Exhibit 10.5

DIRECTORS DESIGNATION AGREEMENT

This Directors Designation Agreement (this “Agreement”), dated as of February 1,
2012, by and among Real Estate Strategies L.P., a Bermuda Limited Partnership
(“RES” or, the “Purchaser”, or the “Investor” and Supertel Hospitality, Inc., a
Virginia corporation (the “Company” or “SPPR”).

W I T N E S S E T H:

WHEREAS, on or about the date hereof, the Investor has agreed, subject to
certain conditions, to purchase from the Company 2,000,000 shares of the
Company’s Series C Cumulative Convertible Preferred Shares, par value $0.01 per
share (the “Initial Preferred Shares”), with an irrevocable option to purchase
up to 1,000,000 additional shares of the Company’s Series C Cumulative
Convertible Preferred Shares, par value $0.01 per share (the “Additional
Preferred Shares”), (the Initial Preferred Shares plus the Additional Preferred
Shares, if applicable, the “Preferred Shares”) pursuant that certain Purchase
Agreement (the “Purchase Agreement”), dated as of November 16, 2011, by and
among RES, the Company and Supertel Limited Partnership, L.P., a Virginia
limited partnership (the “Operating Partnership”);

WHEREAS, concurrently in connection with the sale and purchase of the Preferred
Shares, the Company intends to issue to Investor warrants (the “Warrants”) to
purchase shares of common stock of the Company, par value $.01 per share (the
“Common Stock”) on the terms contained therein;

WHEREAS, in connection with the transactions contemplated by the Purchase
Agreement, the Company has agreed to appoint up to four representatives
designated by Investor as members of the Board of Directors of the Company, upon
the terms and subject to the conditions set forth in this Agreement;

WHEREAS, in connection with the transactions contemplated herein, the Company
and the Investor have executed on the following documents, the Purchase
Agreement, the Investor Rights and Conversion Agreement, dated as of February 1,
2012, (the “Investor Agreement”), a Common Stock Purchase Warrant dated as of
February 1, 2012, (the “Warrant Agreement”), a Registration Rights Agreement,
dated as of February 1, 2012, (the “Registration Rights Agreement”, and together
with the Purchase Agreement, the Investor Agreement and the Warrant Agreement,
the “Transaction Documents”).

NOW, THEREFORE, in consideration of the promises and the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
each intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Certain Defined Terms. In addition to the terms defined elsewhere
herein, for purposes of this Agreement, the terms below shall have the following
meanings:

“Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such specified Person. For
purposes of this Agreement, with respect to Investor, “Affiliate” shall not
include the Company or any other Person that is directly, or indirectly through
one or more

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intermediaries, controlled by the Company and, with respect to the Company,
“Affiliate” shall not include Investor or any other Person that is directly, or
indirectly through one or more intermediaries, controlled by Investor.

“Beneficially Own,” “Beneficially Owned” or “Beneficial Ownership” means, with
respect to any securities, having beneficial ownership of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act.

“Board of Directors” means the Board of Directors of the Company.

“Closing Date” means the date upon which the Investor will purchase the
Preferred Shares and deliver to the Company the purchase price pursuant to the
Purchase Agreement.

“Designation Notice” shall mean written notice from Investor to the Company
pursuant to which Investor shall notify the Company of its exercise of its right
to designate a Qualified Replacement Designee to serve as a member of the Board
of Directors, which notice shall identify such Person.

“D&O Questionnaire” means the questionnaire form attached hereto as Exhibit A.

“FINRA Questionnaire” means the questionnaire form attached hereto as Exhibit B.

“Independence Standards” means the categorical independence standards set forth
in the Nasdaq Stock Market listing standards, as the same may be amended form
time to time, and the Company’s Articles of Incorporation.

“Investor Designees” and “Investor Designee” mean respectively Daniel Elsztain,
Jim Friend, Donald J. Landry, and John M. Sabin, and each of them individually,
and any Qualified Replacement.

“Person” means any individual, corporation, partnership (general or limited),
limited liability company, joint venture, association, joint-stock company,
trust or unincorporated organization.

