HERSHA HOSPITALITY TRUST (Form: S-11/A, Received: 07/30/1998 16:39:59)

As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-56087

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

Hersha Hospitality Trust
(Exact name of registrant as specified in governing instruments)

148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
(717) 770-2405
(Address of principal executive offices)

Jay H. Shah, Esq.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, Pennsylvania 19106
(215) 238-1045
(Name and address of agent for service)

Copies to:

   Cameron N. Cosby, Esq.               James J. Wheaton, Esq.
      Hunton & Williams                 Willcox & Savage, P.C.
Riverfront Plaza, East Tower            1800 NationsBank Center
    951 East Byrd Street                 One Commercial Place
Richmond, Virginia 23219-4074           Norfolk, Virginia 23510
       (804) 788-8604                       (757) 628-5619

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

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 number of the earlier effective registration statement for the same offering. [ ]
If the 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

                                          Proposed     Proposed
                                          Maximum       Maximum
                              Amount      Offering     Aggregate    Amount of
 Title of Securities Being     Being     Price Per     Offering    Registration
        Registered          Registered   Share (1)     Price (1)       Fee
===============================================================================


Common Shares,
$0.01 par value per share     2,666,667    $6.00     $16,000,002        $4,720
===============================================================================

(1) Estimated solely for the purpose of determining the registration fee. 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, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.

Subject to completion, dated ______, 1998
PROSPECTUS

2,666,667 Shares
Hersha Hospitality Trust
Common Shares of Beneficial Interest

Hersha Hospitality Trust, formed in May 1998 (the "Company"), has been established to own initially ten hotels (the "Initial Hotels") and to continue the hotel acquisition and development strategies of Hasu P. Shah, the Chairman of the Board of Trustees and Chief Executive Officer of the Company. Mr. Shah and certain of his affiliates (together, the "Hersha Affiliates") purchased or developed all of the Initial Hotels, which will be contributed to the principal operating subsidiary of the Company, Hersha Hospitality Limited Partnership (the "Partnership"), by a group of affiliated partnerships, a corporation and individuals (the "Selling Partnerships") in exchange for interests in the Partnership and assumption of debt. Following the completion of this offering (the "Offering") and the use of Offering proceeds as described herein, the Company will own approximately a 43% general partnership interest in the Partnership. The Company is a self-advised Maryland real estate investment trust that intends to qualify as a real estate investment trust ("REIT") for federal income tax purposes.

The Initial Hotels are located in Pennsylvania and include three Holiday Inn Express(Registered Trademark) hotels, two Hampton Inn(Registered Trademark) hotels, two Holiday Inn(Registered Trademark) hotels, two Comfort Inn(Registered Trademark) hotels and one Clarion Suites(Registered Trademark) hotel with an aggregate of 989 rooms. The Partnership will own, directly or through subsidiary partnerships, 100% of the equity interests in the Initial Hotels and will lease them to Hersha Hospitality Management, L.P. (the "Lessee"), a limited partnership wholly-owned by certain of the Hersha Affiliates. The Hersha Affiliates have managed all of the Initial Hotels since their acquisition or construction. Upon the closing of the Offering of common shares of beneficial interest of the Company, par value $.01 per share (the "Common Shares"), and the use of the Offering proceeds as set forth herein, the Partnership will have approximately $11.7 million of fixed-rate debt outstanding, which will be secured by some of the Initial Hotels.

All of the Common Shares offered hereby are being sold by the Company. The Company proposes to sell 166,667 of the Common Shares offered hereby directly to certain Hersha Affiliates at the initial public offering price, with the remainder of the Common Shares offered hereby being sold through Anderson & Strudwick, Incorporated (the "Underwriter"). The Company's Declaration of Trust generally prohibits direct or indirect ownership of more than 9.9% of the outstanding Common Shares by any person. Prior to the Offering, there has been no public market for the Common Shares. The Company will apply for listing of the Common Shares on the American Stock Exchange under the symbol "HT." The initial public offering price of the Common Shares will be $6.00 per share (the "Offering Price"). See "Underwriting" for a discussion of factors considered in determining the Offering Price. The Company intends to make regular quarterly distributions to its shareholders initially equal to $0.12 per share, which on an annualized basis would be equal to $0.48 per share or 8.0% of the Offering Price.

See "Risk Factors" for a discussion of material risks that should be considered by prospective purchasers of the Common Shares offered hereby, including the following risks:

o Conflicts of interest between the Company and the Hersha Affiliates, including conflicts regarding the sale or refinancing of the Initial Hotels, may have resulted, or may in the future result, in the interests of the shareholders not being reflected fully in all decisions made or actions taken by officers and Trustees of the Company.

o The purchase prices to be paid for the six Initial Hotels that have little operating history or have been newly renovated are based upon projections by management as to the expected operating results of such hotels, subjecting the Company to the risk that these hotels may not achieve anticipated operating results and the rent received by the Company from such hotels after the first Adjustment Date or Second Adjustment Date (as defined herein) could be less than anticipated, which could adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The Company's lack of control over the daily operations of the Initial Hotels could, in the event that the Lessee fails to effectively operate the Initial Hotels, make the Company's business strategy more difficult to achieve, which could adversely affect the amount of cash available for distribution to the shareholders of the Company.
o The dependence of the Company on the Lessee's ability to make payments under the Percentage Leases in order to generate revenues may, in the event that there is a reduction in revenues at the Initial Hotels, adversely affect the amount of cash available for distribution to the shareholders of the Company.
o The Company and the Partnership were recently formed, and the Company has no experience operating as a REIT or a public company.
o The number of the Initial Hotels is limited and therefore adverse changes in the operations of any Initial Hotel could adversely affect the amount of cash available for distribution to the shareholders of the Company.
o Mr. Shah and the partners of the Selling Partnerships personally guarantee all of the indebtedness secured by the Initial Hotels, and the personal bankruptcy of any of the guarantors would constitute a default under the related loan documents.
o Purchasers of the Common Shares sold in the Offering will experience immediate and substantial dilution of $4.01, or 66.8% of the Offering Price, in the net tangible book value per Common Share. In addition, in the event that any of the purchase prices of the Initial Hotels are increased pursuant to the repricing described herein, owners of the Common Shares at such time will experience further dilution.
o Risk of taxation of the Company as a regular corporation if it fails to qualify as a REIT, which would adversely affect the amount of cash available for distribution to the shareholders of the Company.

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

===============================================================================
                                                                 Proceeds
                                 Price to         Selling        to
                                   Public       Commission(1)    Company(2)
-------------------------------------------------------------------------------
Per Common Share...........        $6.00            $.48           $5.52
Total......................      $16,000,002     $1,200,000      $14,800,002
===============================================================================

(1) See "Underwriting" for information concerning indemnification of the Underwriter and other matters. As stated above, the Company proposes to sell 166,667 of the Common Shares offered hereby directly to certain Hersha Affiliates at the Offering Price. No selling commission will be paid to the Underwriter with respect to such shares.

(2) Before deducting expenses payable by the Company, estimated at $587,000. Does not reflect the Underwriter Warrants granted by the Company to the Underwriter to purchase 250,000 Common Shares for a period of five years at a price per share equal to 165% of the Offering Price. See "Underwriting."

The Common Shares, other than the 166,667 Common Shares offered directly by the Company to certain Hersha Affiliates, are being offered by the Company through the Underwriter on a best efforts all-or-none basis, when, as and if issued and subject to approval of certain legal matters by counsel for the Underwriter and certain other conditions. Unless sooner withdrawn or canceled, the Offering will continue until the earlier of the date on which all the Common Shares offered hereby are sold or ___________, 1998 (the "Offering Termination Date"). Until the closing date of the Offering (the "Closing Date"), all proceeds from the sale of the Common Shares will be deposited in escrow with First Union National Bank of North Carolina, Charlotte, North Carolina (the "Escrow Agent"). If the Offering is withdrawn or canceled or if all of the Common Shares offered hereby are not sold and all proceeds therefrom received by the Company on or prior to the Offering Termination Date, all proceeds will be returned by the Escrow Agent to the persons from which they are received promptly after such termination or withdrawal.

Anderson & Strudwick Incorporated

The date of this Prospectus is , 1998.

[COLOR PHOTOS AND ART WORK TO COME]

TABLE OF CONTENTS

                                                                                Page
                                                                                ----
PROSPECTUS SUMMARY ..........................................................    1
  The Company ...............................................................    1
  Summary Risk Factors ......................................................    1
  The Partnership ...........................................................    3
  The Lessee ................................................................    3
  The Initial Hotels ........................................................    4
  Growth Strategy ...........................................................    6
  Acquisition Strategy ......................................................    6
  Internal Growth Strategy ..................................................    6
  Formation Transactions ....................................................    7
  Benefits to the Hersha Affiliates .........................................   10
  Conflict of Interest Policies .............................................   11
  Distribution Policy .......................................................   11
  Tax Status ................................................................   11
  The Offering ..............................................................   12
  Summary Financial Data ....................................................   13

RISK FACTORS ................................................................   17
 Conflicts of Interest ......................................................   17
    Conflicts Relating to Sales or Refinancing of Initial Hotels ............   17
    No Arm's-Length Bargaining on Percentage Leases, Contribution Agreements,
       the Administrative Services Agreement and Option Agreement ...........   17
    Competing Hotels Owned or to be Acquired by the Hersha Affiliates ......... 17
  Acquisition of Hotels with Limited Operating History ......................   18
  Inability to Operate the Properties .......................................   18
  Dependence on the Lessee ..................................................   18
  Newly-Organized Entities ..................................................   18
  Limited Numbers of Initial Hotels .........................................   18
  Guarantors of Assumed Indebtedness ........................................   18
  Substantial Dilution ......................................................   18
  Tax Risks .................................................................   19
    Failure to Qualify as a REIT ............................................   19
    REIT Minimum Distribution Requirements ..................................   19
  The Price Being Paid for the Initial Hotels May Exceed Their Value ........   19
  Emphasis on Franchise Hotels ..............................................   20
  Concentration of Investments in Pennsylvania ..............................   20
  Hotel Industry Risks ......................................................   20
    Operating Risks .........................................................   20
    Competition for Guests ..................................................   20
    Investment Concentration in Single Industry .............................   20
    Seasonality of Hotel Business and the Initial Hotels ....................   20
    Risks of Operating Hotels under Franchise Licenses ......................   20
    Operating Costs and Capital Expenditures; Hotel Renovation ..............   21
  Real Estate Investment Risks ..............................................   21
    General Risks of Investing in Real Estate ...............................   21
    Illiquidity of Real Estate ..............................................   21
    Uninsured and Underinsured Losses .......................................   21
    Property Taxes ..........................................................   22
    Environmental Matters ...................................................   22
    Compliance with Americans with Disabilities Act and other Changes in
         Governmental Rules and Regulations .................................   22
  Market for Common Shares ..................................................   22
  Effect of Market Interest Rates on Price of Common Shares .................   22
  Anti-takeover  Effect of Ownership Limit,  Staggered Board,  Power to Issue
    Additional Shares and Certain Provisions of Maryland Law ................   23
    Ownership Limitation ....................................................   23
    Staggered Board .........................................................   23
    Issuance of Additional Shares ...........................................   23
    Maryland Business Combination Law .......................................   23
  Potential Adverse Effects of Leverage and Lack of Limits on Indebtedness ..   23
  Dependence Upon External Financing ........................................   24
  Assumption of Contingent Liabilities of Selling Partnerships ..............   24
    Ability of Board of Trustees to Change Certain Policies .................   24
  Growth Strategy ...........................................................   24
    Competition for Acquisitions ............................................   24
    Acquisition Risks .......................................................   25
  Reliance on Trustees and Management .......................................   25
  Possible  Adverse  Effect of Shares  Available  for Future Sale on Price of
    Common Shares ...........................................................   25

THE COMPANY .................................................................   25

GROWTH STRATEGY .............................................................   28
  Acquisition Strategy ......................................................   28
    Investment Criteria .....................................................   28
    Financing ...............................................................   28
  Internal Growth Strategy ..................................................   29

USE OF PROCEEDS .............................................................   29

DISTRIBUTION POLICY .........................................................   30

PRO FORMA CAPITALIZATION ....................................................   32

DILUTION ....................................................................   33

SELECTED FINANCIAL INFORMATION ..............................................   34

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...................................................   38
  Overview ..................................................................   38
  Results of Operations of the Initial Hotels ...............................   38
    Comparison of Three Months Ended March 31, 1998 to the
       Three  Months Ended March 31, 1997 ...................................   38
    Comparison of year ended December 31, 1997 to year ended
       December 31, 1996 ....................................................   38
    Comparison of year ended December 31, 1996 to year ended
       December 31, 1995 ....................................................   38
  Liquidity and Capital Resources ...........................................   38
  Inflation .................................................................   39
  Seasonality ...............................................................   39
  Year 2000 Compliance ......................................................   40

BUSINESS AND PROPERTIES .....................................................   40
  The Initial Hotels ........................................................   40
  The Percentage Leases .....................................................   43
  Franchise Licenses ........................................................   48
  Operating Practices .......................................................   49
  Employees .................................................................   49
  Environmental Matters .....................................................   50
  Competition ...............................................................   50
  Insurance .................................................................   50
  Depreciation ..............................................................   51
  Legal Proceedings .........................................................   51
  Hersha Affiliates' Hotel Assets Not Acquired By The Company ...............   51
  Ground Leases .............................................................   51

POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES ..................   52
  Investment Policies .......................................................   52
  Financing .................................................................   52
  Conflict of Interest Policies..............................................   53
    Declaration of Trust and Bylaw Provisions ...............................   53
    The Option Agreement ....................................................   53
    The Partnership .........................................................   53
    Provisions of Maryland Law ..............................................   53
  Policies with Respect to Other Activities .................................   54
  Working Capital Reserves ..................................................   54

FORMATION TRANSACTIONS ......................................................   54
  Benefits to the Hersha Affiliates .........................................   55

MANAGEMENT ..................................................................   57
  Trustees and Executive Officers ...........................................   57
  Audit Committee ...........................................................   58
  Compensation Committee ....................................................   58

                               TABLE OF CONTENTS


                                                                                Page
                                                                                ----
  Compensation ..............................................................   58
  Exculpation and Indemnification ...........................................   58
  The Option Plan ...........................................................   59
  The Trustees' Plan ........................................................   60

CERTAIN RELATIONSHIPS AND TRANSACTIONS ......................................   61
  Repayment of Indebtedness and Guarantees by Mr. Shah and the Hersha
    Affiliates ..............................................................   61
  Hotel Ownership and Management.............................................   61
  Option Agreement ..........................................................   61

THE LESSEE ..................................................................   61
  Management of the Lessee ..................................................   62

PRINCIPAL SHAREHOLDERS ......................................................   62

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST ................................   63
  General ...................................................................   63
  Common Shares .............................................................   64
  Preferred Shares ..........................................................   64
  Classification or Reclassification of Common Shares or Preferred Shares....   65
  Restrictions on Transfer ..................................................   65
  Other Matters .............................................................   66

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS .........................................................   66
  Classification of the Board of Trustees ...................................   67
  Removal of Trustees .......................................................   67
  Business Combinations .....................................................   67
  Control Share Acquisitions ................................................   67
  Amendment .................................................................   68
  Limitation of Liability and Indemnification ...............................   68
  Operations ................................................................   69
  Dissolution of the Company ................................................   69
  Advance Notice of Trustees Nominations and New Business ...................   69
  Possible  Anti-takeover Effect of Certain Provisions of Maryland Law and of
    the Declaration of Trust and Bylaws .....................................   69
  Maryland Asset Requirements ...............................................   70

SHARES AVAILABLE FOR FUTURE SALE.............................................   70

PARTNERSHIP AGREEMENT .......................................................   71
  Management ................................................................   71
  Transferability of Interests ..............................................   71
  Capital Contribution ......................................................   71
  Redemption Rights .........................................................   72
  Operations ................................................................   72
  Distributions .............................................................   73
  Allocations ...............................................................   73
  Term ......................................................................   73
  Tax Matters ...............................................................   73

FEDERAL INCOME TAX CONSEQUENCES..............................................   73
  Taxation of the Company ...................................................   74
  Requirements for Qualification.............................................   75
    Income Tests ............................................................   76
    Asset Tests .............................................................   80
    Distribution Requirements ...............................................   80
    Recordkeeping Requirement ...............................................   81
    Partnership Anti-Abuse Rule..............................................   81
    Failure to Qualify ......................................................   81
  Taxation of Taxable U.S. Shareholders .....................................   82
  Taxation of Shareholders on the Disposition of the Common Shares ..........   82
  Capital Gains and Losses ..................................................   82
  Information Reporting Requirements and Backup Withholding .................   83
  Taxation of Tax-Exempt Shareholders .......................................   83
  Taxation of Non-U.S. Shareholders .........................................   84
  Other Tax Consequences ....................................................   85
  Tax Aspects of the Partnership.............................................   85
    Classification as a Partnership..........................................   85
    Income Taxation of the Partnership and its Partners .....................   86
  Sale of the Company's or the Partnership's Property .......................   87

UNDERWRITING ................................................................   88

EXPERTS .....................................................................   89

REPORTS TO SHAREHOLDERS .....................................................   89

LEGAL MATTERS ...............................................................   89

ADDITIONAL INFORMATION ......................................................   90

GLOSSARY ....................................................................   91

INDEX TO FINANCIAL STATEMENTS................................................   F-1

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus. Unless the context otherwise indicates, all references herein to the "Company" include Hersha Hospitality Trust and Hersha Hospitality Limited Partnership and its subsidiary partnerships. The offering of 2,666,667 Common Shares pursuant to this Prospectus is referred to herein as the "Offering." See "Glossary" beginning on page 91 for the definitions of certain additional terms used in this Prospectus.

The Company

Hersha Hospitality Trust (the "Company") has been established to own initially interests in ten hotels (the "Initial Hotels") and to continue the hotel acquisition and development strategies of Hasu P. Shah, Chairman of the Board of Trustees and Chief Executive Officer of the Company. The Company, formed in May 1998, is a self-advised Maryland real estate investment trust that intends to qualify as a real estate investment trust ("REIT") for federal income tax purposes. The Initial Hotels include three Holiday Inn Express(Registered Trademark) hotels, two Hampton Inn(Registered Trademark) hotels, two Holiday Inn(Registered Trademark) hotels, two Comfort Inn(Registered Trademark) hotels and one Clarion Suites(Registered Trademark) hotel. The Initial Hotels are located in Pennsylvania and contain an aggregate of 989 rooms. The Holiday Inn Express(Registered Trademark) hotels in Hershey, Pennsylvania and New Columbia, Pennsylvania, the Hampton Inn(Registered Trademark) hotel in Carlisle, Pennsylvania and the Comfort Inn(Registered Trademark) hotel in Harrisburg, Pennsylvania (the "Newly-Developed Hotels") are newly constructed and therefore have limited operating history. The Holiday Inn Express(Registered Trademark) hotel in Harrisburg, Pennsylvania, the Holiday Inn(Registered Trademark) hotel in Milesburg, Pennsylvania and the Comfort Inn(Registered Trademark) hotel in Denver, Pennsylvania (the "Newly-Renovated Hotels") have been newly renovated and, as a result, the Company believes that such hotels' future performance will improve significantly over such hotels' prior operating histories. The remaining hotels, the Hampton Inn(Registered Trademark) hotel in Selinsgrove, Pennsylvania, the Holiday Inn(Registered Trademark) hotel in Harrisburg, Pennsylvania and the Clarion Suites(Registered Trademark) hotel in Philadelphia, Pennsylvania are referred to herein as the "Stabilized Hotels."

Summary Risk Factors

An investment in the Common Shares involves various risks, and investors should carefully consider the matters discussed under "Risk Factors," including, among others, the following:

o Conflicts of interest between the Company, the Hersha Affiliates and the Lessee that may have resulted, or may in the future result, in the interests of the shareholders not being reflected fully in all decisions made or actions taken by officers and Trustees of the Company, including:

> conflicts related to the adverse tax consequences to the Hersha Affiliates upon a sale of any of the Initial Hotels or the refinancing or prepayment of principal on certain of the Assumed Indebtedness, and the related risk that the Hersha Affiliates' personal interests with regard to a sale or refinancing of an Initial Hotel or repayment of certain of the Assumed Indebtedness could be adverse to those of the Company;

> lack of arm's-length negotiations with respect to the terms of the Percentage Leases, the contribution agreements for the Initial Hotels, the Option Agreement (as herein defined), the Administrative Services Agreement (as herein defined) and the Hersha Affiliates' conflicts relating to enforcing those agreements;

> conflicts relating to ownership and operation of other hotels by the Hersha Affiliates; and

> conflicts relating to competing demands on Mr. Shah's time.

o The purchase prices for the Newly-Developed Hotels and the Newly-Renovated Hotels are based upon projections by management as to the expected operating results of such hotels, subjecting the Company to risks that those hotels may not achieve anticipated operating results and the rent received by the Company from such hotels after the First Adjustment Date or Second Adjustment Date, as applicable, could be less than anticipated, which could adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The dependence of the Company on the Lessee's ability to make payments under the Percentage Leases in order to generate revenues may, in the event that there is a reduction in revenues at the Initial Hotels, adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The Company and the Partnership were recently formed, and the Company has no experience operating as a REIT or a public company.

o The number of the Initial Hotels is limited and therefore adverse changes in the operations of any Initial Hotel could adversely affect the amount of cash available for distribution to the shareholders of the Company.

o Mr. Shah and the partners of the Selling Partnerships personally guarantee all of the Assumed Indebtedness, and the personal bankruptcy of any of the guarantors would constitute a default under the related loan documents.

o The Offering Price exceeds the net tangible book value per share. Therefore, purchasers of Common Shares in the Offering will realize an immediate and substantial dilution of $4.01, or 66.8% of the Offering Price, in the net tangible book value of their shares. In addition, in the event that any of the purchase prices of the Newly-Renovated Hotels or the Newly-Developed Hotels are increased on the First Adjustment Date or the Second Adjustment Date, as applicable, owners of the Common Shares at such time will experience further dilution.

o Risk of taxation of the Company as a regular corporation if it fails to qualify as a REIT and the Company's liability for federal and state taxes on its income in such event, which would adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The price to be paid by the Company for the Initial Hotels may exceed the fair market value as determined by a third-party appraisal of the Initial Hotels.

o Five of the Initial Hotels are licensed under one franchise brand, Holiday Inn/Holiday Inn Express, and any adverse developments to that franchise brand could adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The geographic concentration in Pennsylvania of the Initial Hotels may expose the Company to regional economic fluctuations that could have a significant negative effect on the operation of the Initial Hotels, and ultimately on cash available for distribution to the shareholders of the Company.

o Risks affecting the real estate or hospitality industries generally, including economic and other conditions that may adversely affect the Company's real estate investments and the Lessee's ability to make lease payments, potential increases in assessed real estate values or property tax rates, the relative illiquidity of real estate, uninsured or underinsured losses, and the potential liability for unknown or future environmental liabilities, any of which could adversely affect the amount of cash available for distribution to the shareholders of the Company.

o The absence of a prior market for the Common Shares, the lack of assurance that an active trading market will develop or that the Common Shares will trade at or above the Offering Price, and the potential negative effect of an increase in interest rates on the market price of the Common Shares.

o The restriction on ownership of Common Shares and certain other provisions in the Company's declaration of trust (the "Declaration of Trust") or the Company's Bylaws (the "Bylaws") may have the effect of inhibiting a change of control of the Company, even when a change of control may be beneficial to the Company's shareholders.

The Partnership

The Company will contribute substantially all of the net proceeds from the Offering to Hersha Hospitality Limited Partnership (the "Partnership") in exchange for approximately a 43% partnership interest in the Partnership. The Company will be the sole general partner of the Partnership. Shortly after the closing of the Offering, the Partnership will acquire, directly or through subsidiary partnerships, 100% of the equity interests in the Initial Hotels. Mr. Shah and certain affiliates (the "Hersha Affiliates") own the partnerships that currently own all of the Initial Hotels (collectively, the "Selling Partnerships"). Ownership of the land underlying two of the Initial Hotels will be retained by certain Hersha Affiliates and will be leased to the Partnership pursuant to separate ground leases, each with a 99-year term, and collectively providing for rent of $21,000 per year. See "Certain Relationships and Transactions."

The Partnership will acquire the Initial Hotels in exchange for (i) units of limited partnership interest in the Partnership ("Units"), which will be redeemable, subject to certain limitations, for an aggregate of approximately 3.5 million Common Shares, with a value of approximately $21 million based on the Offering Price, and (ii) the assumption of approximately $25.2 million of the indebtedness related to the Initial Hotels, approximately $11.7 million of which (the "Assumed Indebtedness") will remain outstanding and approximately $13.5 million of which will be repaid immediately after the acquisition of the Initial Hotels using the net proceeds of the Offering. See "Formation Transactions." The purchase prices of the Newly-Renovated Hotels will be adjusted as soon as the Company's and the Lessee's audited financial statements for the year ended December 31, 1999 (the "First Adjustment Date") become available. The purchase prices of the Newly-Developed Hotels will be adjusted as soon as the Company's and the Lessee's audited financial statements for the year ended December 31, 2000 (the "Second Adjustment Date") become available. The adjustments will be calculated by applying the initial pricing methodology to such hotels' cash flows as shown on the Company's and the Lessee's audited financial statements for the year ended on the First Adjustment Date or the Second Adjustment Date, as applicable, and the adjustments must be approved a majority of the Independent Trustees (as defined herein). If the repricing produces a higher aggregate value for such hotels, the Hersha Affiliates will receive an additional number of Units that, when multiplied by the Offering Price, equals the increase in value plus the value of any distributions that would have been made with respect to such Units if such Units had been issued at the time of acquisition of such hotels. If, however, the repricing produces a lower aggregate value for such hotels, the Hersha Affiliates will forfeit to the Partnership that number of Units that, when multiplied by the Offering Price, equals the decrease in value plus the value of any distributions made with respect to such Units.

The Lessee

In order for the Company to qualify as a REIT, neither the Company nor the Partnership may operate hotels. Therefore, the Initial Hotels will be leased to Hersha Hospitality Management, L.P., a Pennsylvania limited partnership wholly-owned by certain of the Hersha Affiliates (the "Lessee"), pursuant to leases (the "Percentage Leases") that are designed to allow the Company to participate in growth in revenues of the Initial Hotels by providing that percentages of such revenues be paid by the Lessee as rent. Each Percentage Lease has been structured to provide anticipated rents at least equal to 12% of the purchase price paid for the hotel, net of (i) property and casualty insurance premiums, (ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues at the hotel. This pro forma return is based on certain assumptions and historical revenues for the Initial Hotels (including projected revenues for the Newly-Developed Hotels and the Newly-Renovated Hotels) and no assurance can be given that future revenues for the Initial Hotels will be consistent with prior performance or the estimates. See "Risk Factors-Acquisition of Hotels with Limited Operating History." The rent on the Newly-Developed Hotels and the Newly-Renovated Hotels until the First Adjustment Date or Second Adjustment Date, as applicable, will be fixed (the "Initial Fixed Rent"). After the First Adjustment Date or the Second Adjustment Date, as applicable, rent will be computed with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels based on the percentage rent formulas described herein. The Initial Hotels will be operated by the Lessee. The

Percentage Leases will have initial terms of five years and may be extended for two additional five-year terms at the option of the Lessee. See "Business and Properties-The Percentage Leases."

The Initial Hotels

The following table sets forth certain information with respect to the Initial Hotels:

                                                            Twelve Months Ended December 31, 1997
                             ------------------------------------------------------------------------------------------------
                                                                     Estimated
                                                                       Lessee
                                                                   Income Before    Estimated              Average
                              Number of    Room         Other          Lease          Lease                 Daily
Initial Hotels                  Rooms     Revenue     Revenue(1)     Payments(2)  Payments(3)(4) Occupancy  Rate    REVPAR(5)
--------------                  -----     -------     ----------     -----------  -------------- ---------  ----    ---------
Newly-Developed
Holiday Inn Express
 Hershey, PA(6) ......            85   $   210,612   $     4,877   $    80,985    $    96,156     38.8%   $ 75.62   $29.35
 New Columbia, PA(7) .            81   $    13,369   $       253       (48,535)         6,653      9.0%   $ 59.68   $ 5.39

Hampton Inn:
 Carlisle, PA(8) .....            95       659,861         8,421       293,368        303,029     53.5%   $ 65.33   $34.93

Comfort Inn:
 Harrisburg, PA(9) ...            81

Newly-Renovated
Holiday Inn Express:
 Harrisburg, PA(10) ..           117     1,357,241       176,868       550,639        504,406     56.4%   $ 56.33   $31.78

Holiday Inn:
 Milesburg, PA .......           118     1,254,070       220,684       579,756        524,750     52.0%   $ 56.07   $29.13

Comfort Inn:
 Denver, PA (11) .....            45       658,285             0       271,167        262,234     54.7%   $ 73.26   $40.08

Stabilized
Holiday Inn:
 Harrisburg, PA ......           196     3,103,820     1,787,958     1,738,713      1,614,402     63.3%   $ 68.22   $43.17

Hampton Inn:
 Selinsgrove, PA (12)             75     1,271,943        46,148       705,488        657,471     71.9%   $ 65.29   $46.96

Clarion Suites:
 Philadelphia, PA ....            96     2,350,702       319,950     1,026,785        976,102     73.7%   $ 91.02   $67.09

Total/weighted average           989   $10,879,903   $ 2,565,159   $ 5,198,366    $ 4,945,203     60.2%   $ 68.27   $41.09

(3) Had the Newly-Developed Hotels been open for the entire twelve months ended December 31, 1997, the total estimated lease payments for all of the Initial Hotels would have been approximately $7 million.

(4) Represents payments of Rent by the Lessee calculated by applying the rent provisions in the Percentage Leases using historical revenues of the Initial Hotels as if January 1, 1997 was the beginning of the lease year. In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the estimated lease payments reflect the Initial Fixed Rents for such hotels pro-rated for the period in which each hotel was open.
(5) Revenue per available room ("REVPAR") is determined by dividing room revenue by available rooms for the applicable period.
(6) This hotel opened in October 1997 and, thus, the data shown represent approximately three months of operations.
(7) This hotel opened in December 1997 and, thus, the data shown represent approximately one month of operations.
(8) This hotel opened in June 1997 and, thus, the data shown represent approximately seven months of operations.

(9) This hotel opened in May 1998 and, thus, there are no data shown.

(10) The land underlying this hotel will be leased to the Partnership by certain Hersha Affiliates for rent of $15,000 per year for 99 years.
(11) The land underlying this hotel will be leased to the Partnership by certain Hersha Affiliates for rent of $6,000 per year for 99 years.
(12) A portion of the land adjacent to this hotel will be leased to a Hersha Affiliate for $1 per year for 99 years.

For further information regarding the Initial Hotels, see "Business and Properties - The Initial Hotels" and " - The Percentage Leases."

Growth Strategy

The Company will seek to enhance shareholder value by increasing amounts available for distribution to shareholders by acquiring additional hotels that meet the Company's investment criteria as described below and by participating in increased revenue from the Initial Hotels through the Percentage Leases.

Acquisition Strategy

The Company intends to acquire additional hotels that meet its investment criteria as described below. See "The Company-Growth Strategy-Acquisition Strategy." The Company will emphasize limited service and full service hotels with strong, national franchise affiliations in the upper-economy and mid-scale market segments, or hotels with the potential to obtain such franchises. In particular, the Company will consider acquiring limited service hotels such as Comfort Inn(Registered Trademark), Best Western(Registered Trademark), Days Inn(Registered Trademark), Fairfield Inn(Registered Trademark), Hampton Inn(Registered Trademark), Holiday Inn(Registered Trademark) and Holiday Inn Express(Registered Trademark) hotels, and limited service extended-stay hotels such as Hampton Inn and Suites(Registered Trademark), Homewood Suites(Registered Trademark), Main Stay Suites(Registered Trademark) and Residence Inn by Marriott(Registered Trademark) hotels. Under the Bylaws, any transaction involving the Company, including the purchase, sale, lease or mortgage of any real estate asset, in which a Trustee or officer of the Company, or any Affiliate (as defined herein) thereof, has an interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company) must be approved by a majority of members of the Company's Board of Trustees (the "Trustees"), including a majority of the members of the Board of Trustees who are not officers, directors or employees of the Company, any lessee of the Company's or the Partnership's properties or any underwriter or placement agent of the shares of beneficial interest of the Company that has been engaged by the Company within the past three years, or any Affiliate thereof (the "Independent Trustees").

The Company intends to focus predominately on investments in hotels in the eastern United States. Such investments may include hotels newly developed by the Hersha Affiliates. Pursuant to an agreement with Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha Affiliate, the Partnership will have a two-year option to acquire any hotels acquired or developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any subsequently acquired hotel (the "Option Agreement"). See "Certain Relationships and Transactions-Option Agreement." The Company's policy with respect to acquisitions of hotels (the "Acquisition Policy") is to acquire hotels for which it expects to receive rents at least equal to 12% of the purchase price paid for each hotel, net of (i) property and casualty insurance premiums, (ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% (6% in the case of a full-service hotel) of gross revenues at each hotel. The Trustees, however, may change the Acquisition Policy at any time without the approval of the Company's shareholders.

The Company's additional investments in hotels may be financed, in whole or in part, with undistributed cash, subsequent issuances of Common Shares or other securities, or borrowings. The Company is currently negotiating with lenders to obtain a $10 million line of credit (the "Line of Credit"). A failure to obtain the Line of Credit could adversely affect the Company's ability to finance its growth strategy. See "Risk Factors -Dependence Upon External Financing." The Company's initial policy is to limit consolidated indebtedness to less than 55% of the aggregate purchase prices for the hotels in which it has invested (the "Debt Policy"). The Trustees, however, may change the Debt Policy without the approval of the Company's shareholders. The aggregate purchase prices paid by the Company for the Initial Hotels is approximately $47.3 million. After the Formation Transactions, the Company's indebtedness will be approximately $11.7 million, which represents approximately 25% of the aggregate purchase price to be paid by the Company. Because of the Debt Policy and the amount of the Assumed Indebtedness, the success of the Company's acquisition strategy will depend in the future on its ability to access additional capital through issuances of equity securities. See "The Company-Growth Strategy-Investment Criteria and Financing," "Risk Factors-Risks of Leverage" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."

Internal Growth Strategy

amount (the "Threshold"), (ii) a percentage of room revenues in excess of the Threshold but not more than an incentive threshold amount (the "Incentive Threshold"), (iii) a percentage of room revenue in excess of the Incentive Threshold and (iv) a percentage of revenues other than room revenues. The Incentive Threshold is designed to provide incentive to the Lessee to generate higher revenues at each hotel by lowering the percentage of revenue paid as Percentage Rent once room revenues reach certain levels. In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the Lessee will pay the Initial Fixed Rent until the First Adjustment Date or the Second Adjustment Date, as applicable, after which the Lessee will pay the greater of Base Rent or Percentage Rent. See "Business and Properties-The Initial Hotels" and "-The Percentage Leases-Amounts Payable Under the Percentage Leases." The Initial Fixed Rent, the Base Rent and Percentage Rent are hereinafter referred to collectively as "Rent."

Formation Transactions

The principal transactions in connection with the formation of the Company and the acquisition of interests in the Initial Hotels (the "Formation Transactions") are as follows:

o The Company will sell 2,666,667 Common Shares in the Offering, including 166,667 Common Shares to be sold to the Hersha Affiliates, at the Offering Price. The net proceeds to the Company from the Offering will be contributed to the Partnership in exchange for approximately a 43% general partnership interest in the Partnership.

o The Partnership will acquire the Initial Hotels by acquiring either all of the partnership interests in the Selling Partnerships or the Initial Hotels in exchange for (i) Units that will be redeemable, subject to certain limitations, for an aggregate of approximately 3.5 million Common Shares, with a value of approximately $21 million based on the Offering Price and (ii) the assumption of approximately $25.2 million in indebtedness secured by all of the Initial Hotels, approximately $13.5 million of which will be repaid with the proceeds of the Offering. The purchase prices of the Newly-Developed Hotels and the Newly-Renovated Hotels will be adjusted on the First Adjustment Date or the Second Adjustment Date, as applicable, as described in "-The Company."

o The land underlying the Holiday Inn Express, Harrisburg, Pennsylvania and the Comfort Inn, Denver, Pennsylvania each will be leased to the Partnership by certain Hersha Affiliates for aggregate rent of $21,000 per year for 99 years. Also, a portion of the land adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be leased to a Hersha Affiliate for $1 per year for 99 years.

o Each Initial Hotel will be leased to the Lessee pursuant to a Percentage Lease. The Percentage Leases will have an initial non-cancelable term of five years. All, but not less than all, of the Percentage Leases may be extended for an additional five-year term. At the end of the first extended term, the Lessee, at its option, may extend some or all of the Percentage Leases for the Initial Hotels. The Percentage Leases generally provide for the Lessee to pay the greater of the Base Rent or Percentage Rent. The Percentage Rent for each Initial Hotel is comprised of (i) a percentage of room revenues up to the Threshold, (ii) a percentage of room revenues in excess of the Threshold but less than the Incentive Threshold, (iii) a percentage of room revenue in excess of the Incentive Threshold and (iv) a percentage of revenues other than room revenues. The Incentive Threshold is designed to provide an incentive to the Lessee to generate higher revenues at each hotel. Until the First Adjustment Date or the Second Adjustment Date, as applicable, the rent on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial Fixed Rents applicable to those hotels. After the First Adjustment Date or the Second Adjustment Date, as applicable, rent will be computed with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels based on the percentage rent formulas described herein. The Lessee will hold the franchise license (the "Franchise License") for each Initial Hotel. See "Business and Properties-The Percentage Leases."

"Risk Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the Hersha Affiliates" and "Policies and Objectives with Respect to Certain Activities-Conflicts of Interest Policies-The Option Agreement."

o The Company and the Lessee will enter into the Administrative Services Agreement, pursuant to which the Hersha Affiliate will provide certain administrative services in exchange for an annual fee equal to $55,000, plus $10,000 for each hotel owned by the Company.

o The Company has granted the Underwriter warrants to purchase 250,000 Common Shares (the "Underwriter Warrants") for a period of five years at a price per share equal to 165% of the Offering Price.

o The Partnership has granted 2744 Associates, L.P., which is a Hersha Affiliate, warrants to purchase 250,000 Units (the "Hersha Warrants") for a period of five years at a price per Unit equal to 165% of the Offering Price.

Following consummation of the Formation Transactions, the structure and relationships of the Company, the Partnership, the Initial Hotels and the Lessee will be as follows:

[Flow chart describing the organization of the Company after completion of the Offering appears here]

(1) The Company will sell 166,667 Common Shares directly to certain Hersha Affiliates at the Offering Price.

(2) Two of the Initial Hotels will be held directly by the Partnership and the remaining eight Initial Hotels will be held by subsidiary partnerships of the Partnership. The Company will lease the land underlying the Holiday Inn Express, Harrisburg, Pennsylvania and the Comfort Inn, Denver, Pennsylvania from certain Hersha Affiliates pursuant to separate leases, each with a term of 99 years, and collectively providing for annual rent of $21,000.

Benefits to the Hersha Affiliates

As a result of the Formation Transactions, the Hersha Affiliates will receive significant benefits, including but not limited to the following:

o The Hersha Affiliates will receive approximately 3.5 million Units in exchange for their interests in the Initial Hotels, which will have a value of approximately $21 million based on the Offering Price. The Units held by the Hersha Affiliates will be more liquid than their current interests in the Selling Partnerships once a public trading market for the Common Shares commences and after the applicable holding periods expire.

o The Lessee, which is owned by the Hersha Affiliates, will hold the Franchise Licenses for the Initial Hotels and will be entitled to all revenues from the Initial Hotels after payment of Rent under the Percentage Leases and other operating expenses. The Company will pay certain expenses in connection with the transfer of the Franchise Licenses to the Lessee. See "The Lessee."

o Approximately $13.5 million of indebtedness owed by the Selling Partnerships will be repaid with a portion of the proceeds of the Offering. Approximately $7.5 million of such indebtedness is owed to entities controlled by the Hersha Affiliates and relates principally to hotel development expenses in connection with the Initial Hotels. Certain of the Assumed Indebtedness is and will remain guaranteed by the Hersha Affiliates. Upon the repayment of such indebtedness, the Hersha Affiliates will be released from the related guarantees. The Hersha Affiliates may receive increased cash distributions from the operations of the Initial Hotels as a result of the reduction of indebtedness on the Initial Hotels.

o If the repricing on the First Adjustment Date or the Second Adjustment Date, as applicable, produces a higher value for the Newly-Developed Hotels or the Newly-Renovated Hotels, the Hersha Affiliates will receive an additional number of Units that, when multiplied by the Offering Price, equals the increase in value plus the value of any distributions that would have been made in connection with such Units if such Units had been issued in connection with the acquisition of such hotels.

o The Lessee, which is owned by the Hersha Affiliates, will receive an annual fee equal to $55,000, plus $10,000 for each hotel owned by the Company for providing certain administrative services to the Company.

o Certain tax consequences to the Hersha Affiliates from the transfer of equity interests in the Initial Hotels will be deferred.

o Messrs. Hasu P. Shah, K.D. Patel and Bharat C. Mehta will receive $7,500 per year for serving as Trustees. Mr. Shah shall also be entitled to receive a salary of not more than $100,000 per year provided that the Common Shares have a closing price of $9.00 per share or higher for 20 consecutive trading days and remain at or above $9.00 per share.

o The Partnership has granted 2744 Associates, L.P., which is a Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units for a period of five years at a price per share equal to 165% of the Offering Price.

o Certain of the Hersha Affiliates will receive a total of $21,000 per year pursuant to 99-year ground leases with respect to the Holiday Inn Express, Harrisburg, Pennsylvania and the Comfort Inn, Denver, Pennsylvania.

o A portion of the land adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be leased to a Hersha Affiliate for $1 per year for 99 years.

Conflict of Interest Policies

The Company has adopted certain policies designed to minimize the effects of potential conflicts of interest. In addition, the Partnership will enter into the Option Agreement with certain of the Hersha Affiliates pursuant to which the Hersha Affiliates will agree that if they develop or own any hotels in the future that are located within 15 miles of any Initial Hotel or hotel subsequently acquired by the Partnership, the Hersha Affiliates will give the Partnership the option to purchase such hotels for two years. See "Risk Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the Hersha Affiliates" and "Policies and Objectives with Respect to Certain Activities-Conflicts of Interest Policies-The Option Agreement." The Declaration of Trust, with limited exceptions, requires at least three of the Company's Trustees be Independent Trustees. Such Independent Trustee requirement may not be amended, altered, changed or repealed without the affirmative vote of at least a majority of the members of the Board of Trustees (and the affirmative vote of the holders of not less than two-thirds of the outstanding Common Shares, and other shares of beneficial interest of the Company entitled to vote, if any exist). The Trustees also are subject to certain provisions of Maryland law, which are designed to eliminate or minimize certain potential conflicts of interest. However, there can be no assurance that these policies always will be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of all shareholders.

Distribution Policy

The Company intends to make regular quarterly distributions to holders of the Common Shares initially equal to $0.12 per share, which on an annualized basis would be equal to $0.48 per share or 8.0% of the Offering Price of $6.00 per share. The first distribution, for the period from the closing of the Offering to September 30, 1998, is expected to be a pro rata distribution of the anticipated regular quarterly distribution. See "Distribution Policy" for information regarding the basis for determining the initial distribution rate. The Company believes that the pro forma financial information constitutes a reasonable basis for setting the initial distribution rate. The Trustees will determine the actual distribution rate based on the Company's actual results of operations, economic conditions and other factors. See "Partnership Agreement" and "Distribution Policy."

Tax Status

The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its initial taxable year ending December 31, 1998. If the Company qualifies for taxation as a REIT, then with certain exceptions, the Company will not be taxed at the corporate level on its taxable income that is distributed to its shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 95% of its taxable income, excluding net capital gains. Failure to qualify as a REIT will 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 common shareholders in any such year will not be deductible by the Company. Although the Company does not intend to request a ruling from the Internal Revenue Service (the "Service") as to its REIT status, the Company will obtain the opinion of its legal counsel, Hunton & Williams, based on certain assumptions and representations described in "Federal Income Tax Consequences," that the Company has been organized in conformity with the requirements for qualification as a REIT beginning with the taxable year ending December 31, 1998, and that its proposed method of operation as represented to its counsel and as described herein will enable it to satisfy the requirements of such qualification. Investors should be aware, however, that opinions of counsel will not be binding on the Service or any court. Even if the Company qualifies for taxation as a REIT, the Company or the Partnership may be subject to certain state and local taxes on its income and property. In connection with the Company's election to be taxed as a REIT, the Declaration of Trust imposes restrictions on the ownership and transfer of Common Shares. The Company intends to adopt the calendar year as its taxable year. See

"Risk Factors-Tax Risks," "-Ownership Limitation," "Federal Income Tax Consequences-Taxation of the Company" and "Description of Capital Stock - Declaration of Trust and Bylaw Provisions-Restrictions on Transfer."

The Offering

Common Shares offered by the Company.............   2,666,667

Common Shares and Units to be outstanding after
the Offering.....................................   6,117,500(1)

Use of Proceeds..................................  To purchase the Initial  Hotels,  to
                                                   repay certain indebtedness of the
                                                   Selling Partnerships, to pay certain
                                                   expenses of the Offering and for
                                                   working capital purposes.
Symbol on the American Stock
Exchange.........................................  "HT"
---------------

(1) Excludes 250,000 Common Shares issuable upon exercise of the Underwriter Warrants, 250,000 Common Shares issuable upon the redemption of 250,000 Units issuable upon exercise of the Hersha Warrants, 650,000 Common Shares reserved for issuance pursuant to the Option Plan (as herein defined) and ______________ Common Shares reserved for issuance pursuant to the Trustees' Plan (as herein defined). See "Formation Transactions," "Management-Option Plan" and "Underwriting."

Summary Financial Data

The following tables set forth unaudited estimated revenue and expenses and financial data for the Company, unaudited summary estimated revenue and expenses and financial data for the Lessee and combined historical financial data for the Initial Hotels. Such data should be read in conjunction with the financial statements and notes thereto, which are contained elsewhere in this Prospectus. The estimated revenue and expenses and financial data for the Company and the Lessee are presented as if the consummation of the Formation Transactions had occurred on January 1, 1997 and carried forward through the interim period presented. The balance sheet data is presented as if the consummation of the Formation Transactions had occurred on March 31, 1998.

Hersha Hospitality Trust Unaudited Summary Estimated Revenue and Expenses and Financial Data(1) (In thousands, except per share data and number of Common Shares)

                                              Three Months Ended        Year Ended
                                                March 31, 1998       December 31, 1997
                                              ------------------     -----------------
Estimated Revenue and Expenses:
Percentage Lease revenue (2) ................   $    1,179              $    4,945

Depreciation and amortization ...............          394                   1,190
Interest expense (3) ........................          246                     873
Real estate and personal property
  taxes and property and casualty insurance .           96                     375
General and administrative ..................           84                     335
Ground lease ................................            5                      21
                                                ----------              ----------
Total expenses ..............................   $      825              $    2,794
                                                ==========              ==========

Estimated income before minority
  interest ..................................          354                   2,151
Minority interest (4) .......................          200                   1,213
                                                ----------              ----------
Net income applicable to holders
  of Common Shares ..........................   $      154              $      938
                                                ==========              ==========

Earnings per Common Share ...................   $      .06              $      .35
                                                ==========              ==========
     Weighted average number of Common
  Shares outstanding ........................    2,666,667               2,666,667

Other Data:
Funds from operations applicable to
  holders of Common Shares (5) ..............   $      326              $    1,456
Funds from operations (5) ...................   $      748              $    3,341
Net cash provided by operating activities (6)   $      748              $    3,341
Net cash used in investing activities (7) ...   $      155              $      665
Net cash used in financing activities (8) ...   $      792              $    3,073


                                                           March 31, 1998
                                                 ---------------------------------
                                                 Historical              Pro Forma
                                                 ----------              ---------

Balance Sheet Data:
Net investment in hotel properties.                     --              $   25,966
Minority interest in Partnership...                     --              $    8,917
Shareholders' equity...............                     --              $    6,891
Total assets.......................                     --              $   27,561
Total debt.........................                     --              $   11,753
------------------

(notes on page 16)

Hersha Hospitality Management, L.P.
Unaudited Summary Estimated Revenue and Expenses and Financial Data (1)

(In thousands)

                                              Three Months Ended          Year Ended
Estimated Revenue and Expenses:                 March 31, 1998        December 31, 1997
                                              ------------------      -----------------

Room revenue.......................                $2,572                 $10,880
Other revenue (9)..................                   571                   2,565
                                                   ------                 -------

Total revenue......................                $3,143                 $13,445
                                                   ------                 -------

Hotel operating expenses (10)......                2,032                    8,449

Percentage Lease payments (2)......                $1,179                 $ 4,945
                                                   ------                 -------

Net (loss) income..................                $ (68)                 $    51
                                                   ======                 =======

Combined Selling Partnerships - Initial Hotels

Summary Combined Historical Operating and Financial Data

(In thousands)

Three Months Ended
     March 31            Year Ended December 31
------------------    ----------------------------
  1998     1997         1997     1996      1995
  ----     ----         ----     ----      ----

Statement of Operations
Data:

Room revenue                $ 2,572   $ 1,659   $10,880   $ 7,273    $ 5,262
Other revenue (9)               571       627     2,565     2,716      1,957
                            -------   -------   -------   -------    -------

Total revenue               $ 3,143   $ 2,286   $13,445   $ 9,989    $ 7,219
Hotel operating expenses(10)  2,236     1,830     9,173     8,172      6,250
Interest                        397       198     1,354       921        634
Depreciation and
amortization                    389       233     1,189       924        711
                            -------   -------   -------   -------    -------
Net income (loss)           $   121   $    25   $ 1,729   $   (28)   $  (376)
                            =======   =======   =======   =======    =======

(notes on following page)

(5) In accordance with the resolution adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), funds from operations represents net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. For the periods presented, estimated depreciation and amortization and minority interest would have been the only adjustments to estimated net income necessary to arrive at funds from operation. Funds from operations should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. The Company considers funds from operations to be an appropriate measure of the performance of an equity REIT in that such calculation is a measure used by the Company to measure its performance against its peer group and is a basis for making the determination as to the allocation of its resources and reflects the Company's ability to meet general operating expenses. Although funds from operations has been computed in accordance with the NAREIT definition, funds from operations as presented may not be comparable to other similarly-titled measures used by other REITs. Funds from operations does not reflect working capital changes, cash expenditures for capital improvements or debt service with respect to the Initial Hotels and, therefore, does not represent cash available for distribution to the shareholders of the Company. For a complete presentation of cash available to the shareholders of the Company, see "Distribution Policy." Under the Percentage Leases, the Partnership is obligated to pay the costs of certain capital improvements, real estate and personal property taxes and property insurance, and to make available to the Lessee an amount equal to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues per quarter, on a cumulative basis, for the periodic replacement or refurbishment of furniture, fixtures and equipment at the Initial Hotels. The Company intends to cause the Partnership to spend amounts in excess of the obligated amounts if necessary to maintain the Franchise Licenses for the Initial Hotels and otherwise to the extent that the Company deems such expenditures to be in the best interests of the Company. See "Business and Properties-The Percentage Leases."
(6) Pro forma funds provided by operating activities excludes cash provided by (used in) operating activities due to changes in working capital.
(7) Represents improvements and additions to the Initial Hotels from funds to be made available to the Lessee as provided in Note (6) above.
(8) Represents estimated initial distributions to be paid based on the estimated initial annual distribution rate of $0.48 per share and 2,666,667 Common Shares and 3,450,833 Units outstanding plus the estimated debt service on the Assumed Indebtedness.
(9) Represents restaurant revenue, telephone revenue and other revenue.
(10) Represents departmental costs and expenses, general and administrative, repairs and maintenance, utilities, marketing, management fees, real estate and personal property taxes, property and casualty insurance and ground leases. The pro forma amounts exclude real estate and personal property taxes, property and casualty insurance, ground leases and management fees.

This Prospectus may contain forward-looking statements including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import. Such forward-looking statements relate to future events and the future financial performance of the Company, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Prospective investors should specifically consider the various factors identified in this prospectus which could cause actual results to differ, including particularly those discussed in the section entitled "Risk Factors" beginning on this page. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any forward-looking statements to reflect future events or developments.

RISK FACTORS

In evaluating the Company's business, prospective investors should carefully consider the following risk factors in addition to the other information contained in this Prospectus.

Conflicts of Interest

Because of the Hersha Affiliates' ownership in and/or positions with the Company, the Partnership, the Lessee and the Selling Partnerships, there are inherent conflicts of interest in the Formation Transactions and in the ongoing lease, acquisition, disposition and operation of the Initial Hotels. Consequently, the interests of shareholders may not have been, and in the future may not be, reflected fully in all decisions made or actions taken by officers and Trustees of the Company. See "The Company-Formation Transactions" and "Policies and Objectives with Respect to Certain Activities-Conflicts of Interest Policies."

Conflicts Relating to Sales or Refinancing of Initial Hotels

The Hersha Affiliates have unrealized gain associated with their interests in the Initial Hotels and, as a result, any sale of the Initial Hotels or refinancing or prepayment of principal on the Assumed Indebtedness by the Company may cause adverse tax consequences to the Hersha Affiliates. Therefore, the interests of the Company and the Hersha Affiliates could be different in connection with the disposition or refinancing of an Initial Hotel. Decisions in connection with any transaction involving the Company, including the disposition of an Initial Hotel or refinancing of or prepayment of principal on the Assumed Indebtedness, in which a Trustee or officer of the Company, or any Affiliate thereof, has an interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company) must be made by a majority of the Trustees, including a majority of the Independent Trustees.

No Arm's-Length Bargaining on Percentage Leases, Contribution Agreements, the Administrative Services Agreement and Option Agreement

The terms of the Percentage Leases, the agreements pursuant to which the Company and the Partnership will acquire, directly or indirectly, the Initial Hotels, the Administrative Services Agreement and the Option Agreement were not negotiated on an arm's-length basis. See "Business and Properties-The Percentage Leases" and "Certain Transactions-The Percentage Leases." The Company will not own any interest in the Lessee. Messrs. Hasu P. Shah, K.D. Patel, and Bharat C. Mehta are Trustees of the Company and collectively own approximately 35% of the Lessee. Consequently, they have a conflict of interest regarding the enforcement of the Percentage Leases, the Administrative Services Agreement and the Option Agreement. See "The Lessee."

Competing Hotels Owned or to be Acquired by the Hersha Affiliates

The Hersha Affiliates may develop or acquire new hotels, subject to certain limitations. While it is anticipated that Mr. Shah will devote substantially all of his time to the business of the Company, such development or acquisition by the Hersha Affiliates may materially affect the amount of time Mr. Shah has to devote to the affairs of the Company. The Lessee may operate hotels that are not owned by the Company, subject to certain restrictions, which may materially affect the amount of time that the Lessee has to devote to managing the Initial Hotels. See "Policies and Objectives with Respect to Certain Activities-Conflict of Interest Policies-The Option Agreement."

Acquisition of Hotels with Limited Operating History

The Newly-Developed Hotels have little operating history and the Newly-Renovated Hotels have been newly renovated. The purchase prices of such hotels are based upon projections by management as to the expected operating results of such hotels, subjecting the Company to risks that such hotels may not achieve anticipated operating results or may not achieve such results within anticipated time frames. As a result, the Lessee may not generate enough net operating income from such hotels to make the Initial Fixed Rent payments or, after the First Adjustment Date or the Second Adjustment Date, as applicable, to make the Base Rent payments. In addition, after the First Adjustment Date or Second Adjustment Date, as applicable, room revenues may be less than required to result in the payment of Percentage Rent at levels at a particular hotel that provide the Company with its anticipated return on investment. In either case, the amounts available for distribution to shareholders could be reduced.

Inability to Operate the Properties

As a result of its status as a REIT, the Company will not be able to operate any hotels. The Company will be unable to make and implement strategic business decisions with respect to its properties, such as decisions with respect to the repositioning of a franchise, repositioning of food and beverage operations and other similar decisions, even if such decisions are in the best interests of a particular property. Accordingly, there can be no assurance that the Lessee will operate the Initial Hotels in a manner that is in the best interests of the Company.

Dependence on the Lessee

In order to generate revenues to enable it to make distributions to shareholders, the Company will rely on the Lessee to make Rent payments. The Lessee's obligations under the Percentage Leases, including the obligation to make Rent payments, are unsecured. Reductions in revenues from the Initial Hotels or in the net operating income of the Lessee may adversely affect the ability of the Lessee to make such Rent payments and thus the Company's ability to make anticipated distributions to its shareholders. Although failure on the part of the Lessee to comply materially with the terms of a Percentage Lease would give the Company the right to terminate any or all of the Percentage Leases, to repossess the applicable properties and to enforce the payment obligations under the Percentage Leases, the Company then would be required to find another lessee. There can be no assurance that the Company would be able to find another lessee or that, if another lessee were found, the Company would be able to enter into a lease on favorable terms.

Newly-Organized Entities

The Company, the Partnership and the Lessee all have been recently organized and have no operating histories. Although the officers and Trustees of the Company have experience in developing, financing and operating hotels, most of them have no experience in operating a REIT or a public company. See "Management-Trustees and Officers."

Limited Numbers of Initial Hotels

The Company will own initially only ten hotels, three of which will be operated as Holiday Inn Express(Registered Trademark) hotels, two as Hampton Inn(Registered Trademark) hotels, two as Holiday Inn(Registered Trademark) hotels, two as a Comfort Inn(Registered Trademark) hotels and one as a Clarion Suites(Registered Trademark) hotel. Significant adverse changes in the operations of any Initial Hotel could have a material adverse effect on the Lessee's ability to make Rent payments and, accordingly, on the Company's ability to make expected distributions to its shareholders.

Guarantors of Assumed Indebtedness

Mr. Shah and the partners of the Selling Partnerships personally guarantee all of the indebtedness secured by the Initial Hotels, and the personal bankruptcy of any of the guarantors would constitute a default under the related loan documents.

Substantial Dilution

Purchasers of Common Shares sold in the Offering will experience immediate and substantial dilution of $4.01, or 66.8% of the Offering Price, in the net tangible book value per Common Share. See "Dilution." In addition, in the event that any of the purchase prices of the Newly-Renovated Hotels or the Newly-Developed

Hotels are increased on the First Adjustment Date or the Second Adjustment Date, as applicable, owners of the Common Shares at such time will experience further dilution.

Tax Risks

Failure to Qualify as a REIT

The Company intends to operate so as to qualify as a REIT for federal income tax purposes. Although the Company has not requested, and does not expect to request, a ruling from the Service that it qualifies as a REIT, the Company will receive an opinion of its counsel, Hunton & Williams, that, based on certain assumptions and representations, it will so qualify. Investors should be aware, however, that opinions of counsel are not binding on the Service or any court. The REIT qualification opinion only represents the view of counsel to the Company based on counsel's review and analysis of existing law, which includes no controlling precedent. Furthermore, both the validity of the opinion and the continued qualification of the Company as a REIT will depend on the Company's continuing ability to meet various requirements concerning, among other things, the ownership of its outstanding shares, the nature of its assets, the sources of its income, and the amount of its distributions to its shareholders. See "Federal Income Tax Consequences-Taxation of the Company."

If the Company were to fail to qualify as a REIT in any taxable year, the Company would not be allowed a deduction for distributions to its shareholders in computing its taxable income and would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the Company also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, amounts available for distribution to shareholders would be reduced for each of the years involved. Although the Company currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the Trustees, with the consent of two-thirds of the shareholders, to revoke the REIT election. See "Federal Income Tax Consequences."

REIT Minimum Distribution Requirements

In order to qualify as a REIT, the Company generally will be required each year to distribute to its shareholders at least 95% of its net taxable income (excluding any net capital gain). 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 capital gain net income for that year, and (iii) 100% of its undistributed taxable income from prior years. To the extent that the Company elects to retain and pay income tax on its net long-term capital gains, such retained amounts will be treated as having been distributed for purposes of the 4% excise tax.

The Company intends to make distributions to its shareholders to comply with the 95% distribution requirement and to avoid the nondeductible excise tax. The Company's income will consist primarily of its share of the income of the Partnership, and the Company's available for distribution to shareholders will consist primarily of its share of cash distributions from the Partnership. Differences in timing between the recognition of taxable income and the receipt of amounts available for distribution due to the seasonality of the hotel industry could require the Company, through the Partnership, to borrow funds on a short-term basis to meet the 95% distribution requirement and to avoid the nondeductible excise tax. See "Risk Factors-Risk of Leverage." For federal income tax purposes, distributions paid to shareholders may consist of ordinary income, capital gains, nontaxable return of capital, or a combination thereof. The Company will provide its shareholders with an annual statement as to its designation of the taxability of distributions.

Distributions by the Partnership will be determined by the Trustees and will be dependent on a number of factors, including the amount of the Partnership's distributable cash, the Partnership's financial condition, any decision by the Trustees to reinvest funds rather than to distribute such funds, the Partnership's capital expenditures, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant. See "Federal Income Tax Consequences-Requirements for Qualification - Distribution Requirements."

The Price Being Paid for the Initial Hotels May Exceed Their Value

No arm's-length negotiations were conducted and no independent appraisals were obtained in connection with the Formation Transactions. There can be no assurance that the price to be paid by the Company, which is

approximately $47.3 million in the aggregate, will not exceed the fair market value of the Initial Hotels acquired by the Company. The initial valuation of the Company is based on a valuation of the Initial Hotels. The Units were allocated among the Hersha Affiliates based upon their respective interests in the Selling Partnerships.

Emphasis on Franchise Hotels

The Company intends to place particular emphasis in its acquisition strategy on hotels similar to the Initial Hotels. The Company initially will own five hotels licensed under the Holiday Inn/Holiday Inn Express franchise brand and thus will be subject to risks inherent in concentrating investments in a particular franchise brand, which could have an adverse effect on the Company's lease revenues and amounts available for distribution to shareholders. These risks include, among others, the risk of a reduction in hotel revenues following any adverse publicity related to the franchise brand. See "Business and Properties-Franchise Licenses."

Concentration of Investments in Pennsylvania

All of the Initial Hotels are located in Pennsylvania. As a result, localized adverse events or conditions, such as an economic recession, could have a significant adverse effect on the operations of the Initial Hotels, and ultimately on the amounts available for distribution to shareholders.

Hotel Industry Risks

Operating Risks

The Initial Hotels are subject to all operating risks common to the hotel industry. The hotel industry has experienced volatility in the past, as have the Initial Hotels, and there can be no assurance that such volatility will not occur in the future. These risks include, among other things, competition from other hotels; over-building in the hotel industry that could adversely affect hotel revenues; increases in operating costs due to inflation and other factors, which increases may not be offset by increased room rates; dependence on business and commercial travelers and tourism; strikes and other labor disturbances of hotel employees; increases in energy costs and other expenses of travel; and adverse effects of general and local economic conditions. These factors could reduce revenues of the Initial Hotels and adversely affect the Lessee's ability to make Rent payments, and therefore, the Company's ability to make distributions to its shareholders.

Competition for Guests

The hotel industry is highly competitive. The Initial Hotels will compete with other existing and new hotels in their geographic markets. Many of the Company's competitors have substantially greater marketing and financial resources than the Company and the Lessee. See "Business and Properties-Competition."

Investment Concentration in Single Industry

The Company's current growth strategy is to acquire hotels primarily in the upper-economy and mid-scale segments of the hotel industry. The Company will not seek to invest in assets selected to reduce the risks associated with an investment in that segment of the hotel industry, and, therefore, is subject to risks inherent in concentrating investments in a single industry and in specific market segments within that industry. The adverse effect on Rent under the Percentage Leases and amounts available for distribution to shareholders resulting from a downturn in the hotel industry in general or the upper-economy and mid-scale segments in particular would be more pronounced than if the Company had diversified its investments outside of the hotel industry or in additional hotel market segments.

Seasonality of Hotel Business and the Initial Hotels

The hotel industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. The Initial Hotels' operations historically reflect this trend. The Company believes that it will be able to make its expected distributions during its initial year of operation through cash flow from operations. See "Distribution Policy" and "Management's Discussion and Analysis of Financial Condition and Result of Operations-Seasonality."

Risks of Operating Hotels under Franchise Licenses

The continuation of the Franchise Licenses is subject to specified operating standards and other terms and conditions. Holiday Inn Express(Registered Trademark), Holiday Inn(Registered Trademark), Hampton Inn(Registered Trademark), and Choice Hotels International, Inc.(Registered Trademark) ("Choice Hotels"), the franchisor of Comfort Inns(Registered Trademark) and Clarion Suites(Registered Trademark), periodically inspect their licensed properties to confirm adherence to their operating standards. The failure of the Partnership or the Lessee to maintain such standards respecting the Initial Hotels or to adhere to such other terms and conditions could result in the loss or cancellation of the applicable Franchise License. It is possible that a franchisor could condition the continuation of a Franchise License on the completion of capital improvements which the Trustees determine are too expensive or otherwise not economically feasible in light of general economic conditions or the operating results or prospects of the affected Initial Hotel. In that event, the Trustees may elect to allow the Franchise License to lapse or be terminated. The franchisors have agreed to amend the existing Franchise Licenses to substitute the Lessee as the franchisee.

There can be no assurance that a franchisor will renew a Franchise License at each option period. If a Franchise License is terminated, the Partnership and the Lessee may seek to obtain a suitable replacement franchise, or to operate the Initial Hotel independent of a Franchise License. The loss of a Franchise License could have a material adverse effect upon the operations or the underlying value of the related Initial Hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Although the Percentage Leases require the Lessee to maintain the Franchise Licenses for each Initial Hotel, the Lessee's loss of a Franchise License for one or more of the Initial Hotels could have a material adverse effect on the Partnership's revenues under the Percentage Leases and the Company's amounts available for distribution to shareholders. See "Business and Properties-Franchise Licenses."

Operating Costs and Capital Expenditures; Hotel Renovation

Hotels, including the Initial Hotels, generally have an ongoing need for renovations and other capital improvements, particularly in older structures, including periodic replacement of furniture, fixtures and equipment. Under the terms of the Percentage Leases, the Partnership is obligated to pay the cost of expenditures for items that are classified as capital items under generally accepted accounting principles that are necessary for the continued operation of the Initial Hotels. If these expenses exceed the Company's estimate, the additional cost could have an adverse effect on amounts available for distribution to shareholders. In addition, the Company may acquire hotels in the future that require significant renovation. Renovation of hotels involves certain risks, including the possibility of environmental problems, construction cost overruns and delays, uncertainties as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from hotels. See "Business and the Properties-The Percentage Leases."

Real Estate Investment Risks

General Risks of Investing in Real Estate

The Initial Hotels will be subject to varying degrees of risk generally incident to the ownership of real property. The underlying value of the Initial Hotels and the Company's income and ability to make distributions to its shareholders are dependent upon the ability of the Lessee to operate the Initial Hotels in a manner sufficient to maintain or increase revenues in excess of operating expenses to enable the Lessee to make Rent payments. Hotel revenues may be adversely affected by adverse changes in national economic conditions, adverse changes in local market conditions due to changes in general or local economic conditions and neighborhood characteristics, competition from other hotels, changes in interest rates and in the availability, cost and terms of mortgage funds, the impact of present or future environmental legislation and compliance with environmental laws, the ongoing need for capital improvements, particularly in older structures, changes in real estate tax rates and other operating expenses, adverse changes in governmental rules and fiscal policies, civil unrest, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses), acts of war, adverse changes in zoning laws, and other factors that are beyond the control of the Company.

Illiquidity of Real Estate

Real estate investments are relatively illiquid. The ability of the Company to vary its portfolio in response to changes in economic and other conditions will be limited. No assurances can be given that the fair market value of any of the Initial Hotels will not decrease in the future.

Uninsured and Underinsured Losses

Each Percentage Lease specifies comprehensive insurance to be maintained on each of the Initial Hotels, including liability and fire and extended coverage in amounts sufficient to permit the replacement of the Initial Hotels in the event of a total loss, subject to applicable deductibles. Management of the Company believes that such specified coverage is of the type and amount customarily obtained by owners of hotels similar to the Initial Hotels. Percentage Leases for hotels subsequently acquired by the Company will contain similar provisions. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods and hurricanes, that may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace the applicable hotel after such applicable hotel has been damaged or destroyed. Under such circumstances, the insurance proceeds received by the Company might not be adequate to restore its economic position with respect to the applicable hotel.

Property Taxes

Each Initial Hotel is subject to real and personal property taxes. The real and personal property taxes on hotel properties in which the Company invests may increase or decrease as property tax rates change and as the properties are assessed or reassessed by taxing authorities. If property taxes increase, the Company's ability to make expected distributions to its shareholders could be adversely affected.

Environmental Matters

Operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of future legislation. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of complying with environmental laws could materially adversely affect amounts available for distribution to shareholders. Recent Phase I environmental assessments have been obtained on all of the Initial Hotels. The purpose of Phase I environmental assessments is to identify potential environmental contamination that is made apparent from historical reviews of the Initial Hotels, reviews of certain public records, preliminary investigations of the sites and surrounding properties, and screening for the presence of hazardous substances, toxic substances and underground storage tanks. The Phase I environmental assessment reports have not revealed any environmental contamination that the Company believes would have a material adverse effect on the Company's business, assets, results of operations or liquidity, nor is the Company aware of any such liability. Nevertheless, it is possible that these reports do not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware.

Compliance with Americans with Disabilities Act and other Changes in Governmental Rules and Regulations

Under the Americans with Disabilities Act of 1993 (the "ADA"), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes that the Initial Hotels are substantially in compliance with these requirements, a determination that the Company is not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. In addition, changes in governmental rules and regulations or enforcement policies affecting the use and operation of the Hotels, including changes to building codes and fire and life-safety codes, may occur. If the Company were required to make substantial modifications at the Initial Hotels to comply with the ADA or other changes in governmental rules and regulations, the Company's ability to make expected distributions to its shareholders could be adversely affected.

Market for Common Shares

Prior to the Offering, there has been no public market for the Common Shares. The Company will apply for listing of the Common Shares on The American Stock Exchange. The Offering Price may not be indicative of the market price for the Common Shares after the Offering. There can be no assurance that an active public market for the Common Shares will develop or continue after the Offering. See "Underwriting" for a discussion of factors to be considered in establishing the Offering Price. If accepted for listing, there can be no assurances that the Company will continue to meet the criteria for continued listing of the Common Shares on The American Stock Exchange.

Effect of Market Interest Rates on Price of Common Shares

One of the factors that may influence the price of the Common Shares in public trading markets will be the annual yield from distributions by the Company on the Common Shares as compared to yields on other financial instruments. Thus, an increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the market price of the Common Stock.

Anti-takeover Effect of Ownership Limit, Staggered Board, Power to Issue Additional Shares and Certain Provisions of Maryland Law

Ownership Limitation

The Declaration of Trust generally prohibits direct or indirect ownership of more than 9.9% of the number of outstanding Common Shares or of any other class of outstanding shares by any person (the "Ownership Limitation"). Generally, Common Shares owned by affiliated owners will be aggregated for purposes of the Ownership Limitation. The Ownership Limitation could have the effect of discouraging a change in control or other transaction in which holders of some, or a majority, of Common Shares might receive a premium for their Common Shares 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 Consequences-Requirements for Qualification."

Staggered Board

The Company's Board of Trustees is divided into two classes. The initial terms of the first and second classes will expire in 1999 and 2000, respectively. Beginning in 1999, Trustees of each class will be chosen for two-year terms upon the expiration of their current terms and each year one class of Trustees will be elected by the shareholders. The staggered terms of Trustees may reduce the possibility of a tender offer or an attempt to change control of the Company, even though a tender offer or change in control might be in the best interest of the shareholders. See "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws-Classification of the Board of Trustees."

Issuance of Additional Shares

The Company's Declaration of Trust authorizes the Board of Trustees to (i) amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class that the Company has the authority to issue, (ii) cause the Company to issue additional authorized but unissued Common or Preferred Shares and (iii) classify or reclassify any unissued Common Shares and Preferred Shares and to set the preferences, rights and other terms of such classified or unclassified shares. See "Description of Shares of Beneficial Interest-Preferred Shares." Future equity offerings may cause the purchasers of the Common Shares sold in the Offering to experience further dilution. The Company has no current plans for future equity offerings. Although the Board of Trustees has no such intention at the present time, it could establish a series of Preferred Shares that could, depending on the terms of such series, delay, defer or prevent a transaction or a change in control of the Company that might involve a premium price for the Common Shares or otherwise be in the best interest of the shareholders. The Declaration of Trust and Bylaws of the Company also contain other provisions that may have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium price for the Common Shares or otherwise be in the best interest of the shareholders. See "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws-Removal of Trustees," "-Control Share Acquisitions" and "-Advance Notice of Trustees Nominations and New Business."

Maryland Business Combination Law

Under the Maryland General Corporation Law, as amended ("MGCL"), as applicable to real estate investment trusts, certain "business combinations" (including certain issuances of equity securities) between a Maryland real estate investment trust and any person who beneficially owns ten percent or more of the voting power of the trust's shares (an "Interested Shareholder") or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Shareholder becomes an Interested Shareholder. Thereafter, any such business combination must be approved by two super-majority shareholder votes unless, among other conditions, the trust's common shareholders 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 Shareholder for its common shares. See

"Certain Provisions of Maryland Law and the Company's Declaration of Trust and Bylaws-Business Combinations."

Potential Adverse Effects of Leverage and Lack of Limits on Indebtedness

Upon completion of the Offering and the completion of the Formation Transactions, the Company will assume the Assumed Indebtedness (in the aggregate principal amount of approximately $11.7 million), which will be secured by some of the Initial Hotels. The Company may borrow additional amounts from the same or other lenders in the future, or may issue corporate debt securities in public or private offerings. Certain of such additional borrowings may be secured by the Hotels. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" and "Policies and Objectives with Respect to Certain Activities-Financing."

There also can be no assurance that the Company will be able to meet its debt service obligations and, to the extent that it cannot, the Company risks the loss of some or all of its assets, including the Initial Hotels, to foreclosure. Although the Company's policy is to limit consolidated indebtedness to less than 55% of the total purchase prices paid by the Company for the hotels in which it has invested, there is no limit on the Company's ability to incur debt contained in the Declaration of Trust or Bylaws. The Assumed Indebtedness will represent approximately 25% of the total purchase prices paid by the Company for the Initial Hotels. The Assumed Indebtedness will limit the Company's ability to acquire additional hotels without issuing equity securities. See "-Growth Strategy-Competition for Acquisitions." See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."

Dependence Upon External Financing

The Company anticipates that its growth and acquisition strategies will be largely financed through externally generated funds such as borrowings under the Line of Credit and other secured and unsecured debt financing and from issuance of equity securities. Because the Company must distribute 95% of its taxable income to maintain its qualification as a REIT, the Company's ability to rely upon income from operations or cash flow from operations to finance its growth and acquisition activities will be limited. Accordingly, were the Company unable to obtain the Line of Credit or other funds from borrowings or to access the capital markets to finance its growth and acquisition activities, the Company's ability to grow could be curtailed, cash available for distribution to shareholders of the Company could be adversely affected and the Company could be required to reduce distributions.

Assumption of Contingent Liabilities of Selling Partnerships

Because the Partnership is acquiring partnership interests in certain of the Selling Partnerships, the Partnership will assume all contingent liabilities of those Selling Partnerships. Certain of the Hersha Affiliates are managing partners of the Selling Partnerships and have made representations and warranties that the Selling Partnerships have no liabilities, debts or obligations except for liabilities arising under operating agreements, equipment leases, loan agreements or proration credits on the Closing Date. There is, however, a risk that unforeseen liabilities could exist and could adversely affect amounts available for distribution to shareholders.

Ability of Board of Trustees to Change Certain Policies

The major policies of the Company, including its policies with respect to acquisitions, financing, growth, operations, debt limitation and distributions, will be determined by the Trustees. The Trustees may amend or revise these and other policies from time to time without a vote of the holders of the Common Shares. The effect of any such changes may be positive or negative. Under the Declaration of Trust, Company cannot change its policy of seeking to maintain its qualification as a REIT without the approval of the holders of two-thirds of the outstanding Common Shares. See "Policies and Objectives with Respect to Certain Activities" and "Certain Provisions of Maryland Law and the Company's Declaration of Trust and Bylaws."

Growth Strategy

Competition for Acquisitions

There will be competition for investment opportunities in upper-economy and mid-scale hotels from entities organized for purposes substantially similar to the Company's objectives, as well as other purchasers of hotels. The Company will be competing for such investment opportunities with entities that have substantially greater financial resources than the Company, including access to capital or better relationships with franchisors, sellers or lenders. The Company's policy is to limit consolidated indebtedness to less than 55% of the total purchase prices paid by the Company for the hotels in which it has invested. See "Risk Factors-The Price Being Paid for the Initial Hotels May Exceed Their Value." Because of the amount of the Assumed Indebtedness, the success of the Company's acquisition strategy will depend primarily on its ability to access additional capital through issuances of equity securities. The Company's competitors may generally be able to accept more risk than the Company can manage prudently and may be able to borrow the funds needed to acquire hotels. Competition may generally reduce the number of suitable investment opportunities offered to the Company and increase the bargaining power of property owners seeking to sell. See "Business and Properties-Competition."

Acquisition Risks

The Company intends to pursue acquisitions of additional hotel properties. Acquisitions entail risks that investments will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market and acquire properties will prove inaccurate, as well as general investment risks associated with any new real estate investment. The Company anticipates that its growth and acquisition strategies will be largely financed through externally generated funds such as borrowings under credit facilities and other secured and unsecured debt financing and from issuance of equity securities. Because the Company must distribute 95% of its taxable income to maintain its qualification as a REIT, the Company's ability to rely upon income from operations or cash flow from operations to finance its growth and acquisition activities will be limited. Accordingly, were the Company unable to obtain funds from borrowings or the capital markets to finance its growth and acquisition activities, the Company's ability to grow could be curtailed, amounts available for distribution to shareholders could be adversely affected and the Company could be required to reduce distributions.

Reliance on Trustees and Management

Common shareholders have no right or power to take part in the management of the Company except through the exercise of voting rights on certain specified matters. See "Description of Capital Stock-Common Shares" and "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws." The Trustees will be responsible for managing the Company. The Company will rely upon the services and expertise of its Trustees for strategic business direction.

In addition, there may be conflicting demands on Mr. Shah caused by his overlapping management of the Company and Hersha Enterprises Ltd. Hersha Enterprises Ltd. owns and operates properties other than the Initial Hotels, and Mr. Shah, who serves as Chairman of the Board and Chief Executive Officer of the Company and President of Hersha Enterprises, Ltd., may experience a conflict in allocating his time between such entities.

Possible Adverse Effect of Shares Available for Future Sale on Price of Common Shares

Sales of a substantial number of Common Shares, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Shares. In connection with the formation of the Company, approximately 3.5 million Units will be issued to the Hersha Affiliates in addition to Common Shares offered by the Company in the Offering. See "Formation Transactions." The holders of Units generally will not be permitted to offer, sell, contract to sell or otherwise dispose of Common Shares, except in certain circumstances, for one year after the closing of the Offering. See "Shares Available for Future Sale" and "Underwriting." At the conclusion of such periods and upon the subsequent redemption of Units, the Common Shares received therefor may be sold in the public market pursuant to shelf registration statements that the Company is obligated to file on behalf of limited partners of the Partnership, or pursuant to any available exemptions from registration.

THE COMPANY

The Company has been established to own initially the ten Initial Hotels and to continue the hotel acquisition and development strategies of Hasu P. Shah, Chairman of the Board of Trustees and Chief Executive Officer of the Company. The Company, formed in May 1998, is a self-advised Maryland real estate investment trust that intends to qualify as a REIT for federal income tax purposes. The Initial Hotels include three Holiday Inn Express(Registered Trademark) hotels,

two Hampton Inn(Registered Trademark) hotels, two Holiday Inn(Registered Trademark) hotels, two Comfort Inn(Registered Trademark) hotels and one Clarion Suites(Registered Trademark) hotel. The Initial Hotels are located in Pennsylvania and contain an aggregate of 989 rooms. The Newly-Developed Hotels are newly constructed and therefore have limited operating history. The Newly-Renovated Hotels have been newly renovated and, as a result, the Company believes that such hotels' future performance will improve significantly over such hotels' prior operating histories.

The Company will contribute substantially all of the net proceeds from the Offering to the Partnership in exchange for approximately a 43% partnership interest in the Partnership. The Company will be the sole general partner of the Partnership. Shortly after the closing of the Offering, the Partnership will acquire, directly or through the partnerships that currently own the hotels, 100% of the equity interests in the Initial Hotels. Mr. Shah and the Hersha Affiliates own the Selling Partnerships. Ownership of the land underlying two of the Initial Hotels will be retained by certain Hersha Affiliates and will be leased to the Partnership pursuant to separate ground leases, each with a 99-year term, and collectively providing for rent of $21,000 per year. See "Certain Relationships and Transactions."

The Partnership will acquire the Initial Hotels in exchange for (i) Units, which will be redeemable, subject to certain limitations, for an aggregate of approximately 3.5 million Common Shares, with a value of approximately $21 million based on the Offering Price, and (ii) the assumption of approximately $25.2 million of indebtedness related to the Initial Hotels, including the Assumed Indebtedness and approximately $13.5 million that will be repaid immediately after the acquisition of the Initial Hotels. See "Formation Transactions." The purchase prices of the Newly-Renovated Hotels will be adjusted on the First Adjustment Date. The purchase prices of the Newly-Developed Hotels will be adjusted on the Second Adjustment Date. The adjustments will be calculated by applying the initial pricing methodology to such hotels' cash flows as shown on the Company's and the Lessee's audited financial statements for the year ended on the First Adjustment Date or the Second Adjustment Date, as applicable, and the adjustments must be approved by a majority of the Independent Trustees. If the repricing produces a higher aggregate value for such hotels, the Hersha Affiliates will receive an additional number of Units that, when multiplied by the Offering Price, equals the increase in value plus the value of any distributions that would have been made with respect to such Units if such Units had been issued at the time of the acquisition of such hotels. If, however, the repricing produces a lower aggregate value for such hotels, the Hersha Affiliates will forfeit to the Partnership that number of Units that, when multiplied by the Offering Price, equals the decrease in value plus the value of any distributions made with respect to such Units.

In order for the Company to qualify as a REIT, neither the Company nor the Partnership may operate hotels. Therefore, the Initial Hotels will be leased to the Lessee pursuant to the Percentage Leases. Each Percentage Lease has been structured to provide anticipated rents at least equal to 12% of the purchase price paid for the hotel, net of (i) property and casualty insurance premiums,
(ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues at the hotel. This pro forma return is based on certain assumptions and historical revenues for the Initial Hotels (including projected revenues for the Newly-Developed Hotels and the Newly-Renovated Hotels) and no assurance can be given that future revenues for the Initial Hotels will be consistent with prior performance or the estimates. See "Risk Factors-Acquisition of Hotels with Limited Operating History." Until the First Adjustment Date or the Second Adjustment Date, as applicable, the rent on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial Fixed Rents applicable to those hotels. After the First Adjustment Date or the Second Adjustment Date, as applicable, rent will be computed with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels based on the percentage rent formulas described herein. The Initial Hotels will be operated by the Lessee. The Percentage Leases will have initial terms of five years and may be extended for two additional five-year terms at the option of the Lessee. See "Business and Properties-The Percentage Leases."

