June 30, 1998, consisting primarily of insurance premiums, professional
fees, and the indirect costs of portfolio development.

F-8
<PAGE> 120

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
HealthCare Financial Partners REIT, Inc.

We have audited the accompanying consolidated balance sheet of HealthCare
Financial Partners REIT, Inc. as of May 31, 1998 and the related consolidated
statements of income, stockholders' equity, and cash flows for the period
January 30, 1998 (inception) through May 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HealthCare
Financial Partners REIT, Inc. as of May 31, 1998 and the consolidated results of
its operations and its cash flows for the period January 30, 1998 (inception)
through May 31, 1998, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Washington, D.C.
July 23, 1998

F-9
<PAGE> 121

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31, JUNE 30,
1998 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Income-producing real estate:
Land...................................................... $ 4,015,742
Building and improvements................................. 6,525,581
------------
10,541,323
Less accumulated depreciation............................. (6,042)
------------
Income-producing real estate, net................. 10,535,281
Mortgage notes receivable, net.............................. $ 2,648,997 21,048,755
Cash and cash equivalents................................... 135,051,227 106,882,119
Other assets................................................ 278,668 497,289
------------ ------------
Total assets...................................... $137,978,892 $138,963,444
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $ 710,455 $ 429,841
Account payable to Manager................................ 447,817 1,135,697
------------ ------------
Total liabilities................................. 1,158,272 1,565,538
Stockholders' equity:
Common stock, par value $.0001 per share; 500,000,000
shares authorized; 8,055,555 shares issued and
outstanding at May 31, 1998 and June 30, 1998.......... 806 806
Paid-in capital........................................... 136,545,071 136,545,071
Cumulative net income..................................... 274,743 852,029
------------ ------------
Total stockholders' equity........................ 136,820,620 137,397,906
------------ ------------
Total liabilities and stockholders' equity........ $137,978,892 $138,963,444
============ ============
</TABLE>

See accompanying notes.

F-10
<PAGE> 122

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JANUARY 30, FOR THE ONE JANUARY 30,
1998 MONTH 1998
(INCEPTION) PERIOD (INCEPTION)
THROUGH ENDED THROUGH
MAY 31, 1998 JUNE 30, 1998 JUNE 30, 1998
-------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Interest on cash and cash equivalents................. $ 433,925 $ 644,569 $1,078,494
Interest on mortgage notes receivable................. 2,650 43,311 45,961
Rental income......................................... 70,678 70,678
---------- ---------- ----------
Total revenues................................ 436,575 758,558 1,195,133
Expenses:
Management fee........................................ 123,389 114,534 237,923
Other................................................. 38,443 60,696 99,139
Depreciation.......................................... 6,042 6,042
---------- ---------- ----------
Total expenses................................ 161,832 181,272 343,104
---------- ---------- ----------
Net income.............................................. $ 274,743 $ 577,286 $ 852,029
========== ========== ==========

Basic earnings per share................................ $ .12 $ .07 $ .24
========== ========== ==========
Diluted earnings per share.............................. $ .12 $ .07 $ .24
========== ========== ==========
Weighted average shares outstanding..................... 2,363,406 8,055,555 3,494,297
========== ========== ==========
Diluted weighted average shares outstanding............. 2,363,406 8,055,555 3,494,297
========== ========== ==========
</TABLE>

See accompanying notes.

F-11
<PAGE> 123

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN CUMULATIVE STOCKHOLDERS'
STOCK CAPITAL NET INCOME EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Issuance of 805,555 shares of $.0001 par
value common stock at January 30, 1998
(inception)........................... $ 81 $ 309,231 $ 309,312
Issuance of 7,250,000 shares of $.0001
par value common stock................ 725 136,235,840 136,236,565
Net income for the period January 30,
1998 (inception) through May 31,
1998.................................. $ 274,743 274,743
------------ ------------ ------------ ------------
Balance at May 31, 1998................. 806 136,545,071 274,743 136,820,620
Net income for the one month period
ended June 30, 1998 (unaudited)....... 577,286 577,286
------------ ------------ ------------ ------------
Balance at June 30, 1998 (unaudited).... $ 806 $136,545,071 $ 852,029 $137,397,906
============ ============ ============ ============
</TABLE>

See accompanying notes.

F-12
<PAGE> 124

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JANUARY 30, JANUARY 30,
1998 FOR THE ONE 1998
(INCEPTION) MONTH PERIOD (INCEPTION)
THROUGH ENDED THROUGH
MAY 31, 1998 JUNE 30, 1998 JUNE 30, 1998
-------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 274,743 $ 577,286 $ 852,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 6,042 6,042
Deferred origination fees, net.................. 201,139 78,935 280,074
Amortization of deferred origination fees....... (136) (1,123) (1,259)
Increase in other assets........................ (278,668) (218,621) (497,289)
Increase (decrease) in accounts payable and
accrued liabilities........................... 710,455 (280,614) 429,841
Increase in account payable to Manager.......... 447,817 687,880 1,135,697
------------ ------------ ------------
Net cash provided by operating
activities............................... 1,355,350 849,785 2,205,135
INVESTING ACTIVITIES
Acquisition of income-producing real estate........ (10,541,323) (10,541,323)
Investment in mortgage notes receivable............ (2,850,000) (18,477,570) (21,327,570)
------------ ------------ ------------
Net cash used in investing activities...... (2,850,000) (29,018,893) (31,868,893)
FINANCING ACTIVITIES
Issuance of common stock........................... 136,545,877 136,545,877
------------ ------------ ------------
Net cash provided by financing
activities............................... 136,545,877 136,545,877
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 135,051,227 (28,169,108) 106,882,119
Cash and cash equivalents at beginning of period... 135,051,227
------------ ------------ ------------
Cash and cash equivalents at end of period......... $135,051,227 $106,882,119 $106,882,119
============ ============ ============
</TABLE>

See accompanying notes.