“Qualified Replacement” means any Person designated by the Investor in a
Designation Notice that (i) meets the Independence Standards but only if the
failure to meet the Independence Standards would mean that the Company failed to
have a majority of independent directors and (ii) completes the normal and
customary background check and similar processes customary for appointments of
directors of Nasdaq Stock Market listed companies, including completion of the
D&O Questionnaire and the FINRA Questionnaire.

“Qualifying Ownership Period” means the period commencing on the Closing Date
and ending on the date upon which the Investor or its Affiliates cease to
Beneficially Own at least 7% of the voting power of the capital stock of the
Company.

ARTICLE 2

BOARD DESIGNATION

Section 2.01. Investor Designees. The Company agrees to take, or cause to be
taken, all actions necessary to elect or appoint (or cause to be elected or
appointed) the Investor Designees to the Board of Directors effective as of the
Closing Date. The Company also agrees to permit the Investor Designees, as of
the Closing Date, to participate as independent directors (if so qualified) in
all decisions regarding transactions that require the approval of independent
directors under applicable law or the Articles of

 

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Incorporation or bylaws of the Company, the annual Schedule 14A Proxy Statement
of the Company and other relevant materials, and to allow an Investor Designee
to attend meetings of any committee of the Board of Directors as a non-voting
observer if there are no Investor Designees serving as a member of such
committee. Investor Designees shall be granted the same rights and shall be
subject to the same restrictions applicable to all directors of the Company
generally. An Investor Designee will be appointed to the Nominating Committee of
the Board of Directors on the Closing Date, provided that Investor Designees
shall not constitute a majority of the members of the Nominating Committee. An
acquisition committee of the Board of Directors will be formed on the Closing
Date, with the members of such committee consisting of at least an Investor
Designee, the Company’s Chief Executive Officer and a director who is a member
of the current Board of Directors.

Section 2.02. Number of Investor Designees. As of the Closing Date, and
notwithstanding anything to the contrary the Investor and SPPR agree that SPPR
shall appoint to its Board of Directors, subject to the Transaction Documents
(including without limitation the Purchaser Interest upon Closing), up to four
(4) knowledgeable and qualified Investor Designees to the Board of Directors.
The Board shall consist of no more than nine (9) members after such
appointments. The continuing members of the Board of Directors will be
reasonably acceptable to both the current CEO of SPPR and the Purchaser. For so
long as Purchaser collectively Beneficially Owns Common Stock and Preferred
Shares that would represent at least thirty-four percent (34%) of all
outstanding Common Shares and Preferred Shares (the “Purchaser Interest”), then
Purchaser will be entitled to appoint four (4) members to the Board of
Directors. For so long as the Purchaser Interest is less than thirty-four
percent (34%) but more than twenty-two percent (22%), then Purchaser will be
entitled to appoint three (3) members to the Board of Directors. For so long as
the Purchaser Interest is less than twenty-two percent (22%) but is equal to or
more than fourteen percent (14%), then Purchaser will be entitled to appoint two
(2) members to the Board of Directors. For so long as the Purchaser Interest is
less than fourteen percent (14%) but is equal to or more than seven percent
(7%), then Purchaser will be entitled to appoint one (1) member to the Board of
Directors. The Purchaser Interest shall include the fully diluted Beneficial
Ownership of the Purchaser including Common Shares and Preferred Shares but
excluding Warrants. The Purchaser may remove any Investor Designee from the
Board at any time, for any reason or no reason. The Purchaser may replace at any
time any Investor Designee who resigns or is removed with a Qualified
Replacement. In the event directors are elected by the holders of SPPR preferred
stock voting separately as a class because dividends on such preferred stock are
in arrears, then such directors shall replace a member or members of the Board
of Directors, other than Investor Designees, as necessary to maintain the Board
of Directors at no more than nine (9) members.

The Purchaser will agree to vote for the election of the current directors of
the SPPR Board who remain on the SPPR Board following appointment of the
Investor Designees, and their successors as nominated by the Nominating
Committee of the SPPR Board. At Purchaser’s option, a Investor Designee, meeting
Nasdaq independence requirements, will be appointed to the Nominating Committee
of the SPPR Board (provided that Investor Designees will not constitute a
majority of the membership of the committee).

