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Exhibit 10.7
 
FIRST AMENDMENT TO
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF MYSTIC PARTNERS LEASECO, LLC

This First Amendment to Limited Liability Company Operating Agreement (this
“Amendment”) of MYSTIC PARTNERS LEASECO, LLC (the “Company”), is dated as of
February 8, 2006 and entered into by and among the following:
 
Name
Current Address
   
Mystic Hotel Investors, LLC
(a Delaware limited liability company)
Post Office Box 715
914 Hartford Turnpike
Waterford, CT 06385
   
Hersha Hospitality Limited Partnership
(a Virginia limited partnership)
510 Walnut Street, 9th Floor
Philadelphia, PA 19106

hereinafter collectively, the “Members”.
 
W I T N E S S E T H:
 
WHEREAS, the Company was formed pursuant to a Certificate of Formation filed
with the Delaware Secretary of State on June 24, 2005 and by execution of a
Limited Liability Company Operating Agreement on August 9, 2005 (the “LLC
Agreement”); capitalized terms used herein but not otherwise defined shall have
the meanings set forth for such terms in the LLC Agreement; and
 
WHEREAS, the Members desire to restructure the capital sharing ratios and
related equity and cost sharing mechanisms with respect to the Development
Assets (the “Equity Restructuring”) contained in the LLC Agreement to reflect
the Equity Restructuring;
 
WHEREAS, the Members hereby desire to amend the LLC Agreement as set forth
herein as follows:
 
1.            The Definition of Capital Sharing Ratio is hereby amended such
that TRS Class B Member shall have a 15% interest with respect to the Hartford
Marriott and a 10% interest with respect to the Hartford Hilton and such that
Mystic Member shall have an 85% interest with respect to the Hartford Marriott
and a 90% interest with respect to the Hartford Hilton.
 
2.            The definition of Residual Sharing Ratios is hereby amended such
that TRS Class A Member shall have 0% with respect to Hartford Hilton and 0%
with respect to the Hartford Marriott, TRS Class B Member shall have 7% with
respect to the Hartford Hilton and 10.5% with respect to the Hartford Marriott
and Mystic Class Member shall have 93% with respect to the Hartford Hilton and
89.5% with respect to the Hartford Marriott.
 
3.            The reference to Article 14 in Section 4.2.1(D) shall be amended
to refer to Article 13.

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4.             The definition of Distributable Funds set forth in Section 5.2.1
is hereby deleted in its entirety and replaced with the following text:
 
“Distributable Funds” shall mean (a) with respect to TRS Member, the sum of (i)
100% of the Net Cash Flow on hand (after repayment of any outstanding Member
Loans) in respect of Stabilized Assets, plus (ii) 10% of the Net Cash Flow on
hand (after repayment of any outstanding Member Loans) in respect of the
Hartford Hilton, plus (iii) 15% of the Net Cash Flow on hand (after repayment of
any outstanding Member Loans) in respect of the Hartford Marriott, plus (iv)
Capital Proceeds actually received and (b) with respect to Mystic Member, the
sum of (i) 100% of the Net Cash Flow on hand (after repayment of any outstanding
Member Loans) in respect of Stabilized Assets, plus (ii) 90% of the Net Cash
Flow on hand (after repayment of any outstanding Member Loans) in respect of the
Hartford Hilton, plus (iii) 85% of the Net Cash Flow on hand (after repayment of
any outstanding Member Loans) in respect of the Hartford Marriott, plus (iv)
Capital Proceeds actually received. Attached hereto as Exhibit A for
illustrative purposes is a hypothetical calculation of Distributable Funds.
 
5.             The following text is hereby added as a new Article 14:
 
14.1        TRS Member Option. Mystic Member hereby grants to TRS Member the
option (the “Option”) to purchase up to 50% (in the aggregate, which 50% maximum
percentage interest shall include TRS Member’s percentage interest in the
Company as evidenced by its Capital Sharing Ratio as of each of the Option
Exercise Dates (as defined below)) of Mystic Member’s interest in the entities
that own each of the Hartford Hilton (“Hartford Hilton Owner”) and the Hartford
Marriott (“Hartford Marriott Owner”), respectively. TRS Member shall have the
right to close on the purchase of additional percentage interests acquired
pursuant to the Option only on either December 29, 2006 or December 31, 2007
(collectively, the “Option Purchase Dates”) and on no other date. The Option
shall expire on the occurrence of the Option Purchase Dates. TRS Member may
exercise the Option in any increment of 10%. The amount of the percentage
interest desired to be purchased by TRS Member as of the applicable Option
Purchase Date in either the Hartford Marriott or the Hartford Hilton shall
herein be referred to as the “Additional Percentage Interest”.
 