F-13
<PAGE> 125

HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 IS UNAUDITED)

1. FORMATION AND BUSINESS OF THE COMPANY

HealthCare Financial Partners REIT, Inc. (the "Company"), a Maryland
corporation, was organized to qualify as a real estate investment trust ("REIT")
on January 30, 1998 ("inception") and was initially capitalized through the sale
of 805,555 shares of common stock for $309,312 pursuant to a private placement
memorandum. All share information has been restated to reflect a 1 for 2.1332
reverse stock split on April 1, 1998. In May 1998, the Company sold 1,150,000
units consisting of five shares of common stock and one stock purchase warrant
to purchase one share of common stock ("Units") pursuant to a private placement,
and the Company sold 300,000 Units directly to certain accredited investors,
including 100,000 Units sold to HealthCare Financial Partners, Inc. (HCFP).
Neither these Units nor the shares sold on January 30, 1998 were registered
under the Securities Act of 1933 (the "Securities Act"). The holders of the
Units and the aforementioned shares are entitled to certain benefits contained
in a Registration Rights Agreement, which will allow the holders to sell the
Units, warrants or common stock at a later date when registered under the
Securities Act.

Each warrant will become exercisable six months following the closing of
the private placement, and will remain exercisable for a three-year period. The
exercise price per warrant was set initially at one-fifth of the Unit price
($20) and is subject to adjustment based on dividends or distribution on its
common stock or certain other changes in the number of common shares. The value
of the warrants at the date of issue was not material.

The Company is in the process of an initial public offering of common stock
(the "Offering"). The Company intends to file a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the
Offering. With regard to the Offering, the Company has and will incur legal,
accounting and related costs. These costs will be deducted from the gross
proceeds of the Offering.

The Company's principal activity is investing in income-producing real
estate and real estate related assets in the healthcare industry, consisting
principally of mortgage loans and purchase leaseback transactions. The Company
is the sole general partner of the HCFP REIT Operating Partnership, L.P.
("Operating Partnership"). In addition, the Company's day-to-day operations will
be managed by HCFP REIT Management, Inc. (the "Manager"), a wholly-owned
subsidiary of HCFP (see Note 4).

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements as of and for the period from
inception to May 31, 1998 include the accounts of the Company, the Operating
Partnership and HCFP Limited, Inc. (Limited), a wholly-owned subsidiary of the
REIT and 99% limited partner in the Operating Partnership. The consolidated
financial statements as of June 30, 1998 and for the one month then ended and
the period January 30, 1998 (inception) to June 30, 1998, include the accounts
of the Company, Limited, the Operating Partnership, and HCFP Sherman, LLC, a
wholly-owned subsidiary formed to facilitate the acquisition of a medical office
building (see Note 8). Such interim financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for such periods are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998. All significant intercompany accounts and
transactions have been eliminated in consolidation.

F-14
<PAGE> 126
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME-PRODUCING REAL ESTATE

Income-producing real estate is recorded at cost, including transaction
fees. The cost of income-producing real estate is allocated between land and
buildings and improvements based upon estimated fair values at the time of
acquisition. Certain acquisition, development and construction mortgage notes
receivable may be accounted for as real estate investments or joint ventures
based on the characteristics of the arrangements. Depreciation is provided for
on a straight-line basis over an estimated useful life of 39 years.

MORTGAGE NOTES RECEIVABLE

Mortgage notes receivable are carried at the unpaid principal balance net
of net deferred origination fees. Net deferred origination fees consist of loan
fees collected from the borrower net of certain direct loan origination costs
incurred by the Manager on behalf of the Company. Net deferred origination fees
are amortized over the contractual life of the loan using the effective interest
method. Interest income on mortgage loan receivables is recorded as earned,
including the effects of contractual minimum accrual interest rate increases.

ALLOWANCE FOR LOAN LOSSES

Management, considering current information and events regarding the
borrowers' ability to repay their obligations, determines a note is impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the note agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the note's effective
interest rate. Impairment losses are included in an allowance for loan losses
through a charge to bad debt expense. Cash receipts on impaired notes receivable
are applied to reduce the principal amount of such notes until the principal has
been recovered and are recognized as interest income thereafter. At May 31, 1998
and June 30, 1998, the Company has not established an allowance for loan losses.

LONG-LIVED ASSETS

Impairment losses are recorded on long-lived assets used in operations when
events or changes in circumstances indicate that the assets might be impaired
and the estimated undiscounted cash flows to be generated by those assets are
less than the carrying amounts. Management assesses the recoverability of the
carrying value of its assets on a property by property basis. No allowance for
impairment is recorded at June 30, 1998.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.

INCOME TAXES

It is the intent of the Company to qualify as a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended. In order to
qualify as a REIT, among other things, the REIT must distribute at least 95% of
its REIT taxable income annually. To the extent the REIT distributes at least
95% but less than 100% of REIT taxable income, it will be subject to tax on the
undistributed portion at regular ordinary and/or capital gains corporate tax
rates. REITs are subject to a number of organizational and operations
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.

F-15
<PAGE> 127
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of common
shares outstanding excluding any dilutive effects of options, warrants and other
dilutive securities. Diluted earnings per share reflects the assumed conversion
of all dilutive securities.

RENTAL INCOME

Rental income under long-term operating leases is recognized as earned over
the life of the lease agreements. For lease agreements that provide for
scheduled annual rent increases, rental income is recognized on a straight-line
basis over the term of the lease. Additional rental income is recognized as
earned.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

3. MORTGAGE NOTES RECEIVABLE

As of May 31, 1998, two notes with carrying values aggregating $2.6 million
were outstanding. One of the notes, due June 2004, is collateralized by an
assisted living facility and a personal care facility located in Pennsylvania.
The other note is collateralized by an assisted living facility under
construction in Texas. Under the terms of this note, the Company had advanced
$925,000 for the land acquisition and has a $9.1 million construction loan
commitment as of May 31, 1998. These notes bear interest at the respective rates
of 9.40% and prime plus 2% (10.50% at May 31, 1998).