An acquisition committee of the SPPR Board will be formed as provided in
Section 2.01 of this Agreement. Such acquisition committee will have authority
to approve acquisitions or dispositions of Company assets up to amounts set by
the SPPR Board.

Section 2.03. Replacement Director and Investor Designee Resignation. Subject to
applicable law, and applicable stock exchange and securities market rules and
regulations, during the Qualifying Ownership Period, in the event that an
Investor Designee is unable to serve as a director of the Company (due to death,
disability or otherwise), or the Investor decides to replace an Investor
Designee, following such Investor Designee’s resignation or removal such
Investor Designee’s replacement shall be

 

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nominated and designated by Investor pursuant to a Designation Notice, and the
Company agrees to take, or cause to be taken, all actions necessary to cause
such Qualified Replacement to be promptly appointed or elected to serve as a
director of the Company, with the same rights provided in Section 2.01. With
respect to any advance written resignation from the Board of Directors submitted
by an Investor Designee to be effective upon the occurrence of one or more
events specified therein, including upon notice from the Investor to the Company
that such resignation is effective, the Company will promptly take, or cause to
be taken, all action necessary to recognize such resignation and appoint the
Qualified Replacement for such resigned Investor Designee to the Board of
Directors.

Section 2.04. Recommendation and Solicitation of Proxies and Voting. At each
shareholder vote for the general election of directors of the Company held
(whether by a meeting or written consent of the stockholders of the Company)
during the Qualifying Ownership Period, the Company, the Nominating Committee of
the Board of Directors and the Board of Directors shall nominate and recommend
for approval by the Company’s shareholders Investor Designees (up to the number
the Investor is entitled to designate pursuant to Section 2.02) or, to the
extent that an Investor Designee is unable to serve as a director of the Company
(due to death, disability or incapacity), any Qualified Replacement for election
as a director of the Company, and the Company shall also solicit proxies for
Investor Designees or such Qualified Replacement to the same extent as it does
for any of its other nominees to the Board of Directors; provided that (1) in
the event that the Investor fails to send a timely Designation Notice in order
for the Company to nominate a new Investor Designee, the Investor Designee then
currently serving as a director shall be deemed to be the new Investor Designee
and (2) to the extent that the Board of Directors reasonably determines, based
upon Nasdaq Stock Market listing standards, that the proposed Investor Designee
does not qualify as a Qualified Replacement, Investor shall be permitted to
propose additional Persons until such time that the Board of Directors
determines that a proposed Investor Designee qualifies as a Qualified
Replacement to serve as a director of the Company.

At each shareholder vote for the general election of directors of the Company
held (whether by a meeting or written consent of the stockholders of the
Company) during the Qualifying Ownership Period, the Company, the Nominating
Committee of the Board of Directors and the Board of Directors shall nominate
and recommend for approval by the Company’s shareholders the current directors
of the Board of Directors who remain on the Board of Directors following
appointment of the Investor Designees, and upon their replacement for any cause,
their successors as nominated by the Nominating Committee of the Board of
Directors. The Investor agrees to vote for the election of the current directors
of the Board of Directors who remain on the Board of Directors following
appointment of the Investor Designees, and their successors as nominated by the
Nominating Committee of the Board of Directors.

Section 2.05. Charters and Bylaws.

(a) Subject to compliance with applicable laws, rules and regulations, the
Company shall take or cause to be taken all lawful action necessary to ensure
that, at all times during the Qualifying Ownership Period, Articles of
Incorporation of the Company, as amended, and the Bylaws of the Company, as
amended from time to time (the “Bylaws”) are not inconsistent with the
provisions of this Agreement.

(b) The Company’s Articles of Incorporation and Bylaws shall continue to allow
attendance at meetings of the Board of Directors and the Committees of the Board
of Directors through telephone conference or video conference.

 

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Section 2.06. Indemnification and Insurance.

(a) The Company shall make available to the Investor Designees, at the time of
appointment to the Board of Directors, indemnification consistent with its
current practices with respect to other directors of the Board of Directors,
including entering into an indemnification agreement consistent with such
agreements, if any, entered into with the Company’s other directors.