14.2        Option Price. The price for TRS Member’s acquisition of a percentage
interest in Hartford Hilton Owner (the “Hilton Option Price”) shall equal the
sum of (a) the product obtained by multiplying (i) the Contribution Value of the
Hartford Hilton as set forth in the Contribution Agreement by (ii) the
Additional Percentage Interest plus (b) the product obtained by multiplying (i)
all operational funding (i.e. capital calls to fund operational shortfalls) and
capital expenditures incurred by Hartford Hilton Owner from the period since the
acquisition by the Company of the interests in Hartford Hilton Owner to the
applicable Option Purchase Date by (ii) the Additional Percentage Interest plus
(c) the product obtained by multiplying (i) 10% by (ii) the sum of (a) plus (b).
The price for TRS Member’s acquisition of the Additional Percentage Interest in
Hartford Marriott Owner (the “Marriott Option Price”) shall equal the sum of (x)
the product obtained by multiplying (i) the total amount of actual costs
incurred in the construction and development of the Hartford Marriott (as of the
date hereof, the Members hereby acknowledge and agree that such costs are
estimated to be approximately $94,000,000) by (ii) the Additional Percentage
Interest plus (y) the product obtained by multiplying (i) all operational
funding (i.e. capital calls to fund operational shortfalls) and capital
expenditures incurred by Hartford Marriott Owner from the period since the
acquisition by the Company of the interests in Hartford Hilton Owner to the
applicable Option Purchase Date by (ii) the Additional Percentage Interest plus
(z) the product obtained by multiplying (i) 10% by (i) the sum of (x) plus (y).
 
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        14.3         Exercise of the Option. In the event that TRS Member
desires to exercise the Option, TRS Member shall provide written notice of such
desire (an “Option Notice”) to Mystic Member on or prior to October 1, 2006 at
6:00 p.m., New York time (the “First Option Exercise Date”) with respect to the
Option Purchase Date occurring on December 29, 2006 and October 1, 2007 at 6:00
p.m., New York time (the “Second Option Exercise Date”, together with the First
Option Exercise Date, the “Option Exercise Dates”) with respect to the Option
Purchase Date occurring on December 31, 2007. The Option Notice shall include
TRS Member’s desired Additional Percentage Interest with respect to the Hartford
Hilton and the Hartford Marriott, as applicable. Within ten days after Mystic
Member’s receipt of the Option Notice, Mystic Member shall notify TRS Member in
writing of the Hilton Option Price and the Marriott Option Price, as applicable.
In the event that TRS Member and Mystic Member do not agree on the calculation
of the Option Price, TRS Member and Mystic Member shall negotiate the Option
Price in good faith. Section 6 of the Contribution Agreement between TRS Member
and Mystic Member (as amended) shall govern the calculation of all prorations
and post closing adjustments necessary in connection with TRS Member’s exercise
of the Option.
 
14.4         Closing of the Purchase of the Additional Percentage Interest. The
parties shall agree on a mutually acceptable location at which to close on TRS
Member’s purchase of the Additional Percentage Interests (which may be by mail).
On each of the Option Purchase Dates, as applicable, the parties shall do the
following:
 
14.4.1    Execute and deliver an amendment to the LLC Agreement evidencing
revised Capital Sharing Ratios and Residual Sharing Ratios (which shall be
determined in the same manner as prior to the date hereof) of TRS Member and
Mystic Member reflecting TRS Member’s acquisition of the Additional Percentage
Interests for the Hartford Hilton and/or the Hartford Marriott, as the case may
be;
 
14.4.2    TRS Member shall pay the Hilton Option Price and/or the Marriott
Option Price, as the case may be;
 
14.4.3    The parties shall calculate the prorations and deliver a Settlement
Statement in accordance with the procedures set forth in the Contribution
Agreement.
 
12.            As specifically modified hereby, the LLC Agreement shall remain
in full force and effect and is hereby ratified and confirmed. All references to
the LLC Agreement shall mean and refer to the LLC Agreement as amended and
modified hereby.

13.            This Amendment may be executed in one or more counterparts, and
all such counterparts shall together constitute the same agreement.

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13.            This Amendment shall be construed and interpreted according to
the laws of the State of Delaware. Accordingly, all questions with respect to
construction of this Amendment and the rights and liabilities of the parties
shall be determined in accordance with the applicable provisions of the laws of
the State of Delaware and this Amendment is intended to be performed in
accordance with and only to the extent permitted by all applicable laws,
ordinances, rules and regulations of such State. In the event that there is a
direct conflict between the provisions of Delaware law and the provisions of any
other jurisdiction applicable to a particular transaction, the laws of Delaware
shall nevertheless apply except and to the extent that such interpretation or
application would render the action or proposed action of the Company to be
invalid or illegal, in which event, the law of the jurisdiction of the State or
country which would be applicable under general rules regarding conflict of laws
or rules of comity shall apply.

[SIGNATURE PAGE FOLLOWS]
 
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IN WITNESS WHEREOF, the Members have caused this Amendment to be duly executed
by their respective and duly authorized representatives as of the date first
above written.
 
MEMBERS:
   
HERSHA HOSPITALITY LIMITED PARTNERSHIP
 
By:
   
Name:
    
Title:
      
MYSTIC HOTEL INVESTORS, LLC
 
By:
   
Name:
    
Title: Authorized Representative

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EXHIBIT A

Distributable Funds Illustration

(see attached)
 

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