The mortgage note receivable due June 2004 requires monthly installments of
principal and interest based on a twenty-five year amortization. The
construction note requires monthly payments of interest only during the
construction period. At completion of construction, the note converts to a
permanent mortgage due ten years after the completion of the project (which is
not expected to be more than a year) at which time interest on the note converts
to a fixed rate equal to the Ten Year Treasury Rate plus 3.75% (but not less
than 9.5%). Each note provides for the initial interest rates to be increased
annually by either a set rate or upon an increase in the CPI.

4. TRANSACTIONS WITH AFFILIATES

HCFP REIT MANAGEMENT, INC.

In May 1998, the Company entered a management agreement (the "Management
Agreement") with the Manager. The Manager advises the Company as to activities
and operations of the Company and is responsible for the day-to-day operation of
the Company pursuant to authority granted to it by the Board of Directors under
the Management Agreement.

Under the Management Agreement, the Manager receives the following
compensation:

(i) The Base Management Fee payable and calculated quarterly in an
amount equal to the Percentage Amount (as hereinafter defined) of the
Average Invested Assets for such quarter. The term "Average Invested
Assets" for any quarter means the average of the aggregate book value of
the consolidated assets of the Company, before reserves for depreciation or
bad debts or other non-cash reserves, computed by dividing the sum of such
values for each of the three months during such quarter (based on the book
value of such assets on the last day of such month) by three. The
"Percentage Amount" is 1.50% for assets up to and including $300 million;
1.25% for assets in excess of $300 million up to and including $600
million; 1.00% for assets in excess of $600 million up to and including
$900
F-16
<PAGE> 128
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

million; 0.75% for assets in excess of $900 million up to and including
$1.2 billion; and 0.50% for assets in excess of $1.2 billion. The Base
Management Fee is intended to compensate the Manager, among other things,
for its costs in providing management services to the Company.

(ii) Incentive Compensation for each quarter in an amount equal to the
product of (A) 25% of the dollar amount by which (1) (a) Funds From
Operations of the Company (before the Incentive Compensation) per share of
Common Stock (based on the weighted average number of shares outstanding)
for such quarter plus (b) gains (or minus losses) from debt restructuring
and sales of property per share of Common Stock (based on the weighted
average number of shares outstanding), exceeds (2) an amount equal to the
weighted average of the prices per common Stock of all issuances of Common
Stock by the Company (including shares of Common Stock issued upon exercise
of options or Warrants) and assuming a price of $20 per share for shares
sold in the Private Placement, multiplied by (b) the Ten Year U.S. Treasury
Rate for such quarter plus 3.50% multiplied by (b) the weighted average
number of shares of Common Stock outstanding during such quarter. "Funds
From Operations" as defined by NAREIT means net income (computed in
accordance with generally accepted accounting principles) ("GAAP")
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. Funds From
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income as an indication of the Company's performance or to cash flows as a
measure of liquidity or ability to make distributions.

The Manager is expected to use the proceeds from its Base Management Fee
and Incentive Compensation in part to pay compensation to its officers and
employees who, notwithstanding that certain of them are officers of the Company,
will initially receive no cash compensation directly from the Company. The Base
Management Fee and Incentive Compensation are payable in arrears. The Manager's
Base Management Fee and Incentive Compensation and reimbursable costs and
expenses will be calculated by the Manager within 45 days after the end of each
quarter, and such calculation will be promptly delivered to the Company. The
Company is obligated to pay such fees, costs and expenses within 60 days after
the end of each fiscal quarter.

The Company does not currently employ full-time personnel. Instead it
relies on the facilities, personnel and resources of the Manager to conduct its
operations. The Manager will be reimbursed for (or charge the Company directly
for) the Manager's costs and expenses in employing third-parties to perform due
diligence tasks on assets purchased or considered for purchase by the Company.
Expense reimbursement will be made quarterly.

The Company has agreed to indemnify the Manager, its stockholders,
directors, officers and employees with respect to all expenses, losses, damages,
liabilities, demands, charges and claims arising from acts of the Manager, its
stockholders, directors, officers and employees made in good faith in
performance of the Manager's duties under the Management Agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of duties.

The Management Agreement does not limit or restrict the right of the
Manager or any of its officers, directors, employees or affiliates to engage in
any business or to render services of any kind to any other person, including
the purchase of, or rendering advice to others, purchasing assets that meet the
Company's policies and criteria, except that the Manager may not manage or
advise another REIT or other entity that invests or intends to invest primarily
in permanent mortgage loans or purchase leaseback transactions with respect to
healthcare facilities, and may not, directly or through an affiliate, invest in
real property or originate or acquire loans secured by such real property
collateral with initial terms of more than three years.

Of the Company's $448,000 account payable to the Manager at May 31, 1998,
approximately $142,000 was attributable to the Management Fee and approximately
$306,000 was attributable to certain amounts paid by the Manager on the
Company's behalf. Of the Company's $1.1 million account payable to the Manager
at

F-17
<PAGE> 129
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

June 30, 1998, approximately $313,000 was attributable to the Management Fee and
approximately $784,000 was attributable to certain amounts paid by the Manager
on the Company's behalf. From inception through June 30, 1998, the management
fee incurred of $313,000 was solely attributable to the Base Management Fee and
was calculated on average invested assets of $138.6 million. From inception
through May 31, 1998 and June 30, 1998, $18,600 and $75,000, respectively, was
deferred as direct costs of origination.

The initial term of the Management Agreement is three years. Upon
termination or non-renewal of the Management Agreement, the Company can either
acquire the Manager at an acquisition price (the "Acquisition Price" as defined
in the Management Agreement) or pay the Manager a termination fee equal to 80%
of the Acquisition Price. The Acquisition Price is equal to ten times the
Manager's earnings before taxes for the latest twelve calendar months
immediately preceding the date of termination or non-renewal.