The following table sets forth certain information with respect to the Initial Hotels:

                                                     Twelve Months Ended December 31, 1997
                           ---------------------------------------------------------------------------------------------------------
                                                                       Estimated
                                                                        Lessee
                                                                     Income Before    Estimated                  Average
                          Number of      Room           Other          Lease             Lease                    Daily
Initial Hotels             Rooms       Revenue        Revenue(1)     Payments(2)     Payments(3)(4) Occupancy     Rate     REVPAR(5)
                           -----     -----------     -----------     -----------      ------------    -----     -------    ---------
Newly-Developed
Holiday Inn Express
 Hershey, PA(6) .........     85         210,612     $     4,877     $    80,985      $    96,156    38.8%      $75.62     $  29.35
 New Columbia, PA(7) ....     81          13,369     $       253         (48,535)           6,653     9.0%      $59.68     $   5.39

Hampton Inn:
 Carlisle, PA(8) ........     95         659,861           8,421         293,368          303,029    53.5%      $65.33     $  34.93

Comfort Inn:
 Harrisburg, PA(9) ......     81

Newly-Renovated
Holiday Inn Express:
 Harrisburg, PA(10) .....    117       1,357,241         176,868         550,639          504,406    56.4%      $56.33     $  31.78

Holiday Inn:
 Milesburg, PA ..........    118       1,254,070         220,684         579,756          524,750    52.0%      $56.07     $  29.13

Comfort Inn:
 Denver, PA (11) ........     45         658,285               0         271,167          262,234    54.7%      $73.26     $  40.08

Stabilized
Holiday Inn:
 Harrisburg, PA .........    196       3,103,820       1,787,958     $ 1,738,713        1,614,402    63.3%      $68.22     $  43.17

Hampton Inn:
 Selinsgrove, PA (12) ...     75       1,271,943          46,148         705,488          657,471    71.9%      $65.29     $  46.96

Clarion Suites:
 Philadelphia, PA .......     96       2,350,702         319,950       1,026,785          976,102    73.7%      $91.02     $  67.09
                           -----     -----------     -----------     -----------      -----------    -----     -------     --------

Total/weighted average ..    989     $10,879,903     $ 2,565,159     $ 5,198,366      $ 4,945,203    60.2%      $68.27     $  41.09
                           =====     ===========     ===========     ===========      ===========    =====     =======     ========

(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) Represents total revenue less the Lessee's expenses, including hotel operating expenses but excluding lease payments. See "Selected Financial Information-Lessee."
(3) Had the Newly-Developed Hotels been open for the entire twelve months ended December 31, 1997, the total estimated lease payments for all of the Initial Hotels would have been approximately $7 million.
(4) Represents payments of Rent by the Lessee calculated by applying the rent provisions in the Percentage Leases using historical revenues of the Initial Hotels as if January 1, 1997 was the beginning of the lease year. In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the estimated lease payments reflect the Initial Fixed Rents for such hotels pro-rated for the period in which each hotel was open.
(5) REVPAR is determined by dividing room revenue by available rooms for the applicable period.
(6) This hotel opened in October 1997 and, thus, the data shown represent approximately three months of operations.
(7) This hotel opened in December 1997 and, thus, the data shown represent approximately one month of operations.
(8) This hotel opened in June 1997 and, thus, the data shown represent approximately seven months of operations.
(9) This hotel opened in May 1998 and, thus, there are no data shown.
(10) The land underlying this hotel will be leased to the Partnership by certain Hersha Affiliates for rent of $15,000 per year for 99 years.
(11) The land underlying this hotel will be leased to the Partnership by certain Hersha Affiliates for rent of $6,000 per year for 99 years.
(12) A portion of the land adjacent to this hotel will be leased to a Hersha Affiliate for $1 per year for 99 years.

For further information regarding the Initial Hotels, see "Business and Properties - The Initial Hotels" and " - The Percentage Leases."

GROWTH STRATEGY

Acquisition Strategy

The Company will emphasize limited service and full service hotels with strong, national franchise affiliations in the upper-economy and mid-scale market segments, or hotels with the potential to obtain such franchises. In particular, the Company will consider acquiring limited service hotels such as Comfort Inn(Registered Trademark), Best Western(Registered Trademark), Days Inn(Registered Trademark), Fairfield Inn(Registered Trademark), Hampton Inn(Registered Trademark), Holiday Inn(Registered Trademark) and Holiday Inn Express(Registered Trademark) hotels, and limited service extended-stay hotels such as Hampton Inn and Suites(Registered Trademark), Homewood Suites(Registered Trademark), Main Stay Suites(Registered Trademark) and Residence Inn by Marriott(Registered Trademark) hotels. Under the Bylaws, any transaction involving the Company, including the purchase, sale, lease or mortgage of any real estate asset, in which a Trustee or officer of the Company, or any Affiliate thereof, has an interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company) must be approved by a majority of the Trustees, including a majority of the Independent Trustees.

Investment Criteria

The Company intends to focus predominantly on investments in hotels in the eastern United States. Such investments may include hotels newly developed by certain of the Hersha Affiliates. Pursuant to the Option Agreement, the Partnership will have a two-year option to acquire any hotels acquired or developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any subsequently acquired hotel. See "Certain Relationships and Transactions-Option Agreement." The Company's policy with respect to acquisitions of hotels (the "Acquisition Policy") is to acquire hotels for which it expects to receive rents at least equal to 12% of the purchase price paid for each hotel, net of (i) property and casualty insurance premiums, (ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% (6% in the case of full-service hotels) of annual gross revenues at each hotel. The Trustees, however, may change the Acquisition Policy at any time without the approval of the Company's shareholders. The Company expects to acquire hotels that meet one or more of the following criteria:

o nationally-franchised hotels in locations with relatively high demand for rooms, with relatively low supply of competing hotels and with significant barriers to entry into the hotel business, such as a scarcity of suitable hotel sites or zoning restrictions;

o poorly managed hotels, which could benefit from new management, new marketing strategy and association with a national franchisor;

o hotels in a deteriorated physical condition that could benefit significantly from renovations; and

o hotels in attractive locations that the Company believes could benefit significantly by changing franchises to a brand the Company believes is superior.

Financing

The Company's additional investments in hotels may be financed, in whole or in part, with undistributed cash, subsequent issuances of Common Shares or other securities, or borrowings. The Company is currently negotiating with lenders to obtain the Line of Credit. A failure to obtain the Line of Credit could adversely affect the Company's ability to finance its growth strategy. See "Risk Factors-Dependence Upon External Financing." The Company's Debt Policy is to limit consolidated indebtedness to less than 55% of the aggregate purchase prices paid by the Company for the hotels in which it has invested. The Trustees, however, may change the Debt Policy without the approval of the Company's shareholders. The aggregate purchase prices paid by the Company for the Initial Hotels is approximately $47.3 million. After the Formation Transactions, the Company's indebtedness will be approximately $11.7 million, which represents approximately 25% of the aggregate purchase price to be paid by the Company for the Initial Hotels. Because of the Debt Policy and the amount of the Assumed

Indebtedness, the success of the Company's acquisition strategy will depend primarily on its ability to access additional capital through issuances of equity securities. See "Risk Factors-Risks of Leverage" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."

Internal Growth Strategy

The Percentage Leases are designed to allow the Company to participate in growth in revenues at the Initial Hotels. See "Business and Properties-The Percentage Leases." The Percentage Leases generally provide for the Lessee to pay the greater of the Base Rent or Percentage Rent. The Percentage Rent for each Initial Hotel is comprised of (i) a percentage of room revenues up to the Threshold, (ii) a percentage of room revenues in excess of the Threshold but not more than the Incentive Threshold, (iii) a percentage of room revenue in excess of the Incentive Threshold and (iv) a percentage of revenues other than room revenues. The Incentive Threshold is designed to provide incentive to the Lessee to generate higher revenues at each hotel by lowering the percentage of revenue paid as Percentage Rent once room revenues reach certain levels. In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the Lessee will pay the Initial Fixed Rent until the First Adjustment Date or the Second Adjustment Date, as applicable, after which the Lessee will pay the greater of Base Rent or Percentage Rent. See "Business and Properties-The Initial Hotels" and "-The Percentage Leases-Amounts Payable Under the Percentage Leases."

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be approximately $14.2 million (based on the Offering Price), after deducting selling commissions and estimated offering expenses of $1.8 million. The Company will contribute the net proceeds of the Offering to the Partnership in exchange for approximately a 43% interest in the Partnership. The Partnership will use the net proceeds as follows: (i) approximately $13.5 million to repay certain of the outstanding indebtedness related to the Initial Hotels, including approximately $7.5 million in debt owed to certain Hersha Affiliates and related principally to the hotel development expenses in connection with the Initial Hotels and (ii) approximately $0.7 million for costs associated with the acquisition of the Initial Hotels. The Company currently has no agreement or understanding to invest in any specific hotel other than the Initial Hotels.

Pending the use of proceeds referenced above, the net proceeds will be invested in interest-bearing, short-term, investment grade securities or money market accounts, which are consistent with the Company's intention to qualify as a REIT. Such investments may include, for example, government and government agency securities, certificates of deposit, interest-bearing bank deposits and mortgage loan participations.

The indebtedness to be repaid with the net proceeds of the Formation Transactions includes debt secured by some of the Initial Hotels as follows (in thousands):

                                                         Estimated
                                                          Annual
Mortgages payable secured by                            Maturity     Interest
the following Initial Hotels:               Amount        Date        Rate
                                           -------      ---------    -------
Holiday Inn, Milesburg, PA ............    $   899        1999        8.00%
Clarion Suites, Philadelphia, PA ......    $ 1,593      2002/2010     9.50%
Holiday Inn, Harrisburg, PA ...........    $ 3,049        2013        8.45%
Holiday Inn Express,
Harrisburg, PA ........................    $   373        2012        8.35%

Amounts Due to Hersha Affiliates (1) ..    $ 7,561          (2)       9.00%
                                           -------
Total .................................    $13,475
                                           =======

(1) Loans advanced by the Hersha Affiliates principally to fund hotel development expenses in connection with the Initial Hotels.

(2) Payable on demand.

DISTRIBUTION POLICY

After the Offering, the Company intends to make regular quarterly distributions to its shareholders. The Company's ability to make distributions will be dependent on the receipt of distributions from the Partnership and lease payments from the Lessee with respect to the Initial Hotels. Initially, the Partnership's sole source of revenue will be rent payments under the Percentage Leases for the Initial Hotels. The Company must rely on the Lessee to generate sufficient cash flow from the operation of the Initial Hotels to meet the Lessee's rent obligations under the Percentage Leases. The Company intends to make regular quarterly distributions to holders of the Common Shares initially equal to $0.12 per share, which on an annualized basis would be equal to $0.48 per share or 8.0% of the Offering Price of $6.00 per share. The first distribution, for the period from the closing of the Offering to September 30, 1998, is expected to be a pro rata distribution of the anticipated regular quarterly distribution. Based on the Company's pro forma revenues less expenses for the twelve months ended March 31, 1998, such distributions would represent approximately 75% of the Company's cash available for distribution, and none of such distributions is anticipated to represent a return of capital for federal income tax purposes.

The Company believes that its basis for setting the initial distribution, which is based on the Company's pro forma funds from operations for the twelve months ended March 31, 1998, is reasonable. The Company considers funds from operations to be an appropriate measure of the performance of an equity REIT in that such calculation is a measure used by the Company to measure its performance against its peer group and is a basis for making the determination as to the allocation of its resources and reflects the Company's ability to meet general operating expenses. Funds from operations, however, should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of the Company's operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. The Company expects to maintain its initial distribution rate for the remainder of 1998 unless actual results of operations, economic conditions or other factors differ from the pro forma results for the twelve months ended March 31, 1998. The Company's actual funds from operations will be affected by a number of factors, including changes in occupancy or average daily rate ("ADR") at the Initial Hotels.

The hotel business is seasonal in nature and, therefore, revenues of the Initial Hotels in the first and fourth quarters are traditionally lower than those in the second and third quarters. The Company believes that it will be able to make its expected distributions for the first and fourth quarters of its initial year of operation by drawing on the Line of Credit to fund any shortfalls between cash available for distribution to common shareholders for those quarters and the expected quarterly distributions for those quarters. See "Risk Factors-Risk of Leverage" and "-Dependence Upon External Financing." Thereafter, the Company expects to use excess cash flow from the second and third quarters to fund any such shortfalls in the first and fourth quarters. There are no assurances that cash available for distribution to the common shareholders will be sufficient for the Company to make expected distributions to common shareholders.

In order to maintain its qualification as a REIT, the Company must distribute to its shareholders each year at least 95% of its taxable income (which does not include net capital gains). Under certain circumstances, the Company may be required to make distributions in excess of cash available for distribution in order to meet such distribution requirements. In such event, the Company would seek to borrow the amount of the deficiency or sell assets to obtain the cash necessary to make distributions to retain its qualification as a REIT for federal income tax purposes.

Distributions made by the Company will be determined by the Trustees and will depend on a number of factors, including the amount of funds from operations, the Partnership's financial condition, capital expenditure requirements for the Company's hotels, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant. For a discussion of the tax treatment of distributions to holders of Common Shares, see "Federal Income Tax Consequences."

The following table sets forth certain unaudited pro forma financial information applicable to common shareholders of the Company (in thousands, except per share amounts):

                                                                                         Twelve Months Ended March 31, 1998
                                                                                ---------------------------------------------------
                                                                                                  Adjustment for
                                                                                                    Partial Year          Pro Forma
                                                                                   Pro              and Unopened              As
                                                                                  Forma               Hotels(1)            Adjusted
                                                                                -----------         -----------         -----------
Pro forma net income ....................................................       $       954                 543         $     1,497
Depreciation and amortization,
net of minority interest portion ........................................               573                 201                 774
Pro forma funds provided by
operating activities (2) ................................................             1,527                 744               2,271
Pro forma funds used in investing activities:
     Additions to capital expenditure
     reserves (3) .......................................................              (304)                (67)               (371)
Pro forma funds used in financing activities (4):
     Principal payments on debt .........................................              (190)               ____                (190)
                                                                                -----------         -----------         -----------
Estimated cash available for distribution ...............................       $     1,033                 677         $     1,710
                                                                                ===========         ===========         ===========
Common Shares outstanding ...............................................         2,666,667                               2,666,667
Estimated cash available for distribution per share .....................       $       .39                             $       .64
Estimated initial annual distribution ...................................       $     1,280                             $     1,280
Estimated initial annual distribution per share .........................       $       .48                             $       .48
Estimated dividend yield based upon Offering Price ......................                8%                                      8%
Estimated payout ratio of cash available for distribution (5) ...........              124%                                     75%

(1) The pro forma net income for the twelve months ended March 31, 1998 only includes revenues and expenses with respect to the Newly-Developed Hotels for the portion of the pro forma period that the Newly-Developed Hotels were completed and available for occupancy. The adjustment for partial year and unopened hotels reflects the net increase in estimated cash available for distribution as a result of the Company receiving the Initial Fixed Rent for a full year with respect to the Newly-Developed Hotels, after taking into account applicable expenses and additions to capital expenditure reserves.
(2) Pro forma funds provided by operating activities excludes cash provided by (used in) operating activities due to changes in working capital. The Company does not believe that the excluded items are material to the estimated cash available for distribution.
(3) Represents the Company's obligation under the Percentage Leases (adjusted to exclude the minority interest obligation and to reflect the Company's ownership percentage in the Partnership of approximately 43%) to reserve and pay for capital improvements (including the replacement or refurbishment of furniture, fixtures and equipment) on a pro forma basis for the twelve months ended March 31, 1998. The Company anticipates that cash flow from operations, borrowing capacity and reserves will be sufficient to fund such obligation.
(4) Excludes distributions.
(5) Represents the anticipated initial aggregate annual distribution divided by estimated cash available for distribution.

PRO FORMA CAPITALIZATION

The following table sets forth the pro forma short-term debt and capitalization of the Company as of March 31, 1998, as adjusted to give effect to the sale on such date by the Company of the Common Shares in the Offering and the use of the net proceeds therefrom as described under "Use of Proceeds."

                                                                   Pro Forma
                                                                March 31, 1998
                                                                (In thousands)
                                                               ---------------
Short-term debt..............................................           --

Long-term debt...............................................      $11,753
Minority interest............................................      $ 8,917

Shareholders' Equity:
 Preferred Shares, $.01 par value, 10,000,000 shares
   authorized,  no shares issued and outstanding ............           --
 Common Shares, $.01 par value,
   50,000,000 shares authorized, 2,666,667 shares
   issued and outstanding(1).................................           27
 Additional paid-in capital..................................        6,864
                                                                   -------
     Total shareholders' equity..............................      $ 6,891
                                                                   -------
        Total capitalization.................................      $27,561
                                                                   =======
---------------------

(1) Excludes approximately 3.5 million Common Shares issuable upon redemption of Units issued in the Formation Transactions, 250,000 Common Shares issuable upon exercise of the Underwriter Warrants, 250,000 Common Shares issuable upon the redemption of 250,000 Units issuable upon exercise of the Hersha Warrants, 650,000 Common Shares reserved for issuance pursuant to the Option Plan and ____ Common Shares reserved for issuance pursuant to the Trustees' Plan. See "Formation Transactions," "Management-The Option Plan" and "Underwriting."

DILUTION

At March 31, 1998, the Offering Price exceeded the pro forma net tangible book value per Common Share. The pro forma net tangible book value prior to the Offering represents the owners' equity from the Selling Entities Combined Balance Sheet of $3,274,000 less intangible assets of $1,397,000, resulting in $1,877,000 or $.54 per share based upon approximately 3.5 million Units issuable in the Formation Transactions. Therefore, the holders of Units issued in connection with the Formation Transactions will realize an immediate increase in the net book value of their Units, while purchasers of Common Shares in the Offering will realize an immediate dilution in the net book value of their Common Shares. The pro forma net tangible book value after the Offering is based upon the pro forma consolidated shareholders' equity of $6,891,000 less intangibles of $1,595,000 (included in the pro forma financial statements included herein) resulting in pro forma book value of $5,296,000 or $1.99 per share based on 2,666,667 shares outstanding immediately following the Offering.

Assumed initial public offering price per share(1) ......................  $6.00

 Pro forma tangible net book value per share prior to the Offering  $ .54
 Increase attributable to purchase of Common Share ...............   1.45

Pro forma net tangible book value per share after the Offering ..........   1.99
                                                                           -----

Dilution per share ......................................................  $4.01
                                                                           =====

----------

(1) Before deducting selling commissions and estimated expenses of the Offering.

The following table sets forth the number of Common Shares to be sold by the Company in the Offering, the total contributions to be paid to the Company by purchasers of Common Shares in the Offering (assuming an Offering Price of $6.00 per share), the number of Common Shares and Units previously outstanding or to be issued in connection with the Formation Transactions, the net tangible book value as of March 31, 1998 of the assets contributed to the Company and the Partnership and the net tangible book value of the average contribution per Common Share and Unit based on total contributions.

                                                                                          Purchase Price/
                                                        Shares Issued by the Company   Book Value of Total
                                                           and Units Issued by the  Tangible Contributions to    Purchase Price/
                                                                   Partnership            the Company            Tangible Book
                                                           -----------------------   ----------------------- Value of Contribution
                                                             Number       Percent     Amount       Percent       Per Share/Unit
                                                           ---------    ---------   ---------     ---------   --------------------
                                                                                        (in thousands)
Common Shares Issued by the Company in the Offering .....  2,666,667        43.59%  $  16,000          89.5%     $    6.00

Units Issued by the Partnership in the Formation
  Transactions ..........................................  3,450,833        56.41%  $   1,877          10.5%     $     .54
                                                           ---------    ---------   ---------     ---------      ---------
    Total Common Shares and Units .......................  6,117,500       100.00%  $  17,877        100.00%
                                                           =========    =========   =========     =========

SELECTED FINANCIAL INFORMATION

The following tables set forth (i) unaudited selected estimated revenue and expenses and financial data for the Company and the Lessee for the years ended December 31, 1997 and 1996, (ii) selected combined historical operating and financial data for the Initial Hotels for each of the years in the five-year period ended December 31, 1997. The selected combined historical operating and financial data for the Initial Hotels for the five years ended December 31, 1997, have been derived from the historical combined financial statements of the Selling Partnerships - Initial Hotels audited by Moore Stephens, P.C., independent public accountants, whose report with respect thereto is included elsewhere in this Prospectus. The selected combined historical financial data for each of the two years in the period ended December 31, 1997 are derived from the audited statements of operations for each of these years. In the opinion of management, the unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein.

The selected estimated revenue and expenses and financial data are presented as if the Formation Transactions had occurred as of January 1, 1997 and carried forward through each interim period presented, and therefore incorporates certain assumptions that are included in the Notes to the Condensed Statements of Estimated Revenue and Expenses included elsewhere in this Prospectus. The estimated and pro forma balance sheet data is presented as if the Formation Transactions had occurred on March 31, 1998. The pro forma information does not purport to represent what the Company's financial position or the Company's or the combined Initial Hotels' results of operations would actually have been if the Formation Transactions had, in fact, occurred on such date or at the beginning of the year indicated, or to project the Company's or the combined Initial Hotels' financial position or results of operations at any future date or for any future period.

The historical financial information includes the ten Initial Hotels. The Selling Partnerships have generated operating income before interest, depreciation and amortization in each of the last five years; however, operating income should not be considered as an alternative to net income as an indicator of the Selling Partnerships - Initial Hotels' performance or to cash flow as to a measure of liquidity.

The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and all of the financial statements and notes thereto included elsewhere in this Prospectus.

Hersha Hospitality Trust Unaudited Summary Estimated Revenue and Expenses and Financial Data(1) (In thousands, except per share data and number of Common Shares)

                                               Three Months Ended  Year Ended
                                                    March 31,     December 31,
                                                       1998           1997
                                                   ----------     ----------
Estimated Revenue and Expenses:
Percentage Lease revenue (2) ..................    $    1,179     $    4,945

Depreciation and amortization .................           394          1,190
Interest expense (3) ..........................           246            873
Real estate and personal property
  taxes and property and casualty
  insurance ...................................            96            375
General and administrative ....................            84            335
Ground lease ..................................             5             21
                                                   ----------     ----------
Total expenses ................................    $      825     $    2,794
                                                   ==========     ==========

Estimated income before minority
  interest ....................................           354          2,151
Minority interest (4) .........................           200          1,213
                                                   ----------     ----------
Net income applicable to holders
  of Common Shares ............................    $      154     $      938
                                                   ==========     ==========
Earnings per Common Share .....................    $      .06     $      .35
                                                   ==========     ==========
    Weighted average number of Common
      Shares outstanding ......................     2,666,667      2,666,667

Other Data:
Funds from operations applicable to
  holders of Common Shares (5) ................    $      326     $    1,456
Funds from operations (5) .....................    $      748     $    3,341
Net cash provided by operating activities (6) .    $      748     $    3,341
Net cash used in investing activities (7) .....    $      155     $      665
Net cash used in financing activities (8) .....    $      792     $    3,073

                                                        March 31, 1998
                                                   -------------------------
                                                   Historical      Pro Forma
                                                   ----------     ----------
Balance Sheet Data:
Net investment in hotel properties ............          --       $   25,966
Minority interest in Partnership ..............          --       $    8,917
Shareholders' equity ..........................          --       $    6,891
Total assets ..................................          --       $   27,561
Total debt ....................................          --       $   11,753
------------------
(notes on page 37)

Hersha Hospitality Management, L.P.
Unaudited Summary Estimated Revenue and Expenses and Financial Data (1)

(In thousands)

                                              Three Months Ended  Year Ended
Estimated Revenue and Expenses:                 March 31, 1998 December 31, 1997
                                                -------------- -----------------
Room revenue.......................                 $2,572          $10,880
Other revenue (9)..................                    571            2,565
                                                    ------          -------
Total revenue......................                 $3,143          $13,445
                                                    ------          -------
Hotel operating expenses (10)......                  2,032            8,449

Percentage Lease payments (2)......                 $1,179          $ 4,945
                                                    ------          -------
Net (loss) income..................                 $ (68)          $    51
                                                    ======          =======

Combined Selling Partnerships - Initial Hotels

Summary Combined Historical Operating and Financial Data

(In thousands)

                            Three Months Ended
                                 March 31            Year Ended December 31
                               -------------         -----------------------
                               1998     1997         1997     1996      1995
                               ----     ----         ----     ----      ----
Statement of Operations
Data:
Room revenue ................  $2,572  $1,659      $10,880    $7,273   $5,262
Other revenue (9) ...........     571     627        2,565     2,716    1,957
                                  ---     ---        -----     -----    -----
Total revenue ...............  $3,143  $2,286      $13,445    $9,989   $7,219
Hotel operating expenses(10).   2,236   1,830        9,173     8,172    6,250
Interest ....................     397     198        1,354       921      634
Depreciation and amortization     389     233        1,189       924      711
                                  ---     ---        -----       ---      ---
Net income (loss)              $  121  $   25       $1,729   $  (28)   $ (376)
                               ======  ======       ======   =======  =======
-------------------------
(notes on following page)
                                       36

(1) The estimated information does not purport to represent what the Company's or the Lessee's financial position or results of operations would actually have been if consummation of the Formation Transactions had, in fact, occurred on such date or at the beginning of the periods indicated, or to project the Company's or the Lessee's financial position or results of operations at any future date or for any future period. Represents estimated revenue and expenses as if (i) the Partnership recorded depreciation and amortization, paid interest on remaining debt after the Formation Transactions occurred, and paid real and personal property taxes and property insurance as contemplated by the Percentage Leases, and (ii) the Formation Transactions occurred as of the beginning of the periods indicated.
(2) Represents Rent paid by the Lessee pursuant to the Percentage Leases, which payments are calculated by applying the rent provisions in the Percentage Leases to the historical revenues of the Stabilized Hotels. In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the Percentage Lease revenues (or payments) equal the Initial Fixed Rents with respect to those hotels pro-rated for the period in which each hotel was open. There is no assurance that such revenues will reflect the actual revenues of such hotels.
(3) Reflects the average weighted interest rate on the Assumed Indebtedness of 8.38% and 8.39% for the three months ended March 31, 1998 and the year ended December 31, 1997, respectively.
(4) Calculated as 56.41% of estimated income before minority interest.
(5) In accordance with the resolution adopted by the Board of Governors of NAREIT, funds from operations represents net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. For the periods presented, estimated depreciation and amortization and minority interest would have been the only adjustments to estimated net income necessary to arrive at funds from operation. Funds from operations should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. The Company considers funds from operations to be an appropriate measure of the performance of an equity REIT in that such calculation is a measure used by the Company to measure its performance against its peer group and is a basis for making the determination as to the allocation of its resources and reflects the Company's ability to meet general operating expenses. Although funds from operations has been computed in accordance with the NAREIT definition, funds from operations as presented may not be comparable to other similarly-titled measures used by other REITs. Funds from operations does not reflect working capital changes, cash expenditures for capital improvements or debt service with respect to the Initial Hotels and, therefore, does not represent cash available for distribution to the shareholders of the Company. For a complete presentation of cash available for distribution to the shareholders of the Company, see "Distribution Policy." Under the Percentage Leases, the Partnership is obligated to pay the costs of certain capital improvements, real estate and personal property taxes and property insurance, and to make available to the Lessee an amount equal to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues per quarter, on a cumulative basis, for the periodic replacement or refurbishment of furniture, fixtures and equipment at the Initial Hotels. The Company intends to cause the Partnership to spend amounts in excess of the obligated amounts if necessary to maintain the Franchise Licenses for the Initial Hotels and otherwise to the extent that the Company deems such expenditures to be in the best interests of the Company. See "Business and Properties-The Percentage Leases."
(6) Pro forma funds provided by operating activities excludes cash provided by (used in) operating activities due to changes in working capital.
(7) Represents improvements and additions to the Initial Hotels from funds to be made available to the Lessee as provided in Note (6) above.
(8) Represents estimated initial distributions to be paid based on the estimated initial annual distribution rate of $0.48 per share and 2,666,667 Common Shares and 3,450,833 Units outstanding plus the estimated debt service on the Assumed Indebtedness.
(9) Represents restaurant revenue, telephone revenue and other revenue.
(10) Represents departmental costs and expenses, general and administrative, repairs and maintenance, utilities, marketing, management fees, real estate and personal property taxes, property and casualty insurance and ground leases. The pro forma amounts exclude real estate and personal property taxes, property and casualty insurance, ground leases and management fees.

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

Overview

Upon consummation of the Formation Transactions, the Company will own approximately a 43% general partnership interest in the Partnership. In order for the Company to qualify as a REIT, neither the Company nor the Partnership may operate hotels. Therefore, the Initial Hotels will be leased to the Lessee. The Partnership's, and therefore the Company's, principal source of revenue will be Rent paid by the Lessee under the Percentage Leases. See "Business and Properties-The Percentage Leases." The Lessee's ability to perform its obligations, including making Rent payments to the Partnership under the Percentage Leases, will be dependent on the Lessee's ability to generate sufficient room revenues and net cash flow from the operation of the Initial Hotels, and any other hotels leased to the Lessee.

Results of Operations of the Initial Hotels

Comparison of Three Months Ended March 31, 1998 to the Three Months Ended March 31, 1997

Room revenue for the Initial Hotels increased $912,376 or 55% to $2,557,735 for the first quarter of 1998 from $1,659,359 in the comparable period in 1997. This increase came through an addition of 22,860 available room-nights with an overall increase of 13,029 room-nights sold. The increase in room-nights available was a result of the opening of three hotels, which were not opened in the first quarter of 1997. In addition, there was a 5% increase in ADR to $63.75 from $60.75. REVPAR increased 11% to $31.68 from $28.45.

Hotel operating expenses increased by $456,126 or 25% to $2,284,925 but decreased as a percentage of total revenue to 72% from 80%. Operating income before interest expense, depreciation, and amortization increased by 99% to $907,781 from $457,175.

Comparison of year ended December 31, 1997 to year ended December 31, 1996

Room revenue increased by $3,067,232 or 50% to $10,879,902 in 1997 from $7,272,670 in 1996. The increase in revenue came through the addition of four new hotels opening in 1997 and one hotel which was only open half of 1996 being open for the entire 1997 period. These new properties added additional available room-nights of 43,171. In addition, a 7% increase in occupancy to 60% from 53% in 1996 as well as a 9% increase in ADR to $69.31 compared to $63.51 in 1996 augmented the available room-nights. REVPAR increased 25% to $41.78 from $33.48.

Hotel operating expenses increased by $1,001,043 or 12% to $9,173,647 but decreased as a percentage of total revenue to 68% from 82%. Operating income before interest expense, depreciation and amortization increased by 135% to $4,271,414 from $1,816,537.

Comparison of year ended December 31, 1996 to year ended December 31, 1995

Room revenue increased $2,011,044 or 38% to $7,272,670 in 1996 from $5,261,626 in 1995. The increase in revenue came through the opening of two hotels in 1996 adding additional room-nights available of 41,168. In addition, an overall increase in occupancy of 10% to 53% from 48% in 1995 as well as a 2% increase in ADR to $63.51 compared to $62.40 in 1995 augmented the available room-nights. REVPAR increased 12% to $33.48 from $29.89.

Hotel operating expenses increased by $1,923,208 or 31% to $8,712,604 but decreased as a percentage of total revenue to 82% from 87%. Operating income before interest expense, depreciation and amortization increased by 87% to $1,816,537 from $969,769.

Liquidity and Capital Resources

The Company expects to meet its short-term liquidity requirement generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under the Line of Credit. The Company believes that its net cash provided by operations will be adequate to fund both operating requirements and payment of dividends by the Company in accordance with REIT requirements. The Company expects to meet its long-term liquidity requirements, such as scheduled debt maturities and property acquisitions, through long-term secured and unsecured borrowings, the issuance of additional equity securities of the Company or, in connection with acquisitions of hotel properties, issuance of Units.

The Company is currently negotiating with various lenders to obtain a $10 million Line of Credit. The Line of Credit will be used to fund future acquisitions and for working capital. A failure to obtain the Line of Credit could adversely affect the Company's ability to finance its growth strategy. See "Risk Factors-Dependence Upon External Financing." The Line of Credit may be secured by certain of the Initial Hotels. The Company in the future may seek to increase the amount of the Line of Credit, negotiate additional credit facilities or issue corporate debt instruments. Any debt incurred or issued by the Company may be secured or unsecured, long-term or short-term, fixed or variable interest rate and may be subject to such other terms as the Trustees deem prudent.

The Trustees will adopt the Debt Policy that limits consolidated indebtedness of the Company to less than 55% of the aggregate purchase prices paid by the Company for the hotels in which it has invested. However, the Company's organizational documents do not limit the amount of indebtedness that the Company may incur and the Trustees may modify the Debt Policy at any time without shareholder approval. The Company intends to repay indebtedness incurred under the Line of Credit from time to time, for acquisitions or otherwise, out of cash flow and from the proceeds of issuances of Common Shares and other securities of the Company. See "Risk Factors-Risks of Leverage" and "Policies and Objectives with Respect to Certain Activities-Investment Policies" and "-Financing."

The Company will invest in additional hotels only as suitable opportunities arise. The Company will not undertake investments in such hotels unless adequate sources of financing are available. The Bylaws require the approval of a majority of the Trustees, including a majority of the Independent Trustees, to acquire any additional hotel in which a Trustee or officer of the Company, or any Affiliate thereof, has an interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company). It is expected that future investments in hotels will be dependent on and financed by, in whole or in part, the proceeds from additional issuances of Common Shares or other securities or borrowings. Because of the level of the Assumed Indebtedness, the success of the Company's acquisition strategy will depend primarily on its ability to access additional capital through issuances of equity securities. The Company currently has no agreement or understanding to invest in any hotel other than the Initial Hotels and there can be no assurance that the Company will make any investments in any other hotels that meet its investment criteria. See "Growth Strategy-Acquisition Strategy."

Pursuant to the Percentage Leases, the Partnership will be required to make available to the Lessee 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues per quarter, on a cumulative basis, for periodic replacement or refurbishment of furniture, fixtures and equipment at each of the Initial Hotels. The Company believes that a 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) percentage set-aside is a prudent estimate for future capital expenditure requirements. The Company intends to cause the Partnership to spend amounts in excess of the obligated amounts if necessary to comply with the reasonable requirements of any Franchise License and otherwise to the extent that the Company deems such expenditures to be in the best interests of the Company. The Company will also be obligated to fund the cost of certain capital improvements to the hotels. Based on its experience in managing hotels, management of the Company believes that amounts required to be set aside in the Percentage Leases will be sufficient to meet required expenditures for furniture, fixtures and equipment during the term of the Percentage Leases. The Company will use undistributed cash to pay for the cost of capital improvements and any furniture, fixture and equipment requirements in excess of the set aside referenced above from undistributed cash. The Company anticipates entering into an arrangement similar to the Percentage Leases with respect to future hotels in which it may invest. See "Business and Properties-The Percentage Leases."

Inflation

Operators of hotels in general possess the ability to adjust room rates quickly. However, competitive pressures may limit the Lessee's ability to raise room rates in the face of inflation and annual increases in ADR have failed to keep pace with inflation.

Seasonality

The Initial Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates during the second and third quarters. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue to the extent that it receives Percentage Rent.

Year 2000 Compliance

Many computer systems were designed using only two digits to designate years. These systems may not be able to distinguish the year 2000 from the year 1900 (commonly known as the "Year 2000 Problem"). Like other organizations, the Company could be adversely affected if the computer systems used by it or its service providers do not properly address this problem prior to January 1, 2000. Currently, the Company does not anticipate that the transition to the year 2000 will have any material impact on its performance. In addition, the Company has sought assurances from the Lessee and other service providers that they are taking all necessary steps to ensure that their computer systems will accurately reflect the year 2000, and the Company will continue to monitor the situation. At this time, however, no assurance can be given that the Company's service providers have anticipated every step necessary to avoid any adverse effects on the Company attributable to the Year 2000 Problem.

BUSINESS AND PROPERTIES

The Initial Hotels

Set forth below is certain descriptive information regarding the Initial Hotels, each of which is currently managed by a Hersha Affiliate and owned by a partnership in which one or more of the Hersha Affiliates own interests.

Holiday Inn Express (Riverfront), Harrisburg, Pennsylvania

Description. The Holiday Inn Express Riverfront, Harrisburg, Pennsylvania, is located at 525 South Front Street. The hotel was opened in 1968, was purchased in 1984 and was fully renovated in 1996. It is a 117-room, full service hotel with non-smoking units available and with a lounge and adjacent 24-hour restaurant. Amenities include an outdoor pool, fitness center and banquet and meeting facilities with a 200-person capacity.

Guest Profile and Local Competition. Approximately 25% of the hotel's business is related to business from the Commonwealth of Pennsylvania. The remainder of the hotel's business consists of tourists, overnight travelers and people visiting local residents. The Company considers its primary competition to be the Ramada Hotel on Second Street in Harrisburg, Pennsylvania.

Holiday Inn Express, Hershey, Pennsylvania

Description. The Holiday Inn Express, Hershey, Pennsylvania is located on Walton Avenue, one and one half miles from Hershey Park. The hotel, which opened in October 1997, is an 85-room limited service hotel. Amenities include an indoor pool, hot tub, fitness center, business service center, meeting facility, complimentary continental breakfast and 24-hour coffee. All rooms have one king bed or two queen beds and some rooms have refrigerators, coffee makers and microwaves.

Guest Profile and Local Competition. Approximately 30% of the hotel's business is related to commercial activity from local business. The hotel's group business, which accounts for approximately 5% of its business, is generated from area institutions, local weddings, local social and sporting events. The remainder of the hotel's business consists of transient guests, visitors to area residents and demand generated by the hotel's proximity to Hershey Park. The Company considers its primary competition to be the Comfort Inn in Hershey, Pennsylvania.

Holiday Inn Express, New Columbia, Pennsylvania

Description. The Holiday Inn Express, New Columbia, Pennsylvania is located at the intersection of Interstate 80 and Route 15. The hotel, which opened in December 1997, is an 81-room limited service hotel. Amenities include an indoor pool, hot tub, fitness center, meeting facility, complimentary continental breakfast and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi suites are available and some rooms have refrigerators, coffee makers and microwaves. The Holiday Inn Express in New Columbia, Pennsylvania was ranked number one in its region for GSTS (Guest Satisfaction Tracking System), for February and March of 1998. This award recognizes the Holiday Inn Express in New Columbia as the leader in guest satisfaction and product service out of 32 other Holiday Inns and Holiday Inn Express' in the Eastern region.

Guest Profile and Local Competition. Approximately 80% of the hotel's business is related to commercial activity from local business. As a result of its proximity to ski resorts and nearby tourist attractions, recreational travelers generate approximately 10% of the hotel's business. The remainder of the hotel's business consists of overnight travelers and visitors to area residents. The Company considers its primary competition to be the Comfort Inn in New Columbia, Pennsylvania.

Hampton Inn, Carlisle, Pennsylvania

Description. The Hampton Inn, Carlisle, Pennsylvania is located at the intersection of Route 11 and exit 16 off the Pennsylvania Turnpike. The hotel, which opened in June 1997, is a 95-room limited service hotel. Amenities include an indoor pool, hot tub, fitness center, meeting facilities, complimentary continental breakfast and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi suites are available and some rooms have refrigerators, coffee makers and microwaves.

Guest Profile and Local Competition. Approximately 50% of the hotel's business is related to commercial activity from local businesses. The remainder of the hotel's business consists of overnight travelers and general demand generated by the hotel's proximity to the Carlisle Fairgrounds and the Army War College. The Company considers its primary competition to be the Holiday Inn in Carlisle, Pennsylvania.

Hampton Inn, Selinsgrove, Pennsylvania

Description. The Hampton Inn, Selinsgrove, Pennsylvania is located on Pennsylvania Routes 11 and 15. The hotel, which opened in September 1996, is a 75-room, three story, limited service hotel. Amenities include an indoor pool, hot tub, fitness center, meeting facilities, complimentary continental breakfast and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi suites are available and some rooms have refrigerators, coffee makers and microwaves. The Hampton Inn in Selinsgrove was recently named one of the top hotels in the entire Hampton Inn system, receiving the hotel chain's Circle of Excellence Award. The award recognizes superior quality and guest satisfaction and is the highest distinction a Hampton Inn hotel can receive.

Guest Profile and Local Competition. Approximately 80% of the hotel's business is related to commercial activity from local businesses. The remainder of the hotel's business consists of pleasure travelers, transient guests and demand generated by the hotel's proximity to area universities and Knoebels Amusement park. The Company considers its primary competition to be the Best Western near Selinsgrove, Pennsylvania.

Holiday Inn Hotel and Conference Center, Harrisburg, Pennsylvania

Description. The Holiday Inn Hotel and Conference Center, Harrisburg, Pennsylvania is located at the intersection of the Pennsylvania Turnpike exit 18 and Interstate 83, ten minutes from downtown, Harrisburg International Airport and Hershey Park. The hotel opened in 1970 as a Sheraton Inn and was converted to a Ramada Inn in 1984. It was completely renovated and converted to a Holiday Inn in September 1995. This hotel has 196 deluxe guest units and is a full service hotel, including a full service restaurant as well as a nightclub. Amenities include an indoor tropical courtyard with a pool and Jacuzzi as well as a banquet and conference facility for up to 700 people.

Guest Profile and Local Competition. Approximately 40% of the hotel's business is related to commercial activity from local businesses. The remainder of the hotel's business consists of overnight travelers visiting Hershey and Harrisburg. The Company considers its primary competition to be the Radisson Penn Harris in Camp Hill, Pennsylvania.

Holiday Inn, Milesburg, Pennsylvania

Description. The Holiday Inn, Milesburg/State College, Pennsylvania is located at Exit 23, I-80 and US 50 North. The hotel opened in 1977 as a Sheraton and was completely renovated in 1992. In 1996, the hotel was converted into a Holiday Inn. It is a 118-room, full service hotel with a full service restaurant and cocktail lounge. Amenities include an outdoor pool as well as banquet and meeting facilities for 220 people.

Guest Profile and Local Competition. Approximately 20% of the hotel's business is related to commercial activity from local businesses and demand generated by local businesses. Approximately 80% of the hotel's business consists of leisure travelers visiting the many tourist attractions around State College and I-80. The Company considers its primary competition to be the Best Western in Milesburg, Pennsylvania.

Comfort Inn, Denver, Pennsylvania

Description. The Comfort Inn, Denver, Pennsylvania is located at 2015 North Reading Road. This 45-room hotel was constructed in 1990 and renovated in 1995. All rooms have one king bed or two queen beds and non-smoking units are available. The hotel is a full service hotel with a restaurant and cocktail lounge. Amenities include hairdryers in all rooms, a fitness center and a complimentary continental breakfast.

Guest Profile and Local Competition. Approximately 75% of the hotel's business is comprised of leisure travelers and transient guests related to its location at the crossroads of two major interstate highways. The remainder of the hotel's business is due to commercial activity from local businesses and people visiting area residents. The Company considers its primary competition to be the Holiday Inn in Denver, Pennsylvania.

Comfort Inn, Harrisburg, Pennsylvania

Description. The Comfort Inn, Harrisburg, Pennsylvania is located 8 miles north of Hershey, Pennsylvania at 7744 Linglestown Road off exit 27 of Interstate 81. The hotel opened in May 1998. It is an 81-room limited service hotel. Amenities include an indoor pool, hot tub, fitness center, meeting facilities, complimentary continental breakfast and 24-hour coffee. All rooms have one king bed or two queen beds and some Jacuzzi suites are available.

Guest Profile and Local Competition. Approximately 25% of the hotel's business is related to commercial activity from local businesses. The hotel's group business, which accounts for approximately 5% of its business, is generated from area institutions, local weddings, local social and sporting events. The remainder of the hotel's business consists of transient and recreational travelers generated by its proximity to Hershey, Pennsylvania. The Company considers its primary competition to be the Holiday Inn in Grantville, Pennsylvania.

Clarion Suites, Philadelphia, Pennsylvania

Description. The Clarion Suites, Philadelphia, Pennsylvania is located at 1010 Race Street, one half block from the newly-built Philadelphia convention center and six blocks from the Independence Hall historic district and the Liberty Bell. The hotel is located in the historic Bentwood Rocking Chair Company building, which was constructed in 1896 and converted to a Quality Suites hotel in the 1980s. The hotel was purchased by a Hersha Affiliate as a Ramada Suites in 1995 and substantially rehabilitated. The Hersha Affiliate later converted the hotel to a Clarion Suites. The hotel has 96 executive suites with fully-equipped kitchens and an eight-story interior corridor with Victorian style architecture. The hotel has a lounge featuring light fare and a comedy cabaret. Amenities include two large meeting rooms, boardrooms, a fitness room and a complimentary continental breakfast.

Guest Profile and Local Competition. Approximately 20% of the hotel's business is comprised of leisure travelers and transient guests related to its close proximity to the historic district. The remainder of the hotel's business is due to commercial activity from local businesses and people visiting area residents. The Company considers its primary competition to be all Center City, Philadelphia hotels.

The following table sets forth certain information with respect to each Initial Hotel:

                                              Year Ended December 31,
                                      ---------------------------------------
                                      1997     1996     1995     1994    1993
                                      ----     ----     ----     ----    ----
Holiday Inn Express - Harrisburg, PA
   Occupancy                          56.4%    40.7%    43.2%   44.9%    46.2%
   ADR                               $56.33   $52.77   $48.05  $48.34   $45.72
   REVPAR                            $31.78   $21.50   $20.74  $21.70   $21.13

Holiday Inn Express - Hershey, PA (1)
   Occupancy                          38.8%
   ADR                               $75.62
   REVPAR                            $29.35

Holiday Inn Express - New Columbia, PA (2)
   Occupancy                           9.0%
   ADR                               $59.68
   REVPAR                             $5.39

Hampton Inn - Carlisle, PA (3)
   Occupancy                          53.5%
   ADR                               $65.33
   REVPAR                            $34.93

Hampton Inn - Selinsgrove, PA (4)
   Occupancy                          71.9%    50.1%
   ADR                               $65.29   $60.76
   REVPAR                            $46.96   $30.43

Holiday Inn - Harrisburg, PA (5)
   Occupancy                          63.3%    58.9%    46.2%
   ADR                               $68.22   $61.36   $56.97
   REVPAR                            $43.17   $36.13   $26.31

Holiday Inn - Milesburg, PA
   Occupancy                          52.0%    48.4%    51.0%   55.3%    56.9%
   ADR                               $56.07   $52.31   $51.59  $48.64   $42.27
   REVPAR                            $29.13   $25.31   $26.29  $26.88   $24.02

Comfort Inn - Denver, PA
   Occupancy                          54.7%    53.5%    60.4%   60.4%    59.6%
   ADR                               $73.26   $61.04   $50.68  $49.72   $48.79
   REVPAR                            $40.08   $32.63   $30.66  $30.61   $29.06

Comfort Inn - Harrisburg, PA (6)
   Occupancy
   ADR
   REVPAR

Clarion Suites, Philadelphia, PA
   Occupancy                          73.7%    60.2%
   ADR                               $91.02   $86.10
   REVPAR                            $67.04   $51.83

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

(1) This hotel opened in October 1997 and, thus, the data shown represent approximately three months of operations.
(2) This hotel opened in December 1997 and, thus, the data shown represent approximately one month of operations.
(3) This hotel opened in June 1997 and, thus, the data shown represent approximately seven months of operations.
(4) This hotel opened in September 1996 and, thus, the data shown for 1996 represent approximately four months of operations.
(5) This hotel was converted to a Holiday Inn in September 1995 and, thus, the data shown for 1995 represent approximately four months of operations.
(6) This hotel opened in May 1998 and, thus, there are no data shown.

The Percentage Leases

The following summary is qualified in its entirety by the Percentage Leases, the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part.

The Initial Hotels will be operated by the Lessee pursuant to the Percentage Leases. The Company intends that future leases with respect to additional hotels it may acquire will be similar to the Percentage Leases. The Trustees, however, in their discretion, may alter any of these provisions with respect to any proposed percentage lease, depending on the purchase price paid, economic conditions and other factors deemed relevant at the time.

Percentage Lease Terms. Each Percentage Lease will have an initial non-cancelable term of five years. All, but not less than all, of the Percentage Leases for the Initial Hotels may be extended for an additional five-year term at the Lessee's option. At the end of the first extended term, the Lessee, at its option, may extend some or all of the Percentage Leases for the Initial Hotels. The Percentage Leases are subject to earlier termination upon the occurrence of defaults thereunder and certain other events described therein (including, particularly, the provisions described herein under "-Damage to Hotels," "-Condemnation of Hotel" and "-Termination of Percentage Leases on Disposition of the Initial Hotels").

Amounts Payable Under the Percentage Leases. The Percentage Leases generally provide for the Lessee to pay the greater of the Base Rent or Percentage Rent. The Percentage Rent for each Initial Hotel is comprised of (i) a percentage of room revenues up to the Threshold, (ii) a percentage of room revenues in excess of the Threshold but less than the Incentive Threshold, (iii) a percentage of room revenue in excess of the Incentive Threshold and (iv) a percentage of revenues other than room revenues. The Incentive Threshold is designed to provide an incentive to the Lessee to generate higher revenues at each hotel. Until the First Adjustment Date or the Second Adjustment Date, as applicable, the rent on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial Fixed Rents applicable to those hotels. After the First Adjustment Date or the Second Adjustment Date, as applicable, rent will be computed with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels based on the percentage rent formulas described herein. The Lessee also will be obligated to pay certain other amounts, including interest accrued on any late payments or charges (the "Additional Charges"). Rent is payable quarterly in arrears.

The following table sets forth (i) the Initial Fixed Rent, if applicable,
(ii) the annual Base Rent, (ii) the annual Percentage Rents formulas and (iv) the pro forma rent that would have been paid for each Initial Hotel pursuant to the terms of the Percentage Leases based on historical revenues, as if the Company had owned the Initial Hotels and the Percentage Leases had been in effect since January 1, 1997 (or, if the hotel was not open on January 1, 1997, since the date the hotel opened).

                       Initial   Annual                    Annual                           Pro Forma Lease
                       Fixed     Base                   Percentage                       Payment for Year Ended
  Initial Hotel        Rent      Rent                  Rent Formula                         December 31, 1997
-------------------  --------   --------   -------------------------------------          ---------------------
Newly-Developed
Holiday Inn Express
 Hershey, PA......   $794,686   $364,000   42.1% of room revenue up to $1,479,523,            $ 96,156
                                           plus 65.0% room revenue in excess of
                                           $1,479,523 but less than $1,740,615, plus
                                           29.0% of room revenue in excess of
                                           $1,740,615, plus 8.0% of all non-room revenue.

 New Columbia, PA.    498,198    227,500   46.7% of room revenue up to $850,986, plus 65.0%      6,653
                                           of room revenue in excess of $850,986 but
                                           less than $1,001,160, plus 29.0% of room
                                           revenue in excess of $1,001,160, plus 8.0% of
                                           all non-room revenue.

Hampton Inn:
 Carlisle, PA.....    699,062    325,000   42.3% of room revenue up to $1,293,906,             303,029
                                           plus 65.0% of room revenue in excess of
                                           $1,293,906 but less than $1,522,242, plus
                                           29.0% of room revenue in excess of
                                           $1,522,242, plus 8.0% of all non-room
                                           revenue.

Comfort Inn:
 Harrisburg, PA...    514,171    234,000   40.7% of room revenue up to $980,050, plus                0
                                           65.0% of room revenue in excess of $980,050
                                           but less than $1,153,000, plus 29.0% of room
                                           revenue in excess of $1,153,000, plus 8.0% of
                                           all non-room revenue.
Newly-Renovated
Holiday Inn Express:
 Harrisburg, PA...    504,406    195,000   31.0% of room revenue up to $1,153,655,             504,406
                                           plus 65.0% of room revenue in excess of
                                           $1,153,655 but less than 1,357,241, plus
                                           29.0% of room revenue in excess of
                                           $1,357,241, plus 8.0% of all non-room
                                           revenue.

Holiday Inn:
 Milesburg, PA....    524,750    214,500   36.1% of room revenue up to $1,065,960,             524,750
                                           plus 65.0% of room revenue in excess of
                                           $1,065,960 but less than $1,254,070, plus
                                           31.0% of room revenue in excess of
                                           $1,254,070, plus 8.0% of all non-room
                                           revenue.
Comfort Inn:
 Denver, PA.......   262,234    112,288    35.4% of room revenue up to                         262,234
                                           $559,542, plus 65.0% of room revenue in
                                           excess of $559,542 but less than $658,285,
                                           plus 29.0% of room revenue in excess of
                                           $658,285, plus 8.0% of all non-room
                                           revenue.
Stabilized
Holiday Inn:
 Harrisburg, PA...       n/a    675,921    44.3% of room revenue up to $2,638,247,           1,614,403
                                           plus 65.0% of room revenue in excess of
                                           $2,638,247 but less than $3,103,820, plus
                                           31.0% of room revenue in excess of
                                           $3,103,820, plus 8.0% of
                                           all non-room revenue.

Hampton Inn:
 Selinsgrove, PA..       n/a    308,469    49.0% of room revenue up to $1,081,152,             657,471
                                           plus 65.0% of room revenue in excess of
                                           $1,081,152 but less than $1,271,943, plus
                                           29.0% of room revenue in excess of
                                           $1,271,943, plus 8.0% of
                                           all non-room revenue.

Clarion Suites:
 Philadelphia, PA.       n/a    418,593    36.1% of room revenue up to $1,998,097,             976,102
                                           plus 65.0% of room revenue in excess of
                                           $1,998,097 but less than $2,350,702, plus
                                           29.0% of room revenue in excess of
                                           $2,350,702, plus 8.0% of
                                           all non-room revenue.
                             ----------                                                     -----------
Totals                       $3,075,271                                                     $4,945,203
                             ==========                                                    ===========

Other than real estate and personal property taxes, ground lease rent (where applicable), the cost of certain furniture, fixtures and equipment, and certain capital expenditures, and property and casualty insurance premiums, all of which are obligations of the Company, the Percentage Leases require the Lessee to pay the operating expenses of the Initial Hotels (including insurance other than property and casualty insurance, all costs and expenses and all utility and other charges incurred in the operation of the Initial Hotels) during the term of the Percentage Leases. The Percentage Leases also provide for rent reductions and abatements in certain cases in the event of damage or destruction or a partial taking of any Initial Hotel as described under "-Damage to Hotels" and "-Condemnation of Hotel."

Maintenance and Modifications. Under the Percentage Leases, the Company will make available to the Lessee for the replacement and refurbishment of furniture, fixtures and equipment and other capital improvements determined in accordance with generally accepted accounting principles in the Initial Hotels, when and as deemed necessary by the Lessee, an amount equal to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues per quarter on a cumulative basis. The Company's obligation will be carried forward to the extent that the Lessee has not expended such amount, and any unexpended amounts will remain the property of the Company upon termination of the Percentage Leases. Other than as described above, the Lessee is responsible for all repair and maintenance of the Initial Hotels and any capital improvements to the Initial Hotels.

The Lessee, at its expense, may make non-capital and capital additions, modifications or improvements to the Initial Hotels, provided that such action does not significantly alter the character or purposes of the Initial Hotels or significantly detract from the value or operating efficiencies of the Initial Hotels. All such alterations, replacements and improvements shall be subject to all the terms and provisions of the Percentage Leases and will become the property of the Company upon termination of the Percentage Leases. The Company will own substantially all personal property (other than inventory, linens and other nondepreciable personal property) not affixed to, or deemed a part of, the real estate or improvements on the Initial Hotels, except to the extent that ownership of such personal property would cause the Rent under a Percentage Lease not to qualify as "rents from real property" for REIT income test purposes. See "Federal Income Tax Consequences-Requirements for Qualification-Income Tests."

Insurance and Property Taxes. The Company is responsible for paying or reimbursing the Lessee for real estate and personal property taxes on the Initial Hotels (except to the extent that personal property associated with the Initial Hotels is owned by the Lessee), and all premiums for property and casualty insurance. The Lessee is required to pay for all other insurance on the Initial Hotels, including comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the Initial Hotels and naming the Company as an additional named insured.

Assignment and Subleasing. The Lessee will not be permitted to sublet all or any part of the Initial Hotels or assign its interest under any of the Percentage Leases without the prior written consent of the Company. No assignment or subletting will release the Lessee from any of its obligations under the Percentage Leases.

Damage to Hotels. In the event of damage to or destruction of any Initial Hotel covered by insurance that renders the Initial Hotel unsuitable for its primary intended use, the Percentage Lease will terminate as of the date of the casualty, neither the Company nor the Lessee shall have any further liability under the Percentage Lease, and the Company will retain all insurance proceeds. In the event of damage to or destruction of any Initial Hotel covered by insurance that does not render the Initial Hotel unsuitable for its primary intended use, the Company (or, at the election of the Company, the Lessee) will restore the Initial Hotel, the Percentage Lease will not terminate, and the Company will retain all insurance proceeds (if, however, the Lessee restores the Initial Hotel, the insurance proceeds will be paid out by the Company to the Lessee). If the cost of restoration exceeds the amount of insurance proceeds received by the Company, the Company will contribute any excess amounts prior to requiring the Lessee to commence work. In the event of damage to or destruction of any Initial Hotel not covered by insurance, whether or not such damage or destruction renders the Initial Hotel unsuitable for its primary intended use, the Company at its option either (i) will restore the Initial Hotel at its cost and expense and the Percentage Lease will not terminate or (ii) will terminate the Percentage Lease and neither the Company nor the Lessee shall have any further liability under the Percentage Lease. Any damage or destruction notwithstanding, and provided the Percentage Lease has not been terminated, the Lessee's obligation to pay Rent will remain unabated by any damage or destruction that does not result in a reduction of gross revenues at the Initial Hotel. If any damage or destruction results in a reduction of such gross revenues, the Company will receive all loss of income insurance and the Lessee will not have an obligation to pay Rent in excess of the amount of Percentage Rent, if any, realizable from gross revenues generated by the operation of the Initial Hotel during the existence of such damage or destruction.

Condemnation of Hotel. In the event of a total condemnation of any Initial Hotel, or in the event of a partial taking that renders the Initial Hotel unsuitable for its primary intended use, either the Company or the Lessee will have the option to terminate the relevant Percentage Lease as of the date of taking, and the Company and the Lessee will be entitled to their shares of the condemnation award in accordance with the provisions of the Percentage Lease. In the event of a partial taking that does not render the Initial Hotel unsuitable for its primary intended use, the Company (or, at the Company's option, the Lessee) will restore the untaken portion of the Initial Hotel to a complete architectural unit and the Company shall contribute the cost of such restoration in accordance with the provisions of the Percentage Lease. In the event of a partial taking, the Base Rent will be abated taking into consideration, among other factors, the number of usable rooms, the amount of square footage, or the revenues affected by the partial taking.

Events of Default. Events of Default under the Percentage Leases include, among others, the following:

(i) the failure by the Lessee to pay Initial Fixed Rent, Base Rent, Percentage Rent or Additional Charges when due and the continuation of such failure for a period of 10 days thereafter;

(ii) the failure by the Lessee to observe or perform any other term of a Percentage Lease and the continuation of such failure for a period of 30 days after receipt by the Lessee of notice from the Company thereof, unless such failure cannot be cured within such period and the Lessee commences appropriate action to cure such failure within such 30 day period and thereafter acts, with diligence, to correct such failure within such time as is necessary, provided in no event shall such period exceed 120 days;

(iii) if the Lessee shall file a petition in bankruptcy or reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law, or shall be adjudicated a bankrupt or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of the Lessee as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and the Lessee shall be adjudicated a bankrupt and such adjudication shall not be vacated or set aside or stayed within 60 days after the entry of an order in respect thereof, or if a receiver of the Lessee or of the whole or substantially all of the assets of the Lessee shall be appointed in any proceeding brought by the Lessee or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against the Lessee and shall not be vacated or set aside or stayed within 60 days after such appointment;

(iv) if the Lessee is liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or in any manner ceases to do business or permits the sale or divestiture of substantially all of its assets;

(v) if the estate or interest of the Lessee in the Percentage Lease or any part thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied upon or attached in any proceeding (for this purpose, a change in control if the Lessee constitutes an assignment of the lease);

(vi) if the Lessee voluntarily discontinues operations of any Initial Hotel except as a result of damage, destruction or condemnation;

(vii) if the Franchise License with respect to an Initial Hotel is terminated by the franchisor as a result of any action or failure to act by the Lessee or its agents, other than the failure to complete improvements required by a franchisor because the Partnership fails to pay the costs of such improvements; or

(viii) the occurrence of an Event of Default occurs under any other Percentage Lease between the Company and the Lessee.

If an Event of Default occurs and continues beyond any curative period, the Company will have the option of terminating the Percentage Lease and any or all other Percentage Leases by giving the Lessee 10 days' written notice of the date for termination of the Percentage Leases and, unless such Event of Default is cured prior to the termination date set forth in such notice, the Percentage Leases shall terminate on the date specified in the Company's notice and the Lessee shall be required to surrender possession of the affected Initial Hotel.

Termination of Percentage Leases on Disposition of the Initial Hotels. In the event the Company enters into an agreement to sell or otherwise transfer an Initial Hotel to a third party, the Company will have the right to terminate the Percentage Lease with respect to such Initial Hotel if within six months after the closing of such sale either (i) pays the Lessee the fair market value of the Lessee's leasehold interest in the remaining term of the Percentage Lease to be terminated, or (ii) offers to lease to the Lessee one or more substitute hotels on terms that would create a leasehold interest in such hotels with a fair market value equal to or exceeding the fair market value of the Lessee's remaining leasehold interest under the Percentage Lease to be terminated.

      Franchise  License.  The Lessee will be the licensee under the Franchise
Licenses  on  the  Initial  Hotels.  See  "Business  and  Properties-Franchise
Licenses."

Breach by Partnership. Upon notice from the Lessee that the Company has breached the Lease, the Company will have 30 days to cure the breach or proceed to cure the breach, which period may be extended in the event of certain specified, unavoidable delays.

Inventory. All inventory required in the operation of the Initial Hotels will be purchased and owned by the Lessee at its expense. The Company will have the option to purchase all inventory related to a particular Initial Hotel at fair market value upon termination of the Percentage Lease for that Initial Hotel.

Franchise Licenses

Holiday Inn Express and Holiday Inn are registered trademarks of Holiday Hospitality Corporation, Hampton Inn is a registered trademark of Promus Hotels, and Comfort Inn and Clarion Suites are registered Trademarks of Choice Hotels. The Company expects that the registered owners of the trademarks will approve the change of the Franchise Licenses to the Lessee upon acquisition of the Initial Hotels by the Partnership and will confirm that with respect to the Initial Hotels the owner thereof is a licensee in good standing.

The Company anticipates that most of the additional hotels in which it invests will be operated under Franchise Licenses. The Company believes that the public's perception of quality associated with a franchisor is an important feature in the operation of a hotel. Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards and centralized reservation systems.

The Franchise Licenses generally specify certain management, operational, recordkeeping, accounting, reporting and marketing standards and procedures with which the franchisee must comply. The Franchise Licenses obligate the Lessee to comply with the franchisors' standards and requirements with respect to training of operational personnel, safety, maintaining specified insurance, the types of services and products ancillary to guest room services that may be provided by the Lessee, display of signage, and the type, quality and age of furniture, fixtures and equipment included in guest rooms, lobbies and other common areas.

The following table sets forth certain information in connection with the Franchise Licenses:

                                                                              Franchise
             Hotel                   Effective Date    Expiration Date          Fee(1)
Holiday Inn Express,
Harrisburg, PA                       May 2, 1996           May 2, 2006           8.00%
Holiday Inn Express, Hershey, PA     September 30, 1997    September 30, 1997    8.00%

Holiday Inn Express,
New New Columbia, PA                 December 3, 1997      December 3, 2007      8.00%

Holiday Inn, Milesburg, PA           February 25, 1997     February 25, 2007     8.00%

Holiday Inn, Harrisburg, PA          September 29, 1995    September 29, 2005    7.50%
Hampton Inn, Carlisle, PA            June 16, 1997         June 16, 2017         8.00%

Hampton Inn, Selinsgrove, PA         September 9, 1996     September 9, 2016     8.00%
Comfort Inn, Denver, PA              August 4, 1995        August 4, 2015        8.05%
Comfort Inn, Harrisburg, PA          May 5, 1998           May 5, 2018           8.05%
Clarion Suites, Philadelphia, PA     August 4, 1995        August 4, 2015        5.30%

(1) Percentage of room revenues payable to the franchisors.

HOLIDAY INN EXPRESS(Registered Trademark) AND HOLIDAY INN(Registered
Trademark) ARE REGISTERED TRADEMARKS OF HOLIDAY HOSPITALITY CORPORATION. HOLIDAY HOSPITALITY CORPORATION HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HOLIDAY INN EXPRESS OR HOLIDAY INN FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY HOLIDAY HOSPITALITY CORPORATION (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.

HAMPTON INN(Registered Trademark) IS A REGISTERED TRADEMARK OF PROMUS HOTELS. PROMUS HOTELS HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY PROMUS HOTELS (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.

COMFORT INN(Registered Trademark) AND CLARION SUITES(Registered Trademark)
ARE REGISTERED TRADEMARKS OF CHOICE HOTELS INTERNATIONAL. CHOICE HOTELS INTERNATIONAL HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A COMFORT INN FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY CHOICE HOTELS INTERNATIONAL (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.

Operating Practices

The Company's management recognizes the need for aggressive, market driven, creative management given the competition in the hospitality industry. Each of the Initial Hotels will be managed by the Lessee under separate Percentage Leases with the Partnership. The Lessee intends to continue the management systems developed by the Hersha Affiliates. See "The Lessee."

Employees

The Company intends to be self-advised and thus will utilize the services of its officers rather than retain an advisor. See "Management-Trustees and Executive Officers." The Lessee will employ approximately 350 people in operating the Initial Hotels on behalf of the Lessee.

Environmental Matters

Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person that arranges for the disposal or transports for disposal or treatment a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of the Initial Hotels, the Company, the Partnership or the Lessee may be potentially liable for any such costs.

Recent Phase I environmental assessments have been obtained on all of the Initial Hotels. The Phase I environmental assessments were intended to identify potential environmental contamination for which the Initial Hotels may be responsible. The Phase I environmental assessments included historical reviews of the Initial Hotels, reviews of certain public records, preliminary investigations of the sites and surrounding properties, screening for the presence of hazardous substances, toxic substances and underground storage tanks, and the preparation and issuance of a written report. The Phase I environmental assessments did not include invasive procedures, such as soil sampling or ground water analysis.

The Phase I environmental assessments have not revealed any environmental liability that the Company believes would have a material adverse effect on the Company's business, assets, results of operations or liquidity, nor is the Company aware of any such liability. Nevertheless, it is possible that these environmental assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability, or (ii) the current environmental condition of the Initial Hotels will not be affected by the condition of the properties in the vicinity of the Initial Hotels (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Company, the Partnership or the Lessee.

The Company believes that the Initial Hotels are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither the Company nor, to the knowledge of the Company, any of the current owners of the Initial Hotels have been notified by any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matter in connection with any of its present or former properties.

Competition

The hotel industry is highly competitive. Each of the Initial Hotels is located in a developed area that includes other hotels, many of which are competitive with the Initial Hotels in their locality. The number of competitive hotels in a particular area could have a material adverse effect on revenues of the Initial Hotels or at hotels acquired in the future. See "Business and Properties-The Initial Hotels."

Insurance

The Company will keep in force comprehensive insurance, including liability, fire, workers' compensation, extended coverage, rental loss and, when available on reasonable commercial terms, flood and earthquake insurance, with policy specifications, limits and deductibles customarily carried for similar properties. Certain types of losses, however (generally of a catastrophic nature such as acts of war, earthquakes, etc.), are either uninsurable or require such substantial premiums that the cost of maintaining such insurance is economically infeasible. Certain types of losses, such as those arising from subsidence activity, are insurable only to the extent that certain standard policy exceptions to insurability are waived by agreement with the insurer. See "Risk Factors-Real Estate Investment Risks-Uninsured and Underinsured Losses." The Company believes, however, that the Properties are adequately insured in accordance with industry standards.

Depreciation

To the extent that the Partnership acquires the Initial Hotels or the partnership interests in the Selling Partnerships in exchange for Units, the Partnership's initial basis in each Initial Hotel for federal income tax purposes should be the same as the Selling Partnerships' basis in such Initial Hotel on the date of acquisition. Although the law is not entirely clear, the Partnership intends to depreciate such depreciable hotel property for federal income tax purposes over the same remaining useful lives and under the same methods used by the Selling Partnerships. The Partnership's tax depreciation deductions will be allocated among the partners in accordance with their respective interests in the Partnership (except to the extent that the Partnership is required under Code Section 704(c) to use a method for allocating depreciation deductions attributable to the Initial Hotels or other contributed properties that results in the Company receiving a disproportionately larger share of such deductions). Because the Partnership's initial basis in the Initial Hotels will be less than the fair market value of those hotels on the date of acquisition, the Company's depreciation deductions may be less than they otherwise would have been if the Partnership had purchased the Initial Hotels or the partnership interests in the Selling Partnerships entirely for cash.

Legal Proceedings

Neither the Company nor the Partnership is currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company or the Partnership or any of the Initial Hotels. The Lessee has advised the Company that it currently is not involved in any litigation. The Selling Partnerships have represented to the Partnership that there is no material litigation pending, threatened against or affecting the Initial Hotels.

Hersha Affiliates' Hotel Assets Not Acquired By The Company

The Hersha Affiliates own the following hotels, which are not being acquired by the Company and are not subject to the Option Agreement: (i) Best Western, Indiana, Pennsylvania (107) rooms and (ii) Comfort Inn, McHenry, Maryland (76 rooms). In addition, the Hersha Affiliates own land in Carlisle, Pennsylvania, Valley Forge, Pennsylvania and Frederick, Maryland that could be used for hotel development. The Hampton Inn, Danville, Pennsylvania, the Harrisburg Inn, Harrisburg, Pennsylvania and the land owned by Hersha Affiliates in Carlisle, Pennsylvania are subject to the Option Agreement. See "Certain Relationships and Transactions-Option Agreement."

Ground Leases

The land underlying the Holiday Inn Express in Harrisburg, Pennsylvania and the Comfort Inn in Denver, Pennsylvania each will be leased to the Partnership by certain Hersha Affiliates for aggregate rent of $21,000 per year for 99 years. Also, a portion of the land adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be leased to a Hersha Affiliate for $1 per year for 99 years.

POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of the Company's policies with respect to investment, financing, conflicts of interest and certain other activities that have not been discussed elsewhere. The policies with respect to these activities have been determined by the Trustees and may be amended or revised from time to time at the discretion of the Trustees without a vote of the shareholders of the Company, except that (i) changes in certain policies with respect to conflicts of interest must be consistent with legal requirements and (ii) the Company cannot take any action intended to terminate its qualification as a REIT without the approval of the holders of two-thirds of the outstanding Common Shares.

Investment Policies

The Company's principal investment policy is to acquire hotels that offer the potential for high current rates of return to the Company, a substantial dividend to the Company's shareholders and long term increases in value. The Company's business is focused solely on hotels. The Company's Acquisition Policy is to acquire a hotel for which it expects to receive rents at least equal to 12% of the purchase price paid for the hotel, net of (i) property and casualty insurance premiums, (ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% (6% for full-service hotels) of gross revenues at the hotel. In the case of hotels with limited operating history or that have been newly renovated, the Company intends to institute a mechanism similar to the mechanism used for the Newly-Developed Hotels and Newly-Renovated Hotels for establishing a minimum initial fixed rent and adjusting the purchase price for each such hotel based upon the first two years of operating history of such hotel after opening or completion of renovation. The Trustees, however, may change the Acquisition Policy at any time without the approval of the Company's shareholders. See "-Growth Strategy-Acquisition Strategy" and "Risk Factors-Growth Strategy." The Company has not developed a policy in connection with a limit on the number or amount of mortgages that may be placed on any one piece of property owned by the Company. Although the Company intends primarily to acquire hotels, it also may participate with other entities in property ownership, through joint ventures or other types of co-ownership. Equity investments may be subject to existing mortgage financing and other indebtedness that may have priority over the equity interest of the Company.

While the Company will emphasize equity investments in hotels, it may, in its discretion, invest in mortgages and other real estate interests, including securities of other REITs. The Company may invest in participating, convertible or other types of mortgages if it concludes that by doing so it may benefit from the cash flow or any appreciation in the value of the subject property. Such mortgages are similar to equity participation, because they permit the lender to either participate in increasing revenues from the property or convert some or all of that mortgage to equity ownership interest. The Company does not presently intend to invest in mortgages or real estate interests other than hotels.

Financing

The Company's additional investments in hotels may be financed, in whole or in part, with undistributed cash, subsequent issuances of Common Shares or other securities, or borrowings. The Company is currently negotiating with lenders to obtain the Line of Credit. A failure to obtain the Line of Credit could adversely affect the Company's ability to finance its growth strategy. See "Risk Factors-Dependence Upon External Financing." The Debt Policy will limit consolidated indebtedness to less than 55% of the aggregate purchase prices paid by the Company for the hotels in which it has invested. The Trustees, however, may change the Debt Policy at any time without the approval of the Company's shareholders. The aggregate purchase prices for the Initial Hotels is approximately $47.3 million. After the Formation Transactions, the Assumed Indebtedness will be approximately $11.7 million. Because of the Debt Policy and the amount of the Assumed Indebtedness, the success of the Company's acquisition strategy will depend primarily on its ability to access additional capital through issuances of equity securities. See "Risk Factors-Risks of Leverage" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."

The Company will invest in additional hotels only as suitable opportunities arise. The Company will not undertake investments in such hotels unless adequate sources of financing are available. The Bylaws require the approval of a majority of the Trustees, including a majority of the Independent Trustees, to acquire any additional hotel in which a Trustee or officer of the Company, or any Affiliate thereof, has any interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company). It is expected that future investments in hotels will be dependent on and financed by the proceeds from additional equity capital. The Trustees have the authority, without shareholder approval, to issue additional Common Shares, preferred shares or other capital shares of the Company in any manner (and on such terms and for such consideration) as it deems appropriate, including in exchange for property. Existing shareholders have no preemptive right to purchase shares issued in any offering, and any such offering might cause a dilution of a shareholder's investment in the Company.

Conflict of Interest Policies

The Company has adopted certain policies designed to minimize the effects of potential conflicts of interest. In addition, the Partnership will enter into the Option Agreement with certain of the Hersha Affiliates. The Trustees are subject to certain provisions of Maryland law, which are designed to eliminate or minimize certain potential conflicts of interest. However, there can be no assurance that these policies always will be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of all shareholders.

Declaration of Trust and Bylaw Provisions

The Company's Declaration of Trust, with limited exceptions, requires that at least three of the Company's Trustees be Independent Trustees. The Declaration of Trust provides that such Independent Trustee requirement may not be amended, altered, changed or repealed without the affirmative vote of at least a majority of the members of the Trustees and the affirmative vote of the holders of not less than two-thirds of the outstanding Common Shares (and other shares of beneficial interest of the Company entitled to vote, if any exist). The Bylaws require that any action pertaining to any transaction involving the Company, including the purchase, sale, lease or mortgage of any real estate asset, in which a Trustee or an officer of the Company, or any Affiliate thereof, has an interest (other than solely as a result of his status as a trustee, officer or shareholder of the Company, must be approved by a majority of the Trustees, including a majority of the Independent Trustees.

The Option Agreement

Pursuant to the Option Agreement among Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha Affiliate, and the Partnership, the Partnership will have a two-year option to acquire any hotels acquired or developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any subsequently acquired hotel.

The Partnership

A conflict of interest may arise between the Company, as General Partner of the Partnership, and the Hersha Affiliates as limited partners of the Partnership, due to the differing potential tax liability to the Company and the Hersha Affiliates from the sale of an Initial Hotel or refinancing or prepayment of principal on any of the Assumed Indebtedness resulting from the differing tax bases in the Initial Hotels of the Company, on the one hand, and the Hersha Affiliates, on the other hand. The Bylaws provide that the Company's decisions with respect to any transaction, including the disposition of an Initial Hotel or refinancing or prepayment of principal on the Assumed Indebtedness, in which a Trustee or officer of the Company, or any Affiliate thereof, has any interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company) must be approved by a majority of the Trustees, including a majority of the Independent Trustees. The Partnership Agreement gives the Company, as General Partner of the Partnership, full, complete and exclusive discretion in managing and controlling the business of the Partnership and in making all decisions affecting the business and assets of the Partnership.

Provisions of Maryland Law

Pursuant to Maryland law (the jurisdiction under which the Company is organized), each Trustee is required to discharge his duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances and in a manner he reasonably believes to be in the best interest of the Company. In addition, under Maryland law, a transaction between the Company and any of its Trustees or between the Company and a corporation, firm or other entity in which a Trustee is a director or has a material financial interest is not void or voidable solely because of the Trustee's directorship or the Trustee's interest in the transaction if (i) the transaction is authorized, approved or ratified, after disclosure of the interest, by the affirmative vote of a majority of the disinterested Trustees, or by the affirmative vote of a majority of the votes cast by shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested Trustee or corporation, firm or other entity, or (ii) the transaction is fair and reasonable to the Company.

Policies with Respect to Other Activities

The Company has authority to offer shares of beneficial interest or other securities and to repurchase or otherwise reacquire its shares or any other securities and may engage in such activities in the future. As described under "Shares Available for Future Sale," the Company may issue Common Shares to holders of Units upon exercise of their Redemption Rights (as defined herein). The Company has not issued Common Shares, interests or any other securities to date, except in connection with the formation of the Company. The Company has no outstanding loans to other entities or persons, including its officers and Trustees. The Company has not engaged in trading, underwriting or agency distribution or sale of securities of other issuers, nor has the Company invested in the securities of other issuers other than the Partnership for the purpose of exercising control. The Company intends to make investments in such a way that it will not be treated as an investment company under the Investment Company Act of 1940, as amended.

At all times, the Company intends to make investments in such a manner consistent with the requirements of the Code for the Company to qualify as a REIT unless, because of changing circumstances or changes in the Code (or in Treasury Regulations), the Trustees, with the consent of the holders of two-thirds of the outstanding Common Shares, determine that it is no longer in the best interests of the Company to qualify as a REIT.

Working Capital Reserves

The Company initially will have minimal working capital reserves. In the future, the Company intends to set aside undistributed cash in amounts that the Trustees determine to be adequate to meet normal contingencies in connection with the operation of the Company's business and investments. The Company expects to obtain the Line of Credit, which may assist the Company in meeting its distribution and working capital needs. A failure to obtain the Line of Credit could adversely affect the Company's ability to finance its growth strategy. See "Risk Factors-Dependence Upon External Financing."

FORMATION TRANSACTIONS

The Formation Transactions will be as follows:

o The Partnership and certain of the Hersha Affiliates will enter into the Option Agreement, pursuant to which the Hersha Affiliates will agree that, if they develop or own any hotels in the future that are located within 15 miles of any Initial Hotel or subsequently acquired hotel, the Hersha Affiliates will give the Partnership the option to purchase such hotels for two years. See "Risk Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the Hersha Affiliates" and "Policies and Objectives with Respect to Certain Activities-Conflict of Interest Policies-The Option Agreement."

o The Company has granted the Underwriter the Underwriter Warrants to purchase 250,000 Common Shares for a period of five years at a price per share equal to 165% of the Offering Price.

o The Partnership has granted 2744 Associates, L.P., which is a Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units for a period of five years at a price per Unit equal to 165% of the Offering Price.

Benefits to the Hersha Affiliates

As a result of the Formation Transactions, the Hersha Affiliates will receive the following benefits:

o Certain tax consequences to the Hersha Affiliates from the transfer of equity interests in the Initial Hotels will be deferred.

o The Partnership has granted to 2744 Associates, L.P., which is a Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units for a period of five years at a price per share equal to 165% of the Offering Price.

o A portion of the land adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be leased to a Hersha Affiliate for $1 per year for 99 years.

MANAGEMENT

Trustees and Executive Officers

Initially, the Trustees will consist of seven members, three of whom are Independent Trustees. All of the Trustees will serve staggered terms of two years and the Trustees will be divided into two classes. Each Trustee in Class I will hold office initially for a term expiring at the first annual meeting of shareholders (1999) and each Trustee in Class II will hold office initially for a term expiring at the second annual meeting of shareholders (2000). Certain information regarding the Trustees and executive officers of the Company is set forth below.

Name                       Age            Position

Hasu P. Shah (Class II)     53            Chairman  of the Board,  Chief
                                          Executive Officer and Trustee

Kiran P. Patel              48            Chief  Financial  Officer  and
                                          Treasurer

Bharat C. Mehta (Class II)* 53            Trustee

K.D. Patel (Class II)*      54            Trustee

L. McCarthy Downs,
   III (Class I)*           45            Trustee


_______________(Class I)*   __            Independent Trustee

_______________(Class II)*  __            Independent Trustee

_______________(Class I)*   __            Independent Trustee

* Has agreed to become a Trustee upon or immediately before the consummation of the Offering.

Hasu P. Shah is the President and CEO of Hersha Enterprises, Ltd. and has held that position since its inception in 1984. He started Hersha Enterprises, Ltd. with the purchase of the 125-room Quality Inn Riverfront in Harrisburg, Pennsylvania which he converted to a 117-room Holiday Inn Express. Recently the "Central Penn Business Journal" honored Hersha Enterprises, Ltd. as one of the Fifty Fastest Growing Companies in 1997 in central Pennsylvania. His interest in construction and renovations of hotels initiated the development of Hersha Construction Company for the construction and renovation of new properties and Hersha Hotel Supply Company to supply furniture, fixtures and equipment supplies to the properties. Mr. Shah and his wife, Hersha, are active members of the community. Mr. Shah serves on the Board of Directors of several organizations including the Pennsylvania State University Capital Campus in Harrisburg, Pennsylvania, the Harrisburg Foundation, Human Enrichment by Love and Peace (H.E.L.P.), the Capital Region Chamber of Commerce and the Vraj Hindu Temple. Mr. Shah received a Bachelors of Science degree in Chemical Engineering from Tennessee Technical University and obtained a Masters degree in Administration from Pennsylvania State University.

K.D. Patel has been a principal of Hersha Enterprises, Ltd. since 1989. Mr. Patel currently serves as the President of the Lessee. He has received national recognition from Holiday Inn Worldwide for the successful management of Hersha's Holiday Inn Express Hotels. In 1996, Mr. Patel was appointed by Holiday Inn Worldwide to serve as an advisor on its Sales and Marketing Committee. Prior to joining Hersha Enterprises, Ltd., Mr. Patel was employed by Dupont Electronics in New Cumberland, Pennsylvania from 1973 to 1990. He is a member of the Board of Directors of a regional chapter of the American Red Cross and serves on the Advisory Board of Taneytown Bank and Trust. Mr. Patel received a Bachelor of Science degree in Mechanical Engineering from the M.S. University of India and a Professional Engineering License from the Commonwealth of Pennsylvania in 1982.

Bharat C. Mehta has been a principal of Hersha Enterprises, Ltd. since 1985. Mr. Mehta currently serves as President of Hersha Health Care Management Division of Hersha Enterprises, Ltd. Mr. Mehta worked as a chemical engineer from 1967 to 1984 for Lever Brothers Corporation (UniLever, a multinational company). He also worked for the Pennsylvania Department of Environmental Services in the Bureau of Water Quality Management as Chief of the Program Planning and Evaluation Section. He is a member of his local chapter of the Rotary Club. Mr.

Mehta received a Bachelor of Science degree in Chemical Engineering from the Worcester Polytechnic Institute in Massachusetts and earned a Masters degree from Pennsylvania State University.

