LOAN AGREEMNT

THIS LOAN AGREEMENT (“Agreement”) is made and entered into effective as of June 30, 2005 (the “Effective Date”) between EMERITUS CORPORATION , a corporation organized under the laws of the State of Washington, having its chief executive office at 3131 Elliott Avenue, Suite 500, Seattle, Washington, 98121, and HEALTHCARE REALTY TRUST INCORPORATED , a corporation organized under the laws of the State of Maryland, having an address of 3310 West End Avenue, Suite 400, Nashville, Tennessee, 37203.

A.   HR Acquisition I Corporation, Capstone Capital of Pennsylvania, Inc. and HRT Holdings, Inc., all affiliates of Lender (the “Master Lease Lessors”), pursuant to that certain Lease Agreement dated May 1, 2003, as amended by First Amendment to Lease dated as of June 30, 2005 (the “Master Lease”) by and between said parties, as Lessor, and Borrower, as Lessee, leased eight (8) certain assisted living facilities (the “Master Lease Facilities”) to Borrower. The Master Lease Facilities include Loyalton of Harrisburg, in Harrisonburg, Pennsylvania; Loyalton of Creekview, in Hampden, Pennsylvania; Loyalton of Bloomsburg, in Bloomsburg, Pennsylvania; Loyalton of Harrisonburg, in Harrisonburg, Virginia; Loyalton of Roanoke, in Roanoke, Virginia; Loyalton of Danville, in Danville, Virginia; Loyalton of Ravenna, in Ravenna, Ohio; Loyalton of Greensboro, in Greensboro, North Carolina.

B.   Capstone Capital of San Antonio, Ltd., which has since changed its name to HR Acquisition of San Antonio, Ltd. (the “Texas Lessor” and together with the Master Lease Lessors, the “Lessors”), entered into four (4) certain leases, each dated December 31, 1996, as amended by a certain First Amendment to Lease Agreement dated as of December 1, 1997 and by a Second Amendment to Lease Agreement dated as of May 9, 2002 (the “Texas Leases”) by and between Capstone Capital of San Antonio, Ltd. as Lessor and affiliates of Integrated Living Communities as Lessee for certain assisted living facilities located in Henderson, McKinney, and San Antonio, Texas (the “Texas Lease Facilities”). The rights of the Lessee under the Texas Leases have since been assigned to HB-ESC V, L.P., a Washington limited partnership (“HB-ESC”), which in turn assigned them to ESC IV, L.P., a Washington limited partnership doing business in Texas as Texas-ESC IV, L.P., which is an affiliate of Borrower (“Texas-ESC”) pursuant to Assignment and Assumption of Lease Agreements, each dated as of December 31, 2003. The obligations of HB-ESC and of Texas-ESC under the Texas Leases have been guaranteed by Daniel R. Baty (“Guarantor”).

C.   A more particular description of the Leases is attached hereto as Exhibit A and incorporated herein by reference.

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

1.1   Purpose . The purpose of this Agreement is to state the terms and conditions of the Loan.

1.2   Definitions . Except as otherwise expressly provided, [i] the terms defined in this section have the meanings assigned to them in this section and include the plural as well as the singular; [ii] all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as of the time applicable; and [iii] the words “herein”, “hereof”, and “hereunder” and similar words refer to this Agreement as a whole and not to any particular section.

“Affiliate” means any person, corporation, partnership, limited liability company, trust, or other legal entity that, directly or indirectly, controls, or is controlled by, or is under common control with Borrower. “Control” (and the correlative meanings of the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity. “Affiliate” includes, without limitation, Texas-ESC. An Affiliate of Borrower shall specifically exclude Columbia Pacific Management, Inc., or any Affiliate thereof, Holiday Retirement Corporation, or any Affiliate thereof, Alterra Healthcare Corporation, or any Affiliate thereof, but only prior to the date of Borrower’s acquisition thereof, Saratoga Partners IV, L.P. or any Affiliate thereof and Senior Healthcare Partners, LLC or any Affiliate thereof.

“Affiliate Obligation” means all indebtedness and obligations of Borrower and any Affiliate to Lender or any Lender Affiliate now existing or hereafter arising, including, without limitation, obligations arising under the Lease Documents, the Existing HRT Loan, and all other obligations and indebtedness of Borrower or any Affiliate of Borrower to Lender or any Lender Affiliate evidenced by promissory notes, lease agreements, guaranties or otherwise, and all obligations under such indebtedness documents and all other documents executed by Borrower or any Affiliate in favor of Lender or any Lender Affiliate in connection therewith, and any extensions, modifications, substitutions or renewals thereof.