(b) The Company shall continue to maintain in full force and effect director and
officer liability insurance for the benefit of the Investor Designees consistent
with its current practices with respect to other directors of the Company.

Section 2.07. Further Obligations by the Company. The Company hereby agrees that
during the Qualifying Ownership Period it shall: (i) unless otherwise consented
to by the Investor Designee, provide the Investor Designees at least five
(5) business days advance written notice to any meeting of the Board of
Directors, notice which shall include the agenda proposed by the Chairman of the
Board of Directors (and for any committee of the Board of Directors if no member
of such committee is an Investor Designee) and any documents or information to
be addressed or discussed during such meeting; and (ii) furnish the Investor
Designees with such financial and operating data and other information with
respect to the business, finance and properties of the Company as the Company
prepares and compiles for members of its Board of Directors in the ordinary
course.

Section 2.08. Obligations of Investor Designees or Qualified Replacement. Prior
to appointment or election to the Board of Directors, Investor Designees and any
individual that the Investor proposes as a potential Qualified Replacement shall
complete, to the reasonable satisfaction of the Nominating Committee of the
Board of Directors, the D&O Questionnaire and the FINRA Questionnaire.

Section 2.09. Independent Director Matters. The Investor represents that it will
nominate sufficient Investor Designees to meet the Independence Standards when
combined with the other existing independent directors of the Company. If at any
time during the Qualifying Ownership Period an Investor Designee ceases to be
considered as an “independent” director, and only if such action would cause the
Company to fail to have a majority of independent directors, then the Investor
shall designate a Qualified Replacement who qualifies as an “independent
director” under applicable law, Nasdaq Stock Market listing standards, and the
Company’s Articles of Incorporation.

Section 2.10. Injunctive Relief. The parties hereto hereby agree that it is
impossible to measure in money the damages which will be suffered or incurred by
Investor by reason of any breach or violation by the Company of its obligations
set forth in this Article II. Accordingly, in the event of any such breach or
violation, in addition to any other remedy at law or in equity that Investor may
have available to it, Investor shall have the right to specific performance of
such obligations.

Section 2.11. SPPR Senior Management. During any time the Purchaser has the
right to have two or more Investor Designees to serve on the Board of Directors,
then the Purchaser will have the right to require SPPR to hire one individual to
the SPPR Senior Management team on terms reasonably acceptable to SPPR and the
Purchaser and subject to SPPR Board approval. Such person may serve as an
Investor Designee Director provided the majority of Board of Directors,
exclusive of the Investor Designees, approve. It will be the responsibility of
the SPPR CEO to identify and present candidates for the position, exclusive of
any persons not acceptable to Purchaser.

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Investor as follows:

Section 3.01. Corporation. The Company is duly organized, validly existing and
in good standing under the laws of the Commonwealth of Virginia and has all
requisite power to own its properties and assets and to conduct its business as
now conducted.

Section 3.02. Authorization and Validity of Agreement. The Company has the
requisite trust power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
performance by the Company of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors and all other necessary corporate action on the part of the Company,
and no other proceedings on the part of the Company are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and, assuming due
execution and delivery by Investor, constitutes a legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms.

Section 3.03. No Conflict or Violation. The execution, delivery and performance
by the Company of this Agreement does not and will not (i) violate or conflict
with any provision of the Articles of Incorporation or bylaws of the Company (in
each case, as amended and in effect on the date hereof and the Closing Date),
(ii) violate any provision of law, or any order, judgment or decree of any
governmental entity, or (iii) violate or result in a breach of or constitute
(with due notice or lapse of time or both) a default under any contract,
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which any of them is bound or to which any of their respective
properties or assets is subject.

ARTICLE 4

ADDITIONAL AGREEMENTS

Section 4.01. Term. This Agreement shall be effective as of the date hereof and
shall continue in force and effect until the earlier of (i) the termination of
the Purchase Agreement or (ii) the expiration of the Qualifying Ownership
Period, at which time this Agreement shall be of no further force or effect.