Kiran P. Patel has been a principal of Hersha Enterprises, Ltd. since 1993. Mr. Patel is currently the partner in charge of Hersha's Land Development and Business Services Divisions. Prior to joining Hersha Enterprises, Ltd., Mr. Patel was employed by AMP Incorporated, in Harrisburg, Pennsylvania. Mr. Patel serves on various Boards for community service organizations. Mr. Patel received a Bachelor of Science degree in Mechanical Engineering from M.S. University of India and obtained a Masters of Science degree in Industrial Engineering from the University of Texas in Arlington.

L. McCarthy Downs, III, is the Senior Vice President and Manager of the Corporate Finance Department of the Underwriter. He has held the position since 1990 and has been involved in several public and private offerings, including offerings for Humphrey Hospitality Trust, Inc. and Independent Property Operators of America, LLC. Prior to 1990, Mr. Downs was employed by another investment banking and brokerage firm for seven years. Mr. Downs received a Bachelor of Science degree in Business Administration from The Citadel and obtained an M.B.A. from The College of William and Mary.

Audit Committee

The Audit Committee will consist of the three Independent Trustees. The Audit Committee will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants, 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. The Audit Committee will establish procedures to monitor compliance with the REIT provisions of the Code and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such other laws and regulations applicable to the Company.

Compensation Committee

The Compensation Committee will consist of the three Independent Trustees. The Compensation Committee will determine compensation for the Company's executive officers and administer the Hersha Hospitality Trust Option Plan (the "Option Plan").

Compensation

Each Trustee will initially be paid $15,000 per year for those residing outside the State of Pennsylvania and $7,500 per year for those residing in the State of Pennsylvania, payable in quarterly installments. In addition, the Company will reimburse all Trustees for reasonable out-of-pocket expenses incurred in connection with their services on the Board of Trustees. No officers of the Company shall be entitled to receive any additional salary or bonus for serving as a Trustee except that the Chairman of the Board of Trustees shall be entitled to receive a salary of not more than $100,000 per year provided that the Common Shares have a bid price of $9.00 per share or higher for 20 consecutive trading days and remains at or above $9.00 per share. Each Independent Trustee who is a member of the Board on the effective date of the Offering will receive on that date an option to purchase _______ Common Shares at the Offering Price. The options will be granted under the Hersha Hospitality Trust Non-Employee Trustees' Option Plan (the "Trustees' Plan"), which may be amended by the Board to provide for other awards, including awards to future Independent Trustees. The options will become exercisable in three annual installments beginning on the first anniversary of the date of grant, subject to restrictions described below under "The Trustees' Plan."

Exculpation and Indemnification

The Maryland REIT Law permits a Maryland real estate investment trust to include in its Declaration of Trust a provision limiting the liability of its trustees and officers to the trust and its shareholders 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 Declaration of Trust of the Company contains such a provision which eliminates such liability to the maximum extent permitted by the Maryland REIT Law.

The Declaration of Trust of the Company authorizes it, to the maximum extent permitted by Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former shareholder, Trustee or officer or (b) any individual who, while a Trustee of the Company and at the request of the Company, serves or has served another real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a trustee, director, officer or partner of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former shareholder. The Bylaws of the Company obligate it, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former shareholder, Trustee or officer who is made a party to the proceeding by reason of his service in that capacity or (b) any individual who, while a Trustee of the Company and at the request of the Company, serves or has served another real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a trustee, director, officer or partner of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity. The Declaration of Trust and Bylaws also permit the Company to indemnify and advance expenses to any person who served a predecessor of the Company in any of the capacities described above and to any employee or agent of the Company or a predecessor of the Company. The Bylaws require the Company to indemnify a Trustee 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.

The Maryland REIT Law permits a Maryland real estate investment trust to indemnify and advance expenses to its trustees, officers, employees and agents to the same extent as permitted by the MGCL for directors and officers of Maryland corporations. The MGCL permits a corporation to indemnity its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In accordance with the MGCL, the Bylaws of the Company require it, as a condition to advancing expenses, to obtain (a) a written affirmation by the Trustee or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the Company as authorized by the Bylaws and (b) a written statement by him or on his behalf to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the standard of conduct was not met.

The Option Plan

The Board of Trustees has adopted, and the current sole shareholder of the Company has approved, the Option Plan for the purpose of attracting and retaining executive officers and employees. The Option Plan will be administered by the Board of Trustees prior to the Offering and by the Compensation Committee of the Board of Trustees, or its delegate, following the Offering. The Compensation Committee may not delegate its authority with respect to option awards to individuals subject to Section 16 of the Exchange Act. As used in this summary, the term "Administrator" means the Board of Trustees, the Compensation Committee or its delegate, as appropriate.

Officers and other employees of the Company are eligible to participate in the Option Plan. The Administrator selects the individuals who will participate in the Option Plan ("Participants").

The Option Plan authorizes the issuance of options to purchase up to 650,000 Common Shares. The Plan provides for the grant of (i) options intended to qualify as incentive stock options under Section 422 of the Code, and (ii) options not intended to so qualify ("nonqualified options"). Code Section 422 imposes various requirements in order for an option to qualify as an ISO, including allowing a maximum five-year term of the option and an option price not less than the fair market value of the underlying shares on the date of grant. In addition, under Code Section 422, no Participant may receive ISOs (under all incentive share option plans of the Company and its parent or subsidiary corporations) that are first exercisable in any calendar year for Common

Shares having an aggregate fair market value (determined as of the date the ISO is granted) that exceeds $100,000 (the "$100,000 Limit"). To the extent options first become exercisable by a Participant in any calendar year for a number of Common Shares in excess of the $100,000 Limit, they will be treated as nonqualified options.

The principal difference between options qualifying as ISOs under Code
Section 422 and nonqualified options is that a Participant generally will not recognize ordinary income at the time an ISO is granted or exercised, but rather at the time the Participant disposes of shares acquired under the ISO. In contrast, the exercise of a nonqualified option generally is a taxable event that requires the Participant to recognize, as ordinary income, the difference between the shares' fair market value and the option price. The employer will not be entitled to a federal income tax deduction on account of the grant or the exercise of an ISO, whereas the employer is entitled to a federal income tax deduction on account of the exercise of a nonqualified option equal to the ordinary income recognized by the Participant. The employer may claim a federal income tax deduction on account of certain dispositions of shares acquired upon the exercise of an ISO.

Options under the Option Plan may be awarded by the Administrator, and the Administrator will determine the option exercise period and any conditions on exercisability. The options granted under the Option Plan will be exercisable only if (i) the Company obtains a per share closing price on the Common Shares of $9.00 or higher for 20 consecutive trading days and (ii) the closing price on the Common Shares for the prior trading day was $9.00 or higher. In addition, no option granted under the Option Plan may be exercised more than five years after the date of grant. The exercise price for options granted under the Option Plan will be determined by the Compensation Committee at the time of grant, but will not be less than the fair market value of the Common Shares on the date of grant. No Participant may be granted, in any calendar year, options for more than ______ Common Shares.

An option may be exercised for any number of Common Shares up to the full number for which the option could be exercised. A Participant will have no rights as a shareholder with respect to Common Shares subject to an option until the option is exercised. Any Common Shares subject to options which are forfeited (or expire without exercise) pursuant to the terms established at the time of grant will again be available for grant under the Option Plan. Payment of the exercise price of an option granted under the Option Plan may be made in cash, cash equivalents acceptable to the Compensation Committee or, if permitted by the option agreement, by exchanging Common Shares having a fair market value equal to the option exercise price.

No option award may be granted under the Option Plan more than 10 years after the earlier of the date that the Board of Trustees adopted, or the shareholder of the Company approved, the Plan. The Board may amend or terminate the Option Plan at any time, but an amendment will not become effective without shareholder approval if the amendment increases the number of shares that may be issued under the Option Plan (other than equitable adjustments upon certain corporate transactions). No amendment will affect a Participant's outstanding award without the Participant's consent.

On the effective date of the Offering, the Company will grant options under the Option Plan for an aggregate of _______ Common Shares, including options [description of awards to officers].

The Trustees' Plan

Prior to the Offering, the Board of Trustees will also adopt, and the Company's sole shareholder will approve, the Trustees' Plan to provide incentives to attract and retain Independent Trustees. The Trustees' Plan authorizes the issuance of up to ________ Common Shares.

The Trustees' Plan provides for the grant of a nonqualified option for ______ Common Shares to each Independent Trustee of the Company who is a member of the Board on the effective date of the Offering. The exercise price of each such option will be equal to the Offering Price. Each such option shall become exercisable for ______ shares on each of the first and second anniversaries of the date of grant and for ______ shares on the third anniversary of the date of grant, provided that the Trustee is a member of the Board on the applicable anniversary. Notwithstanding the foregoing, an option granted under the Trustees' Plan will be exercisable only if (i) the Company obtains a per share closing price on the Common Shares of $9.00 for 20 consecutive trading days and
(ii) the closing price per share for the prior trading day was $9.00 or higher. Options issued under the Trustees' Plan are exercisable for five years from the date of grant.

A Trustee's outstanding options will become fully exercisable if the Trustee ceases to serve on the Board due to death or disability. All awards granted under the Trustees' Plan shall be subject to Board or other approval sufficient to provide exempt status for such grants under Section 16 of the Exchange Act, as that section and Rules thereunder are in effect from time to time. No option may be granted under the Trustees' Plan more than 10 years after the date that the Board of Trustees approved the Plan. The Board may amend or terminate the Trustees' Plan at any time but an amendment will not become effective without shareholder approval if the amendment increases the number of shares that may be issued under the Trustees' Plan (other than equitable adjustments upon certain corporate transactions).

CERTAIN RELATIONSHIPS AND TRANSACTIONS

The Company and the Partnership have entered into a number of transactions with the Hersha Affiliates in connection with the organization of the Company and the acquisition of the Initial Hotels. The officers and Trustees of the Company collectively own 35% of the Lessee. The Lessee is entitled to all income from the hotels after payment of operating expenses and lease payments. There are no assurances that the terms of these transactions are as favorable as those that the Company could have received from third parties. See "Risk Factors -Conflicts of Interest" and "Formation Transactions."

Repayment of Indebtedness and Guarantees by Mr. Shah and the Hersha Affiliates

Approximately $13.5 million of indebtedness owed by the Selling Partnerships will be repaid with a portion of the proceeds of the Offering. Approximately $7.5 million of such indebtedness is owed to entities controlled by the Hersha Affiliates and relates principally to hotel development expenses in connection with the Initial Hotels. Certain of the Assumed Indebtedness is and will remain guaranteed by the Hersha Affiliates. Upon the repayment of such indebtedness, the Hersha Affiliates will be released from the related guarantees. The Hersha Affiliates may receive increased cash distributions from the operations of the Initial Hotels as a result of the reduction of indebtedness on the Initial Hotels. Mr. Shah and the partners of the Selling Partnerships guarantee all of the Assumed Indebtedness, and the personal bankruptcy of any of the guarantors would constitute a default under the related loan documents.

Hotel Ownership and Management

Subject to the terms of the Option Agreement, the Hersha Affiliates could acquire additional hotels that may not be acquired subsequently by the Partnership. See "Policies and Objectives with Respect to Certain Activities-Conflict of Interest Policies-The Option Agreement" and "Risk Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the Hersha Affiliates."

Option Agreement

Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha Affiliate, and the Partnership will enter into the Option Agreement. Pursuant to the Option Agreement, the Partnership will have an option to acquire any hotels acquired or developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any subsequently acquired hotel, including the Hampton Inn, Danville, Pennsylvania, the Harrisburg Inn, Harrisburg, Pennsylvania and the land owned by Hersha Affiliates in Carlisle, Pennsylvania. With respect to the Hampton Inn, Danville, Pennsylvania, the Partnership and the Hersha Affiliate that owns the hotel have agreed that if the option is exercised by the Partnership, they will use a purchase price methodology similar to the methodology used for the Newly-Developed Hotels and have agreed to fix the rent until the hotel has two years of operating history. In addition, the Partnership has agreed that, if the option is exercised by the Partnership, it will issue Units valued at $6.00 per Unit as consideration for the purchase of the hotel. See "Policies and Objectives with Respect to Certain Activities-Conflict of Interest Policies-The Option Agreement."

THE LESSEE

The Lessee is a recently-formed Pennsylvania limited partnership. The Lessee will lease each Initial Hotel pursuant to a separate Percentage Lease. The Partnership intends to lease to the Lessee additional hotels acquired by the Partnership on terms and conditions substantially similar to the Percentage Leases applicable to the Initial Hotels.

The Lessee's ability to perform its obligations, including making Rent payments under the Percentage Leases, will be dependent on the Lessee's ability to generate sufficient net cash flow from the operation of the Initial Hotels and any other hotels leased to the Lessee. The Lessee's obligations under the Percentage Leases are unsecured. Mr. Shah will not guarantee the Lessee's obligations under the Percentage Leases, but the Percentage Leases will contain cross-default provisions. Accordingly, the Lessee's failure to make required payments under any of the Percentage Leases will allow the Company to terminate any or all of the Percentage Leases. The Hersha Affiliates own 100% of the Lessee and certain Hersha Affiliates serve as officers of the Company. Consequently, they have a conflict of interest regarding the enforcement of the Percentage Leases. See "Risk Factors-Conflicts of Interest-No Arm's-Length Bargaining on Percentage Leases, Contribution Agreements, Administrative Services Agreement and Option Agreement" and "Business and Properties."

The Lessee will provide all employees and perform all marketing, accounting and management functions necessary to operate the Initial Hotels pursuant to the Percentage Leases. The Lessee has in-house programs for accounting and the management and marketing of the Initial Hotels. The Lessee intends to utilize its sales management program to coordinate, direct and manage the sales activities of personnel located at the hotels.

Management of the Lessee

Certain information regarding the management of the Lessee is set forth below:

Name                       Age            Position

K.D. Patel                  54            President

Jay H. Shah                 30            Vice President, General Counsel
                                          and Secretary

Rajendra O. Gandhi          49            Vice President

David L. Desfor             37            Controller

Tracy L. Kundey             37            Director of Operations

K.D.  Patel,  biographical  information  for  whom  is set  forth  under

"Management-Trustees and Executive Officers," will serve as President of the Lessee.

Jay H. Shah will serve as Vice President, Secretary and General Counsel of the Lessee. Mr. Shah is a principal and general counsel for Hersha Enterprises, Ltd. Mr. Shah also takes an active role in the firm's development and construction activities. He also serves on the Choice Hotels International Franchise Board. Mr. Shah was employed by Coopers & Lybrand LLP as a tax consultant in 1995 and 1996 and previously served the late Senator John Heinz as a Legislative Assistant. He also was employed by the Philadelphia District Attorney's office and two Philadelphia-based law firms. Mr. Shah received a Bachelor of Science degree from the Cornell University School of Hotel Administration, a Masters degree from the Temple University School of Business Management and a Law degree from Temple University School of Law.

Rajendra O. Gandhi will serve as Vice President of the Lessee. Mr. Gandhi has been a principal of Hersha Enterprises, Ltd. since 1986. Mr. Gandhi currently serves as President of Hersha Hotel Supply, Inc., which provides furnishings, case goods and interior furnishing materials to hotels and nursing homes in several states. Mr. Gandhi is a graduate of the University of Bombay, India and obtained an MBA degree from the University of West Palm Beach, Florida.

David L. Desfor will serve as Vice President of the Lessee. Mr. Desfor has been a principal of Hersha Enterprises, Ltd. since 1991. Mr. Desfor is currently the Controller of Hersha Enterprises, Ltd. Mr. Desfor is a graduate of East Stroudsburg University with a Bachelor of Science degree in Hotel Management.

Tracy L. Kundey will serve as the Director of Operations of the Lessee. Mr. Kundey was previously with Wellsprings Management Group, Inc., a company that he founded with a partner. He held the position of President responsible for all aspects of a hospitality management company. Mr. Kundey has 19 years of experience in the hospitality industry ranging from front desk attendant to Corporate Rooms Division Manager. He is a Certified Hotel

Administrator and Certified Rooms Division Executive. Mr. Kundey has a Bachelors of Science Degree from Eastern Washington University.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial ownership of Common Shares by (i) each Trustee of the Company, (ii) each executive officer of the Company and (iii) by all Trustees and executive officers of the Company as a group immediately following completion of the Formation Transactions. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power. The number of shares represents the number of Common Shares the person is expected to hold plus the number of Common Shares into which Units expected to be held by the person may be redeemed in certain circumstances.

                                   Number of Shares               Percent of
Name of Beneficial                Beneficially Owned(1)            Class(1)
------------------                ---------------------            --------

Hasu P. Shah(2)                         638,867(3)                   19.3%

K.D. Patel                               369,300                     12.2%

Bharat C. Mehta                          670,400                     20.1%

Kiran P. Patel                          256,600(3)                    8.8%
                                        -------                       ----

Total for all officers and Trustees   1,935,167                      42.1%
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(1) Assumes that all Units held by the person are redeemed for Common Shares. The total number of shares outstanding used in calculating the percentage assumes that none of the Units held by other persons are redeemed for Common Shares. Such Units generally are not redeemable for Common Shares until at least one year following the acquisition of the Initial Hotels.
(2) Prior to the Offering, the Company will repurchase 100 Common Shares currently owned by Mr. Shah at his cost of $100.
(3) Includes 49,667 Common Shares expected to be purchased in the Offering.

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The following summary of the terms of the shares of beneficial interest of the Company does not purport to be complete and is subject to and qualified in its entirety by reference to the Declaration of Trust and Bylaws of the Company, copies of which are exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information."

General

The Declaration of Trust of the Company provides that the Company may issue up to 50,000,000 Common Shares of beneficial interest, $0.01 par value per share ("Common Shares"), and 10,000,000 preferred shares of beneficial interest, $0.01 par value per share ("Preferred Shares"). Upon completion of this Offering and the related transactions, 2,666,667 Common Shares will be issued and outstanding and no Preferred Shares will be issued and outstanding. As permitted by the Maryland statute governing real estate investment trusts formed under the laws of that state (the "Maryland REIT Law"), the Declaration of Trust contains a provision permitting the Board of Trustees, without any action by the shareholders of the Company, to amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of any class of shares of beneficial interest that the Company has authority to issue.

Both the Maryland REIT Law and the Company's Declaration of Trust provide that no shareholder of the Company will be personally liable for any obligation of the Company solely as a result of his status as a shareholder of the Company. The Company's Bylaws further provide that the Company shall indemnify each shareholder against any claim or liability to which the shareholder may become subject by reason of his being or having been a

shareholder or former shareholder and that the Company shall pay or reimburse each shareholder or former shareholder for all legal and other expenses reasonably incurred by him in connection with any claim or liability. Inasmuch as the Company carries public liability insurance which it considers adequate, any risk of personal liability to shareholders is limited to situations in which the Company's assets plus its insurance coverage would be insufficient to satisfy the claims against the Company and its shareholders.

Common Shares

All Common Shares offered hereby will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other shares or series of beneficial interest and to the provisions of the Company's Declaration of Trust regarding the restriction of the transfer of shares of beneficial interest, holders of Common Shares are entitled to receive dividends on shares if, as and when authorized and declared by the Board of Trustees of the Company out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its shareholders 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.

Subject to the provisions of the Declaration of Trust regarding the restriction of the transfer of shares of beneficial interest, each outstanding Common Share entitles the holder to one vote on all matters submitted to a vote of shareholders, including the election of trustees, and, except as provided with respect to any other class or series of shares of beneficial interest, the holders of such Common Shares possess the exclusive voting power. There is no cumulative voting in the election of trustees, which means that the holders of a majority of the outstanding Common Shares can elect all of the trustees then standing for election and the holders of the remaining shares will not be able to elect any trustees.

Holders of Common Shares have no preference, conversion, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of the Company. Subject to the provisions of the Declaration of Trust regarding the restriction on transfer of Shares of beneficial interest, Common Shares have equal dividend, distribution, liquidation and other rights.

Under the Maryland REIT Law, a Maryland REIT generally cannot dissolve, amend its declaration of trust or merge unless approved by the affirmative vote of shareholders holding at least two-thirds of the shares entitled to vote on the matter unless a lesser percentage (but not less than a majority of all the votes entitled to be cast on the matter) is set forth in the REIT's Declaration of Trust. The Company's Declaration of Trust provides for approval by a majority of all the votes entitled to be cast on the matter in all situations permitting or requiring action by the shareholders except with respect to: (a) the intentional disqualification of the Company as a REIT or revocation of its election to be taxed as a REIT (which requires the affirmative vote of two-thirds of the number of Common Shares entitled to vote on such matter at a meeting of the shareholders of the Company); (b) the election of trustees (which requires a plurality of all the votes cast at a meeting of shareholders of the Company at which a quorum is present); (c) the removal of trustees (which requires the affirmative vote of the holders of two-thirds of the outstanding voting shares of the Company); (d) the amendment or repeal of the Independent Trustee provision in the Declaration of Trust (or any other provision of Article V thereof relating to the Trustees) (which requires the affirmative vote of two-thirds of the outstanding shares entitled to vote on the matter); (e) the amendment of the Declaration of Trust by shareholders (which requires the affirmative vote of a majority of votes entitled to be cast on the matter, except under certain circumstances specified in the Declaration of Trust that require the affirmative vote of two-thirds of all the votes entitled to be cast on the matter); and (f) the dissolution of the Company (which requires the affirmative vote of two-thirds of all the votes entitled to be cast on the matter). Under the Maryland REIT Law, a declaration of trust may permit the trustees by a two-thirds vote to amend the declaration of trust from time to time to qualify as a REIT under the Code or the Maryland REIT Law without the affirmative vote or written consent of the shareholders. The Company's Declaration of Trust permits such action by the Trustees. As permitted by the Maryland REIT Law, the Declaration of Trust contains a provision permitting the Trustees, without any action by the shareholders of the Trust, to amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of any class of shares of beneficial interest that the Company has authority to issue.

Preferred Shares

The Declaration of Trust authorizes the Board of Trustees to classify any unissued Preferred Shares and to reclassify any previously classified but unissued Preferred Shares of any series from time to time in one or more series, as authorized by the Board of Trustees. Prior to issuance of shares of each series, the Board of Trustees is required by the Maryland REIT Law and the Company's Declaration of Trust to set for each such series, subject

to the provisions of the Company's Declaration of Trust regarding the restriction on transfer of shares of beneficial interest, the terms, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such series. Thus, the Board of Trustees could authorize the issuance of Preferred Shares with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium price for holders of Common Shares or otherwise might be in their best interest. As of the date hereof, no Preferred Shares are outstanding and the Company has no present plans to issue any Preferred Shares.

Classification or Reclassification of Common Shares or Preferred Shares

The Company's Declaration of Trust authorizes the Board of Trustees to classify or reclassify any unissued Common Shares or Preferred Shares into one or more classes or series of shares of beneficial interest by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of such new class or series of shares of beneficial interest.

Restrictions on Transfer

The Declaration of Trust, subject to certain exceptions 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 (i) the number of outstanding Common Shares or (ii) the number of outstanding Preferred Shares of any class or series of Preferred Shares (the "Ownership Limitation"). For this purpose, a person includes a "group" and a "beneficial owner" as those terms are used for purposes of Section 13(d)(3) of the Exchange Act. Any transfer of Common or Preferred Shares that would (i) result in any person owning, directly or indirectly, Common or Preferred Shares in excess of the Ownership Limitation,
(ii) result in the Common and Preferred Shares 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, or (iv) cause the Company to own, actually or constructively, 10% or more of the ownership interests in a tenant of the Company's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, will be null and void, and the intended transferee will acquire no rights in such Common or Preferred Shares.

Subject to certain exceptions described below, any Common Shares or Preferred Shares the purported transfer of which would (i) result in any person owning, directly or indirectly, Common Shares or Preferred Shares in excess of the Ownership Limitation, (ii) result in the Common Shares and Preferred Shares 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, or (iv) cause the Company to own, actually or constructively, 10% or more of the ownership interests in a tenant of the Company's or the Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, will be designated as "Shares-in-Trust" and transferred automatically to a trust (a "Trust") effective on the day before the purported transfer of such Common Shares or Preferred Shares. The record holder of the Common or Preferred Shares that are designated as Shares-in-Trust (the "Prohibited Owner") will be required to submit such number of Common Shares or Preferred Shares to the Company for registration in the name of the Trust (the "Record Holder"). The Trustee will be designated by the Company, but will not be affiliated with the Company. The beneficiary of a Trust (the "Beneficiary") will be one or more charitable organizations that are named by the Company.

Shares-in-Trust will remain issued and outstanding Common Shares or Preferred Shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The Record Holder will 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 Record Holder will vote all Shares-in-Trust. The Record Holder 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 Record Holder 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 Record Holder the lesser of (i) the price per share such Prohibited Owner paid for the Common Shares or Preferred Shares 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 Record Holder from the sale of such Shares-in-Trust. Any amounts received by the Record Holder 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 90 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 quoted price as reported by The American Stock Exchange. "Trading Day" shall mean a day on which the principal national securities exchange on which the Common or Preferred Shares are listed or admitted to trading is open for the transaction of business or, if the Common or Preferred Shares are not listed or admitted to trading on any national securities exchange, 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 Common or Preferred Shares in violation of the foregoing restrictions, or any person who owned Common or Preferred Shares that were transferred to a Trust, will be required (i) to give immediately written notice to the Company of such event and (ii) to provide to the Company such other information as the Company may request in order to determine the effect, if any, of such transfer on the Company's 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 Common and Preferred Shares must, within 30 days after December 31 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 Common and Preferred Shares owned directly or indirectly, and a description of how such shares are held. In addition, each direct or indirect shareholder 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 ensure compliance with the Ownership Limitation.

The Ownership Limitation generally will not apply to the acquisition of Common or Preferred Shares by an underwriter that participates in a public offering of such shares. In addition, the Trustees, upon receipt of advice of counsel or other evidence satisfactory to the Trustees, in their sole and absolute discretion, may, in their sole and absolute discretion, exempt a person from the Ownership Limitation under certain circumstances. The foregoing restrictions will continue to apply until (i) the Trustees determines that it is no longer in the best interests of the Company to attempt to qualify, or to continue to qualify, as a REIT and (ii) there is an affirmative vote of two-thirds of the number of Common and Preferred Shares entitled to vote on such matter at a regular or special meeting of the shareholders of the Company.

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

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

Other Matters

The transfer agent and registrar for the Company's Common Shares will be First Union National Bank of North Carolina, Charlotte, North Carolina.

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and of the Declaration of Trust and Bylaws of the Company is subject to and qualified in its entirety by reference to Maryland law and to the Declaration of Trust and Bylaws of the Company.

Classification of the Board of Trustees

The Bylaws provide that the number of trustees of the Company may be established by the Board of Trustees but may not be fewer than three nor more than nine. At the closing of the Offering, there will be seven Trustees. The Trustees may increase or decrease the number of Trustees by a vote of at least 80% of the members of the Board of Trustees, provided that the number of Trustees shall never be less than the number required by Maryland law and that the tenure of office of a Trustee shall not be affected by any decrease in the number of Trustees. Any vacancy will be filled, including a vacancy created by an increase in the number of Trustees, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining Trustees.

Pursuant to the Declaration of Trust, the Board of Trustees is divided into two classes of Trustees, the initial terms expiring in 1999 and 2000, respectively. Beginning in 1999, Trustees of each class are chosen for two-year terms upon the expiration of their current terms and each year one class of Trustees will be elected by the shareholders. The Company believes that classification of the Board of Trustees will help to assure the continuity and stability of the Company's business strategies and policies as determined by the Trustees. Holders of Common Shares will have no right to cumulative voting in the election of Trustees. Consequently, at each annual meeting of shareholders, the holders of a majority of the Common Shares will be able to elect all of the successors of the class of Trustees whose terms expire at that meeting.

The classified board provision could have the effect of making the replacement of incumbent trustees more time consuming and difficult. More than one annual meeting will generally be required to effect a change in a majority of the Board of Trustees. The staggered terms of Trustees may reduce the possibility of a tender offer or an attempt to change control of the Company or other transaction that might involve a premium price for holders of Common Shares, even though a tender offer, change in control or other transaction might be in the best interest of the shareholders.

Removal of Trustees

The Declaration of Trust provides that a Trustee may be removed with or without cause upon the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of Trustees. This provision, when coupled with the provision in the Bylaws authorizing the Board of Trustees to fill vacant trusteeships, precludes shareholders from removing incumbent Trustees, except upon a substantial affirmative vote, and filling the vacancies created by such removal with their own nominees.

Business Combinations

Under the MGCL, as applicable to Maryland REITs, 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 REIT and any person who beneficially owns ten percent or more of the voting power of the trust's shares or an affiliate of the trust who, at any time within the two-year period prior to the date in question, was an Interested Shareholder or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Shareholder becomes an Interested Shareholder. Thereafter, any such business combination must be recommended by the board of trustees of such trust and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the trust and (b) two-thirds of the votes entitled to be cast by holders of voting shares of the trust other than shares held by the Interested Shareholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the trust's common shareholders 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 Shareholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of trustees of the trust prior to the time that the Interested Shareholder becomes an Interested Shareholder.

Control Share Acquisitions

The MGCL contains control share acquisition provisions. The Bylaws of the Company contain a provision opting out of these provisions, but there can be no assurance that such Bylaw provision will not be amended or eliminated at any time in the future.

The MGCL, as applicable to Maryland REITs that have not opted out of the provisions, provides that control shares (as defined below) of a Maryland REIT 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 beneficial interest owned by the acquiror, by officers or by trustees who are employees of the trust. "Control Shares" are voting shares of beneficial interest which, if aggregated with all other such shares of beneficial interest previously acquired by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing trustees within one of the following ranges of voting power: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) 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 shareholder 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 trustees of the trust to call a special meeting of shareholders 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 trust may itself present the question at any shareholders 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 trust 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 acquiror or of any meeting of shareholders at which the voting rights of such shares are considered and not approved. If voting rights for Control Shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders 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 acquiror 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 trust is a party to the transaction or (b) to acquisitions approved or exempted by the declaration of trust or bylaws of the trust.

Amendment

The Declaration of Trust may be amended with the approval of at least a majority of all of the votes entitled to be cast on the matter, provided, that certain provisions of the Declaration of Trust regarding (i) the Company's Board of Trustees, (ii) the restrictions on transfer of the Common Shares and the Preferred Shares, (iii) amendments to the Declaration of Trust by the Trustees and the shareholders of the Company and (iv) the termination of the Company may not be amended, altered, changed or repealed without the approval of two-thirds of all of the votes entitled to be cast on these matters. In addition, the Declaration of Trust may be amended by the Board of Trustees, without shareholder approval to conform the Declaration of Trust to the Maryland REIT law. The Company's Bylaws may be amended or altered exclusively by the Board of Trustees.

Limitation of Liability and Indemnification

The Maryland REIT Law permits a Maryland REIT to include in its Declaration of Trust a provision limiting the liability of its trustees and officers to the trust and its shareholders 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 Declaration of Trust of the Company contains such a provision which limits such liability to the maximum extent permitted by Maryland law.

estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a trustee, director, officer or partner of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former shareholder, Trustee or officer of the Company. The Bylaws of the Company obligate it, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former Trustee or officer who is made a party to the proceeding by reason of his service in that capacity, or (b) any individual who, while a Trustee of the Company and at the request of the Company, serves or has served another real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a trustee, director, officer or partner of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made a party to the proceeding by reason of his service in that capacity against any claim or liability to which he may become subject by reason of such status. The Declaration of Trust and Bylaws also permit the Company to indemnify and advance expenses to any person who served a predecessor of the Company in any of the capacities described above and to any employee or agent of the Company or a predecessor of the Company. The Bylaws require the Company to indemnify Trustee 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.

The Maryland REIT Law permits a Maryland REIT to indemnify and advance expenses to its trustees, officers, employees and agents to the same extent as permitted by the MGCL for directors and officers of Maryland corporations. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In accordance with the MGCL, the Bylaws of the Company require it, as a condition to advancing expenses, to obtain (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the Company as authorized by the Bylaws and (b) a written statement by him or on his behalf to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the standard of conduct was not met.

Operations

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

Dissolution of the Company

Pursuant to the Company's Declaration of Trust, and subject to the provisions of any class or series of shares of beneficial interest of the Company then outstanding, the shareholders of the Company, at any meeting thereof, may dissolve the Company by the affirmative vote of two-thirds of all of the votes entitled to be cast on the matter.

Advance Notice of Trustees Nominations and New Business

The Bylaws of the Company provide that (a) with respect to an annual meeting of shareholders, nominations of persons for election to the Board of Trustees and the proposal of business to be considered by shareholders may be made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board of Trustees or (iii) by a shareholder 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 shareholders, only the business specified in the Company's notice of meeting may be brought before the meeting of shareholders and nominations of persons for election to the Board of Trustees may be made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board of Trustees or (iii) provided that the Board of Trustees has determined that Trustees shall be elected at such meeting, by a shareholder who is entitled to vote at the meeting and has complied with the advance notice provisions set forth in the Bylaws.

Possible Anti-takeover Effect of Certain Provisions of Maryland Law and of the Declaration of Trust and Bylaws

The business combination provisions and, if the applicable provision in the Bylaws is rescinded, the control share acquisition provisions of the MGCL, the provisions of the Declaration of Trust on classification of the Board of Trustees, the removal of Trustees and the restrictions on the transfer of shares of beneficial interest and the advance notice provisions of the Bylaws could have the affect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium price for holders of Common Shares or otherwise be in their best interest.

Maryland Asset Requirements

To maintain its qualification as a Maryland REIT, the Maryland REIT Law requires at least 75% of the value of the Company's assets to be held, directly or indirectly, in real estate assets, mortgages or mortgage related securities, government securities, cash and cash equivalent items, including high-grade short term securities and receivables. The Maryland REIT Law also prohibits the Company from using or applying land for farming, agricultural, horticultural or similar purposes.

SHARES AVAILABLE FOR FUTURE SALE

Upon the completion of the Offering, the Company will have 2,666,667 Common Shares outstanding and approximately 3.5 million Shares reserved for issuance upon redemption of Units. The Common Shares issued in the Offering will be freely tradeable by persons other than "affiliates" of the Company without restriction under the Securities Act, subject to certain limitations on ownership set forth in the Declaration of Trust. See "Description of Shares of Beneficial Interest-Restrictions on Transfer."

Pursuant to the Partnership Agreement, the Hersha Affiliates that own the Selling Partnerships (collectively, the "Limited Partners") will receive the right to redeem their Units (the "Redemption Right") in exchange for cash or, at the election of the Company, Common Shares on a one-for-one basis. The Redemption Rights generally may be exercised by the Limited Partners at any time after one year following the acquisition of the Initial Hotels with respect to the Units issued in connection with the Stabilized Hotels and at any time after the First Adjustment Date or Second Adjustment Date, as applicable, with respect to the Units issued in connection with the Newly-Developed Hotels and the Newly-Renovated Hotels, in whole or in part. See "The Partnership Agreement-Redemption Rights." Any amendment to the Partnership Agreement that would affect the Redemption Rights would require the consent of Limited Partners holding more than 50% of the Units held by Limited Partners (except the Company).

Common Shares issued to holders of Units upon exercise of the Redemption Rights will be "restricted" securities under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144") and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including exemptions contained in Rule 144.

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, as that term is defined under the Securities Act, the acquiror or subsequent holder thereof is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding Common Shares or the average weekly trading volume of the Common Shares during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. 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.

Under certain circumstances, the Company has agreed to file a registration statement with the Commission covering the resale of any Common Shares issued to a Limited Partner upon redemption of Units. The Limited Partners may request such a registration if the Limited Partners, as a group, request registration of at least 250,000 Common Shares; provided however, that only two such registrations may occur each year. Upon such request, the

Company will use its best efforts to have the registration statement declared effective and to keep it effective for a period of 180 days. In addition, the Limited Partners will have "piggyback" registration rights, subject to certain volume and marketing limitations imposed by the Underwriter. If, during the prior two years there has not been an opportunity for a piggyback registration, the Limited Partners holding Units redeemable for at least 50,000 Common Shares may request a registration of those shares. Upon effectiveness of such registration statement, those persons who receive Common Shares upon redemption of Units may sell such shares in the secondary market without being subject to the volume limitations or other requirements of Rule 144. The Company will bear expenses incident to its registration requirements, except that such expenses shall not include any selling commissions, Commission or state securities registration fees, transfer taxes or certain other fees or taxes relating to such shares. Registration rights may be granted to future sellers of hotels to the Partnership who may receive, in lieu of cash, Common Shares, Units or other securities convertible into Common Shares.

Prior to the date of this Prospectus, there has been no public market for the Common Shares. Listing of the Common Shares on the American Stock Exchange is expected to commence following the completion of the Offering. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Shares, or the perception that such sales could occur, may affect adversely prevailing market prices of the Common Shares. See "Risk Factors-Market for Common Shares" and "The Partnership Agreement-Transferability of Interests."

For a description of certain restrictions on transfers of Common Shares held by certain shareholders of the Company, see "Underwriting."

PARTNERSHIP AGREEMENT

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

Management

The Partnership has been organized as a Virginia limited partnership pursuant to the terms of the Partnership Agreement. Pursuant to the Partnership Agreement, the Company, as the sole general partner of the Partnership, will have full, exclusive and complete responsibility and discretion in the management and control of the Partnership, and the Limited Partners will have no authority in their capacity as Limited Partners to transact business for, or participate in the management activities or decisions of, the Partnership. However, any amendment to the Partnership Agreement that would affect the Redemption Rights will require the consent of Limited Partners holding more than 50% of the Units held by such partners.

Transferability of Interests

The Company may not voluntarily withdraw from the Partnership or transfer or assign its interest in the Partnership unless the transaction in which such withdrawal or transfer occurs results in the Limited Partners receiving property in an amount equal to the amount they would have received had they exercised their Redemption Rights immediately prior to such transaction, or unless the successor to the Company contributes substantially all of its assets to the Partnership in return for a general partnership interest in the Partnership. With certain limited exceptions, the Limited Partners may not transfer their interests in the 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 Partnership to be treated as a corporation for federal income tax purposes.

Capital Contribution

The Company will contribute to the Partnership substantially all the net proceeds of the Offering as its initial capital contribution in exchange for approximately a 43% general partnership interest in the Partnership. Although the Partnership will receive substantially all the net proceeds of the Offering, the Company will be deemed to have made a capital contribution to the Partnership in the amount of substantially all the gross proceeds of the Offering and the Partnership will be deemed simultaneously to have paid the Underwriter's selling commissions and other expenses paid or incurred in connection with the Offering. The Hersha Affiliates will become Limited Partners in the Partnership and collectively will own approximately a 57% limited partnership interest in the Partnership. The

value of each Limited Partner's capital contribution shall equal its pro rata share of the value of the interests received by the Partnership. The Partnership Agreement provides that if the Partnership requires additional funds at any time or from time to time in excess of funds available to the Partnership from borrowing or capital contributions, the Company may borrow such funds from a financial institution or other lender and lend such funds to the Partnership on the same terms and conditions as are applicable to the Company's borrowing of such funds. Under the Partnership Agreement, the Company generally is obligated to contribute the proceeds of an offering of shares of beneficial interest as additional capital to the Partnership. Moreover, the Company is authorized to cause the 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 interests of the Company and the Partnership. If the Company so contributes additional capital to the Partnership, the Company will receive additional Units and the Company's percentage interest in the Partnership will be increased on a proportionate basis based upon the amount of such additional capital contributions and the value of the Partnership at the time of such 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 Partnership, the Company will revalue the property of the 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 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 Partnership Agreement, the Limited Partners will receive the Redemption Rights, which will enable them to cause the Partnership to redeem their interests in the Partnership in exchange for cash or, at the option of the Company, Common Shares on a one-for-one basis. The redemption price will be paid in cash in the discretion of the Company or in the event that the issuance of Common Shares to the redeeming Limited Partner would (i) result in any person owning, directly or indirectly, Common Shares in excess of the Ownership Limitation, (ii) result in the shares of beneficial interest of the Company 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 or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common Shares by such redeeming Limited Partner to be "integrated" with any other distribution of Common Shares for purposes of complying with the Securities Act. With respect to the Units issued in connection with the acquisition of the Stabilized Hotels, the Redemption Rights may be exercised by the Limited Partners at any time after one year following the acquisition of the Stabilized Hotels. With respect to the Units issued in connection with the acquisition of the Newly-Developed Hotels and the Newly-Renovated Hotels, the Redemption Rights may not be exercised by the Limited Partners until after the First Adjustment Date or Second Adjustment Date, as applicable. In all cases, however, (i) each Limited Partner may not exercise the Redemption Right for fewer than 1,000 Units or, if such Limited Partner holds fewer than 1,000 Units, all of the Units held by such Limited Partner, (ii) each Limited Partner may not exercise the Redemption Right for more than the number of Units that would, upon redemption, result in such Limited Partner or any other person owning, directly or indirectly, Common Shares in excess of the Ownership Limitation and (iii) each Limited Partner may not exercise the Redemption Right more than two times annually. The aggregate number of Common Shares initially issuable upon exercise of the Redemption Rights will be approximately 3.5 million. The number of Common Shares issuable upon exercise of the Redemption Rights will be adjusted upon the revaluation on the First Adjustment Date and the Second Adjustment Date or the occurrence of share splits, mergers, consolidations or similar pro rata share transactions, which otherwise would have the effect of diluting or increasing the ownership interests of the Limited Partners or the shareholders of the Company.

Operations

The Partnership Agreement requires that the Partnership be operated in a manner that will enable the Company to satisfy the requirements for being classified as a REIT, to avoid any federal income or excise tax liability imposed by the Code (other than any federal income tax liability associated with the Company's retained capital gains), and to ensure that the 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 Partnership, the Partnership will pay all administrative costs and expenses of the Company (the "Company Expenses") and the Company Expenses will be treated as expenses of the Partnership. The Company Expenses generally will include (A) all expenses relating

to the formation and continuity of existence of the Company, (B) all expenses relating to the public offering and registration of securities by the Company,
(C) all expenses associated with the preparation and filing of any periodic reports by the Company under federal, state or local laws or regulations, (D) all expenses associated with compliance by the Company with laws, rules and regulations promulgated by any regulatory body and (E) all other operating or administrative costs of the Company incurred in the ordinary course of its business on behalf of the Partnership. The Company Expenses, however, will not include any administrative and operating costs and expenses incurred by the Company that are attributable to hotel properties that are owned by the Company directly. The Company initially will not own any hotel directly.

Distributions

The Partnership Agreement provides that the Partnership will distribute cash from operations (including net sale or refinancing proceeds, but excluding net proceeds from the sale of the Partnership's property in connection with the liquidation of the Partnership) 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 Partnership. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any partner loans, any remaining assets of the Partnership will be distributed to all partners with positive capital accounts in accordance with their respective positive capital account balances. If the Company has a negative balance in its capital account following a liquidation of the Partnership, it will be obligated to contribute cash to the Partnership equal to the negative balance in its capital account.

Allocations

Income, gain and loss of the Partnership for each fiscal year generally will be allocated among the partners in accordance with their respective interests in the Partnership, subject to compliance with the provisions of Code Sections 704(b) and 704(c) and Treasury Regulations promulgated thereunder.

Term

The Partnership will continue until December 31, 2050, or until sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the Company (unless the Limited Partners elect to continue the Partnership), (ii) the sale or other disposition of all or substantially all the assets of the Partnership,
(iii) the redemption of all Units (other than those held by the Company, if any) or (iv) an election by the General Partner.

Tax Matters

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

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of material federal income tax consequences that may be relevant to a prospective holder of Common Shares. Hunton & Williams has acted as counsel to the Company and has reviewed this summary and is of the opinion that the discussion contained herein fairly summarizes the federal income tax consequences that are likely to be material to a holder of the Common Shares. The discussion does not address all aspects of taxation that may be relevant to particular shareholders in light of their personal investment or tax circumstances, or to certain types of shareholders (including insurance companies, tax-exempt organizations (except as discussed below), financial institutions or broker-dealers, and, except as discussed below, 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 and the opinion of Hunton & Williams are based on current provisions of the Code, existing, temporary, and currently proposed Treasury Regulations, the legislative history of the Code, existing administrative rulings and practices of the Service, and 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 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 COMMON SHARES 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 currently has in effect an election to be taxed as a pass-through entity under subchapter S of the Code, but intends to revoke its S election on the day prior to the closing of the Offering. The Company plans to make an election to be taxed as a REIT under sections 856 through 860 of the Code, effective for its short taxable year beginning on the date of revocation of its S election and ending on December 31, 1998. The Company believes that, commencing with such taxable year, it will be organized and will operate in such a manner as to qualify for taxation as a REIT under the Code, and the Company intends to continue to operate in such a manner, but no assurance can be given that the Company will operate in a manner so as to qualify or remain qualified as a REIT.

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 shareholders. 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 retrospectively.

Hunton & Williams has acted as counsel to the Company in connection with the Offering and the Company's election to be taxed as a REIT. In the opinion of Hunton & Williams, commencing with the Company's short taxable year ending December 31, 1998, and assuming that the elections and other procedural steps described in this discussion of "Federal Income Tax Consequences" are completed by the Company in a timely fashion, the Company will be 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 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 Hunton & Williams' opinion is based on various assumptions and is conditioned upon certain representations made by the Company as to factual matters, including representations regarding the nature of the Company's properties, the Percentage Leases, and the future conduct of the Company's business. Such factual assumptions and representations are described below in this discussion of "Federal Income Tax Consequences" and are set out in the federal income tax opinion that will be delivered by Hunton & Williams at the closing of the Offering. Moreover, such qualification and taxation as a REIT depend upon the Company's ability to meet on a continuing basis, through actual annual operating results, distribution levels, and share ownership, the various qualification tests imposed under the Code discussed below. Hunton & Williams 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 operation 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 shareholders. That treatment substantially eliminates the "double taxation" (i.e., taxation at both the corporate and shareholder levels) that generally results from an investment in a 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. Second, under certain circumstances, the Company may be subject to the "alternative minimum tax" on its undistributed items of tax preference. 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 non-qualifying 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 are, 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 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), and has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the gross income attributable to the greater of the amount by which the Company fails the 75% or 95% gross income test, multiplied by a fraction intended to reflect the Company's profitability. 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. To the extent that the Company elects to retain and pay income tax on its net long-term capital gain, such retained amounts will be treated as having been distributed for purposes of the 4% excise tax. Seventh, if the Company acquires any asset from a C corporation (i.e., a corporation generally subject to full corporate-level tax) in a 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 C corporation and the Company recognizes gain on the disposition of such asset during the 10-year period beginning on the date on which such asset was acquired by the Company, then 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), such gain will be subject to tax at the highest regular corporate rate applicable (as provided in Treasury Regulations that have not yet been promulgated). The results described above with respect to the recognition of "built-in gain" assume that the Company would make an election pursuant to IRS Notice 88-19 if it were to make any such acquisition.

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 beneficial interest 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 to 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; and (ix) that meets certain other tests, described below, regarding the nature of its income and assets. The Code provides that conditions (i) to (iv), inclusive, must be met during the entire taxable year and that 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. The Company anticipates issuing sufficient Common Shares with sufficient diversity of ownership pursuant to the Offering to allow it to satisfy requirements (v) and (vi). In addition, the Company's Declaration of Trust provides for restrictions regarding ownership and transfer of the Common Shares that are intended to assist the Company in continuing to satisfy the share ownership requirements described in (v) and (vi) above. Such transfer restrictions are described in "Description of Shares of Beneficial Interest-Restrictions on Transfer."

For purposes of determining share ownership under the 5/50 Rule, a supplemental unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes is considered an individual, although a trust that is a qualified trust under Code section 401(a) is not considered an individual and the beneficiaries of such trust are treated as holding shares of a REIT in proportion to their actuarial interests in the trust for purposes of the 5/50 Rule.

The Company does not currently have any corporate subsidiaries, nor will it have any corporate subsidiaries immediately after completion of the Offering, although it may have 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 is owned by the REIT. Thus, in applying the requirements described herein, any "qualified REIT subsidiaries" acquired or formed by 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.

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. Thus, the Company's proportionate share of the assets, liabilities and items of income of the 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 maintain its qualification as a REIT, there are two requirements relating to the Company's gross income that 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, in certain circumstances, interest) 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 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.

Rents received by the Company will qualify as "rents from real property" in satisfying the gross income requirements 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 rents received from a tenant will not qualify as "rents from real property" in satisfying the gross income tests if the Company, or an owner of 10% or more of the Company, directly or constructively owns 10% or more of such tenant (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 rents received to qualify as "rents from real property," the Company generally must not operate or manage the property or furnish or render services to the tenants of such 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 with respect to certain de minimis services or 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."

Pursuant to the Percentage Leases, the Lessee will lease from the Partnership the land, buildings, improvements, furnishings and equipment comprising the Initial Hotels for a five-year period. The Percentage Leases provide that the Lessee will be obligated to pay to the Partnership (i) the Rent and (ii) certain other Additional Charges. The Percentage Rent is calculated by multiplying fixed percentages by the gross room and other revenues for each of the Initial Hotels. The Rent accrues and is required to be paid monthly. Until the First Adjustment Date or the Second Adjustment Date, as applicable, the rent on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial Fixed Rents applicable to those hotels. After the First Adjustment Date or the Second Adjustment Date, as applicable, rent will be computed with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels based on the Percentage Rent formulas described herein.

In order for the Rent and the Additional Charges to constitute "rents from real property," the Percentage Leases must be respected as true leases for federal income tax purposes and not treated as service contracts, joint ventures or some other type of arrangement. The determination of whether the Percentage Leases are true leases depends on an analysis of all the surrounding facts and circumstances. In making such a determination, courts have considered a variety of factors, including the following: (i) the intent of the parties, (ii) the form of the agreement, (iii) the degree of control over the property that is retained by the property owner (e.g., whether the lessee has substantial control over the operation of the property or whether the lessee was required simply to use its best efforts to perform its obligations under the agreement), and (iv) the extent to which the property owner retains the risk of loss with respect to the property (e.g., whether the lessee bears the risk of increases in operating expenses or the risk of damage to the property).

In addition, Code section 7701(e) provides that a contract that purports to be a service contract (or a partnership agreement) is treated instead as a lease of property if the contract is properly treated as such, taking into account all relevant factors, including whether or not: (i) the service recipient is in physical possession of the property, (ii) the service recipient controls the property, (iii) the service recipient has a significant economic or possessory interest in the property (e.g., the property's use is likely to be dedicated to the service recipient for a substantial portion of the useful life of the property, the recipient shares the risk that the property will decline in value, the recipient shares in any appreciation in the value of the property, the recipient shares in savings in the property's operating costs, or the recipient bears the risk of damage to or loss of the property), (iv) the service provider does not bear any risk of substantially diminished receipts or substantially increased expenditures if there is nonperformance under the contract, (v) the service provider does not use the property concurrently to provide significant services to

entities unrelated to the service recipient, and (vi) the total contract price does not substantially exceed the rental value of the property for the contract period. Since the determination whether a service contract should be treated as a lease is inherently factual, the presence or absence of any single factor may not be dispositive in every case.

The Company believes that the Percentage Leases will be treated as true leases for federal income tax purposes. Such belief is based, in part, on the following facts: (i) the Partnership and the Lessee intend for their relationship to be that of a lessor and lessee and such relationship will be documented by lease agreements, (ii) the Lessee will have the right to exclusive possession and use and quiet enjoyment of the Initial Hotels during the term of the Percentage Leases, (iii) the Lessee will bear the cost of, and be responsible for, day-to-day maintenance and repair of the Initial Hotels, other than the cost of capital expenditures that are classified as capital items under generally accepted accounting principles which are necessary for the continued operation of the Initial Hotels and will dictate how the Initial Hotels are operated, maintained, and improved, (iv) the Lessee will bear all of the costs and expenses of operating the Initial Hotels (including the cost of any inventory used in their operation) during the term of the Percentage Leases (other than real and personal property taxes, property and casualty insurance, and the cost of replacement or refurbishment of furniture, fixtures and equipment, to the extent such costs do not exceed the allowance for such costs provided by the Partnership under each Percentage Lease), (v) the Lessee will benefit from any savings in the costs of operating the Initial Hotels during the term of the Percentage Leases, (vi) in the event of damage or destruction to an Initial Hotel, the Lessee will be at economic risk because it will be obligated either (A) to restore the property to its prior condition, in which event it will bear all costs of such restoration in excess of any insurance proceeds or (B) to purchase the Initial Hotel for an amount generally equal to the fair market value of the property, less any insurance proceeds, (vii) the Lessee will indemnify the Partnership, as applicable, against all liabilities imposed on the Partnership during the term of the Percentage Leases by reason of (A) injury to persons or damage to property occurring at the Initial Hotels or (B) the Lessee's use, management, maintenance or repair of the Initial Hotels, (viii) the Lessee is obligated to pay substantial fixed rent for the period of use of the Initial Hotels and (ix) the Lessee stands to incur substantial losses (or reap substantial gains) depending on how successfully it operates the Initial Hotels.

Investors should be aware that there are no controlling Treasury Regulations, published rulings, or judicial decisions involving leases with terms substantially the same as the Percentage Leases that discuss whether such leases constitute true leases for federal income tax purposes. If the Percentage Leases are recharacterized as service contracts or partnership agreements, rather than true leases, part or all of the payments that the Partnership receives from the Lessee may not be considered rent or may not otherwise satisfy the various requirements for qualification as "rents from real property." In that case, the Company likely would not be able to satisfy either the 75% or 95% gross income test and, as a result, would lose its REIT status.

In order for the Rent to constitute "rents from real property," several other requirements also must be satisfied. One requirement is that the Rent attributable to personal property leased in connection with the lease of the real property comprising an Initial Hotel must not be greater than 15% of the Rent received under the Percentage Lease. The Rent attributable to the personal property in an Initial Hotel is the amount that bears the same ratio to total rent for the taxable year as the average of the adjusted bases of the personal property associated with the Initial Hotel at the beginning and at the end of the taxable year bears to the average of the aggregate adjusted bases of both the real and personal property comprising the Initial Hotel at the beginning and at the end of such taxable year (the "Adjusted Basis Ratio"). With respect to each Initial Hotel, the initial adjusted bases of the personal property in such hotel will be less than 15% of the initial adjusted bases of both the real and personal property comprising such Hotel. Furthermore, the Partnership will not acquire additional personal property for an Initial Hotel to the extent that such acquisition would cause the Adjusted Basis Ratio for that hotel to exceed 15%. There can be no assurance, however, that the Service would not assert that the adjusted basis of the personal property acquired by the Partnership exceeded the adjusted basis claimed by the Partnership, or that a court would not uphold such assertion. If such a challenge were successfully asserted, the Company could fail the Adjusted Basis Ratio as to one or more of the Initial Hotels, which in turn potentially could cause it to fail to satisfy the 95% or 75% gross income test and thus lose its REIT status.

Another requirement for qualification of the Rent as "rents from real property" is that the Percentage Rent must not be based in whole or in part on the income or profits of any person. The Percentage Rent, however, will qualify as "rents from real property" if it is based on percentages of receipts or sales and the percentages (i) are fixed at the time the Percentage Leases are entered into, (ii) are not renegotiated during the term of the Percentage Leases in a manner that has the effect of basing Percentage Rent on income or profits, and
(iii) conform with normal business practice. More generally, the Percentage Rent will not qualify as "rents from real property" if, considering the Percentage Leases and all the surrounding circumstances, the arrangement does not conform with normal business

practice, but is in reality used as a means of basing the Percentage Rent on income or profits. Since the Percentage Rent is based on fixed percentages of the gross revenues from the Initial Hotels that are established in the Percentage Leases, and the Company has represented that the percentages (i) will not be renegotiated during the terms of the Percentage Leases in a manner that has the effect of basing the Percentage Rent on income or profits and (ii) conform with normal business practice, the Percentage Rent should not be considered based in whole or in part on the income or profits of any person. Furthermore, the Company has represented that, with respect to other hotels that it acquires in the future, it will not charge rent for any 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 of gross revenues, as described above).

A third requirement for qualification of the Rent as "rents from real property" is that the Company must not own, actually or constructively, 10% or more of the ownership interests in the Lessee. The constructive ownership rules generally provide that, if 10% or more in value of the shares of beneficial interest in the Company are owned, directly or indirectly, by or for any person, the Company is considered as owning the shares owned, directly or indirectly, by or for such person. The Company initially will not own, actually or constructively, any interest in the Lessee. The Limited Partners of the Partnership, including Mr. Shah, who is a partner of the Lessee, may acquire Common Shares by exercising their Redemption Rights. The Partnership Agreement, however, provides that a redeeming Limited Partner will receive cash, rather than Common Shares, at the election of the Company or if the acquisition of Common Shares by such partner would cause the Company to own, actually or constructively, 10% or more of the ownership interests in a tenant of the Company's or the Partnership's real property, within the meaning of section 856(d)(2)(B) of the Code. The Declaration of Trust likewise prohibits a shareholder of the Company from owning Common or Preferred Shares that would 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. Thus, the Company should never own, actually or constructively, 10% of more of the Lessee. Furthermore, the Company has represented that, with respect to other hotels that it acquires in the future, it will not rent any property to a Related Party Tenant.

A fourth requirement for qualification of the Rent as "rents from real property" is that the Company cannot furnish or render noncustomary services to the tenants of the Initial Hotels, or manage or operate the Initial Hotels, other than through an independent contractor who is adequately compensated and from whom the Company itself does not derive or receive any income. However, the Company may furnish or render a de minimis amount of "noncustomary services" to the tenants of an Initial Hotel other than through an independent contractor as long as the amount that the Company receives that is attributable to such services does not exceed 1% of its total revenue from the Initial Hotel. For that purpose, the amount attributable to the Company's noncustomary services will be at least equal to 150% of the Company's cost of providing the services. Provided that the Percentage Leases are respected as true leases, the Company should satisfy that requirement because the Partnership will not perform any services other than customary ones for the Lessee. Furthermore, the Company has represented that, with respect to other hotels that it acquires in the future, it will not perform noncustomary services with respect to the tenant of the property. As described above, however, if the Percentage Leases are recharacterized as service contracts or partnership agreements, the Rent likely would be disqualified as "rents from real property" because the Company would be considered to furnish or render services to the occupants of the Initial Hotels and to manage or operate the Initial Hotels other than through an independent contractor who is adequately compensated and from whom the Company derives or receives no income.

If the Rent does not qualify as "rents from real property" because the rents attributable to personal property exceed 15% of the total Rent from an Initial Hotel for a taxable year, the portion of the Rent that is attributable to personal property will not be qualifying income for purposes of either the 75% or 95% gross income test. Thus, if the Rent attributable to personal property, plus any other non-qualifying income, during the taxable year exceeds 5% of the Company's gross income during the year, the Company would lose its REIT status. If, however, the Rent does not qualify as "rents from real property" because either (i) the Percentage Rent is considered based on income or profits of the Lessee, (ii) the Company owns, actually or constructively, 10% or more of the Lessee, or (iii) the Company furnishes noncustomary services (other than certain de minimis services) to the tenants of the Initial Hotels, or manages or operates the Initial Hotels, other than through a qualifying independent contractor, none of the Rent would qualify as "rents from real property." In that case, the Company likely would lose its REIT status because it would be unable to satisfy either the 75% or 95% gross income test.

In addition to the Rent, the Lessee is required to pay to the Partnership the Additional Charges. To the extent that the Additional Charges represent either (i) reimbursements of amounts that the Lessee is obligated to pay to third parties or (ii) penalties for nonpayment or late payment of such amounts, the Additional Charges should qualify as "rents from real property." To the extent, however, that the Additional Charges represent interest that is accrued on

the late payment of the Rent or the Additional Charges, the Additional Charges should not qualify as "rents from real property," but instead should be treated as interest that qualifies for the 95% gross income test.

The term "interest" 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.

The net income derived from any prohibited transaction is subject to a 100% tax. The term "prohibited transaction" generally includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business. All inventory required in the operation of the Initial Hotels will be purchased by the Lessee or its designee as required by the terms of the Percentage Leases. Accordingly, the Company believes that no asset owned by the Company or the Partnership will be held for sale to customers and that a sale of any such asset will not be in the ordinary course of business of the Company or the Partnership. 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 and the Partnership 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 or the Partnership 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."

The Company will be subject to tax at the maximum corporate rate on any income from foreclosure property (other than income that would be qualified income under the 75% gross income test), less expenses directly connected with the production of such income. However, gross income from such foreclosure property will be qualifying income for purposes of the 75% and 95% gross income tests. "Foreclosure property" is defined as any real property (including interests in real property) and any personal property incident to such real property (i) that 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 that such property secured and (ii) for which such REIT makes a proper election to treat such property as foreclosure property. As a result of the rules with respect to foreclosure property, if the Lessee defaults on its obligations under a Percentage Lease for a Hotel, the Company terminates the Lessee's leasehold interest, and the Company is unable to find a replacement lessee for such Hotel within 90 days of such foreclosure, gross income from hotel operations conducted by the Company from such Hotel would cease to qualify for the 75% and 95% gross income tests. In such event, the Company likely would be unable to satisfy the 75% and 95% gross income tests and, thus, would fail to qualify as a REIT.

It is possible that, from time to time, the Company or the Partnership 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 or the Partnership enters into an interest rate swap or cap contract, option, futures contract, forward rate agreement or similar financial instrument to reduce its interest rate risk with respect to indebtedness incurred or to be 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 or the Partnership hedges with other types of financial instruments or in other situations, it may not be entirely clear how the income from those transactions will be treated for purposes of the various income tests that apply to REITs under the Code. 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 may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. Those relief provisions will be generally 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 any incorrect information on the schedule was not 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 those relief provisions. As discussed above in "Federal Income Tax Consequences-Taxation of the Company," even if those relief provisions apply, a 100% tax would be imposed with respect to the gross income attributable to the greater of the amount by which the Company fails the 75% or 95% gross income test, multiplied by a fraction intended to reflect the Company's profitability.

Asset Tests

The Company, at the close of each quarter of its taxable year, also must satisfy 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 through share 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 the mortgage does not exceed the value of the associated real property, and shares of other REITs. For purposes of the 75% asset test, the term "interest in real property" includes an interest in 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 in real property, and an option to acquire real property (or a leasehold in real property). 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 ownership interests in the Partnership or any qualified REIT subsidiary).

For purposes of the asset tests, the Company will be deemed to own its proportionate share of the assets of the Partnership, rather than its partnership interest in the Partnership. The Company has represented that, as of the date of the Offering, (i) at least 75% of the value of its total assets will be represented by real estate assets, cash and cash items (including receivables), and government securities and (ii) it will not own any securities that do not satisfy the 75% asset test. In addition, the Company has represented that it will not acquire or dispose, or cause the Partnership to acquire or dispose, of assets in the future in a way that would cause it to violate either asset test.

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 all of 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 an acquisition of 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 quarter in which it arose.

Distribution Requirements

The Company, in order to qualify as a REIT, is required to distribute dividends (other than capital gain dividends) to its shareholders in an 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 tax return for such year and if paid on or before the first regular dividend payment 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. Furthermore, 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 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 may elect to retain and pay income tax on its net long-term capital gains, as described in "-Taxation of Taxable U.S. Shareholders." Any such retained amount would be treated as having been distributed by the Company for purposes of the 4% excise tax. The Company intends to make timely distributions sufficient to satisfy all 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, it is possible that, from time to time, the Company may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds its allocable share of cash attributable to that sale. Therefore, the Company may have less cash available for distribution 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 additional Common or Preferred Shares.

Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to its shareholders 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.

Recordkeeping Requirement

Pursuant to applicable Treasury Regulations, the Company must maintain certain records and request on an annual basis certain information from its shareholders designed to disclose the actual ownership of its outstanding shares. The Company intends to comply with such requirements.

Partnership Anti-Abuse Rule

The United States Treasury Department has issued a final regulation (the "Anti-Abuse Rule"), under the partnership provisions of the Code (the "Partnership Provisions") that authorizes the Service, in certain "abusive" transactions involving partnerships, to disregard the form of the transaction and recast it for federal tax purposes as the Service deems appropriate. The Anti-Abuse Rule applies where a partnership is formed or utilized in connection with a transaction (or series of related transactions) with a principal purpose of substantially reducing the present value of the partners' aggregate federal tax liability in a manner inconsistent with the intent of the Partnership Provisions. The Anti-Abuse Rule states that the Partnership Provisions are intended to permit taxpayers to conduct joint business (including investment) activities through a flexible economic arrangement that accurately reflects the partners' economic agreement and clearly reflects the partners' income without incurring any entity-level tax. The purposes for structuring a transaction involving a partnership are determined based on all of the facts and circumstances, including a comparison of the purported business purpose for a transaction and the claimed tax benefits resulting from the transaction. A reduction in the present value of the partners' aggregate federal tax liability through the use of a partnership does not, by itself, establish inconsistency with the intent of the Partnership Provisions.

The Anti-Abuse Rule contains an example in which a corporation that elects to be treated as a REIT contributes substantially all of the proceeds from a public offering to a partnership in exchange for a general partnership interest. The limited partners of the partnership contribute real property assets to the partnership, subject to liabilities that exceed their respective aggregate bases in such property. In addition, some of the limited partners have the right, beginning two years after the formation of the partnership, to require the redemption of their limited partnership interests in exchange for cash or REIT stock (at the REIT's option) equal to the fair market value of their respective interests in the partnership at the time of the redemption. The example concludes that the use of the partnership is not inconsistent with the intent of the Partnership Provisions and, thus, cannot be recast by the Service. The Company believes that the Anti-Abuse Rule will not have any adverse impact on its ability to qualify as a REIT. However, the Redemption Rights do not conform in all respects to the redemption rights described in the foregoing example. Moreover, the Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an analysis of all of the facts and circumstances. As a result, there can be no assurance that the Service will not attempt to apply the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse Rule are met, the Service is authorized to take appropriate enforcement action, including disregarding the Partnership for federal tax purposes or treating one or more of its partners as nonpartners. Any such action potentially could jeopardize the Company's status as a REIT.

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 shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders 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. Shareholders

As long as the Company qualifies as a REIT, distributions made to the Company's taxable U.S. shareholders out of current or accumulated earnings and profits (and not designated as capital gain dividends or retained capital gains) will be taken into account by such U.S. shareholders as ordinary income and will not be eligible for the dividends received deduction generally available to corporations. As used herein, the term "U.S. shareholder" means a holder of Common Shares that for U.S. federal income tax purposes is (i) a citizen or resident of the United States, (ii) a corporation, partnership, or other entity created or organized in or under the laws of the United States 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 or (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. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed the Company's actual net capital gain for the taxable year) without regard to the period for which the shareholder has held his Common Shares. However, corporate shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. The Company may elect to retain and pay income tax on its net long-term capital gains. In that case, the Company's shareholders would include in income their proportionate share of the Company's undistributed long-term capital gains. In addition, the shareholders would be deemed to have paid their proportionate share of the tax paid by the Company, which would be credited or refunded to the shareholders. Each shareholder's basis in his shares would be increased by the amount of the undistributed long-term capital gain included in the shareholder's income, less the shareholder's share of the tax paid by the Company.

Distributions in excess of current and accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's Common Shares, 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 shareholder's Common Shares, such distributions will be included in income as long-term capital gain (or short-term capital gain if the Common Shares has been held for one year or less) assuming the Common Shares are capital assets in the hands of the shareholder. In addition, any distribution declared by the Company in October, November, or December of any year and payable to a shareholder of record on a specified date in any such month shall be treated as both paid by the Company and received by the shareholder on December 31 of such year, provided that the distribution is actually paid by the Company during January of the following calendar year.

Shareholders 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 Shares will not be treated as passive activity income and, therefore, shareholders generally will not be able to apply any "passive activity losses" (such as losses from certain types of limited partnerships in which the shareholder is a limited partner) against such income. In addition, taxable distributions from the Company and gain from the disposition of Common Shares generally will be treated as investment income for purposes of the investment interest limitations. The Company will notify shareholders after the close of the Company's taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital, and capital gain.

Taxation of Shareholders on the Disposition of the Common Shares

In general, any gain or loss realized upon a taxable disposition of the Common Shares by a shareholder who is not a dealer in securities will be treated as long-term capital gain or loss if the Common Shares have been held for more than one year and otherwise as short-term capital gain or loss. However, any loss upon a sale or exchange of Common Shares by a shareholder 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 shareholder as long-term capital gain. All or a portion of any loss realized upon a taxable disposition of the Common Shares may be disallowed if other Common Shares 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 maximum tax rate on net capital gains applicable to noncorporate taxpayers is 28% for sales and exchanges of assets held for more than one year but not more than 18 months, and 20% for sales and exchanges of assets held for more than 18 months. The maximum tax rate on long-

term capital gain from the sale or exchange of "section 1250 property" (i.e., depreciable real property) held for more than 18 months is 25% to the extent that such gain would have been treated as ordinary income if the property were "section 1245 property." With respect to distributions designated by the Company as capital gain dividends and any retained capital gains that the Company is deemed to distribute, the Company may designate (subject to certain limits) whether such a dividend or distribution is taxable to its noncorporate stockholders at a 20%, 25% or 28% rate. Thus, the tax rate differential between capital gain and ordinary income for noncorporate taxpayers may be significant. In addition, the characterization of income as capital or ordinary may affect the deductibility of capital losses. Capital losses not offset by capital gains may be deducted against a noncorporate taxpayer's ordinary income only up to a maximum annual amount of $3,000. Unused capital losses may be carried forward. 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.

Information Reporting Requirements and Backup Withholding

The Company will report to its U.S. Shareholders and 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 shareholder 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 shareholder 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 shareholder's income tax liability. In addition, the Company may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their nonforeign status to the Company. The Service has issued final regulations regarding the backup withholding rules as applied to non-U.S. Shareholders. Those regulations alter the current system of backup withholding compliance and will be effective for distributions made after December 31, 1999. See "-Taxation of Non-U.S. Shareholders."

Taxation of Tax-Exempt Shareholders

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 by 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 Common Shares 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 shares of beneficial interest 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 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 shares of beneficial interest 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 beneficial interest 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 shares of beneficial interest or (B) a group of pension trusts individually holding more than 10% of the value of the Company's shares of beneficial interest collectively owns more than 50% of the value of the Company's shares of beneficial interest.

Taxation of Non-U.S. Shareholders

The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no

attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS 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 SHARES, INCLUDING ANY REPORTING REQUIREMENTS.

Distributions to Non-U.S. Shareholders 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 or retained capital gains 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 Shares is treated as effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will be subject to federal income tax at graduated rates, in the same manner as U.S. Shareholders 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. Shareholder that is a foreign 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. Shareholder 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. Shareholder files an IRS Form 4224 with the Company claiming that the distribution is effectively connected income. The Service has issued final regulations that modify the manner in which the Company complies with the withholding requirements. Those regulations are effective for distributions made after December 31, 1999. Distributions in excess of current and accumulated earnings and profits of the Company will not be taxable to a shareholder to the extent that such distributions do not exceed the adjusted basis of the shareholder's Common Shares, 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. Shareholder's Common Shares, such distributions will give rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale or disposition of his Common Shares, 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.

The Company is required 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 qualifies as a REIT, distributions that are attributable to gain from sales or exchanges by the Company of U.S. real property interests will be taxed to a Non-U.S. Shareholder under the 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. Shareholder as if such gain were effectively connected with a U.S. business. Non-U.S. Shareholders thus would be taxed at the normal capital gain rates applicable to U.S. shareholders (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 a 30% branch profits tax in the hands of a foreign corporate shareholder not entitled to treaty relief or exemption. The Company is required to withhold 35% of any distribution that could be designated by the Company as a capital gains dividend. The amount withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares 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 foreign persons. However, because the Common Shares will be publicly traded, no assurance can be given that the Company will be a "domestically controlled REIT." Furthermore, gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the Common Shares is effectively connected with the Non-U.S. Shareholder's U.S. trade or business, in which case the Non-U.S. Shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States 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. However, a Non-U.S. Shareholder that owned, actually or constructively, 5% or less of the Common Shares at all times during a specified testing period will not be subject to tax under FIRPTA if the Common Shares are "regularly traded" on an

established securities market. If the gain on the sale of the Common Shares were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as U.S. shareholders 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 foreign corporations).

Other Tax Consequences

The Company, the Partnership, or the Company's shareholders may be subject to state or local taxation in various state or local jurisdictions, including those in which it or they own property, transact business, or reside. The state and local tax treatment of the Company and its shareholders may not conform to the federal income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.

Tax Aspects of the Partnership

The following discussion summarizes certain federal income tax considerations applicable to the Company's direct or indirect investment in the Partnership. The discussion does not cover state or local tax laws or any federal tax laws other than income tax laws. Because 100% of the interests in the subsidiary partnerships of the Partnership are owned, directly and indirectly, by the Partnership, the subsidiary partnerships will not be treated as entities separate from the partnership for federal income tax purposes. Accordingly, this discussion does not cover the classification of the subsidiary partnerships as partnerships for federal income tax purposes.

Classification as a Partnership

The Company will be entitled to include in its income its distributive share of the Partnership's income and to deduct its distributive share of the Partnership's losses only if the Partnership is classified for federal income tax purposes as a partnership rather than as an association taxable as a corporation. An entity will be classified as a partnership rather than as a corporation for federal income tax purposes if the entity (i) is treated as a partnership under Treasury regulations relating to entity classification (the "Check-the-Box Regulations") and (ii) is not a "publicly traded" partnership.

In general, under the Check-the-Box Regulations, an unincorporated entity with at least two members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will be treated as a partnership for federal income tax purposes. The Partnership intends to be classified as a partnership and the Company has represented that the Partnership will not elect to be treated as an association taxable as a corporation for federal income tax purposes under the Check-the-Box Regulations.

A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). A publicly traded partnership will be treated as a corporation for federal income tax purposes unless at least 90% of such partnership's gross income for a taxable year consists of "qualifying income" under section 7704(d) of the Code, which generally includes any income that is qualifying income for purposes of the 95% gross income test applicable to REITs (the "90% Passive-Type Income Exception"). See "-Requirements for Qualification-Income Tests." The U.S. Treasury Department has issued regulations (the "PTP Regulations") that provide limited safe harbors from the definition of a publicly traded partnership. Pursuant to one of those safe harbors (the "Private Placement Exclusion"), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (i) all interests in the partnership were issued in a transaction (or transactions) that was not required to be registered under the Securities Act, and (ii) the partnership does not have more than 100 partners at any time during the partnership's taxable year. In determining the number of partners in a partnership, a person owning an interest in a flow-through entity (i.e., a partnership, grantor trust or S corporation) that owns an interest in the partnership is treated as a partner in such partnership only if (a) substantially all of the value of the owner's interest in the flow-through entity is attributable to the flow-through entity's interest (direct or indirect) in the partnership and (b) a principal purpose of the use of the flow-through entity is to permit the partnership to satisfy the 100-partner limitation. The Partnership qualifies for the Private Placement Exclusion. If the Partnership is considered a publicly traded partnership under the PTP Regulations because it is deemed to have more than 100 partners, the Partnership should not be treated as a corporation because it should be eligible for the 90% Passive-Type Income Exception.

The Partnership has not requested, and does not intend to request, a ruling from the Service that it will be classified as a partnership for federal income tax purposes. Instead, at the closing of the Offering, Hunton & Williams will deliver its opinion that the Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. Unlike a tax ruling, an opinion of counsel is not binding upon the Service, and no assurance can be given that the Service will not challenge the status of the Partnership as a partnership for federal income tax purposes. If such challenge were sustained by a court, the Partnership would be treated as a corporation for federal income tax purposes, as described below. The opinion of Hunton & Williams will be based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.

If for any reason the Partnership was taxable as a corporation, rather than as a partnership, for federal income tax purposes, the Company would not be able to qualify as a REIT. See "-Requirements for Qualification-Income Tests" and "-Requirements for Qualification-Asset Tests." In addition, any change in the Partnership's status for tax purposes might be treated as a taxable event, in which case the Company might incur a tax liability without any related cash distribution. See "-Requirements for Qualification-Distribution Requirements." Further, items of income and deduction of the Partnership would not pass through to its partners, and its partners would be treated as shareholders for tax purposes. Consequently, the Partnership would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing the Partnership's taxable income.

Income Taxation of the Partnership and its Partners

Partners, Not the Partnership, Subject to Tax. A partnership is not a taxable entity for federal income tax purposes. Rather, the Company will be required to take into account its allocable share of the Partnership's income, gains, losses, deductions, and credits for any taxable year of the Partnership ending within or with the taxable year of the Company, without regard to whether the Company has received or will receive any distribution from the Partnership.

Partnership Allocations. Although a partnership agreement generally will determine the allocation of income and losses among partners, such allocations will be disregarded for tax purposes under section 704(b) of the Code if they do not comply with the provisions of section 704(b) of the Code and the Treasury Regulations promulgated thereunder. 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 Partnership's allocations of taxable income, gain and loss are intended to comply with the requirements of section 704(b) of the Code and the Treasury Regulations promulgated thereunder.

Tax Allocations With Respect to Contributed 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 for federal income tax purposes in a manner such that the contributor is charged with, or benefits from, 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 the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution. The Treasury Department has issued regulations requiring partnerships to use a "reasonable method" for allocating items affected by section 704(c) of the Code and outlining several reasonable allocation methods. The Partnership generally will elect to use the traditional method for allocating Code section 704(c) items with respect to the hotels it acquires in exchange for Units.

Under the Partnership Agreement, depreciation or amortization deductions of the Partnership generally will be allocated among the partners in accordance with their respective interests in the Partnership, except to the extent that the Partnership is required under Code section 704(c) to use a method for allocating tax depreciation deductions attributable to the Initial Hotels or other contributed properties that results in the Company receiving a disproportionately large share of such deductions. In addition, gain on the sale of an Initial Hotel will be specially allocated to the Limited Partners to the extent of any "built-in" gain with respect to such Initial Hotel for federal income tax purposes. Depending on the allocation method elected under Code section 704(c), it is possible that the Company (i) may be allocated lower amounts of depreciation deductions for tax purposes with respect to contributed hotels than would be allocated to the Company if such hotels were to have a tax basis equal to their fair market value at the time of contribution and (ii) may be allocated taxable gain in the event of a sale of such contributed hotels in excess of the economic profit allocated to the Company as a result of such sale. These allocations may cause the

Company to recognize taxable income in excess of cash proceeds, which might adversely affect the Company's ability to comply with the 95% distribution requirement, although the Company does not anticipate that this event will occur. The foregoing principles also will affect the calculation of the Company's earnings and profits for purposes of determining which portion of the Company's distributions is taxable as a dividend. The allocations described in this paragraph may result in a higher portion of the Company's distributions being taxed as a dividend than would have occurred had the Company purchased the Initial Hotels for cash.

Basis in Partnership Interest. The Company's adjusted tax basis in its partnership interest in the Partnership generally will be equal to (i) the amount of cash and the basis of any other property contributed to the Partnership by the Company, (ii) increased by (A) its allocable share of the Partnership's income and (B) its allocable share of indebtedness of the Partnership, and (iii) reduced, but not below zero, by (A) the Company's allocable share of the Partnership's loss and (B) the amount of cash distributed to the Company, including constructive cash distributions resulting from a reduction in the Company's share of indebtedness of the Partnership.

If the allocation of the Company's distributive share of the Partnership's loss would reduce the adjusted tax basis of the Company's partnership interest in the Partnership below zero, the recognition of such loss will be deferred until such time as the recognition of such loss would not reduce the Company's adjusted tax basis below zero. To the extent that the Partnership's distributions, or any decrease in the Company's share of the indebtedness of the Partnership (such decrease being considered a constructive cash distribution to the partners), would reduce the Company's adjusted tax basis below zero, such distributions (including such constructive distributions) will constitute taxable income to the Company. Such distributions and constructive distributions normally will be characterized as capital gain, and, if the Company's partnership interest in the Partnership has been held for longer than the long-term capital gain holding period (currently one year), the distributions and constructive distributions will constitute long-term capital gain.

Depreciation Deductions Available to the Partnership. Immediately after the Offering, the Company will make a cash contribution to the Partnership in exchange for a partnership interest in the Partnership. The Partnership's initial basis in each Initial Hotel for federal income tax purposes should be the same as the Selling Partnership's basis in that hotel on the date of acquisition. Although the law is not entirely clear, the Partnership intends to depreciate such depreciable hotel property for federal income tax purposes over the same remaining useful lives and under the same methods used by the Selling Partnership. The Partnership's tax depreciation deductions will be allocated among the partners in accordance with their respective interests in the Partnership (except to the extent that the Partnership is required under Code section 704(c) to use a method for allocating depreciation deductions attributable to the Initial Hotels or other contributed properties that results in the Company receiving a disproportionately large share of such deductions). To the extent the Partnership acquires additional hotel properties for cash, the Partnership's initial basis in the properties for federal income tax purposes generally will be equal to the purchase price paid by the Partnership. The Partnership plans to depreciate such depreciable hotel property for federal income tax purposes under MACRS. Under MACRS, the Partnership generally will depreciate such furnishings and equipment over a seven-year recovery period using a 200% declining balance method and a half-year convention. If, however, the Partnership places more than 40% of its furnishings and equipment in service during the last three months of a taxable year, a mid-quarter depreciation convention must be used for the furnishings and equipment placed in service during that year. Under MACRS, the Partnership generally will depreciate buildings and improvements over a 39-year recovery period using a straight line method and a mid-month convention.

Sale of the Company's or the Partnership's Property

Generally, any gain realized by the Company or the Partnership on the sale of property held for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Any gain recognized on the disposition of the Initial Hotels will be allocated first to the Limited Partners under section 704(c) of the Code to the extent of their "built-in gain" on those hotels for federal income tax purposes. The Limited Partners' "built-in gain" on the Initial Hotels sold will equal the excess of the Limited Partners' proportionate share of the book value of the Initial Hotels over the Limited Partners' tax basis allocable to the Initial Hotels at the time of the sale. Any remaining gain recognized by the Partnership on the disposition of the Initial Hotels will be allocated among the partners in accordance with their respective percentage interests in the Partnership. The Board of Trustees has adopted a policy that any decision in connection with any transaction involving the Company, including the purchase, sale lease or mortgage of any real estate asset, in which a Trustee or officer of the Company, or any Affiliate thereof, has any interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Company) must be approved by a majority of the Trustees,

including a majority of the Independent Trustees. See "Risk Factors-Conflicts of Interest-Conflicts Relating to Sales or Refinancing of Initial Hotels."

Any gain realized on the sale of any property held by the Company or the Partnership as inventory or other property held primarily for sale to customers in the ordinary course of the Company's or the Partnership's trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. See "-Requirements for Qualification-Income Tests." 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 or to allow the Partnership to acquire or hold any property that represents inventory or other property held primarily for sale to customers in the ordinary course of the Company's or the Partnership's trade or business.

UNDERWRITING

The Company has engaged the Underwriter exclusively to sell 2,500,000 Common Shares on a "best efforts all-or-none" basis. The Offering is being made without a firm commitment by the Underwriter, which has no obligation or commitment to purchase any of the Common Shares. The Company will pay the Underwriter a selling commission of $0.48 per share. The Company intends to sell 166,667 Common Shares directly to certain Hersha Affiliates at the Offering Price and no selling commission will be payable to the Underwriter with respect to such shares.

Unless sooner withdrawn or canceled, the Offering will continue until the earlier of the date on which all the Common Shares offered hereby are sold or
[__________________] (the "Offering Termination Date"). Until the Closing Date, all proceeds from the sale of the Common Shares will be deposited in escrow with First Union National Bank of North Carolina, Charlotte, North Carolina (the "Escrow Agent"). Proceeds deposited in escrow with the Escrow Agent may not be withdrawn prior to the Closing Date or the Offering Termination Date. If the Offering is withdrawn or canceled or if all of the Common Shares offered hereby are not sold and all proceeds therefrom are received by the Company on or prior to the Offering Termination Date, all proceeds will be returned by the Escrow Agent without interest to the persons from which they are received promptly after such withdrawal or cancellation.