GMAC COMMERCIAL MORTGAGE CORPORATION

An officer of GMAC Commercial Mortgage Corporation ("GMACCM") is a member
of the board of directors of the Company. The Company has entered into several
agreements with GMACCM, including a loan servicing agreement with respect to the
Company's mortgage loans. As compensation for servicing, GMACCM retains from
each monthly payment collected one-twelfth of .125% of the outstanding principal
amount of each loan being serviced.

The Company has also entered into an agreement with an initial term of
three years pursuant to which GMACCM will grant the Company a right of first
refusal to purchase certain healthcare related mortgage loans which GMACCM has
determined to sell. The maximum principal amount of loans to which this right
applies in any annual period under this agreement is $100 million. As
consideration, the company will grant to GMACCM options to purchase up to 10,000
shares of common stock each year the agreement is in effect at an exercise price
equal to the fair market value on the grant date. In June 1998, the Company
purchased two mortgage loans from GMACCM for an aggregate principal amount of
approximately $15 million (see Note 8).

5. STOCK OPTION PLANS

The Company has adopted the 1998 Stock Option Plan (the "Option Plan")
under which the Company is authorized to grant options to purchase shares of
common stock to employees, directors and others providing services to the
Company, as well as the Manager, HCFP, and certain affiliates of HCFP. The
Option Plan currently provides that the aggregate number of shares which may be
subject to stock options is 900,000 shares. A total of 460,000 options to
purchase common stock were granted on May 6, 1998 at an exercise price of $20,
which was equal to one-fifth of the initial purchase price of Units sold
pursuant to the private placement that closed that same day.

The exercise price of options granted pursuant to the 1998 Option Plan will
not be less than 100% of the fair market value of the common stock at the date
of grant. Options granted become exercisable in equal installments over a four
year period from the grant date and expire ten years from that date.

The Company also has adopted the 1998 Director Incentive Plan (the
"Director Plan"), for which 100,000 shares of common stock have been reserved
for issuance only to non-employee directors of the Company. Pursuant to the
Director Plan awards can be granted for initial appointments, for which 40,000
shares were granted to Independent Directors at an exercise price of $20 per
share, annual service awards and discount awards. Options granted pursuant to
the Director Plan vest immediately; become exercisable twelve months following
the date of grant and expire at the earlier of the tenth anniversary of the
grant date or eighteen months following the director's termination of service.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations in
accounting for its stock-based compensation plans. In
F-18
<PAGE> 130
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accordance with APB 25, no compensation cost is recognized for the Company's
stock options where the exercise price equals the market price of the underlying
stock on the date of grant.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) requires entities that follow APB 25 to
provide an additional pro forma disclosure regarding net income in the footnotes
to the financial statements as if the fair value recognition provisions of SFAS
123 had been adopted for the periods being presented.

The fair value of options granted was estimated at the date of grant using
a minimum value option pricing model with the following assumptions:

<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.6%
Dividend yield.............................................. 8.4%
Expected life options (in years)............................ 4.00
</TABLE>

The minimum value option valuation model was developed for use in
estimating the fair value of options of private companies for which there is no
active market for the underlying common stock. In addition, this option
valuation model requires the input of highly subjective assumptions. Since
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

As a result of applying the model as explained above for the purpose of
providing the required pro forma disclosures of SFAS 123, the estimated fair
value of the options granted on May 6, 1998 was not material. The effects of
applying SFAS 123 for providing pro forma disclosures are not likely to be
representative of the effects on reported net income for future years.

6. DIVIDENDS

The Company intends to make distributions to its stockholders of at least
95% of the Company's taxable income each year (subject to certain adjustments)
so as to quality for the tax benefits accorded to REITs under the Code. The
Company intends to make distributions at least quarterly. It is anticipated that
the first distribution to stockholders will be made promptly after the calendar
quarter ending September 30, 1998.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Due to the
short duration from origination to both May 31, 1998 and June 30, 1998, there
are no significant differences between recorded values and fair values.

8. SUBSEQUENT EVENTS (UNAUDITED)

INCOME-PRODUCING REAL ESTATE

In June 1998, the Company acquired one medical office building in southern
California. The aggregate cost of the property was approximately $10.5 million
with $4.0 million and $6.5 million being allocated between the land and building
and improvements, respectively.

Space in the medical office building is leased to various tenants pursuant
to fixed-term operating leases expiring between 1998 and 2006, and these leases
generally provide for extension options. Tenant leases provide for the lessee to
pay base rent, additional rent commencing after the first year based on a set
percentage increase in the consumer price index, maintenance, or other operating
costs associated with the leased space.

F-19
<PAGE> 131
HEALTHCARE FINANCIAL PARTNERS REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of June 30, 1998, the future minimum lease payments for the next five
years and thereafter under the non-cancelable operating leases associated with
this building were approximately as follows:

<TABLE>
<S> <C>
For the six months ended December 31, 1998.................. $ 646,000
1999........................................................ 1,044,000
2000........................................................ 828,000
2001........................................................ 680,000
2002........................................................ 496,000
For the six months ended June 30, 2003...................... 230,000
Thereafter.................................................. 1,124,000
----------
$5,048,000
==========
</TABLE>

These amounts include only those increases in lease payments related to
leases that provide for set percentage increases or set minimum increases in the
consumer price index. They do not include increases in lease payments which may
occur based on the increase in the consumer price index without these set
minimums.

In July 1998, the Company acquired three assisted living facilities in
Maryland for an aggregate purchase price of $3.8 million.

As of July 31, 1998, the Company had committed to acquire five skilled
nursing facilities and a medical office building with an adjacent shopping
facility for an aggregate price of $40.6 million.

MORTGAGE AND CONSTRUCTION NOTES RECEIVABLE

In June 1998, the Company funded three additional mortgage notes and three
additional construction notes which had aggregate balances of $17.5 million and
$1.0 million, respectively, at June 30, 1998.