“Annual Financial Statements” means for Borrower, the audited balance sheet and statement of income of Borrower for the most recent fiscal year.

“Borrower” means Emeritus Corporation, a corporation organized under the laws of the State of Washington, its successors and permitted assigns.

“Borrower’s Organizational Documents” means the Articles of Incorporation of Borrower certified by the Secretary of State of the State, as amended to date, and the Bylaws of Borrower certified by Borrower, as amended to date.

“Business Day” means any day which is not a Saturday or Sunday or a public holiday under the laws of the United States of America or the State.

“Closing” means the closing of the loan transaction contemplated by this Agreement.

“Commitment” means the non-binding letter of understanding dated May __, 2005 between Lender and Borrower.

“Effective Date” means the date of this Agreement.

“Event of Default” has the meaning set forth in §7.1.

“Existing HRT Collateral” means all leasehold estates and related collateral which secure the Existing HRT Loan, including any “Substitute Lease” or “New HRT Lease” as described in that certain Second Amended and Restated Loan Agreement between Borrower and Lender dated March 3, 2005.

“Existing HRT Loan” means the loan to Borrower now held by Lender evidenced by that certain Second Amended and Restated Loan Agreement between Borrower and Lender dated March 3, 2005, which Existing HRT Loan is also evidenced by that certain Second Amended and Restated Promissory Note dated March 3, 2005, in the original principal amount of $21,426,000.00, made by Borrower and payable to the order of Lender, together with all amendments, modifications and renewals thereof from time to time.

“Facility” means each assisted living or retirement facility leased to Borrower or Texas ESC pursuant to a Lease.

“Financial Statements” means the Form 10-Q for the three month period ended March 31, 2005 provided by Borrower to Lender prior to Closing.

“Lease” or “Leases” means individually and collectively, the Master Lease and Texas Leases, together with any amendments, modifications, renewals, restatements or extensions thereof from time to time.

“Lease Documents” means each Lease and all other documents executed by Borrower in connection with each Lease, each as amended from time to time.

“Leased Property” means individually and collectively all real property subject to any Lease.

“Lender” means Healthcare Realty Trust Incorporated, its successors and assigns.

“Lender Affiliate” means any person, corporation, partnership, limited liability company, trust or other legal entity that, directly or indirectly, controls or is controlled by, or is under common control with Lender. “Control” (and the correlative meanings of the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity.

“Lender Diligence” has the meaning set forth in §4.7.

“Loan” means the loan to Borrower by Lender in the amount of the Loan Amount and secured by the Mortgage.

“Loan Amount” means $10,800,000.00 which shall be allocated among the Facilities in the manner set forth in Schedule A attached hereto.

“Loan Documents” means [i] this Agreement; [ii] the Note; and [iii] any other documents and instruments executed by Borrower in connection with the Loan for the benefit of Lender.

“Loan Expenses” means all reasonable costs and expenses incurred by Lender in connection with the Loan, including but not limited to, [i] reasonable attorneys’ and paralegals’ fees and costs; reasonable travel, transportation, food, and lodging costs and expenses incurred by Lender and Lender’s attorneys and paralegals; [ii] title examinations obtained by Lender; [iii] recording fees and/or indebtedness or similar taxes imposed upon the sale of the Loan or the recordation of any of the closing documents; and [iv] the cost of opinions of counsel required by Lender in connection therewith.

“Material Obligation” means [i] any indebtedness in excess of $250,000.00 secured by a security interest in or a lien, deed of trust or mortgage on any Facility (or any part thereof, including any Personal Property) and any agreement relating thereto; [ii] any obligation or agreement that is material to the construction or operation of the Facility or that is material to Borrower’s business or financial condition and where a breach thereunder, if not cured within any applicable cure period, would have a material adverse affect on the financial condition of Borrower or the results of operations at the Facility; [iii] any unsecured indebtedness or lease of Borrower that has an outstanding principal balance or obligation of at least $1,000,000.00 and any agreement relating thereto; and [vi] any indebtedness or

lease of Borrower or of any other party that has been guaranteed by Borrower, that has an outstanding principal balance or obligation of at least $250,000.00.

“Master Lease” has the meaning ascribed to it in Recital A.

“Minimum Rent Adjustment” shall mean the dollar amount which would be required to be paid on a monthly basis from the date of the occurrence of an Event of Default in order to fully amortize the then current balance of the Loan allocated to each Facility, together with accrued interest monthly at the rate stated in the Note, over a period of time ending April 30, 2013, as more particularly described in the Lease Amendments (as hereinafter defined).