Pursuant to the Underwriting Agreement, the obligations of the Underwriter to solicit offers to purchase the shares and of investors solicited by the Underwriter to purchase the Common Shares are subject to approval of certain legal matters by counsel to the Underwriter and to various other conditions which are customary in transactions of this type, including that, as of the closing date of the Offering, there shall not have occurred (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or The American Stock Exchange; (ii) a general moratorium on commercial banking activities in Virginia or New York, (iii) the engagement by the United States in hostilities which have resulted in the declaration of a national emergency or war if any such event would have such a materially adverse effect, in the Underwriter's reasonable judgment, as to make it impracticable or inadvisable to proceed with the solicitation of offers to consummate the offering on the terms and in the manner contemplated herein; or (iv) such a material adverse change in general economic, political, financial or international conditions affecting financial markets in the United States having a material adverse impact on trading prices of securities in general, as, in the Underwriter's reasonable judgment, makes it inadvisable to proceed with the solicitation of offers to purchase the shares or to consummate the offering with respect to investors solicited by the Underwriter on the terms and conditions contemplated herein. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act.

The Company has granted the Underwriter the Underwriter Warrants to purchase 250,000 Common Shares for a period of five years at a price per share equal to 165% of the Offering Price. Until ____________, 2003, the Company has agreed to file with the Commission a shelf registration statement covering the resale of the Underwriter Warrants and all of the Common Shares that may be issued upon exercise of the Underwriter Warrants ("Warrant Shares") in the event that the holders of at least 50,000 Underwriter Warrants (or Warrant Shares) request such registration. The first such registration shall be at the Company's expense. The holders of Underwriter Warrants and/or Warrant Shares may also request piggyback registration of the Underwriter Warrants and Warrant Shares at the Company's expense for a period ending ____________, 2005. Upon any of such requests, the Company will use its best efforts to have such registration statement declared effective and to keep it effective for a period of 180 days.

The Company has granted the Underwriter a right of first refusal, for a period of three years following consummation of the Offering, to act as underwriter or sales agent with respect to any future offering by the Company or the Partnership of any debt or equity securities. This right of first refusal, by limiting the ability of the Company and the Partnership to use other potential underwriters or selling agents, might have the effect of limiting the access of the Company and the Partnership to capital markets.

Pursuant to the Underwriter's right to designate two Trustees to serve on the Board of Trustees of the Company, L. McCarthy Downs, III and ____________________________ have agreed to serve as Trustees. Mr. Downs and _____________ each will receive $15,000 per year for serving as a Trustee of the Company.

The Underwriter may, at its election, employ other brokers, dealers or underwriters in connection with the solicitation of subscriptions to purchase Common Shares. The Underwriter may allow, and such dealers may allow, a concession not in excess of $_______ per share to certain brokers and dealers.

The Underwriter does not intend to sell the Common Shares to any accounts over which it exercises discretionary authority.

Prior to the Offering, there has been no public market for the Common Shares. The initial public offering price is anticipated to be $6.00 per share. See "Risk Factors-Market for Common Shares."

The Company and the Limited Partners have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of any Common Shares (or any securities convertible into, or exercisable or exchangeable for shares in the Company) for a period of 90 days after the date of this Prospectus, without the prior written consent of the Underwriter.

The Company will apply for listing of the Common Shares on The American Stock Exchange under the trading symbol "HT."

EXPERTS

The balance sheet of the Company as of May 27, 1998 and of the Lessee as of May 27, 1998 included in this Prospectus, and the Combined Financial Statements and financial statement schedule of the Selling Partnerships Initial Hotels as of December 31, 1997 and 1996 for each of the three years in the period ended December 31, 1997 included in this Prospectus, have been audited by Moore Stephens, P.C., independent certified public accountants, as set forth in their reports thereon included elsewhere herein and in the Registration Statement. Such Balance Sheets, Combined Financial Statements and financial statement schedule are included in reliance upon such reports given on their authority as experts in accounting and auditing.

REPORTS TO SHAREHOLDERS

The Company intends to furnish its shareholders with annual reports containing consolidated financial statements audited by its independent certified public accountants and with quarterly reports containing unaudited condensed consolidated financial statements for each of the first three quarters of each fiscal year.

LEGAL MATTERS

The validity of the Common Shares offered hereby will be passed upon for the Company by Hunton & Williams. In addition, the description of federal income tax consequences contained in the section of the Prospectus entitled "Federal Income Tax Consequences" is based on the opinion of Hunton & Williams. Certain legal matters related to this Offering will be passed upon for the Underwriter by Willcox & Savage, P.C. Hunton & Williams and Willcox & Savage, P.C. will rely on the opinion of Ballard Spahr Andrews & Ingersoll, LLP as to certain matters of Maryland law.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form S-11 (of which this Prospectus is a part) under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the content of any contract or other document are not necessarily complete. In each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules hereto. For further information regarding the Company and the Common Shares offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules.

The Registration Statement and the exhibits and schedules forming a part thereof filed by the Company with the Commission can be inspected and copies obtained from the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file documents with the Commission, including the Company, and the address is http://www.sec.gov.

GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall have the meanings set forth below for the purposes of this Prospectus.

"5/50 Rule" means the requirement in the Code that not more than 50% in value of the outstanding shares of beneficial interest of the Company be 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.

"Acquisition Policy" means the Company's policy to acquire a hotel for which it expects to receive rents at least equal to 12% of the purchase price paid for the hotel, not of (i) property and casualty insurance premiums, (ii) real estate and personal property taxes, and (iii) a reserve for furniture, fixtures and equipment equal to 4% of gross revenues at the hotel.

"ADA" means the Americans with Disabilities Act of 1990.

"Additional Charges" means certain amounts payable by the Lessee in connection with Percentage Leases, including interest accrued on any late payments or charges.

"ADR" means average daily room rate.

"Affiliate" means (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. The term "person" means and includes 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.

"Assumed Indebtedness" means that certain indebtedness in the aggregate approximate principal amount of approximately $11.7 million secured by Initial Hotels, to be assumed by the Partnership in the Formation Transactions and to remain outstanding after the application of the net proceeds of the Offering.

"Base Rent" means the fixed obligation of the Lessee to pay a sum certain in monthly Rent under each of the Percentage Leases.

"Beneficiary" means the beneficiary of a Trust.

"Board of Trustees" means the Board of Trustees of the Company.

"Bylaws" means the Bylaws of the Company.

"Choice Hotels" means Choice Hotels International, Inc.

"Closing Date" means the closing date of the Offering.

"Closing Price" means the last sale price quoted on the American Stock Exchange.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the United States Securities and Exchange Commission.

"Common Shares" means the common shares of beneficial interest, par value $.01 per share, of the Company.

"Company" means Hersha Hospitality Trust, a Maryland real estate investment trust.

"Debt Policy" means the Company's policy to limit consolidated indebtedness to less than 55% of the aggregate purchase price paid by the Company for the hotels in which it has invested.

"Declaration of Trust" means the Declaration of Trust of the Company, as amended and restated.

"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980, as amended.

"First Adjustment Date" means December 31, 1999.

"Formation Transactions" means the principal transactions in connection with the formation of the Company as a REIT, the Offering and the acquisition of the Initial Hotels.

"Franchise Licenses" means the franchise licenses held by the Lessee for the Initial Hotels.

"Funds From Operations" means net income, (computed in accordance with generally accepted accounting principles), excluding gains, or losses, from debt restructuring or sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

"General Partner" means Hersha Hospitality Trust, as the sole general partner of the Partnership.

"Hersha Affiliates" means Hasu P. Shah; Jay H. Shah; Neil H. Shah; Bharat C. Mehta; Kanti D. Patel; Rajendra O. Gandhi; Kiran P. Patel; David L. Desfor; Madhusudan I. Patni; Manahar Gandhi; Shree Associates; JSK Associates; Shanti Associates; Shreeji Associates; Kunj Associates; Devi Associates; Shreenathji Enterprises, Ltd.; 2144 Associates; 144 Associates, 344 Associates, 544 Associates and 644 Associates, joint tenants doing business as 2544 Associates; the Lessee and their Affiliates, collectively owning 100% of the interests of the Selling Partnerships.

"Hersha Warrants" means warrants that the Partnership has granted to 2744 Associates, L.P., which is a Hersha Affiliate, to purchase 250,000 Units for a period of five years at a price per Unit equal to $165% of the Offering Price.

"Independent Trustee" means a Trustee of the Company who is not an officer, director or employee of the Company, any lessee of the Company's or the Partnership's properties or any underwriter or placement agent of the shares of beneficial interest of the Company that has been engaged by the Company within the past three years, or any Affiliate thereof.

"Initial Hotels" means ten hotels to be owned by the Partnership after the Formation Transactions are completed, which hotels include three Holiday Inn Express hotels, two Hampton Inn hotels, two Holiday Inn hotels, two Comfort Inn hotels and one Clarion Suites hotel.

"Initial Fixed Rent" means the fixed rent payable by the Lessee with respect to the Newly-Developed Hotels and the Newly-Renovated Hotels until the First Adjustment Date or the Second Adjustment Date, as applicable.

"Interested Shareholder" means any person who beneficially owns 10% or more of a company's voting shares, or an Affiliate of a company that, 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 a company's voting shares.

"Lessee" means Hersha Hospitality Management, LP, a Pennsylvania limited partnership, which will lease and operate the Initial Hotels from the Partnership pursuant to the Percentage Leases.

"Limited Partners" means the limited partners of the Partnership.

"Line of Credit" means a $10 million line of credit facility that the Company is currently negotiating to obtain from various lenders.

"Market Price" means, on a given day, the average Closing Price for the five consecutive Trading Days ending on such date.

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

"Newly-Developed Hotels" means the Holiday Inn Express(Registered Trademark) hotels located in Hershey, Pennsylvania and New Columbia, Pennsylvania, the Hampton Inn(Registered Trademark) hotel located in Carlisle, Pennsylvania and the Comfort Inn(Registered Trademark) hotel located in Harrisburg, Pennsylvania.

"Newly-Renovated Hotels" means the Holiday Inn Express(Registered Trademark) hotel located in Harrisburg, Pennsylvania, the Holiday Inn(Registered Trademark) hotel located in Milesburg, Pennsylvania and the Comfort Inn located in Denver, Pennsylvania.

"Non-U.S. Shareholders" means nonresident alien individuals, foreign corporations, foreign partnerships and other foreign shareholders.

"Offering" means the offering of Common Shares hereby.

"Offering Price" means the initial public offering price of the Common Shares in the Offering of $6.00 per share.

"Offering Termination Date" means [_______________]

"Option Agreement" means the option agreement to be executed by the Partnership and Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha Affiliate, granting the Partnership certain rights to acquire certain hotels to be developed or acquired by the Hersha Affiliates.

"Option Plan" means the Hersha Hospitality Trust Option Plan.

"Ownership Limitation" means the restriction on ownership (or deemed ownership by virtue of the attribution provisions of the Code) of more than 9.9% of the number of outstanding Common Shares or the number of outstanding Preferred Shares of any series.

"Partnership" means Hersha Hospitality Limited Partnership, a limited partnership organized under the laws of the Commonwealth of Virginia.

"Partnership Agreement" means the partnership agreement of the Partnership, as amended and restated.

"Percentage Leases" mean operating leases between the Lessee and the Partnership pursuant to which the Lessee will lease the ten Initial Hotels from the Partnership and any additional hotels acquired by the Company after the date of the Offering.

"Percentage Rents" means Rent based on percentages of revenues payable by the Lessee pursuant to the Percentage Leases.

"Preferred Shares" means the preferred shares of beneficial interest, par value $.01 per share, of the Company.

"Prohibited Owner" means the record owner of Shares-in-Trust.

"Redemption Right" means the right of the persons receiving Units in the Formation Transactions to cause the redemption of Units in exchange for cash or, at the option of the Company, Common Shares on a one-for-one basis.

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

      "Rent" means the Initial  Fixed Rent,  the Base Rent and the  Percentage
Rents.

"REVPAR" means revenue per available room for the applicable period, determined by dividing room revenue by available rooms.

"Rule 144" means 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.

"Securities Act" means the Securities Act of 1933, as amended.

"Second Adjustment Date" means December 31, 2000.

"Selling Partnerships" means Hasu P. Shah; Neil H. Shah; Bharat C. Mehta; David L. Desfor; Madhusudan I. Patni; Manahar Gandhi; Shree Associates; JSK Associates; Shanti Associates; Shreeji Associates; Kunj Associates; Devi Associates; Shreenathji Enterprises, Ltd.; 2144 Associates; and 144 Associates, 344 Associates, 544 Associates and 644 Associates, joint tenants doing business as 2544 Associates, collectively the limited partnerships, corporation and individuals that, prior to the Formation Transactions, own the Initial Hotels.

"Service" means the United States Internal Revenue Service.

"Shares-in-Trust" means any Common Shares or Preferred Shares the purported transfer of which would (i) result in any person owning, directly or indirectly, Common Shares or Preferred Shares in excess of the Ownership Limitation, (ii) result in the Common Shares and Preferred Shares 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, or (iv) cause the Company to own, actually or constructively, 10% or more of the ownership interests in a tenant of the Company's, the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code.

"Stabilized Hotels" means the Hampton Inn(Registered Trademark) hotel located in Selinsgrove, Pennsylvania, the Holiday Inn(Registered Trademark) hotel located in Harrisburg, Pennsylvania and the Clarion Suites(Registered Trademark) hotel located in Philadelphia, Pennsylvania.

"Threshold" means the amount of annual room revenues set out in each Percentage Lease above which the Lessee will pay a Percentage Rent relating to annual room revenues above that Threshold.

"Trading Day" means a trading day on the American Stock Exchange.

"Treasury Regulations" means the income tax regulations promulgated under the Code.

"Trust" means a trust established to hold Shares-in-Trust.

"Trustee" means a member of the Company's Board of Trustees.

"Trustees' Plan" means the Hersha Hospitality Trust Non-Employee Trustees' Option Plan.

"Underwriter" means Anderson & Strudwick, Incorporated.

"Underwriter Warrants" means warrants that the Company has granted the Underwriter to purchase 250,000 Common Shares for a period of five years at a price per Unit equal to 165% of the Offering Price.

"Units" means units of limited partnership interest in the Partnership.

INDEX TO PRO FORMA CONDENSED AND COMBINED FINANCIAL STATEMENTS

Hersha Hospitality Trust

  Condensed Statement of Estimated Revenues and Expenses for the
  three months ended March 31, 1998 .................................   F-2

  Condensed Statement of Estimated Revenues and Expenses for the
  year ended December 31, 1997.......................................   F-4

  Pro Forma Condensed Combined Balance Sheet as of March 31, 1998....   F-5

  Independent Auditors' Report.......................................   F-8

  Balance Sheet as of May 27, 1998...................................   F-9

  Notes to Balance Sheet.............................................   F-10

Hersha Hospitality Limited Partnership

Financial statements are not presented as the Partnership is not active and when active will be consolidated with the financial results of Hersha Hospitality Trust.

Hersha Hospitality Management, L.P.

  Independent Auditors' Report.......................................   F-12

  Balance Sheet as of May 27, 1998...................................   F-13

  Notes to Balance Sheet.............................................   F-14

Combined Entities - Initial Hotels

  Pro Forma Condensed Combined Statement of Operations
  for the three months ended March 31, 1998 ..........................  F-15

  Pro Forma Condensed Combined Statement of Operations
  for the year ended December 31, 1997................................  F-16

  Independent Auditors' Report........................................  F-17

  Combined Financial Statements

   Balance Sheets as of March 31, 1998 [Unaudited] and December 31, 1997
   and 1996...........................................................  F-18

   Statements of Operations for the three months ended March 31, 1998
   and 1997 [Unaudited] and for the years ended December 31, 1997, 1996,
   and 1995..........................................................   F-19

   Statement of Owners' Equity for the three months ended March 31, 1998
   [Unaudited] and for the years ended December 31, 1997, 1996,
   and 1995...........................................................  F-20

   Statements of Cash Flows for the three months ended March 31,
   1998 and 1997 [Unaudited] and for the years ended
   December 31, 1997, 1996, and 1995..................................  F-21

   Notes to Combined Financial Statements............................   F-23

  Schedule XI - Real Estate and Accumulated Depreciation.............   F-31

                         .   .   .   .   .   .   .   .   .

F-1

HERSHA HOSPITALITY TRUST

CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]

This unaudited Condensed Statement of Estimated Revenues and Expenses of Hersha Hospitality Trust is presented as if the acquisition of the Initial Hotels and the consummation of the Offering contemplated by this prospectus had occurred on January 1, 1997. Such estimated information is based in part upon the pro forma Condensed Combined Statements of Operations of the Combined Entities - Initial Hotels and the application of the proceeds of the offering as set forth under the caption "Use of Proceeds"and assumes the issuance of 3,450,833 Units to the Hersha Affiliates which give rise to a minority interest percentage of 56.41%. It should be read in conjunction with the pro forma Condensed Combined Statements of Operations and the Combined Financial Statements and Notes thereto of the Combined Entities - Initial Hotels included at pages F-17 through F-28 of this Prospectus. In management's opinion, all adjustments necessary to reflect the effects of this transaction have been made.

The historical results of operations which provide the basis for the pro forma information excludes any operations for a hotel opened in May 1998.

This unaudited Condensed Statement of Estimated Revenues and Expenses is not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1997, nor does it purport to represent the results of operations for future periods.

                                                         Three months ended
                                           Historical  Adjustments March 31, 1998

Operating Data:
  Percentage Lease Revenue                   $    --  $   1,179[A]  $  1,179
  Depreciation and Amortization                   --        382[B]       394
                                                             12[G]
  Real Estate and Personal Property Taxes and
   Property Insurance                             --         96[C]        96
  Interest Expense                                --        246[D]       246
  General and Administrative                      --         84[E]        84
  Land Lease                                      --          5[F]         5
  Minority Interest                               --        200[H]       200
                                             -------  ---------     --------


  Net Income Applicable to Common
   Shareholders                                $  --      $154         $ 154
                                             =======  =========     ========

Weighted Average Number of Common
 Shares Outstanding                                                2,666,667
                                                                   =========

Basic Earnings Per Share                                           $     .06
                                                                   =========

F-2

HERSHA HOSPITALITY TRUST

CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]

[Continued]

[B] Represents depreciation on the Initial Hotel properties and renovations thereto and amortization of intangibles excluding franchise fees. Depreciation is computed based upon estimated useful lives of 15 to 40 years for buildings and improvements, 5 to 7 years for furniture and equipment and 5 to 30 years for intangibles. These estimated useful lives are based on management's' knowledge of the properties and the hotel industry in general.
[C] Represents real estate and personal property taxes and property insurance to be paid by the Partnership.
[D] Represents interest on approximately $11,753 of debt remaining after the closing of the formation transactions assumed outstanding for the full quarter at 8.38%.
[E] Estimated at $84 per quarter based on the administrative services agreement, legal fees, audit fees, directors fees, salaries and related expenses.
[F] Represents land lease payments to be paid to Mr. Hasu P. Shah.
[G] Represents amortization of franchise license transfer fees, transfer taxes, improvements, and other.
[H] Calculated at 56.41% of lease income minus depreciation and amortization, real estate and personal property taxes, property insurance, interest expense, land leases and general and administrative expenses.

F-3

HERSHA HOSPITALITY TRUST

CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE YEAR ENDED
DECEMBER 31, 1997.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]

The historical results of operations which provide the basis for the pro forma information includes the operations of three hotel properties only from the date they commenced operations in June, October and December 1997. The pro forma information excludes any operations for a hotel opened in May 1998.

                                                                         Year ended
                                            Historical Adjustments    December 31,1997

Operating Data:
  Percentage Lease Revenue                  $    --   $   4,945[A]        $  4,945
  Depreciation and Amortization                  --       1,143[B]           1,190
                                                             47[G]
  Real Estate and Personal Property Taxes and
   Property Insurance                            --         375[C]             375
  Interest Expense                               --         873[D]             873
  General and Administrative                     --         335[E]             335
  Land Lease                                     --          21[F]              21
  Minority Interest                              --       1,213[H]           1,213
                                            -------    ---------          --------


  Net Income Applicable to Common
    Shareholders                            $    --   $     938           $    938
  --------------------------------          =======   =========           ========

Weighted Average Number of Common Shares Outstanding                     2,666,667
                                                                         =========
Basic Earnings Per Share                                                 $     .35
                                                                         =========

[A] Represents anticipated lease payments from Hersha Hospitality Management, L.P. [the "Lessee"] to Hersha Hospitality Limited Partnership [the "Partnership"] calculated on a pro forma basis using the rent provisions in the Percentage Leases and the historical revenue of the Initial Hotels.
[B] Represents depreciation on the Initial Hotel properties and renovations thereto and amortization of intangibles excluding franchise fees. Depreciation is computed based upon estimated useful lives of 15 to 40 years for buildings and improvements, 5 to 7 years for furniture and equipment and 5 to 30 years for intangibles. These estimated useful lives are based on management's' knowledge of the properties and the hotel industry in general.
[C] Represents real estate and personal property taxes and property insurance to be paid by the Partnership.
[D] Represents interest on approximately $10,407 of debt remaining after the closing of the formation transactions assumed outstanding for the full year at 8.39%.
[E] Estimated at $335 per year based on the administrative services agreement, legal fees, audit fees, directors fees, salaries and related expenses.
[F] Represents land lease payments to be paid to Mr. Hasu P. Shah.
[G] Represents amortization of franchise license transfer fees, transfer taxes, improvements and other.
[H] Calculated at 56.41% of lease income minus depreciation and amortization, real estate and personal property taxes, property insurance, interest expense, land leases and general and administrative expenses.

F-4

HERSHA HOSPITALITY TRUST

PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]

This unaudited pro forma Condensed Combined Balance Sheet is presented as if the acquisition of the Initial Hotels and the consummation of the Offering contemplated by this prospectus had occurred on March 31, 1998. Such pro forma information is based upon the Combined Balance Sheets of the Combined Entities - Initial Hotels as adjusted for the application of the proceeds of the Offering as set forth under the caption "Use of Proceeds"and assumes the issuance of 3,450,833 Units to the Hersha Affiliates which give rise to a minority interest percentage of 56.41%. It should be read in conjunction with the Combined Financial Statements of the Combined Entities - Initial Hotels and the Notes thereto included at pages F-17 through F-28 of this Prospectus. In management's opinion, all adjustments necessary to reflect the effects of this transaction have been made.

This unaudited pro forma Condensed Combined Balance Sheet is not necessarily indicative of what the actual financial position would have been assuming such transactions had been completed as of March 31, 1998, nor does it purport to represent the future financial position of the Company.

F-5

HERSHA HOSPITALITY TRUST

PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]

                          Historical
                           Combined
                           Entities   Proceeds of Pro Forma      Use of   Pro Forma
                        Initial Hotels Offering    Company      Proceeds   Company
                                          [A]        [B]                     [C]
Assets:
  Net Investment in Hotel
   Properties             $   26,125  $    --    $   26,125 $    (250) [D] $ 25,966
                                                                 (256) [E]
                                                                 (153) [E]
  Cash                           442   14,213        14,655   (14,655) [D]       --
  Other Assets                 1,105       --         1,105    (1,105) [E]       --
  Intangibles                  1,397       --         1,397       488  [D]    1,595
                                                                 (290) [E]


  Total Assets            $   29,069  $14,213    $   43,282 $ (15,721)     $ 27,561
                          ==========  =======    ========== =========      ========


Liabilities:
  Mortgages               $   17,667  $    --    $   17,667 $  (5,914) [D] $ 11,753
  Due to Related Parties       7,561       --         7,561    (7,561) [D]       --
  Accounts Payable, Accrued
   Expenses and Other
   Liabilities                   567       --           567      (567) [E]       --
                          ----------  -------    ---------- ---------      --------

  Total Liabilities           25,795       --        25,795   (14,042)       11,753
                          ----------  -------    ---------- ---------      --------

Minority Interest in
  Partnership                     --       --            --     8,917  [F]    8,917
                          ----------  -------    ---------- ---------      --------

Shareholders' Equity:
  Common Shares                   --       27            27        --            27

  Additional Paid-in Capital      --   14,186        14,186    (7,322)[G]     6,864

  Net Combined Equity          3,274       --         3,274    (3,274)[F,G]
                          ----------  -------    ---------- ----------

  Total Shareholders' Equity   3,274   14,213        17,470   (10,587)        6,891
                          ----------  -------     --------- ----------     ========


  Total Liabilities and

   Shareholders' Equity   $   29,069  $14,213    $   43,282 $ (15,721)     $ 27,561
                          ==========  =======    ========== =========      ========

F-6

HERSHA HOSPITALITY TRUST

PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]

[A] Represents proceeds of the Offering ($16,000) less expenses of the Offering ($1,787).

[B] Represents the combined interests of the Initial Hotels and the Company after the proceeds of the Offering, but before the use of proceeds.

[C] Represents the combined interests of the Company after the use of the proceeds of the offering.

[D]  Net decrease reflects the following proposed transactions:
      Cash Not Being Purchased                                          $       442
      Repayment of Amounts Payable to Affiliates and Partners                 7,561
      Repayment of Mortgage Indebtedness                                      5,914
      Payment of Franchise License Transfer Fees ($145) Transfer Taxes        ($233)
        Improvements ($250) and Other ($110)                                    738
                                                                        -----------


    Net Decrease in Cash                                                 $   14,655
                                                                        ===========

[E] Assets and liabilities; not being purchased consist of:
     Cash                                                               $      (442)
     Land                                                                      (256)
     Personal Property                                                         (153)
     Other Assets                                                            (1,105)
     Initial Franchise License Fees                                            (290)
     Accounts Payable, Accrued Expenses and Other Liabilities                   567
                                                                        -----------

     Net Assets and Liabilities Not Purchased                           $    (1,679)
                                                                        ===========

[F]Represents the recognition of the interest in the Partnership that will not
   be owned by the Company determined as follows:

     Net Proceeds of Offering                                           $    14,213
     Net Combined Equity                                                      3,274
     Net Assets Not Acquired                                                 (1,679)
                                                                        -----------

                                                                             15,808
     Minority Interest Percentage                                             .5641


     Minority Interest                                                  $     8,917
                                                                        ===========


[G] Net decrease reflects the following proposed transactions:

      Elimination of Net Combined Equity                                $     3,274
      Assets and Liabilities of Initial Hotels Not Purchased                 (1,679)
      Recognition of Minority Interest in Partnership                        (8,917)
                                                                        -----------


                                                                        $    (7,322)

F-7

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder Hersha Hospitality Trust

We have audited the accompanying balance sheet of Hersha Hospitality Trust as of May 27, 1998. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on the balance sheet 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 balance sheet is free of material misstatement. An audit includes examining, on a test bases, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Hersha Hospitality Trust as of May 27, 1998, in conformity with generally accepted accounting principles.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
May 27, 1998

F-8

HERSHA HOSPITALITY TRUST

BALANCE SHEET AS OF MAY 27, 1998.

Assets                                                                  $        --
                                                                        ===========


Liabilities and Shareholders' Equity:
Liabilities                                                                      --

Commitments and Contingencies                                                    --

Shareholders' Equity:
  Common Shares, $.01 par value, 1,000 shares authorized, 100
   shares issued and outstanding                                                  1

  Additional paid-in capital                                                     99

  Subscription Receivable                                                      (100)
                                                                        -----------

  Total Liabilities and Shareholders' Equity                            $        --
                                                                        ===========

The Accompanying Notes Are an Integral Part of This Financial Statement.

F-9

HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998

[1] Organization and Basis of Financial Presentation

Hersha Hospitality Trust [the "Company"] was formed in May, 1998 to acquire equity interests in ten existing hotel properties. The Company is a self-administered, Maryland real estate investment trust ["REIT"] and expects to qualify as a REIT for Federal income tax purposes. As such, the Company is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 95% of its taxable income. The Company intends to offer for sale 2,666,667 [See Note 3] common shares in an initial public offering [the "Offering"] and Hersha Hospitality Limited Partnership [the "Partnership"] will issue approximately 3,500,000 Units of partnership interest ["Units"] to Mr. Hasu P. Shah and certain affiliates owning 100% of the ownership interest in the ten existing hotel properties [the "Hersha Affiliates" or "Combined Entities"], which are redeemable under certain circumstances beginning after one year from the closing of the Offering. The number of Units issued is subject to adjustment based on the performance of certain Initial Hotels which as of the date of the Offering do not have established operating histories.

Upon completion of the offering, the Company will contribute substantially all of the net proceeds of the Offering to Partnership in exchange for an approximate 43% general partnership interest in the Partnership. The Partnership will use the proceeds from the Company to acquire ten existing hotel properties
[collectively the "Initial Hotels"]. The Partnership will acquire the Initial Hotels in exchange for (i) Units, which will be redeemable, subject to certain limitations, for an aggregate of approximately 3,500,000 Common Shares of the Company valued at approximately $21 million based on an offering price of $6.00 per Common Share [the "Offering Price"] , and (ii) the assumption of approximately $24 million of outstanding indebtedness as of December 31, 1997. The Hersha Affiliates have agreed that they will (i) exchange all their interests in the Initial Hotels for Units in the Partnership, and (ii) grant an option to the Company to acquire any hotels acquired or developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any hotel subsequently acquired by the Company.

After consummation of the Offering, (a) the Company will own approximately 43% of the Partnership, (b) the Hersha Affiliates will own approximately 57% of the Partnership, and (c) the Partnership will own 100% of the equity interest in the Initial Hotels.

[2] Summary of Significant Accounting Policies

Distributions - The Company intends to pay regular quarterly dividends which are initially dependent upon receipt of distributions from the Partnership.

[3] Commitments and Contingencies

The Company, in conjunction with the Offering, intends to amend its Declaration of Trust to provide for the issuance of up to 50,000,000, $.01 par value, common shares of beneficial interest and 10,000,000, $.01 par value, preferred shares of beneficial interest.

In conjunction with the offering, the Partnership will enter into agreements for the acquisition of the ten Initial Hotels and will enter into percentage lease agreements with Hersha Hospitality Management L.P. [the "Lessee"]. Under the Percentage Leases, the Partnership is obligated to pay the costs of certain capital improvements, real estate and personal property taxes and property insurance, and to make available to the Lessee an amount equal to 4% [6% for some hotels] of room revenues per quarter, on a cumulative basis, for the periodic replacement or refurbishment of furniture, fixtures and equipment at the Initial Hotels.

F-10

HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998, Sheet #2

[3] Commitments and Contingencies [Continued]

Pursuant to the Partnership Agreement, the Hersha Affiliates will receive Redemption Rights, which will enable them to cause the Partnership to redeem their interests in the Partnership in exchange for Common Shares or for cash at the election of the Company. The Redemption Rights may be exercised by the Hersha Affiliates commencing one year following the closing of the Offering depending on the length of time the hotel has been in operation. The number of Common Shares initially issuable to the Hersha Affiliates upon exercise of the Redemption Rights is approximately 3,500,000 and has been determined based on the value of their interests in the Combined Entities divided by the expected offering price of $6.00 per share. The number of shares issuable upon exercise of the Redemption Rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro rata share transactions which otherwise would have the effect of diluting the ownership interests of the Hersha Affiliates or the shareholders of the Company.

The Company acts as the general partner in the Partnership and as such, is liable for all recourse debt of the Partnership to the extent not paid by the Partnership. In the opinion of management, the Company does not anticipate any losses as a result of its general partner obligations.

The Company expects to incur expenses of approximately $275,000 related to the transfer of ownership of the franchise licenses from the existing owners to the Lessee.

Summary operating results for the Initial Hotels [in thousands] are as follows:

                               Three months ended           Years ended
                                     March 31,              December 31,
                               1998           1997     1997     1996      1995
                               -----         -----     ----    -----    -------
                             [Unaudited]  [Unaudited]

Total Revenue                 $ 3,143       $ 2,286   $13,445 $ 9,989  $  7,219
Total Expenses                  3,022         2,261    11,716  10,017     7,595
                              -------       -------   ------- -------  --------

  Net Income [Loss]           $   121       $    25   $ 1,729 $   (28) $   (376)
  -----------------           =======       =======   ======= =======  ========

[4] Subsequent Event [Unaudited]

Prior to the Offering, the Company will adopt the Company's "Option Plan". The Option Plan will be administered by the Compensation Committee of the Board of Trustees, or its delegate [the "Administrator"].

Officers and other employees of the Company generally will be eligible to participate in the Option Plan. The Administrator will select the individuals who will participate in the Option Plan ["Participants"].

The Option Plan will authorize the issuance of options to purchase up to 650,000 Common Shares. The Plan provides for the grant of (i) options intended to qualify as incentive stock options under Section 422 of the Code, and (ii) options not intended to so qualify. Options under the Option Plan may be awarded by the Administrator, and the Administrator will determine the option exercise period and any vesting requirements. The options granted under the Option Plan will be exercisable only if (i) the Company obtains a per share closing price on the Common Shares of $9.00 or higher for 20 consecutive trading days and (ii) the closing price per Common Share for the prior trading day was higher. In addition, no option granted under the Option Plan may be exercised more than five/ten years after the date of grant. The exercise price for options granted under the Option Plan will be determined by the Compensation Committee at the time of grant.

F-11

HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998, Sheet #3

[4] Subsequent Event [Unaudited]

No option award may be granted under the Option Plan more than ten years after the date the Board of Trustees approved such Plan. The Board may amend or terminate the Option Plan at any time, but an amendment will not become effective without shareholder approval if the amendment (i) increases the number of shares that may be issued under the Option Plan, (ii) materially changes the eligibility requirements or (iii) extends the length of the Option Plan. No amendment will affect a Participant's outstanding award without the Participant's consent.

No options have been granted under the Option Plan.

. . . . . . . .

F-12

INDEPENDENT AUDITORS' REPORT

To the Partners of
Hersha Hospitality Management, L.P.

We have audited the accompanying balance sheet of Hersha Hospitality Management, L.P. as of May 27, 1998. This balance sheet is the responsibility of the Partnership's management. Our responsibility is to express an opinion on the balance sheet 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 balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Hersha Hospitality Management, L.P. as of May 27, 1998, in conformity with generally accepted accounting principles.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
May 27, 1998

F-13

HERSHA HOSPITALITY MANAGEMENT, L.P.

BALANCE SHEET AS OF MAY 27, 1998.

Assets                                                                  $        --
                                                                        ===========


Liabilities and Partners' Capital:
Liabilities                                                                      --

Commitments and Contingencies                                                    --

Partners' Capital                                                                --
                                                                        -----------

  Total Liabilities and Partners' Capital                               $        --
                                                                        ===========

The Accompanying Notes Are an Integral Part of This Financial Statement.

F-14

HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO BALANCE SHEET AS OF MAY 27, 1998.

[1] Organization

Hersha Hospitality Management, L.P. [the "Lessee"] was organized under the laws of the State of Pennsylvania in May, 1998 to lease and operate ten existing hotel properties from Hersha Hospitality Limited Partnership [the "Partnership"]
[collectively the "Initial Hotels"]. The Lessee is owned by Mr. Hasu P. Shah and certain affiliates some of whom have ownership interests in the Initial Hotels.

[2] Commitments

The Lessee will enter into Percentage Leases, each with an initial term of 5 years with two 5 year renewal options, relating to each of the Initial Hotels. Pursuant to the terms of the Percentage Leases, the Lessee is required to pay the greater of the Base Rent or the Percentage Rent for hotels with established operating histories. The Base Rent is 6.5 percent of the purchase price assigned to each Initial Hotel. The Percentage Rent for each Initial Hotel is comprised of (i) a percentage of room revenues up to the Threshold, (ii) a percentage of room revenues in excess of the Threshold, but not more than the Incentive Threshold, (iii) a percentage of room revenues in excess of the Incentive Threshold and (iv) a percentage of revenues other than room revenues. For hotels with limited operating histories, the leases provide for the payment of Initial Fixed Rent for certain periods as specified in the leases and the greater of Base Rent or Percentage Rent thereafter. The Lessee also will be obligated to pay certain other amounts, including interest accrued on any late payments or charges. The Lessee is entitled to all profits from the operations of the Initial Hotels after the payment of certain specified operating expenses.

The Lessee will assume the rights and obligations under the terms of existing franchise licenses relating to the Initial Hotels upon acquisition of the hotels by the Partnership. The franchise licenses generally specify certain management, operational, accounting, reporting and marketing standards and procedures with which the franchisee must comply and provide for annual franchise fees based upon percentages of gross room revenue.

The Lessee will provide certain administrative services to the Partnership for an annual fee of $55,000 plus $10,000 per hotel.

. . . . . . . .

F-15

COMBINED ENTITIES - INITIAL HOTELS

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998.
[UNAUDITED IN THOUSANDS]

This unaudited pro forma Condensed Combined Statement of Operations is presented as if the sale of the Initial Hotels and the consummation of the Offering contemplated by this prospectus had occurred on January 1, 1997. Such pro forma information is based in part upon the Combined Statements of Operations of the Combined Entities Initial Hotels and the application of the proceeds of the Offering as set forth under the caption "Use of Proceeds." It should be read in conjunction with the Combined Financial Statements and Notes thereto of the Combined Entities - Initial Hotels included at pages F-17 through F-28 of this Prospectus, In management's opinion, all adjustments necessary to reflect the effects of this transaction have been made.

This unaudited pro forma Condensed Combined Statement of Operations is not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1997, nor does it purport to represent the results of operations for future periods.

                                            Three months ended March 31, 1998
                                         Historical
                                          Combined
                                         Entities -
                                       Initial Hotels   Adjustments    Pro Forma
Total Revenue                             $ 3,143     $      --     $  3,143
Expenses:
  Initial Hotel Operating
  Costs and Expenses                        1,726           (96)[A]    1,630
  Advertising and Marketing                   100                        100
  Depreciation and Amortization               389          (382)[B]        7
  Interest Expense                            397          (397)[C]       --
  General and Administrative                  410           (37)[D]      295
                                                            (78)[E]
  Percentage Lease Payments                    --         1,179 [F]    1,179
                                          -------     ---------     --------

  Lessee Operating Income                 $   121     $    (189)    $    (68)
  -----------------------                 =======     =========     ========

[A] Decrease reflects personal property, real estate taxes and casualty insurance to be paid by the Partnership.

[B] Decrease reflects elimination of amortization expense excluding franchise fee amortization and the elimination of depreciation expense at the Combined Entity level.

[C] Decrease reflects reduction of interest costs due to the expected repayment of certain of the related party and mortgage indebtedness and the elimination of the remaining interest to be paid by the Partnership.
[D] Decrease reflects the elimination of an estimate of certain expenses to be paid by the Partnership.
[E] To eliminate related party management fees.
[F] Represents lease payments calculated on a pro forma basis using the rent provisions in the Percentage Lease Agreements.

F-16

COMBINED ENTITIES - INITIAL HOTELS

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997.
[UNAUDITED IN THOUSANDS]

                                               Year ended December 31, 1997
                                         Historical
                                          Combined
                                         Entities -
                                       Initial Hotels   Adjustments    Pro Forma
Total Revenue                             $13,445     $                 $ 13,445
Expenses:
  Initial Hotel Operating
  Costs and Expenses                        7,088          (375)[A]        6,713
  Advertising and Marketing                   370            --              370
  Depreciation and Amortization             1,189        (1,143)[B]           46
  Interest Expense                          1,354        (1,354)[C]           --
  General and Administrative                1,701          (123)[D]        1,306
                                                           (272)[E]
  Other                                        14            --               14
  Percentage Lease Payments                    --         4,945 [F]        4,945
                                          -------     ---------         --------

  Lessee Operating Income                 $ 1,729     $   1,678         $     51
  -----------------------                 =======     =========         ========

[A] Decrease reflects personal property, real estate taxes and casualty insurance to be paid by the Partnership.

[B] Decrease reflects elimination of amortization expense excluding franchise fee amortization and the elimination of depreciation expense at the Combined Entity level.

F-17

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder Hersha Hospitality Trust

We have audited the accompanying combined balance sheets of the Combined Entities - Initial Hotels as of December 31, 1997 and 1996, and the related combined statements of operations, owners' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the combined financial statement schedule included on pages F-29 and F-30 of the accompanying Prospectus. These Combined financial statements and the combined financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements and the combined financial statement schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Combined Entities - Initial Hotels as of December 31, 1997 and 1996, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the combined financial statement schedule referred to above, when considered in relationship to the basic combined financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein as of December 31, 1997.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
March 21, 1998

F-18

COMBINED ENTITIES - INITIAL HOTELS

COMBINED BALANCE SHEETS
[IN THOUSANDS]

                                               March 31,         December 31,
                                               ---------         ------------
                                                1 9 9 8       1 9 9 7      1 9 9 6
                                                -------       -------      -------
                                              [Unaudited]
Assets:
Investment in Hotel Properties:
  Land                                       $      2,099   $   2,099   $     1,843
  Buildings and Improvements                       19,396      19,276         9,950
  Furniture, Equipment and Other                    6,117       6,056         3,682
                                             ------------   ---------   -----------

  Totals                                           27,612      27,431        15,475
  Less: Accumulated Depreciation                    3,735       3,356         2,533
                                             ------------   ---------   -----------

  Totals                                           23,877      24,075        12,942
  Construction in Progress                          2,248       1,412           857
                                             ------------   ---------   -----------

  Net Investment in Hotel Properties               26,125      25,487        13,799

  Cash and Cash Equivalents                           442         694           237
  Accounts Receivable                                 562         394           191
  Prepaid Expenses and Other Assets                   226         182           154
  Due from Related Parties                            317         268           107
  Intangible Assets                                 1,397       1,427         1,418
                                             ------------   ---------   -----------


  Total Assets                               $     29,069   $  28,452   $    15,906
                                             ============   =========   ===========


Liabilities and Owners' Equity:
  Mortgages Payable                          $     17,667   $  14,713   $     8,571
  Accounts Payable and Accrued Expenses               306       1,092           649
  Accrued Expenses - Related Parties                   57         153            11
  Due to Related Parties                            7,561       9,169         4,236
  Other Liabilities                                   204         172           250
                                             ------------   ---------   -----------

  Total Liabilities                                25,795      25,299        13,717
Commitments                                            --          --            --
Owners' Equity:
  Net Combined Equity                               3,274       3,153         2,189
                                             ------------   ---------   -----------

  Total Liabilities and Owners' Equity       $     29,069   $  28,452   $    15,906
                                             ============   =========   ===========

The Accompanying Notes Are an Integral Part of These Combined Financial Statements.

F-19

COMBINED ENTITIES - INITIAL HOTELS

COMBINED STATEMENTS OF OPERATIONS
[IN THOUSANDS]

                                  Three months ended               Years  ended
                                       March 31,                    December 31,
                                 1998            1997       1997       1996        1995
                                -------        -------    -------    -------    -------
                                [Unaudited]   [Unaudited]
Revenues from Hotel Operations:
  Room Revenue               $    2,572      $   1,659 $  10,880   $   7,273 $    5,262
  Restaurant Revenue                432            412     1,744       2,106      1,515
  Other Revenue                     139            215       821         610        442
                             ----------      --------- ---------   --------- ----------

  Total Revenue                   3,143          2,286    13,445       9,989      7,219
                             ----------      --------- ---------   --------- ----------

Expenses:
  Hotel Operating Expenses        1,497          1,235     6,092       4,989      3,866
  Restaurant Operating Expenses     229            229       996       1,304        884

  Advertising and Marketing         100             89       370         418        185
  Depreciation and Amortization     389            233     1,189         924        711
  Interest Expense                  270            163       821         605        434
  Interest Expense - Related
   Parties                          127             35       533         316        200
  General and Administrative        332            277     1,381       1,085        779
  General and Administrative -
   Related Parties                   78             --       320         364        102
  Loss on Asset Disposals            --             --        --          12        284
  Liquidation Damages                --             --        14          --        150
                             ----------      --------- ---------   --------- ----------

  Total Expenses                  3,022          2,261    11,716      10,017      7,595
                             ----------      --------- ---------   --------- ----------

  Net Income [Loss]          $      121      $      25 $   1,729   $     (28)    $(376)
                             ==========      ========= =========   =========     ======

The Accompanying Notes Are an Integral Part of These Combined Financial Statements.

F-20

COMBINED ENTITIES - INITIAL HOTELS

COMBINED STATEMENTS OF OWNERS' EQUITY
[IN THOUSANDS]

                                                                  Net Combined
                                                                 Owners' Equity
Balance - December 31, 1994                                       $        772

  Net [Loss]                                                              (376)
  Capital Contributions                                                  2,287
  Cash Distributions                                                      (466)
                                                                  ------------

Balance - December 31, 1995                                              2,217

  Net [Loss]                                                               (28)
  Capital Contributions                                                    470
  Cash Distributions                                                      (470)
                                                                  ------------

Balance - December 31, 1996                                              2,189

  Net Income                                                             1,729

  Capital Contributions                                                     59
  Cash Distributions                                                      (824)

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

  Balance - December 31, 1997                                            3,153

  Net Income                                                               121
  Capital Contributions                                                     --
  Cash Distributions                                                        --
                                                                  ------------


  Balance - March 31, 1998 [Unaudited]                            $      3,274
                                                                  ============

The Accompanying Notes Are an Integral Part of These Combined Financial Statements.

F-21

COMBINED ENTITIES - INITIAL HOTELS

COMBINED STATEMENTS OF CASH FLOWS
[IN THOUSANDS]

                                Three months ended         Years  ended
                                     March 31,              December 31,
                                 1998           1997    1997       1996       1995
                                 -------      -------  -------    -------    -------
                               [Unaudited] [Unaudited]
Operating Activities:
  Net income [Loss]           $      121  $      25 $   1,729  $     (28)     $(376)
  Adjustments to Reconcile Net
   Income to Net Cash Provided by
   Operating Activities:
   Depreciation and Amortization
     Expense                         407        245     1,246        966        751
   Loss on Disposal of Assets         --         --        --         12        284
   Writeoff of Financing Fees         --         --        44         --         --

  Changes in Assets and Liabilities:
   Accounts Receivable              (168)      (100)     (203)       105       (226)
   Prepaid Expenses and Other
     Assets                          (44)         6       (28)       (28)        39
   Accounts Payable and Accrued
     Expenses                       (882)       434       584        241        293
   Other Liabilities                  32       (129)      (78)        79        129
                                 ----------  -------    -----        ---       ----


  Net Cash - Operating Activities   (534)       481     3,294      1,347        894
                                 ---------     ----    -------    ------      -----


Investing Activities:
  Improvements and Additions to
   Hotel Properties               (1,015)    (5,261)  (12,821)  (5,601)    (5,086)
  Payment for Intangibles             --        (67)     (166)    (117)      (925)
  Advances to Related Parties       (152)       (20)     (268)     (99)      (576)
  Repayment of Advances to
   Related Parties                   103         97       107      584         62
  Proceeds from Sale of Assets        --         --        --      129         --
                              ----------  --------- ---------  --------- ----------

  Net Cash - Investing
   Activities                     (1,064)    (5,251)  (13,148)  (5,104)    (6,525)
                              ----------  --------- ---------  --------- ----------
Financing Activities:
  Proceeds from Mortgages and
   Notes Payable                   3,154      1,550     9,526    3,631      4,615
  Principal Payments on Mortgages
   and Notes Payable                (195)      (100)   (3,383)    (612)    (1,143)

  Advances from Related Parties    1,576      5,179     6,555    2,756        809
  Repayments of Advances from
   Related Parties                (3,189)    (1,452)   (1,622)  (1,915)    (1,065)

  Capital Contributions               --         97        59      470      2,287
  Distributions Paid                  --       (445)     (824)    (470)      (466)
                              ----------  ---------   --------  --------  -------


  Net Cash - Financing
    Activities                     1,346      4,829    10,311    3,860      5,037
                              ----------  ---------   --------   ------   -------


  Net [Decrease] Increase in
   Cash and Cash Equivalents -
   Forward                    $     (252) $      59 $     457  $   103 $     (594)

The Accompanying Notes Are an Integral Part of These Combined Financial Statements.

F-22

COMBINED ENTITIES - INITIAL HOTELS

COMBINED STATEMENTS OF CASH FLOWS
[IN THOUSANDS]

                                Three months ended            Years  ended
                                     March 31,                December 31,
                                 1998         1997     1997       1996       1995
                                 -------    -------  -------    -------    -------
                              [Unaudited] [Unaudited]
  Net [Decrease] Increase in
   Cash and Cash Equivalents -
   Forwarded                 $     (252) $      59 $     457   $     103 $     (594)

Cash and Cash Equivalents at
  Beginning of Periods              694        237       237         134        728
                             ----------  --------- ---------   --------- ----------

  Cash and Cash Equivalents at

   End of Periods            $      442  $     296 $     694   $     237 $      134
                             ==========  ========= =========   ========= ==========


Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
   Interest [Net of Amounts
   Capitalized]              $      339  $     191 $   1,133   $     903 $      591

The Accompanying Notes Are an Integral Part of These Combined Financial Statements.

F-23

COMBINED ENTITIES - INITIAL HOTELS

NOTES TO FINANCIAL STATEMENTS
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[1] Organization, Proposed Initial Public Offering and Basis of Presentation

Organization - Hersha Hospitality Trust [the "Company"] has been established to own initially ten existing hotels [collectively the "Initial Hotels"] and to continue the hotel acquisition and operating strategies of Mr. Hasu P. Shah, Chairman of the Board of Trustees and President of the Company. The Company intends to qualify as a real estate investment trust [REIT] under the Internal Revenue Code of 1986, as amended, [the "Code"] . The Initial Hotels include three hotels operated as Holiday Inn Express7 hotels, two Hampton Inn7 hotels, two Holiday Inn7 hotels, two Comfort Inn7 hotels, one of which is under construction, and one Clarion Suites7 hotel with an aggregate of 989 rooms and are located in Pennsylvania. Upon completion of the proposed initial public offering [see below], the Company will own an approximate 43% general partnership interest in Hersha Hospitality Limited Partnership, a Pennsylvania limited partnership [the "Partnership"]. The Company will be the sole general partner of the Partnership. The Partnership will own the Initial Hotels and lease them to Hersha Hospitality Management, L.P. ["Lessee"] under Percentage Leases, each having a 5 year term with two 5 year renewals, which shall provide for rent equal to the greater of (i) fixed base rent, or (ii) percentage rents based upon specific percentages of room and other revenue of each of the Initial Hotels. The Company will enter into management agreements with the Lessee whereby the Lessee will be required to perform all management functions necessary to operate the Initial Hotels. Under the administrative services agreement, the Lessee will be paid a fee equal to $10 per hotel or $100 per year based on the ten initial hotels.

Basis of Presentation - The combined financial statements include the accounts of various partnerships, individuals, certain other corporations and Subchapter S corporations which perform property management services and own property improvements and furniture and fixtures [collectively the "Combined Entities"]
[See Note 5] using their historical cost basis. No adjustments have been reflected in these combined financial statements to give effect to the purchase of the Initial Hotels by the Partnership.

The Combined Entities are owned by Mr. Hasu P. Shah and certain affiliates of Mr. Hasu P. Shah [the "Hersha Affiliates"] for all periods presented. Due to common ownership and management of the Combined Entities, the historical combined financial statements have been accounted for as a group of entities under common control. All significant intercompany transactions and balances have been eliminated in the combined presentation.

Proposed Initial Public Offering - The Company expects to file a registration statement with the Securities and Exchange Commission pursuant to which the Company expects to offer 2,500,000 common shares to the public and 166,667 common shares to Mr. Hasu P. Shah and certain affiliates of Mr. Hasu P. Shah
[the "Offering"]. The Company expects to qualify as a real estate investment trust under Sections 856-860 of the Code. Under the proposed structure, the Company will become the sole general partner in the Partnership and the Hersha Affiliates will be the limited partners.

Upon completion of the Offering, the Company will contribute substantially all of the net proceeds of the offering to the Partnership in exchange for an approximate 43% general partnership interest in the Partnership. The Partnership will use the proceeds from the Company to acquire the Initial Hotels from the Combined Entities and to repay certain outstanding indebtedness. Rather than receiving cash for their interests in the Combined Entities upon the sale of the Initial Hotels, the Hersha Affiliates have elected to receive limited partnership interests in the Partnership aggregating an approximate 57% ownership interest in the Partnership.

F-24

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[1] Organization, Proposed Initial Public Offering and Basis of Presentation [Continued]

Proposed Initial Public Offering [Continued] - After consummation of the Offering, the Company's acquisition of an interest in the Partnership and the Partnership's acquisition of the Initial Hotels, (a) the Company will own approximately 43% of the Partnership, (b) the Hersha Affiliates will own an aggregate of approximately 57% of the Partnership, and (c) the Partnership will own 100% of the equity interest in the Initial Hotels.

[2] Summary of Significant Accounting Policies

Nature of Operations - Operations consist of hotel room rental, conferences room rental and the associated sales of food and beverages principally in the Harrisburg and central Pennsylvania area.

Investment in Hotel Properties - Investment in hotel properties are stated at cost. Depreciation for financial reporting purposes is principally based upon the straight-line method for buildings and improvements and accelerated methods for furniture and equipment acquired prior to the year ended December 31, 1997 and the straight-line method thereafter.

The estimated lives used to depreciate the Initial Hotel properties are as follows:

                                               Years
Building and Improvements                    15 to 40
Furniture and Equipment                       5 to 7

Maintenance and repairs are charged to operations as incurred; major renewals and betterments are capitalized. Upon the sale or disposition of a fixed asset, the asset and related accumulated depreciation are removed from the accounts, and the gain or loss is included in income from operations.

Depreciation expense was $1,076, $819 and $624 for the years ended December 31, 1997, 1996 and 1995, respectively.

Room linens and restaurant supplies are capitalized and amortized utilizing the straight-line method over periods of three and two years, respectively, and are charged to Hotel Operating Expenses. Amortization expense was $57, $42 and $40 for the years ended December 31, 1997, 1996 and 1995, respectively.

Impairment of Long-Lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company performs undiscounted cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value.

Cash and Cash Equivalents - Cash and cash equivalents are comprised of certain highly liquid investments with a maturity of three months or less when purchased.

Inventories - Inventories, consisting primarily of food and beverages and which are included in prepaid expenses and other assets, are stated at the lower of cost [generally, first-in, first-out] or market.

F-25

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[2] Summary of Significant Accounting Policies [Continued]

Intangible Assets - Intangible assets are carried at cost and consist of initial franchise fees, loan acquisition costs and goodwill. Amortization is computed using the straight-line method based upon the terms of the franchise and loan agreements which range from 5 to 30 years, and over a 15 year period for goodwill.

Income Taxes - The Combined Entities are not a legal entity subject to income taxes. Hersha Enterprises, Ltd., an entity included in these combined financial statements, is a taxable corporate entity [See Note 5]. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized. The Combined Partnerships and S corporations are not subject to federal or state income taxes; however, they must file informational income tax returns and the partners must take income or loss of the Combined Entities into consideration when filing their respective tax returns. The cumulative difference between the book basis and tax basis of the Combined Entities' assets and liabilities is approximately $3.7 million due primarily to depreciation and amortization expense on the tax basis in excess of the book basis.

Revenue Recognition - Revenue is recognized as earned which is generally when a guest occupies a room and utilizes the hotel's services.

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable arising from its normal business activities. The Company places its cash with high credit quality financial institutions. The Company does not require collateral to support its financial instruments.

The Company periodically has money in financial institutions that is subject to normal credit risk beyond insured amounts. This credit risk, representing the excess of the bank's deposit liabilities reported by the bank over the amounts that would have been covered by federal insurance, amounted to approximately $71 and $-0- at December 31, 1997 and 1996, respectively.

The Company's extension of credit to its customers results in accounts receivable arising from its normal business activities. The Company does not require collateral from its customers, but routinely assesses the financial strength of its customers. Based upon factors surrounding the credit risk of its customers and the Company's historical collection experience, no allowance for uncollectible accounts has been established at December 31, 1997 and 1996, respectively. The Company believes that its accounts receivable credit risk exposure is limited. Such assessment may be subject to change in the near term.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-26

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[2] Summary of Significant Accounting Policies [Continued]

Advertising and Marketing - Advertising costs are expensed as incurred and totaled $370, $418 and $185 for the years ended December 31, 1997, 1996 and 1995, respectively. In connection with its franchise agreements, a portion of the franchise fees paid is for marketing services. Payments under these agreements related to marketing services amounted to $201, $114 and $78 for the years ended December 31, 1997, 1996 and 1995, respectively, and are included in Hotel Operating Expenses.

[3] Intangible Assets

At December 31, 1997 and 1996, intangibles consisted of the following:

                                                      Accumulated
December 31, 1997:                         Cost      Amortization      Net

  Goodwill                                $  1,168    $     216    $    952
  Franchise Fees                               342           46         296
  Loan Acquisition Fees                        196           17         179
                                          --------    ---------    --------


  Totals                                  $  1,706    $     279    $  1,427
  ------                                  ========    =========    ========

                                                      Accumulated
December 31, 1996:                         Cost      Amortization      Net

  Goodwill                                $  1,168    $     138    $  1,030
  Franchise Fees                               296           56         240
  Loan Acquisition Fees                        166           18         148
                                          --------    ---------    --------


  Totals                                  $  1,630    $     212    $  1,418
  ------                                  ========    =========    ========

Amortization expense was $113, $105 and $87 for the years ended December 31, 1997, 1996 and 1995, respectively.

[4] Mortgages Payable

                                                               December 31,
                                                            1997        1996
Holiday Inn, Harrisburg, Pennsylvania:

Note payable to bank dated August 19, 1997 with
  monthly payments of $34 including interest at
  8.45% until November 1, 2002. Thereafter the
  rate is negotiated or the bank's prime rate
  plus 1/4%. Final payment is due November 1,
  2012. The property previously was financed by a
  bank with a note payable with monthly payments
  of $27 including interest at the prime rate
  plus 1-1/2% maturing March 2, 2010 and another
  note payable with monthly payments of $7 plus
  interest at 8-1/2% maturing January 5, 2001.               $ 3,500     $ 3,096

Holiday Inn, Milesburg, Pennsylvania:
Note payable to bank dated June 2, 1977 with
  monthly payments of $11 including interest at
  8% until June 6, 1999                                          914         970
                                                         -----------    --------
  Totals - Forward                                       $     4,414    $  4,066

F-27

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[4] Mortgages Payable [Continued]

                                                              December 31,
                                                            1997     1996
  Totals - Forwarded                                     $  4,414  $ 4,066

Clarion Suites, Philadelphia, Pennsylvania:

Note payable to a bank dated June 21, 1995 with
  monthly payments of $16 as adjusted for
  interest at the prime rate plus 1.25% until
  July 1, 2010.  Guaranteed by PIDC Local
  Development Corporation and the Small Business
  Administration.                                           1,195    1,245

Note payable to a bank dated June 21, 1995 with
  monthly payments of $3 plus interest at the
  prime rate plus .5%.  Principal balance is due
  July 1, 2002.                                               419      453

Hampton Inn, Selinsgrove, Pennsylvania:
Note payable to a bank dated April 3, 1996 with
  monthly payments of $24 including interest at
  8-1/4% until October 3, 2011, includes personal
  guarantees.                                               2,385    2,476

Hampton Inn, Carlisle, Pennsylvania:
Note payable to a bank dated September 6, 1996
  with monthly payments of $28 including interest
  at 8% until March 6, 2001.  Thereafter, the
  rate is negotiated or prime rate plus 1%.
  Final payment is due June 6, 2012.                        2,848      331

Holiday Inn Express, New Columbia, Pennsylvania:
Note payable to a bank dated August 28, 1997 with
  monthly payments of $27 including interest at
  8-1/2% until February 1, 2003. Thereafter
  interest will be at the prime rate plus 1/4% as
  of January 1, 2003 and January 1, 2008.  Final
  payment is due January 1, 2013.                          1,000       --

Holiday Inn Express, Harrisburg, Pennsylvania:
Note payable to a bank dated September 26, 1997
  with monthly payments of $11 including interest
  at 8.35% until October 1, 2000. Thereafter, the
  rate is as negotiated or at prime plus 1%.
  Final payment is due October 1, 2012.                    1,110       --

Holiday Inn Express, Hershey, Pennsylvania:
Note payable to a bank dated December 30, 1996
  with monthly payments of $27 including interest
  at 8.15% until December 31, 2001. Thereafter,
  the rate is as negotiated or prime plus 3/4%.
  Final payment is due January 1, 2013.                    1,342       --
                                                         ---------  -------

  Totals                                                 $14,713    $8,571
  ------                                                 =========  =======

Substantially all the Combined Entities' mortgage indebtedness is collateralized by property and equipment and is personally guaranteed by the partners and stockholders of the Combined Entities. One of the hotel properties also collateralizes a $500 line of credit of a related party.

At December 31, 1997, the prime rate was 8.5%.

F-28

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #6
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[4] Mortgages Payable [Continued]

As of December 31, 1997, aggregate annual principal payments for the five years following December 31, 1997, and thereafter are as follows:

Year ending
December 31,
  1998                                       $      730
  1999                                            1,572
  2000                                              787
  2001                                              856
  2002                                              932
  Thereafter                                      9,836
                                             ----------

  Total                                      $   14,713
  -----                                      ==========

[5] Owners' Equity

The owners' equity [deficit] of the Combined Entities by entity is as follows:

                                                   December 31,
                                                 1997        1996
                                                 -----     -------
Hasu P. Shah/Bharat C. Mehta                    $     --  $    269
244 Associates                                       542        --
844 Associates                                       285        27
944 Associates                                        29        75
1244 Associates                                      373       196
1444 Associates                                      829       432
1644 Associates                                      (72)       --
2144 Associates                                      833       863
2244 Associates                                      (54)       --
2544 Associates                                      (60)       --
Colonial Care Inns, Ltd.                              --       308
Hersha Enterprises                                   267       (57)
Harrisburg Lodging, Inc.                              --       (21)
MEPS Associates                                      170       (32)
Philadelphia Lodging, Inc.                            --         2
Sajneim Motel, Inc.                                   --       127
Shree Associates                                      11        --
                                                --------  --------
  Totals                                        $  3,153  $  2,189
  ------                                        ========  ========

F-29

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #7
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[6] Income Taxes

Included in the Combined Entities for the years ended December 31, 1997, 1996 and 1995 is a corporation which computed its income taxes pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes at December 31, 1997 and 1996 was comprised of deferred tax assets of $-0- and $56, respectively, representing financial reporting to tax basis differences, and $20 and $8, respectively, representing net operating loss carryforwards, offset by full valuation allowances of $20 and $64, respectively. Under the transaction contemplated in connection with the proposed initial public offering, the net operating loss carryforwards will not be available to the Company.

The Combined Entities neither incurred nor paid any income taxes during the periods presented.

[7] Related Party Transactions

At December 31, 1997 and 1996, the Combined Entities are indebted to various related entities, partners, and stockholders in the amount of $9,169 and $4,236, respectively. The loans carry interest ranging from 8.5% on short-term loans to 10.5% on longer term loans. Accrued interest payable was $153 and $11 at December 31, 1997 and 1996, respectively, and interest expense was $533, $316 and $200 for the years ended December 31, 1997, 1996 and 1995, respectively.

At December 31, 1997 and 1996, various related entities, partners and stockholders are indebted to the Combined Entities in the amount of $268 and $107, respectively. The loans carry interest ranging from 0% on short-term loans to 9% on longer term loans. Accrued interest receivable was $1 and $1 at December 31, 1997 and 1996, respectively, and interest income was $9, $1 and $1 for the years ended December 31, 1997, 1996 and 1995, respectively.

The Combined Entities have paid or accrued $9,433, $856 and $-0- during the years ended December 31, 1997, 1996 and 1995 to related entities for various hotel construction projects and interest costs during construction. Capitalized interest amounted to $183, $10 and $-0- for the years ended December 31, 1997, 1996 and 1995, respectively.

Certain properties are managed by individual partners or related entities. Management fees paid to these individuals or related entities were $272, $97 and $72 during the years ended December 31, 1997, 1996 and 1995, respectively.

A related entity rents office space in a hotel owned by the Combined Entities on a month to month basis. The Combined Entities received rent of $30 for the year ended December 31, 1997. The rent amount includes an allocation of certain related expenses.

During the year ended December 31, 1996, the Combined Entities sold for $129, the book value of the assets, certain leasehold improvements to Mr. Hasu P. Shah.

On September 26, 1997, the Combined Entities acquired from Mr. Hasu P. Shah, the Holiday Inn Express in Harrisburg, Pennsylvania by paying off the $1,106 indebtedness on the property. Prior to the sale, the Combined Entities had rented the property from Mr. Hasu P. Shah under an informal rent arrangement. Rent paid to Mr. Hasu P. Shah was $48, $267 and $70 for the years ended December 31, 1997, 1996 and 1995, respectively. Mr. Hasu P. Shah owns a parcel of land on which a hotel is situated for which no land rent is charged.

F-30

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]

[8] Commitments

Franchise Agreements - The Initial Hotels have executed franchise agreements that have initial lives ranging from 10 to 20 years but may be terminated by either party on certain anniversary dates specified in the agreements. In addition to initial fees totaling $342, which are being amortized over the franchise lives, the agreements require annual payments for franchise royalties, reservation, and advertising services which are based upon percentages of gross room revenue. Such fees were approximately $779, $524 and $368 for the years ended December 31, 1997, 1996, 1995, respectively. The Initial Hotels will continue to be operated under the franchise agreements.

Construction in Progress - At December 31, 1997, the Combined Entities had future obligations under various hotel construction project in the amount of $255. Through December 31, 1997, the Combined Entities had incurred expenses of $1,412 in connection with the construction of a hotel property in West Hanover, Pennsylvania. The construction is being contracted and funded through a related party and the total construction cost is expected to be approximately $3,100. The Combined Entities have obtained a construction/term loan in the amount of $2,500 under which no borrowings are outstanding at December 31, 1997. The loan bears interest at 8% for 5 years and 9 months and the Wall Street Journal prime rate thereafter through maturity 10 years and 9 months from inception. The loan is collateralized by the property and is guaranteed by certain partners, stockholders, Combined Entities and related parties.

[9] Fair Value of Financial Instruments

At December 31, 1997 and 1996 financial instruments include cash and cash equivalents, accounts receivable, accounts payable, loans to and from related parties and mortgage payables. The fair values of cash, accounts receivable and accounts payable approximate carrying value because of the short-term nature of these instruments. Loans to and from related parties carry interest at rates that approximate the Combined Entities' borrowing cost. The fair value of mortgages payable approximates carrying value since the interest rates approximate the interest rates currently offered for similar debt with similar maturities.

[10] Unaudited Interim Statements

The financial statements as of March 31, 1998 and for the three months ended March 31, 1998 and 1997 are unaudited; however, in the opinion of management all adjustments [consisting solely of normal recurring adjustments] necessary for a fair presentation of the financial statements for the interim period have been made. The results of the interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.

. . . . . . . .

F-31

COMBINED ENTITIES - INITIAL HOTELS

SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997.
[IN THOUSANDS]

                                                               Cost Capitalized                Gross Amounts at
                                                                 Subsequent to                 Which Carried at
                                         Initial Cost            Acquisition                   Close of Period
                                    ---------------------    ----------------------      --------------------------
                                            Buildings and             Buildings and             Buildings and
 Description        Encumbrances     Land    Improvements      Land   Improvements       Land   Improvements   Total
Holiday Inn,
  Harrisburg, PA     $3,500          $  412    $1,234          $--       $1,518          $412     $2,752    $ 3,164
Holiday Inn,
  Milesburg, PA         914              42     1,158           --          681            42      1,839      1,881
Holiday Inn Express,
  New Columbia, PA    1,000              94     2,510           --           --            94      2,510      2,604
Holiday Inn Express,
  Harrisburg, PA      1,110             256       850           --          120           256        970      1,226
Holiday Inn Express,
  Hershey, PA         1,342             426     2,645           --           --           426      2,645      3,071
Clarion Suites,
  Philadelphia, PA    1,614             262     1,049          150          776           412      1,825      2,237
Comfort Inn,
  Denver, PA            434              --       782           --          327            --      1,109      1,109
Hampton Inn,
  Selinsgrove, PA     2,385             157     2,511           --            6           157      2,517      2,674
Hampton Inn,
  Carlisle, PA        2,848             300     3,109           --           --           300      3,109      3,409
                     ------          ------    ------         ----       ------         ------     ------    ------


                     $15,147         $1,949   $15,848         $150       $3,428        $2,099     $19,276   $21,375
                     =======         ======   =======         ====       ======        ======     =======   =======

                                                                          Life
                    Accumulated             Net                        Upon Which
                    Depreciation         Book Value                  Latest Income
                    Buildings and      Buildings and      Date of     Statement is
 Description        Improvements       Improvements     Acquisition     Computed
Holiday Inn,
  Harrisburg, PA       $  204             $2,960          12/15/94       15 to 40
Holiday Inn,
  Milesburg, PA           439              1,442          08/15/85       15 to 40
Holiday Inn Express,
  New Columbia, PA          6              2,598          12/01/97       15 to 40
Holiday Inn Express,
  Harrisburg, PA            9              1,217          06/15/85       15 to 40
Holiday Inn Express,
  Hershey, PA              17              3,054          10/01/97       15 to 40
Clarion Suites,
  Philadelphia, PA        135              2,102          06/30/95       15 to 40
Comfort Inn,
  Denver, PA              200                909          01/01/88       15 to 40
Hampton Inn,
  Selinsgrove, PA          86              2,588          09/12/96       15 to 40
Hampton Inn,
  Carlisle, PA             45              3,364          06/01/97       15 to 40
                        ------             ------


                       $1,141           $20,234
                       ======           =======

F-32

COMBINED ENTITIES - INITIAL HOTELS
NOTES TO SCHEDULE XI
[IN THOUSANDS]

[A]  Reconciliation of Real Estate:
                                                1 9 9 7        1 9 9 6     1 9 9 5
                                                -------        -------     -------
     Balance at Beginning of Year            $      9,950   $   6,354   $    3,785

     Additions During Year                          9,369       3,725        2,907

     Deletions During Year                            (43)       (129)        (338)
                                             ------------   ---------   ----------


     Balance at End of Year                  $     19,276   $   9,950   $    6,354
                                             ============   =========   ==========


[B]  Reconciliation of Accumulated Depreciation:

     Balance at Beginning of Year            $        834   $     614   $      546
     Depreciation for the Year                        307         220          139
     Accumulated Depreciation on Deletions             --          --          (71)
                                             ------------   ---------   ----------


     Balance at End of Year                  $      1,141   $     834   $      614
                                             ============   =========   ==========

[C] The aggregate cost of land, buildings and improvements for federal income tax purposes is approximately $19,284.

[D] Depreciation is computed based upon the following useful lives:

Buildings and Improvements 15 to 40 years

F-33

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the reference to our firm under the heading "Experts" and "Selected Financial Information" and to the use of our report dated May 27, 1998, on our audit of Hersha Hospitality Trust, our report dated May 27, 1998, on our audit of Hersha Hospitality Management L.P., and our report dated March 21, 1998, on our audit of the Combined Entities Initial Hotels in this Registration Statement and related Prospectus of Hersha Hospitality Trust.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
June 4, 1998

F-34

No dealer, salesperson or other individual has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof.

             TABLE OF CONTENTS        page
PROSPECTUS SUMMARY.....................  1
RISK FACTORS........................... 17
THE COMPANY............................ 25
GROWTH STRATEGY........................ 28
USE OF PROCEEDS........................ 29
DISTRIBUTION POLICY.................... 30
PRO FORMA CAPITALIZATION............... 32
DILUTION............................... 33
SELECTED FINANCIAL INFORMATION......... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS........................ 38
BUSINESS AND PROPERTIES................ 40
POLICIES AND OBJECTIVES WITH RESPECT
  TO CERTAIN ACTIVITIES................ 52
FORMATION TRANSACTIONS................. 54
MANAGEMENT............................. 57
CERTAIN RELATIONSHIPS AND TRANSACTIONS. 61
THE LESSEE............................. 61
PRINCIPAL SHAREHOLDERS................. 63
DESCRIPTION OF SHARES OF BENEFICIAL
  INTEREST............................. 63
CERTAIN PROVISIONS OF MARYLAND LAW
  AND OF THE COMPANY'S DECLARATION OF
  TRUST AND BYLAWS..................... 66
SHARES AVAILABLE FOR FUTURE SALE....... 70
PARTNERSHIP AGREEMENT.................. 71
FEDERAL INCOME TAX CONSEQUENCES........ 73
UNDERWRITING........................... 88
EXPERTS................................ 89
REPORTS TO SHAREHOLDERS................ 89
LEGAL MATTERS.......................... 89
ADDITIONAL INFORMATION................. 90
GLOSSARY............................... 91
INDEX TO FINANCIAL STATEMENTS..........F-1

Until __________ __, 199_ (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, 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 allotment or subscriptions.

2,666,667 Shares

HERSHA HOSPITALITY
TRUST

Common Shares
of Beneficial Interest

PROSPECTUS

ANDERSON & STRUDWICK
INCORPORATED

, 1998

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31. Other Expenses of Issuance and Distribution

Set forth below is an estimate of the approximate amount of the fees and expenses (other than sales commissions) payable by the Registrant in connection with the issuance and distribution of the Common Shares.

Securities and Exchange Commission, registration fee.............. $   4,720
NASD filing fee...................................................     2,100
American Stock Exchange listing fee...............................    30,000
Printing and mailing..............................................    45,000
Accountant's fees and expenses....................................   140,000
Counsel fees and expenses.........................................   362,000
Miscellaneous.....................................................     3,180
                                                                   ---------
    Total......................................................... $ 587,000
                                                                   =========

Item 32. Sales to Special Parties

None.

Item 33. Recent Sales of Unregistered Securities

On May 27, 1998, the Company was capitalized with subscription by Hasu P. Shah for 100 Common Shares for a purchase price of $1 per share for an aggregate purchase price of $100. The Common Shares were purchased for investment and for the purpose of organizing the Company. The Company issued these Common Shares in reliance on an exemption from registration under Section 4(2) of the Securities Act. Mr. Shah's 100 Common Shares will be redeemed concurrently with the closing of the Offering.

Item 34. Indemnification of Trustees and Officers

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.

Item 35. Treatment of Proceeds from Shares Being Registered

None.

Item 36. Financial Statements and Exhibits

(a) Financial Statements

All other schedules are omitted because the required information is not applicable or the information required has been disclosed in the financial statements and related notes included in the Prospectus.

(b) Exhibits

Exhibit
Number      Exhibit


 1.1*       Form of Underwriting Agreement
 1.2*       Form of Selected Dealer Agreement
 1.3*       Form of Escrow Agreement
 1.4        Executed Escrow Agreement
 3.1*       Amended and Restated Declaration of Trust of the Registrant
 3.2*       Bylaws of the Registrant
 4.1*       Form of Common Share Certificate
 5.1        Opinion of Hunton & Williams
 8.1        Opinion of Hunton & Williams as to Tax Matters
10.1*       Form of First Amended and Restated  Agreement of Limited
            Partnership of Hersha Hospitality Limited Partnership
10.2*       Contribution Agreement, dated as of June 3, 1998, between Hasu
            P. Shah and Bharat C. Mehta, as Contributor, and Hersha
            Hospitality Limited Partnership, as Acquiror.
10.3*       Contribution Agreement, dated as of June 3, 1998, between
            Shree Associates, JSK Associates, Shanti Associates, Shreeji
            Associates, Kunj Associates, Devi Associates, Neil H. Shah,
            David L. Desfor, Madhusudan I. Patni, Manahar Gandhi and
            Shreenathji

II-2

Enterprises, Ltd., as Contributor, and Hersha Hospitality Limited Partnership, as Acquiror.
10.4* Contribution Agreement,dated as of June 3, 1998, between JSK Associates, Shanti Associates, Shreeji Associates, Kunj

                  Associates, Devi Associates, Neil H. Shah, David L. Desfor and
                  Shreenathji  Enterprises,  Ltd.  as  Contributor,  and  Hersha
                  Hospitality Limited Partnership, as Acquiror.
      10.5*       Contribution Agreement, dated as of June 3, 1998, between 2144
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.6*       Contribution Agreement, dated as of June 3, 1998, between JSK
                  Associates, Shanti Associates, Shreeji Associates, Kunj
                  Associates, Neil H. Shah, David L. Desfor, Madhusudan I.
                  Patni, Manahar Gandhi and Shreenathji Enterprises, Ltd., as
                  Contributor, and Hersha Hospitality Limited Partnership, as
                  Acquiror.
      10.7*       Contribution Agreement, dated as of June 3, 1998, between JSK
                  Associates, Shanti Associates, Shreeji Associates, Kunj
                  Associates, Neil H. Shah, Madhusudan I. Patni and Shreenathji
                  Enterprises, Ltd., as Contributor, and Hersha Hospitality
                  Limited Partnership, as Acquiror.
      10.8*       Contribution Agreement, dated as of June 3, 1998, between 2144
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.9*       Contribution Agreement, dated as of June 3, 1998, between JSK
                  Associates, Shanti Associates, Shreeji Associates, Kunj
                  Associates, Neil H. Shah, David L. Desfor and Shreenathji
                  Enterprises, Ltd., as Contributor, and Hersha Hospitality
                  Limited Partnership, as Acquiror.
      10.10*      Contribution Agreement, dated as of June 3, 1998, between 2144
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.11*      Contribution Agreement, dated as of June 3, 1998, between 144
                  Associates, 344 Associates, 544 Associates and 644 Associates,
                  Joint Tenants Doing Business as 2544 Associates, as
                  Contributor, and Hersha Hospitality Limited Partnership, as
                  Acquiror.
      10.12*      Contribution Agreement dated June 3, 1998, between Shree
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.13*      Contribution Agreement dated June 3, 1998, between 2144
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.14*      Contribution Agreement dated June 3, 1998, between 144
                  Associates, 344 Associates, 544 Associates and 644 Associates,
                  Joint Tenants Doing Business as 2544 Associates, as
                  Contributor, and Hersha Hospitality Limited Partnership, as
                  Acquiror.
      10.15*      Contribution  Agreement,  dated  June 3, 1998,  between  Shree
                  Associates, Devi Associates, Shreeji Associates, Madhusudan I.
                  Patni and Shreenathji Enterprises,  Ltd., as Contributor,  and
                  Hersha Hospitality Limited Partnership, as Acquiror.
      10.16*      Contribution Agreement, dated June 3, 1998, between Shree
                  Associates, as Contributor, and Hersha Hospitality Limited
                  Partnership, as Acquiror.
      10.17*      Form of Ground Lease
      10.18*      Form of Percentage Lease
      10.19*      Option  Agreement,  dated June 3, 1998,  between Hasu P. Shah,
                  Jay H. Shah,  Neil H. Shah,  Bharat C. Mehta,  Kanti D. Patel,
                  Rajendra  O.  Gandhi,   Kiran  P.  Patel,   David  L.  Desfor,
                  Madhusudan I. Patni and Manahar Gandhi, and Hersha Hospitality
                  Limited Partnership.
      10.20*      Administrative Services Agreement, dated June __, 1998,
                  between Hersha Hospitality Trust and Hersha Hospitality
                  Management, L.P.
      10.21*      Warrant  Agreement, dated _______ __, 1998, between Anderson &
                  Strudwick, Inc. and Hersha Hospitality Trust.
      10.22*      Warrant  Agreement,  dated June 3, 1998,  between 2744
                  Associates,  L.P. and Hersha Hospitality Limited Partnership.
      10.23*      Hersha Hospitality Trust Option Plan
      10.24*      Hersha Hospitality Trust Non-Employee Trustees' Option Plan
      23.1        Consent of Hunton & Williams (included in Exhibits 5.1 and
                  8.1)

                                      II-3

      23.2*       Consent of Moore Stephens, P.C.
      24.1        Power of Attorney (included on signature page)
      99.1        Consent of certain individuals to be named as Trustee


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

*Filed herewith.

Item 37. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 33 of this Registration Statement, 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 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 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 as to whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes:

(1) For the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment 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;

(2) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Harrisburg, State of Pennsylvania, on the 30th day of July, 1998.

Hersha Hospitality Trust, a Maryland real estate investment trust

(Registrant)

By /s/ Hasu P. Shah
-------------------
   Hasu P. Shah
   Chairman of the Board and Chief Executive Officer

Each person whose signature appears below hereby constitutes and appoints Hasu P. Shah and Kiran P. Patel and each or either of them, his true and lawful attorney-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to cause the same to be filed, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite or desirable to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorneys-in-fact and agents, or either of them, or their substitutes or substitute, 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 on the 30th day of July, 1998 in the capacities indicated.

Signature                          Title
---------                          -----
/s/ Hasu P. Shah                    Chairman of the Board of Trustees, Chief
----------------                    Executive Officer and Trustee
    Hasu P. Shah                    (Principal Executive Officer)


/s/ Kiran P. Patel                  Chief Financial Officer and Treasurer
------------------                  (Principal Financial and Accounting Officer)
    Kiran P. Patel

II-5

EXHIBIT INDEX

                                                                  Sequentially
Exhibit                       Document                            Numbered Page
-------                       --------                            -------------


 1.1*       Form of Underwriting Agreement
 1.2*       Form of Selected Dealer Agreement
 1.3*       Form of Escrow Agreement
 1.4        Executed Escrow Agreement
 3.1*       Amended and Restated Declaration of Trust of the Registrant
 3.2*       Bylaws of the Registrant
 4.1*       Form of Common Share Certificate
 5.1        Opinion of Hunton & Williams
 8.1        Opinion of Hunton & Williams as to Tax Matters
10.1*       Form of First Amended and Restated Agreement of Limited  Partnership
            of Hersha Hospitality Limited Partnership
10.2*       Contribution Agreement, dated as of June 3, 1998, between Hasu P.
            Shah and Bharat C. Mehta, as Contributor, and Hersha Hospitality
            Limited Partnership, as Acquiror.
10.3*       Contribution Agreement, dated as of June 3, 1998, between Shree
            Associates, JSK Associates, Shanti Associates, Shreeji Associates,
            Kunj Associates, Devi Associates, Neil H. Shah, David L. Desfor,
            Madhusudan I. Patni, Manahar Gandhi and Shreenathji Enterprises,
            Ltd., as Contributor, and Hersha Hospitality Limited Partnership, as
            Acquiror.
10.4*       Contribution  Agreement,  dated  as of June  3,  1998,  between  JSK
            Associates, Shanti Associates,  Shreeji Associates, Kunj Associates,
            Devi  Associates,  Neil H. Shah,  David L.  Desfor  and  Shreenathji
            Enterprises,  Ltd. as Contributor,  and Hersha  Hospitality  Limited
            Partnership, as Acquiror.