The mortgage notes, which are due between February and June 2008, are each
collateralized by skilled nursing facilities located in Connecticut and require
monthly installments of principal and interest based on twenty five year
amortization periods. The interest rates on two of these mortgages is fixed at
9.15%, and the interest rate on the other is fixed at 11.5%.

The construction notes are financing the construction of three assisted
living facilities of which two are in North Carolina and one is in Mississippi.
Upon the completion of construction, the notes convert to permanent mortgages
with the former two notes being due in July 2009 and the latter note being due
in June 2004. One of the notes bears interest at a fixed rate of 10%, and is
interest only during the construction period and for the first two years of the
permanent loan after which the loan amortizes on a twenty five year basis. The
other notes bear interest at prime plus 2% (10.5% at June 30, 1998) during the
construction period. Upon conversion to permanent mortgages, the loans amortize
on a twenty five year basis with interest determined based on the Ten Year
Treasury Rate plus 4% (but not less than 9.75%) with annual increases at either
a set rate or according to an increase in the CPI. At June 30, 1998, the
remaining unfunded commitments on these notes was $8.8 million. Pursuant to the
terms of the note financing the Mississippi facility, a limited partnership in
which the Company is the general partner has an option to acquire the facility
at a price equal to the outstanding balance of the mortgage note plus $40,000.

In July 1998, the Company funded three mortgage notes for an aggregate
amount of $9.9 million, and the Company funded the initial draw of $715,000 on a
construction loan that had a total commitment of $1.9 million.

As of July 31, 1998, the Company had committed to fund two mortgage notes
aggregating $6.0 million and two mezzanine loans aggregating $5.7 million.

F-20
<PAGE> 132

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
HealthCare Financial Partners REIT, Inc.
Chevy Chase, Maryland

We have audited the accompanying statement of revenue and certain expenses
of Sherman Oaks Medical Center as described in Note 2 for the year ended
December 31, 1997. The statement of revenue and certain expenses is the
responsibility of the property's management. Our responsibility is to express an
opinion on the statement of revenue and certain expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures made in the statement of revenue
and certain expenses. An audit also includes assessing the basis of accounting
used and significant estimates made by management, as well as evaluating the
overall presentation of the statement of revenue and certain expenses. We
believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in a registration statement on Form S-11 as
described in Note 2 and is not intended to be a complete presentation of the
property's revenue and expenses.

In our opinion, the statement of revenue and certain expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses as described in Note 2 of Sherman Oaks Medical Center for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.

SOLOMON, ROSS, GREY & COMPANY

Encino, California
August 3, 1998

F-21
<PAGE> 133

SHERMAN OAKS MEDICAL CENTER

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

<TABLE>
<CAPTION>
JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, 1997 JUNE 18, 1998
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUE
Rental.................................................... $1,394,045 $631,566
Parking................................................... 97,493 66,536
Tenant reimbursements -- utilities........................ 73,934 44,947
Other..................................................... 13,110 6,738
---------- --------
Total Operating Revenue........................... 1,578,582 749,787
---------- --------
EXPENSES
Property operating and maintenance........................ 257,506 125,755
Utilities................................................. 184,212 83,539
Real estate taxes......................................... 78,751 19,882
Management fees........................................... 69,394 34,638
Insurance................................................. 12,939 22,549
---------- --------
Total Expenses.................................... 602,802 286,363
---------- --------
REVENUE IN EXCESS OF CERTAIN EXPENSES....................... $ 975,780 $463,424
========== ========
</TABLE>

F-22
<PAGE> 134

SHERMAN OAKS MEDICAL CENTER

NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
(INFORMATION RELATING TO THE PERIOD
ENDED JUNE 18, 1998 IS UNAUDITED)

NOTE 1 DESCRIPTION OF BUSINESS

Sherman Oaks Medical Center (hereinafter referred to as "the Property") is
a 69,700 square foot medical office building located at 4835-4849 Van Nuys
Boulevard, Sherman Oaks, California. The property was acquired by HealthCare
Financial Partners REIT, Inc. on June 18, 1998.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying statement of revenue and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in a registration statement on Form S-11
of HealthCare Financial Partners REIT, Inc. The statement is not intended to be
a complete presentation of revenue and expenses of the property for the year
ended December 31, 1997 as certain expenses to the operations of property after
acquisition have been excluded. Such expenses include depreciation,
amortization, mortgage interest and other corporate expenses not directly
related to the future operations of the property.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited statement of revenues and certain expenses for
the period January 1, 1998 to June 18, 1998 have been prepared from financial
statements of the property. In the opinion of management, all adjustments
necessary for a fair presentation of the statement for the interim period have
been included. All such adjustments are of a normal, recurring nature necessary
for a fair presentation of the statement of revenues and certain expenses. The
results of the interim period have not been audited and are not necessarily
indicative of the results for the full fiscal year.

REVENUE AND EXPENSE RECOGNITION

Rental income is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.

USES OF ESTIMATES

The preparation of the statement of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from these
estimates.

NOTE 3 RELATED PARTY TRANSACTION

The property was managed by affiliated parties to the seller which included
leasing and tenant improvement services. Management fees for the year ended
December 31, 1997 and for the period ended June 18, 1998, were $69,394 and
$34,638, respectively.

F-23
<PAGE> 135

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
HealthCare Financial Partners REIT, Inc.

We have audited the accompanying combining statement of revenue and certain
expenses, as described in Note 1, of Valencia Medical Center and Vista Village
Shopping Center, which are under common ownership and control (the
"Properties"), for the year ended December 31, 1997. This statement of revenue
and certain expenses is the responsibility of the Properties' management. Our
responsibility is to express an opinion on the statement of revenue and certain
expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenue and
certain expenses. An audit also includes assessing the basis of accounting used
and significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.