“Mortgage” means individually and collectively the Leasehold Mortgage/Deed of Trust, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing granted by Borrower to Lender of even date, together with any other mortgages or deeds of trust entered into by Borrower or any Affiliate to secure the Loan.

“Note” means the Promissory Note of even date made by Borrower in favor of Lender for a principal amount equal to the Loan Amount, and any extensions, modifications, substitutions, replacements, restatements or renewals thereof.

“Periodic Financial Statements” means for Borrower, the unaudited balance sheet and statement of income of Borrower for the most recent quarter.

“Personal Property” means any tangible or intangible personal property owned by Borrower in connection with any Lease or the operation of any Facility, which property is assigned, pledged or otherwise conveyed as security for the Loan.

“State” means the State of Washington.

“Texas Leases” has the meaning ascribed to it in Recital B.

1.3   Incorporation of Amendments . The definition of any agreement, document, or instrument set forth in this Agreement or in any other Loan Document shall be deemed to incorporate all amendments, modifications, and renewals thereof and all substitutions and replacements therefore.

1.4   Exhibits . The following exhibits are attached hereto and incorporated herein:

Exhibit A:   Leases

Exhibit B:   Documents to be Delivered

Exhibit C:   Borrower’s Certificate

Exhibit D:   Post-Closing Items

2.1   The Loan . The indebtedness of Borrower to Lender for the Loan is evidenced by the Note.

2.2   Obligation to Repay . Borrower shall repay the Loan in accordance with the terms of the Note and the other Loan Documents.

2.2.1   Term of the Loan . The term of the Loan will expire on the Maturity Date, subject to extension, as defined and set forth in the Note.

2.2.2   Interest and Payments . Borrower shall make payments in accordance with the Note at the rate set forth in the Note, as amended, modified or renewed from time to time.

2.3   Use of Proceeds . The Loan proceeds shall be used by Borrower solely for the purpose of redemption of preferred stock in Borrower and payment of all accrued dividends on such preferred stock, to cover the out of pocket costs incurred by Borrower in closing the transaction provided for herein, including the Loan Expenses, and for no other purpose.

2.4   Loan Expenses . At the Closing, Borrower shall pay or reimburse Lender for any Loan Expenses incurred by Lender up to the Effective Date. Within 30 days after receipt of an invoice therefore, Borrower shall reimburse Lender for any subsequent Loan Expenses incurred by Lender.

2.5   Accrued Interest Payment . If Borrower fails to pay all accrued interest on the Loan within 10 days after any monthly due date set forth in the Note, whether due to inadequate cash flow of any Facility or otherwise, Lender may, at its option, and in addition to the exercise of any rights and remedies provided in the Loan Documents, advance additional Loan proceeds to pay the accrued interest.

2.6   Insurance Certificate . At Closing, the Borrower shall deliver to Lender certificates of all insurance policies required under the Mortgage, which certificates shall name Lender as additional insured on all liability policies and as Mortgagee on all property and casualty policies with loss payable to Lender.

2.7   Closing . The Closing of the Loan shall occur as of the Effective Date. Lender may elect to close by exchanging executed counterparts of one or more of the Loan Documents and other closing documents by mail or a national courier service, or by telecopier followed by exchanging documents by mail or national courier service.

2.8   Post-Closing . Within ten (10) days after Closing, or within such longer period as may be specifically provided herein, Borrower shall furnish to Lender any documents or information required under this Agreement that were not furnished to Lender by Borrower at or prior to Closing, all in form and substance reasonably satisfactory to Lender; or if, by reason of the nature of such document or information the same cannot be delivered within the said ten (10) days, Borrower shall have an additional period to provide the same to Lender; provided, however, if Borrower fails to proceed with diligence reasonably satisfactory to Lender to deliver the same or, in any event, fails to cure such default within twenty (20) days after receipt of written notice from Lender, the same shall constitute an Event of Default hereunder. Such documents and information to be provided post-closing shall include, without limitation, the items scheduled on Exhibit D attached hereto.

ARTICLE 3: CONDITIONS PRECEDENT TO DISBURSEMENT

3.1   Conditions Precedent to Initial Disbursement . Lender’s obligation as set forth herein shall be conditioned upon satisfaction of the following conditions precedent:

3.1.1   Legal Opinion . Borrower shall have delivered to Lender an opinion of its primary outside counsel, and, to the extent reasonably required by Lender, opinions of local counsel as to enforceability of the Mortgage, each in form and substance reasonably satisfactory to Lender.