10.5*       Contribution Agreement, dated as of June 3, 1998, between 2144
            Associates, as Contributor, and Hersha Hospitality Limited
            Partnership, as Acquiror.
10.6*       Contribution Agreement, dated as of June 3, 1998, between JSK
            Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
            Neil H. Shah, David L. Desfor, Madhusudan I. Patni, Manahar Gandhi
            and Shreenathji Enterprises, Ltd., as Contributor, and Hersha
            Hospitality Limited Partnership, as Acquiror.
10.7*       Contribution Agreement, dated as of June 3, 1998, between JSK
            Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
            Neil H. Shah, Madhusudan I. Patni and Shreenathji Enterprises, Ltd.,
            as Contributor, and Hersha Hospitality Limited Partnership, as
            Acquiror.
10.8*       Contribution Agreement, dated as of June 3, 1998, between 2144
            Associates, as Contributor, and Hersha Hospitality Limited
            Partnership, as Acquiror.
10.9*       Contribution Agreement, dated as of June 3, 1998, between JSK
            Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
            Neil H. Shah, David L. Desfor and Shreenathji Enterprises, Ltd., as
            Contributor, and Hersha Hospitality Limited Partnership, as
            Acquiror.
10.10*      Contribution Agreement, dated as of June 3, 1998, between 2144
            Associates, as Contributor, and Hersha Hospitality Limited
            Partnership, as Acquiror.
10.11*      Contribution Agreement, dated as of June 3, 1998, between 144
            Associates, 344 Associates, 544 Associates and 644 Associates, Joint
            Tenants Doing Business as 2544 Associates, as Contributor, and
            Hersha Hospitality Limited Partnership, as Acquiror.
10.12*      Contribution Agreement dated June 3, 1998, between Shree Associates,
            as Contributor, and Hersha Hospitality Limited Partnership, as
            Acquiror.
10.13*      Contribution Agreement dated June 3, 1998, between 2144 Associates,
            as Contributor, and Hersha Hospitality Limited Partnership, as
            Acquiror.
10.14*      Contribution Agreement dated June 3, 1998, between 144 Associates,
            344 Associates, 544 Associates and 644 Associates, Joint Tenants
            Doing Business as 2544 Associates, as Contributor, and Hersha
            Hospitality Limited Partnership, as Acquiror.
10.15*      Contribution   Agreement,   dated  June  3,  1998,   between   Shree
            Associates, Devi Associates, Shreeji Associates, Madhusudan I. Patni
            and  Shreenathji  Enterprises,  Ltd.,  as  Contributor,  and  Hersha
            Hospitality Limited Partnership, as Acquiror.

                                      II-6

10.16*      Contribution Agreement, dated June 3, 1998, between Shree
            Associates, as Contributor, and Hersha Hospitality Limited
            Partnership, as Acquiror.
10.17*      Form of Ground Lease
10.18*      Form of Percentage Lease
10.19*      Option  Agreement,  dated June 3, 1998,  between Hasu P. Shah,
            Jay H. Shah,  Neil H. Shah,  Bharat C. Mehta,  Kanti D. Patel,
            Rajendra  O.  Gandhi,   Kiran  P.  Patel,   David  L.  Desfor,
            Madhusudan I. Patni and Manahar Gandhi, and Hersha Hospitality
            Limited Partnership.

10.20* Administrative Services Agreement, dated June __, 1998, between Hersha Hospitality Trust and Hersha Hospitality Management, L.P.

10.21*      Warrant  Agreement,  dated ______ __, 1998,  between  Anderson &
            Strudwick, Inc. and Hersha Hospitality Trust.
10.22*      Warrant   Agreement,   dated  June  3,  1998,   between   2744
            Associates, L.P. and Hersha Hospitality Limited Partnership.
10.23*      Hersha Hospitality Trust Option Plan
10.24*      Hersha Hospitality Trust Non-Employee Trustees' Option Plan
23.1        Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2*       Consent of Moore Stephens, P.C.
24.1        Power of Attorney (included on signature page)
99.1        Consent of certain individuals to be named Trustee
---------------------

*Filed herewith.

II-7

HERSHA HOSPITALITY TRUST
(a Maryland real estate investment trust)

2,500,000 Common Shares

($6.00 per share)

UNDERWRITING AGREEMENT

August ____, 1998

Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, VA 23219

Ladies and Gentlemen:

The undersigned, Hersha Hospitality Trust, a Maryland real estate investment trust (the "Company"), and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the "Partnership"), hereby confirm their agreement with you as follows:

1. Introduction. This Agreement sets forth the understandings and agreements among the Company and you whereby, subject to the terms and conditions herein contained, you will offer to sell, on a best efforts basis as provided in Section 3.(a), at an offering price of $6.00 per share, 2,500,000 common shares (the "Shares"), par value $0.01 per share (the "Common Shares"), to be issued by the Company. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Prospectus prepared by the Company and dated August ___, 1998 (the "Prospectus"). The term "Offering" shall include the Shares to be offered by you as well as 166,667 Common Shares to be offered directly by the Company (the "Company Offered Shares").

On or prior to the Closing Date (as hereinafter defined), the Company will complete a series of transactions described in the Prospectus under the heading "FORMATION TRANSACTIONS." As part of the Formation Transactions, (i) the Company will contribute to the Partnership substantially all of the net proceeds from the sale of the Shares, (ii) the Partnership will acquire all of the partnership interests in, or as the case may be, substantially all of the assets of, the various limited partnerships (the "Selling Partnerships") that own the ten (10) hotel properties described in the Prospectus (individually a "Hotel" and collectively, the "Hotels") pursuant to the terms and conditions of Contribution Agreements (collectively, the "Contribution Agreements"), (iii) the Partnership will assume a total of approximately $____ million of outstanding indebtedness of the Selling Partnerships, approximately $____ million of which (the "Assumed Indebtedness") will remain outstanding after the immediate repayment of approximately $____ million of such indebtedness, (iv) the Partnership will issue to the Selling Partnerships and/or the partners of the Selling Partnerships, as the case may be (collectively, the "Selling Entities"), an aggregate of ________ units of limited partnership interest in the Partnership ("Units"), which are convertible into common shares of the Company under certain conditions, (v) the Partnership will lease each of the Hotels pursuant to separate leases (the "Leases") to Hersha Hospitality Management, L.P., a Pennsylvania limited partnership (the "Lessee"). As used herein, the term "Formation Transactions" shall mean the occurrence of all the events described in this paragraph and the other transactions described in the section of the Prospectus captioned "FORMATION TRANSACTIONS."

2. Representations and Warranties of the Company and the Partnership.

The Company and the Partnership jointly and severally represent and warrant to and agree with you that:

(a) Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-11 (File No. 333-56087) (as defined below, the "Registration Statement") conforming in all material respects to the requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the applicable rules and regulations (the "Rules and Regulations") of the Commission. Such amendments to such Registration Statement as may have been required prior to the date hereof have been filed with the Commission, and such amendments have been similarly prepared. Copies of the Registration Statement, any and all amendments thereto prepared and filed with the Commission, and each related Preliminary Prospectus, and the exhibits, financial statements and schedules, as finally amended and revised, have been delivered to you for review.

The term "Registration Statement" as used in this Agreement shall mean the Company's Registration Statement on Form S-11, including the Prospectus, any documents incorporated by reference therein, and all financial schedules and exhibits thereto, as amended on the date that the Registration Statement becomes effective. The term "Prospectus" as used in this Agreement shall mean the prospectus relating to the Shares in the form in which it was filed with the Commission pursuant to Rule 424(b) of the 1933 Act or, if no filing pursuant to Rule 424(b) of the 1993 Act is required, shall mean the form of the final prospectus included in the Registration Statement when the Registration Statement becomes effective. The term "Preliminary Prospectus" shall mean any prospectus included in the Registration Statement before it becomes effective. The terms "effective date" and "effective" refer to the date

the Commission declares the Registration Statement effective pursuant to Section 8 of the 1933 Act.

(b) Adequacy of Disclosure. Each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the 1933 Act and the Rules and Regulations, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished to the Company by you expressly for use in the Registration Statement. For the purposes of the closing conditions contained in Section 6.(b), this representation and warranty shall be deemed as of the Closing Date (as hereinafter defined) also to constitute a representation and warranty that when the Registration Statement became effective, when the Prospectus was first filed pursuant to Rule 424(b) of the Rules and Regulations, when any amendment to the Registration Statement was filed, and when any pre-Closing supplement to the Prospectus was filed with the Commission and on the Closing Date, (i) the Registration Statement, the Prospectus and any amendments thereof and supplements thereto conformed in all material respects with the applicable requirements of the 1933 Act and the Rules and Regulations, and (ii) neither the Registration Statement, the Prospectus nor any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished to the Company by you expressly for use in the Registration Statement.

(c) No Stop Order. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus with respect to the Shares, and no proceedings for that purpose have been instituted or, to the knowledge of the Company, threatened by the Commission or the state securities or blue sky authority of any jurisdiction.

(d) Company: Organization and Qualification. The Company has been duly organized and is validly existing in good standing as a real estate investment trust under the laws of the State of Maryland with all requisite power and authority to enter into this Agreement, to conduct its business as now conducted and as proposed to be conducted, and to own, lease and operate its properties, and the properties it proposes to own, lease and operate, as described in the Registration Statement and Prospectus, and is qualified to do business and is in good standing in each other jurisdiction in which the failure so to qualify could reasonably be expected to have a material adverse effect on the Company, the Partnership or any Hotel, taken as a whole. The Company is not in violation of any provision of its declaration of trust, bylaws or other governing documents and is not in default under or in breach of, and does not know of the occurrence of any event that with the giving of notice or the lapse

of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which it is a party or by which any of its properties is bound, except as disclosed in the Registration Statement and Prospectus. No consent, approval, authorization, or order from any court, governmental agency or body is required in connection with the execution and delivery of this Agreement by the Company, the consummation by the Company of the transactions contemplated herein and in the Registration Statement and Prospectus or the issuance and sale of the Shares, except such as may be required by the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or applicable state securities or blue sky laws. Except for the Partnership, the Company does not own or control, directly or indirectly, any corporation, association, or other entity.

(e) Partnership: Organization and Qualification. The Partnership has been duly formed and is validly existing as a limited partnership under the laws of the Commonwealth of Virginia with all requisite partnership power to conduct its business as now conducted and as proposed to be conducted, and to own, lease and operate its properties and the properties it proposes to own, lease and operate, as described in the Registration Statement and Prospectus, and is qualified to do business and is in good standing as a foreign limited partnership in each other jurisdiction in which the failure so to qualify could reasonably be expected to have a material adverse effect on the Company, the Partnership or any Hotel, taken as a whole. The Partnership is not in violation of any provision of its partnership agreement or other governing documents and is not in default under or in breach of, and does not know of the occurrence of any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which it is a party or by which any of its properties is bound, except as disclosed in the Registration Statement and Prospectus. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery of this Agreement by the Partnership, or the consummation by the Partnership of the transactions contemplated herein and in the Registration Statement and Prospectus, except such as may be required by the 1933 Act, the 1934 Act, or applicable state securities or blue sky laws. The Company is and at the Closing Date will be the sole general partner of the Partnership. Immediately subsequent to the Closing Date, the Company will be the holder of approximately 43% of the Units in the Partnership, and the limited partners of the Partnership will be the holders, in the aggregate, of approximately 57% of the Units in the Partnership.

(f) Lessee: Organization and Qualification. The Lessee has been duly incorporated and is validly existing as a limited partnership under the laws of the Commonwealth of Pennsylvania with all requisite partnership power and authority to enter into the Leases, and to conduct its business as now conducted and as proposed to be conducted, and to own, lease and operate its properties, as described in the Registration Statement and Prospectus, and is qualified to do business and is in good standing as a foreign limited partnership in each other jurisdiction in which the failure so to qualify could reasonably be expected to have a material adverse effect on the Lessee. The Lessee is not in violation of any provision of its partnership agreement or

other governing documents and is not in default or in breach of, and does not know of the occurrence of any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which it is a party or by which any of its properties is bound, except as disclosed in the Registration Statement and Prospectus. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the consummation by the Lessee of the transactions contemplated herein and in the Registration Statement and Prospectus, except such as may be required by the 1933 Act, the 1934 Act, and applicable state securities or blue sky laws.

(g) Selling Partnerships: Organization and Qualification. The Selling Partnerships have each been duly formed and are validly existing as limited partnerships under the laws of the states in which they operate, with all requisite partnership power and authority to enter into the Contribution Agreements and to conduct their respective businesses and to own, lease and operate their respective properties, as described in the Registration Statement and Prospectus, and are qualified to do business and in good standing as foreign limited partnerships in each other jurisdiction in which the failure so to qualify could reasonably be expected to have a material adverse effect on the Company, the Partnership, a Selling Partnership or any Hotel, taken as a whole. None of the Selling Partnerships is in violation of any provision of its partnership agreement or other governing documents, or is in default under or in breach of, or knows of the occurrence of any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which it is a party or by which any of its properties is bound, except as disclosed in the Registration Statement and Prospectus. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the consummation by any Selling Partnership of the transactions contemplated herein and in the Registration Statement and Prospectus, except such as may be required by the 1933 Act, the 1934 Act, and applicable state securities or blue sky laws.

(h) Validity of Shares. The Shares have been duly and validly authorized by the Company, and upon issuance, will be validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and will conform to the description thereof contained in the Prospectus. The preferences, rights and limitations of the Shares are set forth in the Prospectus under the caption "Description of Shares of Beneficial Interest". There are no preemptive rights with respect to any of the Shares. No person or entity holds a right to require or participate in the registration under the 1933 Act of the Shares pursuant to the Registration Statement; and, except as set forth in the Prospectus, no person holds a right to require registration under the 1933 Act of any securities of the Company at any other time. No person or entity has a right of participation or first refusal with respect to the sale of the Shares by the Company. The form of certificates evidencing the Shares complies with all applicable requirements of Maryland law.

(i) Company Capitalization. The Company has 100 issued and outstanding Common Shares, which will be redeemed on the Closing Date. The Company has no other issued and outstanding Common Shares. The Company's authorized capitalization is as set forth in the Prospectus under the caption "Description of Shares of Beneficial Interest". Except as disclosed in the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or arrangement to issue, any shares of the Company or any security convertible into or exchangeable for shares of the Company.

(j) Validity of Units. The Units to be issued to the Company and the Selling Entities in connection with the Formation Transactions (i) have been duly and validly authorized by the Partnership, and upon issuance, will be validly issued, and (ii) have been and will be issued, offered and sold at or prior to the Closing Date in compliance with all applicable laws (including, without limitation, federal and state securities laws). The portion of the Formation Transactions between the Company, the Partnership and the Selling Entities will be effected in compliance with the partnership agreements of the Selling Partnerships and all applicable laws (including, without limitation, federal and state securities laws and laws regarding partnership fiduciary obligations).

(k) Full Power: Company. The Company has full legal right, power, and authority to enter into this Agreement and the Escrow Agreement among the Company, First Union National Bank of North Carolina (the "Escrow Agent") and you (the "Escrow Agreement"), to issue and deliver the Shares as provided herein and to consummate the transactions contemplated herein.

(l) Full Power: Partnership. The Partnership has full legal right, power, and authority to enter into this Agreement and to consummate the transactions contemplated herein.

(m) Full Power: Operative Documents. Each of the parties to the Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"), the Leases and the Contribution Agreements has full legal right, power, and authority to enter into each such agreement and to consummate the transactions contemplated therein. (This Agreement, the Escrow Agreement, the Partnership Agreement, the Leases and the Contribution Agreements are sometimes hereinafter referred to as the "Operative Documents.")

(n) Disclosed Agreements. All agreements between or among the Company, the Partnership, the Selling Entities and the Lessee, respectively, and third parties listed as exhibits to the Registration Statement, are legal, valid, and binding obligations of the Company, the Partnership, the Selling Entities and the Lessee, respectively, enforceable in accordance with their respective terms, except to the extent enforceability may be limited by (i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws

affecting creditors' rights generally, regardless of whether such enforceability is considered in equity or at law, (ii) general equity principles and (iii) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification or contribution provisions.

(o) Consents. Each consent, approval, authorization, order, license, certificate, permit, registration, designation or filing by or with any governmental agency or body necessary for the valid authorization, issuance, sale and delivery of the Shares, the execution, delivery and performance of this Agreement or any of the other Operative Documents and the consummation by the parties thereto of the transactions contemplated hereby or thereby, has been made or obtained and is in full force and effect.

(p) Litigation. There is not pending or, to the knowledge of the Company or the Partnership, threatened or contemplated, any action, suit, proceeding, inquiry, or investigation before or by any court or any federal, state, or local governmental authority or agency to which the Company, the Partnership, any Selling Entity or the Lessee or any of their respective officers, directors or partners are or may be a party, or to which any of the properties or rights of any such entity or person may be subject, that is not described in the Registration Statement and Prospectus and (i) that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise) or business of the Company, the Partnership, the Lessee or any Selling Entity, taken as a whole; or (ii) that could reasonably be expected to materially adversely affect any of the material properties of any such entity; or (iii) that could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement, any of the other Operative Documents, or any of the Formation Transactions, nor, to the knowledge of the Company or the Partnership, is there any meritorious basis therefor.

(q) Financial Statements. The financial statements of the Combined Selling Entities-Initial Hotels, together with related schedules and notes included in the Registration Statement and the Prospectus, present fairly the financial position of the Combined Selling Entities-Initial Hotels as of the dates indicated and the results of operations and cash flows for the Combined Selling Entities-Initial Hotels for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved. The financial statement schedules included in the Registration Statement and the amounts in the Prospectus under the captions "Prospectus Summary-Summary Financial Data" and "Selected Financial Information" fairly present the information shown therein and have been compiled on a basis consistent with the financial statements included in the Registration Statement and the Prospectus. No other financial statements or schedules are required by Form S-11 or otherwise to be included in the Registration Statement, the Prospectus or any Preliminary Prospectus. The unaudited pro forma combined financial information (including the related notes) included in the Prospectus or any Preliminary Prospectus complies as to form in all material respects to the applicable accounting requirements of the 1933 Act and the Rules and Regulations, and

management of the Company believes that the assumptions underlying the pro forma adjustments are reasonable. Such pro forma adjustments have been properly applied to the historical amounts in the compilation of the information and such information fairly presents with respect to the Company and the Combined Selling Entities-Initial Hotels the financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified.

(r) Independent Accountants. Moore Stephens, P.C., the accountants that have expressed an opinion on the financial statements that are included in the Registration Statement and Prospectus are, and were during the period covered by their Reports included in the Registration Statements and Prospectus, with respect to the Company, independent public accountants as required by the 1933 Act and the Rules and Regulations.

(s) Disclosed Liabilities. None of the Company, the Partnership, the Lessee or any Selling Entity has sustained, since December 31, 1997, any material loss or interference with its business from fire, explosion, flood, hurricane, accident, or other calamity, whether or not covered by insurance, or from any labor dispute or arbitrators' or court or governmental action, order, or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as otherwise stated in the Registration Statement and Prospectus, there has not been (i) any material change in the capital shares or partnership interests or membership interests, as applicable, long-term debt, obligations under capital leases, or short-term borrowings of the Company, the Partnership, the Lessee or any Selling Entity, taken as a whole, (ii) any material adverse change, or any development that could reasonably be seen as involving a prospective material adverse change in or affecting the business, prospects, properties, assets, results of operations or condition (financial or other) of the Company, the Partnership, the Lessee or any Selling Entity, taken as a whole, (iii) any liability or obligation, direct or contingent, incurred or undertaken by the Company, the Partnership, the Lessee or any Selling Entity that is material to the business or condition (financial or other) of such entities, taken as a whole, except for liabilities or obligations incurred in the ordinary course of business, (iv) any declaration or payment of any dividend or distribution of any kind on or with respect to the shares of the Company, or the partnership interests of the Partnership, the Lessee or any Selling Entity, respectively, or (v) any transaction that is material to the Company, the Partnership, the Lessee or any Selling Entity, taken as a whole, except transactions in the ordinary course of business or as otherwise disclosed in the Registration Statement and the Prospectus.

(t) Hotels. The Selling Partnerships that currently own the Hotels have, and on the Closing Date the Partnership will have, good and marketable title in fee simple to all real property owned by them, including the Hotels, free and clear of all liens, encumbrances, claims, security interests,

restrictions, and defects, except such as are described in the Prospectus and the policies of title insurance previously provided to you. The Company does not own or lease any real property. No person other than the Company has an option or right of first refusal to purchase all or part of any Hotel or any interest therein. Each of the Hotels complies with all applicable codes, laws, and regulations (including, without limitation, building and zoning codes, laws and regulations, and laws relating to access to Hotels), except if and to the extent disclosed in the Prospectus and except for such failures to comply that would not individually or in the aggregate have a material adverse impact on the condition (financial or otherwise) or on the earnings, assets, business affairs, or business prospects of such Hotel, the Partnership, the Company or any Selling Entity, taken as a whole. Neither the Company nor the Partnership has knowledge of any pending or threatened condemnation proceedings, zoning change, or other proceeding or action that will in any manner effect the size of, use of, improvements on, construction on, or access to any of the Hotels, except such proceedings or actions that would not have a material adverse effect on the condition (financial or otherwise) or on the earnings, assets, business affairs, or business prospects of such Hotel, the Partnership, the Company or any Selling Entity, taken as a whole.

(u) Required Licenses and Permits. Except as disclosed in the Prospectus, the Company, the Partnership or the Lessee owns, possesses, has obtained or has commitments to obtain, and has made available for your review, all material permits, licenses, franchises (including, with respect to the Lessee, the franchises relating to the Hotels), certificates, consents, orders, approvals, and other authorizations of governmental or regulatory authorities as are necessary to own or lease, as the case may be, and to operate their respective properties and to carry on their respective businesses as presently conducted, or as contemplated in the Prospectus to be conducted (the "Permits"), and none of the Company, the Partnership or the Lessee has received any notice of proceedings relating to revocation or modification of any such Permits.

(v) Trademarks, etc. Each of the Company, the Partnership and the Lessee owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, software and design licenses, trade secrets, manufacturing processes, other intangible property rights and know-how (collectively "Intangibles") necessary to entitle each of the Company, the Partnership and the Lessee to conduct their respective businesses now, and as proposed to be, conducted or operated as described in the Prospectus, and none of the Company, the Partnership or the Lessee has received notice of infringement or of conflict with (or knows of such infringement of or conflict with) asserted rights of others with respect to any intangible that could materially and adversely affect the business, prospects, properties, assets, results of operation, or condition (financial or otherwise) of the Company, the Partnership or the Lessee, taken as a whole.

(w) Internal Accounting Measures. To the knowledge of the Company and the Partnership, the Company's, the Partnership's, the Lessee's and each Selling Partnership's systems of internal accounting controls taken as a whole are sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company's, the Partnership's, the Lessee's or any Selling Partnership's financial statements; and, to the knowledge of the Company and the Partnership, none of the Company, the Partnership, the Lessee or any Selling Partnership, or any employee or agent thereof, has made any payment of funds of the Company, the Partnership, the Lessee or any Selling Partnership, as the case may be, or received or retained any funds and no funds of the Company, the Partnership, the Lessee or any Selling Partnership, as the case may be, have been set aside to be used for any payment, in each case in violation of any law, rule, or regulation.

(x) Taxes. Each of the Company, the Partnership (to the extent not consolidated with the Company), the Lessee and the Selling Partnerships has timely filed all required federal and state tax returns, has paid all taxes that have become due and have no tax deficiency asserted against any such entity, nor does any such entity know of any tax deficiency that is likely to be asserted against any such entity that if determined adversely to any such entity, would, either individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, results of operations, or condition (financial or otherwise) of any such entity or any Hotel, respectively. All tax liabilities are adequately provided for on the respective books of such entities.

(y) Compliance with Instruments. The execution, delivery and performance of this Agreement and the Operative Documents, the compliance with the terms and provisions hereof and the consummation of the transactions contemplated herein, therein and in the Registration Statement and Prospectus by the Company, the Partnership, the Lessee or the Selling Entities do not and will not violate or constitute a breach of, or default under (i) the articles of incorporation, charter, bylaws, declaration of trust, certificate of limited partnership, partnership agreement, articles of organization or operating agreement, as the case may be, of the Company, the Partnership, the Lessee or any Selling Entity; (ii) any of the terms, provisions, or conditions of any material instrument, agreement, or indenture to which the Company, the Partnership, the Lessee or any Selling Entity is a party or by which they are bound or by which their respective businesses, assets, investments, properties, or any Hotel may be affected; or (iii) any order, statute, rule, or regulation applicable to the Company, the Partnership, the Lessee or any Selling Entity, or any of their respective businesses, investments, assets, properties, or Hotel, of any court or any federal, state or local governmental authority or agency having jurisdiction over the Company, the Partnership, the Lessee or any Selling Entity or any of their respective businesses, investments, properties, assets, or Hotels; and do not and will not result in the creation or imposition of any lien, charge, claim, or encumbrance upon any property or asset of any of the foregoing.

(z) Insurance. The Company, the Partnership and the Lessee maintain insurance (issued by insurers of recognized financial responsibility) of the types and in the amounts generally deemed adequate for their respective businesses and, to the knowledge of the Company and the Partnership, consistent with insurance coverage maintained by similar companies and similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company, the Partnership and the Lessee against theft, damage, destruction, acts of vandalism, and all other risks customarily insured against, all of which insurance is in full force and effect.

(aa) Work Force. To the knowledge of the Company and the Partnership, no general labor problem exists or is imminent with respect to the employees of the Lessee.

(ab) Share Restriction. The Company has obtained the agreement of ______________________________________ that, for a period of ninety (90) days from the date hereof, they will not, without your prior written consent, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Shares of the Company or securities convertible into shares held by such persons (including, without limitation, Common Shares deemed to be beneficially owned by such person in accordance with the Rules and Regulations promulgated under the 1934 Act), other than in connection with a bona fide pledge for security purposes or a transfer for estate planning purposes.

(ac) Securities Matters. Each of the Company, the Partnership and their officers, trustees, partners or affiliates have not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in or constitute the stabilization or manipulation of any security of the Company or to facilitate the sale or resale of the Shares.

(ad) Registration. The Common Shares are registered pursuant to Section 12(g) of the 1934 Act and are listed on the American Stock Exchange.

(ae) Environmental Status. Except as otherwise disclosed in the Prospectus, none of the Company, the Partnership, the Lessee or any Selling Partnership has authorized or conducted or has knowledge of the generation, transportation, storage, presence, use, treatment, disposal, release, or other handling of any hazardous substance, hazardous waste, hazardous material, hazardous constituent, toxic substance, pollutant, contaminant, asbestos, radon, polychlorinated biphenyls ("PCBs"), petroleum product or waste (including crude oil or any fraction thereof), natural gas, liquefied gas, synthetic gas, or other material defined, regulated, controlled, or potentially subject to any remediation requirement under any environmental law (collectively, "Hazardous Materials"), on, in, under, or affecting any real property currently leased, owned or by any means controlled by the Company, the Partnership or any Selling Partnership, including the Hotels (the "Real Property") except as in material compliance with applicable laws; to the knowledge of the Company, the Partnership or any Selling Partnership, the Real Property and the Company's, the Partnership's, the Lessee's and each Selling Partnership's operations with respect to the Real Property are in compliance in all material respects with all federal, state, and local laws, ordinances, rules, regulations, and other governmental requirements relating to pollution, control of chemicals, management of waste, discharges of materials into the environment, health, safety, natural resources, and the environment (collectively, "Environmental Laws"), and the Company, the Partnership, the Lessee and each Selling Partnership have, and are in compliance with, all licenses, permits, registrations, and government authorizations necessary to operate under all applicable Environmental Laws. Except as otherwise disclosed in the Prospectus, none of the Company, the Partnership, the Lessee or any Selling Partnership has received any written or oral notice from any governmental entity or any other person and there is no pending or, to the knowledge of the Company, the Partnership, the Lessee or any Selling Partnership, threatened claim, litigation, or any administrative agency proceeding that: alleges a violation of any Environmental Laws by the Company, the Partnership, the Lessee or any Selling Partnership; alleges that the Company, the Partnership, the Lessee or any Selling Partnership is a liable party or a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. '9601, et seq., or any state superfund law; has resulted in or could reasonably be expected to result in the attachment of an environmental lien on any of the Real Property; or alleges that the Company, the Partnership, the Lessee or any Selling Partnership is liable for any contamination of the environment, contamination of the Real Property, damage to natural resources, property damage, or personal injury based on their activities or the activities of their predecessors or third parties (whether at the Real Property or elsewhere) involving Hazardous Materials, whether arising under the Environmental Laws, common law principles, or other legal standards.

(af) Real Estate Investment Trust. Upon completion of the Formation Transactions and the sale of the Shares hereunder, the Company will have been organized in conformity with the requirements for qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), and the Company's proposed method of operation will enable it to meet the requirements for qualification and taxation as a real estate investment trust under the Code. Immediately after Closing, the Partnership will be treated as a partnership for federal income tax purposes and not as a corporation or an association taxable as a corporation.

(ag) Environmental Reports. Dawood Engineering, Inc., which prepared Phase I environmental assessment reports with respect to the Hotels, was not employed for such purpose on a contingent basis, and does not have any substantial interest in the Company, the Partnership, any Selling Entity or the Lessee.

(ah) Changes, etc. Since the respective dates as of which information is given in the Prospectus except as may otherwise be stated in or contemplated by the Prospectus: (i) there has not been any material adverse change in the condition (financial or otherwise) of the Company, the Partnership, any Selling Entity or the Lessee, or in the personnel, earnings, affairs, properties, investments, assets or business of the Company, the Partnership or the Lessee, whether or not arising in the ordinary course of business; (ii) there has not been any transaction entered into by the Company, the Partnership, any Selling Entity or the Lessee that is material to the Company, the Partnership, any Selling Entity or the Lessee, other than in the ordinary course of business; (iii) there has not been any increase in indebtedness or borrowings of the Company, the Partnership, any Selling Entity or the Lessee; and (iv) the Company has not issued or sold any Common Shares or any other equity securities or any right or option to acquire any such Common Shares or equity securities except for the sale of Shares pursuant to this Agreement.

(ai) Investment Company Act. None of the Company, the Partnership or the Lessee will become as a result of the consummation of the Formation Transactions an "investment company" or an entity that "controls" or is "controlled by" an "investment company," as such terms are defined under the Investment Company Act of 1940, as amended (the "1940 Act").

(aj) Receipt of Commissions and Fees. Except as stated in or contemplated by the Prospectus, neither the Company nor any affiliate of the Company has received or is entitled to receive, directly or indirectly, any compensation or other benefit, including, but not limited to, any finder's fee, acquisition fee, selection fee, nonrecurring management fee or other fee or commission, relating to the investments of the Company.

(ak) Payment of Commissions and Fees. Except as stated in or contemplated by the Prospectus, neither the Company nor any affiliate of the Company has paid or awarded, nor will any such person pay or award, directly or indirectly, any commission or other compensation to any person engaged to render investment advice to a potential purchaser of Shares as an inducement to advise the purchase of Shares.

Any certificates of any officer of the Company on behalf of the Company and/or the Partnership and delivered to you or your counsel, shall be deemed a representation and warranty by such entity to you as to the matters covered thereby.

3. Sales of Shares.

(a) Exclusive Agency. The Company hereby appoints you as its exclusive agent to offer for sale, and hereby agrees to sell during the Offering Period (as defined in Section 3(b)), 2,500,000 Common Shares, and on the basis of the representations and warranties herein contained but subject to the terms and conditions herein set forth, you accept such appointment and agree to use your best efforts as agent to offer the Shares for sale for the account of the Company, on a cash basis only, at the offering price of $6.00 per Share. During the Offering Period, the Company will not sell or agree to sell Common Shares, other than the Company Offered Shares, otherwise than through you. Subject to your commitment to sell the Shares on a "best efforts" basis as provided herein, nothing in this Agreement shall prevent you from entering into an agency agreement, underwriting agreement, or other similar agreement governing the offer and sale of securities with any other issuer of securities, and nothing contained herein shall be construed in any way as precluding or restricting your right to sell or offer for sale securities issued by any other person, including securities similar to, or competing with, the Shares. It is understood between the parties that there is no firm commitment by you to purchase any or all of the Shares.

(b) Obligation to Offer Shares. Your obligation to offer the Shares is subject to receipt by you of satisfactory evidence that the Registration Statement is effective, is subject to the Shares being qualified for offering under applicable laws in the states as may be reasonably designated by you, is subject to the absence of any prohibitory action by any governmental body, agency, or official, and is subject to the terms and conditions contained in this Agreement and in the Registration Statement.

(c) Offering Termination Date. The "Offering Period" shall commence on the day that the Prospectus is first made available to prospective investors in connection with the offering for sale of the Shares and shall continue until the "Offering Termination Date," which shall be the earlier of
(i) the date all of the Shares offered have been sold, (ii) ______________, 1998, or (iii) an earlier termination date as determined by you as permitted herein. The Company and you agree that unless all of the Shares to be offered by you are sold on or before the Offering Termination Date, the agency between the Company and you will terminate, and the full proceeds that have been paid for the Shares will be returned to the purchasers.

(d) Escrow Agent. Prior to the sale of all of the Shares to be offered, all funds received from purchasers of the Shares shall be placed in an escrow account (the "Escrow Account") with the Escrow Agent pursuant to the Escrow Agreement, the form of which is attached as Exhibit 1.3 to the Registration Statement, and all payments of, from or on account of such funds shall be made pursuant to the Escrow Agreement. In the event all of the Shares offered are not sold on or before the Offering Termination Date, all funds then held in the Escrow Account shall be returned promptly to the respective purchasers as provided in the Escrow Agreement.

(e) Closing Date. As and when proceeds from the sale of Shares are received and accepted on or before the Offering Termination Date, on such date (the "Closing Date") and at such time and place as determined by you (which determination shall be subject to the satisfaction on such date of the conditions contained herein), the funds received from purchasers will be delivered by the Escrow Agent to the Company, by wire transfer of immediately available funds, except for the selling commissions payable to you on the Closing Date pursuant to the provisions of Section 3.(f) of this Agreement (which selling commissions shall be delivered to you by the Escrow Agent on behalf of the Company on the Closing Date).

(f) Selling Commissions. In consideration for your execution of this Agreement and for the performance of your obligations hereunder, the Company agrees to cause the Escrow Agent to pay you, as provided in Section
3.(e) of this Agreement, by wire transfer of immediately available funds on the Closing Date, if any, a selling commission computed at the rate of $0.48 (eight percent (8.0%) of the public offering price) for each of the Shares sold by you at the public offering price of $6 per share.

(g) Finder's Fees. Except as set forth in the Registration Statement or Prospectus, neither you nor the Company, directly or indirectly, shall pay or award any finder's fee, commission, or other compensation to any person engaged by a potential purchaser for investment advice as an inducement to such advisor to advise the purchase of Shares or for any other purpose.

(h) Delivery of Share Certificates. Delivery of certificates in definitive form representing the Shares shall be made at the offices of Citicorp Securities Services, Inc. or at such other place as shall be agreed upon by the Company and you, on _____________, 1998 (the "Date of Delivery"). The certificates representing the Shares shall be in such denominations and registered in such names as you may request in writing at least three full business days before the Date of Delivery. The certificates representing the Shares will be made available for examination and packaging at the offices of Citicorp Securities Services, Inc. or at such other place as shall be agreed upon by the Company and you, not later than at least two full business days prior to the Date of Delivery.

(i) Warrants. On the Closing Date, the Company will issue to you warrants for the purchase of 250,000 Common Shares, substantially in the form of Exhibit A attached to this Agreement.

4. Covenants.

(a) Covenants of the Company and the Partnership. The Company and the Partnership covenant with you as follows:

(i) Notices. Through and including the Closing Date, the Company and the Partnership immediately will notify you, and confirm such notice in writing, (A) of any fact that would make inaccurate any representation or warranty by the Company and the Partnership, and (B) of any change in facts on which your obligation to perform under this Agreement is dependent.

(ii) Effectiveness of Registration Statement. The Company will use its best efforts to cause the Registration Statement to become effective (if not yet effective at the date and time this Agreement is executed and delivered by the parties hereto). If the Company elects to rely upon Rule 430A of the Rules and Regulations or the filing of the Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations, and subject to the provisions of Section 4.(a)(iii) of this Agreement, the Company will comply with the requirements of Rule 430A and will file the Prospectus, properly completed, pursuant to the applicable provisions of Rule 424(b) within the time prescribed. The Company will notify you immediately, and confirm the notice in writing, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectus, or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus or the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the institution or threatening of any proceeding for any such purposes. The Company will use all reasonable efforts to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the withdrawal thereof at the earliest possible moment.

(iii) Amendments to Registration Statement and Prospectus. The Company will not at any time file or make any amendment to the Registration Statement, or any amendment or supplement (i) to the Prospectus, if the Company has not elected to rely upon Rule 430A, or (ii) if the Company has elected to rely upon Rule 430A, to either the Prospectus included in the Registration Statement at the time it becomes effective or to the Prospectus filed in accordance with Rule 424(b), in either case if you shall not have previously been advised and furnished a copy thereof a reasonable time prior to the proposed filing, or if you or your counsel shall reasonably object to such amendment or supplement.

(iv) Delivery of Registration Statement. The Company has delivered to you or will deliver to you, without expense to you, at such locations as you shall request, as soon as the Registration Statement or any amended Registration Statement is available, such number of signed copies of the Registration Statement as originally filed and of amended Registration Statements, if any, copies of all exhibits and documents filed therewith, and signed copies of all consents and certificates of experts, as you may reasonably request.

(v) Delivery of Prospectus. The Company will deliver to you at its expense, from time to time, as many copies of each Preliminary Prospectus as you may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to you at its expense, as soon as the Registration Statement shall have become effective and thereafter from time to time as requested during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as supplemented or amended) as you may reasonably request. The Company will comply to the best of its ability with the 1933 Act and the Rules and Regulations so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and in the Prospectus. If the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such Prospectus is delivered not misleading or, if for any reason it shall be necessary during the same period to amend or supplement the Prospectus in order to comply with the 1933 Act, the Company will notify you and upon your request prepare and furnish without charge to you and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus that will correct such statement or omission or effect such compliance, and in case you are required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at your expense, the Company will prepare and deliver to you as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the 1933 Act.

(vi) Blue Sky Qualification. The Company, in good faith and in cooperation with you, will use its best efforts to qualify the Shares for offering and sale under the applicable "blue sky" or securities laws and real estate syndication laws of such jurisdictions as you from time to time may reasonably designate and to maintain such qualifications in effect for as long as may be necessary to complete the sale and distribution of the Shares; provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to make any undertakings in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Shares have been qualified as above provided.

(vii) Financial and Other Information.

A. Earnings Statement. The Company will make generally available to its security holders, in the manner specified in Rule 158(b) under the 1933 Act and deliver to you as soon as practicable and in any event not later than 60 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earnings statement meeting the requirements of Rule 158(a) under the 1933 Act covering a period of at least twelve consecutive months beginning after the effective date of the Registration Statement.

B. Annual and Quarterly Reports. The Company will furnish to its securityholders, as soon as practicable after the end of each respective period, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of operations for each of the first three quarters of the fiscal year. For a period of five years after the Closing Date, the Company will furnish to you: (i) concurrently with the date on which the same shall be sent to the securityholders of the Company, if applicable, and in any event not later than sixty (60) days after the end of each fiscal quarter of the Company, statements of operations of the Company for each of the first three quarters in the form furnished to the Company's securityholders; (ii) concurrently with the date on which the same shall be sent to the securityholders of the Company, if applicable, and in any event not later than one hundred twenty (120) days after the end of each fiscal year of the Company, a balance sheet of the Company as of the end of such fiscal year, together with statements of operations, of cash flows, and of securityholders' equity of the Company for such fiscal year, accompanied by a copy of the certificate or report thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports (financial or otherwise) mailed to securityholders; and (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, any securities exchange, or the National Association of Securities Dealers, Inc. ("NASD"). During such five year period, the foregoing financial statements shall be made on a consolidated basis to the extent that the accounts of the Company are consolidated with any subsidiaries, and shall be accompanied by similar financial statements for any significant subsidiary that is not so consolidated.

C. Press Releases. For a period of five years after the Closing Date, the Company will furnish to you, concurrently with the release thereof, two copies of every press release to be issued and every material news item and article in respect of the Company or its affairs to be released by the Company; and promptly, such additional documents and information with respect to the Company and its affairs as you from time to time may reasonably request.

D. Other Information. For a period of five years after the Closing Date, the Company will furnish to you any additional information of a public nature concerning the Company or its business that you may reasonably request in writing.

(viii) Application of Net Proceeds. The Company and the Partnership will apply the net proceeds received from the sale of the Shares in all material respects as set forth in the Prospectus under the caption "Use of Proceeds."

(ix) Solicitation of Purchasers.

A. Except as hereinafter specified, the Company will not, and will not permit the Partnership or any of its other affiliates or agents to, (1) engage in any offering or placement of any debt or equity security or long-term debt (other than the refinancing of the Assumed Indebtedness as described in the Prospectus) for a period of three (3) years from the effective date of the Registration Statement for which you are not acting as the underwriter or sales or placement agent, unless you shall have been given a right of first refusal to act as the underwriter or sales agent with respect to such offering, and shall have failed to agree to act as the underwriter or sales agent for the proposed offering within thirty (30) days of a notice from the Company of the proposed terms of the offering, (2) solicit the purchasers of Shares in connection with any other offering of any security for a period of three (3) years from the effective date of the Registration Statement, unless you shall have been given a right of first refusal to conduct such solicitation or you are notified and compensated therefor in an amount equal to 8.0% of the purchase price of any securities purchased by any such purchaser, or
(3) furnish the names of such purchasers or of other potential investors obtained through you to any person other than as may be required in connection with the normal and usual conduct by the Company of its business or required by court order or law.

B. The Company agrees and understands that a violation of the provisions of Section 4(a)(ix)(A) of this Agreement will cause you irreparable harm and injury and that any money damages you receive will not compensate you for any breach thereof. Accordingly, the Company agrees that, in addition to monetary damages, you will be entitled to all such equitable relief including, without limitation, injunctive relief, as a court of equity or proper jurisdiction shall deem appropriate in the circumstances. Such relief shall not be exclusive of any rights you may have at law or in equity. All of the rights and remedies you have hereunder shall be cumulative and not alternative. The provisions of this Section shall not limit your remedies upon the breach by the Company of any other Section of this Agreement.

(x) Cooperation with Your Due Diligence. At all times prior to the Closing Date, the Company will cooperate with you in such investigation as you may make or cause to be made of all the business and operations (including all Hotels) of the Company, the Partnership and the Lessee in connection with the sale of the Shares, and will make available to you in connection therewith such information in its possession as you may reasonably request.

(xi) Transfer Agent. The Company will maintain a transfer agent and, if necessary under applicable jurisdictions, a registrar (which may be the same entity as the transfer agent) for its Common Shares.

(xii) American Stock Exchange. The Company will use its reasonable best efforts to maintain the listing of its Common Shares on the American Stock Exchange.

(xiii) Compliance with Investment Company Act. The Company and the Partnership are familiar with the Investment Company Act of 1940, as amended, as the rules and regulations thereunder, and have in the past conducted their affairs, and will in the future conduct their affairs, in such a manner so as to ensure that the Company and the Partnership will not be an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

(xiv) Actions of Company, Officers, Directors, and Affiliates. The Company will not and will use its reasonable best efforts to cause its officers, directors, and affiliates not to (i) take, directly or indirectly, prior to termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or that may cause or result in, or that might in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Shares, (ii) other than under this Agreement, sell, bid for, purchase, or pay anyone any compensation for soliciting purchases of the Shares or (iii) pay or agree to pay to any person any compensation for soliciting any order to purchase any other securities of the Company.

(xv) Additional Issuances. For a period of ninety
(90) days from the Closing Date, the Company will not, without your prior written consent, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Shares or securities convertible into Common Shares, other than pursuant to this agreement and other than partnership interests or other securities convertible into Common Shares issued in connection with the acquisition of a hotel property.

(xvi) Company Offered Shares. The Company has not provided and will not provide to the purchasers of Company Offered Shares any written or oral information regarding the business of the Company, including any representations regarding the Company's financial condition or financial prospects, other than such information as is contained in the Prospectus or such information as may have come to their attention in the ordinary course of their service as employees of one or more of the Selling Partnerships or the Lessee.

(b) Your Covenants. You covenant with the Company that you have not provided and will not provide to the purchasers of Shares any written or oral information regarding the business of the Company, including any representations regarding the Company's financial condition or financial prospects, other than such information as is contained in the Prospectus.

5. Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, and subject to the provisions of Section 9 of this Agreement, the Company hereby agrees that it will pay all fees and expenses incident to the performance of its obligations under this Agreement (excluding fees and expenses of counsel for you, except as specifically set forth below), including (a) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the Preliminary Prospectuses and the Prospectus and any amendments or supplements thereto, and the cost of furnishing copies thereof to you, (b) the preparation, printing, and distribution of this Agreement, any Selected Dealer Agreement, the certificates representing the Shares, the Blue Sky Memoranda, and any instruments relating to any of the foregoing, (c) the issuance and delivery of the Shares, including any transfer taxes payable thereon, (d) the fees and disbursements of the Company's counsel and accountants, (e) the qualification of the Shares under applicable securities and real estate syndication laws in accordance with Section 4.(a) of this Agreement and any filing fee paid in connection with the review of the offering by the NASD, including filing fees and fees and disbursements made in connection therewith and in connection with the Blue Sky Memoranda supplied to you by counsel for the Company, (f) all costs, fees, and expenses in connection with the application for listing the Shares on the American Stock Exchange, (g) the transfer agent's and registrar's fees and all miscellaneous expenses referred to in Item 30 of the Registration Statement, (h) costs related to travel and lodging incurred by the Company and its representatives relating to meetings with and presentations to prospective purchasers of the Shares reasonably determined by you to be necessary or desirable to effect the sale of the Shares to the public, (i) all other costs and expenses incident to the performance of the Company's obligations hereunder that are not otherwise specifically provided for in this Section.

6. Conditions of Your Obligations. Your obligations hereunder shall be subject to, in your discretion, the following terms and conditions:

(a) Effectiveness of Registration Statement. The Registration Statement shall have become effective not later than 5:30 p.m. on the date of this Agreement or, at such later time or on such later date as you may agree to in writing; and as of the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or the knowledge of the Company, shall be contemplated by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the satisfaction of your counsel.

(b) Closing Date Matters. On the Closing Date, (i) the Registration Statement and the Prospectus, as they may then be amended or supplemented, shall contain all statements that are required to be stated therein under the 1933 Act and the Rules and Regulations and in all material respects shall conform to the requirements of the 1933 Act and the Rules and Regulations; the Company shall have complied in all material respects with Rule 430A (if it shall have elected to rely thereon) and neither the Registration Statement nor the Prospectus, as they may then be amended or supplemented, shall contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the business, prospects, properties, assets, results of operations or condition (financial or otherwise) of the Company, the Partnership, the Lessee or any Selling Partnership, taken as a whole, whether or not arising in the ordinary course of business, (iii) no action, suit or proceeding at law or in equity shall be pending or, to the Company's knowledge, threatened against the Company or the Partnership that would be required to be set forth in the Prospectus other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company or the Partnership before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding could reasonably be expected to materially adversely affect the business, prospects, assets, results of operations or condition (financial or otherwise) of the Company or the Partnership, taken as a whole, other than as set forth in the Prospectus, (iv) the Company and the Partnership shall have complied with all agreements and satisfied all conditions on their part to be performed or satisfied on or prior to the Closing Date, and (v) the representations and warranties of the Company and the Partnership set forth in Section 2 of this Agreement shall be accurate as though expressly made at and as of the Closing Date. On the Closing Date, you shall have received certificates executed by the President of the Company and the general partner of the Partnership, dated as of the Closing Date, to such effect and with respect to the following additional matters: (A) the Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or preventing or suspending the use of the Prospectus has been issued, and no proceedings for that purpose have been instituted or are pending or, to their knowledge, threatened under the 1933 Act; and (B) they have reviewed the Registration Statement and the Prospectus and, when the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus and any amendments or supplements thereto contained all statements and information required to be included therein or necessary to make the statements therein not misleading and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus that has not been so set forth.

(c) Opinions of Hunton & Williams. At the Closing Date, you shall receive the opinions of Hunton & Williams, counsel for the Company and the Partnership, in form and substance satisfactory to you and your counsel, to the effect that:

(i) No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery by the Company of this Agreement, the other Operative Documents to which it is a party, or the consummation by the Company of the transactions contemplated hereby or thereby, except such as has been obtained or as may be required by applicable state securities, blue sky or real estate syndication laws or required by the NASD, as to which such counsel need express no opinion. Such counsel also need not express an opinion on local laws relating to the leasing or operation of real estate.

(ii) The Partnership has been duly formed and is validly existing as a limited partnership under the Virginia Revised Uniform Limited Partnership Act with the partnership power and authority to execute, deliver and perform this Agreement and to conduct its business as described in the Prospectus, and is qualified to do business or is registered to transact business as a foreign limited partnership and is in good standing as a foreign limited partnership in Pennsylvania. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery by the Partnership of this Agreement, the other Operative Documents to which it is a party, or the consummation by the Partnership of the transactions contemplated hereby or thereby, except such as has been obtained or as may be required by applicable state securities, blue sky or real estate syndication laws or required by the NASD, as to which such counsel need express no opinion. Such counsel also need not express an opinion on local laws relating to the leasing or operation of real estate. The Company is the sole general partner of the Partnership.

(iii) The Partnership has the partnership power and authority to execute, deliver and perform this Agreement and the other Operative Documents to which it is a party and to consummate the transactions contemplated herein and therein. Each of this Agreement and the other Operative Documents to which it is a party have been duly authorized, executed, and delivered by the Partnership, and this Agreement and the other Operative Documents to which it is a party constitute valid and binding agreements of the Partnership, enforceable in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

(iv) The Units to be issued to the Selling Entities in connection with the Formation Transactions have been duly and validly authorized by the Partnership. The offer and sale of the Units by the Partnership will constitute an exempted transaction pursuant to Section 4(2) of the 1933 Act and will not require registration of the Units under Section 5 of the 1933 Act.

(v) The execution, delivery, and performance of this Agreement and the other Operative Documents to which the Company and/or the Partnership are a party, the compliance with the terms and provisions hereof and thereof and the consummation of the transactions contemplated herein and therein and in the Registration Statement and Prospectus, by the Company and/or the Partnership do not and will not:

A. violate or constitute a breach of or default under the certificate of limited partnership or partnership agreement of the Partnership;

B. result in a breach of, or constitute a default under, any contract that was filed, or the form of which was filed, as an exhibit to the Registration Statement;

C. to such counsel's knowledge, violate any applicable statute, rule or regulation, order of any court or any federal, state, or local governmental authority or agency binding on the Company or the Partnership, or any of their respective businesses, investments, properties, assets or Hotels;

D. to such counsel's knowledge, result in the creation or imposition of any lien, charge, claim, or encumbrance upon any property or asset of any of the foregoing.

(vi) The Common Shares, including the Shares, have been approved for listing on the American Stock Exchange.

(vii) The Company is organized in conformity with the requirements for qualification as real estate investment trust under the Code, and the Company's method of operation (as presently conducted and proposed to be conducted immediately after Closing) enables it to meet the requirements for qualification and taxation as a real estate investment trust under the Code. The descriptions of the law and the legal conclusions contained in the Prospectus under the caption "Federal Income Tax Considerations" are correct in all material respects, and the discussion thereunder fairly summarizes the federal tax considerations that are material to a holder of the Common Shares. The Partnership will be treated as a partnership for federal income purposes and not as a corporation or association taxable as a corporation.

(viii) The Registration Statement has become effective under the 1933 Act and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending or contemplated under the 1933 Act. Other than financial statements and other financial and operating data and schedules contained therein, as to which counsel need express no opinion, the Registration Statement, when it became effective, the Prospectus, as of its date and as of the date hereof, comply as to form in all material respects with the requirements of the 1933 Act and the Rules and Regulations.

(ix) Nothing has come to such counsel's attention that leads it to believe that the Registration Statement, or any further amendment thereto made prior to the Closing Date, on its effective date, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any amendment or supplement thereto made prior to the Closing Date, as of its date and as of the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that such counsel need express no belief regarding the financial statements and related schedules and other financial data contained in the Registration Statement, any amendment thereto, or the Prospectus, or any amendment or supplement thereto).

(x) Neither the Company nor the Partnership is, or solely as a result of the consummation of the Formation Transactions will become, an "investment company," or an entity that controls or is "controlled by" an "investment company," as such terms are defined under the 1940 Act.

(xi) The information in the Prospectus under the captions "Shares Available for Future Sale" and "Federal Income Tax Considerations," to the extent that it constitutes matters of law or legal conclusions, has been reviewed by such counsel, is correct, and presents fairly the information required to be disclosed therein under the 1933 Act and the Rules and Regulations.

(xii) To such counsel's knowledge, except as described in the Prospectus, there is not pending or threatened, any action, suit, proceeding, inquiry or investigation before or by any court or any federal, state or local governmental authority or agency to which the Company, the Partnership or any of their respective officers, directors or partners are or may be a party, or to which any of the properties, assets or rights of any such entity or person may be subject, which, if determined adversely to any of the Company or the Partnership would individually or in the aggregate (A) could reasonably be expected to have a material adverse effect on the financial position, results of operations, business or material assets of the Company or the Partnership, taken as a whole, or (B) that could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement.

(xiii) Each Operative Document to which the Lessee and/or any Selling Entity is a party that is governed by Virginia law constitutes a valid and binding agreement of the parties thereto, enforceable in accordance with its terms, except to the extent enforceability may be limited by
(a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and
(c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

In rendering the opinions set forth above, Hunton & Williams, with your consent as to matters of form and substance, may adopt forms of opinion that are consistent with the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord") and may rely, as to certain matters of Maryland and Pennsylvania law, upon the opinions being rendered pursuant to Sections 6.(d) and 6.(e) of this Agreement.

(d) Pennsylvania Legal Opinion. At the Closing Date, you shall have received a favorable opinion of Jay H. Shah, counsel for the Lessee and the Selling Entities, dated as of the Closing Date, in form and substance satisfactory to your counsel to the effect that:

(i) The Lessee has been duly formed and is validly existing as a limited partnership under the laws of the Commonwealth of Pennsylvania with the partnership power and authority to conduct its business as described in the Prospectus. The Lessee is not in violation of any provision of its certificate of limited partnership, partnership agreement or other governing documents. The Lessee is not in default under or in breach of, or subject to any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which the Lessee is a party or by which any of its properties is bound, except as disclosed in the Prospectus. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery by the Lessee of the Operative Documents to which it is a party, or the consummation by the Lessee of the transactions contemplated hereby or thereby, except such as may be required by applicable state securities, blue sky or real estate syndication laws or required by the NASD, as to which such counsel need express no opinion.

(ii) Each of the Selling Partnerships has been duly formed and is validly existing as a limited partnership under the laws of _______________, with the partnership power and authority to conduct its business as described in the Prospectus. None of the Selling Partnerships is in violation of any provision of its respective certificate of partnership, partnership agreement or other governing documents. None of the Selling Partnerships is in default under or in breach of, or subject to any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which any Selling Partnership is a party or by which any of their respective properties is bound, except as disclosed in the Prospectus. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery by any of the Selling Entities of the respective Operative Documents to which they are parties, or the consummation by any of the Selling Entities of the transactions contemplated hereby or thereby, except such as may be required by applicable state securities, blue sky or real estate syndication laws or required by the NASD, as to which such counsel need express no opinion.

(iii) The Lessee has the power and authority to execute, deliver and perform each of the Operative Documents to which it is a party and to consummate the transactions contemplated therein. Each such Operative Document has been duly authorized, executed, and delivered by the Lessee, and each such Operative Document constitutes a valid and binding agreement of the Lessee, enforceable in accordance with its terms, except to the extent enforceability may be limited by (a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

(iv) Each of the Selling Entities has the power and authority to execute, deliver and perform each of the Operative Documents to which it is a party and to consummate the transactions contemplated therein. Each such Operative Document has been duly authorized, executed, and delivered by the respective Selling Entities and constitutes a valid and binding agreement of the respective Selling Entities, enforceable in accordance with its terms, except to the extent enforceability may be limited by (a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

(v) The Lessee and each of the Selling Partnerships owns, possesses or has obtained such Permits as are necessary to own or lease their respective properties and to carry on their respective businesses in the manner described in the Prospectus; the Lessee and the Selling Partnerships have fulfilled and performed all of their respective obligations with respect to all such Permits, and no event has occurred that allows, or after notice or lapse of time or both would allow, revocation or modification thereof or would result in any other impairment of the rights of the holder of any such Permit.

(vi) The execution, delivery, and performance of this Agreement and the other Operative Documents to which the Lessee and the Selling Entities are respectively parties, the compliance with the terms and provisions hereof and thereof and the consummation of the transactions contemplated herein and therein and in the Registration Statement and Prospectus, by the Lessee and/or the Selling Entities do not and will not:

A. violate or constitute a breach of or default under or the certificate of limited partnership, partnership agreement or other governing documents of the Lessee or any Selling Partnership;

B. result in a breach of, or constitute a default under, any contract that was filed, or the form of which was filed, as an exhibit to the Registration Statement;

C. to such counsel's knowledge, violate any applicable statute, rule or regulation, order of any court or any federal, state, or local governmental authority or agency binding on the Lessee, the Selling Entities, or any of their respective businesses, investments, properties, assets or Hotels;

D. to such counsel's knowledge, result in the creation or imposition of any lien, charge, claim, or encumbrance upon any property or asset of any of the foregoing.

(vii) To the knowledge of such counsel, neither the Lessee nor any of the Selling Entities is in violation of, or in default with respect to, any statute, rule, regulations, order, judgment, or decree, except as may be properly described in the Prospectus or such as in the aggregate do not now have and will not in the future have a materially adverse effect on the financial position, results of operations, or business or each of such entities, respectively.

(viii) To such counsel's knowledge, except as described in the Prospectus, there is not pending, threatened or contemplated, any action, suit, proceeding, inquiry or investigation before or by any court or any federal, state or local governmental authority or agency to which the Lessee or any of the Selling Entities or any of their respective officers, directors or partners are or may be a party, or to which any of the properties, assets or rights of any such entity or person may be subject, which, if determined adversely to any of the Lessee or the Selling Entities, (A) could reasonably be expected to have a material adverse effect on the financial position, results of operations, business or material assets of any of the Lessee or the Selling Entities, or (B) that could reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement or any of the other Formation Transactions.

(ix) Each Operative Document to which the Company or the Partnership is a party that is governed by Pennsylvania law constitutes a valid and binding agreement of the parties thereto, enforceable in accordance with its terms, except to the extent enforceability may be limited by (a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

In rendering the opinion set forth above, Jay H. Shah, with your consent as to matters of form and substance, may adopt a form of opinion that is consistent with the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord").

(e) Maryland Legal Opinion. At the Closing Date, you shall have received a favorable opinion of __________________________, special Maryland counsel to the Company, dated as of the Closing Date, in form and substance satisfactory to your counsel to the effect that:

(i) The Company has been duly organized and is validly existing as a real estate investment trust in good standing under the laws of the State of Maryland, with the power and authority to execute, deliver and perform this Agreement and to conduct its business as described in the Prospectus, and is qualified to do business or registered to transact business as a foreign ____________ and is in good standing as a foreign ______________ in Pennsylvania. No consent, approval, authorization or order from any court, governmental agency or body is required in connection with the execution and delivery by the Company of this Agreement, the other Operative Documents to which it is a party, or the consummation by the Company of the transactions contemplated hereby or thereby, except such as has been obtained or as may be required by applicable state securities, blue sky or real estate syndication laws or required by the NASD, as to which such counsel need express no opinion. Such counsel also need not express an opinion on local laws relating to the leasing or operation of real estate.

(ii) The Company has the power and authority to execute, deliver and perform this Agreement and the other Operative Documents to which it is a party, to issue, sell and deliver the Shares as provided herein and to consummate the transactions contemplated herein and therein. Each of this Agreement and the other Operative Documents to which it is a party have been duly authorized, executed, and delivered by the Company, and this Agreement and the other Operative Documents to which it is a party constitute valid and binding agreements of the Company, enforceable in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

(iii) The Shares have been duly and validly authorized by the Company, and, when issued and delivered against payment as provided in this Agreement, will be validly issued, fully paid, and nonassessable. No person or entity holds preemptive rights with respect to any of the Shares. The form of the certificates evidencing the Shares comply with all applicable requirements of Maryland law.

(iv) The execution, delivery, and performance of this Agreement and the other Operative Documents to which the Company is a party, the compliance with the terms and provisions hereof and thereof and the consummation of the transactions contemplated herein and therein and in the Registration Statement and Prospectus, by the Company do not and will not violate or constitute a breach of or default under the declaration of trust, bylaws or other governing documents of the Company.

(v) The statements set forth in the Prospectus under the caption "Description of Shares of Beneficial Interest" and "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws," insofar as they purport to constitute a summary of the terms of the Common Shares and laws related thereto, fairly summarize such terms and applicable law, and present the information called for by the 1933 Act and the Rules and Regulations. The Common Shares conform in all material respects as to legal matters to the description thereof contained in the Registration Statement and the Prospectus.

(vi) Each Operative Document to which the _____________________ is a party that is governed by Maryland law constitutes a valid and binding agreement of the parties thereto, enforceable in accordance with its terms, except to the extent enforceability may be limited by (a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors' rights generally, (b) general equity principles, regardless of whether such enforceability is considered in equity or at law, and (c) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification provisions.

In rendering the opinions set forth above, _________________________, with your consent as to matters of form and substance, may adopt forms of opinion that are consistent with the Legal Opinion Accord of the ABA Section of Business Law (1991) (the "Accord").

(f) Opinion of Your Counsel. At the Closing Date, you shall receive the favorable opinion of Willcox & Savage, P.C., your counsel, with respect to such matters as you may reasonably require, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass on such matters.

(g) Independent Public Accountants. At the time that this Agreement is executed by the Company, you shall have received from Moore Stephens, P.C. a letter, dated the date hereof, in form and substance satisfactory to you, confirming that they are independent public accountants with respect to the Company within the meanings of the 1933 Act and the Rules and Regulations, and stating in effect that:

(i) in their opinion, the financial statements and any supplementary financial information and schedule included in the Registration Statement and covered by their opinion therein comply as to form and in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations;

(ii) on the basis of limited procedures (set forth in detail in such letter and made in accordance with such procedures as may be specified by you) not constituting an audit in accordance with generally accepted auditing standards, consisting of (but not limited to) a reading of the latest available internal unaudited financial statements of the Company, a reading of the minute books of the Company, inquiries of officials of the Company responsible for financial and accounting matters, and such other inquiries and procedures as may be specified in such letter, nothing came to their attention to cause them to believe that:

A. the unaudited financial statements and supporting schedule and other unaudited financial data of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement;

B. any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited financial statements included in the Prospectus;

C. any unaudited pro forma financial information included in the Prospectus does not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations or the pro forma adjustments have not been properly applied to historical amounts in the compilation of that information;

D. at a specified date not more than five
(5) days prior to the date of such letter, there was any change in the capital shares or long-term debt or obligations of the Company or the Combined Selling Entities-Initial Hotels or there were any decreases in net current assets or net assets, shareholders' equity, or other items specified by you from that set forth in the Company's or the Combined Selling Entities-Initial Hotels' balance sheet at December 31, 1997, except as described in such letter; and

E. for the period from December 31, 1997 to a specified date not more than five (5) days prior to the date of delivery of such letter, there were any decreases in room revenues, food revenues, beverage revenues, or operating income before interest, depreciation and amortization for the Combined Selling Entities-Initial Hotels, in each case as compared with the corresponding period of the preceding year, except in each case for decreases that the Prospectus discloses have occurred or may occur or that are described in such letter; and

(iii) in addition to the procedures referred to in clause (ii) above and the examination referred to in their Reports including in the Registration Statement, they have carried out certain specified procedures, not constituting an audit in accordance with generally accepted auditing standards, with respect to certain amounts, percentages, and financial information specified by you that are derived from the general accounting records of the Company, that appear in the Registration Statement or the exhibits or schedules thereto and are specified by you, and have compared such amounts, percentages, and financial information with the accounting records of the Company and with material derived from such records and have found them to be in agreement.

(h) Updated Comfort Letter. At the Closing Date, you shall have received from Moore Stephens, P.C. a letter, in form and substance satisfactory to you and dated as of the Closing Date, to the effect that they reaffirm the statements made in the letter furnished pursuant to Section 6.(g) above, except that the specified date referred to shall be a date not more than five (5) days prior to the Closing Date.

(i) Post-Financial Developments. In the event that either of the letters to be delivered pursuant to Sections 6.(g) and 6.(h) above sets forth any changes, decreases or increases, it shall be a further condition to your obligations that you shall have reasonably determined, after discussions with officers of the Company responsible for financial and accounting matters and with Moore Stephens, P.C., that such changes, decreases or increases as are set forth in such letter do not reflect a material adverse change in the capital shares, long-term debt, obligations under capital leases, total assets, net current assets, or shareholders' equity of the Company as compared with the amounts shown in the latest consolidated pro forma balance sheet of the Company, or a material adverse change in the room revenues, food revenues, beverage revenues, or operating income before interest, depreciation and amortization for the Hotels in each case as compared with the corresponding period of the prior year.

(j) Additional Information. On the Closing Date, your counsel shall have been furnished with all such documents, certificates and opinions as they may request for the purpose of enabling them to pass upon the issuance and sale of the Shares as contemplated in this Agreement and the matters referred to in Section 6.(b) and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company or the Partnership, the performance of any of the covenants of the Company or the Partnership, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Closing Date in connection with the authorization, issuance and sale of the Shares as contemplated in this Agreement, shall be satisfactory in form and substance to you and to your counsel. The Company and the Partnership will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request. Any certificate signed by any officer, partner, or other official of the Company or the Partnership and delivered to you or your counsel shall be deemed a representation and warranty by the Company and the Partnership to you as to the statements made therein.

(k) Adverse Events. Subsequent to the date hereof, there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or American Stock Exchange or the Nasdaq National Market, (ii) a general moratorium on commercial banking activities in Virginia, Pennsylvania or New York declared by either federal or state authorities, as the case may be, (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war if the effect of any such event specified in this clause (iii) in your reasonable judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus, or
(iv) such a substantial adverse change in general economic, political, financial or international conditions affecting financial markets in the United States having a substantial adverse impact on trading prices of securities in general, as, in your reasonable judgment, makes it impracticable or inadvisable to proceed with the public offering of the Shares or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus.

(l) Share Restrictions. As described in Section 2.(bb) hereof, _______________________ shall have agreed in writing as to the matters set forth in such section.

(m) NASD Review. The NASD, upon review of the terms of the public offering of the Shares, shall not have objected to such offering, the terms of the offering or your participation in the offering.

(n) AMEX Listing. The Shares are listed on the American Stock Exchange.

(o) Formation Transactions. Each of the Formation Transactions have occurred or shall occur simultaneously with the Closing Date.

(p) Title Insurance. On the Closing Date, the Partnership shall receive an owner's title insurance policy or endorsement thereof through the Closing Date, in form and substance satisfactory to you and your counsel, with respect to each of the Hotels as contemplated by the Contribution Agreements.

(q) Company Offering. The separate offering of the Company Offered Shares shall have been effected in compliance with all applicable laws, including, without limitation, all federal and state securities laws.

If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by you on notice to the Company at any time at or prior to the Closing Date, and such termination shall be without liability of any party to any other party, except as provided in Sections 5 and 9. Notwithstanding any such termination, the provisions of Section 7 shall remain in effect.

7. Indemnification and Contribution.

(a) Indemnification by the Company and Partnership. The Company and the Partnership, jointly and severally, will indemnify and hold you harmless against any losses, claims, damages, or liabilities, joint or several, to which you may become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any warranty or covenant of the Company or the Partnership herein contained or any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or are based upon the Formation Transactions, and will reimburse you for any legal or other expenses reasonably incurred by you in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company or the Partnership shall not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement, or the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you expressly for use therein; provided further, that the indemnity agreement contained in
Section 7.(a) with respect to any Preliminary Prospectus shall not inure to your benefit if you failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares to such person in any case where such delivery is required by the 1933 Act or the Rules and Regulations and if the Prospectus would have cured any untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage, or liability. In addition to its other obligations under this Section 7.(a), the Company and the Partnership agree that, as an interim measure during the pendency of any such claim, action, investigation, inquiry, or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 7.(a), they will reimburse you on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry, or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's and the Partnership's obligation to reimburse you for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. Any such interim reimbursement payments that are not made to you within thirty (30) days of a request for reimbursement shall bear interest at the prime rate (or reference rate or other commercial lending rate for borrowers of the highest credit standing) published from time to time by The Wall Street Journal (the "Prime Rate") from the date of such request. This indemnity agreement shall be in addition to any liabilities that the Company and the Partnership may otherwise have. For purposes of this Section 7, the information set forth in the last paragraph on the front cover page (insofar as such information relates to you) and under "Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes the only information furnished by you to the Company for inclusion in any Preliminary Prospectus, the Prospectus, or the Registration Statement. Neither the Company nor the Partnership will, without your prior written consent, settle or compromise or consent to the entry of any judgment in any pending or threatened action or claim or related cause of action or portion of such cause of action in respect of which indemnification may be sought hereunder (whether or not you are a party to such action or claim), unless such settlement, compromise, or consent includes an unconditional release of you from all liability arising out of such action or claim (or related cause of action or portion thereof).

The indemnity agreement in this Section 7.(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls you within the meaning of the 1933 Act or the 1934 Act to the same extent as such agreement applies to you.

(b) Indemnification by You. You will indemnify and hold harmless the Company and the Partnership against any losses, claims, damages, or liabilities to which the Company or the Partnership may become subject, under the 1933 Act, the 1934 Act, or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any warranty or covenant by you herein contained or any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement, or the Prospectus or any such amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company or the Partnership by you expressly for use therein; and will reimburse the Company or the Partnership for any legal or other expenses reasonably incurred by the Company or the Partnership in connection with investigating or defending any such loss, claim, damage, liability, or action. In addition to its other obligations under this Section
7.(b), you agree that, as an interim measure during the pendency of any such claim, action, investigation, inquiry, or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 7.(b), you will reimburse the Company or the Partnership on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry, or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of their obligation to reimburse the Company or the Partnership for such expenses and the possibility that such payments might later been held to have been improper by a court of competent jurisdiction. Any such interim reimbursement payments that are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities that you may otherwise have.

The indemnity agreement in this Section 7.(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer and director of the Company and the Partnership and each person, if any, who controls the Company or the Partnership within the meaning of the 1933 Act or the 1934 Act to the same extent as such agreement applies to the Company or the Partnership.

(c) Notices of Claims; Employment of Counsel. Any party that proposes to assert the right to be indemnified under this Section 7 promptly shall notify in writing each party against which a claim is to be made under this Section 7 of the institution of such action but the omission so to notify such indemnifying party of any such action shall not relieve it from any liability it may have to any indemnified party except (i) to the extent that the omission to notify shall have caused or increased the indemnifying party's liability, and (ii) that the indemnifying party shall be relieved of its indemnity obligation for expenses of the indemnified party incurred before the indemnifying party is notified. Such indemnifying party or parties shall assume the defense of such action, including the employment of counsel (satisfactory to the indemnified party) and payment of fees and expenses. An indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the employment of such counsel shall have been authorized in writing by the indemnifying party or parties in connection with the defense of such action or the indemnifying party or parties shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties reasonably shall have concluded that there may be defenses available to it or them that are different from or additional to those available to such indemnifying party or parties (in which case such indemnifying party or parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such indemnifying party or parties. Anything in this paragraph to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any such claim or action effected without its written consent.

(d) Arbitration. It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in Sections
7.(a) and 7.(b) hereof, including the amounts of any requested reimbursement payments, the method of determining such amounts and the basis on which such amounts shall be apportioned among the indemnifying parties, shall be settled by arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Any such arbitration will be limited to the operation of the interim reimbursement provisions contained in Sections 7.(a) and 7.(b) hereof and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for expenses that is created by the provisions of Sections 7.(a) and 7.(b).

(e) Contribution. If the indemnification provided for in
Section 7.(a) or 7.(b) is unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, or liabilities (or actions in respect thereof) referred to therein, then the Company and the Partnership on the one hand and you on the other shall contribute to the amount paid or payable as a result of such losses, claims, damages, or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Partnership on the one hand and you on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then the Company and the Partnership and you shall contribute to such amount paid or payable in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Partnership on the one hand and you on the other in connection with the statements or omissions that resulted in such losses, claims, damages, or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Partnership on the one hand and you on the other shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company and the Partnership bear to the total selling commissions received by you in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Partnership on the one hand or to information with respect to you and furnished by you respectively, in writing specifically for inclusion in the Prospectus on the other and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The Company and the Partnership and you agree that it would not be just and equitable if contribution pursuant to this Section 7.(e) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this Section 7.(e). The amount paid or payable as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7.(e) shall be deemed to include any legal or other expenses reasonably incurred by any such party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) with respect to the transactions giving rise to the right of contribution provided in this Section 7.(e) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations in this Section 7.(e) for you to contribute are several in proportion to your respective underwriting obligations and not joint. For purposes of this Section 7.(e), each person, if any, who controls you within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as you, and each director of the Company who signed the Registration Statement, and each person, if any, who controls the Company or the Partnership within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company or the Partnership.

8. Representations and Agreements to Survive. Except as the context otherwise requires, all representations, warranties, covenants and agreements contained in this Agreement shall remain operative and in full force and effect regardless of any investigation made by you, or on your behalf, or by any controlling person, or by or on behalf of the Company or the Partnership, and shall survive until the fifth anniversary of the date of this Agreement.

9. Termination of Agreement.

(a) Termination of Agreement. You shall have the right to terminate this Agreement at any time prior to the Closing Date (i) if any representation or warranty of the Company or the Partnership hereunder shall be found to have been incorrect or misleading when made or the Company or the Partnership shall fail, refuse, or be unable to perform any of their respective agreements hereunder or to fulfill any condition of your obligations hereunder,
(ii) if any other condition of your obligations hereunder shall not be satisfied, (iii) if there shall have been since the respective dates as of which information is given in the Registration Statement, a material adverse change, or any development involving a prospective material adverse change, in or affecting the business, prospects, management, properties, assets, results of operations, or condition (financial or otherwise) of the Company, the Partnership, or any Hotel, taken as a whole, whether or not arising in the ordinary course of business, or (iv) any federal or state statute, regulation, rule, or order of any court or other governmental authority has been enacted, published, decreed, or otherwise promulgated that in your reasonable judgment materially adversely affects or could reasonably be expected to materially adversely affect the business or operations of the Company, the Partnership or any Selling Entity. You shall have no liability to the Company or the Partnership pursuant to this Agreement or otherwise as a result of any such termination.

(b) Result of Termination.

(i) If the sale of the Shares provided for herein is not consummated (A) because of any termination of this Agreement pursuant to
Section 9.(a)(i), (B) because of any refusal, inability or failure on the part of the Company or the Partnership to perform any agreement herein or comply with any provision hereof other than by reason of your default, (C) by ______________, 1998 due to reasons within the control of the Company, the Partnership or any of their affiliates, (D) because the Company does not sell all of the Company Offered Shares, or (E) because the Company abandons this Offering and obtains financing from other sources and you are not retained as a senior investment banker in connection with such financing, then in addition to its obligations with respect to expenses as set forth in Section 5, the Company will reimburse you on demand for all your reasonable out-of-pocket expenses (including the fees and expenses of your counsel), including disbursements reasonably incurred by you in reviewing the Registration Statement and the Prospectus, and in investigating and making preparations for the marketing of the Shares.

(ii) If the sale of the Shares provided for herein is not consummated for any other reason, the Company and the Partnership shall pay expenses as required by Section 5, and the Company and the Partnership shall have no additional liability to you except for such liabilities, if any, as may exist or thereafter arise under Section 7.

10. Notices.

(a) Method and Location of Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be sent by overnight courier, hand-delivered or telecopied and confirmed as follows:

To the Company or the Partnership:

Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070

Attention: Mr. Hasu P. Shah Telecopier No.: (717) 774-7383

with a copy to:

Hunton & Williams
Riverfront Plaza, East Tower 951 East Byrd Street
Richmond, Virginia 23219-4074 Attention: Cameron N. Cosby, Esquire Telecopier No.: (804) 788-8218

To You:

Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, Virginia 23219

Attention: Mr. L. McCarthy Downs, III Telecopier No.: (804) 648-3404

with a copy to:

Willcox & Savage, P.C.

1800 NationsBank Center
Norfolk, Virginia 23510

Attention: James J. Wheaton, Esq.

Telecopier No.: (757) 628-5566

(b) Time of Notices. Notice shall be deemed to be given by you to the Company or the Partnership or by the Company or the Partnership to you when it is sent by overnight courier, hand-delivered or telecopied as provided in Section 10.(a).

11. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon you, the Company and the Partnership and the controlling persons referred to in Section 7, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have a legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained.

12. Governing Law, Construction, and Time. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Specified time of day refers to United States Eastern Time. Time shall be of the essence of this Agreement.

13. Description Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

14. Counterparts. This Agreement may be executed in one or more counterparts, and if executed in more than one counterpart, the executed counterparts shall together constitute a single instrument.

If the foregoing correctly sets forth the understanding between you, the Company and the Partnership, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.

Very truly yours,

HERSHA HOSPITALITY TRUST

By:

Hasu P. Shah Chief Executive Officer

HERSHA HOSPITALITY LIMITED PARTNERSHIP

By: Hersha Hospitality Trust,
General Partner

By:

Hasu P. Shah Chief Executive Officer

Confirmed and accepted as of
the date first above written:

ANDERSON & STRUDWICK, INCORPORATED

By:
L. McCarthy Downs, III
Senior Vice President

Exhibit 1.2

FORM OF
HERSHA HOSPITALITY TRUST
2,500,000 Common Shares of Beneficial Interest

SELECTED DEALER AGREEMENT

______________, 1998

Dear Sirs:

We have agreed to sell, as placement agent for the issuer on a best efforts all-or-none basis, 2,500,000 common shares of beneficial interest (the "Shares") of Hersha Hospitality Trust (the "Company"). The Shares and the terms under which they are to be offered for sale are more particularly described in the Company's Preliminary Prospectus for the Shares dated ______________, 1998 (including any subsequent Preliminary Prospectus and the final Prospectus, the "Prospectus").

1. The Shares are to be offered to the public by us, as placement agent for the Company, in accordance with the terms of the offering (the "Offering") set forth in the Prospectus. We have advised you of the price per share of the Shares (the "Public Offering Price"). In consideration for assisting in the sale of the Shares, you will be paid a commission of five percent (5%) of the Public Offering Price for each Share sold by you.

2. We are offering at the Public Offering Price to the customers of certain dealers ("Selected Dealers"), subject to prior sale and the terms and conditions hereof, a portion of the Shares. The Selected Dealers will be dealers that are actually engaged in the investment banking or securities business and that are either (i) members in good standing of the National Association of Securities Dealers, Inc. (the "NASD") that are registered with the NASD and maintain net capital pursuant to Rule 15c3-1 promulgated under the Securities Exchange Act of 1934 (the "1934 Act") of not less than $250,000 or (ii) dealers with their principal place of business located outside the United States, its territories and its possessions and not registered as brokers or dealers under the 1934 Act, who have agreed not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein. The Selected Dealers have agreed to comply with the provisions of section 24 of Article III of the Rules of Fair Practice of the NASD, and, if any such dealer is a foreign dealer and not a member of the NASD, such Selected Dealer also has agreed to comply with the NASD's interpretation with respect to free-riding and withholding, to comply, as though it were a member of the NASD, with the provision of section 8 and 36 of Article III of such Rules of Fair Practice, and to comply with section 25 of Article III thereof as that section applies to nonmember foreign dealers.

3. If you desire to purchase any of the Shares as agent for your customers, your application should reach us promptly by telephone, telegraph or telecopy at our office at Anderson & Strudwick, Incorporated, 707 E. Main Street, 20th Floor, Richmond, Virginia 23219. We reserve the right to reject subscriptions in whole or in part, to make allotments and to close the subscription books at any time without notice. The Shares allocated to you will be confirmed, subject to the terms and conditions of this Agreement.

4. Any Shares purchased through you shall be purchased for your customers under the terms of this Agreement only upon orders already received from subscribers for the Shares in accordance with the terms of the Offering set forth in the Prospectus, subject to the securities or blue sky laws of the various states or other jurisdictions. You acknowledge that because all of the proceeds from the sale of the Shares must be received before the Offering may be closed, Shares may not be sold to your customers whose accounts are on a delivery versus payment ("DVP") basis.

5. You agree to advise us from time to time, upon request, of the amount of Shares requested by you hereunder and remaining unsold at the time of such request, and, if in our opinion such Shares shall be needed to make delivery of the Shares sold, you will, forthwith upon our request, reduce the number of Shares allocated to you to an amount equal to the number of Shares actually subscribed for by your customers.

6. No expense shall be charged to you. A single transfer tax, if payable, upon the sale of the Shares to you will be paid when such Shares are delivered. However, you shall pay any transfer tax on sales of Shares by you and you shall pay your proportionate share of any transfer tax (other than the single transfer tax described above) in the event that any such tax shall from time to time be assessed against you and other Selected Dealers as a group or otherwise.

7. Neither you nor any other person is or has been authorized to give any information or to make any representation in connection with the sale of the Shares other than as contained in the final Prospectus.

8. On becoming a Selected Dealer, and in offering and selling the Shares, you agree to comply with all the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are familiar with (i) Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and final prospectuses for securities of an issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act), (ii) Rule 15c6-1 under the 1934 Act, and
(iii) the NASD's interpretation with respect to free-riding and withholding, and confirm that you have complied with and will comply with said rules and interpretations. You confirm also that you are familiar with Release No. 4968 of the Securities and Exchange Commission under the 1933 Act and that you have complied and will comply with the requirements therein relating to the distribution of copies of the Preliminary Prospectus relating to the Shares. You confirm that you are registered with the NASD and maintain net capital pursuant to Rule 15c3-1 promulgated under the 1934 Act of not less than $250,000.

9. We hereby confirm that we will make available to you such number of copies of the Prospectus (as amended or supplemented) as you may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and regulations thereunder.

10. Upon request, you will be informed as to the states and other jurisdictions in which, and limitations, if any, pursuant to which, we have been advised that the Shares are qualified for sale under the respective securities or blue sky laws of such states and other jurisdictions, but we do not assume any obligation or responsibility as to the right of any Selected Dealer to sell the Shares in any state or other jurisdiction or as to the eligibility of the Shares for sale therein or to any particular prospective purchaser herein. You agree that you will not sell the Shares in any state or jurisdiction or to any purchaser in which or to whom the Shares are not eligible to be sold.

11. You agree that you will not, at any time prior to the completion by us of distribution of the Shares acquired by you pursuant to this Agreement, bid for, purchase, sell or attempt to induce others to purchase or sell, directly or indirectly, any securities of the Company other than (i) as provided for in this Agreement, or (ii) purchases or sales of any such securities as broker on unsolicited orders for the account of others.

12. No Selected Dealer is authorized to act as our agent or agent of the Company or otherwise to act on our behalf or on behalf of the Company in offering or selling the Shares to the public or otherwise to furnish any information or make any representation except as contained in the Prospectus.

13. Nothing will constitute the Selected Dealers an association or other separate entity or partners with us, or with each other, but you will be responsible for your share of any liability or expense based on any claim to the contrary. We shall not be under any liability for or in respect of value, validity or form of the Shares, of the delivery of the certificates for the Shares, or the performance by anyone of any agreement on its part, or the qualification of the Shares for sale under the laws of any jurisdiction, or for or in respect to any other matter relating to this Agreement, except for the lack of good faith and for obligations expressly assumed by us in this Agreement and no obligation on our part shall be implied herefrom. The foregoing provisions shall not be deemed a waiver of any liability imposed under the 1933 Act.

14. We will notify you of the exact date (the"Closing Date") on which the sale of the Shares (the "Closing") will occur. Please provide First Union National Bank of North Carolina (the"Escrow Agent") with the manner in which the Shares should be issued at least three (3) business days prior to the Closing Date. Payment for Shares purchased through you hereunder shall be made at the Public Offering Price (without any deduction for the selling commission due to you) by wire transfer of IMMEDIATELY AVAILABLE FED FUNDS no later than 11:00 a.m. on the business day prior to the Closing Date to an escrow account (the"Escrow Account"), in accordance with the following instructions: . The Escrow Agent will deliver the certificates representing the Shares. Within two
(2) business days of the Closing, the Escrow Agent will send you a check for your selling commission.