The accompanying combining statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-11 of HealthCare Financial Partners REIT, Inc., as described in Note
1, and is not intended to be a complete presentation of the Properties' revenue
and expenses.

In our opinion, the combining statement of revenue and certain expenses
referred to above presents fairly, in all material respects, the separate and
combined revenue and certain expenses as described in Note 1, of the Properties
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Washington, DC
July 30, 1998

F-24
<PAGE> 136

VALENCIA MEDICAL CENTER AND VISTA VILLAGE SHOPPING CENTER

COMBINING STATEMENTS OF REVENUE AND CERTAIN EXPENSES

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------------------- -----------------------------------------
VISTA VISTA
VILLAGE VILLAGE
VALENCIA SHOPPING COMBINED VALENCIA SHOPPING COMBINED
MEDICAL CENTER CENTER TOTAL MEDICAL CENTER CENTER TOTAL
-------------- -------- -------------- ---------------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income........... $481,876 $418,222 $ 900,098 $262,434 $201,422 $463,856
Tenant reimbursements... 100,095 102,333 202,428 37,106 49,433 86,539
Other income............ 1,162 1,575 2,737 1,018 257 1,275
-------- -------- ---------- -------- -------- --------
Total revenue.... 583,133 522,130 1,105,263 300,558 251,112 551,670
Certain expenses:
Property operating and
maintenance........... 56,906 77,994 134,900 42,580 39,402 81,982
Real estate taxes....... 49,527 66,854 116,381 24,915 33,118 58,033
Management fee.......... 10,051 8,626 18,677 6,000 6,000 12,000
Insurance............... 2,551 2,614 5,165 1,275 1,307 2,582
-------- -------- ---------- -------- -------- --------
Total certain
expenses.............. 119,035 156,088 275,123 74,770 79,827 154,597
-------- -------- ---------- -------- -------- --------
Revenue in excess of
certain expenses........ $464,098 $366,042 $ 830,140 $225,788 $171,285 $397,073
======== ======== ========== ======== ======== ========
</TABLE>

See accompanying notes.

F-25
<PAGE> 137

VALENCIA MEDICAL CENTER AND VISTA VILLAGE SHOPPING CENTER

NOTES TO COMBINING STATEMENTS
OF REVENUE AND CERTAIN EXPENSES
(INFORMATION RELATED TO THE SIX MONTH PERIOD ENDED JUNE 30, 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying combining statements of revenue and certain expenses
include the separate and combined operations of Valencia Medical Center and
Vista Village Shopping Center, (the "Properties") owned by a party unaffiliated
with HealthCare Financial Partners REIT, Inc. The Properties are located in
Valencia,California and consist of approximately 28,000 and 37,000 rentable
square feet, respectively, and were approximately 89% and 85% leased,
respectively, at December 31, 1997.

The accompanying statements of revenue and certain expenses have been
prepared in accordance with the applicable regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
HealthCare Financial Partners REIT, Inc., a Maryland corporation. The
accompanying statements of revenue and certain expenses are not representative
of the actual operations of the Properties for the periods presented nor
indicative of future operations as certain expenses, primarily depreciation,
amortization and interest expense, which may not be comparable to the expenses
expected to be incurred by HealthCare Financial Partners REIT, Inc. in future
operations of the Properties, have been excluded.

REVENUE AND CERTAIN EXPENSES RECOGNITION

Rental income is recognized on a straight-line basis over the term of the
related lease. Certain expenses are recognized in the period in which they are
incurred.

USE OF ESTIMATES

The preparation of the statements of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
statements of revenue and certain expenses and accompanying notes. Actual
results could differ from those estimates.

UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of management, the combining statements of revenue and
certain expenses for the six month period ended June 30, 1998 reflect all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim period.

2. RENTALS

The Properties have entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis, as
defined in the lease agreements. Tenant reimbursements of such costs are accrued
as the costs are incurred.

F-26
<PAGE> 138

- ------------------------------------------------------
- ------------------------------------------------------

No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with this offering and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since such
date.

----------------------------------------

TABLE OF CONTENTS
----------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................ 1
Risk Factors.............................. 15
Conflicts of Interest..................... 26
Use of Proceeds........................... 27
Distribution Policy....................... 27
Capitalization............................ 29
Business.................................. 30
Management of Operations.................. 35
Management of the Company................. 40
Portfolio................................. 46
Selected Financial Data................... 59
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 60
Operating Partnership Agreement........... 64
Policies with Respect to Certain
Activities.............................. 67
Principal Stockholders.................... 70
Description of Capital Stock.............. 72
Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws........ 78
Federal Income Tax Considerations......... 80
ERISA Considerations...................... 96
Shares Eligible for Future Sale........... 99
Selling Securityholders................... 101
Plan of Distribution...................... 101
Legal Matters............................. 102
Experts................................... 102
Glossary of Terms......................... 103
Index to Financial Statements............. F-1
</TABLE>

----------------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

(HEALTHCARE FINANCIAL PARTNERS REIT, INC. LOGO)

------------------------
PROSPECTUS
------------------------
, 1998

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 139

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses payable by the
Company in connection with the Offering:

<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ----------------- --------
<S> <C>
SEC Registration Fee........................................ $ 51,330
New York Stock Exchange Listing Fee......................... *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>

- ---------------

* To be completed.

ITEM 32. SALES TO SPECIAL PARTIES

See Item 33.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES

On February 2, 1998, the Company sold 805,555 shares (adjusted to reflect a
subsequent reverse 1 for 2.1332 stock split) of Common Stock for an aggregate
offering price of $309,312 to "accredited investors" within the meaning of Rule
501 under the Securities Act of 1933, as amended (the "Securities Act"). No
underwriters were involved in this transaction. The Company relied upon the
exemption provided by Rule 506 under the Securities Act from the registration
provisions of the Securities Act. Such accredited investors included officers
and directors of the Company and HealthCare Financial Partners, Inc. (who
purchased an aggregate of 435,350 shares of Common Stock) and HealthCare
Financial Partners, Inc., which purchased 241,665 shares.