3.1.2   Lender’s Documents . Except as otherwise provided in Section 2.7, Borrower shall have delivered to Lender fully executed originals of the Loan Documents to which Borrower is a party.

3.1.3   Organizational Documents . Borrower shall have delivered to Lender copies of Borrower’s Organizational Documents, in form and substance reasonably satisfactory to Lender, and Borrower’s resolutions authorizing the Loan Documents to which Borrower is a party, certified by Borrower to be true and complete and not revoked or amended since the respective dates thereof.

3.1.4   Financial Statements . Borrower shall have delivered to Lender the Financial Statements, all in form and substance reasonably satisfactory to Lender.

3.1.6   Estoppel Certificates . Lender shall have received from Borrower the Estoppel Certificates.

In addition, the obligation of Borrower to consummate the transaction provided for herein shall be subject to satisfaction of the following conditions:

3.1.7   Lessor Consent . Lender shall have delivered to Borrower the written consent of the Lessors under the Leases to the granting by Borrower of the security provided for herein and in the other Loan Documents related to the Leases.

3.1.8.   Lease Amendments . Lender shall have delivered to Borrower amendments to the Leases on terms and conditions acceptable to Borrower and the Lessors under the Leases (i) modifying the financial covenants contained therein, (ii) modifying the purchase options contained therein and/or (iii) providing for the payment of the Minimum Rent Adjustment, as and when applicable (the “Lease Amendments”).

Borrower hereby makes the following representations and warranties to Lender as of the Effective Date, unless an earlier date is specified, then as of such date, and acknowledges that Lender is making the Loan in reliance upon such representations and warranties. Borrower’s representations and warranties shall survive the Closing and, except as specifically provided below, shall continue in full force and effect until Borrower has repaid the Loan in full and performed all other obligations under the Loan Documents.

4.1   Organization and Good Standing . Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State.

4.2   Power and Authority . Borrower has the power and authority to execute, deliver, and perform Borrower’s obligations under the Loan Documents to which it is a party and has taken all requisite action to authorize the execution, delivery and performance of Borrower’s obligations under such documents.

4.3   Enforceability . The Loan Documents to which Borrower is a party constitute valid and binding obligations of Borrower, enforceable in accordance with their terms except as such enforceability may be limited by creditors rights laws and general principles of equity.

4.4   No Violation . The execution, delivery and performance of the Loan Documents to which Borrower is a party and the consummation of the transactions contemplated thereby [i] do not conflict with and will not conflict with, and do not result and will not result in a breach of Borrower’s Organizational Documents; [ii] except as set forth in the Estoppel Certificates, do not conflict with and will not conflict with, and do not result and will not result in a breach of, or constitute or will constitute a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under any of the terms, conditions or provisions of any agreement or other instrument or obligation to which Borrower is a party or by which its assets are bound; and [iii] do not violate and will not violate any order, writ, injunction, decree, statute, rule or regulation applicable to Borrower.

4.5   No Litigation . As of the Effective Date and except as previously disclosed by Borrower to Lender in writing, [i] to the best of Borrower’s knowledge there are no actions, suits, proceedings or investigations by any governmental agency or regulatory body pending against Borrower or any Facility which, if determined adversely to Borrower, would materially and adversely affect a Facility or title to a Facility (or any part thereof), the right to operate a Facility as presently operated, or the financial condition of Borrower; [ii] Borrower has not received notice of any threatened actions, suits or proceeding or investigations against Borrower or any Facility at law or in equity, or before any governmental board, agency or authority which, if determined adversely to Borrower, would materially and adversely affect a Facility or title to a Facility (or any part thereof), the right to operate a Facility as presently operated, or the financial condition of Borrower; [iii] there are no unsatisfied or outstanding judgments against Borrower or any Facility; [iv] there is no labor dispute materially and adversely affecting the operation or business conducted by Borrower or any Facility; and [v] Borrower does not have knowledge of any facts or circumstances which might reasonably form the basis for any such action, suit, or proceeding.

4.6   Financial Statements . Subject to any new information set forth in the Estoppel Certificates which would reasonably be expected to have a material adverse effect on the financial condition of Borrower, Borrower has furnished Lender with true, correct and complete copies of the Financial Statements. The Financial Statements fairly present the financial position of Borrower as of the respective dates and the results of operations for the periods then ended in conformance with generally accepted accounting principles applied on a basis consistent with prior periods. The Financial Statements are true, complete and correct and, as of the Effective Date, except as set forth in the Estoppel Certificates, no material adverse change has occurred since the furnishing of such statements and information. As of the Effective Date, the Financial Statements, as modified by the Estoppel Certificates, do not contain any material untrue statement or omission of a material fact and are not misleading in any material respect. Borrower is solvent, and no bankruptcy, insolvency, or similar proceeding is pending or contemplated by or, to the best of its knowledge, against Borrower.  

