Exhibit (b) [RED LETTERHEAD] October 29, 2001 Mr. Abdo Khoury President ARV Assisted Living, Inc. 245 Fischer Ave., D-1 Costa Mesa, CA 92626 RE: ACQUISITION/BRIDGE FINANCING TO ARV ASSISTED LIVING, INC. ("ARV") TO FUND THE PURCHASE OF UP TO 18,666 PARTNERSHIP UNITS OF ARV PIII. Dear Mr. Khoury: This letter is to follow up on our recent discussions regarding the referenced Project. We are willing to provide financing for the acquisition of the partnership units of ARV PIII not already owned by ARV (the "Loan") using the funding capabilities of Red Mortgage Capital, Inc. ("RMC") and/or other lenders (collectively, "Lender") under the terms and conditions described herein. Identified below are the basic transaction parameters for the Loan: <Table> <Caption> Borrower: ARV Assisted Living, Inc. Loan Amount: $4,250,000 Loan Interest Rate: 10.25% Financing Fees: $125,000 Maturity: January 1, 2003 Additional Collateral: a) Deposit or pledge of cash in the amount of $2.2 million, or a lesser amount depending upon ARV's ownership interest in ARV PIII post-tender. b) Assignment of all existing partnership interest owned and all partnership units purchased by ARV as part of this financing. In addition, ARV shall pledge 100% of its equity interest in Villa Colima. Other Terms and Conditions: a) ARV will commit a minimum of $3,250,000 cash to the acquisition of the partnership interest. ARV will fund the first $3,000,000 to purchase the partnership unit purchases, followed by up to $4,000,000 by RMC. Any additional partnership unit purchases above the $7,000,000 total will be funded equally by ARV and RMC, up to an additional $250,000 each. b) ARV can apply a portion of the required cash contribution by purchasing a subordinated piece of RMC's loan with no foreclosure rights. c) Final approval of additional Loan by RMC's Loan Committee. </Table> Mr. Abdo Khoury October 29, 2001 Page 2 We understand that this transaction is scheduled to close on November 15(th), 2001. Please call with any questions, and we look forward to working with you again. Very truly yours, RED MORTGAGE CAPITAL, INC. CRAIG JONES SIG Craig S. Jones Managing Director cc: Christian R. Mauger -- Red Mortgage Capital, Inc. (Columbus, OH) Michael S. Wood -- Red Mortgage Capital, Inc. (Columbus, OH) John W. Adams -- Red Mortgage Capital, Inc. (Columbus, OH)