On May 6, 1998, the Company sold 1,150,000 units (the "Units") to
NationsBanc Montgomery Securities LLC and Lehman Brothers Inc. (collectively,
the "Initial Purchasers") in a private placement (the "Private Placement") at a
price to investors of $100 per Unit. Each Unit consists of five shares of Common
Stock and one stock purchase warrant (a "Warrant"). Each Warrant entitles the
holder to purchase one share of Common Stock (a "Warrant Share"), subject to
certain anti-dilution adjustments. Until November 5, 1998, the Warrants and
Common Stock are required to be traded as Units. The Warrants become detachable
from the Common Stock and exercisable on November 5, 1998 and will remain
exercisable until April 29, 2001 at an exercise price of $20 per Warrant Share.

The Units in the Private Placement were sold for an aggregate offering
price of $115,000,000, less an Initial Purchasers' discount of $8,050,000,
resulting in net proceeds to the Company of $106,950,000. The Initial Purchasers
are "accredited investors" within the meaning of Rule 501 under the Securities
Act and the Company relied upon the exemption provided by Rule 506 under the
Securities Act from the registration provisions of the Securities Act.

The Units are eligible for trading in the Private Offering, Resales and
Trading through Automated Linkages Market of the National Association of
Securities Dealers, Inc. (the "PORTAL Market"). To date, to the knowledge of the
Company, there has been no trading of the Units in the PORTAL Market.

On May 6, 1998, the Company also sold 300,000 Units to HealthCare Financial
Partners, Inc., Farallon Capital Partners, L.P., Farallon Capital Institutional
Partners, L.P., Farallon Capital Institutional Partners II,

II-1
<PAGE> 140

L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P.,
R. R. Capital Partners, L.P., Farallon Capital Management, L.L.C., on behalf of
The Common Fund, and Credit Suisse First Boston Corp. (collectively, the
"Initial Subscribers"), each an "accredited investor" within the meaning of Rule
501 under the Securities Act. The Units were sold to the Initial Subscribers
upon the same terms as the Units sold to the Initial Purchasers. No underwriters
were involved in this transaction, and the Units were sold for an aggregate
offering price of, and net proceeds to the Company of, $30,000,000. The Company
relied upon the exemption provided by Rule 506 under the Securities Act from the
registration provisions of the Securities Act.

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Charter limits the liability of its directors and officers to
the Company and its stockholders to the fullest extent permitted from time to
time by Maryland law. Maryland law presently permits the liability of directors
and officers to a corporation or its stockholders for money damages to be
limited, except (i) to the extent that it is proved that the director or officer
actually received an improper benefit or profit in money property or services
for the amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.

The Charter and Bylaws require the Company to indemnify and hold harmless
and, without requiring a determination of the ultimate entitlement to
indemnification, pay reasonable expenses in advance of the final disposition of
any proceeding to its present and former directors and officers and certain
other parties to the fullest extent permitted from time to time by Maryland law.
The Maryland General Corporation Law ("MGCL") permits a corporation to indemnify
its directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that (i) the act
or omission of the indemnified party was material to the matter giving rise to
the proceeding and (x) was committed in bad faith or (y) was the result of
active and deliberate dishonesty, (ii) the indemnified party actually received
an improper personal benefit in money, property or services or (iii) in the case
of any criminal proceeding, the indemnified party had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding.
Indemnification is limited to court ordered reimbursement for expenses; however,
if the proceeding is one by or in the right of the corporation, and the director
or officer was adjudged to be liable to the corporation or if the proceeding is
one charging improper personal benefit to the director or officer and the
director or officer was adjudged to be liable on the basis that personal benefit
was improperly received. The termination of any proceeding by conviction, or
upon a plea of nolo contendere or its equivalent, or an entry of any order of
probation prior to judgment, creates a rebuttal presumption that the director or
officer did not meet the requisite standard of conduct required for
indemnification to be permitted. Maryland law requires a corporation (unless its
charter provides otherwise, which the Company's Charter does not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. It is the position of the Securities and Exchange Commission
that indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act. The form of Indemnification Agreement entered into
between the Company and its executive officers and directors is filed as an
exhibit to this Registration Statement.

The Registrant will carry an insurance policy providing directors' and
officers' liability insurance for any liability its directors or officers or the
directors or officers of any of its subsidiaries may incur in their capacities
as such.

The Registrant will indemnify HCFP REIT Management, Inc., a Maryland
corporation (the "Manager"), and its officers and directors from any action or
claim brought or asserted by any party by reason of any allegation that the
Manager or one or more of its officers or directors otherwise is accountable or
liable for the
II-2
<PAGE> 141

debts or obligations of the Registrant or its affiliates. In addition, the
Manager and its officers and directors will not be liable to the Registrant, and
the Registrant will indemnify the Manager and its officers and directors for
acts performed pursuant to the Management Agreement, filed as Exhibit 10.1
hereto, except for claims arising from acts constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties under the
Management Agreement.

ITEM 35. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED

No portion of the proceeds of the sale of the Securities being registered
hereunder will be received by the Registrant.

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS

(a) Index to Financial Statements.

See page F-1.