15. You understand that the Offering is being made on a best efforts all-or-none basis, and that the Offering will not close unless at least 2,666,667 Shares are sold. Upon receipt of any and all checks, drafts and money orders received from prospective purchasers of the Shares, you shall deliver the same to the Escrow Agent for deposit in the Escrow Account by noon of the next business day following the receipt, together with a written account of each purchaser that sets forth, among other things, (i) the purchaser's name and address, (ii) the number of Shares purchased by the purchaser, (iii) the amount paid therefor by the purchaser, (iv) whether the consideration received from the purchaser was in the form of a check, draft or money order, and (v) the purchaser's social security or tax identification number. This information will not be made available to us by the Escrow Agent except to the extent necessary in connection with any claim relating to the sale of the Shares. Any checks that are received that are made payable to any party other than the Escrow Agent shall be returned to the purchaser that submitted the check and not accepted. You agree that you are bound by the terms of the Escrow Agreement executed by us and the Company.

16. Notices to us should be addressed to Mr. L. McCarthy Downs, III, Senior Vice President, Anderson & Strudwick, Incorporated, 707 E. Main Street, 20th Floor, Richmond, Virginia 23219. Notices to you shall be deemed to have been duly given if telegraphed or mailed to you at the address to which this letter is addressed.

17. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia without giving effect to the choice of law or conflicts of law principles thereof.

18. If you desire to purchase any Shares, please confirm your application by signing and returning to us your confirmation on the duplicate copy of this letter enclosed herewith, even though you may have previously advised us thereof, by telephone, telegraph or telecopy.

Very truly yours,

ANDERSON & STRUDWICK, INCORPORATED

By:

L. McCarthy Downs, III Senior Vice President

_____________, 1998

Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, VA 23219

Attention: Mr. L. McCarthy Downs, III

We hereby request an allocation of ________ common shares of beneficial interest (the "Shares") of Hersha Hospitality Trust for purchase by us in accordance with the terms and conditions stated in the foregoing letter. We hereby acknowledge receipt of the Prospectus referred to in the first paragraph thereof relating to said Shares. We further state that we have relied upon said Prospectus and upon no other statement whatsoever, whether written or oral. We confirm that we are a dealer actually engaged in the investment banking or securities business and that we are either (i) a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") that is registered with the NASD and maintain net capital pursuant to Rule 15c3-1 promulgated under the Securities Exchange Act of 1934 (the "1934 Act") of not less than $250,000 or (ii) a dealer with its principal place of business located outside the United States, its territories and its possessions and not registered as a broker or dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein. We hereby agree to comply with the provisions of Section 24 of Article III of the Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a member of the NASD, we also agree to comply with the NASD's interpretation with respect to free-riding and withholding, to comply, as though we were a member of the NASD, and with the provisions of Section 8 and 36 of Article III of such Rules of Fair Practice, and to comply with Section 25 of Article III thereof as that Section applies to non-member foreign dealers. We also hereby confirm that we have complied with and will comply with Rules 15c2-8 and 15c6-1 promulgated under the 1934 Act.

(Name of Firm)

By:
(Title)

Address:

Exhibit 1.3

FORM OF ESCROW AGREEMENT

This Escrow Agreement is made and entered into as of the ____ day of ___________, 1998, by and among ANDERSON & STRUDWICK, INCORPORATED, a Virginia corporation (the AUnderwriter@), HERSHA HOSPITALITY TRUST, a Maryland real estate investment trust (the "Company"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national bank (the "Escrow Agent").

R E C I T A L S:

A. The Company proposes to sell 2,666,667 common shares (the "Shares") of the Company at a price of $6.00 per Share (the "Offering").

B. The Company has retained the Underwriter, as agent for the Company on a best efforts all-or-none basis, to sell 2,500,000 of the Shares in the Offering, and the Underwriter has agreed to sell the Shares in the Offering as the Company's agent on a best efforts all-or-none basis.

C. The Company intends to sell directly to shareholders the remaining 166,667 Shares available in the Offering.

D. The Escrow Agent is willing to hold the proceeds of the Offering in escrow pursuant to this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Agreement, it is hereby agreed as follows:

1. Establishment of the Escrow Account. Contemporaneously herewith, the parties have established a non-interest-bearing account with the Escrow Agent, which escrow account is entitled AHersha Hospitality Trust Escrow Account@ (the AEscrow Account@). The Underwriter and the Company will transfer funds (and the Underwriter will instruct selected dealers (ASelected Dealers@) to transfer funds) directly to the Escrow Agent as directed by its customers and will instruct other purchasers of the Shares to make checks payable to AFirst Union National Bank - Hersha Hospitality Trust Escrow Account.@

2. Escrow Period. The escrow period (the "Escrow Period") shall begin with the commencement of the Offering and shall terminate upon the earlier to occur of the following dates:

(a) the date on which the Escrow Agent confirms that it has received in the Escrow Account gross proceeds of $16,000,002 (the "Minimum");

(b) ________________, 1998; or

During the Escrow Period, the Company is aware and understands that it is not entitled to any funds received into escrow and no amounts deposited in the Escrow Account shall become the property of the Company or any other entity, or be subject to the debts of the Company or any other entity.

3. Deposits into the Escrow Account. The Underwriter and the Company agree that they shall deliver to the Escrow Agent (and the Underwriter will instruct Selected Dealers to deliver to the Escrow Agent) for deposit in the Escrow Account all monies received from purchasers of the Shares by noon of the next business day after receipt together with a written account of each sale, which account shall set forth, among other things, (i) the purchaser's name and address, (ii) the number of Shares purchased by the purchaser, (iii) the amount paid therefor by the purchaser, (iv) whether the consideration received from the purchaser was in the form of a check, draft or money order, and (v) the purchaser's social security or tax identification number. The Escrow Agent agrees to hold all monies so deposited in the Escrow Account (the AEscrow Amount@) for the benefit of the parties hereto until authorized to disburse such monies under the terms of this Agreement. The Company agrees that it will cause the portion of the Minimum attributable to the 166,667 Shares it is selling directly to be delivered to the Escrow Agent not less than three (3) business days prior to the Closing Date (as defined in Section 8 of this Agreement).

4. Disbursements from the Escrow Account. In the event the Escrow Agent does not receive the Minimum deposits totaling $16,000,002 prior to the termination of the Escrow Period, or if the Underwriter and the Company notify the Escrow Agent that the Offering has been terminated, the Escrow Agent shall promptly refund to each purchaser the amount received from the purchaser, without deduction, penalty, or expense to the purchaser, and the Escrow Agent shall notify the Company and the Underwriter of its distribution of the funds. The purchase money returned to each purchaser shall be free and clear of any and all claims of the Company or any of its creditors.

In the event the Escrow Agent does receive the Minimum prior to termination of the Escrow Period, on the Closing Date, the Escrow Agent shall disburse the Escrow Amount pursuant to the provisions of Section 6, provided, however, in no event will the Escrow Amount be released to the Company until such amount is received by the Escrow Agent in collected funds. For purposes of this Agreement, the term Acollected funds@ shall mean all funds, including fed funds, received by the Escrow Agent which have cleared normal banking channels.

5. Collection Procedure.

(a) The Escrow Agent is hereby authorized to deposit each check in the Escrow Account.

(b) In the event any check paid by a purchaser and deposited in the Escrow Account shall be returned, the Escrow Agent shall notify the Underwriter or the Company, as the case may be, by telephone of such occurrence and advise it of the name of the purchaser, the amount of the check returned, and any other pertinent information. The Escrow Agent shall then transmit the returned check directly to the purchaser and shall transmit the statement previously delivered by the Underwriter or the Company, as the case may be, relating to such purchase to the Underwriter.

(c) If the Company rejects any purchase of Shares for which the Escrow Agent has already collected funds, the Escrow Agent shall promptly issue a refund check to the rejected purchaser. If the Underwriter rejects any purchase for which the Escrow Agent has not yet collected funds but has submitted the purchaser's check for collection, the Escrow Agent shall promptly issue a check in the amount of the purchaser's check to the rejected purchaser after the Escrow Agent has cleared such funds. If the Escrow Agent has not yet submitted a rejected purchaser=s check for collection, the Escrow Agent shall promptly remit the purchaser's check directly to the purchaser.

6. Delivery of Escrow Account and the Shares.

(a) Prior to the Closing (as defined in Section 8 of this Agreement), the Underwriter and the Company shall provide the Escrow Agent with a statement, executed by each party, containing the following information:

(i) The total number of Shares sold by the Underwriter directly to purchasers and a list of each purchaser, and the number of Shares purchased by such purchaser, and specification of the manner in which the Shares should be issued; and

(ii) The total number of Shares sold by the Company directly to purchasers and a list of each purchaser, and the number of Shares purchased by such purchaser, and specification of the manner in which the Shares should be issued; and

(iii) A calculation by the Underwriter and the Company as to the manner in which the Escrow Account should be distributed to the Company, the Underwriter and Selected Dealers and in the event of oversubscription or rejection of certain purchases, the aggregate amount to be returned to individual purchasers and a listing of the exact amount to be returned to each such purchaser.

The Escrow Agent shall hold the Escrow Account and distribute it in accordance with the above-described statement on the date of Closing or such later date that it receives the above-described statement.

(b) The Company shall deliver the certificates representing the Shares to the Escrow Agent prior to each Closing. On the day of the Closing and in the event the Minimum is met, the Escrow Agent shall deliver the certificates representing the Shares to the Company, the Underwriter and Selected Dealers, as the case may be, or in the manner specified in writing to the Escrow Agent by the Underwriter.

(c) Upon termination of the Offering by the Company or the Underwriter for any reason, the Escrow Agent shall return to the purchasers who contributed to the Escrow Account the exact amount contributed by them.

7. Investment of Escrow Account. The Escrow Agent shall deposit funds received from purchasers in the Escrow Account, which shall be a non-interest-bearing bank account at First Union National Bank of North Carolina.

8. Closing Date. A AClosing@ shall be a date of closing of the Offering, and a AClosing Date@ shall be a date on or subsequent to the date on which the Escrow Agent has received the Minimum deposits in collected funds that is designated to the Escrow Agent by the Underwriter and the Company as a Closing Date.

9. Compensation of Escrow Agent. The Company shall pay the Escrow Agent a fee for its services hereunder in an amount equal to Five Hundred Dollars ($500.00), which amount shall be paid on the initial Closing Date. In the event the Offering is canceled for any reason, the Company shall pay the Escrow Agent its fee within ten (10) days after the Escrow Amount is refunded to purchasers. No such fee or any other monies whatsoever shall be paid out of or chargeable to the funds on deposit in the Escrow Account.

10. Disbursement Into Court. If, at any time, there shall exist any dispute between the Company, the Underwriter and/or the purchasers with respect to the holding or disposition of any portion of the Escrow Amount or any other obligations of the Escrow Agent hereunder, or if at any time the Escrow Agent is unable to determine, to the Escrow Agent's sole satisfaction, the proper disposition of any portion of the Escrow Amount or the Escrow Agent's proper actions with respect to its obligations hereunder, or if the Company and the Underwriter have not within 30 days of the furnishing by the Escrow Agent of a notice of resignation appointed a successor Escrow Agent to act hereunder, then the Escrow Agent may, in its sole discretion, take either or both of the following actions:

(a) suspend the performance of any of its obligations under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of the Escrow Agent or until a successor Escrow Agent shall have been appointed (as the case may be); provided however, that the Escrow Agent shall continue to hold the Escrow Amount in accordance with Section 7 hereof; and/or

(b) petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in Charlotte, North Carolina, for instructions with respect to such dispute or uncertainty, and pay into such court all funds held by it in the Escrow Account for holding and disposition in accordance with the instructions of such court.

The Escrow Agent shall have no liability to the Company, the Underwriter or any other person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Account or any delay in or with respect to any other action required or requested of the Escrow Agent.

11. Duties and Rights of the Escrow Agent. The foregoing agreements and obligations of the Escrow Agent are subject to the following provisions:

(a) The Escrow Agent=s duties hereunder are limited solely to the safekeeping of the Escrow Account and the delivery of the certificates representing the Shares in accordance with the terms of this Agreement. It is agreed that the duties of the Escrow Agent are only such as herein specifically provided, being purely of a ministerial nature, and the Escrow Agent shall incur no liability whatsoever except for negligence, willful misconduct or bad faith. The Escrow Agent shall have no duty with respect to the certificates representing the Shares other than to exercise reasonable care in acquiring and delivering the same in accordance with this Agreement.

(b) The Escrow Agent is authorized to rely on any document believed by the Escrow Agent to be authentic in making any delivery of the Escrow Account or the certificates representing the Shares. It shall have no responsibility for the genuineness or the validity of any document or any other item deposited with it and it shall be fully protected in acting in accordance with this Agreement or instructions received.

(c) The Company and the Underwriter hereby waive any suit, claim, demand or cause of action of any kind which they may have or may assert against the Escrow Agent arising out of or relating to the execution or performance by the Escrow Agent of this Agreement, unless such suit, claim, demand or cause of action is based upon the negligence, willful misconduct, or bad faith of the Escrow Agent.

12. Notices. It is further agreed as follows:

(a) All notices given hereunder will be in writing, served by registered or certified mail, return receipt requested, postage prepaid, or by hand-delivery, to the parties at the following addresses:

To the Company:

Mr. Hasu P. Shah

Hersha Hospitality Trust 148 Sheraton Drive, Box A New Cumberland, Pennsylvania 17070

With a copy to:

Cameron N. Cosby, Esquire Hunton & Williams
Riverfront Plaza, East Tower 951 East Byrd Street
Richmond, Virginia 23219

To the Underwriter:

Mr. L. McCarthy Downs, III

Anderson & Strudwick Incorporated 1108 E. Main Street, 14th Floor Richmond, Virginia 23219

With a copy to:

James J. Wheaton, Esquire Willcox & Savage, P.C.

1800 NationsBank Center

One Commercial Place
Norfolk, Virginia 23510

To the Escrow Agent:

First Union National Bank of North Carolina c/o Shareholder Services Division 230 South Tryon Street, 9th Floor Charlotte, North Carolina 28288-1179 Attention: ___________________

13. Miscellaneous.

(a) This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.

(b) If any provision of this Agreement shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof.

(d) This Agreement may not be modified except in writing signed by the parties hereto.

(e) All demands, notices, approvals, consents, requests and other communications hereunder shall be given in the manner provided in this Agreement.

(f) This Agreement may be executed in one or more counterparts, and if executed in more than one counterpart, the executed counterparts shall together constitute a single instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names, all as of the date first above written.

ANDERSON & STRUDWICK, INCORPORATED

By:

L. McCarthy Downs, III
Senior Vice President

HERSHA HOSPITALITY TRUST

By:

Hasu P. Shah
Chief Executive Officer

FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Escrow Agent

By:

Trust Officer

Exhibit 3.1

FORM OF

HERSHA HOSPITALITY TRUST

ARTICLES OF AMENDMENT AND RESTATEMENT

Hersha Hospitality Trust, a Maryland real estate investment trust (the "Trust") organized under Title 8 of the Corporation and Associations Article of the Annotated Code of Maryland ("Title 8"), desires to amend and restate its Declaration of Trust as currently in effect as hereinafter provided.
FIRST: The Declaration of Trust as currently in effect is hereby amended and restated as follows, such that the following provisions shall be and become all the provisions of the Declaration of Trust:
ARTICLE I

FORMATION

The Trust is a real estate investment trust (a "REIT") within the meaning of Title 8. The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation (but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Code).
ARTICLE II

NAME

The name of the Trust is:

Hersha Hospitality Trust

Under circumstances in which the Board of Trustees of the Trust (the "Board of Trustees" or "Board") determines that the use of the name of the Trust is not practicable, the Trust may use any other designation or name for the Trust.
ARTICLE III

PURPOSES AND POWERS

Section 1. Purposes. The purposes for which the Trust is formed are to invest in and to acquire, hold, manage, administer, control and dispose of real property and interests in real property, including, without limitation or obligation, engaging in business as a REIT under the Internal Revenue Code of 1986, as amended (the "Code").
Section 2. Powers. The Trust shall have all of the powers granted to REITs by Title 8 and all other powers set forth in these Articles of Amendment and Restatement of its Declaration of Trust as filed for record with the State Department of Assessment and Taxation of Maryland, and any amendments or supplements thereto (the "Declaration of Trust") that are not inconsistent with law and are appropriate to promote and attain the purposes set forth in the Articles of Amendment and Restatement.
ARTICLE IV

RESIDENT AGENT

The name of the resident agent of the Trust in the State of Maryland is
[James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, whose post office address is 300 East Lombard Street, Baltimore, Maryland 21202]. The resident agent is a citizen of and resides in the State of Maryland. The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees of the Trust may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 1. Powers.

(A) Subject to any express limitationscontained in the Articles of Amendment and Restatement or in the Bylaws of the Trust ("Bylaws"), (i) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (ii) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust. The Board may take any action as it, in its sole judgment and discretion, deems necessary or appropriate to conduct the business and affairs of the Trust. The Articles of Amendment and Restatement shall be construed with a presumption in favor of the grant of power and authority to the Board. Any construction of the Articles of Amendment and Restatement or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Trustees included in the Articles of Amendment and Restatement or in the Bylaws shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board of Trustees under the general laws of the State of Maryland or any other applicable laws.

(B) Except as otherwise provided in the Bylaws, the Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest of the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

(C) It shall be the duty of the Board of Trustees to use any and all commercially reasonable efforts to ensure that the Trust satisfies the requirements for qualification as a REIT under the Code, including, but not limited to, the ownership of outstanding shares of its beneficial interest, the nature of its assets, the sources of its income, and the amount and timing of its distributions to its shareholders. The Board of Trustees shall take no action to disqualify the Trust as a REIT or to otherwise revoke the Trust's election to be taxed as a REIT without the affirmative vote of two-thirds of the number of Common Shares entitled to vote on such matter at a meeting of the shareholders.

Section 2. Classification and Number. (A) The Trustees of the Trust (hereinafter the "Trustees") (other than any Trustee elected solely by holders of one or more classes or series of Preferred Shares) shall be classified, with respect to the terms for which they severally hold office, into two classes, as nearly equal in number as possible, one class ("Class I") to hold office initially for a term expiring at the first annual meeting of shareholders (1999) and another class ("Class II") to hold office initially for a term expiring at the second succeeding annual meeting of shareholders (2000), with the Trustees of each class to hold office until their successors are duly elected and qualified. Any vacancy will be filled, including a vacancy created by an increase in the number of Trustees, at a regular meeting or at any special meeting called for that purpose, by a majority of the remaining Trustees, even if such remaining Trustees constitutes less than a quorum. At each annual meeting of shareholders, the successors to the class of Trustees whose term expires at such meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the second year following the year of their election. Shareholder votes to elect Trustees shall be conducted in the manner provided in the Bylaws.

(B) The number of Trustees initially shall be seven, which number may be increased or decreased pursuant to the Bylaws. The name, address and class of the Trustees who shall serve until their successors are duly elected and qualified are:

Name                        Address                               Class

Hasu P. Shah                148 Sheraton Drive                    Class II
                            Box A
                            New Cumberland, PA 17070

Bharat C. Mehta             148 Sheraton Drive                    Class II
                            Box A
                            New Cumberland, PA 17070

K.D. Patel                  148 Sheraton Drive                    Class II
                            Box A
                            New Cumberland, PA 17070

L. McCarthy Downs, III      707 E. Main Street                    Class I
                            20th Floor
                            Richmond, VA  23219


                                                                  Class I


                                                                  Class I

                                                                  Class II

The Trustees may increase the number of Trustees and fill any vacancy, whether resulting from an increase in the number of Trustees or otherwise, on the Board of Trustees in the manner provided in the Bylaws. The Independent Trustees (as hereinafter defined) shall nominate replacements for vacancies among the Independent Trustees' positions. In the event that, after the closing of the Initial Public Offering (as hereinafter defined), a majority of the Board of Trustees are not Independent Trustees by reason of the resignation or removal of one or more Independent Trustees or otherwise, the remaining Independent Trustees (or, if there are no Independent Trustees, the remaining members of the Board of Trustees) shall promptly elect that number of Independent Trustees necessary to cause the Board of Trustees to include a majority of Independent Trustees. It shall not be necessary to list in the Articles of Amendment and Restatement the names and addresses of any Trustees hereinafter elected.
Section 3. Resignation, Removal or Death. Any Trustee may resign by written notice to the Board, effective upon execution and delivery to the Trust of such written notice or upon any future date specified in the notice. Subject to the rights of holders of one or more classes or series of Preferred Shares to elect one or more Trustees, a Trustee may be removed at any time, with or without cause, at a meeting of the shareholders, by the affirmative vote of the holders of not less than two-thirds of the Shares then outstanding and entitled to vote generally in the election of Trustees.
Section 4. Independent Trustees. Notwithstanding anything herein to the contrary, at all times (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a Trustee prior to expiration of the Trustee's term of office), three members of the Board of Trustees shall be comprised of persons who are not officers, directors or employees of the Trust, any lessee of the Trust's or the Partnership's properties or any underwriter or placement agent of the shares of beneficial interest of the Trust that has been engaged by the Trust within the past three years, or any "Affiliates" thereof (each such person serving on the Board of Trustees being an "Independent Trustee").
Section 5. Definition of Affiliate. For purposes of Section 4 above, "Affiliate" of a person shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (ii) any other person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital shares, shares or equity interests of such person, or (iii) any officer, director, employee, partner or trustee (including any family member of the foregoing) of such person or of any person controlling, controlled by or under common control with such person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such person). The term "person" means and includes individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. For the purpose of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 1. Authorized Shares. The beneficial interest of the Trust shall be divided into shares of beneficial interest (the "Shares"). The Trust has authority to issue fifty million (50,000,000) common shares of beneficial interest, $.01 par value per share ("Common Shares"), and ten million (10,000,000) preferred shares of beneficial interest, $.01 par value per share ("Preferred Shares"). The Board of Trustees, without any action by the shareholders of the Trust, may amend the Articles of Amendment and Restatement from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue.

Section 2. Common Shares. Subject to the provisions of Article VII, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote. The Board of Trustees may reclassify any unissued Common Shares from time to time in one or more classes or series of Shares.

Section 3. Preferred Shares. The Board of Trustees may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any class or series from time to time, in one or more classes or series of Shares.

Section 4. Classified or Reclassified Shares. Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series to distinguish it from all other classes and series of Shares; (b) specify the number of Shares to be included in the class or series; (c) set, subject to the provisions of Article VII and subject to the express terms of any class or series of Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each series; and (d) cause the Trust to file articles supplementary with the State Department of Assessments and Taxation of Maryland ("SDAT"). Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 4 may be made dependent upon facts or events ascertainable outside the Articles of Amendment and Restatement (including determinations by the Board of Trustees or other facts or events within the control of the Trust) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in articles supplementary filed with the SDAT.

Section 5. Authorization by Board of Share Issuance. The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a Share split or Share dividend), subject to such restrictions or limitations, if any, as may be set forth in the Articles of Amendment and Restatement or the Bylaws. Notwithstanding any other provision in the Articles of Amendment and Restatement, no determination shall be made by the Board of Trustees nor shall any transaction be entered into by the Trust that would cause any Shares or other beneficial interest in the Trust not to constitute "transferable shares" or "transferable certificates of beneficial interest" under Section 856(a)(2) of the Code or which would cause any distribution to constitute a preferential dividend as described in Section 562(c) of the Code.

Section 6. Dividends and Distributions. The holders of all Common Shares will participate equally in dividends payable to holders of Common Shares when and as authorized and declared by the Board of Trustees and in net assets available for distribution to holders of Common Shares upon liquidation or dissolution. The Board of Trustees may from time to time authorize and declare to shareholders such dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine. The Board of Trustees shall endeavor to declare and pay such dividends and distributions as shall be necessary for the Trust to qualify as a REIT under the Code; however, shareholders shall have no right to any dividend or distribution unless and until authorized and declared by the Board. The exercise of the powers and rights of the Board of Trustees pursuant to this Section shall be subject to the provisions of any class or series of Shares at the time outstanding.

Section 7. General Nature of Shares. All Shares shall be personal property entitling the shareholders only to those rights provided in the Articles of Amendment and Restatement. The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust. The death of a shareholder shall not terminate the Trust.

Section 8. Fractional Shares. The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it, or pay cash for the fair value of a fraction of a Share.

Section 9. Declaration of Trust and Bylaws. All shareholders are subject to the provisions of the Declaration of Trust and the Bylaws of the Trust.

ARTICLE VII
RESTRICTIONS ON TRANSFER AND SHARES-IN-TRUST

Section 1. Restrictions on Transfer.
(A) Definitions. The following terms shall have the following meanings:

(i) "Beneficial Ownership" shall mean ownership of Equity Shares (or options to acquire Equity Shares) by a Person who would be treated as an owner of such Equity Shares either (a) directly (including through a nominee or similar arrangement) or (b) indirectly through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.

(ii) "Beneficiary" shall mean, with respect to any Share Trust, one or more organizations described in each of Section 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Share Trust as the beneficiary or beneficiaries of such Share Trust, in accordance with the provisions of Section 2(A) hereof.

(iii) "Board of Trustees" shall mean the Board of Trustees of the Trust.

(iv) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

(v) "Constructive Ownership" shall mean ownership of Equity Shares (or options to acquire Equity Shares) by a Person who would be treated as an owner of such Equity Shares either directly or indirectly through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns," and "Constructively Owned" shall have correlative meanings.

(vi) "Equity Shares" shall mean shares that are either Preferred Shares or Common Shares. The term "Equity Shares" shall include all Preferred Shares and Common Shares that are held as Shares-in-Trust in accordance with the provisions of Section 2(A) hereof.

(vii) "Hersha Hospitality Partnership Agreement" shall mean the agreement of limited partnership of Hersha Hospitality Limited Partnership, a Virginia limited partnership, as amended and restated.

(viii) "Initial Public Offering" means the sale of Common Shares pursuant to the Trust's first effective registration statement for such Common Shares filed under the Securities Act of 1933, as amended.

(ix) "Market Price" on any date shall mean the average of the Closing Price for the five consecutive Trading Days ending on such date. The "Closing Price" on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Equity Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Equity Shares are listed or admitted to trading or, if the Equity Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Equity Shares 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 Equity Shares selected by the Board of Trustees. "Trading Day" shall mean a day on which the principal national securities exchange on which the Equity Shares are listed or admitted to trading is open for the transaction of business or, if the Equity Shares are not listed or admitted to trading on any national securities exchange, 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.

(x) "Non-Transfer Event" shall mean an event (other than a purported Transfer) that would result in a change in Beneficial or Constructive Ownership of the Equity Shares, including, but not limited to, the granting of any option or entering into any agreement for the sale, transfer or other disposition of Equity Shares or the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Equity Shares.

(xi) "Ownership Limit" shall mean 9.9% of the number of outstanding Common Shares and 9.9% of the number of outstanding shares of any class or series of Preferred Shares, in each case considered separately on a class by class or series by series basis.

(xii) "Partnership" shall mean Hersha Hospitality Limited Partnership, a Virginia limited partnership.

(xiii) "Partnership Unit" shall mean a fractional, undivided share of the partnership interests of Hersha Hospitality Limited Partnership, a Virginia limited partnership.
(xiv) "Permitted Transferee" shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section 2(E) hereof.

(xv) "Person" shall mean an individual, corporation, partnership, estate, trust, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a "group" as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

(xvi) "Prohibited Owner" shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section 1(C) hereof, would own record title to Equity Shares.

(xvii) "Redemption Rights" shall mean the rights granted under the Hersha Hospitality Partnership Agreement to the limited partners to redeem, under certain circumstances, their Partnership Units for cash (or, at the option of the Trust, Common Shares).

(xviii) "REIT" shall mean a real estate investment trust under Section 856 of the Code.

(xix) "Restriction Termination Date" shall mean the first day after the date of the Initial Public Offering on which the Board of Trustees and the shareholders of the Trust determine, pursuant to Article V, Section 1(C), that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or for any other reason, the Board of Trustees and the shareholders amend the Articles of Amendment and Restatement to terminate the provisions of this Article VII.

(xx) "Shares-in-Trust" shall mean any Equity Shares designated Shares-in-Trust pursuant to Section 1(C) hereof.

(xxi) "Share Trust" shall mean any separate trust created pursuant to
Section 1(C) hereof and administered in accordance with the terms of Section 2 hereof, for the exclusive benefit of any Beneficiary.

(xxii) "Share Trustee" shall mean any person or entity unaffiliated with both the Trust and any Prohibited Owner designated by the Trust to act as trustee of any Share Trust, or any successor trustee thereof.

(xxiii) "Transfer" (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of Equity Shares, whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. "Transfer" (as a verb) shall have the correlative meaning.

(B) Restriction on Transfers.

(1) Except as provided in Section 1(G) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, no Person shall Beneficially Own or Constructively Own outstanding Equity Shares in excess of the Ownership Limit.

(2) Except as provided in Section 1(G) hereof and subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in any Person Beneficially Owning or Constructively Owning Equity Shares in excess of the Ownership Limit shall be void ab initio as to the Transfer of that number of Equity Shares that would be otherwise Beneficially Owned or Constructively Owned by such Person in excess of the Ownership Limit and the intended transferee shall acquire no rights in such excess Equity Shares.

(3) Except as provided in Section 1(G) hereof, and subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of that number of shares that would be otherwise beneficially owned (determined without reference to any rules of attribution) by the transferee, and the intended transferee shall acquire no rights in such excess Equity Shares.

(4) Subject to Section 1(G) and 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Equity Shares that, if effective, would result in the Trust being "closely held" within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of Equity Shares that would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such excess Equity Shares.

(5) Except as provided in Section 1(G) hereof and subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Equity Shares that, if effective, would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that number of Equity Shares that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such excess Equity Shares.

(1) If, notwithstanding the other provisions contained in this Section 1, at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that any Person would either Beneficially Own or Constructively Own Equity Shares in excess of the Ownership Limit, then (x) except as otherwise provided in Section 1(G) hereof, the purported transferee shall acquire no right or interest (or, in the case of a Non-Transfer Event, the person holding record title to the Equity Shares Beneficially Owned or Constructively Owned by such Beneficial Owner or Constructive Owner, shall cease to own any right or interest) in such number of Equity Shares that would cause such Beneficial Owner or Constructive Owner to Beneficially Own or Constructively Own Equity Shares in excess of the Ownership Limit, (y) such number of Equity Shares in excess of the Ownership Limit (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section 2 hereof, transferred automatically and by operation of law to a Share Trust to be held in accordance with that Section 2, and (z) the Prohibited Owner shall submit such number of Equity Shares to the Trust for registration in the name of the Share Trust. Such transfer to a Share Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

(2) If, notwithstanding the other provisions contained in this Section 1, at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (i) result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (ii) result in the Trust being "closely held" within the meaning of Section 856(h) of the Code, or (iii) cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire any right or interest (or, in the case of a Non-Transfer Event, the person holding record title of the Equity Shares with respect to which such Non-Transfer Event occurred, shall cease to own any right or interest) in such number of Equity Shares, the ownership of which by such purported transferee or record holder would

(A) result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution),

(B) result in the Trust being "closely held" within the meaning of Section 856(h) of the Code or

(C) cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of Equity Shares (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section 2 hereof, transferred automatically and by operation of law to the Share Trust to be held in accordance with that Section 2 and (z) the Prohibited Owner shall submit such number of Equity Shares to the Trust for registration in the name of the Share Trust. Such transfer to a Share Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

(D) Remedies For Breach. If the Trust, or its designees, shall at any time determine in good faith that a Transfer has taken place in violation of Section 1(B) hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Equity Shares in violation of Section 1(B) hereof, the Trust shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or acquisition.

(E) Notice of Restricted Transfer. Any Person who acquires or attempts to acquire Equity Shares in violation of Section 1(B) hereof, or any Person who owned Equity Shares that were transferred to the Share Trust pursuant to the provisions of Section 1(C) hereof, shall immediately give written notice to the Trust of such event and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Trust's status as a REIT.

(F) Owners Required To Provide Information. From the date of the Initial Public Offering and prior to the Restriction Termination Date:

(1) Every Beneficial Owner or Constructive Owner of more than 5%, or such lower percentages as required pursuant to regulations under the Code, of the outstanding Equity Shares of the Trust shall, within 30 days after December 31 of each year, provide to the Trust a written statement or affidavit stating the name and address of such Beneficial Owner or Constructive Owner, the number of Equity Shares Beneficially Owned or Constructively Owned, and a description of how such shares are held. Each such Beneficial Owner or Constructive Owner shall provide to the Trust such additional information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Trust's status as a REIT and to ensure compliance with the Ownership Limit.

2) Each Person who is a Beneficial Owner or Constructive Owner of Equity Shares and each Person (including the shareholder of record) who is holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust a written statement or affidavit stating such information as the Trust may request in order to determine the Trust's status as a REIT and to ensure compliance with the Ownership Limit.

(G) Exception to Ownership Limit. The Ownership Limit shall not apply to the acquisition of Equity Shares by an underwriter that participates in a public offering of such shares, for a period of 90 days following the purchase by such underwriter of such shares. In addition, the Board of Trustees, upon receipt of advice of counsel or other evidence satisfactory to the Board of Trustees, in its sole and absolute discretion, in each case to the effect that the restrictions contained in Sections 1(B)(3), (4) and (5) hereof will not be violated and that REIT status will not otherwise be lost, may, in its sole and absolute discretion, exempt a Person from the Ownership Limit if such Person is not an individual for purposes of Section 542(a)(2) of the Code, provided that
(i) the Board of Trustees obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual's Beneficial Ownership or Constructive Ownership of Equity Shares will violate the Ownership Limit as a result of the exemption and (ii) such Person agrees that any violation or attempted violation of the terms of the exemption will result in a transfer to the Share Trust of Equity Shares pursuant to Section 1(C) hereof.

(H) New York Stock Exchange Transactions. Notwithstanding any provision contained herein to the contrary, nothing in this Articles of Amendment and Restatement shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange.

Section 2. Shares-in-Trust.

(A) Share Trust. Any Equity Shares transferred to a Share Trust and designated Shares-in-Trust pursuant to Section 1(C) hereof shall be held for the exclusive benefit of a Beneficiary. The Trust shall name a Beneficiary of each Share Trust within five days after discovery of the existence thereof. Any transfer to a Share Trust, and subsequent designation of Equity Shares as Shares-in-Trust, pursuant to Section 1(C) hereof shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event that results in the transfer to the Share Trust. Shares-in-Trust shall remain issued and outstanding Equity Shares of the Trust and shall be entitled to the same rights and privileges on identical terms and conditions as are all other issued and outstanding Equity Shares of the same class and series. When transferred to a Permitted Transferee in accordance with the provisions of Section 2(E) hereof, such Shares-in-Trust shall cease to be designated as Shares-in-Trust.

(B) Dividend Rights. The Share Trust, as record holder of Shares-in-Trust, shall be entitled to receive all dividends and distributions as may be declared by the Board of Trustees on such Equity Shares and shall hold such dividends or distributions in trust for the benefit of the Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to the Share Trust the amount of any dividends or distributions received by it that (i) are attributable to any Equity Shares designated Shares-in-Trust and (ii) the record date for which was on or after the date that such shares became Shares-in-Trust. The Trust shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or distributions payable on Equity Shares Beneficially Owned or Constructively Owned by the Person who, but for the provisions of Section 1(C) hereof, would Constructively Own or Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable following the Trust's receipt or withholding thereof, shall pay over to the Share Trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.

(C) Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust, each holder of Shares-in-Trust shall be entitled to receive, ratably with each other holder of Equity Shares of the same class or series, that portion of the assets of the Trust that is available for distribution to the holders of such class and series of Equity Shares. The Share Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution or winding up, or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts pursuant to this
Section 2(C) in excess of (i) in the case of a purported Transfer in which the Prohibited Owner gave value for Equity Shares and which Transfer resulted in the transfer of the shares to the Share Trust, the price per share, if any, such Prohibited Owner paid for the Equity Shares and (ii) in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Share Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer. Any remaining amount in such Share Trust shall be distributed to the Beneficiary.

(D) Voting Rights. The Share Trustee shall be entitled to vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of Equity Shares prior to the discovery by the Trust that the Equity Shares are Shares-in-Trust shall, subject to applicable law, be rescinded and shall be void ab initio with respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have given, as of the close of business on the business day prior to the date of the purported Transfer or Non-Transfer Event that results in the transfer to the Share Trust of Equity Shares under Section 1(C) hereof, an irrevocable proxy to the Share Trustee to vote the Shares-in-Trust in the manner in which the Share Trustee, in its sole and absolute discretion, desires; provided, however, that if the Trust has already taken irreversible trust action, the Share Trustee shall not have the authority to reclassify and recast such vote.

(E) Designation of Permitted Transferee. The Share Trustee shall have the exclusive and absolute right to designate a Permitted Transferee of any and all Shares-in-Trust. In an orderly fashion so as not to materially adversely affect the Market Price of the Shares-in-Trust, the Share Trustee shall designate any Person as Permitted Transferee, provided, however, that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale), at a price as set forth in Section 2(G) hereof, the Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire such Shares-in-Trust without such acquisition resulting in a transfer to a Share Trust and the redesignation of such Equity Shares so acquired as Shares-in-Trust under Section 1(C) hereof. Upon the designation by the Share Trustee of a Permitted Transferee in accordance with the provisions of this Section 2(E), the Share Trustee shall (i) cause to be transferred to the Permitted Transferee that number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the Trust that the Permitted Transferee is the holder of record of such number of Equity Shares, (iii) cause the Shares-in-Trust to be canceled and (iv) distribute to the Beneficiary any and all amounts held with respect to the Shares-in-Trust after making the payment to the Prohibited Owner pursuant to Section 2(F) hereof.

(F) Compensation to Record Holder of Equity Shares that Become Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery of the Shares-in-Trust and subsequent designation of the Permitted Transferee in accordance with Section 2(E) hereof or following the acceptance of the offer to purchase such shares in accordance with Section 2(G) hereof) to receive from the Share Trustee following the sale or other disposition of such Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in which the Prohibited Owner gave value for Equity Shares and which Transfer resulted in the transfer of the shares to the Share Trust, the price per share, if any, such Prohibited Owner paid for the Equity Shares, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Share Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer and (ii) the price per share received by the Share Trustee from the sale or other disposition of such Shares-in-Trust in accordance with Section 2(E) hereof. Any amounts received by the Share Trustee in respect of such Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner pursuant to this Section 2(F) shall be distributed to the Beneficiary in accordance with the provisions of Section 2(E) hereof. Each Beneficiary and Prohibited Owner waive any and all claims that they may have against the Share Trustee and the Share Trust arising out of the disposition of Shares-in-Trust, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this
Section 2 by, such Share Trustee or the Trust.

(G) Purchase Right in Shares-in-Trust. Shares-in-Trust shall be deemed to have been offered for sale to the Trust, 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 devise, gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer Event) and (ii) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer for a period of ninety days after the later of (i) the date of the Non-Transfer Event or purported Transfer that resulted in such Shares-in-Trust and (ii) the date the Trust determines in good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Trust does not receive a notice of such Transfer or Non-Transfer Event pursuant to Section 1(E) hereof. Section 3. Remedies Not Limited. Subject to Section 1(H) hereof, nothing contained in this Article VII shall limit the authority of the Trust to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders by preservation of the Trust's status as a REIT and to ensure compliance with the Ownership Limit.

Section 4. Ambiguity. In the case of an ambiguity in the application of any of the provisions of Article VII, including any definition contained in Section 1(A) hereof, the Board of Trustees shall have the power to determine the application of the provisions of this Article VII with respect to any situation based on the facts known to it.
Section 5. Legend. Each certificate for Equity Shares shall bear substantially the following legend: "The [Common or Preferred] Shares represented by this certificate are subject to restrictions on transfer. Subject to certain further restrictions and except as provided in the Articles of Amendment and Restatement of the Trust, no Person may (i) Beneficially or Constructively Own Common Shares in excess of 9.9% of the number of outstanding Common Shares, (ii) Beneficially or Constructively Own Preferred Shares of any class or series of Preferred Shares in excess of 9.9% of the number of outstanding Preferred Shares of such class or series, (iii) Beneficially Own Equity Shares that would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (iv) Beneficially Own Equity Shares that would result in the Trust being "closely held" under Section 856(h) of the Internal Revenue Code of 1986, as amended (the "Code"), or (v) Constructively Own Equity Shares that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's or the Partnership's real property, within the meaning of Section 856(d)(2)(B) of the Code. Any Person who attempts to Beneficially or Constructively Own shares of Equity Shares in excess of the above limitations must immediately notify the Trust in writing. If any restrictions above are violated, the Equity Shares represented hereby will be transferred automatically to a Share Trust and shall be designated Shares-in-Trust to a trustee of a trust for the benefit of one or more charitable beneficiaries. In addition, upon the occurrence of certain events, attempted transfers in violation of the restrictions described above may be void ab initio. All capitalized terms in this legend have the meanings defined in the Trust's Articles of Amendment and Restatement, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests. Such requests must be made to the Secretary of the Trust at its principal office or to the transfer agent." In place of the foregoing legend, the certificate may state that the Trust will furnish a full statement about certain restrictions or transferability to a shareholder on request and without charge.
Section 6. Severability. If any provision of this Article VII or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.
Section 7. Non-Waiver. No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.
ARTICLE VIII SHAREHOLDERS

Section 1.Meetings. There shall be an annual meeting of the shareholders, to be held on proper notice at such time (after the delivery of the annual report) and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust. Except as otherwise provided in this Articles of Amendment and Restatement, special meetings of shareholders may be called in the manner provided in the Bylaws. If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees. Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 2. Voting Rights. Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) termination of REIT status as provided in Article V,
Section (1)(C), (b) election of Trustees as provided in Article V, Section 2(A) and the removal of Trustees as provided in Article V, Section 3; (c) amendment of the Articles of Amendment and Restatement as provided in Article X; (d) termination of the Trust as provided in Article XII, Section 2; (e) merger or consolidation of the Trust, or the sale or disposition of substantially all of the Trust Property (as hereinafter defined), as provided in Article XI; and (f) such other matters with respect to which a vote of the shareholders is required by applicable law or the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 3. Preemptive and Appraisal Rights. Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Article VI, Section 4, no holder of Shares shall, as such holder,
(a) have any preemptive or preferential right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust that it may issue or sell or (b), except as expressly required by Title 8, have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding.

Section 4. Extraordinary Actions. Except as specifically provided in Article V, Sections 1(C) and 3, Article X, Sections 2 and 3, and Article XII,
Section 2 of this Articles of Amendment and Restatement, if the provisions of applicable law require a vote of holders of Shares entitled to be cast on a matter or action that is greater than a majority but such law permits the Articles of Amendment and Restatement to reduce such voting requirement, any such matter or action shall be effective and valid if taken or authorized by the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter or action.

Section 5. Board Approval. The submission of any action to the shareholders for their consideration shall first be approved as advised by the Board of Trustees.

Section 6. Action By Shareholders Without a Meeting. The Bylaws may provide that any action required or permitted to be taken by the shareholders may be taken without a meeting by the written consent of the shareholders entitled to cast a sufficient number of votes to approve the matter as required by statute, the Articles of Amendment and Restatement or the Bylaws, as the case may be.

ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST

Section 1. Limitation of Shareholder Liability. No shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his being a shareholder, nor shall any shareholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the property or the affairs of the Trust by reason of his being a shareholder.

Section 2. Limitation of Trustee and Officer Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a REIT, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages. Neither the amendment nor repeal of this Section, nor the adoption or amendment of any other provision of the Articles of Amendment and Restatement or Bylaws inconsistent with this section, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland REIT for money damages in a suit by or on behalf of the Trust or by any shareholder, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that (a) the Trustee 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 (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee'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.

Section 3. Express Exculpatory Clauses in Instruments. Neither the shareholders nor the Trustees, officers, employees or agents of the Trust shall be liable under any written instrument creating an obligation of the Trust, and all Persons shall look solely to the Trust Property for the payment of any claim under or for the performance of that instrument. The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such instrument and shall not render any Shareholder, Trustee, officer, employee or agent liable thereunder to any third party, nor shall the Trustees or any officer, employee or agent of the Trust be liable to anyone for such omission. As used in this Articles of Amendment and Restatement, "Trust Property" means any and all property, real, personal or otherwise, tangible or intangible, which is transferred or conveyed to the Trust or the Trustees (including all rents, income, profits and gains therefrom), which is owned or held by, or for the account of, the Trust or the Trustees.

Section 4. Indemnification. The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former shareholder, Trustee or officer of the Trust or (b) any individual who, while a Trustee of the Trust and at the request of the Trust, serves or has served as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former shareholder, Trustee or officer of the Trust. The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served as a predecessor of the Trust in any of the capacities described in (a) or (b) above, and to any employee or agent of the Trust or a predecessor of the Trust.

Section 5. Transactions Between the Trust and its Trustees, Officers, Employees and Agents. Subject to any express restrictions in the Articles of Amendment and Restatement or adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction.

ARTICLE X

AMENDMENTS

Section 1. General. The Trust reserves the right from time to time to make any amendment to the Articles of Amendment and Restatement, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Articles of Amendment and Restatement, of any Shares. All rights and powers conferred by this Articles of Amendment and Restatement on shareholders, Trustees and officers are granted subject to this reservation. An amendment to the Articles of Amendment and Restatement (a) shall be signed and acknowledged by at least a majority of the Trustees or an officer duly authorized by at least a majority of the Trustees,
(b) shall be filed for record with SDAT as provided in Article XIII, Section 5 and (c) shall become effective as of the later of the time the SDAT accepts the amendment for record or the time established in the amendment, not to exceed 30 days after the amendment is accepted for record. All references to the Articles of Amendment and Restatement shall include all amendments thereto.
Section 2. By Trustees. The Trustees by a two-thirds vote may amend the Articles of Amendment and Restatement from time to time in the manner provided by Title 8, without any action by the shareholders, to qualify as a REIT under the Code or under Title 8.
Section 3. By Shareholders. Other than amendments pursuant to Section 2 of this Article X and Section 1 of Article VI, any amendment to the Declaration of Trust shall be valid only if approved by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter, except that any amendment to Article V, Article VII, Article X, Sections 2 and 3, and Article XII, Section 2 of this Articles of Amendment and Restatement shall be valid only if approved by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter; but in each case only after due authorization, advice and approval of the Board of Trustees.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge the Trust into another entity, (b) consolidate the Trust with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the Trust Property. Any such action must be approved as advised by the Board of Trustees and, after notice to all shareholders entitled to vote on the matter, by the affirmative vote of a majority of all the votes entitled to be cast on the matter.
ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 1. Duration. The Trust shall continue perpetually unless terminated pursuant to Section 2 of this Article XII or pursuant to any applicable provision of Title 8.

Section 2. Termination.
(a) Subject to the provision of any class or series of Shares at the time outstanding, the Trust may be terminated at any meeting of shareholders, by the affirmative vote of two thirds of all the votes entitled to be cast on the matter, after due authorization, advice and approval thereof by the Board of Trustees. Upon the termination of the Trust:

(i) The Trust shall carry on no business except for the purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under the Articles of Amendment and Restatement shall continue, including the powers to fulfill or discharge the Trust's contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration that may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business.

(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as it deems necessary for its protection, the Trust may distribute the remaining Trust Property among the shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining Trust Property shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

(b) After termination of the Trust, the liquidation of its business and the distribution to the shareholders as herein provided, a majority of the Trustees shall execute and file with the Trust's records a document certifying that the Trust has been duly terminated, and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders shall cease.

ARTICLE XIII
MISCELLANEOUS

Section 1. Governing Law. The Articles of Amendment and Restatement is executed and delivered in the State of Maryland with reference to the laws thereof, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof.
Section 2. Reliance by Third Parties. Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of the Articles of Amendment and Restatement or of the Bylaws as a true and complete copy as then in force; (e) an amendment to the Articles of Amendment and Restatement; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust. No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.
Section 3. Severability.
(A) The provisions of the Articles of Amendment and Restatement are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the "Conflicting Provisions") are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of the Articles of Amendment and Restatement, even without any amendment of the Articles of Amendment and Restatement pursuant to Article X and without affecting or impairing any of the remaining provisions of the Articles of Amendment and Restatement or rendering invalid or improper any action taken or omitted prior to such determination. No Trustee shall be liable for making or failing to make such a determination. In the event of any such determination by the Board of Trustees, the Board shall amend the Articles of Amendment and Restatement in the manner provided in Article X, Section 2.
(B) If any provision of the Articles of Amendment and Restatement shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of the Articles of Amendment and Restatement in any jurisdiction.
Section 4. Construction. In the Articles of Amendment and Restatement, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of the Articles of Amendment and Restatement. In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of "corporation" for purposes of such provisions.
Section 5. Recordation. The Declaration of Trust, inclusive of these Articles of Amendment and Restatement, and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record the Declaration of Trust, inclusive of these Articles of Amendment and Restatement, or any amendment hereto, in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of the Declaration of Trust or any part thereof. A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments thereto.
SECOND: These Articles of Amendment and Restatement have been duly adopted by the Board of Trustees and approved by the Shareholders of the Trust as required by law.
THIRD: The total number of shares of beneficial interest which the Trust had authority to issue immediately prior to the filing of these Articles of Amendment and Restatement was 1,000, all of which were common shares of beneficial interest, par value $.01 per share. The aggregate par value of all shares of beneficial interest having par value was $10.00.
The total number of shares of beneficial interest which the Trust has authority to issue pursuant to these Articles of Amendment and Restatement is 60,000,000, consisting of 50,000,000 common shares of beneficial interest, par value $.01 per share and 10,000,000 of preferred shares of beneficial interest, par value $.01 per share. The aggregate par value of all authorized shares of beneficial interest having par value is $60,000.00.
FOURTH: The undersigned Chairman of the Board of Trustees and Chief Executive Officer acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned Chairman of the Board of Trustees and Chief Executive Officer acknowledges that, to the best of his knowledge, information and belief, these matters are true in all material respects and that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its Chairman of the Board of Trustees and Chief Executive Officer, and attest to by its Secretary, on this ____ day of July, 1998.

                                                     HERSHA HOSPITALITY TRUST
ATTEST:

------------------------------              ------------------------------------
Secretary                                   Hasu P. Shah
                                            Chairman of the Board of Trustees
                                            and Chief Executive Officer

HERSHA HOSPITALITY TRUST

BYLAWS

ARTICLE I

OFFICES

Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located at such place or places as the Trustees may designate.

Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at such places as the Trustees may from time to time determine or the business of the Trust may require.

Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of the Trust shall begin on January 1 and end on December 31.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. PLACE. All meetings of shareholders shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting.

Section 2. ANNUAL MEETING. An annual meeting of the shareholders for the election of Trustees and the transaction of any business within the powers of the Trust shall be held during the month of May of each year, or at such other time determined by the Board of Trustees after the delivery of the annual report referred to in Section 12 of this Article II, at a convenient location and on proper notice, on a date and at the time set by the Trustees, beginning with the year 1999. Failure to hold an annual meeting shall not invalidate the Trust's existence or affect any otherwise valid acts of the Trust.

Section 3. SPECIAL MEETINGS. The Chairman of the Board or the President or one-third of the Trustees may call special meetings of the shareholders. Special meetings of shareholders shall also be called by the Secretary upon the written request of the holders of shares of beneficial interest in the Trust ("Shares") entitled to cast not less than 25% of all the votes entitled to be cast at such meeting. Such request shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The Secretary shall inform such shareholders of the reasonably estimated cost of preparing and mailing notice of the meeting and,

upon payment by such shareholders to the Trust of such costs, the Secretary shall give notice to each shareholder entitled to notice of the meeting. Unless requested by shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any meeting of the shareholders held during the preceding twelve months.

Section 4. NOTICE. Not less than ten nor more than 90 days before each meeting of shareholders, the Secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail or by presenting it to such shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid.

Section 5. SCOPE OF NOTICE. Subject to Section 13 of this Article II, any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice.

Section 6. ORGANIZATION. At every meeting of the shareholders, the Chairman of the Board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board, one of the following officers present shall conduct the meeting in the order stated: the Vice Chairman of the Board, if there be one, the President, the Vice Presidents in their order of rank and seniority; or a Chairman chosen by the shareholders entitled to cast a majority of the votes that all shareholders present in person or by proxy are entitled to cast, shall act as Chairman; and the Secretary, or, in his absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretaries, a person appointed by the Chairman, shall act as Secretary.

Section 7. QUORUM. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this Section shall not affect any requirement under any statute or the Declaration of Trust for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted that might have been transacted at the meeting as originally notified.

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Section 8. VOTING. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a Trustee. Each share may be voted for as many individuals as there are Trustees to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter that may properly come before the meeting, unless more than a majority of the votes cast is required herein or by statute or by the Declaration of Trust. Unless otherwise provided in the Declaration of Trust, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders.

Section 9. PROXIES. A shareholder may cast the votes entitled to be cast by the Shares owned of record by him, either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the Trust before or at the time of the meeting and shall be revocable unless stated in writing that the proxy is irrevocable at the time of filing. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such Shares pursuant to a bylaw or a resolution of the governing board of such corporation or other entity or agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such Shares. Any trustee or other fiduciary may vote Shares registered in his name as such fiduciary, either in person or by proxy.

Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding Shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding Shares at any given time.

The Trustees may adopt by resolution a procedure by which a shareholder may certify in writing to the Trust that any Shares registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the share transfer books, the time after the record date or closing of the share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure that the Trustees consider necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the shareholder of record of the specified Shares in place of the shareholder who makes the certification.

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Notwithstanding any other provision contained herein or in the Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to any acquisition by any person of Shares. This
Section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control Shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

Section 11. INSPECTORS. At any meeting of shareholders, the chairman of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders.

Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of Shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 12. REPORTS TO SHAREHOLDERS.

(a) The Trustees shall submit to the shareholders at or before the annual meeting of shareholders a report of the business and operations of the Trust during such fiscal year, containing a balance sheet and a statement of income and surplus of the Trust, accompanied by the certification of an independent certified public accountant, and such further information as the Trustees may determine is required pursuant to any law or regulation to which the Trust is subject. Within 20 days after the annual meeting of shareholders, the Trustees shall place the annual report on file at the principal office of the Trust and with any governmental agencies as may be required by law and as the Trustees may deem appropriate.

(b) Not later than 60 days after the end of each of the first three quarterly periods of each fiscal year, the Trustees shall deliver or cause to be delivered an interim report to the shareholders containing unaudited financial statements for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, and such further information as the Trustees may determine is required pursuant to any law or regulation to which the Trust is subject.

Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.

(a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Trustees and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Trustees or (iii) by any shareholder of the Trust who was a shareholder

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of record both at the time of giving of notice provided for in this Section 13(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(a).

(2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 13, the shareholder must have given timely notice thereof in writing to the Secretary of the Trust. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Trust not less than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, or if the Trust has not previously held an annual meeting, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Trust. In no event shall public announcement of the postponement or adjournment of an annual meeting to a later date or time commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Trustee all information relating to such person that is required to be disclosed in solicitations of proxies for election of Trustees in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such shareholder, as they appear on the Trust's books, and of such beneficial owner and (y) the number of each class of Shares that are owned beneficially and of record by such shareholder and such beneficial owner.

(b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board of Trustees may be made at a special meeting of shareholders at which Trustees are to be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) provided that the Board of Trustees has determined that Trustees shall be elected at such special meeting, by any shareholder of the Trust who was a shareholder of record both at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this
Section 13(b). In the event the Trust calls a special meeting of shareholders for the purpose of electing one or more Trustees to the Board of Trustees, any such shareholder may nominate a person or

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persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the shareholder's notice containing the information required by paragraph (a)(2) of this Section 13 shall be delivered to the Secretary at the principal executive offices of the Trust not later than the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Trustees to be elected at such meeting.

(c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 13. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 13 and, if any proposed nomination or business is not in compliance with this Section 13, to declare that such defective nomination or proposal shall be disregarded.

(2) For purposes of this Section 13, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.

(3) In addition to the foregoing provisions of this Section 13, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 13.

Section 14. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot.

ARTICLE III

TRUSTEES

Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. A Trustee shall be an individual at least 21 years of age who is not under legal disability. Trustees need not be shareholders of the Trust. In case of failure to elect Trustees at an annual meeting of the shareholders, the Trustees holding over shall continue to direct the management of the business and affairs of the Trust until their successors are elected and qualify.

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Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Trustees shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this Bylaw being necessary. The Trustees may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Trustees without other notice than such resolution.

Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may be called by or at the request of the Chairman of the Board or the President or by two of the Trustees then in office. The person or persons authorized to call special meetings of the Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Trustees called by them.

Section 4. NOTICE. Unless otherwise waived by a quorum present at a special meeting, notice of any special meeting shall be given by written notice delivered personally, telegraphed, facsimile transmitted or mailed to each Trustee at his business or residence address or by telephone. Personally delivered or telegraphed notices shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting. Telephone or facsimile-transmission notice shall be given at least 24 hours prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Telephone notice shall be deemed given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile-transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed answer-back indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Trustees need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 5. QUORUM. A majority of the entire Board of Trustees shall constitute a quorum for transaction of business at any meeting of the Trustees, provided that, if less than a majority of such Trustees are present at said meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group.

The Trustees present at a meeting that has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum.

Section 6. VOTING. (a) Except as provided in subsection (b) of this
Section 6, the action of the majority of the Trustees present at a meeting at which a quorum is initially present shall be the action of the Trustees, unless the concurrence of a greater proportion is required for such action by applicable statute.

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(b) Notwithstanding anything in these Bylaws to the contrary, any transaction involving the Trust, including the purchase, sale, lease or mortgage of any real estate asset, in which a Trustee or officer of the Trust, or any affiliate (as defined in the Declaration of Trust) thereof, has an interest (other than solely as a result of his status as a Trustee, officer or shareholder of the Trust), must be approved by a majority of the Independent Trustees (as defined in the Declaration of Trust), even if the Independent Trustees constitute less than a quorum.

Section 7. TELEPHONE MEETINGS. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting if a consent in writing to such action is signed by each Trustee and such written consent is filed with the minutes of proceedings of the Trustees.

Section 9. VACANCIES. If for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than two Trustees remain). Any vacancy (including a vacancy created by an increase in the number of Trustees) shall be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining Trustees, or if no Trustees remain, by a majority of the shareholders. Any individual so elected as Trustee shall hold office for the unexpired term of the Trustee he is replacing.

Section 10. COMPENSATION.

(a) Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the Trustees, may receive a fixed sum of cash and/or Shares (or options to acquire Shares) per year and/or per visit to real property owned or to be acquired by the Trust and for any service or activity they performed or engaged in as Trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Trustees or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as Trustees; but nothing herein contained shall be construed to preclude any Trustee from serving the Trust in any other capacity and receiving compensation therefor.

(b) Financial Assistance to Trustees. The Trust may lend money to, guarantee an obligation of or otherwise assist a Trustee or a trustee of its direct or indirect subsidiary. The loan, guarantee or other assistance may be with or without interest, unsecured or secured in any manner that the Board of Trustees, including a majority of the Independent Trustees, approves, including a pledge of Shares.

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Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time, remove any Trustee in the manner provided in the Declaration of Trust.

Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or Shares have been deposited.

Section 13. SURETY BONDS. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties.

Section 14. RELIANCE. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

Section 15. NUMBER AND CLASSIFICATION. The number of Trustees of the Trust shall not be less than three (3) nor more than nine (9). The Trustees shall be classified, with respect to the terms for which they severally hold office, into separate classes, if and in the manner prescribed in the Trust's Declaration of Trust. At any regular meeting or at any special meeting called for that purpose, a vote of at least 80% of the members of the Board of Trustees shall be required in order to establish, increase or decrease the number of Trustees, provided that the number thereof shall never be less than required by Maryland law and further provided that the tenure of office of a Trustee shall not be affected by any decrease in the number of Trustees.

Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the Maryland General Corporation Law (the "MGCL") shall be available for and apply to any contract or other transaction between the Trust and any of its Trustees or between the Trust and any other trust, corporation, firm or other entity in which any of its Trustees is a Trustee or director or has a material financial interest.

Section 17. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee, officer, employee or agent of the Trust (other than a full-time officer or agent of any other person or otherwise) may have business interests and engage in business activities similar or in addition to those of or relating to the Trust.

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ARTICLE IV

COMMITTEES

Section 1. NUMBER, TENURE AND QUALIFICATIONS; VACANCIES. The Board of Trustees may appoint from among its members an Executive Committee and other committees comprised of two or more Trustees. A majority of the members of any committee so appointed shall be Independent Trustees. The Board of Trustees shall appoint an audit committee comprised of not less than two members, all of whom are Independent Trustees.

Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees.

Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternative members, to replace any absent or disqualified member or to dissolve any such committee.

Section 2. POWERS. The Trustees may delegate to committees appointed under
Section 1 of this Article any of the powers of the Trustees, except as prohibited by law.

Section 3. MEETINGS. One-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board of Trustees may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Trustee to act at the meeting in the place of such absent or disqualified members; provided, however, that in the event of the absence or disqualification of an Independent Trustee, such appointee shall be an Independent Trustee.

Each committee shall keep minutes of its proceedings and shall report the same to the Board of Trustees at the meeting next succeeding, and any action by the committees shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration.

Section 4. TELEPHONE MEETINGS. Members of a committee of the Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

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Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be taken at any meeting of a committee of the Trustees may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 6. VACANCIES. Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 1. GENERAL PROVISIONS. The officers of the Trust may consist of a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, one or more Chief Operating Officers, a President, one or more Vice Presidents, a Treasurer, one or more Assistant Treasurers, a Secretary and one or more Assistant Secretaries. In addition, the Trustees may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Trust shall be elected annually by the Trustees at the first meeting of the Trustees held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualified or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices except President and Vice President may be held by the same person. In their discretion, the Trustees may leave unfilled any office except that of President and Secretary. Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent.

Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Trust may be removed by the Trustees if in their judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by giving written notice of his resignation to the Trustees, the Chairman of the Board, the President or the Secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust.

Section 3. VACANCIES. A vacancy in any office may be filled by the Trustees for the balance of the term.

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Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a Chief Executive Officer from among the elected officers. The Chief Executive Officer shall have responsibility for implementation of the policies of the Trust, as determined by the Trustees, and for the administration of the business affairs of the Trust. The Chief Executive Officer shall be an ex officio member of all committees of the Board of Trustees. In the absence of both the Chairman and the Vice Chairman of the Board, the Chief Executive Officer shall preside over the meetings of the Trustees and of the shareholders at which he shall be present.

Section 5. CHIEF OPERATING OFFICER. The Trustees may designate one or more Chief Operating Officers from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Trustees.

Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a Chief Financial Officer from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Trustees or the Chief Executive Officer.

Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside over the meetings of the Trustees and of the shareholders at which he shall be present and shall in general oversee all of the business and affairs of the Trust. In the absence of the Chairman of the Board, the Vice Chairman of the Board shall preside at such meetings at which he shall be present. The Chairman and the Vice Chairman of the Board may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed. The Chairman of the Board and the Vice Chairman of the Board shall perform such other duties as may be assigned to him or them by the Trustees.

Section 8. PRESIDENT. In the absence of the Chairman, the Vice Chairman of the Board and the Chief Executive Officer, the President shall preside over the meetings of the Trustees and of the shareholders at which he shall be present. In the absence of a designation of a Chief Executive Officer by the Trustees, the President shall be the Chief Executive Officer and shall be ex officio a member of all committees that may, from time to time, be constituted by the Trustees. The President may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Trustees from time to time.

Section 9. VICE PRESIDENTS. In the absence of the President or in the event of a vacancy in such office, the Vice President (or in the event there be more than one vice President, the Vice Presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their initial election as Vice President) shall perform the duties of the President and when so acting shall have all the powers of and be subject to all the restrictions upon the President; and shall perform such other duties as from

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time to time may be assigned to him by the President or by the Trustees. The Trustees may designate one or more Vice Presidents as Executive Vice President or as Vice President for particular areas of responsibility.

Section 10. SECRETARY. The Secretary shall (a) keep the minutes of the proceedings of the shareholders, the Trustees and committees of the Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the Trust records and of the seal of the Trust; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) have general charge of the share transfer books of the Trust; and (f) in general perform such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President or by the Trustees.

Section 11. TREASURER. The Treasurer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Trustees.

He shall disburse the funds of the Trust as may be ordered by the Trustees, taking proper vouchers for such disbursements, and shall render to the President and Trustees, at the regular meetings of the Trustees or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Trust.

If required by the Trustees, he shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trustees for the faithful performance of the duties of his office and for the restoration to the Trust, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Trust.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or Treasurer, respectively, or by the President or the Trustees. The Assistant Treasurers shall, if required by the Trustees, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Trustees.

Section 13. SALARIES. The salaries and other compensation of the officers, if any, shall be fixed from time to time by the Trustees and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a Trustee.

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ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS. The Trustees may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding upon the Trustees and upon the Trust when authorized or ratified by action of the Trustees.

Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or officers, agent or agents of the Trust in such manner as shall from time to time be determined by the Trustees.

Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Trustees may designate.

ARTICLE VII

Section 1. CERTIFICATES. Each shareholder shall be entitled to a certificate or certificates that shall represent and certify the number of Shares of each class held by him in the Trust. Each certificate shall be signed by the Chief Executive Officer, the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of Shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing Shares that are restricted as to their transferability or voting powers, that are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or that are redeemable at the option of the Trust shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Trust may set forth upon the face or back of the certificate a statement that the Trust will furnish to any shareholder, upon request and without charge, a full statement of such information.

Section 2. TRANSFERS. Certificates shall be treated as negotiable, and title thereto and to the Shares they represent shall be transferred by delivery thereof to the same extent as those of a Maryland stock corporation. No transfers of Shares shall be made if (i) void ab initio pursuant to any provision of the Declaration of Trust or (ii) the Board of Trustees, pursuant to any provision of the Declaration of Trust, shall have refused to permit the transfer of such Shares. Permitted transfers of Shares shall be made on the share records of the Trust only upon

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the instruction of the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and upon surrender of the certificate or certificates, if issued, for such Shares properly endorsed or accompanied by a duly executed share transfer power and the payment of all taxes thereon. Upon surrender to the Trust or the transfer agent of the Trust of a certificate for Shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, as to any transfers not prohibited by any provision of the Declaration of Trust or by action of the Board of Trustees thereunder, it shall be the duty of the Trust to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

The Trust shall be entitled to treat the holder of record of any Share or Shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share or Shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.

Notwithstanding the foregoing, transfers of Shares will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein.

Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the officer designated by the Trustees may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Trustees may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders of record is to be held or taken.

In lieu of fixing a record date, the Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days. If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days before the date of such meeting.

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If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (a) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Trustees, declaring the dividend or allotment of rights, is adopted.

When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein.

Section 5. STOCK LEDGER. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of Shares of each class held by such shareholder.

Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may issue fractional Shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws, the Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit.

ARTICLE VIII

DISTRIBUTIONS

Section 1. AUTHORIZATION. Dividends and other distributions upon the Shares may be authorized and declared by the Trustees, subject to the provisions of law and the Declaration of Trust. Dividends and other distributions may be paid in cash, property or Shares, subject to the provisions of law and the Declaration of Trust.

Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any funds of the Trust available for dividends such sum or sums as the Trustees may from time to time, in their absolute discretion, think proper as a reserve

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fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Trust or for such other purpose as the Trustees shall determine to be in the best interest of the Trust, and the Trustees may modify or abolish any such reserve in the manner in which it was created.

ARTICLE IX

SEAL

Section 1. SEAL. The Trustees may authorize the adoption of a seal by the Trust. The seal shall have inscribed thereon the name of the Trust and the year of its formation. The Trustees may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. AFFIXING SEAL. Whenever the Trust is required to place its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust.

ARTICLE X

INDEMNIFICATION AND ADVANCE FOR EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any former Trustee, officer or shareholder (including among the foregoing, for all purposes of this Article X and without limitation, any individual who, while a Trustee, officer or shareholder and at the express request of the Trust, serves or has served another real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, shareholder, partner or trustee of such real estate investment trust, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of service in such capacity, against reasonable expenses incurred by him in connection with the proceeding, (b) any Trustee or officer or any former Trustee or officer against any claim or liability to which he may become subject by reason of such status unless it is established that (i) his act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful and (c) each shareholder or former shareholder against any claim or liability to which he may become subject by reason of such status. In addition, the Trust shall, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse, in advance of final disposition of a

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proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or former Trustee, officer or shareholder made a party to a proceeding by reason such status, provided that, in the case of a Trustee or officer, the Trust shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Trust as authorized by these Bylaws and (ii) a written undertaking by or on its behalf to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that the applicable standard of conduct was not met. The Trust may, with the approval of its Trustees, provide such indemnification or payment or reimbursement of expenses to any Trustee, officer or shareholder or any former Trustee, officer or shareholder who served a predecessor of the Trust and to any employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of this Article with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption.

Any indemnification or payment or reimbursement of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification or payment or reimbursement of expenses, as the case may be, under Section 2-418 of the MGCL for directors of Maryland corporations. The Trust may provide to Trustees, officers and shareholders such other and further indemnification or payment or reimbursement of expenses, as the case may be, to the fullest extent permitted by the MGCL, as in effect from time to time, for directors of Maryland corporations.

ARTICLE XI

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

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ARTICLE XII

AMENDMENT OF BYLAWS

The Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws; provided, however, that any amendment to Article III, Section 6(b) and to the provisions of Article IV relating to requirements that Independent Trustees serve on certain committees shall require affirmative vote of at least 80% of the members of the Board of Trustees, including a majority of the Independent Trustees, or the affirmative vote of not less than two-thirds of shareholders entitled to vote thereon.

ARTICLE XIII

MISCELLANEOUS

All references to the Declaration of Trust shall include any amendments thereto.

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Exhibit 4.1

Organized Under the Laws of the State of Maryland

HERSHA HOSPITALITY TRUST
Common Stock
$.01 Par Value

SEE LEGEND ON REVERSE SIDE

--------------------- SPECIMEN --------------------

Hersha Hospitality Trust, a Maryland real estate investment trust, fully-paid and nonassessable

IMPORTANT NOTICE

The Trust will furnish to any shareholder, on request and without charge, a full statement of the information required by Section 8-203(d) of the Corporations and Associations Article of the Annotated Code of Maryland with respect to the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption of the shares of each class of beneficial interest which the Trust has authority to issue and, if the Trust is authorized to issue any preferred or special class in series, (i) the differences in the relative rights and preferences between the shares of each series to the extent they have been set, and (ii) the authority of the Board of Trustees to set the relative rights and preferences of subsequent series. The foregoing summary does not purport to be complete and is subject to and qualified in its entirety by reference to the Declaration of Trust of the Trust, a copy of which will be sent without charge to each shareholder who so requests. Such request must be made to the Secretary of the Trust at its principal office.

The Common Shares represented by this certificate are subject to restrictions on transfer. Subject to certain further restrictions and except as provided in the Amended and Restated Declaration of Trust of the Trust, no Person may (i) Beneficially or Constructively Own Common Shares in excess of 9.9% of the number of outstanding Common Shares, (ii) Beneficially or Constructively own Preferred Shares of any class or series of Preferred Shares in excess of 9.9% of the number of outstanding Preferred Shares of such class or series, (iii) Beneficially Own Equity Shares that would result in the Equity Shares being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution), (iv) Beneficially Own Equity Shares that would result in the Trust being "closely held" under Section 856(h) of the Internal Revenue Code of 1986, as amended (the "Code"), or (v) Constructively Own Equity Shares that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust's real property, within the meaning of
Section 856(d)(2)(b) of the Code. Any Person who attempts to Beneficially or Constructively Own shares of Equity Shares in excess of the above limitations must immediately notify the Trust in writing. If the restrictions above are violated, the Equity Shares represented hereby will be transferred automatically to a Share Trust and shall be designated Shares-in-Trust to a trustee of a trust for the benefit of one or more charitable beneficiaries. In addition, upon the occurrence of certain events, attempted transfers in violation of the restrictions described above may be void ab initio. All capitalized terms in this legend have the meanings defined in the Trust's Amended and Restated Declaration of Trust, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests. Such requests must be made to the Secretary of the Trust at its principal office or to the transfer agent.

Exhibit 10.1

AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

HERSHA HOSPITALITY LIMITED PARTNERSHIP

TABLE OF CONTENTS

ARTICLE I

DEFINED TERMS...................................................................................................  1

ARTICLE II

FORMATION OF PARTNERSHIP........................................................................................  8
         2.01     Name, Office and Registered Agent.............................................................  8
         2.02     Partners......................................................................................  9
         2.03     Term and Dissolution..........................................................................  9
         2.04     Filing of Certificate and Perfection of Limited Partnership................................... 10
         2.05     Certificates Describing Partnership Units..................................................... 10

ARTICLE III

BUSINESS OF THE PARTNERSHIP..................................................................................... 10

ARTICLE IV

CAPITAL CONTRIBUTIONS AND ACCOUNTS.............................................................................. 11
         4.01     Capital Contributions......................................................................... 11
         4.02     Additional Capital Contributions and Issuances of Additional Partnership Interests............ 11
         4.03     Additional Funding............................................................................ 13
         4.04     Capital Accounts.............................................................................. 14
         4.05     Percentage Interests.......................................................................... 14
         4.06     No Interest on Contributions.................................................................. 14
         4.07     Return of Capital Contributions............................................................... 14
         4.08     No Third Party Beneficiary.................................................................... 15

ARTICLE V

PROFITS AND LOSSES; DISTRIBUTIONS............................................................................... 15
         5.01     Allocation of Profit and Loss................................................................. 15
         5.02     Distribution of Cash.......................................................................... 17
         5.03     REIT Distribution Requirements................................................................ 18
         5.04     No Right to Distributions in Kind............................................................. 18
         5.05     Limitations on Return of Capital Contributions................................................ 18
         5.06     Distributions Upon Liquidation................................................................ 19
         5.07     Substantial Economic Effect................................................................... 19

ARTICLE VI

RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER................................................................................... 19
         6.01     Management of the Partnership................................................................. 19
         6.02     Delegation of Authority....................................................................... 22
         6.03     Indemnification and Exculpation of Indemnitees................................................ 23
         6.04     Liability of the General Partner.............................................................. 24
         6.05     Partnership Obligations....................................................................... 25
         6.06     Outside Activities............................................................................ 26
         6.07     Employment or Retention of Affiliates......................................................... 26
         6.08     General Partner Participation................................................................. 26
         6.09     Title to Partnership Assets................................................................... 27
         6.10     Miscellaneous................................................................................. 27

ARTICLE VII

CHANGES IN GENERAL PARTNER...................................................................................... 27
         7.01     Transfer of the General Partner's Partnership Interest........................................ 27
         7.02     Admission of a Substitute or Additional General............................................... 29
         7.03     Effect of Bankruptcy, Withdrawal, Death or Dissolution  of a General Partner.................. 30
         7.04     Removal of a General Partner.................................................................. 31

ARTICLE VIII

RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS......................................................................................... 32
         8.01     Management of the Partnership................................................................. 32
         8.02     Power of Attorney............................................................................. 32
         8.03     Limitation on Liability of Limited Partners................................................... 32
         8.04     Ownership by Limited Partner of Corporate General Partner or Affiliate........................ 32
         8.05     Redemption Right.............................................................................. 33

ARTICLE IX

TRANSFERS OF LIMITED PARTNERSHIP INTERESTS...................................................................... 39
         9.01     Purchase for Investment....................................................................... 39
         9.02     Restrictions on Transfer of Limited Partnership Interests..................................... 40
         9.03     Admission of Substitute Limited Partner....................................................... 41
         9.04     Rights of Assignees of Partnership Interests.................................................. 42
         9.05     Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner................. 43
         9.06     Joint Ownership of Interests.................................................................. 43

ARTICLE X

BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS...................................................................... 43
         10.01  Books and Records............................................................................... 43
         10.02  Custody of Partnership Funds; Bank Accounts..................................................... 44
         10.03  Fiscal and Taxable Year......................................................................... 44
         10.04  Annual Tax Information and Report............................................................... 44
         10.05  Tax Matters Partner; Tax Elections; Special Basis Adjustments................................... 44
         10.06  Reports to Limited Partners..................................................................... 45

ARTICLE XI

AMENDMENT OF AGREEMENT; MERGER.................................................................................. 45

ARTICLE XII

GENERAL PROVISIONS.............................................................................................. 46
         12.01  Notices......................................................................................... 46
         12.02  Survival of Rights.............................................................................. 46
         12.03  Additional Documents............................................................................ 46
         12.04  Severability.................................................................................... 46
         12.05  Entire Agreement................................................................................ 47
         12.06  Pronouns and Plurals............................................................................ 47
         12.07  Headings........................................................................................ 47
         12.08  Counterparts.................................................................................... 47
         12.09  Governing Law................................................................................... 47

EXHIBITS

EXHIBIT A - Partners, Capital Contributions and Percentage Interests

EXHIBIT B - Notice of Exercise of Redemption Right

EXHIBIT C - Certification of Non-Foreign Status

AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

HERSHA HOSPITALITY LIMITED PARTNERSHIP

RECITALS

Hersha Hospitality Limited Partnership (the "Partnership") was formed as a limited partnership under the laws of the Commonwealth of Virginia, pursuant to a Certificate of Limited Partnership filed with the Virginia State Corporation Commission effective as of _____________, 1998. This Amended and Restated Agreement of Limited Partnership is entered into this ___ day of _______, 1998 among Hersha Hospitality Trust, a Maryland real estate investment trust (the "General Partner" or the "Company"), and the Limited Partners set forth on Exhibit A hereto, for the purpose of amending and restating the Agreement of Limited Partnership.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Agreement of Limited Partnership to read in its entirety as follows:

ARTICLE I

DEFINED TERMS

The following defined terms used in this Agreement shall have the meanings specified below:

"Act" means the Virginia Revised Uniform Limited Partnership Act, as it may be amended from time to time.

"Additional Funds" has the meaning set forth in Section 4.03 hereof.

"Additional Securities" means any additional REIT Shares (other than REIT Shares issued in connection with an exchange pursuant to Section 8.05 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).

"Administrative Expenses" means (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) those administrative costs and expenses of the General Partner, including any salaries or other payments to directors, officers or employees of the General Partner, and any accounting and legal expenses of the General Partner, which expenses, the Partners have agreed, are expenses of the Partnership and not the General Partner, and (iii) to the extent not included in clause (ii) above, REIT Expenses; provided, however, that Administrative Expenses shall not include any administrative costs and expenses incurred by the Company that are attributable to Properties or partnership interests in a Subsidiary Partnership that are owned by the Company other than in its role as General Partner.

"Affiliate" means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner, member, manager or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities or partnership interests or otherwise.

"Agreed Value" means the fair market value of a Partner's non-cash Capital Contribution as of the date of contribution as agreed to by such Partner and the General Partner. The names and addresses of the Partners, number of Partnership Units issued to each Partner, and the Agreed Value of non-cash Capital Contributions as of the date of contribution is set forth on Exhibit A.

"Agreement" means this Amended and Restated Agreement of Limited Partnership.

"Capital Account" has the meaning provided in Section 4.04 hereof.

"Capital Contribution" means the total amount of cash, cash equivalents, and the Agreed Value of any Property or other asset contributed or agreed to be contributed, as the context requires, to the Partnership by each Partner pursuant to the terms of the Agreement. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner.

"Cash Amount" means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date of receipt by the Company of a Notice of Redemption.

"Certificate" means any instrument or document that is required under the laws of the Commonwealth of Virginia, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-of-attorney granted to the General Partner in Section 8.02 hereof) and filed for recording in the appropriate public offices within the Commonwealth of Virginia or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the Commonwealth of Virginia or such other jurisdiction.

"Code" means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the Code.

"Commission" means the U.S. Securities and Exchange Commission.

"Company" means Hersha Hospitality Trust, a Maryland real estate investment trust.

"Conversion Factor" means 1.0, provided that in the event that the Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on such date and, provided further, that in the event that an entity other than an Affiliate of the Company shall become General Partner pursuant to any merger, consolidation or combination of the Company with or into another entity (the "Successor Entity"), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number of shares of the Successor Entity into which one REIT Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event; provided, however, that if the Company receives a Notice of Redemption after the record date, but prior to the effective date of such dividend, distribution, subdivision or combination, the Conversion Factor shall be determined as if the Company had received the Notice of Redemption immediately prior to the record date for such dividend, distribution, subdivision or combination.

"Declaration of Trust" means the Declaration of Trust of the Company filed with the Maryland State Department of Assessments and Taxation, as amended or restated from time to time.

"Event of Bankruptcy" as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days.

"General Partner" means the Company and any Person who becomes a substitute or additional General Partner as provided herein, and any of their successors as General Partner.

"General Partnership Interest" means a Partnership Interest held by the General Partner that is a general partnership interest.

"Indemnitee" means (i) any Person made a party to a proceeding by reason of its status as the Company, the General Partner or a director, officer or employee of the Company, the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the Company, General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion.

"Independent Trustee" shall have the same meaning ascribed to it in the Declaration of Trust.

"Limited Partner" means any Person named as a Limited Partner on Exhibit A attached hereto, and any Person who becomes a Substitute or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership.

"Limited Partnership Interest" means the ownership interest of a Limited Partner in the Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act.

"Loss" has the meaning provided in Section 5.01(f) hereof.

"Minimum Limited Partnership Interest" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceed $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided, however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time.

"Notice of Redemption" means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit B hereto.

"NYSE" means the New York Stock Exchange.

"Offer" has the meaning set forth in Section 7.01(c) hereof.

"Offering" means the initial offer and sale by the Company and the purchase by the Underwriters (as defined in the Prospectus) of REIT Shares for sale to the public.

"Original Limited Partners" means the Limited Partners designated as "Original Limited Partners" on Exhibit A hereto.

"Partner" means any General Partner or Limited Partner.

"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).

"Partnership Interest" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.

"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner's share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1).

"Partnership Record Date" means the record date established by the General Partner for the distribution of cash pursuant to Section 5.02 hereof, which record date shall be the same as the record date established by the Company for a distribution to its shareholders of some or all of its portion of such distribution.

"Partnership Unit" means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder. The allocation of Partnership Units among the Partners shall be as set forth on Exhibit A, as may be amended from time to time.

"Percentage Interest" means the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by a Partner by the total number of Partnership Units then outstanding. The Percentage Interest of each Partner shall be as set forth on Exhibit A, as may be amended from time to time.

"Person" means any individual, partnership, corporation, limited liability company, joint venture, trust or other entity.

"Profit" has the meaning provided in Section 5.01(f) hereof.

"Property" means any hotel property or other investment in which the Partnership holds an ownership interest.

"Prospectus" means the final prospectus delivered to purchasers of REIT Shares in the Offering.

"Redemption Amount" means either the Cash Amount or the REIT Shares Amount, as selected by the General Partner in its sole and absolute discretion pursuant to Section 8.05(b) hereof.

"Redemption Right" has the meaning provided in Section 8.05(a) hereof.

"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.

"Regulations" means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations.

"REIT" means a real estate investment trust under Sections 856 through 860 of the Code.

"REIT Expenses" means (i) costs and expenses relating to the formation and continuity of existence and operation of the Company and any Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included within the definition of Company), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer or employee of the Company, (ii) costs and expenses relating to any public offering and registration of securities by the Company and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offering of securities, and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof,
(iii) costs and expenses associated with any repurchase of any securities by the Company, (iv) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the Company under federal, state or local laws or regulations, including filings with the Commission, (v) costs and 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 issuing or redemption of Partnership Interests and (viii) all other operating or administrative costs of the Company incurred in the ordinary course of its business on behalf of or in connection with the Partnership.

"REIT Share" means a common share of beneficial interest in the Company (or Successor Entity, as the case may be).