4.7   Reports, Statements and Copies . All current reports, statements, certificates, title information, surveys, inspection reports, environmental assessments, and other data furnished by or on behalf of Borrower to Lender in connection with the Loan Documents or the transactions contemplated thereunder, and all representations and warranties made therein, or in any certificate or other instrument delivered in connection therewith (collectively, the “Lender Diligence”), are true and correct in all material respects as of the Effective Date. The Lender Diligence does not fail to state any material fact or circumstance necessary to make the statements contained therein, in light of the circumstances under which they are made, not misleading as of the date of such reports, statements or certificates or other data subject to any new information contained in the Estoppel Certificates. The copies of all agreements and instruments submitted to Lender by Borrower in connection with the Loan are true, correct and complete copies and include all material amendments and modifications of such agreements.

4.8   No Default . As of the Effective Date, except as set forth in the Estoppel Certificates, there is no existing Event of Default by Borrower under the Loan Documents, under the Existing HRT Loan, or under any Lease, and Borrower has no knowledge that any event has occurred which, with the giving of notice or the passage of time, or both, would constitute or result in such an Event of Default.

4.9   ERISA . All plans [as defined in §402l(a) of the Employee Retirement Income Security Act of 1974 as amended or supplemented from time to time (“ERISA”)] for which Borrower is an “employer” or a “substantial

employer” [as defined in §§3(5) and 4001(a)(2) of ERISA, respectively] are in compliance with ERISA and the regulations and published interpretations thereunder. To the extent Borrower maintains a qualified defined benefit pension plan: [i] there exists no accumulated funding deficiency; [ii] no reportable event and no prohibited transaction has occurred; [iii] no lien has been filed or threatened to be filed by the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA; and [iv] Borrower has not been deemed to be a substantial-employer as of the Effective Date.

4.10   Chief Executive Office . Borrower maintains its chief executive office and its books and records at the address set forth in the introductory paragraph of this Agreement.

4.11   Affirmation of Additional Representations and Warranties . In addition to the specific representations and warranties set forth in this Agreement, and without limiting any such representations and warranties, Borrower also affirms to Lender that all representations and warranties set forth in the Lease Documents, the Mortgage, and all other Loan Documents, and all representations and warranties made by Borrower in connection with the Existing HRT Loan are true, complete and accurate as of the Effective Date, as updated with respect to the matters set forth in the Estoppel Certificates.

4.12   Intentionally omitted .

4.13   Obligations for Facility Improvements . Borrower does not owe any third parties any amounts for labor or materials furnished in connection with the improvement of any of the Facilities except for amounts due for repairs made in the ordinary course of business which are not past due or which are being duly contested in accordance with the terms of the Leases.

4.14   No Adverse Changes . Since May 9, 2002 with respect to the Texas Lease Facilities and since May 1, 2003 with respect to the Master Lease Facilities, there have been no adverse changes in (i) the environmental condition of any Facility, (ii) the title to any Facility, (iii) except as previously disclosed to Lender in writing, any matters which a current ALTA/ACSM Land Title Survey of any Facility might reflect, or (iv) any significant casualty loss, condemnation or conveyance affecting any Facility.

4.15   Compliance . Borrower and each Facility are, to the best knowledge of Borrower, in compliance with all requirements of law with respect to which non-compliance would reasonably be expected to adversely impact the financial condition of Borrower or the operation of such Facility.

4.16   Environmental Matters . Without limiting any of the representations and warranties set forth above, Borrower represents and warrants that (i) each Facility is in compliance with all applicable Environmental Laws (as defined in the Mortgage); (ii) to the knowledge of Borrower, there have been no releases or threatened releases of Hazardous Materials (as defined in the Mortgage) on, from, or under any Facility, except in compliance with all Environmental Laws; (iii) to the knowledge of Borrower, no Hazardous Materials have been, are, or will be used, generated, stored or disposed of at any Facility, except in full compliance with all Environmental Laws; (iv) to the knowledge of Borrower, asbestos has not been and will not be used in the construction of any Facility; (v) to the knowledge of Borrower, no permit has been required from the Environmental Protection Agency or any similar federal, state or local governmental agency for the use or maintenance of any Facility; (vi) to the knowledge of Borrower, any underground storage tanks located on any Facility have been and currently are being operated in compliance with al