(b) Exhibits

<TABLE>
<C> <C> <S>
3.1 -- Articles of Amendment and Restatement of the Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Form of Common Stock Certificate.***
4.2 -- Form of Warrant Certificate (included in Exhibit 10.6).*
5.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP.***
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP as to Tax
Matters.***
10.1 -- Management Agreement, dated as of May 6, 1998, by and among
the Registrant and HCFP REIT Management, Inc., as amended*
10.2 -- Agreement of Limited Partnership of HCFP REIT Operating
Partnership, L.P., dated May 6, 1998, among the Registrant
and HCFP Limited, Inc.*
10.3 -- Commercial Mortgage Loan Servicing Agreement, dated May 6,
1998, between the Registrant and GMAC Commercial Mortgage
Corporation.*
10.4 -- Agreement Regarding Right of First Purchase, dated April 29,
1998, between the Registrant and GMAC Commercial Mortgage
Corporation.*
10.5 -- Registration Rights Agreement, dated May 6, 1998, among the
Registrant, NationsBanc Montgomery Securities LLC, Lehman
Brothers Inc. and the parties listed on Schedule 1 thereto,
as amended.*
10.6 -- Warrant Agreement, dated May 6, 1998, between the Registrant
and The Bank of New York, together with form of Warrant
Certificate, attached as Exhibit A thereto.*
10.7 -- Form of Indemnification Agreement.*
10.8 -- HealthCare Financial Partners REIT, Inc. 1998 Stock Option
Plan.*
10.9 -- HealthCare Financial Partners REIT, Inc. 1998 Director
Plan.*
10.10 -- Master Repurchase Facility, dated as of ,
1998, between the Registrant and Merrill Lynch Mortgage
Capital, Inc., together with related Custody Agreement.***
21.1 -- List of Subsidiaries of Registrant.*
23.1 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (will be
included in Exhibit 5.1).***
</TABLE>

II-3
<PAGE> 142

<TABLE>
<C> <C> <S>
23.2 -- Consent of Ernst & Young LLP.**
23.3 -- Consent of Solomon, Ross, Grey & Company.**
24.1 -- Powers of Attorney (included on Signature Page).**
</TABLE>

- ---------------

* Incorporated herein by reference to the exhibit of the same number in the
Company's Registration Statement on Form S-11 (Registration No. 333-60897).
** Filed herewith.
*** To be filed by amendment.

ITEM 37. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.

The undersigned registrant hereby undertakes that:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.

(2) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(3) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 143

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Chevy Chase, State of Maryland, on the 28th day of
August, 1998.

HealthCare Financial Partners REIT,
Inc.,
a Maryland corporation
(Registrant)

By: /s/ JOHN K. DELANEY
------------------------------------
John K. Delaney
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JOHN K. DELANEY, ETHAN D. LEDER and EDWARD P.
NORDBERG, JR., or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign any or all amendments
(including post-effective amendments) to this Registration Statement (as well as
any registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on August 28, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ JOHN K. DELANEY Director, Chairman of the Board of Directors
- --------------------------------------------- and Chief Executive Officer (principal
John K. Delaney executive officer)

/s/ ETHAN D. LEDER Director, Vice Chairman of the Board of
- --------------------------------------------- Directors and President
Ethan D. Leder

/s/ EDWARD P. NORDBERG, JR. Director, Treasurer and Chief Financial
- --------------------------------------------- Officer (principal financial and accounting
Edward P. Nordberg, Jr. officer)

/s/ DONALD S. FRANYO Director
- ---------------------------------------------
Donald S. Franyo

/s/ JOSHUA B. GILLON Director
- ---------------------------------------------
Joshua B. Gillon

Director
- ---------------------------------------------
Andrew Schoenfeld

/s/ WILLIAM E. SHINE Director
- ---------------------------------------------
William E. Shine
</TABLE>

II-5
<PAGE> 144

EXHIBIT INDEX

1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Amendment and Restatement of the Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Form of Common Stock Certificate.***
4.2 -- Form of Warrant Certificate (included in Exhibit 10.6).*
5.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP.***
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP as to Tax
Matters.***
10.1 -- Management Agreement, dated as of May 6, 1998, by and among
the Registrant and HCFP REIT Management, Inc., as amended.*
10.2 -- Agreement of Limited Partnership of HCFP REIT Operating
Partnership, L.P., dated May 6, 1998, among the Registrant
and HCFP Limited, Inc.*
10.3 -- Commercial Mortgage Loan Servicing Agreement, dated May 6,
1998, between the Registrant and GMAC Commercial Mortgage
Corporation.*
10.4 -- Agreement Regarding Right of First Purchase, dated April 29,
1998, between the Registrant and GMAC Commercial Mortgage
Corporation.*
10.5 -- Registration Rights Agreement, dated May 6, 1998, among the
Registrant, NationsBanc Montgomery Securities LLC, Lehman
Brothers Inc. and the parties Schedule 1 thereto, as
amended.*
10.6 -- Warrant Agreement, dated May 6, 1998, between the Registrant
and The Bank of New York, together with form of Warrant
Certificate, attached as Exhibit A thereto.*
10.7 -- Form of Indemnification Agreement.*
10.8 -- HealthCare Financial Partners REIT, Inc. 1998 Stock Option
Plan.*
10.9 -- HealthCare Financial Partners REIT, Inc. 1998 Director
Plan.*
10.10 -- Master Repurchase Agreement, dated as of , 1998,
between the Registrant and Merrill Lynch Mortgage Capital,
Inc., together with related Custody Agreement.***
21.1 -- List of Subsidiaries of Registrant.*
23.1 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (will be
included in Exhibit 5.1).***
23.2 -- Consent of Ernst & Young LLP.**
23.3 -- Consent of Solomon, Ross, Grey & Company.**
24.1 -- Powers of Attorney (included on Signature Page).**
</TABLE>

- ---------------

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 23, 1998, with respect to the consolidated
financial statements of HealthCare Financial Partners REIT, Inc., and July 30,
1998 with respect to the combining statements of revenue and certain expenses of
Valencia Medical Center and Vista Village Shopping Center in the Registration
Statement (Form S-11 No. 333- ) and related Prospectus of HealthCare
Financial Partners REIT, Inc. dated August 28, 1998.

ERNST & YOUNG LLP

Washington, D.C.
August 27, 1998

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 3, 1998, in the Registration Statement (Form
S-11 No. 333- ) and related Prospectus of HealthCare Financial Partners
REIT, Inc. for the registration of its common stock.

SOLOMON-ROSS-GREY & COMPANY

Encino, California
August 27, 1998