"REIT Shares Amount" means a number of REIT Shares equal to the product of the number of Partnership Units offered for redemption by a Redeeming Partner, multiplied by the Conversion Factor as adjusted to and including the Specified Redemption Date; provided that in the event the Company issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "rights"), and the rights have not expired at the Specified Redemption Date, then the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount on the record date fixed for purposes of determining the holders of REIT Shares entitled to rights.

"Securities Act" means the Securities Act of 1933, as amended.

"Service" means the Internal Revenue Service.

"Specified Redemption Date" means the first business day of the month that is at least 60 calendar days after the receipt by the Company of a Notice of Redemption.

"Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.

"Subsidiary Partnership" means any partnership in which the Company, a wholly-owned subsidiary of the Company or the Partnership owns a partnership interest.

"Substitute Limited Partner" means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof.

"Successor Entity" has the meaning provided in the definition of "Conversion Factor" contained herein.

"Surviving General Partner" has the meaning set forth in Section 7.01(d) hereof.

"Transaction" has the meaning set forth in Section 7.01(c) hereof.

"Transfer" has the meaning set forth in Section 9.02(a) hereof.

"Transfer Restriction Date" means ______________________.

"Value" means, with respect to any security, the average of the daily market price of such security for the ten consecutive trading days immediately preceding the date of such valuation. The market price for each such trading day shall be: (i) if security is listed or admitted to trading on any securities exchange or the NYSE, the sale price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, (ii) if security is not listed or admitted to trading on any securities exchange or the NYSE, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Company, or (iii) if security is not listed or admitted to trading on any securities exchange or the NYSE and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten days prior to the date in question) for which prices have been so reported; provided that if there are no bid and asked prices reported during the ten days prior to the date in question, the value of the security shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the security includes any additional rights, then the value of such rights shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.

ARTICLE II

FORMATION OF PARTNERSHIP

2.01 Name, Office and Registered Agent. The name of the Partnership is Hersha Hospitality Limited Partnership. The specified office and place of business of the Partnership shall be 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania 17070. The General Partner may at any time change the location of such office, provided the General Partner gives notice to the Partners of any such change. The name and address of the Partnership's registered agent is_______________________________________.

The sole duty of the registered agent as such is to forward to the Partnership any notice that is served on him as registered agent.

2.02 Partners.

(a) The General Partner of the Partnership is Hersha Hospitality Trust, a Maryland real estate investment trust. Its principal place of business is the same as that of the Partnership.

(b) The Limited Partners are those Persons identified as Limited Partners on Exhibit A hereto, as amended from time to time.

2.03 Term and Dissolution.

(a) The term of the Partnership shall continue in full force and effect until December 31, 2050, except that the Partnership shall be dissolved upon the first to occur of any of the following events:

(i) The occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death, removal or withdrawal of a General Partner unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof; provided that if a General Partner is on the date of such occurrence a partnership, the dissolution of such General Partner as a result of the dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in such partnership shall not be an event of dissolution of the Partnership if the business of such General Partner is continued by the remaining partner or partners, either alone or with additional partners, and such General Partner and such partners comply with any other applicable requirements of this Agreement;

(ii) The passage of 90 days after the sale or other disposition of all or substantially all of the assets of the Partnership (provided that if the Partnership receives an installment obligation as consideration for such sale or other disposition, the Partnership shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as such note or notes are paid in full);

(iii) The redemption of all Limited Partnership Interests (other than any of such interests held by the General Partner or Affiliates of the General Partner); or

(iv) The election by the General Partner that the Partnership should be dissolved.

(b) Upon dissolution of the Partnership (unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof), the General Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership's assets and apply and distribute the proceeds thereof in accordance with Section 5.06 hereof. Notwithstanding the foregoing, the liquidating General Partner may either (i) defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership (including those necessary to satisfy the Partnership's debts and obligations), or (ii) distribute the assets to the Partners in kind.

2.04 Filing of Certificate and Perfection of Limited Partnership. The General Partner shall execute, acknowledge, record and file at the expense of the Partnership the Certificate and any and all amendments thereto and all requisite fictitious name statements and notices in such places and jurisdictions as may be necessary to cause the Partnership to be treated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business.

2.05 Certificates Describing Partnership Units. At the request of a Limited Partner, the General Partner, at its option, may issue a certificate summarizing the terms of such Limited Partner's interest in the Partnership, including the number of Partnership Units owned and the Percentage Interest represented by such Partnership Units as of the date of such certificate. Any such certificate (i) shall be in form and substance as approved by the General Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the following effect:

This certificate is not negotiable. The Partnership Units represented by this certificate are governed by and transferable only in accordance with the provisions of the Agreement of Limited Partnership of Hersha Hospitality Limited Partnership, as amended from time to time.

ARTICLE III

BUSINESS OF THE PARTNERSHIP

The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, provided, however, that such business shall be limited to and conducted in such a manner as to permit the Company at all times to qualify as a REIT, unless the Company otherwise ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the Company's right in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge that the Company's current status as a REIT and the avoidance of income and excise taxes on the Company inures to the benefit of all the Partners and not solely to the Company. Notwithstanding the foregoing, the Limited Partners agree that the Company may terminate its status as a REIT under the Code at any time to the full extent permitted under the Declaration of Trust. The General Partner shall also be empowered to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code.

ARTICLE IV

CAPITAL CONTRIBUTIONS AND ACCOUNTS

4.01 Capital Contributions. The General Partner and the Limited Partners have made capital contributions to the Partnership in exchange for the Partnership Interests set forth opposite their names on Exhibit A, as amended from time to time.

4.02 Additional Capital Contributions and Issuances of Additional Partnership Interests. Except as provided in this Section 4.02 or in Section 4.03, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership. The General Partner may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in respect thereof, in the manner contemplated in this Section 4.02.

(a) Issuances of Additional Partnership Interests.

(i) General. The General Partner is hereby authorized to cause the Partnership to issue such additional Partnership Interests in the form of Partnership Units for any Partnership purpose at any time or from time to time to the Partners (including the General Partner) or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners. Any additional Partnership Interests issued thereby may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its sole and absolute discretion and without the approval of any Limited Partner, subject to Virginia law, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; provided, however, that no additional Partnership Interests shall be issued to the General Partner unless:

(1)(A) the additional Partnership Interests are issued in connection with an issuance of REIT Shares of or other interests in the General Partner, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner by the Partnership in accordance with this Section 4.02 and (B) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the proceeds raised in connection with the issuance of such shares of stock of or other interests in the General Partner;

(2) the additional Partnership Interests are issued in exchange for property owned by the General Partner with a fair market value, as determined by the General Partner, in good faith, equal to the value of the Partnership Interests; or

(3) the additional Partnership Interests are issued to all Partners in proportion to their respective Percentage Interests.

Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership.

(ii) Upon Issuance of Additional Securities. The General Partner shall not issue any additional REIT Shares (other than REIT Shares issued in connection with an exchange pursuant to Section 8.05 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase REIT Shares (collectively, "Additional Securities") other than to all holders of REIT Shares, unless (A) the General Partner shall cause the Partnership to issue to the General Partner Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the Additional Securities, and (B) the General Partner contributes the proceeds from the issuance of such Additional Securities and from any exercise of rights contained in such Additional Securities to the Partnership; provided, however, that the General Partner is allowed to issue Additional Securities in connection with an acquisition of a property to be held directly by the General Partner, but if and only if, such direct acquisition and issuance of Additional Securities have been approved and determined to be in the best interests of the General Partner and the Partnership by a majority of the Independent Trustees (as defined in the Company's Amended and Restated Declaration of Trust). Without limiting the foregoing, the General Partner is expressly authorized to issue Additional Securities for less than fair market value, and to cause the Partnership to issue to the General Partner corresponding Partnership Interests, so long as (x) the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership, including without limitation, the issuance of REIT Shares and corresponding Partnership Units pursuant to an employee share purchase plan providing for employee purchases of REIT Shares at a discount from fair market value or employee stock options that have an exercise price that is less than the fair market value of the REIT Shares, either at the time of issuance or at the time of exercise, and (y) the General Partner contributes all proceeds from such issuance to the Partnership. For example, in the event the General Partner issues REIT Shares for a cash purchase price and contributes all of the proceeds of such issuance to the Partnership as required hereunder, the General Partner shall be issued a number of additional Partnership Units equal to the product of (A) the number of such REIT Shares issued by the General Partner, the proceeds of which were so contributed, multiplied by (B) a fraction, the numerator of which is 100%, and the denominator of which is the Conversion Factor in effect on the date of such contribution.

(b) Certain Contributions of Proceeds of Issuance of REIT Shares. In connection with any and all issuances of REIT Shares, the General Partner shall make Capital Contributions to the Partnership of the proceeds therefrom, provided that if the proceeds actually received and contributed by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter's discount or other expenses paid or incurred in connection with such issuance, then the General Partner shall make a Capital Contribution of such net proceeds to the Partnership but shall receive additional Partnership Units with a value equal to the aggregate amount of the gross proceeds of such issuance pursuant to Section 4.02(a) hereof. Upon any such Capital Contribution by the General Partner, the General Partner's Capital Account shall be increased by the actual amount of its Capital Contribution pursuant to Section 4.04 hereof.

(c) Minimum Limited Partnership Interest. In the event that either a redemption pursuant to Section 8.05 hereof or additional Capital Contributions by the General Partner would result in the Limited Partners (other than the General Partner), in the aggregate, owning less than the Minimum Limited Partnership Interest, the General Partner and the Limited Partners shall form another partnership and contribute sufficient Limited Partnership Interests together with such other Limited Partners so that the limited partners (other than the General Partner) of such partnership own at least the Minimum Limited Partnership Interest.

(d) If the General Partner shall repurchase shares of any class of the General Partner's capital stock, the purchase price thereof and all costs incurred in connection with such repurchase shall be reimbursed to the General Partner by the Partnership pursuant to Section 6.05 hereof and the General Partner shall cause the Partnership to cancel a number of Partnership Interests of the appropriate class held by the General Partner equal to the quotient of the number of such shares of the General Partner's capital stock divided by the Conversion Factor.

4.03 Additional Funding. If the General Partner determines that it is in the best interests of the Partnership to provide for additional Partnership funds
("Additional Funds") for any Partnership purpose, the General Partner may (i) cause the Partnership to obtain such funds from outside borrowings, or (ii) elect to have the General Partner or any of its Affiliates provide such Additional Funds to the Partnership through loans or otherwise.

4.04 Capital Accounts. A separate capital account (a "Capital Account") shall be established and maintained for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires an additional Partnership Interest in exchange for more than a de minimis Capital Contribution, (ii) the Partnership distributes to a Partner more than a de minimis amount of Partnership property as consideration for a Partnership Interest or (iii) the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to 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 pursuant to Section 5.01 if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) on the date of the revaluation.

4.05 Percentage Interests. If the number of outstanding Partnership Units increases or decreases during a taxable year, each Partner's Percentage Interest shall be adjusted by the General Partner effective as of the effective date of each such increase or decrease to a percentage equal to the number of Partnership Units held by such Partner divided by the aggregate number of Partnership Units outstanding after giving effect to such increase or decrease. If the Partners' Percentage Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for the taxable year in which the adjustment occurs shall be allocated between the part of the year ending on the day when the Partnership's property is revalued by the General Partner and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate Profits and Losses for the taxable year in which the adjustment occurs. The allocation of Profits and Losses for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses for the later part shall be based on the adjusted Percentage Interests.

4.06 No Interest on Contributions. No Partner shall be entitled to interest on its Capital Contribution.

4.07 Return of Capital Contributions. No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner's Capital Contribution for so long as the Partnership continues in existence.

4.08 No Third Party Beneficiary. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.

ARTICLE V

PROFITS AND LOSSES; DISTRIBUTIONS

5.01 Allocation of Profit and Loss.

(a) General. Profit and Loss of the Partnership for each fiscal year of the Partnership shall be allocated among the Partners in accordance with their respective Percentage Interests.

(b) Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a "nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Partners' respective Percentage Interests, (ii) any expense of the Partnership that is a "partner nonrecourse deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that bears the "economic risk of loss" of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Partner's "interest in partnership profits" for purposes of determining its share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be such Partner's Percentage Interest.

(c) Qualified Income Offset. If a Partner receives in any taxable year an adjustment, allocation or distribution described in subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Partner's Capital Account that exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Partner in accordance with this Section 5.01(c), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(c).

(d) Capital Account Deficits. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner's Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to each Partner under this Section 5.01(d).

(e) Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership's fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss between the transferor and the transferee Partner.

(f) Definition of Profit and Loss. "Profit" and "Loss" and any items of income, gain, expense or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 5.01(b), 5.01(c) or 5.01(d). All allocations of income, Profit, gain, Loss and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The Partnership shall use the traditional method for allocating items of income, gain and expense as required by Section 704(c) of the Code with respect to the properties acquired by the Partnership in connection with the Offering. With respect to other properties acquired by the Partnership, the General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain and expense as required by Section 704(c) of the Code with respect to such properties, and such election shall be binding on all Partners.

5.02 Distribution of Cash.

(a) The Partnership shall distribute cash on a quarterly (or, at the election of the General Partner, more frequent) basis, in an amount determined by the General Partner in its sole and absolute discretion, to the Partners who are Partners on the Partnership Record Date with respect to such quarter (or other distribution period) in accordance with their respective Percentage Interests on the Partnership Record Date; provided, however, that if a new or existing Partner acquires an additional Partnership Interest in exchange for a Capital Contribution on any date other than a Partnership Record Date, the cash distribution attributable to such additional Partnership Interest relating to the Partnership Record Date next following the issuance of such additional Partnership Interest shall be reduced in the proportion to (i) the number of days that such additional Partnership Interest is held by such Partner bears to (ii) the number of days between such Partnership Record Date and the immediately preceding Partnership Record Date.

(b) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to a Partner or assignee (including by reason of Section 1446 of the Code), either (i) if the actual amount to be distributed to the Partner (the "Distributable Amount") equals or exceeds the amount required to be withheld by the Partnership (the "Withheld Amount"), the entire Distributable Amount shall be treated as a distribution of cash to such Partner, or (ii) if the Distributable Amount is less than the Withheld Amount, the excess of the Withheld Amount over the Distributable Amount shall be treated as a loan (a "Partnership Loan") from the Partnership to the Partner on the day the Partnership pays over such amount to a taxing authority. A Partnership Loan shall be repaid through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee. In the event that a Limited Partner (a "Defaulting Limited Partner") fails to pay any amount owed to the Partnership with respect to the Partnership Loan within 15 days after demand for payment thereof is made by the Partnership on the Limited Partner, the General Partner, in its sole and absolute discretion, may elect to make the payment to the Partnership on behalf of such Defaulting Limited Partner. In such event, on the date of payment, the General Partner shall be deemed to have extended a loan (a "General Partner Loan") to the Defaulting Limited Partner in the amount of the payment made by the General Partner and shall succeed to all rights and remedies of the Partnership against the Defaulting Limited Partner as to that amount. Without limitation, the General Partner shall have the right to receive any distributions that otherwise would be made by the Partnership to the Defaulting Limited Partner until such time as the General Partner Loan has been paid in full, and any such distributions so received by the General Partner shall be treated as having been received by the Defaulting Limited Partner and immediately paid to the General Partner.

Any amounts treated as a Partnership Loan or a General Partner Loan pursuant to this Section 5.02(b) shall bear interest at the lesser of (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal, or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date the Partnership or the General Partner, as applicable, is deemed to extend the loan until such loan is repaid in full.

(c) In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a cash dividend as the holder of record of a REIT Share for which all or part of such Partnership Unit has been or will be redeemed.

5.03 REIT Distribution Requirements. The General Partner shall use its reasonable efforts to cause the Partnership to distribute amounts sufficient to enable the General Partner to pay shareholder dividends that will allow the General Partner to (i) meet its distribution requirement for qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid any federal income or excise tax liability imposed by the Code, other than to the extent the General Partner elects to retain and pay income tax on its net capital gain.

5.04 No Right to Distributions in Kind. No Partner shall be entitled to demand property other than cash in connection with any distributions by the Partnership.

5.05 Limitations on Return of Capital Contributions. Notwithstanding any of the provisions of this Article V, no Partner shall have the right to receive, and the General Partner shall not have the right to make, a distribution that includes a return of all or part of a Partner's Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership's assets.

5.06 Distributions Upon Liquidation. Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership shall be distributed to all Partners with positive Capital Accounts in accordance with their respective positive Capital Account balances. For purposes of the preceding sentence, the Capital Account of each Partner shall be determined after (i) all adjustments made in accordance with Sections 5.01 and 5.02 resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership's assets, and (ii) allocating to the General Partner an amount equal to the excess of (A) the value of the Partnership Units it received in exchange for Capital Contributions of the proceeds of an issuance of REIT Shares pursuant to Section 4.02(b) hereof over (B) the actual amount of its Capital Contributions pursuant to Section 4.02(b) hereof (i.e., as a result of any underwriters' discount or other expenses paid or incurred in connection with such issuance). Any distributions pursuant to this Section 5.06 shall be made by the end of the Partnership's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations.

5.07 Substantial Economic Effect. It is the intent of the Partners that the allocations of Profit and Loss under the Agreement have substantial economic effect (or be consistent with the Partners' interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto. Article V and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent.

ARTICLE VI

RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER

6.01 Management of the Partnership.

(a) Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business and assets of the Partnership. Subject to the restrictions specifically contained in this Agreement, the powers of the General Partner shall include, without limitation, the authority to take the following actions on behalf of the Partnership:

(i) to acquire, purchase, own, operate, lease and dispose of any real property and any other property or assets including, but not limited to, notes and mortgages that the General Partner determines are necessary or appropriate or in the best interests of the business of the Partnership;

(ii) to construct buildings and make other improvements on the properties owned or leased by the Partnership;

(iii) to authorize, issue, sell, redeem or otherwise purchase any Partnership Interests or any securities (including secured and unsecured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests, or options, rights, warrants or appreciation rights relating to any Partnership Interests) of the Partnership;

(iv) to borrow or lend money for the Partnership, issue or receive evidences of indebtedness in connection therewith, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such indebtedness, and secure such indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership's assets;

(v) to pay, either directly or by reimbursement, for all operating costs and general administrative expenses of the Partnership to third parties or to the General Partner or its Affiliates as set forth in this Agreement;

(vi) to guarantee or become a comaker of indebtedness of any Subsidiary of the Company, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such guarantee or indebtedness, and secure such guarantee or indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership's assets;

(vii) to use assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with this Agreement, including, without limitation, payment, either directly or by reimbursement, of all operating costs and general administrative expenses of the General Partner, the Partnership or any Subsidiary of either, to third parties or to the General Partner as set forth in this Agreement;

(viii) to lease all or any portion of any of the Partnership's assets, whether or not the terms of such leases extend beyond the termination date of the Partnership and whether or not any portion of the Partnership's assets so leased are to be occupied by the lessee, or, in turn, subleased in whole or in part to others, for such consideration and on such terms as the General Partner may determine;

(ix) to prosecute, defend, arbitrate or compromise any and all claims or liabilities in favor of or against the Partnership, on such terms and in such manner as the General Partner may reasonably determine, and similarly to prosecute, settle or defend litigation with respect to the Partners, the Partnership or the Partnership's assets; provided, however, that the General Partner may not, without the consent of all of the Partners, confess a judgment against the Partnership that is in excess of $20,000 or is not covered by insurance;

(x) to file applications, communicate and otherwise deal with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership's assets or any other aspect of the Partnership business;

(xi) to make or revoke any election permitted or required of the Partnership by any taxing authority;

(xii) to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the protection of the Partnership, for the conservation of Partnership assets, or for any other purpose convenient or beneficial to the Partnership, in such amounts and such types, as it shall determine from time to time;

(xiii) to determine whether or not to apply any insurance proceeds for any property to the restoration of such property or to distribute the same;

(xiv) to establish one or more divisions of the Partnership, to hire and dismiss employees of the Partnership or any division of the Partnership, and to retain legal counsel, accountants, consultants, real estate brokers and such other persons as the General Partner may deem necessary or appropriate in connection with the Partnership business and to pay therefor such reasonable remuneration as the General Partner may deem reasonable and proper;

(xv) to retain other services of any kind or nature in connection with the Partnership business, and to pay therefor such remuneration as the General Partner may deem reasonable and proper;

(xvi) to negotiate and conclude agreements on behalf of the Partnership with respect to any of the rights, powers and authority conferred upon the General Partner;

(xvii) to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of the Partnership;

(xviii) to distribute Partnership cash or other Partnership assets in accordance with this Agreement;

(xix) to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity interest from time to time);

(xx) to establish Partnership reserves for working capital, capital expenditures, contingent liabilities or any other valid Partnership purpose;

(xxi) to merge, consolidate or combine the Partnership with or into another person;

(xxii) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Code; and

(xxiii) to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and perform any and all other acts that the General Partner deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Partnership (including, without limitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status) and to possess and enjoy all of the rights and powers of a general partner as provided by the Act.

(b) Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.

6.02 Delegation of Authority. The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may approve.

6.03 Indemnification and Exculpation of Indemnitees.

(a) The Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 6.03(a). The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only out of the assets of the Partnership.

(b) The Partnership shall reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party to a proceeding in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 6.03 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

(c) The indemnification provided by this Section 6.03 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity.

(d) The Partnership may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

(e) For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 6.03; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is not opposed to the best interests of the Partnership.

(f) In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.

(g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.03 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

(h) The provisions of this Section 6.03 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons.

(i) Any amendment, modification or repeal of this Section 6.03 or any provision hereof shall be prospective only and shall not in any way affect the indemnification of an Indemnitee by the Partnership under this
Section 6.03 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

6.04 Liability of the General Partner.

(a) Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership or any Partners for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. The General Partner shall not be in breach of any duty that the General Partner may owe to the Limited Partners or the Partnership or any other Persons under this Agreement or of any duty stated or implied by law or equity provided the General Partner, acting in good faith, abides by the terms of this Agreement.

(b) The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership and the General Partner's shareholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or the tax consequences of some, but not all, of the Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions. In the event of a conflict between the interests of the shareholders of the General Partner on one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the conflict in a manner not adverse to either the shareholders of the General Partner or the Limited Partners; provided, however, that for so long as the General Partner owns a controlling interest in the Partnership, any such conflict that the General Partner, in its sole and absolute discretion, determines cannot be resolved in a manner not adverse to either the shareholders of the General Partner or the Limited Partners shall be resolved in favor of the shareholders. The General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner has acted in good faith.

(c) Subject to its obligations and duties as General Partner set forth in Section 6.01 hereof, the General Partner may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.

(d) Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Company to continue to qualify as a REIT or (ii) to prevent the Company from incurring any taxes under Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

(e) Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's liability to the Partnership and the Limited Partners under this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

6.05 Partnership Obligations.

(a) Except as provided in this Section 6.05 and elsewhere in this Agreement (including the provisions of Articles 5 and 6 regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.

(b) All REIT Expenses and Administrative Expenses shall be obligations of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditure (including REIT Expenses and Administrative Expenses) incurred by it on behalf of the Partnership that shall be made other than out of the funds of the Partnership.

6.06 Outside Activities. Subject to Section 6.08 hereof, the Declaration of Trust and any agreements entered into by the General Partner or its Affiliates with the Partnership or a Subsidiary, any officer, director, employee, agent, trustee, Affiliate or shareholder of the General Partner, the General Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership. Neither the Partnership nor any of the Limited Partners shall have any rights by virtue of this Agreement in any such business ventures, interest or activities. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such business ventures, interests or activities, and the General Partner shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Limited Partner, even if such opportunity is of a character that, if presented to the Partnership or any Limited Partner, could be taken by such Person.

6.07 Employment or Retention of Affiliates.

(a) Any Affiliate of the General Partner may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent, lender or otherwise) and may receive from the Partnership any compensation, price or other payment therefor that the General Partner determines to be fair and reasonable.

(b) The Partnership may lend or contribute to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.

(c) The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are consistent with this Agreement and applicable law.

(d) Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are on terms that are fair and reasonable to the Partnership.

6.08 General Partner Participation. The General Partner agrees that all business activities of the General Partner, including activities pertaining to the acquisition, development or ownership of hotel property or other property, shall be conducted through the Partnership or one or more Subsidiary Partnerships; provided, however, that the General Partner is allowed to make a direct acquisition, but if and only if, such acquisition is made in connection with the issuance of Additional Securities, which direct acquisition and issuance have been approved and determined to be in the best interests of the General Partner and the Partnership by a majority of the Independent Trustees.

6.09 Title of Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.

6.10 Miscellaneous. In the event the General Partner redeems any REIT Shares, then the General Partner shall cause the Partnership to purchase from the General Partner a number of Partnership Units as determined based on the application of the Conversion Factor on the same terms that the General Partner redeemed such REIT Shares. Moreover, if the General Partner makes a cash tender offer or other offer to acquire REIT Shares, then the General Partner shall cause the Partnership to make a corresponding offer to the General Partner to acquire an equal number of Partnership Units held by the General Partner. In the event any REIT Shares are redeemed by the General Partner pursuant to such offer, the Partnership shall redeem an equivalent number of the General Partner's Partnership Units for an equivalent purchase price based on the application of the Conversion Factor.

ARTICLE VII

CHANGES IN GENERAL PARTNER

7.01 Transfer of the General Partner's Partnership Interest.

(a) The General Partner shall not transfer all or any portion of its General Partnership Interest or withdraw as General Partner except as provided in or in connection with a transaction contemplated by Section 7.01(c),
(d) or (e).

(b) The General Partner agrees that its Percentage Interest will at all times be in the aggregate at least 1%.

(c) Except as otherwise provided in Section 7.01(d) or (e) hereof, the General Partner shall not engage in any merger, consolidation or other combination with or into another Person or sale of all or substantially all of its assets (other than in connection with a change in the General Partner's state of incorporation or organizational form), in each case which results in a change of control of the General Partner (a "Transaction"), unless:

(i) the consent of Limited Partners (other than the General Partner or any Subsidiary) holding more than 50% of the Percentage Interests of the Limited Partners (other than those held by the General Partner or any Subsidiary) is obtained;

(ii) as a result of such Transaction all Limited Partners will receive for each Partnership Unit an amount of cash, securities or other property equal to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid in the Transaction to a holder of one REIT Share in consideration of one REIT Share, provided that if, in connection with the Transaction, a purchase, tender or exchange offer ("Offer") shall have been made to and accepted by the holders of more than 50% of the outstanding REIT Shares, each holder of Partnership Units shall be given the option to exchange its Partnership Units for the greatest amount of cash, securities or other property that a Limited Partner would have received had it (A) exercised its Redemption Right and (B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received upon exercise of the Redemption Right immediately prior to the expiration of the Offer; or

(iii) the General Partner is the surviving entity in the Transaction and either (A) the holders of REIT Shares do not receive cash, securities or other property in the Transaction or (B) all Limited Partners (other than the General Partner or any Subsidiary) receive an amount of cash, securities or other property (expressed as an amount per REIT Share) that is no less than the product of the Conversion Factor and the greatest amount of cash, securities or other property (expressed as an amount per REIT Share) received in the Transaction by any holder of REIT Shares.

(d) Notwithstanding Section 7.01(c), the General Partner may merge with or into or consolidate with another entity if immediately after such merger or consolidation (i) substantially all of the assets of the successor or surviving entity (the "Survivor"), other than Partnership Units held by the General Partner, are contributed, directly or indirectly, to the Partnership as a Capital Contribution in exchange for Partnership Units with a fair market value equal to the value of the assets so contributed as determined by the Survivor in good faith and (ii) the Survivor expressly agrees to assume all obligations of the General Partner hereunder. Upon such contribution and assumption, the Survivor shall have the right and duty to amend this Agreement as set forth in this Section 7.01(d). The Survivor shall in good faith arrive at a new method for the calculation of the Cash Amount, the REIT Shares Amount and Conversion Factor for a Partnership Unit after any such merger or consolidation so as to approximate the existing method for such calculation as closely as reasonably possible. Such calculation shall take into account, among other things, the kind and amount of securities, cash and other property that was receivable upon such merger or consolidation by a holder of REIT Shares or options, warrants or other rights relating thereto, and to which a holder of Partnership Units could have acquired had such Partnership Units been exchanged immediately prior to such merger or consolidation. Such amendment to this Agreement shall provide for adjustment to such method of calculation, which shall be as nearly equivalent as may be practicable to the adjustments provided for with respect to the Conversion Factor. The Survivor also shall in good faith modify the definition of REIT Shares and make such amendments to Section 8.05 hereof so as to approximate the existing rights and obligations set forth in
Section 8.05 as closely as reasonably possible. The above provisions of this
Section 7.01(d) shall similarly apply to successive mergers or consolidations permitted hereunder.

In respect of any transaction described in the preceding Paragraph, the General Partner is required to use its commercially reasonable efforts to structure such transaction to avoid causing the Limited Partners to recognize a gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with the exercise of the Board of Trustees' fiduciary duties to the shareholders of the General Partner under applicable law.

(e) Notwithstanding Section 7.01(c),

(i) a General Partner may transfer all or any portion of its General Partnership Interest to (A) a wholly-owned Subsidiary of such General Partner or (B) the owner of all of the ownership interests of such General Partner, and following a transfer of all of its General Partnership Interest, may withdraw as General Partner; and

(ii) the General Partner may engage in a transaction required by law or by the rules of any national securities exchange on which the REIT Shares are listed to be submitted to the vote of the holders of the REIT Shares.

7.02 Admission of a Substitute or Additional General Partner. A Person shall be admitted as a substitute or additional General Partner of the Partnership only if the following terms and conditions are satisfied:

(a) the Person to be admitted as a substitute or additional General Partner shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencing the admission of such Person as a General Partner shall have been filed for recordation and all other actions required by Section 2.05 hereof in connection with such admission shall have been performed;

(b) if the Person to be admitted as a substitute or additional General Partner is a corporation or a partnership, it shall have provided the Partnership with evidence satisfactory to counsel for the Partnership of such Person's authority to become a General Partner and to be bound by the terms and provisions of this Agreement; and

(c) counsel for the Partnership shall have rendered an opinion (relying on such opinions from other counsel and the state or any other jurisdiction as may be necessary) that the admission of the Person to be admitted as a substitute or additional General Partner is in conformity with the Act, that none of the actions taken in connection with the admission of such Person as a substitute or additional General Partner will cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes, or (ii) the loss of any Limited Partner's limited liability.

7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.

(a) Upon the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner.

(b) Following the occurrence of an Event of Bankruptcy as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of such General Partner if the business of such General Partner is continued by the remaining partner or partners), the Limited Partners, within 90 days after such occurrence, may elect to continue the business of the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject to
Section 7.02 hereof and any other provisions of this Agreement, a substitute General Partner by consent of a majority in interest of the Limited Partners. If the Limited Partners elect to continue the business of the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement.

7.04 Removal of a General Partner.

(a) Upon the occurrence of an Event of Bankruptcy as to, or the dissolution of, a General Partner, such General Partner shall be deemed to be removed automatically; provided, however, that if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be deemed not to be a dissolution of the General Partner if the business of such General Partner is continued by the remaining partner or partners. The Limited Partners may not remove the General Partner, with or without cause.

(b) If a General Partner has been removed pursuant to this
Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership to the substitute General Partner approved by a majority in interest of the Limited Partners in accordance with Section 7.03(b) hereof and otherwise admitted to the Partnership in accordance with Section 7.02 hereof. At the time of assignment, the removed General Partner shall be entitled to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General Partner as reduced by any damages caused to the Partnership by such General Partner. Such fair market value shall be determined by an appraiser mutually agreed upon by the General Partner and a majority in interest of the Limited Partners within 10 days following the removal of the General Partner. In the event that the parties are unable to agree upon an appraiser, the removed General Partner and a majority in interest of the Limited Partners each shall select an appraiser. Each such appraiser shall complete an appraisal of the fair market value of the removed General Partner's General Partnership Interest within 30 days of the General Partner's removal, and the fair market value of the removed General Partner's General Partnership Interest shall be the average of the two appraisals; provided, however, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiser who shall complete an appraisal of the fair market value of the removed General Partner's General Partnership Interest no later than 60 days after the removal of the General Partner. In such case, the fair market value of the removed General Partner's General Partnership Interest shall be the average of the two appraisals closest in value.

(c) The General Partnership Interest of a removed General Partner, during the time after default until transfer under Section 7.04(b), shall be converted to that of a special Limited Partner; provided, however, such removed General Partner shall not have any rights to participate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income, expense, profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to the Limited Partners. Instead, such removed General Partner shall receive and be entitled only to retain distributions or allocations of such items that it would have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b).

(d) All Partners shall have given and hereby do give such consents, shall take such actions and shall execute such documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section.

ARTICLE VIII

RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS

8.01 Management of the Partnership. The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner.

8.02 Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner its true and lawful attorney-in-fact, who may act for each Limited Partner and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Limited Partner, or the transfer by the Limited Partner of any part or all of its Partnership Interest.

8.03 Limitation on Liability of Limited Partners. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution, if any, as and when due hereunder. After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership.

8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate. No Limited Partner shall at any time, either directly or indirectly, own any stock or other interest in the General Partner or in any Affiliate thereof, if such ownership by itself or in conjunction with other stock or other interests owned by other Limited Partners would, in the opinion of counsel for the Partnership, jeopardize the classification of the Partnership as a partnership for federal income tax purposes. The General Partner shall be entitled to make such reasonable inquiry of the Limited Partners as is required to establish compliance by the Limited Partners with the provisions of this Section.

8.05 Redemption Right.

(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and 8.05(f) and the provisions of any agreements between the Partnership and one or more Limited Partners with respect to Partnership Units held by them, each Limited Partner, other than the Company, shall have the right (the "Redemption Right") to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership, provided that such Partnership Units shall have been outstanding for at least one year, except that such Partnership Units issued in connection with the exercise of the warrants granted in connection with the initial public offering of the General Partner shall be immediately redeemable. The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Redemption Right (the "Redeeming Partner"); provided, however, that the Partnership shall not be obligated to satisfy such Redemption Right if the General Partner elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.05(b); and provided, further, that no Limited Partner may deliver more than two Notices of Redemption during each calendar year. A Limited Partner may not exercise the Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner. The Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date.

(b) Notwithstanding the provisions of Section 8.05(a), a Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Partnership Units described in the Notice of Redemption to the General Partner, and the General Partner may, in its sole and absolute discretion, elect to purchase directly and acquire such Partnership Units by paying to the Redeeming Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner (in its sole and absolute discretion), on the Specified Redemption Date, whereupon the General Partner shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. If the General Partner shall elect to exercise its right to purchase Partnership Units under this Section 8.05(b) with respect to a Notice of Redemption, it shall so notify the Redeeming Partner within five Business Days after the receipt by the General Partner of such Notice of Redemption. Unless the General Partner (in its sole and absolute discretion) shall exercise its right to purchase Partnership Units from the Redeeming Partner pursuant to this
Section 8.05(b), the General Partner shall have no obligation to the Redeeming Partner or the Partnership with respect to the Redeeming Partner's exercise of the Redemption Right. In the event the General Partner shall exercise its right to purchase Partnership Units with respect to the exercise of a Redemption Right in the manner described in the first sentence of this Section 8.05(b), the Partnership shall have no obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partner's exercise of such Redemption Right, and each of the Redeeming Partner, the Partnership and the General Partner shall treat the transaction between the General Partner and the Redeeming Partner for federal income tax purposes as a sale of the Redeeming Partner's Partnership Units to the General Partner. Each Redeeming Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of REIT Shares upon exercise of the Redemption Right.

(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a Limited Partner shall not be entitled to exercise the Redemption Right if the delivery of REIT Shares to such Partner on the Specified Redemption Date by the General Partner pursuant to Section 8.05(b) (regardless of whether or not the General Partner would in fact exercise its rights under Section 8.05(b)) would (i) result in such Partner or any other person owning, directly or indirectly, REIT Shares in excess of the Ownership Limitation (as defined in the Declaration of Trust) and calculated in accordance therewith, except as provided in the Declaration of Trust, (ii) result in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), (iii) result in the General Partner being "closely held" within the meaning of Section 856(h) of the Code, (iv) cause the General Partner to own, directly or constructively, 10% or more of the ownership interests in a tenant of the General Partner's, the 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 REIT Shares by such Partner to be "integrated" with any other distribution of REIT Shares for purposes of complying with the registration provisions of the Securities Act of 1933, as amended (the "Securities Act"). The General Partner, in its sole and absolute discretion, may waive the restriction on redemption set forth in this Section 8.05(c); provided, however, that in the event such restriction is waived, the Redeeming Partner shall be paid the Cash Amount.

(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to this Section 8.05 shall be paid on the Specified Redemption Date; provided, however, that the General Partner may elect to cause the Specified Redemption Date to be delayed for up to an additional 90 days to the extent required for the General Partner to cause additional REIT Shares to be issued to provide financing to be used to make such payment of the Cash Amount. Notwithstanding the foregoing, the General Partner agrees to use its best efforts to cause the closing of the acquisition of redeemed Partnership Units hereunder to occur as quickly as reasonably possible.

(e) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law that apply upon a Redeeming Partner=s exercise of the Redemption Right. If a Redeeming Partner believes that it is exempt from such withholding upon the exercise of the Redemption Right, such Partner must furnish the General Partner with a FIRPTA Certificate in the form attached hereto as Exhibit C. If the Partnership or the General Partner is required to withhold and pay over to any taxing authority any amount upon a Redeeming Partner=s exercise of the Redemption Right and if the Redemption Amount equals or exceeds the Withheld Amount, the Withheld Amount shall be treated as an amount received by such Partner in redemption of its Partnership Units. If, however, the Redemption Amount is less than the Withheld Amount, the Redeeming Partner shall not receive any portion of the Redemption Amount, the Redemption Amount shall be treated as an amount received by such Partner in redemption of its Partnership Units, and the Partner shall contribute the excess of the Withheld Amount over the Redemption Amount to the Partnership to the Partner before the Partnership is required to pay over such excess to a taxing authority.

(f) Notwithstanding any other provision of this Agreement, the General Partner shall place appropriate restrictions on the ability of the Limited Partners to exercise their Redemption Rights as and if deemed necessary to ensure that the Partnership does not constitute a "publicly traded partnership" under section 7704 of the Code. If and when the General Partner determines that imposing such restrictions is necessary, the General Partner shall give prompt written notice thereof (a "Restriction Notice") to each of the Limited Partners, which notice shall be accompanied by a copy of an opinion of counsel to the Partnership that states that, in the opinion of such counsel, restrictions are necessary in order to avoid the Partnership being treated as a "publicly traded partnership" under section 7704 of the Code.

8.06 Registration. Subject to the terms of any agreement between the General Partner and one or more Limited Partners with respect to Partnership Units held by them:

(a) Shelf Registration of the Common Stock. The General Partner agrees to file with the Securities and Exchange Commission (the "Commission") a shelf registration statement under Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule that may be adopted by the Commission, covering the resale of all of the Common Shares that may be issued upon redemption of such Partnership Units pursuant to Section 8.05 hereof ("Redemption Shares") in the event that the Limited Partners, as a group, request registration covering the resale of at least 250,000 Common Shares; provided however, that only two such registrations may occur each year. The Limited Partners may request "piggyback" registration of their Redemption Shares. If, during the prior two years there has not been an opportunity for a piggyback registration, the Limited Partners holding Units redeemable for at least 50,000 Common Shares may request a registration of those shares. Upon any of such requests, the Company will:

(i) provide written notice (the "Notice") of such request within 10 days of the receipt of such request to the Limited Partners not a party to the request;

(ii) use its best efforts to have such Registration Statement declared effective and to keep it effective for a period of 180 days (the "Effective Period");

(iii) give each holder of Redemption Shares, their underwriters, if any, and their counsel and accountants a reasonable opportunity to participate in the preparation of the Registration Statement and give such persons reasonable access to its books, records, officers and independent public accountants;

(iv) furnish to each holder of Redemption Shares such numbers of copies of prospectuses, and supplements or amendments thereto, and such other documents as such holder reasonably requests;

(v) register or qualify the securities covered by the Registration Statement under the securities or blue sky laws of such jurisdictions within the United States as any holder of Redemption Shares shall reasonably request, and do such other reasonable acts and things as may be required of it to enable such holders to consummate the sale or other disposition in such jurisdictions of the Redemption Shares; provided, however, that the General Partner shall not be required to (i) qualify as a foreign corporation or consent to a general or unlimited service or process in any jurisdictions in which it would not otherwise be required to be qualified or so consent or (ii) qualify as a dealer in securities;

(vi) furnish, at the request of the holders of Redemption Shares, on the date Redemption Shares are delivered to the Underwriters for sale pursuant to such registration, or, if such Redemption Shares are not being sold through underwriters, on the date the Registration Statement with respect to such Redemption Shares becomes effective, (A) a securities opinion of counsel representing the General Partner for the purposes of such registration covering such legal matters as are customarily included in such opinions and (B) letters of the firm of independent public accountants that certified the financial statements included in the Registration Statement, addressed to the underwriters, covering substantially the same matters as are customarily covered in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as such holders (or the underwriters, if any) may reasonably request;

(vii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission;

(vii) enter into and perform an underwriting agreement with the managing underwriter, if any, selected as provided herein, containing customary (A) terms of offer and sale of the securities, payment provisions, underwriting discounts and commissions and (B) representations, warranties, covenants, indemnities, terms and conditions; and

(ix) keep the holders of the Redemption Shares advised as to the initiation and progress of the registration.

The General Partner further agrees to supplement or make amendments to each Registration Statement, if required by the rules, regulations or instructions applicable to the registration form utilized by the General Partner or by the Securities Act or rules and regulations thereunder for such Registration Statement. Notwithstanding the foregoing, if for any reason the effectiveness of a Registration Statement is delayed or suspended or it ceases to be available for sales of Redemption Shares thereunder, the Effective Period shall be extended by the aggregate number of days of such delay, suspension or unavailability.

(b) Listing on Securities Exchange. If the General Partner shall list or maintain the listing of any Common Shares on any securities exchange or national market system, it will at its expense and as necessary to permit the registration and sale of the Redemption Shares hereunder, list thereon, maintain and, when necessary, increase such listing to include such Redemption Shares.

(c) Registration Not Required. Notwithstanding the foregoing, the General Partner shall not be required to file or maintain the effectiveness of a registration statement relating to Redemption Shares after the first date upon which, in the opinion of counsel to the General Partner, all of the Redemption Shares covered thereby could be sold by the holders thereof in any period of three months pursuant to Rule 144 under the Securities Act, or any successor rule thereto.

(d) Allocation of Expenses. The Partnership shall pay all expenses in connection with the Registration Statement, including without limitation (i) all expenses incident to filing with the National Association of Securities Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal fees and expenses, except to the extent holders of Redemption Shares elect to engage accountants or attorneys in addition to the accountants and attorneys engaged by the General Partner or the Partnership, (v) accounting expenses incident to or required by any such registration or qualification and (vi) expenses of complying with the securities or blue sky laws of any jurisdictions in connection with such registration or qualification; provided, however, the Partnership shall not be liable for (A) any discounts or commissions to any underwriter or broker attributable to the sale of Redemption Shares, or (B) any fees or expenses incurred by holders of Redemption Shares in connection with such registration that, according to the written instructions of any regulatory authority, the Partnership is not permitted to pay.

(e) Indemnification.

(i) In connection with the Registration Statement, the General Partner and the Partnership agree to indemnify holders of Redemption Shares within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any untrue, or alleged untrue, statement of a material fact contained in the Registration Statement, preliminary prospectus or prospectus (as amended or supplemented if the General Partner shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement, alleged untrue statement, omission, or alleged omission based upon information furnished to the General Partner expressly for use therein. The General Partner and each officer, director and controlling person of the General Partner shall be indemnified by each holder of Redemption Shares covered by the Registration Statement for all such losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any such untrue, or alleged untrue, statement or any such omission, or alleged omission, based upon information furnished to the General Partner expressly for use therein in a writing signed by the holder.

(ii) Promptly upon receipt by a party indemnified under this Section 8.06(e) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 8.06(e), such indemnified party shall notify the General Partner in writing of the commencement of such action, but the failure to so notify the General Partner shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8.06(e) unless such failure shall materially adversely affect the defense of such action. In case notice of commencement of any such action shall be given to the General Partner as above provided, the General Partner shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the General Partner or the Partnership agrees to pay the same, (ii) the General Partner fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) have been advised by such counsel that representation of such indemnified party and the General Partner by the same counsel would be inappropriate under applicable standards of professional conduct (in which case the General Partner shall not have the right to assume the defense of such action on behalf of such indemnified party). No indemnifying party shall be liable for any settlement entered into without its consent.

(f) Contribution.

(i) If for any reason the indemnification provisions contemplated by Section 8.06(e) are either unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then the party that would otherwise be required to provide indemnification or the indemnifying party (in either case, for purposes of this Section 8.06(f), the "Indemnifying Party") in respect of such losses, claims, damages or liabilities, shall contribute to the amount paid or payable by the party that would otherwise be entitled to indemnification or the indemnified party (in either case, for purposes of this Section 8.06(f), the "Indemnified Party") as a result of such losses, claims, damages, liabilities or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related to information supplied by the Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party. In no event shall any holder of Redemption Shares covered by the Registration Statement be required to contribute an amount greater than the dollar amount of the proceeds received by such holder from the sale of Redemption Shares pursuant to the registration giving rise to the liability.

(ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8.06(f) were determined by pro rata allocation (even if the holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person or entity determined to have committed a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

(iii) The contribution provided for in this Section 8.06(f) shall survive the termination of this Agreement and shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party.

ARTICLE IX

TRANSFERS OF LIMITED PARTNERSHIP INTERESTS

9.01 Purchase for Investment.

(a) Each Limited Partner hereby represents and warrants to the General Partner and to the Partnership that the acquisition of his Partnership Interests is made as a principal for his account for investment purposes only and not with a view to the resale or distribution of such Partnership Interest.

(b) Each Limited Partner agrees that he will not sell, assign or otherwise transfer his Partnership Interest or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to any Person who does not make the representations and warranties to the General Partner set forth in Section 9.01(a) above and similarly agree not to sell, assign or transfer such Partnership Interest or fraction thereof to any Person who does not similarly represent, warrant and agree.

9.02 Restrictions on Transfer of Limited Partnership Interests.

(a) Subject to the provisions of Sections 9.02(b), (c) and
(d), no Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all or any portion of his Limited Partnership Interest, or any of such Limited Partner's economic rights as a Limited Partner, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively, a "Transfer") without the consent of the General Partner, which consent may be granted or withheld in its sole and absolute discretion. Any such purported transfer undertaken without such consent shall be considered to be null and void ab initio and shall not be given effect. Each Original Limited Partner acknowledges that the General Partner has agreed not to grant any such consent prior to the Transfer Restriction Date. The General Partner may require, as a condition of any Transfer to which it consents, that the transferor assume all costs incurred by the Partnership in connection therewith.

(b) No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer (i.e., a Transfer consented to as contemplated by clause (a) above or clause (c) below or a Transfer pursuant to
Section 9.05 below) of all of his Partnership Units pursuant to this Article IX or pursuant to a redemption of all of his Partnership Units pursuant to Section
8.05. Upon the permitted Transfer or redemption of all of a Limited Partner's Partnership Units, such Limited Partner shall cease to be a Limited Partner.

(c) Subject to Sections 9.02(d), (e) and (f) below, a Limited Partner may Transfer, with the consent of the General Partner, all or a portion of his Partnership Units to (i) a parent or parent's spouse, natural or adopted descendant or descendants, spouse of such descendant, or brother or sister, or a trust created by such Limited Partner for the benefit of such Limited Partner and/or any such person(s), of which trust such Limited Partner or any such person(s) is a trustee, (ii) a corporation, partnership or limited liability company controlled by a Person or Persons named in (i) above or (iii) if the Limited Partner is an entity, its beneficial owners.

(d) No Limited Partner may effect a Transfer of its Limited Partnership Interest, in whole or in part, if, in the opinion of legal counsel for the Partnership, such proposed Transfer would require the registration of the Limited Partnership Interest under the Securities Act or would otherwise violate any applicable federal or state securities or blue sky law (including investment suitability standards).

(e) No Transfer by a Limited Partner of its Partnership Units, in whole or in part, may be made to any Person if (i) in the opinion of legal counsel for the Partnership, the transfer would result in the Partnership's being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the opinion of legal counsel for the Partnership, it would adversely affect the ability of the Company to continue to qualify as a REIT or subject the Company to any additional taxes under Section 857 or Section 4981 of the Code or (iii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.

(f) No transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related (within the meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)), without the consent of the General Partner, which may be withheld in its sole and absolute discretion, provided that as a condition to such consent the lender will be required to enter into an arrangement with the Partnership and the General Partner to exchange or redeem for the Cash Amount any Partnership Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code.

(g) Any Transfer in contravention of any of the provisions of this Article IX shall be void and ineffectual and shall not be binding upon, or recognized by, the Partnership.

(h) Prior to the consummation of any Transfer under this Article IX, the transferor and/or the transferee shall deliver to the General Partner such opinions, certificates and other documents as the General Partner shall request in connection with such Transfer.

9.03 Admission of Substitute Limited Partner.

(a) Subject to the other provisions of this Article IX, an assignee of the Limited Partnership Interest of a Limited Partner (which shall be understood to include any purchaser, transferee, donee or other recipient of any disposition of such Limited Partnership Interest) shall be deemed admitted as a Limited Partner of the Partnership only with the consent of the General Partner and upon the satisfactory completion of the following:

(i) The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised Exhibit A, and such other documents or instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner.

(ii) To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have been signed, acknowledged and filed for record in accordance with the Act.

(iii) The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a) hereof and the agreement set forth in Section 9.01(b) hereof.

(iv) If the assignee is a corporation, partnership or trust, the assignee shall have provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee's authority to become a Limited Partner under the terms and provisions of this Agreement.

(v) The assignee shall have executed a power of attorney containing the terms and provisions set forth in
Section 8.02 hereof.

(vi) The assignee shall have paid all legal fees and other expenses of the Partnership and the General Partner and filing and publication costs in connection with its substitution as a Limited Partner.

(vii) The assignee has obtained the prior written consent of the General Partner to its admission as a Substitute Limited Partner, which consent may be given or denied in the exercise of the General Partner's sole and absolute discretion.

(b) For the purpose of allocating Profits and Losses and distributing cash received by the Partnership, a Substitute Limited Partner shall be treated as having become, and appearing in the records of the Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the date specified in the transfer documents or the date on which the General Partner has received all necessary instruments of transfer and substitution.

(c) The General Partner shall cooperate with the Person seeking to become a Substitute Limited Partner by preparing the documentation required by this Section and making all official filings and publications. The Partnership shall take all such action as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited Partner of the Partnership.

9.04 Rights of Assignees of Partnership Interests.

(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except as required by operation of law, the Partnership shall not be obligated for any purposes whatsoever to recognize the assignment by any Limited Partner of its Partnership Interest until the Partnership has received notice thereof.

(b) Any Person who is the assignee of all or any portion of a Limited Partner's Limited Partnership Interest, but does not become a Substitute Limited Partner and desires to make a further assignment of such Limited Partnership Interest, shall be subject to all the provisions of this Article IX to the same extent and in the same manner as any Limited Partner desiring to make an assignment of its Limited Partnership Interest.

9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent (which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner.

9.06 Joint Ownership of Interests. A Partnership Interest may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are married or are related and share the same home as tenants in common. The written consent or vote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a Partnership Interest held in a joint tenancy with a right of survivorship, the Partnership Interest shall become owned solely by the survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-held Partnership Interest until it shall have received notice of such death. Upon notice to the General Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners.

ARTICLE X

BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS

10.01 Books and Records. At all times during the continuance of the Partnership, the Partners shall keep or cause to be kept at the Partnership's specified office true and complete books of account in accordance with generally accepted accounting principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and reports, (d) copies of the Agreement and any financial statements of the Partnership for the three most recent years and (e) all documents and information required under the Act. Any Partner or its duly authorized representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours.

10.02 Custody of Partnership Funds; Bank Accounts.

(a) All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking or brokerage institutions as the General Partner shall determine, and withdrawals shall be made only on such signature or signatures as the General Partner may, from time to time, determine.

(b) All deposits and other funds not needed in the operation of the business of the Partnership may be invested by the General Partner in investment grade instruments (or investment companies whose portfolio consists primarily thereof), government obligations, certificates of deposit, bankers' acceptances and municipal notes and bonds. The funds of the Partnership shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an investment in those investment companies permitted by this Section 10.02(b).

10.03 Fiscal and Taxable Year. The fiscal and taxable year of the Partnership shall be the calendar year.

10.04 Annual Tax Information and Report. Within 75 days after the end of each fiscal year of the Partnership, the General Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file such Limited Partner's individual tax returns as shall be reasonably required by law.

10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.

(a) The General Partner shall be the Tax Matters Partner of the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters Partner, the General Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. The General Partner shall have the right to retain professional assistance in respect of any audit of the Partnership by the Service and all out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner's reasons for determining not to file such a petition.

(b) All elections required or permitted to be made by the Partnership under the Code or any applicable state or local tax law shall be made by the General Partner in its sole and absolute discretion.

(c) In the event of a transfer of all or any part of the Partnership Interest of any Partner, the Partnership, at the option of the General Partner, may elect pursuant to Section 754 of the Code to adjust the basis of the Properties. Notwithstanding anything contained in Article V of this Agreement, any adjustments made pursuant to Section 754 shall affect only the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or computing Capital Accounts for the other Partners for any purpose under this Agreement. Each Partner will furnish the Partnership with all information necessary to give effect to such election.

10.06 Reports to Limited Partners.

(a) As soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the General Partner shall cause to be mailed to each Limited Partner a quarterly report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such fiscal quarter, presented in accordance with generally accepted accounting principles. As soon as practicable after the close of each fiscal year, the General Partner shall cause to be mailed to each Limited Partner an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such fiscal year, presented in accordance with generally accepted accounting principles. The annual financial statements shall be audited by accountants selected by the General Partner.

(b) Any Partner shall further have the right to a private audit of the books and records of the Partnership, provided such audit is made for Partnership purposes, at the expense of the Partner desiring it and is made during normal business hours.

ARTICLE XI

AMENDMENT OF AGREEMENT; MERGER

The General Partner's consent shall be required for any amendment to this Agreement. The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect or merge or consolidate the Partnership with or into any other domestic or foreign partnership, limited partnership, limited liability company or corporation in a transaction pursuant to Section 7.01(c), (d) or (e) hereof; provided, however, that the following amendments and any other merger or consolidation of the Partnership shall require the consent of Limited Partners (other than the General Partner or any Subsidiary) holding more than 50% of the Percentage Interests of the Limited Partners (other than the General Partner or any Subsidiary):

(a) any amendment affecting the operation of the Conversion Factor or the Redemption Right (except as provided in Section 8.05(d) or 7.01(d) hereof) in a manner adverse to the Limited Partners;

(b) any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof;

(c) any amendment that would alter the Partnership's allocations of Profit and Loss to the Limited Partners, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof; or

(d) any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership.

ARTICLE XII

GENERAL PROVISIONS

12.01 Notices. All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addresses set forth in Exhibit A attached hereto; provided, however, that any Partner may specify a different address by notifying the General Partner in writing of such different address. Notices to the Partnership shall be delivered at or mailed to its specified office.

12.02 Survival of Rights. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns.

12.03 Additional Documents. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents that may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act.

12.04 Severability. If any provision of this Agreement shall be declared illegal, invalid or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.

12.05 Entire Agreement. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.

12.06 Pronouns and Plurals. When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require.

12.07 Headings. The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article.

12.08 Counterpartsa. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.

12.09 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.

IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this Amended and Restated Agreement of Limited Partnership, all as of the ___ day of __________, 1998.

GENERAL PARTNER

HERSHA HOSPITALITY TRUST

By: ______________________________
Name:______________________________
Title: ____________________________

LIMITED PARTNERS

EXHIBIT A

                                                                Agreed Value of
                                                                    Capital
                                                  Cash           Contribution       Partnership        Percentage
Partner                                       Contribution                             Units            Interest

General Partner:
Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland,  PA  17070

Limited Partners:

EXHIBIT B

NOTICE OF EXERCISE OF REDEMPTION RIGHT

In accordance with Section 8.05 of the Amended and Restated Agreement of Limited Partnership (the "Agreement") of Hersha Hospitality Limited Partnership, the undersigned hereby irrevocably (i) presents for redemption ________ Partnership Units in Hersha Hospitality Limited Partnership in accordance with the terms of the Agreement and the Redemption Right referred to in Section 8.05 thereof, (ii) surrenders such Partnership Units and all right, title and interest therein and (iii) directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below.

Dated:________ __, _____

Name of Limited Partner:

(Signature of Limited Partner)

(Mailing Address)

(City) (State) (Zip Code)

Signature Guaranteed by:

If REIT Shares are to be issued, issue to:

Please insert social security or identifying number:

Name:

EXHIBIT C

For Redeeming Partners that are entities:

CERTIFICATION OF NON-FOREIGN STATUS

Under section 1445(e) of the Internal Revenue Code of 1986, as amended (the "Code"), in the event of a disposition by a non-U.S. person of a partnership interest in a partnership in which (i) 50% or more of the value of the gross assets consists of United States real property interests ("USRPIs"), as defined in section 897(c) of the Code, and (ii) 90% or more of the value of the gross assets consists of USRPIs, cash, and cash equivalents, the transferee will be required to withhold 10% of the amount realized by the non-U.S. person upon the disposition. To inform Innkeepers USA Trust (the "Company") and Innkeepers USA Limited Partnership (the "Partnership") that no withholding is required with respect to the redemption by ____________ ("Partner") of its units of limited partnership interest in the Partnership, the undersigned hereby certifies the following on behalf of Partner:

1. Partner is not a foreign corporation, foreign partnership, foreign trust, or foreign estate, as those terms are defined in the Code and the Treasury regulations thereunder.

2. The U.S. employer identification number of Partner is _____________.

3. The principal business address of Partner is:
_____________________________________ __________________________ and Partner's place of incorporation is __________.

4. Partner agrees to inform the Company if it becomes a foreign person at any time during the three-year period immediately following the date of this notice.

5. Partner understands that this certification may be disclosed to the Internal Revenue Service by the Company and that any false statement contained herein could be punished by fine, imprisonment, or both.

PARTNER

By: _______________________________
Name: _____________________________
Its: ______________________________

Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of Partner.

Date: _________________ [NAME] Title For Redeeming Partners that are individuals:

CERTIFICATION OF NON-FOREIGN STATUS

Under section 1445(e) of the Internal Revenue Code of 1986, as amended (the "Code"), in the event of a disposition by a non-U.S. person of a partnership interest in a partnership in which (i) 50% or more of the value of the gross assets consists of United States real property interests ("USRPIs"), as defined in section 897(c) of the Code, and (ii) 90% or more of the value of the gross assets consists of USRPIs, cash, and cash equivalents, the transferee will be required to withhold 10% of the amount realized by the non-U.S. person upon the disposition. To inform Innkeepers USA Trust (the "Company") and Innkeepers USA Limited Partnership (the "Partnership") that no withholding is required with respect to my redemption of my units of limited partnership interest in the Partnership, I, ___________, hereby certify the following:

6. I am not a nonresident alien for purposes of U.S. income taxation.

7. My U.S. taxpayer identification number (social security number) is _____________.

8. My home address is: ______________________________________________________ .

9. I agree to inform the Company promptly if I become a nonresident alien at any time during the three-year period immediately following the date of this notice.

10. I understand that this certification may be disclosed to the Internal Revenue Service by the Company and that any false statement contained herein could be punished by fine, imprisonment, or both.

Name:

Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct, and complete.

Date: _________________ ________________________________ Name:

CONTRIBUTION AGREEMENT

dated as of June 3, 1998

between

2144 ASSOCIATES,

a Pennsylvania limited partnership,

as Contributor,

and

Hersha Hospitality Limited Partnership
a Virginia limited partnership,

as Acquiror.

TABLE OF CONTENTS

                                       ARTICLE I
                                DEFINITIONS; RULES OF CONSTRUCTION.....................................  1
1.1      Definitions...................................................................................  1
1.2      Rules of Construction.........................................................................  5

                                       ARTICLE II
            CONTRIBUTION AND ACQUISITION; DEPOSIT;
                                   PAYMENT OF ACQUISITION PRICE........................................  5

2.1      Contribution and Acquisition..................................................................  5
2.2      Intentionally Omitted.........................................................................  5
2.3      Study Period..................................................................................  5
2.4      Payment of Consideration......................................................................  6
2.5      Allocation of Consideration...................................................................  7
2.6      Determination of Number of LP Units...........................................................  7
2.7      Contributor's Transfer of LP Units to Contributor's Partner...................................  7
2.8      Redemption....................................................................................  7
2.9      Registration of Common Shares.................................................................  7
2.10     Intentionally Omitted.......................................................................... 8


                                      ARTICLE III
                      CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8

3.1      Organization and Power......................................................................... 8
3.2      Authorization and Execution.................................................................... 9
3.3      Noncontravention............................................................................... 9
3.4      No Special Taxes............................................................................... 9
3.5      Compliance with Existing Laws.................................................................. 9
3.6      Operating Agreements........................................................................... 9
3.7      Warranties and Guaranties..................................................................... 10
3.8      Insurance..................................................................................... 10
3.9      Condemnation Proceedings; Roadways............................................................ 10
3.10     Litigation.................................................................................... 10
3.11     Labor Disputes and Agreements................................................................. 10
3.12     Financial Information......................................................................... 11
3.13     Organizational Documents...................................................................... 11
3.14     Operation of Property......................................................................... 11
3.15     Personal Property............................................................................. 12
3.16     Bankruptcy.................................................................................... 12
3.17     Intentionally Omitted......................................................................... 12
3.18     Hazardous Substances.......................................................................... 12
3.19     Room Furnishings.............................................................................. 12
3.20     License....................................................................................... 12
3.21     Independent Audit............................................................................. 12

                              i

3.22     Bulk Sale Compliance.......................................................................... 13
3.23     Intentionally Omitted......................................................................... 13
3.24     Sufficiency of Certain Items.................................................................. 13
3.25     Noncompetition................................................................................ 13
3.26     Leases........................................................................................ 13
3.27     Securities Law Matters........................................................................ 13
3.28     Tax Matters................................................................................... 14


                                       ARTICLE IV
                       ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1      Organization and Power........................................................................ 14
4.2      Noncontravention.............................................................................. 14
4.3      Litigation.................................................................................... 15
4.4      Bankruptcy.................................................................................... 15
4.5      No Brokers.................................................................................... 15

                                       ARTICLE V
                                CONDITIONS AND ADDITIONAL COVENANTS.................................... 15

5.1      Contributor's Deliveries...................................................................... 15
5.2      Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3      Title Insurance............................................................................... 15
5.4      Intentionally Omitted......................................................................... 15
5.5      Condition of Improvements..................................................................... 16
5.6      Utilities..................................................................................... 16
5.7      Intentionally Omitted......................................................................... 16
5.8      License....................................................................................... 16
5.9      Intentionally Omitted......................................................................... 16


                                       ARTICLE VI
                  CLOSING      ........................................................................ 16
6.1      Closing....................................................................................... 16
6.2      Contributor's Deliveries...................................................................... 16
6.3      Acquiror's Deliveries......................................................................... 18
6.4      Closing Costs................................................................................. 19
6.5      Income and Expense Allocations................................................................ 19

                                      ARTICLE VII
                                    CONDEMNATION; RISK OF LOSS......................................... 20
7.1      Condemnation.................................................................................. 20
7.2      Risk of Loss.................................................................................. 21


                              ii

                                      ARTICLE VIII
    LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
                                        TERMINATION RIGHTS............................................. 21
8.1      Liability of Acquiror......................................................................... 21
8.2      Indemnification by Contributor................................................................ 21
8.3      Termination by Acquiror....................................................................... 21
8.4      Termination by Contributor.................................................................... 21

                                       ARTICLE IX
                                     MISCELLANEOUS PROVISIONS.......................................... 22
9.1      Completeness; Modification.................................................................... 22
9.2      Assignments................................................................................... 22
9.3      Successors and Assigns........................................................................ 22
9.4      Days.......................................................................................... 22
9.5      Governing Law................................................................................. 22
9.6      Counterparts.................................................................................. 22
9.7      Severability.................................................................................. 22
9.8      Costs......................................................................................... 22
9.9      Notices....................................................................................... 22
9.10     Incorporation by Reference.................................................................... 23
9.11     Survival...................................................................................... 23
9.12     Further Assurances............................................................................ 24
9.13     No Partnership................................................................................ 24
9.14     Time of Essence............................................................................... 24
9.15     Confidentiality............................................................................... 24

iii

LIST OF EXHIBITS

Exhibit A         -        Land

Exhibit B         -        Employment Agreements

Exhibit C         -        Insurance Policies

Exhibit D         -        Leases

Exhibit E         -        Operating Agreements

Exhibit F         -        Contributor's Partnership Agreement

Exhibit G         -        Contributor's Certificate of Limited Partnership

Exhibit H         -        Contributor's Warranties and Guaranties

Exhibit I         -        Litigation Schedule

Exhibit J         -        Allocation of Consideration

Exhibit K         -        Schedule of Transferees

Exhibit L         -        Investor Questionnaire and Agreement

Exhibit M         -        Hersha Hospitality Limited Partnership Agreement

Exhibit N         -        Contingent Consideration Calculation

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998, between 2144 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"), and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the "Acquiror"), provides:

ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION

1.1 Definitions. The following terms shall have the indicated meanings:

"Act of Bankruptcy" shall mean if a party hereto or any general partner thereof shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (b) admit in writing its inability to pay its debts as they become due, (c) make a general assignment for the benefit of its creditors, (d) file a voluntary petition or commence a voluntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take any corporate or partnership action for the purpose of effecting any of the foregoing; or if a proceeding or case shall be commenced, without the application or consent of a party hereto or any general partner thereof, in any court of competent jurisdiction seeking (1) the liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of debts, of such party or general partner, (2) the appointment of a receiver, custodian, trustee or liquidator or such party or general partner or all or any substantial part of its assets, or (3) other similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed; or an order (including an order for relief entered in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in effect) judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 consecutive days.

"Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby the Contributor (a) assigns and the Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating Agreements that have not been canceled at Acquiror's request and (c) assigns all of the Contributor's right, title and interest in and to the Intangible Personal Property, to the extent assignable.

"Authorizations" shall mean all licenses, permits and approvals required by any governmental or quasi-governmental agency, body or officer for the ownership, operation and use of the Property or any part thereof.

"Bill of Sale [Inventory]" shall mean that certain bill of sale conveying title to the Inventory to the Acquiror's property manager, lessee or designee.

"Bill of Sale [Personal Property]" shall mean that certain bill of sale conveying title to the Tangible Personal Property, Intangible Personal Property and the Reservation System from the Contributor to the Acquiror.

"Closing" shall mean the Closing of the contribution and acquisition of the Land pursuant to this Agreement.

"Closing Date" shall mean the date on which the Closing occurs.

"Consideration" shall mean $120,000, payable to the Contributor at Closing in the manner described in Section 2.4.

"Contributor's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of the Contributor, true and correct copies of which are attached hereto as Exhibits F and G.

"Deed" shall mean that certain deed conveying title to the Land with special warranty from the Contributor to the Acquiror, subject only to Permitted Title Exceptions. The description of the Land in the Deed shall be by courses and distances and, if there is a discrepancy between the description of the Land attached hereto as Exhibit A and the description of the Land as shown on the Survey, the description of the Land in the Deed shall be identical to the description shown on the Survey.

"Employment Agreements" shall mean any and all employment agreements, written or oral, between the Contributor or its managing agent and the persons employed with respect to the Property. A schedule indicating all pertinent information with respect to each Employment Agreement in effect as of the date hereof, name of employee, social security number, wage or salary, accrued vacation benefits, other fringe benefits, etc.) is attached hereto as Exhibit B.

"Escrow Agent" shall mean the Sentinel Agency, 2146 North Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.

"FIRPTA Certificate" shall mean the affidavit of the Contributor under Section 1445 of the Internal Revenue Code certifying that the Contributor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Internal Revenue Code and the Income Tax Regulations), in form and substance satisfactory to the Acquiror.

"Governmental Body" means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

"Hotel" shall mean the hotel and related amenities located on the Land.

"Improvements" shall mean the Hotel and all other buildings, improvements, fixtures and other items of real estate located on the Land, to the extent owned by Contributor.

"Insurance Policies" shall mean those certain policies of insurance described on Exhibit C attached hereto.

"Intangible Personal Property" shall mean all intangible personal property owned or possessed by the Contributor and used in connection with the ownership, operation, leasing, occupancy or maintenance of the Property, including, without limitation, the right to use the trade name "Holiday Inn" and all variations thereof, the Authorizations, escrow accounts, insurance policies, general intangibles, business records, plans and specifications, surveys and title insurance policies pertaining to the Real Property and the Personal Property, all licenses, permits and approvals with respect to the construction, ownership, operation, leasing, occupancy or maintenance of the Property, any unpaid award for taking by condemnation or any damage to the Land by reason of a change of grade or location of or access to any street or highway, and the share of the Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand, in bank accounts and invested with financial institutions and (c) accounts receivable except for the above described share of the Tray Ledger.

"Inventory" shall mean all inventory located at the Hotel, including without limitation, all mattresses, pillows, bed linens, towels, paper goods, soaps, cleaning supplies and other such supplies.

"Land" shall mean that certain parcel of real estate lying and being in New Columbia, Union County, Pennsylvania, as more particularly described on Exhibit A attached hereto, together with all easements, rights, privileges, remainders, reversions and appurtenances thereunto belonging or in any way appertaining, and all of the estate, right, title, interest, claim or demand whatsoever of the Contributor therein, in the streets and ways adjacent thereto and in the beds thereof, either at law or in equity, in possession or expectancy, now or hereafter acquired.

"Leases" shall mean those leases or real property attached as Exhibit D attached hereto.

"Manager" shall mean Hersha Hospitality Mangement, L.P.

"Operating Agreements" shall mean the management agreements, service contracts, supply contracts, leases (other than the Leases) and other agreements, if any, in effect with respect to the construction, ownership, operation, occupancy or maintenance of the Property. All of the Operating Agreements in force and effect as of the date hereof are listed on Exhibit E attached hereto.

"Owner's Title Policy" shall mean an owner's policy of title insurance issued to the Acquiror by the Title Company, pursuant to which the Title Company insures the Acquiror's ownership of fee simple title to the Real Property (including the marketability thereof) subject only to Permitted Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of the Consideration and shall be acceptable in form and substance to the Acquiror. The description of the Land in the Owner's Title Policy shall be by courses and distances and shall be identical to the description shown on the Survey.

"Permitted Title Exceptions" shall mean those exceptions to title to the Real Property that are satisfactory to the Acquiror as determined pursuant to Section 2.3.

"Property" shall mean collectively the Real Property, the Inventory, the Reservation System, the Tangible Personal Property and the Intangible Personal Property.

"Real Property" shall mean the Land and the Improvements.

"Reservation System" shall mean the Contributor's Reservation Terminal and Reservation System equipment and software, if any.

"Study Period" shall mean the period commencing at 9:00 a.m. on the date hereof, and continuing through 5:00 p.m. on the Closing Date.

"Tangible Personal Property" shall mean the items of tangible personal Property consisting of all furniture, fixtures and equipment situated on, attached to, or used in the operation of the Hotel, and all furniture, furnishings, equipment, machinery, and other personal property of every kind located on or used in the operation of the Hotel and owned by the Contributor; provided, however, that the Acquiror agrees that, all Inventory shall be conveyed to the Acquiror's property manager.

"Title Commitment" shall mean the commitment by the Title Company to issue the Owner's Title Policy.

"Title Company" shall mean the Sentinel Agency, 2146 North Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.

"Tray Ledger" shall mean the final night's room revenue (revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food, beverage, telephone and similar charges which shall be retained by the Contributor), including any sales taxes, room taxes or other taxes thereon.

"Utilities" shall mean public sanitary and storm sewers, natural gas, telephone, public water facilities, electrical facilities and all other utility facilities and services necessary for the operation and occupancy of the Property as a hotel.

1.2 Rules of Construction. The following rules shall apply to the construction and interpretation of this Agreement:

(a) Singular words shall connote the plural number as well as the singular and vice versa, and the masculine shall include the feminine and the neuter.

(b) All references herein to particular articles, sections, subsections, clauses or exhibits are references to articles, sections, subsections, clauses or exhibits of this Agreement.

(c) The table of contents and headings contained herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.

(d) Each party hereto and its counsel have reviewed and revised (or requested revisions of) this Agreement, and therefore any usual rules of construction requiring that ambiguities are to be resolved against a particular party shall not be applicable in the construction and interpretation of this Agreement or any exhibits hereto.

ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION

2.1 Contribution and Acquisition. The Contributor agrees to contribute and the Acquiror agrees to acquire the Land for the Consideration and in accordance with the other terms and conditions set forth herein.

2.2 Intentionally Omitted

2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror notifies the Contributor that the Acquiror has elected to proceed to Closing in the manner described below, to enter upon the Real Property and to perform, at the Acquiror's expense, such economic, surveying, engineering, environmental, topographic and marketing tests, studies and investigations as the Acquiror may deem appropriate. If such tests, studies and investigations warrant, in the Acquiror's sole, absolute and unreviewable discretion, the acquisition of the Land for the purposes contemplated by the Acquiror, then the Acquiror may elect to proceed to Closing and shall so notify the Contributor prior to the expiration of the Study Period. If for any reason the Acquiror does not so notify the Contributor of its determination to proceed to Closing prior to the expiration of the Study Period, or if the Acquiror notifies the Contributor, in writing, prior to the expiration of the Study Period that it has determined not to proceed to Closing, this Agreement automatically shall terminate, the Acquiror shall be released from any further liability or obligation under this Agreement.

(b) During the Study Period, the Contributor shall make available to the Acquiror, its agents, auditors, engineers, attorneys and other designees, for inspection copies of all existing architectural and engineering studies, surveys, title insurance policies, zoning and site plan materials, correspondence, environmental audits and other related materials or information if any, relating to the Property which are in, or come into, the Contributor's possession or control.

(c) The Acquiror hereby indemnifies and defends the Contributor against any loss, damage or claim arising from entry upon the Real Property by the Acquiror or any agents, contractors or employees of the Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real Property caused by any of the tests or studies made by the Acquiror.

(d) During the Study Period, the Acquiror, at its expense, shall cause an examination of title to the Property to be made, and, prior to the expiration of the Study Period, shall notify the Contributor of any defects in title shown by such examination that the Acquiror is unwilling to accept. At or prior to Closing, the Contributor shall notify the Acquiror whether the Contributor is willing to cure such defects. Contributor may cure, but shall not be obligated to cure such defects. If such defects consist of deeds of trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or capable of computation as a fixed sum, the Contributor, at its option, shall either pay and discharge (in which event, the Escrow Agent is authorized to pay and discharge at Closing) such defects at Closing, or provide bonds or indemnities in favor of the Title Company in order to remove such items from the Title Policy at Closing. If the Contributor is unwilling or unable to cure any other such defects by Closing, the Acquiror shall elect (1) to waive such defects and proceed to Closing without any abatement in the Consideration or (2) to terminate this Agreement. The Contributor shall not, after the date of this Agreement, subject the Property to any liens, encumbrances, covenants, conditions, restrictions, easements or other title matters or seek any zoning changes or take any other action which may affect or modify the status of title without the Acquiror's prior written consent, which consent shall not be unreasonably withheld or delayed. All title matters revealed by the Acquiror's title examination and not objected to by the Acquiror as provided above shall be deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and notify the Contributor of any such title objections by the end of the Study Period, all such title exceptions (other than those rendering title unmarketable and those that are to be paid at Closing as provided above) shall be deemed Permitted Title Exceptions.

2.4 Payment of Consideration. The Consideration shall be paid to the Contributor in the following manner:

(a) The Acquiror shall receive a credit against the Consideration in an amount equal to the Contributor's closing costs assumed and paid for by the Acquiror pursuant to Section 6.4 hereof.

(b) The Acquiror shall receive a credit against the Consideration in an amount equal to the outstanding balance (principal, interest, fees and the like), as of the date of Closing, of the existing mortgage loan encumbering the Property as such balance is evidenced by a letter from the lender, which loan the Acquiror shall take subject to or, if requested, assume.

(c) The Acquiror shall receive a credit against the Consideration in an amount equal to the outstanding balance (principal, interest, fees and the like), as of the date of Closing, of the Contributor's loan to Shreenathji Enterprises, Ltd. as such balance is evidenced by a letter from the lender, which loan the Acquiror shall assume.

(d) The Acquiror shall pay the balance of the Consideration, as adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units of limited partnership interest in the Acquiror (the "LP Units").

The parties agree that the transfer of the assets to the Acquiror pursuant to this Agreement shall be treated for federal income tax purposes as a contribution of such assets solely in exchange for a partnership interest in Acquiror that qualifies as a tax-free contribution under Section 721 of the Internal Revenue Code of 1986, as amended.

2.5 Allocation of Consideration. The parties agree that the Consideration shall be allocated to Land in the manner indicated on Exhibit J attached hereto.

2.6 Determination of Number of LP Units. For purposes of determining the number of LP Units to be delivered by the Acquiror at the Closing, each LP Unit shall be deemed to have a value equal to Six Dollars ($6.00). The Contributor shall be entitled to receive at the Closing for distribution to the Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by dividing the Consideration by the Unit Price.

2.7 Contributor's Transfer of LP Units to Contributor's Partners. On the Closing Date, Contributor shall distribute all of the LP Units to its partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the amount specified on Exhibit K. On the date hereof, Contributor shall deliver or cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by the Contributor and each of the Transferees. On the Closing Date, Acquiror shall issue certificates reflecting each of the Transferees' ownership of the LP Units distributed by Contributor. The certificates evidencing the LP Units will bear appropriate legends indicating (i) that the LP Units have been registered under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement restricts the transfer of LP Units. The Acquiror shall assume no responsibility for any allocation of the consideration, including LP Units, to the Transferees or any of Contributor's partners. Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify Acquiror and its affiliates for all costs, claims, damages and expenses, including reasonable attorney's fees, incurred by Acquiror in connection with such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement shall be executed by or on behalf of each of the Transferees and the Transferees shall become limited partners of Acquiror and agree to be bound by the Partnership Agreement.

2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares") of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in accordance with the Hersha Hospitality Limited Partnership Agreement attached hereto as Exhibit M, and incorporated herein.

2.9 Registration of Common Shares.

The Contributor acknowledges that the issuance of the common shares issuable upon redemption of the Partnership Units shall not have been registered under the applicable provisions of the Securities Act, as of the Closing Date. The REIT shall have the common shares issuable upon redemption registered in accordance with the Hersha Hospitality Limited Partnership Agreement attached hereto as Exhibit M, and incorporated herein.

2.10 Intentionally Omitted.

ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Acquiror to enter into this Agreement and to acquire the Land, the Contributor hereby makes the following representations, warranties and covenants with respect to the Property, upon each of which the Contributor acknowledges and agrees that the Acquiror is entitled to rely and has relied:

3.1 Organization and Power. The Contributor is a limited partnership duly formed, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite powers and all governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to enter into and perform its obligations hereunder and under any document or instrument required to be executed and delivered on behalf of the Contributor hereunder.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

3.2 Authorization and Execution. This Agreement has been duly authorized by all necessary action on the part of the Contributor, has been duly executed and delivered by the Contributor, constitutes the valid and binding agreement of the Contributor and is enforceable in accordance with its terms. There is no other person or entity who has an ownership interest in the Land or whose consent is required in connection with the Contributor's performance of its obligations hereunder.

3.3 Noncontravention. The execution and delivery of, and the performance by the Contributor of its obligations under, this Agreement do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, the Contributor's Organizational Documents or any agreement, judgment, injunction, order, decree or other instrument binding upon the Contributor, or result in the creation of any lien or other encumbrance on any asset of the Contributor. There are no outstanding agreements (written or oral) pursuant to which the Contributor (or any predecessor to or representative of the Contributor) has agreed to contribute or has granted an option or right of first refusal to acquire the Land or any part thereof.

3.4 No Special Taxes. The Contributor has no actual knowledge of, nor has it received any written notice of, any special taxes or assessments relating to the Property or any part thereof or any planned public improvements that may result in a special tax or assessment against the Property.

3.5 Compliance with Existing Laws. The Contributor possesses all Authorizations, each of which is valid and in full force and effect, and, to Contributor's actual knowledge, no provision, condition or limitation of any of the Authorizations has been breached or violated. The Contributor has not misrepresented or failed to disclose any relevant fact in obtaining all Authorizations, and the Contributor has no actual knowledge of any change in the circumstances under which those Authorizations were obtained that result in their termination, suspension, modification or limitation. The Contributor has no actual knowledge, nor has it received written notice within the past three years, of any existing violation of any provision of any applicable building, zoning, subdivision, environmental or other governmental ordinance, resolution, statute, rule, order or regulation, including but not limited to those of environmental agencies or insurance boards of underwriters, with respect to the ownership, operation, use, maintenance or condition of the Property or any part thereof, or requiring any repairs or alterations other than those that have been made prior to the date hereof.

3.6 Operating Agreements. The Contributor has performed all of its obligations under each of the Operating Agreements and no fact or circumstance has occurred which, by itself or with the passage of time or the giving of notice or both, would constitute a material default under any of the Operating Agreements. The Contributor shall not enter into any new management agreement, maintenance or repair contract, supply contract, lease in which it is lessee or other agreements with respect to the Property, nor shall the Contributor enter into any agreements modifying the Operating Agreements, unless (a) any such agreement or modification will not bind the Acquiror or the Property after the date of Closing or (b) the Contributor has obtained the Acquiror's prior written consent to such agreement or modification, which consent shall not be unreasonably withheld or delayed.

3.7 Warranties and Guaranties. The Contributor shall not before or after Closing, release or modify any warranties or guarantees, if any, of manufacturers, suppliers and installers relating to the Improvements and the Personal Property or any part thereof, except with the prior written consent of the Acquiror, which consent shall not be unreasonably withheld or delayed. A complete list of all such warranties and guaranties in effect as of this date is attached hereto as Exhibit H.

3.8 Insurance. All of the Contributor's Insurance Policies are valid and in full force and effect, all premiums for such policies were paid when due and all future premiums for such policies (and any replacements thereof) shall be paid by the Contributor on or before the due date therefor. The Contributor shall pay all premiums on, and shall not cancel or voluntarily allow to expire, any of the Contributor's Insurance Policies prior to the Closing Date unless such policy is replaced, without any lapse of coverage, by another policy or policies providing coverage at least as extensive as the policy or policies being replaced. The Contributor shall name the Acquiror as an additional insured on each of the Contributor's Insurance Policies. The Contributor shall transfer all such policies to the Acquiror as of the date of closing.

3.9 Condemnation Proceedings; Roadways. The Contributor has received no written notice of any condemnation or eminent domain proceeding pending or threatened against the Property or any part thereof. The Contributor has no actual knowledge of any change or proposed change in the route, grade or width of, or otherwise affecting, any street or road adjacent to or serving the Real Property.

3.10 Litigation. Except as set forth on Exhibit I there is no action, suit or proceeding pending or known to be threatened against or affecting the Contributor in any court, before any arbitrator or before or by any governmental agency which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other material agreement or instrument to which the Contributor is a party or by which it is bound and that is or is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Contributor, (c) could materially and adversely affect the ability of the Contributor to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a lien on the Property, any part thereof or any interest therein, or (e) could otherwise materially adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

3.11 Labor Disputes and Agreements. Contributor has no labor disputes pending or, threatened as to the operation or maintenance of the Property or any part thereof. Contributor is not a party to any union or other collective bargaining agreement with employees employed in connection with the ownership, operation or maintenance of the Property. The Acquiror will not be obligated to give or pay any amount to any employee of the Contributor unless the Acquiror elects to hire that employee, and the Acquiror shall not have any liability under any pension or profit sharing plan with respect to the Property or its employees.