Section 4.02. Notices. All notices, requests, claims, demands and other
communications required or permitted hereunder shall be in writing and shall be
given (and shall be deemed to have been duly received if so given) by facsimile,
hand delivery, mail (registered or certified mail, postage prepaid, return
receipt requested) or any courier service, in each case providing reasonable
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses and facsimile numbers:

If to Investor

Real Estate Strategies L.P.

Clarendon House 2, Church Street,

Hamilton HM CX, Bermuda:

c/o I

IRSA Inversiones y Representaciones Sociedad Anónima

 

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Bolivar 108

C1091AAQ, Buenos Aires

Argentina

Attention: Mr. Eduardo Elsztain

Facsimile: +54 (11) 4323-7499

with copies to:

Zang, Bergel & Viñes Abogados

Florida 537, 18th Floor

C1005AAK, Buenos Aires

Argentina

Attention: Pablo Vergara del Carril

Facsimile: +54 (11) 5166-7070

If to the Company, to:

Supertel Hospitality, Inc.

1800 West Pasewalk Avenue, Suite 200

Norfolk, Nebraska 68701

United States

Attention: Chief Executive Officer

Facsimile: +1 (402) 371-4229

with a copy to:

McGrath North Mullin & Kratz, PC LLO

First National Tower, Suite 3700

1601 Dodge Street

Omaha, Nebraska 68102

United States

Attention: Guy Lawson

Facsimile: +1 (402) 952-1802

Section 4.03. CHOICE OF LAW AND FORUM. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York without
regard to the principles of conflicts of laws. Each of the parties hereto hereby
irrevocably consents, to the maximum extent permitted by law, that any action or
proceeding relating to this Agreement or the transactions contemplated hereby
shall be brought, at the option of the party instituting the action or
proceeding, in any court of general jurisdiction in New York County, New York,
in the United States District Court for the Southern District of New York or in
any state or federal court sitting in the area currently comprising the Southern
District of New York. Each of the parties hereto waives any objection that it
may have to the conduct of any action or proceeding in any such court based on
improper venue or forum non conveniens, waives personal service of any and all
process upon it, and consents that all service of process may be made by mail or
courier service directed to it at the address set forth herein and that service
so made shall be deemed to be completed upon the earlier of actual receipt or
ten days after the same shall have been posted or delivered to a nationally
recognized courier service. Nothing contained in this shall affect the right of
any party hereto to serve legal process in any other manner permitted by law.

Section 4.04. Limitations on Rights of Third Parties. Except as otherwise set
forth herein, nothing in this Agreement is intended or shall be construed to
confer upon or give any Person, other than the parties hereto and their
respective successors, any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby.

 

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Section 4.05. Assignment. This Agreement and the rights and obligations
hereunder may not be assigned without the prior written consent of the parties
hereto and any purported or attempted assignment or other transfer of rights or
obligations under this Agreement without such consent shall be void and of no
force or effect.

Section 4.06. No Joint Venture or Business Entity. Nothing expressed or implied
in this Agreement is intended or shall be construed to create or establish a
joint venture, partnership or other business entity by, among or between the
parties hereto.

Section 4.07. Amendments. This Agreement may not be amended, modified or
altered, and no provision hereof may be waived, in any such case in whole or in
part, except by a subsequent writing signed by the parties hereto.

Section 4.08. Severability. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body of competent
jurisdiction to be null, void or unenforceable, said provision shall survive to
the extent it is not so declared, and all of the other provisions of this
Agreement shall remain in full force and effect.

Section 4.09. Headings. The headings contained in this Agreement are included
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.

Section 4.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

[SIGNATURE PAGE FOLLOWS.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Director Designation
Agreement to be duly executed as of the day and year first above written.

 

REAL ESTATE STRATEGIES L.P By: JIWIN S.A. General Partner

/s/ Eduardo Elsztain

Name: Eduardo Elsztain Title: Chairman SUPERTEL HOSPITALITY, INC. By:

/s/ Kelly A. Walters

Name: Kelly A. Walters Title: Chief Executive Officer

Director Designation Agreement Signature Page

 

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