3.12 Financial Information. To the best of the Contributors' knowledge except as otherwise disclosed in writing to the Acquiror prior to the end of the Study Period, for each of the Partnership's accounting years, when a given year is taken as a whole, all of the Partnership's financial information previously delivered or to be delivered to the Acquiror is and shall be correct and complete in all material respects and presents accurately the results of the operations of the Property for the periods indicated, except such statements do not have footnotes or schedules that may otherwise be required by GAAP. If requested by the Acquiror, Contributors will forward promptly all four-week period ending financial information it receives from the Partnership. Contributors' financial information is prepared based on information provided by the Partnership based on books and records maintained by the Partnership in accordance with the Partnership's accounting system. Partnership financial information provided by the Acquiror has been provided to the Acquiror without any changes or alteration thereto. To the best of Contributors' knowledge, since the date of the last financial statement included in the Partnership's financial information, there has been no material adverse change in the financial condition or in the operations of the Property.

3.13 Organizational Documents. The Contributor's Organizational Documents are in full force and effect and have not been modified or supplemented, and no fact or circumstance has occurred that, by itself or with the giving of notice or the passage of time or both, would constitute a default thereunder.

3.14 Operation of Property. The Contributor covenants that between the date hereof and the date of Closing it will make good faith efforts to (a) operate the Property only in the usual, regular and ordinary manner consistent with the Contributor's prior practice, (b) maintain its books of account and records in the usual, regular and ordinary manner, in accordance with sound accounting principles applied on a basis consistent with the basis used in keeping its books in prior years, and (c) use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with suppliers and others having business dealings with it. The Contributor shall make good faith efforts to continue to make good efforts to take guest room reservations and to book functions and meetings and otherwise to promote the business of the Property in generally the same manner as the Contributor did prior to the execution of this Agreement. Except as otherwise permitted hereby, from the date hereof until Closing, the Contributor shall ensure that it shall not take any action or fail to take action the result of which (i) would have a material adverse effect on the Property or the Acquiror's ability to continue the operation thereof after the date of Closing in substantially the same manner as presently conducted, (ii) reduce or cause to be reduced any room rents or any other charges over which the Contributor has operational control, or (iii) would cause any of the representations and warranties contained in this Article III to be untrue as of Closing.

3.15 Personal Property. All of the Tangible Personal Property, Intangible Personal Property and Inventory being conveyed by the Contributor to the Acquiror or to the Acquiror's managing agent, lessee or designee, will be free and clear of all liens, leases (other than the Leases) and other encumbrances on the date of Closing and the Contributor has good, merchantable title thereto and the right to convey same in accordance with the terms of the Agreement.

3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the Contributor or any of the partners of the Contributor.

3.17 Intentionally Omitted.

3.18 Hazardous Substances. Except for matters in Contributor's or Acquiror's audits, Contributor has no knowledge: (a) of the presence of any "Hazardous Substances" (as defined below) on the Property, or any portion thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous Substances that have occurred or are presently occurring on or onto the Property, or any portion thereof, or (c) of the presence of any PCB transformers serving, or stored on, the Property, or any portion thereof, and Contributor has no actual knowledge of any failure to comply with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Substances (as used herein, "Hazardous Substances" shall mean any substance or material whose presence, nature, quantity or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials is either: (1) potentially injurious to the public health, safety or welfare, the environment or the Property, (2) regulated, monitored or defined as a hazardous or toxic substance or waste by any Environmental Authority, or (3) a basis for liability of the owner of the Property to any Environmental Authority or third party, and Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any products, by-products or components thereof, and asbestos). Notwithstanding anything to the contrary contained herein Contributor shall have no liability to Acquiror for any Hazardous Substances of which Contributor has no actual knowledge.

3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and each room in the Hotel available for guest rental is furnished in accordance with Licensor's standards for the Hotel and room type.

3.20 License. The license from Holiday Hospitality, Inc. (the "Licensor") with respect to the Hotel (the "License") is, and at Closing will be, valid and in full force and effect, and Contributor will make good faith efforts not to be in default with respect thereto (with or without the giving of any required notice and/or lapse of time).

3.21 Independent Audit. Contributor shall provide access by Acquiror's representatives, to all financial and other information relating to the Property which would be sufficient to enable them to prepare audited financial statements in conformity with the Securities and Exchange Commission (the "Commission") and to enable them to prepare a registration statement, report or disclosure statement for filing with the Commission. Contributor shall also provide to Acquiror's representatives a signed representative letter and a hold harmless letter which would be sufficient to enable an independent public accountant to render an opinion on the financial statements related to the Property.

3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against any claim, loss or liability arising under the bulk sales law in connection with the transaction contemplated herein.

3.23 Intentionally Omitted.

3.24 Sufficiency of Certain Items. The Property contains not less than:

(a) a sufficient amount of furniture, furnishings, color television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows, bedspreads and the like, to furnish each guest room, so that each such guest room is, in fact, fully furnished; and

(b) a sufficient amount of towels, washcloths and bed linens, so that there are three sets of towels, washcloths and linens for each guest room (one on the beds, one on the shelves, and one in the laundry), together with a sufficient supply of paper goods, soaps, cleaning supplies and other such supplies and materials, as are reasonably adequate for the current operation of the Hotel.

3.25 Noncompetition. If Contributor develops or acquires other lodging facilities, not owned at the time of execution of this agreement, within 15 miles of any facility owned or to be owned by Acquiror, the Contributors shall give the Acquiror the option to purchase the facility at fair market value for a period of two years following the opening or acquisition of such facility.

3.26 Leases. True, complete copies of the Leases, if any, are attached as Exhibit D hereto. The Leases are, and will at Closing be, in full force and effect and Contributor, is not in default and will make good faith efforts not to be in default with respect thereto (with or without the giving of any notice and/or lapse of time). The Leases are, or will be at Closing, freely assignable by Contributor and Contributor will have obtained consents all necessary consents of any third party.

3.27 Securities Law Matters. Contributor further represents and warrants that it and the Transferees have (i) received, reviewed, been given the opportunity to ask questions of representatives of the Partnership and the REIT regarding, and understands the Acquiror's Partnership Agreement, as amended, and each filing of the REIT under the Securities Act, and (ii) Contributor and the Transferees are "accredited investors" as defined under Regulation D promulgated under the Securities Act.

3.28 Tax Matters. The Contributor represents and warrants that it (and each of its partners) has obtained from its own counsel advice regarding the tax consequences of (i) the transfer of the Property to the Acquiror and the receipt of cash and LP Units as consideration therefor, (ii) the Transferees' admission as partners of the Acquiror, and (iii) any other transaction contemplated by this Agreement. The Contributor further represents and warrants that it (and each of its partners) has not relied on the Acquiror or the Acquiror's representatives or counsel for such advice.

Each of the representations, warranties and covenants contained in this Article III and its various subparagraphs are intended for the benefit of the Acquiror and may be waived in whole or in part, by the Acquiror, but only by an instrument in writing signed by the Acquiror. Each of said representations, warranties and covenants shall survive the closing of the transaction contemplated hereby for twenty-four (24) months, and no investigation, audit, inspection, review or the like conducted by or on behalf of the Acquiror shall be deemed to terminate the effect of any such representations, warranties and covenants, it being understood that the Acquiror has the right to rely thereon and that each such representation, warranty and covenant constitutes a material inducement to the Acquiror to execute this Agreement and to close the transaction contemplated hereby and to pay the Consideration to the Contributor. Acquiror acknowledges and agrees that, except for the representations and warranties expressly set forth herein, Acquiror is acquiring the Land "AS-IS, WHERE-IS" with no representations or warranties by or from Contributor or any of its affiliates, express or implied, or any nature whatsoever.

ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Contributor to enter into this Agreement and to contribute the Land, the Acquiror hereby makes the following representations, warranties and covenants with respect to the Property, upon each of which the Acquiror acknowledges and agrees that the Contributor is entitled to rely and has relied:

4.1 Organization and Power. The Acquiror is a limited partnership duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all partnership powers and all governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to enter into and perform its obligations under this Agreement and any document or instrument required to be executed and delivered on behalf of the Acquiror hereunder.

4.2 Noncontravention. The execution and delivery of this Agreement and the performance by the Acquiror of its obligations hereunder do not and will not contravene, or constitute a default under, any provisions of applicable law or regulation, the Acquiror's partnership agreement or any agreement, judgment, injunction, order, decree or other instrument binding upon the Acquiror or result in the creation of any lien or other encumbrance on any asset of the Acquiror.

4.3 Litigation. There is no action, suit or proceeding, pending or known to be threatened, against or affecting the Acquiror in any court or before any arbitrator or before any Governmental Body which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other agreement or instrument to which the Acquiror is a party or by which it is bound and that is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Acquiror, (c) could materially and adversely affect the ability of the Contributor to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a lien on the Property, any part thereof or any interest therein or (e) could adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the Acquiror.

4.5 No Brokers. The Acquiror has not engaged the services of, nor is it or will it become liable to, any real estate agent, broker, finder or any other person or entity for any brokerage or finder's fee, commission or other amount with respect to the transaction described herein.

ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS

The Acquiror's obligations hereunder are subject to the satisfaction of the following conditions precedent and the compliance by the Contributor with the following covenants:

5.1 Contributor's Deliveries. The Contributor shall have delivered to the Escrow Agent or the Acquiror, as the case may be, on or before the date of Closing, all of the documents and other information required of Contributor pursuant to Section 6.2.

5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate. All of the Contributor's representations and warranties made in this Agreement shall be true and correct as of the date hereof and as of the date of Closing as if then made, there shall have occurred no material adverse change in the financial condition of the Property since the date hereof, the Contributor shall have performed all of its material covenants and other obligations under this Agreement and the Contributor shall have executed and delivered to the Acquiror at Closing a certificate to the foregoing effect.

5.3 Title Insurance. Good and indefeasible fee simple title to the Real Property shall be insurable as such by the Title Company at or below its regularly scheduled rates subject only to Permitted Title Exceptions as determined in accordance with Section 2.3.

5.4 Intentionally Omitted.

5.5 Condition of Improvements. The Improvements and the Tangible Personal Property (including but not limited to the mechanical systems, plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning and ventilating equipment, elevators, boilers, equipment, roofs, structural members and furnaces) shall be in the same condition at Closing as they are as of the date hereof, reasonable wear and tear excepted. Prior to Closing, the Contributor shall not have diminished the quality or quantity of maintenance and upkeep services heretofore provided to the Real Property and the Tangible Personal Property and the Contributor shall not have diminished the Inventory. The Contributor shall not have removed or caused or permitted to be removed any part or portion of the Real Property or the Tangible Personal Property unless the same is replaced, prior to Closing, with similar items of at least equal quality and acceptable to the Acquiror.

5.6 Utilities. All of the Utilities shall be installed in and operating at the Property, and service shall be available for the removal of garbage and other waste from the Property.

5.7 Intentionally Omitted.

5.8 License. From the date hereof to and including the Closing Date, Contributor shall comply with and perform all of the duties and obligations of licensee under the License.

5.9 Intentionally Omitted.

ARTICLE VI
CLOSING

6.1 Closing. Closing shall be held at a location that is mutually acceptable to the parties, on or before December 31, 1998. Possession of the Land shall be delivered to the Acquiror at Closing, subject only to Permitted Title Exceptions and rights of guests of the Hotel.

6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver to Acquiror all of the following instruments in its possession and control, each of which shall have been executed and acknowledged, if applicable, on behalf of the Contributor as of the date of Closing Date:

(a) The certificate required by Section 5.2.

(b) The Deed.

(d) The Bill of Sale [Personal Property].

(e) The Assignment and Assumption Agreement.

(f) Certificate(s)/Registration of Title for any vehicle owned by the Contributor and used in connection with the Property.

(g) Such agreements, affidavits or other documents as may be required by the Title Company to issue the Owner's Title Policy with affirmative coverage over mechanics' and materialmen's liens.

(h) The FIRPTA Certificate.

(i) True, correct and complete copies of all warranties, if any, of manufacturers, suppliers and installers possessed by the Contributor and relating to the Improvements and the Personal Property, or any part thereof.

(j) Certified copies of the Contributor's Organizational Documents.

(k) Appropriate resolutions of the partners of the Contributor, together with all other necessary approvals and consents of the Contributor, authorizing (A) the execution on behalf of the Contributor of this Agreement and the documents to be executed and delivered by the Contributor prior to, at or otherwise in connection with Closing, and (B) the performance by the Contributor of its obligations hereunder and under such documents.

(l) Valid, final and unconditional certificate(s) of occupancy for the Real Property and Improvements, issued by the appropriate governmental authority.

(m) The written consent of the Licensor to the transfer of the license, if applicable, and if so required.

(n) If the Acquiror is assuming the Contributor's obligations under any or all of the Operating Agreements, the originals of such agreements, duly assigned to the Acquiror and with such assignment acknowledged and approved by the other parties to such Operating Agreements.

(o) Such proof as the Acquiror may reasonably require with respect to Contributor's compliance with the bulk sales laws or similar statutes.

(p) A written instrument executed by the Contributor, conveying and transferring to the Acquiror all of the Contributor's right, title and interest in any telephone numbers and facsimile numbers relating to the Property, and, if the Contributor maintains a post office box, conveying to the Acquiror all of its interest in and to such post office box and the number associated therewith, so as to assure a continuity in operation and communication.

(q) All current real estate and personal property tax bills in the Contributor's possession or under its control.

(r) A complete set of all guest registration cards, guest transcripts, guest histories, and all other available guest information.

(s) An updated schedule of employees, showing salaries and duties with a statement of the length of service of each such employee, brought current to a date not more than 48 hours prior to the Closing.

(t) A complete list of all advance room reservations, functions and the like, in reasonable detail so as to enable the Acquiror to honor the Contributor's commitments in that regard.

(u) A list of the Contributor's outstanding accounts receivable as of midnight on the date prior to the Closing, specifying the name of each account and the amount due the Contributor.

(v) Written notice executed by Contributor notifying all interested parties, including all tenants under any leases of the Property, that the Property has been conveyed to the Acquiror and directing that all payments, inquiries and the like be forwarded to the Acquiror at the address to be provided by the Acquiror.

(w) All keys for the Property.

(x) All books, records, operating reports, appraisal reports, files and other materials in the Contributor's possession or control which are necessary in the Acquirors discretion to maintain continuity of ' operation of the Property.

(y) To the extent permitted under applicable law, documents of transfer necessary to transfer to the Acquiror the Contributor's employment rating for workmens' compensation and state unemployment tax purposes.

(z) An assignment of all warranties and guarantees from all contractors and subcontractors, manufacturers, and suppliers in effect with respect to the Improvements.

(aa) Complete set of "as-built" drawings for the Improvements.

(bb) Such agreements, affidavits or other documents as may be required by the Title Company in order to issue affirmative mechanics lien coverage in the Owner's Title Policy for the Property.

(cc) a completed version of the Questionnaire from the Contributor and each Transferee.

(dd) Any other document or instrument reasonably requested by the Acquiror or required hereby.

6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or deliver to the Contributor the following:

(a) The portion of the Consideration described in Section 2.4.

(b) The Assignment and Assumption Agreement.

(c) The certificates described in Section 2.7 evidencing the Transferees ownership of the LP Units and the admission of the Transferrees as limited partners in the Acquiror.

(d) Any other document or instrument reasonably requested by the Contributor or required hereby.

6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses. All filing fees for the Deed and the real estate transfer, recording or other similar taxes due with respect to the transfer of title and all charges for title insurance premiums shall also be paid by the Acquiror. The Acquiror shall pay reasonable fees for the preparation of the documents to be delivered by the Contributor hereunder. Acquiror shall assume and pay for the releases of the any deeds of trust, mortgages and other financing encumbering the Property and for any costs associated with any corrective instruments, and the Acquiror shall receive a credit against the Consideration for such costs pursuant to Section 2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise license transfer fees, in carrying out the transactions contemplated hereunder.

6.5 Income and Expense Allocations. All income, except any Intangible Personal Property, and expenses with respect to the Property, and applicable to the period of time before and after Closing, determined in accordance with sound accounting principles consistently applied, shall be allocated between the Contributor and the Acquiror. The Contributor shall be entitled to all income, and responsible for all expenses for the period of time up to but not including 12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall be entitled to all income and responsible for all expenses for the period of time from, after and including the date of Closing. All adjustments shall be shown on the settlement statements (with such supporting documentation as the parties hereto may require being attached as exhibits to the settlement statements) and shall increase or decrease (as the case may be) the amount payable by the Acquiror pursuant to Section 2.4(d). Without limiting the generality of the foregoing, the following items of income and expense shall be allocated as of the date of Closing:

(a) Current and prepaid rents, including, without limitation, prepaid room receipts, function receipts and other reservation receipts.

(b) Real estate and personal property taxes.

(d) Utility charges (including but not limited to charges for water, sewer and electricity).

(e) Wages, vacation pay, pension and welfare benefits and other fringe benefits of all persons employed at the Property who the Acquiror elects to employ.

(f) Value of fuel stored on the Property at the price paid for such fuel by the Contributor, including any taxes.

(g) All prepaid reservations and contracts for rooms confirmed by Contributor prior to the Effective Date for dates after the date of Closing, all of which Acquiror shall honor.

(h) Current insurance premiums.

The Tray Ledger shall be retained by the Contributor. The Contributor shall be required to pay all sales taxes and similar impositions currently up to the date of Closing.

Acquiror shall not be obligated to collect any accounts receivable or revenues accrued prior to the date of Closing for Contributor, but if Acquiror collects same, such amounts will be promptly remitted to Contributor in the form received.

If accurate allocations cannot be made at Closing because current bills are not obtainable (as, for example, in the case of utility bills or tax bills), the parties shall allocate such income or expenses at Closing on the best available information, subject to adjustment upon receipt of the final bill or other evidence of the applicable income or expense. Any income received or expense incurred by the Contributor or the Acquiror with respect to the Property after the date of Closing shall be promptly allocated in the manner described herein and the parties shall promptly pay or reimburse any amount due. The Contributor shall pay at Closing all special assessments and taxes applicable to the Property.

The certificates evidencing the Transferees' ownership of the LP Units will be dated as of date of Closing, and the Transferees will be entitled to any dividends accruing thereon on and after the date of Closing.

ARTICLE VII
CONDEMNATION; RISK OF LOSS

7.1 Condemnation. In the event of any actual or threatened taking, pursuant to the power of eminent domain, of all or any portion of the Real Property, or any proposed sale in lieu thereof, the Contributor shall give written notice thereof to the Acquiror promptly after the Contributor learns or receives notice thereof. If all or any part of the Real Property is, or is to be, so condemned or sold, the Acquiror shall have the right to terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement, all proceeds, awards and other payments arising out of such condemnation or sale (actual or threatened) shall be paid or assigned, as applicable, to the Acquiror at Closing.

7.2 Risk of Loss. The risk of any loss or damage to the Property prior to the recordation of the Deed shall remain upon the Contributor. If any such loss or damage to more than twenty five percent (25%) of the Property occurs prior to Closing, the Acquiror shall have the right to terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement, all insurance proceeds and rights to proceeds arising out of such loss or damage shall be paid or assigned, as applicable, to the Acquiror at Closing.

ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS

8.1 Liability of Acquiror. Except for any obligation expressly assumed or agreed to be assumed by the Acquiror hereunder and in the Assignment and Assumption Agreement, the Acquiror does not assume any obligation of the Contributor or any liability for claims arising out of any occurrence prior to Closing.

8.2 Indemnification by Contributor. The Contributor hereby indemnifies and holds the Acquiror harmless from and against any and all claims, costs, penalties, damages, losses, liabilities and expenses (including reasonable attorneys' fees), subject to Section 9.11 that may at any time be incurred by the Acquiror, whether before or after Closing, as a result of any breach by the Contributor of any of its representations, warranties, covenants or obligations set forth herein or in any other document delivered by the Contributor pursuant hereto.

8.3 Termination by Acquiror. If any condition set forth herein cannot or will not be satisfied prior to Closing, or upon the occurrence of any other event that would entitle the Acquiror to terminate this Agreement and its obligations hereunder, and the Contributor fails to cure any such matter within ten business days after notice thereof from the Acquiror, the Acquiror, at its option and as its sole remedy, shall elect either (a) to terminate this Agreement, in which event all other rights and obligations of the Contributor and the Acquiror hereunder shall terminate immediately, or (b) to waive its right to terminate and, instead, to proceed to Closing.

8.4 Termination by Contributor. If, prior to Closing, the Acquiror defaults in performing any of its obligations under this Agreement (including its obligation to acquire the Property), and the Acquiror fails to cure any such default within ten business days after notice thereof from the Contributor, then the Contributor's sole remedy for such default shall be to terminate this Agreement.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.1 Completeness; Modification. This Agreement constitutes the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior discussions, understandings, agreements and negotiations between the parties hereto. This Agreement may be modified only by a written instrument duly executed by the parties hereto.

9.3 Successors and Assigns. The benefits and burdens of this Agreement shall inure to the benefit of and bind the Acquiror and the Contributor and their respective party hereto.

9.4 Days. If any action is required to be performed, or if any notice, consent or other communication is given, on a day that is a Saturday or Sunday or a legal holiday in the jurisdiction in which the action is required to be performed or in which is located the intended recipient of such notice, consent or other communication, such performance shall be deemed to be required, and such notice, consent or other communication shall be deemed to be given, on the first business day following such Saturday, Sunday or legal holiday. Unless otherwise specified herein, all references herein to a "day" or "days" shall refer to calendar days and not business days.

9.5 Governing Law. This Agreement and all documents referred to herein shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania.

9.6 Counterparts. To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signature on behalf of both parties hereto appear on each counterpart hereof. All counterparts hereof shall collectively constitute a single agreement.

9.7 Severability. If any term, covenant or condition of this Agreement, or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to other persons or circumstances, shall not be affected thereby, and each term, covenant or condition of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

9.8 Costs. Regardless of whether Closing occurs hereunder, and except as otherwise expressly provided herein, each party hereto shall be responsible for its own costs in connection with this Agreement and the transactions contemplated hereby, including without limitation fees of attorneys, engineers and accountants.

9.9 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand, transmitted by facsimile transmission, sent prepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States mail, certified, postage prepaid, return receipt requested, at the addresses and with such copies as designated below. Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be) when actually delivered to the intended recipient.

If to the Contributor:              Jay H. Shah, Esquire
                                    Hersha Enterprises, Ltd.
                                    437 Chestnut Street, Suite 614
                                    Philadelphia, PA 19106
                                    Telephone: (215) 238-1045
                                    Fax: (215) 238-0157

With a copy to:                     Kiran P. Patel
                                    Hersha Enterprises, Ltd.
                                    148 Sheraton Drive, Box A
                                    New Cumberland, PA 17070
                                    Fax: (717) 774-7383

If to the Acquiror:                 Jay H. Shah, Esquire
                                    Hersha Enterprises, Ltd.
                                    437 Chestnut Street, Suite 615
                                    Philadelphia, PA 19106
                                    Telephone: (215) 238-1045
                                    Fax:    (215) 238-0157

         with a copy to:            Cameron Cosby, Esquire
                                    Hunton & Williams
                                    Riverfront Plaza, East Tower
                                    951 East Byrd Street
                                    Richmond, VA 23219-4074

Or to such other address as the intended recipient may have specified in a notice to the other party. Any party hereto may change its address or designate different or other persons or entities to receive copies by notifying the other party and the Escrow Agent in a manner described in this Section.

9.10 Incorporation by Reference. All of the exhibits attached hereto are by this reference incorporated herein and made a part hereof.

9.11 Survival. All of the representations, warranties, covenants and agreements of the Contributor and the Acquiror made in, or pursuant to, this Agreement shall survive for a period of twenty-four (24) months following Closing and shall not merge into the Deed or any other document or instrument executed and delivered in connection herewith.

9.12 Further Assurances. The Contributor and the Acquiror each covenant and agree to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon the written request of the other party, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by either party hereto for the purpose of or in connection with consummating the transactions described herein.

9.13 No Partnership. This Agreement does not and shall not be construed to create a partnership, joint venture or any other relationship between the parties hereto except the relationship of Contributor and Acquiror specifically established hereby.

9.14 Time of Essence. Time is of the essence with respect to every provision hereof.

9.15 Confidentiality. Contributor and its representatives, including any brokers or other professionals representing Contributor, shall keep the existence and terms of this Agreement strictly confidential, except to the extent disclosure is compelled by law, and then only to the extent of such compulsion.

[SIGNATURES ON FOLLOWING PAGE]

IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this Agreement to be executed in their names by their respective duly-authorized representatives.

CONTRIBUTOR:

2144 Associates, a Pennsylvania limited partnership


By:      Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
         its general partner


         By:      /s/ Hasu P. Shah
                  ----------------
                  Hasu P. Shah
                  President


ACQUIROR:


Hersha Hospitality Limited Partnership, a Virginia limited partnership

By:      Hersha Hospitality Trust, a Maryland business trust, its
         sole general partner



         By:      /s/ Hasu P. Shah
                  ----------------
                  Hasu P. Shah
                  President

CONTRIBUTION AGREEMENT

dated as of June 3, 1998

between

Shree Associates, JSK Associates, Shanti Associates, Shreeji Associates, Kunj Associates, Devi Associates, Neil Shah, David Desfor, Madhusudan Patni, Manhar Gandhi and

Shreenathji Enterprises, Ltd.

as Contributors,

and

Hersha Hospitality Limited Partnership,
a Virginia limited partnership,

as Acquiror

TABLE OF CONTENTS

                                        ARTICLE I
                           DEFINITIONS; RULES OF CONSTRUCTION..........................................  1
1.1      Definitions...................................................................................  1
1.2      Rules of Construction.........................................................................  7

                                       ARTICLE II
                              PURCHASE AND SALE; DEPOSIT;
                       PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................8

2.1      Contribution and Acquisition....................................................................8
2.2      Study Period....................................................................................8
2.3      Payment of Consideration........................................................................9
2.4      Determination of Number of Partnership Units...................................................10
2.5      Contributors' Distribution of Partnership Units................................................10
2.6      Intentionally Omitted..........................................................................10
2.7      Intentionally Omitted..........................................................................10
2.8      Redemption.....................................................................................10
2.9      Registration of Common Shares..................................................................10
2.10     Intentionally Omitted..........................................................................11


                                      ARTICLE III
                      CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................11
3.1      Organization and Power.........................................................................12
3.2      Authorization, No Violations and Notices ......................................................12
3.3      Litigation with respect to Contributors .......................................................13
3.4      Interest.......................................................................................13
3.5      Bankruptcy with respect to Contributors........................................................13
3.6      Brokerage Commission...........................................................................13
3.7      The Partnership................................................................................13
3.8      Liabilities, Debts and Obligations.............................................................14
3.9      Tax Matters with respect to Partnership........................................................14
3.10     Contracts and Agreements.......................................................................15
3.11     No Special Taxes...............................................................................15
3.12     Compliance with Existing Laws..................................................................15
3.13     Operating Agreements...........................................................................15
3.14     Warranties and Guaranties......................................................................16
3.15     Insurance......................................................................................16
3.16     Condemnation Proceedings; Roadways.............................................................16
3.17     Litigation with respect to Partnership.........................................................16
3.18     Labor Disputes and Agreements..................................................................16
3.19     Financial Information..........................................................................17
3.20     Organizational Documents.......................................................................17
3.21     Operation of Property..........................................................................17
3.22     Intentionally Omitted..........................................................................18
3.23     Bankruptcy with respect to Partnership.........................................................18
3.24     Hazardous Substances...........................................................................18
3.25     Room Furnishings...............................................................................18
3.26     License........................................................................................18
3.27     Independent Audit..............................................................................18
3.28     Bulk Sale Compliance...........................................................................19
3.29     Liquor License.................................................................................19
3.30     Sufficiency of Certain Items...................................................................19
3.31     Noncompetition.................................................................................19
3.32     Leases.........................................................................................19
3.33     Securities Law Matters.........................................................................19
3.34     Tax Matters with respect to Contributors.......................................................19
3.35     Noncontravention...............................................................................20

                                       ARTICLE IV
                       ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................20
4.1      Organization and Power.........................................................................20
4.2      Noncontravention...............................................................................21
4.3      Litigation.....................................................................................21
4.4      Bankruptcy.....................................................................................21
4.5      No Brokers.....................................................................................21

                                       ARTICLE V
                                CONDITIONS AND ADDITIONAL COVENANTS.....................................21
5.1      Contributors' Deliveries.......................................................................21
5.2      Representations, Warranties and Covenants; Obligations of Contributors; Certificate............21
5.3      Title Insurance................................................................................22
5.4      Intentionally Omitted..........................................................................22
5.5      Condition of Improvements......................................................................22
5.6      Utilities......................................................................................22
5.7      Intentionally Omitted..........................................................................22
5.8      License........................................................................................22
5.9      Intentionally Omitted..........................................................................22


                                       ARTICLE VI
                                      CLOSING...........................................................22
6.1      Closing........................................................................................22
6.2      Contributors' Deliveries.......................................................................22
6.3      Acquiror's Deliveries..........................................................................25
6.4      Closing Costs..................................................................................25
6.5      Income and Expense Allocations.................................................................25

                                      ARTICLE VII
                                    CONDEMNATION; RISK OF LOSS..........................................26
7.1      Condemnation...................................................................................26
7.2      Risk of Loss...................................................................................27

                                      ARTICLE VIII
                  LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
                                        TERMINATION RIGHTS..............................................27
8.1      Liability of Acquiror..........................................................................27
8.2      Indemnification by Contributors................................................................27
8.3      Termination by Acquiror........................................................................27
8.4      Termination by Contributors....................................................................27

                                       ARTICLE IX
                                     MISCELLANEOUS PROVISIONS...........................................28
9.1      Completeness; Modification.....................................................................28
9.2      Assignments....................................................................................28
9.3      Successors and Assigns.........................................................................28
9.4      Days...........................................................................................28
9.5      Governing Law..................................................................................28
9.6      Counterparts...................................................................................28
9.7      Severability...................................................................................28
9.8      Costs..........................................................................................28
9.9      Notices........................................................................................29
9.10     Incorporation by Reference.....................................................................30
9.11     Survival.......................................................................................31
9.12     Further Assurances.............................................................................31
9.13     No Partnership.................................................................................31
9.14     Time of Essence................................................................................31
9.15     Confidentiality................................................................................31

LIST OF EXHIBITS

Exhibit A - Land

Exhibit B - Employment Agreements

Exhibit C - Insurance Policies

Exhibit D - Leases

Exhibit E - Operating Agreements

Exhibit F - Contributors' Partnership Agreement

Exhibit G - Contributors' Certificate of Limited Partnership

Exhibit H - Contributors' Warranties and Guaranties

Exhibit I - Litigation Schedule

Exhibit J - Allocation of Consideration

Exhibit K - Schedule of Transferees

Exhibit L - Investor Questionnaire and Agreement

Exhibit M - Hersha Hospitality Limited Partnership Agreement

Exhibit N - Contingent Consideration Calculation

Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation

Exhibit P - Shreenathji Enterprises, Ltd. Bylaws

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998, between Shree Associates, a Pennsylvania limited partnership ("Shree"), JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania limited partnership ("Kunj"), Devi Associates, a Pennsylvania limited partnership ("Devi"), Neil Shah ("Shah"), David Desfor ("Desfor"), Madhusudan Patni ("Patni"), Manhar Gandhi ("Gandhi") and Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively, the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the "Acquiror"), provides:

ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION

1.1 Definitions. The following terms shall have the indicated meanings:

"Shree Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Shree assigns and the Acquiror assumes the Shree Interest.

"JSK Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby JSK assigns and the Acquiror assumes the JSK Interest.

"Shanti Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Shanti assigns and the Acquiror assumes the Shanti Interest.

"Shreeji Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Shreeji assigns and the Acquiror assumes the Shreeji Interest.

"Kunj Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Kunj assigns and the Acquiror assumes the Kunj Interest.

"Devi Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Devi assigns and the Acquiror assumes the Devi Interest.

"Shah Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Shah assigns and the Acquiror assumes the Shah Interest.

"Desfor Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Desfor assigns and the Acquiror assumes the Desfor Interest.

"Patni Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Patni assigns and the Acquiror assumes the Patni Interest.

"SEL Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby SEL assigns and the Acquiror assumes the SEL Interest.

"Gandhi Assignment and Assumption Agreement" shall mean that certain assignment and assumption agreement whereby Gandhi assigns and the Acquiror assumes the Gandhi Interest.

"Assignment and Assumption Agreements" shall mean the Shree Assignment and Assumption Agreement, JSK Assignment and Assumption Agreement, the Shanti Assignment and Assumption Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment and Assumption Agreement, the Devi Assignment and Assumption Agreement, the Shah Assignment and Assumption Agreement, the Desfor Assignment and Assumption Agreement, the Patni Assignment and Assumption Agreement, the Gandhi Assignment and Assumption Agreement and the SEL Assignment and Assumption Agreement.

"Closing" shall mean the Closing of the contribution and acquisition of the Interests pursuant to this Agreement.

"Closing Date" shall mean the date on which the Closing occurs.

"Consideration" shall mean $10,399,000 payable to the Contributors at Closing in the manner described in Section 2.3.

"Continuing Liabilities" shall include liabilities arising under operating agreements, equipment leases, loan agreements, or proration credits at Closing, but shall exclude any liabilities arising from any other arrangement, agreement or pending litigation.

"Employment Agreements" shall mean any and all employment agreements, written or oral, between the Contributors or its managing agent and the persons employed with respect to the Property. A schedule indicating all pertinent information with respect to each Employment Agreement in effect as of the date hereof, name of employee, social security number, wage or salary, accrued vacation benefits, other fringe benefits, etc.) is attached hereto as Exhibit B.

"Escrow Agent" shall mean Sentinel Agency, 2146 North Second Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717) 234-8198.

"FIRPTA Certificates" shall mean the affidavit of each of the Contributors under Section 1445 of the Internal Revenue Code certifying that such Contributor is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Internal Revenue Code and the Income Tax Regulations), in form and substance satisfactory to the Acquiror.

"Governmental Body" means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

"Hotel" shall mean the hotel and related amenities located on the Land.

"Improvements" shall mean the Hotel and all other buildings, improvements, fixtures and other items of real estate located on the Land.

"Shree Interest" shall mean all right, title and interest of Shree in the Partnership, consisting of a 4.88% limited partnership interest in the Partnership.

"JSK Interest" shall mean all right, title and interest of JSK in the Partnership, consisting of a 14.85% limited partnership interest in the Partnership.

"Shanti Interest" shall mean all right, title and interest of Shanti in the Partnership, consisting of a 14.85% limited partnership interest in the Partnership.

"Shreeji Interest" shall mean all right, title and interest of Shreeji in the Partnership, consisting of a 11.85% limited partnership interest in the Partnership.

"Kunj Interest" shall mean all right, title and interest of Kunj in the Partnership, consisting of a 9.87% limited partnership interest in the Partnership.

"Devi Interest" shall mean all right, title and interest of Devi in the Partnership, consisting of a 14.85% limited partnership interest in the Partnership.

"Shah Interest" shall mean all right, title and interest of Shah in the Partnership, consisting of a 14.85% limited partnership interest in the Partnership.

"Desfor Interest" shall mean all right, title and interest of Desfor in the Partnership, consisting of a 5% limited partnership interest in the Partnership.

"Patni Interest" shall mean all right, title and interest of Patni in the Partnership, consisting of a 5% limited partnership interest in the Partnership.

"Gandhi Interest" shall mean all right, title and interest of Gandhi in the Partnership, consisting of a 3% limited partnership interest in the Partnership.

"SEL Interest" shall mean all right, title and interest of SEL in the Partnership, consisting of a 1% general partnership interest in the Partnership.

"Insurance Policies" shall mean those certain policies of insurance described on Exhibit C attached hereto.

"Intangible Personal Property" shall mean all intangible personal property owned or possessed by the Contributors and used in connection with the ownership, operation, leasing, occupancy or maintenance of the Property, including, without limitation, the right to use the trade name "Holiday Inn" and all variations thereof, the Authorizations, escrow accounts, insurance policies, general intangibles, business records, plans and specifications, surveys and title insurance policies pertaining to the Real Property and the Personal Property, all licenses, permits and approvals with respect to the construction, ownership, operation, leasing, occupancy or maintenance of the Property, any unpaid award for taking by condemnation or any damage to the Land by reason of a change of grade or location of or access to any street or highway, and the share of the Tray Ledger as hereinafter defined, excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial institutions and (c) accounts receivable except for the above described share of the Tray Ledger.

"Interests" shall mean the Shree Interest, JSK Interest, the Shanti Interest, the Shreeji Interest, the Kunj Interest, the Devi Interest, the Shah Interest, the Desfor Interest, the Patni Interest, the Gandhi Interest and the SEL Interest.

"Inventory" shall mean all inventory located at the Hotel, including without limitation, all mattresses, pillows, bed linens, towels, paper goods, soaps, cleaning supplies and other such supplies.

"Land" shall mean that certain parcel of real estate lying and being in New Cumberland, York County, Pennsylvania, as more particularly described on Exhibit A attached hereto, together with all easements, rights, privileges, remainders, reversions and appurtenances thereunto belonging or in any way appertaining, and all of the estate, right, title, interest, claim or demand whatsoever of the Contributors therein, in the streets and ways adjacent thereto and in the beds thereof, either at law or in equity, in possession or expectancy, now or hereafter acquired.

"Leases" shall mean those leases of real property attached as Exhibit D attached hereto.

"Manager" shall mean Hersha Hospitality Management L.P.

"Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of each of the limited partnership Contributors, true and correct copies of which are attached hereto as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and correct copies of which are attached hereto as Exhibits O and P.

"Partnership" shall mean 1244 Associates, a Pennsylvania limited partnership that owns as its sole assets hotel improvements and land located in New Cumberland, York County, Pennsylvania.

"Permitted Title Exceptions" shall mean those exceptions to title to the Real Property that are satisfactory to the Acquiror as determined pursuant to Section 2.2.

"Property" shall mean collectively the Real Property, the Inventory, the Reservation System, the Tangible Personal Property and the Intangible Personal Property.

"Real Property" shall mean the Land and the Improvements.

"Reservation System" shall mean the Contributors' Reservation Terminal and Reservation System equipment and software, if any.

"Shree's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of Shree, true and correct copies of which are attached hereto as Exhibits F and G.

"JSK's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of JSK, true and correct copies of which are attached hereto as Exhibits F and G.

"Shanti's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of Shanti, true and correct copies of which are attached hereto as Exhibits F and G.

"Shreeji's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of Shreeji, true and correct copies of which are attached hereto as Exhibits F and G.

"Kunj's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of Kunj, true and correct copies of which are attached hereto as Exhibits F and G.

"Devi's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership of Devi, true and correct copies of which are attached hereto as Exhibits F and G.

"SEL's Organizational Documents" shall mean the current Articles of Incorporation and Bylaws of SEL, true and correct copies of which are attached hereto as Exhibits O and P.

"Study Period" shall mean the period commencing at 9:00 a.m. on the date hereof, and continuing through 5:00 p.m. on the Closing Date.

"Tangible Personal Property" shall mean the items of tangible personal Property consisting of all furniture, fixtures and equipment situated on, attached to, or used in the operation of the Hotel, and all furniture, furnishings, equipment, machinery, and other personal property of every kind located on or used in the operation of the Hotel and owned by the Contributors; provided, however, that the Acquiror agrees that, all Inventory shall be conveyed to the Acquiror's property manager.

"Title Commitment" shall mean the commitment by the Title Company to issue the Owner's Title Policy.

"Title Company" shall mean Sentinel Agency, 2146 North Second Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717) 234-8198.

"Tray Ledger" shall mean the final night's room revenue (revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive of food, beverage, telephone and similar charges which shall be retained by the Contributors), including any sales taxes, room taxes or other taxes thereon.

1.2 Rules of Construction. The following rules shall apply to the construction and interpretation of this Agreement:

(a) Singular words shall connote the plural number as well as the singular and vice versa, and the masculine shall include the feminine and the neuter.

(b) All references herein to particular articles, sections, subsections, clauses or exhibits are references to articles, sections, subsections, clauses or exhibits of this Agreement.

ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT OF CONSIDERATION

2.1 Contribution and Acquisition. Each of the Contributors agrees to contribute, assign and transfer its Interest to the Acquiror and the Acquiror agrees to accept each Contributor's Interest in exchange for the Consideration and the Contingent Consideration and in accordance with the other terms and conditions set forth herein.

2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror notifies the Contributors that the Acquiror has elected to proceed to Closing in the manner described below, to enter upon the Real Property and to perform, at the Acquiror's expense, such economic, surveying, engineering, environmental, topographic and marketing tests, studies and investigations as the Acquiror may deem appropriate. If such tests, studies and investigations warrant, in the Acquiror's sole, absolute and unreviewable discretion, the purchase of the Property for the purposes contemplated by the Acquiror, then the Acquiror may elect to proceed to Closing and shall so notify the Contributors prior to the expiration of the Study Period. If for any reason the Acquiror does not so notify the Contributors of its determination to proceed to Closing prior to the expiration of the Study Period, or if the Acquiror notifies the Contributors, in writing, prior to the expiration of the Study Period that it has determined not to proceed to Closing, this Agreement automatically shall terminate, and the Acquiror shall be released from any further liability or obligation under this Agreement.

(b) During the Study Period, the Contributors shall make available to the Acquiror, its agents, auditors, engineers, attorneys and other designees, for inspection copies of all existing architectural and engineering studies, surveys, title insurance policies, zoning and site plan materials, correspondence, environmental audits and other related materials or information if any, relating to the Property which are in, or come into, the Contributors' possession or control.

(c) The Acquiror hereby indemnifies and defends the Contributors against any loss, damage or claim arising from entry upon the Real Property by the Acquiror or any agents, contractors or employees of the Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real Property caused by any of the tests or studies made by the Acquiror.

(d) During the Study Period, the Acquiror, at its expense, shall cause an examination of title to the Property to be made, and, prior to the expiration of the Study Period, shall notify the Contributors of any defects in title shown by such examination that the Acquiror is unwilling to accept. At or prior to Closing, the Contributors shall notify the Acquiror whether the Contributors are willing to cure such defects. Contributors may cure, but shall not be obligated to cure such defects. If such defects consist of deeds of trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or capable of computation as a fixed sum, the Contributors, at its option, shall either pay and discharge (in which event, the Escrow Agent is authorized to pay and discharge at Closing) such defects at Closing, or provide bonds or indemnities in favor of the Title Company in order to remove such items from the Title Policy at Closing. If the Contributors are unwilling or unable to cure any other such defects by Closing, the Acquiror shall elect (1) to waive such defects and proceed to Closing without any abatement in the Consideration or (2) to terminate this Agreement. The Contributors shall not, after the date of this Agreement, subject the Property to any liens, encumbrances, covenants, conditions, restrictions, easements or other title matters or seek any zoning changes or take any other action which may affect or modify the status of title without the Acquiror's prior written consent, which consent shall not be unreasonably withheld or delayed. All title matters revealed by the Acquiror's title examination and not objected to by the Acquiror as provided above shall be deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and notify the Contributors of any such title objections by the end of the Study Period, all such title exceptions (other than those rendering title unmarketable and those that are to be paid at Closing as provided above) shall be deemed Permitted Title Exceptions.

2.3 Payment of Consideration. The Consideration shall be paid to the Contributor in the following manner:

(a) The Acquiror shall receive a credit against the Consideration in an amount equal to the Contributor's closing costs assumed and paid for by the Acquiror pursuant to Section 6.4 hereof.

2.4. Determination of Number of Partnership Units. For purposes of determining the number of Partnership Units to be delivered by the Acquiror at the Closing, each Partnership Unit shall be deemed to have a value equal to $6.00. No fractional Partnership Units will be issued at Closing; in lieu of any such fraction, the value shall be rounded up to a whole share value.

2.5 Contributors' Distribution of Partnership Units . On the Closing Date, the Partnership Units shall be distributed among the Contributors , as set forth on Exhibit K attached hereto, in the amount specified on Exhibit K. On the date hereof, Contributors shall deliver or cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by each of the Contributors . On the Closing Date, Acquiror shall issue certificates reflecting each of the Contributors ownership of the Partnership Units. The certificates evidencing the Partnership Units will bear appropriate legends indicating (i) that the Partnership Units have not been registered under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement restricts the transfer of Partnership Units. The Acquiror shall assume no responsibility for any allocation of the consideration, including Partnership Units, to any of the Contributors' partners. Contributors agree to hold Acquiror and its affiliates harmless and to indemnify Acquiror and its affiliates for all costs, claims, damages and expenses, including reasonable attorney's fees, incurred by Acquiror in connection with such allocations. Upon receipt of Partnership Units, the Acquiror's Partnership Agreement shall be executed by or on behalf of each of the Contributors and the Contributors shall become limited partners of Acquiror and agree to be bound by the Partnership Agreement.

2.6 Intentionally Omitted.

2.7 Intentionally Omitted.

2.8 Redemption. The Partnership Units may be redeemed upon delivery of a notice ("Redemption Notice") from the Contributors , for common shares ("Common Shares") of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in accordance with the Hersha Hospitality Limited Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.

2.9 Registration of Common Shares.

Shares issuable upon redemption registered in accordance with the Hersha Hospitality Limited Partnership Agreement attached hereto as Exhibit M and incorporated herein.

2.10 Intentionally Omitted.

ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Acquiror to enter into this Agreement and to purchase the Property, the Contributors hereby make the following representations, warranties and covenants on a joint and several basis , upon each of which the Contributors acknowledge and agree that the Acquiror is entitled to rely and has relied:

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3.1 Organization and Power. The Contributors are limited partnerships duly formed, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania or individuals, and have all requisite powers and all governmental licenses, authorizations, consents and approvals necessary to carry on its business as now conducted, to own, lease and operate its properties, to execute and deliver this Agreement and any document or instrument required to be executed and delivered on behalf of the Contributors hereunder, to perform their obligations under this Agreement and any such other documents or instruments and to consummate the transactions contemplated hereby.

3.2 Authorization, No Violations and Notices.

(a) The execution, delivery and performance of this Agreement by the Contributors, and the consummation of the transactions contemplated hereby have been duly authorized, adopted and approved by the partners of the Contributors for those Contributors that are partnerships to the extent required by its organizational documents and applicable law. No other proceedings are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly executed by Shree, JSK, Shanti, Shreeji, Kunj, Devi, Shah, Desfor, Patni, Gandhi and SEL and is a valid and binding obligation enforceable against them in accordance with its terms.

(b) Neither the execution, delivery, or performance by the Contributors of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the Contributors with any of the provisions hereof, will:

(i) violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, which, with or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge, or encumbrance upon any of the properties or assets of the Partnership, under any of the terms, conditions, or provisions of, its Partnership, or any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument, or obligation to which the Partnership is a party, or by which the Partnership may be bound, or to which the Partnership or its properties or assets may be subject; or

(iii) violate any judgment, ruling, order, writ, injunction, decree, statute, rule, or regulation applicable to the Partnership or its property or assets that would not be violated by the execution, delivery or performance of this Agreement or the transactions contemplated hereby by the Contributors or compliance by the Contributors with any of the provisions hereof.

3.3 Litigation with respect to Contributors. There is no action, suit, claim or proceeding pending or, to the Contributors knowledge, threatened against or affecting the Contributors or their assets in any court, before any arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint, prohibition, damages or other relief in connection with this Agreement or the transactions contemplated hereby, or (iii) would delay the consummation of any of the transactions contemplated hereby. The Contributors are not subject to any judgment, decree, injunction, rule or order of any court relating to the Contribtuors' participation in the transactions contemplated by this Agreement.

3.4 Interests. The Interests will be free and clear of all liens and encumbrances on the Closing Date and the Contributors have good, merchantable title thereto and the right to convey same in accordance with the terms of this Agreement. Upon delivery of the Assignment and Assumption Agreements to the Acquiror at Closing, good valid and merchantable title to the Interests, free and clear of all liens and encumbrances, will pass to the Acquiror.

3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has occurred with respect to the Contributors.

3.6 Brokerage Commission. The Contributors have not engaged the services of, nor is it or will it or Acquiror become liable to, any real estate agent, broker, finder or any other person or entity for any brokerage or finder's fee, commission or other amount with respect to the transactions described herein on account of any action by the Contributors.

3.7 The Partnership.

(a) The Partnership is a limited partnership duly formed, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite powers necessary to carry on its business as now conducted, to own, lease and operate its properties.

(i) violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge, or encumbrance upon any of the properties or assets of the Partnership, under any of the terms, conditions, or provisions of, their articles of incorporation or bylaws, or any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument or obligation to which the Partnership is a party, or by which the Partnership may be bound, or to which the Partnership or its properties or assets may be subject; or

(ii) violate any judgment, ruling, order, writ, injunction, decree, statute, rule, or regulation applicable to the Partnership or any of the Partnership's properties or assets.

(c) Except for the Contributors, no party has any interest in the Partnership or the right or option to acquire any interest in the Partnership or the property or any portion thereof. The Partnership has no subsidiaries and does not directly or indirectly own any securities of or interest in any other entity, including, without limitation, any partnership or joint venture.

3.8 Liabilities, Debts and Obligations. Except for the Continuing Liabilities, the Partnership has no liability, debt or obligation.

3.9 Tax Matters with respect to Partnership.

(a) The Partnership has filed all income tax information returns on IRS Form 1065 (including K-1s for each partner) and applicable state and local income tax forms required to be filed with the United States Government and with all states and political subdivisions thereof where any such returns are required to be filed and where the failure to file such return or report would subject the Partnership or its partners to any material liability or penalty. All taxes (other than sale taxes, rental taxes or the equivalent and real property taxes) imposed by the United States, or by any foreign country, or by any state, municipality, subdivision, or instrumentality of the United States or of any foreign country or by any other taxing authority, which are due and payable by the Partnership have been paid in full or adequately provided for by reserves shown in their records and books of account and in the Partnership's financial information. The Partnership has not obtained or received any extension of time (beyond the Closing Date) for the assessment of deficiencies for any years or waived or extended the statute of limitations for the determination or collection of any tax. To the Contributors' knowledge no unassessed tax deficiency is proposed or threatened against the Partnership.

(b) All taxes, rental taxes or the equivalent, and all interest and penalties due thereon, required to be paid or collected by the Partnership in connection with the operation of the Property as of the Closing Date will have been collected and/or paid to the appropriate governmental authorities, as required or such amounts shall be pro-rated as of the Closing Date. The Partnership shall file, all necessary returns and petitions required to be filed through the Closing Date. The Partnership shall prepare and file all federal and state income tax returns for the tax period ending on the Closing Date, which shall reflect the termination for tax purposes of the Partnership. If requested by the Acquiror, the Contributors shall cause the Partnership to make an election under Section 754 of the Code for the period ending on the Closing Date.

3.10 Contracts and Agreements. There is no loan agreement, guarantee, note, bond, indenture and other debt instrument, lease and other contract to which the Partnership is a party or by which its assets are bound other than Permitted Title Encumbrances, the Leases, and the Operating Agreements.

3.11 No Special Taxes. The Contributors have no actual knowledge of, nor have they received any written notice of, any special taxes or assessments relating to the Partnership or Property or any part thereof or any planned public improvements that may result in a special tax or assessment against the Property.

3.12 Compliance with Existing Laws. The Partnership possesses all Authorizations, each of which is valid and in full force and effect, and, to Contributors' actual knowledge, no provision, condition or limitation of any of the Authorizations has been breached or violated. The Partnership has not misrepresented or failed to disclose any relevant fact in obtaining all Authorizations, and the Contributors have no actual knowledge of any change in the circumstances under which those Authorizations were obtained that result in their termination, suspension, modification or limitation. The Contributors have no actual knowledge, nor have they received written notice within the past three years, of any existing violation of any provision of any applicable building, zoning, subdivision, environmental or other governmental ordinance, resolution, statute, rule, order or regulation, including but not limited to those of environmental agencies or insurance boards of underwriters, with respect to the ownership, operation, use, maintenance or condition of the Property or any part thereof, or requiring any repairs or alterations other than those that have been made prior to the date hereof.

3.13 Operating Agreements. The Partnership has performed all of its obligations under each of the Operating Agreements and no fact or circumstance has occurred which, by itself or with the passage of time or the giving of notice or both, would constitute a material default under any of the Operating Agreements. The Partnership shall not enter into any new management agreement, maintenance or repair contract, supply contract, lease in which it is lessee or other agreements with respect to the Property, nor shall the Partnership enter into any agreements modifying the Operating Agreements, unless (a) any such agreement or modification will not bind the Acquiror or the Property after the date of Closing or (b) the Contributors have obtained the Acquiror's prior written consent to such agreement or modification, which consent shall not be unreasonably withheld or delayed.

3.14 Warranties and Guaranties. The Partnership shall not before Closing, release or modify any warranties or guarantees, if any, of manufacturers, suppliers and installers relating to the Improvements and the Personal Property or any part thereof, except with the prior written consent of the Acquiror, which consent shall not be unreasonably withheld or delayed. A complete list of all such warranties and guaranties in effect as of this date is attached hereto as Exhibit H.

3.15 Insurance. All of the Partnership's Insurance Policies are valid and in full force and effect, all premiums for such policies were paid when due and all future premiums for such policies (and any replacements thereof) shall be paid by the Partnership on or before the due date therefor. The Partnership shall pay all premiums on, and shall not cancel or voluntarily allow to expire, any of the Partnership's Insurance Policies prior to the Closing Date unless such policy is replaced, without any lapse of coverage, by another policy or policies providing coverage at least as extensive as the policy or policies being replaced. The Partnership shall name the Acquiror as an additional insured on each of the Partnership's Insurance Policies.

3.16 Condemnation Proceedings; Roadways. The Partnership has received no written notice of any condemnation or eminent domain proceeding pending or threatened against the Property or any part thereof. The Contributors have no actual knowledge of any change or proposed change in the route, grade or width of, or otherwise affecting, any street or road adjacent to or serving the Real Property.

3.17 Litigation with respect to Partnership. Except as set forth on Exhibit I there is no action, suit or proceeding pending or known to be threatened against or affecting the Partnership or its property in any court, before any arbitrator or before or by any governmental agency which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other material agreement or instrument to which the Partnership are a party or by which they are bound and that is or is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Partnership, (c) could materially and adversely affect the ability of the Partnership perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a lien on the Property, any part thereof or any interest therein, or (e) could otherwise materially adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

3.18 Labor Disputes and Agreements. The Partnership currently has no labor disputes pending or, threatened as to the operation or maintenance of the Property or any part thereof. The Partnership is not a party to any union or other collective bargaining agreement with employees employed in connection with the ownership, operation or maintenance of the Property. The Acquiror will not be obligated to give or pay any amount to any employee of the Partnership, and the Acquiror shall not have any liability under any pension or profit sharing plan that the Partnership may have established with respect to the Property or their or its employees.

3.19 Financial Information. To the best of the Contributors' knowledge except as otherwise disclosed in writing to the Acquiror prior to the end of the Study Period, for each of the Partnership's accounting years, when a given year is taken as a whole, all of the Partnership's financial information previously delivered or to be delivered to the Acquiror is and shall be correct and complete in all material respects and presents accurately the results of the operations of the Property for the periods indicated, except such statements do not have footnotes or schedules that may otherwise be required by GAAP. If requested by the Acquiror, Contributors will forward promptly all four-week period ending financial information it receives from the Partnership. Contributors' financial information is prepared based on information provided by the Partnership based on books and records maintained by the Partnership in accordance with the Partnership's accounting system. Partnership financial information provided by the Acquiror has been provided to the Acquiror without any changes or alteration thereto. To the best of Contributors' knowledge, since the date of the last financial statement included in the Partnership's financial information, there has been no material adverse change in the financial condition or in the operations of the Property.

3.20 Organizational Documents. The Partnership's Organizational Documents are in full force and effect and have not been modified or supplemented, and no fact or circumstance has occurred that, by itself or with the giving of notice or the passage of time or both, would constitute a default thereunder.

3.21 Operation of Property. The Contributors covenant that between the date hereof and the date of Closing they will make good faith efforts to cause the Partnership to (a) operate the Property only in the usual, regular and ordinary manner consistent with the Partnership's prior practice, (b) maintain their books of account and records in the usual, regular and ordinary manner, in accordance with sound accounting principles applied on a basis consistent with the basis used in keeping its books in prior years, and (c) use all reasonable efforts to preserve intact their present business organization, keep available the services of their present officers and employees and preserve their relationships with suppliers and others having business dealings with them. The Contributor shall make good faith efforts to encourage the Partnership to continue to make good efforts to take guest room reservations and to book functions and meetings and otherwise to promote the business of the Property in generally the same manner as the Partnership did prior to the execution of this Agreement. Except as otherwise permitted hereby, from the date hereof until Closing, the Contributors shall use its good faith efforts to ensure that the Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's ability to continue the operation thereof after the date of Closing in substantially the same manner as presently conducted, (ii) reduce or cause to be reduced any room rents or any other charges over which Contributors have operational control, or (iii) would cause any of the representations and warranties contained in this Article III to be untrue as of Closing.

3.22 Intentionally Omitted.

3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has occurred with respect to the Partnership.

3.24 Hazardous Substances. Except for matters in Partnership's or Acquiror's audits, Contributors have no knowledge: (a) of the presence of any "Hazardous Substances" (as defined below) on the Property, or any portion thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous Substances that have occurred or are presently occurring on or onto the Property, or any portion thereof, or (c) of the presence of any PCB transformers serving, or stored on, the Property, or any portion thereof, and Contributors have no actual knowledge of any failure to comply with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Substances (as used herein, "Hazardous Substances" shall mean any substance or material whose presence, nature, quantity or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials is either: (1) potentially injurious to the public health, safety or welfare, the environment or the Property, (2) regulated, monitored or defined as a hazardous or toxic substance or waste by any Environmental Authority, or (3) a basis for liability of the owner of the Property to any Environmental Authority or third party, and Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any products, by-products or components thereof, and asbestos). Notwithstanding anything to the contrary contained herein Contributors shall have no liability to Acquiror for any Hazardous Substances of which Contributors have no actual knowledge.

3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and each room in the Hotel available for guest rental is furnished in accordance with Licensor's standards for the Hotel and room type.

3.26 License. The license from Holiday Hospitality, Inc. (the "Licensor") with respect to the Hotel (the "License") is, and at Closing will be, valid and in full force and effect, and Contributors will make good faith efforts not to be in default with respect thereto (with or without the giving of any required notice and/or lapse of time).

3.27 Independent Audit. Contributors shall provide access by Acquiror's representatives, to all financial and other information relating to the Property which would be sufficient to enable them to prepare audited financial statements in conformity with Regulation S-X of the Securities and Exchange Commission (the "Commission") and to enable them to prepare a registration statement, report or disclosure statement for filing with the Commission. Contributors shall also provide to Acquiror's representatives a signed representative letter and a hold harmless letter which would be sufficient to enable an independent public accountant to render an opinion on the financial statements related to the Property.

3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror against any claim, loss or liability arising under the bulk sales law in connection with the transaction contemplated herein.

3.29 Liquor License. The liquor license for the restaurant located within the Hotel (the "Liquor License") is in full force and effect and validly licensed to the person(s) required to be licensed under Pennsylvania law.

3.30 Sufficiency of Certain Items. The Property contains not less than:

3.31 Noncompetition. If Contributors develop or acquire other lodging facilities, not owned at the time of the execution of this Agreement, within 15 miles of any facility owned or to be owned by the Acquiror, the Contributors shall give the Acquiror the option to purchase the facility for a period of two years following the opening or acquisition of such facility.

3.32 Leases. True, complete copies of the Leases, if any, are attached as Exhibit D hereto. The Leases are, and will at Closing be, in full force and effect and Contributors, is not in default and will make good faith efforts not to be in default with respect thereto (with or without the giving of any notice and/or lapse of time). The Leases are, or will be at Closing, freely assignable by Contributors and Contributors will have obtained consents all necessary consents of any third party.

3.33 Securities Law Matters. Contributors further represent and warrant that they have (i) received, reviewed, been given the opportunity to ask questions of representatives of the Operating Partnership and the REIT regarding, and understand the Acquiror's Partnership Agreement, as amended, and each filing of the REIT under the Securities Act, and (ii) Contributors and the Transferees are "accredited investors" as defined under Regulation D promulgated under the Securities Act.

3.34 Tax Matters with Respect to Contributors. The Contributors represent and warrant that they (and each of its partners) have obtained from its own counsel advice regarding the tax consequences of (i) the transfer of the Partnership Interest to the Acquiror and the receipt of Partnership Units as consideration therefor, (ii) the Contributors' admission as partners of the Acquiror, and (iii) any other transaction contemplated by this Agreement. The Contributors further represent and warrant that they have not relied on the Acquiror or the Acquiror's representatives or counsel for such advice.

3.35 Noncontravention. The execution and delivery of, and the performance by the Contributors of their obligations under this Agreement do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, the Contributors' Organizational Documents or any agreement, judgment, injunction, order, decree or other instrument binding upon the Contributors, or result in the creation of any lien or other encumbrance on any asset of the Contributor. There are no outstanding agreements (written or oral) pursuant to which the Contributors (or any predecessor to or representative of the Contributors) have agreed to contribute or have granted an option or right of first refusal to acquire the Property or any part thereof.

Each of the representations, warranties and covenants contained in this Article III and its various subparagraphs are intended for the benefit of the Acquiror and may be waived in whole or in part, by the Acquiror, but only by an instrument in writing signed by the Acquiror. Each of said representations, warranties and covenants shall survive the closing of the transaction contemplated hereby for twenty-four (24) months, and no investigation, audit, inspection, review or the like conducted by or on behalf of the Acquiror shall be deemed to terminate the effect of any such representations, warranties and covenants, it being understood that the Acquiror has the right to rely thereon and that each such representation, warranty and covenant constitutes a material inducement to the Acquiror to execute this Agreement and to close the transaction contemplated hereby and to pay the Consideration to the Contributors. Acquiror acknowledges and agrees that, except for the representations and warranties expressly set forth herein, Acquiror is acquiring the Property "AS-IS, WHERE-IS" with no representations or warranties by or from Contributors or any of its affiliates, express or implied, or any nature whatsoever.

ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Contributors to enter into this Agreement and to sell the Property, the Acquiror hereby makes the following representations, warranties and covenants with respect to the Property, upon each of which the Acquiror acknowledges and agrees that the Contributors are entitled to rely and have relied:

4.3 Litigation. There is no action, suit or proceeding, pending or known to be threatened, against or affecting the Acquiror in any court or before any arbitrator or before any Governmental Body which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other agreement or instrument to which the Acquiror is a party or by which it is bound and that is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Acquiror, (c) could materially and adversely affect the ability of the Contributors to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a lien on the Property, any part thereof or any interest therein or (e) could adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the Acquiror.

ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS

The Acquiror's obligations hereunder are subject to the satisfaction of the following conditions precedent and the compliance by the Contributors with the following covenants:

5.1 Contributors' Deliveries. The Contributors shall have delivered to the Escrow Agent or the Acquiror, as the case may be, on or before the date of Closing, all of the documents and other information required of Contributors pursuant to Section 6.2.

5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate. All of the Contributors' representations and warranties made in this Agreement shall be true and correct as of the date hereof and as of the date of Closing as if then made, there shall have occurred no material adverse change in the financial condition of the Property since the date hereof, the Contributors shall have performed all of its material covenants and other obligations under this Agreement and the Contributors shall have executed and delivered to the Acquiror at Closing a certificate to the foregoing effect.

5.4 Intentionally Omitted.

5.5 Condition of Improvements. The Improvements and the Tangible Personal Property (including but not limited to the mechanical systems, plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning and ventilating equipment, elevators, boilers, equipment, roofs, structural members and furnaces) shall be in the same condition at Closing as they are as of the date hereof, reasonable wear and tear excepted. Prior to Closing, the Contributors shall not have diminished the quality or quantity of maintenance and upkeep services heretofore provided to the Real Property and the Tangible Personal Property and the Contributors shall not have diminished the Inventory. The Contributors shall not have removed or caused or permitted to be removed any part or portion of the Real Property or the Tangible Personal Property unless the same is replaced, prior to Closing, with similar items of at least equal quality and acceptable to the Acquiror.

5.6 Utilities. All of the Utilities shall be installed in and operating at the Property, and service shall be available for the removal of garbage and other waste from the Property.

5.7 Intentionally Omitted.

5.8 License. From the date hereof to and including the Closing Date, Contributors shall comply with and perform all of the duties and obligations of licensee under the License.

5.9 Intentionally Omitted.

ARTICLE VI
CLOSING

6.1 Closing. Closing shall be held at a location that is mutually acceptable to the parties, on or before December 31, 1998.

6.2 Contributors' Deliveries. At Closing, the Contributors shall deliver to Acquiror all of the following instruments, each of which shall have been duly executed and, where applicable, acknowledged on behalf of the Contributors and shall be dated as of the date of Closing:

(a) The certificate required by Section 5.2.

(b) The Assignment and Assumption Agreements.

(c) Certificate(s)/Registration of Title for any vehicle owned by the Contributors and used in connection with the Property.

(d) Such agreements, affidavits or other documents as may be required by the Title Company to issue the Owner's Title Policy with affirmative coverage over mechanics' and materialmen's liens.

(e) The FIRPTA Certificates.

(f) True, correct and complete copies of all warranties, if any, of manufacturers, suppliers and installers possessed by the Contributors and relating to the Improvements and the Personal Property, or any part thereof.

(g) Certified copies of the Contributors' and the Partnership's Organizational Documents.

(h) Appropriate resolutions of the partners of the Contributors, together with all other necessary approvals and consents of the Contributors, authorizing (A) the execution on behalf of the Contributors of this Agreement and the documents to be executed and delivered by the Contributors prior to, at or otherwise in connection with Closing, and (B) the performance by the Contributors of its obligations hereunder and under such documents.

(i) Valid, final and unconditional certificate(s) of occupancy for the Real Property and Improvements, issued by the appropriate governmental authority.

(j) The written consent of the Licensor to the transfer of the license, if applicable, and if so required.

(k) Such proof as the Acquiror may reasonably require with respect to Contributors' compliance with the bulk sales laws or similar statutes.

(l) A written instrument executed by the Contributors, conveying and transferring to the Acquiror all of the Contributors' right, title and interest in any telephone numbers and facsimile numbers relating to the Property, and, if the Contributors maintains a post office box, conveying to the Acquiror all of its interest in and to such post office box and the number associated therewith, so as to assure a continuity in operation and communication.

(m) All current real estate and personal property tax bills in the Contributors' possession or under its control.

(n) A complete set of all guest registration cards, guest transcripts, guest histories, and all other available guest information.

(o) An updated schedule of employees, showing salaries and duties with a statement of the length of service of each such employee, brought current to a date not more than 48 hours prior to the Closing.

(p) A complete list of all advance room reservations, functions and the like, in reasonable detail so as to enable the Acquiror to honor the Contributors' commitments in that regard.

(q) A list of the Contributors' outstanding accounts receivable as of midnight on the date prior to the Closing, specifying the name of each account and the amount due the Contributors.

(r) Intentionally Omitted

(s) All keys for the Property.

(t) All books, records, operating reports, appraisal reports, files and other materials in the Contributors' possession or control which are necessary in the Acquirors discretion to maintain continuity of operation of the Property.

(u) To the extent permitted under applicable law, documents of transfer necessary to transfer to the Acquiror the Contributors' employment rating for workmens' compensation and state unemployment tax purposes.

(v) An assignment of all warranties and guarantees from all contractors and subcontractors, manufacturers, and suppliers in effect with respect to the Improvements.

(w) Complete set of "as-built" drawings for the Improvements.

(x) Such agreements, affidavits or other documents as may be required by the Title Company in order to issue affirmative mechanics lien coverage in the Owner's Title Policy for the Property.

(y) a completed version of the Questionnaire from the Contributors and each Transferee.

(z) Any other document or instrument reasonably requested by the Acquiror or required hereby.

6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or deliver to the Contributors the following:

(a) The Consideration described in Section 2.3.

(b) The Assignment and Assumption Agreements.

(c) The certificates described in Section 2.5 evidencing the Transferees ownership of the Partnership Units and the admission of the Transferees as limited partners in the Acquiror.

(d) Any other document or instrument reasonably requested by the Contributors or required hereby.

6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses. All filing fees for the Deed and the real estate transfer, recording or other similar taxes due with respect to the transfer of title and all charges for title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay reasonable fees for the preparation of the documents to be delivered by the Contributor hereunder. Acquiror shall assume and pay for the releases of any deeds of trust, mortgages and other financing encumbering the Property and for any costs associated with any corrective instruments, and the Acquiror shall receive a credit against the Consideration for such costs pursuant to Section 2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise license transfer fees, in carrying out the transactions contemplated hereunder.

6.5 Income and Expense Allocations. All income, except any Intangible Personal Property, and expenses with respect to the Property, and applicable to the period of time before and after Closing, determined in accordance with sound accounting principles consistently applied, shall be allocated between the Contributors and the Acquiror. The Contributors shall be entitled to all income (including all cash box receipts and cash credits for unused expendables), and responsible for all expenses for the period of time up to but not including 12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income and responsible for all expenses for the period of time from, after and including the Closing Date. All adjustments shall be shown on the settlement statements (with such supporting documentation as the parties hereto may require being attached as exhibits to the settlement statements) and shall increase or decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following items of income and expense shall be allocated as of the Closing Date:

(a) Current and prepaid rents, including, without limitation, prepaid room receipts, function receipts and other reservation receipts.

(b) Real estate and personal property taxes.

(d) Utility charges (including but not limited to charges for water, sewer and electricity).

(e) Wages, vacation pay, pension and welfare benefits and other fringe benefits of all persons employed at the Property who the Acquiror elects to employ.

(f) Value of fuel stored on the Property at the price paid for such fuel by the Contributors, including any taxes.

(g) All prepaid reservations and contracts for rooms confirmed by Contributors prior to the Closing Date for dates after the Closing Date, all of which Acquiror shall honor.

The Tray Ledger shall be retained by the Contributors. The Contributors shall be required to pay all sales taxes and similar impositions currently up to the Closing Date.

Acquiror shall not be obligated to collect any accounts receivable or revenues accrued prior to the Closing Date for Contributors, but if Acquiror collects same, such amounts will be promptly remitted to Contributors in the form received.

If accurate allocations cannot be made at Closing because current bills are not obtainable (as, for example, in the case of utility bills or tax bills), the parties shall allocate such income or expenses at Closing on the best available information, subject to adjustment upon receipt of the final bill or other evidence of the applicable income or expense. Any income received or expense incurred by the Contributors or the Acquiror with respect to the Property after the date of Closing shall be promptly allocated in the manner described herein and the parties shall promptly pay or reimburse any amount due. The Contributors shall pay at Closing all special assessments and taxes applicable to the Property.

The certificates evidencing the Contributors' ownership of the Partnership Units will be dated as of the Closing Date, and the Contributors will be entitled to any dividends accruing thereon on and after the Closing Date.

ARTICLE VII
CONDEMNATION; RISK OF LOSS

7.1 Condemnation. In the event of any actual or threatened taking, pursuant to the power of eminent domain, of all or any portion of the Real Property, or any proposed sale in lieu thereof, the Contributors shall give written notice thereof to the Acquiror promptly after the Contributors learns or receives notice thereof. If all or any part of the Real Property is, or is to be, so condemned or sold, the Acquiror shall have the right to terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement, all proceeds, awards and other payments arising out of such condemnation or sale (actual or threatened) shall be paid or assigned, as applicable, to the Acquiror at Closing.

7.2 Risk of Loss. The risk of any loss or damage to the Property prior to the recordation of the Deed shall remain upon the Contributors. If any such loss or damage to more than twenty five percent (25%) of the value of the improvements occurs prior to Closing, the Acquiror shall have the right to terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement, all insurance proceeds and rights to proceeds arising out of such loss or damage shall be paid or assigned, as applicable, to the Acquiror at Closing.

ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS

8.1 Liability of Acquiror. Except for any obligation expressly assumed or agreed to be assumed by the Acquiror hereunder and in the Assignment and Assumption Agreement, the Acquiror does not assume any obligation of the Contributors or any liability for claims arising out of any occurrence prior to Closing.

8.2 Indemnification by Contributors. The Contributors hereby indemnifies and holds the Acquiror harmless from and against any and all claims, costs, penalties, damages, losses, liabilities and expenses (including reasonable attorneys' fees), subject to Section 9.11 that may at any time be incurred by the Acquiror, whether before or after Closing, as a result of any breach by the Contributors of any of its representations, warranties, covenants or obligations set forth herein or in any other document delivered by the Contributors pursuant hereto.

8.3 Termination by Acquiror. If any condition set forth herein cannot or will not be satisfied prior to Closing, or upon the occurrence of any other event that would entitle the Acquiror to terminate this Agreement and its obligations hereunder, and the Contributors fails to cure any such matter within ten business days after notice thereof from the Acquiror, the Acquiror, at its option and as its sole remedy, shall elect either (a) to terminate this Agreement and all other rights and obligations of the Contributors and the Acquiror hereunder shall terminate immediately, or (b) to waive its right to terminate and, instead, to proceed to Closing.

8.4 Termination by Contributors. If, prior to Closing, the Acquiror defaults in performing any of its obligations under this Agreement (including its obligation to purchase the Property), and the Acquiror fails to cure any such default within ten business days after notice thereof from the Contributors, then the Contributors' sole remedy for such default shall be to terminate this Agreement.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.3 Successors and Assigns. The benefits and burdens of this Agreement shall inure to the benefit of and bind the Acquiror and the Contributors and their respective party hereto.

9.5 Governing Law. This Agreement and all documents referred to herein shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania.

If to the Contributors:             Jay H. Shah, Esquire
                                    Hersha Enterprises, Ltd.
                                    The Lafayette Building
                                    437 Chestnut Street, Suite 615
                                    Philadelphia. PA 19106
                                    Phone:(215) 238-1045
                                    Fax:(215) 238-0157

With a copy to:                     Kiran P. Patel
                                    Hersha Enterprises, Ltd.
                                    148 Sheraton Drive, Box A
                                    New Cumberland, PA 17070
                                    Phone:(717) 770-2405
                                    Fax:(717)  774-7383

If to the Acquiror:
                                    Jay H. Shah, Esquire
                                    Hersha Enterprises, Ltd.
                                    The Lafayette Building
                                    437 Chestnut Street, Suite 615
                                    Philadelphia, PA 19106
                                    Phone: (215) 238-1045
                                    Fax: (215) 238-0157

With a copy to:                     Cameron Cosby, Esquire
                                    Hunton & Williams
                                    Riverfront Plaza, East Tower
                                    951 East Byrd Street
                                    Richmond, VA 23219-4074
                                    Phone: (804) 788-8604
                                    Fax: (804) 788-8218

9.10 Incorporation by Reference. All of the exhibits attached hereto are by this reference incorporated herein and made a part hereof.

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9.11 Survival. All of the representations, warranties, covenants and agreements of the Contributors and the Acquiror made in, or pursuant to, this Agreement shall survive for a period of twenty-four (24) months following Closing and shall not merge into the Deed or any other document or instrument executed and delivered in connection herewith.

9.12 Further Assurances. The Contributors and the Acquiror each covenant and agree to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon the written request of the other party, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by either party hereto for the purpose of or in connection with consummating the transactions described herein.

9.14 Time of Essence. Time is of the essence with respect to every provision hereof.

9.15 Confidentiality. Contributors and its representatives, including any professionals representing Contributors, shall keep the existence and terms of this Agreement strictly confidential, except to the extent disclosure is compelled by law, and then only to the extent of such compulsion.

IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this Agreement to be executed in their names by their respective duly-authorized representatives.

CONTRIBUTORS:

Shree Associates, a Pennsylvania limited partnership

By:      /s/ Hasu P. Shah
----------------------------------
         Hasu P. Shah

JSK Associates, a Pennsylvania limited partnership

By:      /s/ Jay Shah
----------------------------------
         Jay Shah, General Partner

Shanti Associates, a Pennsylvania limited partnership

By:      /s/ K.D. Patel
------------------------------------
         K.D. Patel, General Partner

Shreeji Associates, a Pennsylvania limited partnership

By:      /s/ Rajendra Gandhi
------------------------------------
         Rajendra Gandhi, General Partner

Kunj Associates, a Pennsylvania limited partnership

By:      /s/ Kiran Patel
-----------------------------------
         Kiran Patel, General Partner

Devi Associates, a Pennsylvania limited partnership

By:      /s/ Bharat C. Mehta
----------------------------------
         Bharat C. Mehta, General Partner

Shreenathji Enterprises, Ltd., a Pennsylvania corporation

By:      /s/ Hasu P. Shah
----------------------------------
         Hasu P. Shah, President

        /s/ Neil Shah
        -------------------
        Neil Shah

        /s/ David Desfor
        --------------------
        David Desfor

       /s/ Madhusudan Patni
       ---------------------
       Madhusudan Patni


       /s/ Manhar Gandhi
       ----------------------
       Manhar Gandhi

ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia partnership

By: Hersha Hospitality Trust, a Maryland Business Trust, its sole general partner

By:        /s/ Hasu P. Shah
           -----------------------
           Hasu P. Shah, President

CONTRIBUTION AGREEMENT

dated as of June 3, 1998

between

JSK Associates, Shanti Associates, Shreeji Associates, Kunj Associates, Devi Associates, Neil Shah, David Desfor, and Shreenathji Enterprises, Ltd.

as Contributors,

and

Hersha Hospitality Limited Partnership, a Virginia limited partnership,

as Acquiror

TABLE OF CONTENTS

                                       ARTICLE I
                                DEFINITIONS; RULES OF CONSTRUCTION.....................................  1
1.1      Definitions...................................................................................  1
1.2      Rules of Construction...........................................................................7

                                       ARTICLE II
                                PURCHASE AND SALE; DEPOSIT;
                       PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................7
2.1      Contribution and Acquisition....................................................................7
2.2      Study Period....................................................................................7
2.3      Payment of Consideration........................................................................8
2.4      Determination of Number of Partnership Units....................................................9
2.5      Contributors' Distribution of Partnership Units.................................................9
2.6      Intentionally Omitted..........................................................................10
2.7      Intentionally Omitted..........................................................................10
2.8      Redemption.....................................................................................10
2.9      Registration of Common Shares..................................................................10
2.10     Intentionally Omitted..........................................................................10


                                      ARTICLE III
                      CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................11
3.1      Organization and Power.........................................................................11
3.2      Authorization, No Violations and Notices ......................................................11
3.3      Litigation with respect to Contributors .......................................................12
3.4      Interest.......................................................................................12
3.5      Bankruptcy with respect to Contributors........................................................12
3.6      Brokerage Commission...........................................................................12
3.7      The Partnership................................................................................12
3.8      Liabilities, Debts and Obligations.............................................................13
3.9      Tax Matters with respect to Partnership........................................................13
3.10     Contracts and Agreements.......................................................................14
3.11     No Special Taxes...............................................................................14
3.12     Compliance with Existing Laws..................................................................14
3.13     Operating Agreements...........................................................................15
3.14     Warranties and Guaranties......................................................................15
3.15     Insurance......................................................................................15
3.16     Condemnation Proceedings; Roadways.............................................................15
3.17     Litigation with respect to Partnership.........................................................15
3.18     Labor Disputes and Agreements..................................................................16
3.19     Financial Information..........................................................................16
3.20     Organizational Documents.......................................................................16
3.21     Operation of Property..........................................................................16
3.22     Intentionally Omitted..........................................................................17
3.23     Bankruptcy with respect to Partnership.........................................................17
3.24     Hazardous Substances...........................................................................17
3.25     Room Furnishings...............................................................................17
3.26     License........................................................................................17
3.27     Independent Audit..............................................................................18
3.28     Bulk Sale Compliance...........................................................................18
3.29     Liquor License.................................................................................18
3.30     Sufficiency of Certain Items...................................................................18
3.31     Noncompetition.................................................................................18
3.32     Leases.........................................................................................18
3.33     Securities Law Matters.........................................................................19
3.34     Tax Matters with respect to Contributors.......................................................19
3.35     Noncontravention...............................................................................19

                                       ARTICLE IV
                       ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................20
4.1      Organization and Power.........................................................................20
4.2      Noncontravention...............................................................................20
4.3      Litigation.....................................................................................20
4.4      Bankruptcy.....................................................................................20
4.5      No Brokers.....................................................................................20

                                       ARTICLE V
                                CONDITIONS AND ADDITIONAL COVENANTS.....................................21
5.1      Contributors' Deliveries.......................................................................21
5.2      Representations, Warranties and Covenants; Obligations of Contributors; Certificate............21
5.3      Title Insurance................................................................................21
5.4      Intentionally Omitted..........................................................................21
5.5      Condition of Improvements......................................................................21
5.6      Utilities......................................................................................21
5.7      Intentionally Omitted..........................................................................21
5.8      License........................................................................................21
5.9      Intentionally Omitted..........................................................................22


                                       ARTICLE VI
                                      CLOSING...........................................................22
6.1      Closing........................................................................................22
6.2      Contributors' Deliveries.......................................................................22
6.3      Acquiror's Deliveries..........................................................................24
6.4      Closing Costs..................................................................................24
6.5      Income and Expense Allocations.................................................................24

                                         ARTICLE VII
                                    CONDEMNATION; RISK OF LOSS..........................................26
7.1      Condemnation...................................................................................26
7.2      Risk of Loss...................................................................................26

                                         ARTICLE VIII
                     LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
                                        TERMINATION RIGHTS..............................................26
8.1      Liability of Acquiror..........................................................................26
8.2      Indemnification by Contributors................................................................26
8.3      Termination by Acquiror........................................................................27
8.4      Termination by Contributors....................................................................27
                                       ARTICLE IX
                                     MISCELLANEOUS PROVISIONS...........................................27
9.1      Completeness; Modification.....................................................................27
9.2      Assignments....................................................................................27
9.3      Successors and Assigns.........................................................................27
9.4      Days...........................................................................................27
9.5      Governing Law..................................................................................28
9.6      Counterparts...................................................................................28
9.7      Severability...................................................................................28
9.8      Costs..........................................................................................28
9.9      Notices........................................................................................28
9.10     Incorporation by Reference.....................................................................29
9.11     Survival.......................................................................................29
9.12     Further Assurances.............................................................................29
9.13     No Partnership.................................................................................29
9.14     Time of Essence................................................................................29
9.15     Confidentiality................................................................................30

LIST OF EXHIBITS

Exhibit A      -      Land

Exhibit B      -      Employment Agreements

Exhibit C      -      Insurance Policies

Exhibit D      -      Leases

Exhibit E      -      Operating Agreements

Exhibit F      -      Contributors' Partnership Agreement

Exhibit G      -      Contributors' Certificate of Limited Partnership

Exhibit H      -      Contributors' Warranties and Guaranties

Exhibit I      -      Litigation Schedule

Exhibit J      -      Allocation of Consideration

Exhibit K      -      Schedule of Transferees

Exhibit L      -      Investor Questionnaire and Agreement

Exhibit M      -      Hersha Hospitality Limited Partnership Agreement

Exhibit N      -      Contingent Consideration Calculation

Exhibit O      -      Shreenathji Enterprises, Ltd. Articles of Incorporation

Exhibit P      -      Shreenathji Enterprises, Ltd. Bylaws

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998, between JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania limited partnership ("Kunj"), Devi Associates, a Pennsylvania limited partnership ("Devi"), Neil Shah ("Shah"), David Desfor ("Desfor") and Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively, the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the "Acquiror"), provides: