<PAGE>   1
                                                                     EXHIBIT 1.2




                                 700,000 Shares

                         SUNSTONE HOTEL INVESTORS, INC.

                                 COMMON SHARES


                             UNDERWRITING AGREEMENT

                                                                  March 24, 1997




MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California  94111


Dear Sirs:

          SECTION 1.  Introductory.  Sunstone Hotel Investors, Inc., a Maryland
corporation (the "Company"), proposes to issue and sell 700,000 shares (the
"Firm Common Shares") of its authorized but unissued common stock at $.01 par
value (the "Shares"), to the underwriter named in Schedule A annexed hereto
(the "Underwriter").  In addition, the Company proposes to grant to the
Underwriter an option to purchase up to 105,000 additional Shares (the
"Optional Common Shares") as provided in Section 4 hereof.  The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."

          You have advised the Company that the Underwriter proposes to make a
public offering of their respective portions of the Common Shares on the
effective date of the registration statement hereinafter referred to, or as
soon thereafter as in your judgment is advisable.

          The Company and Sunstone Hotel Investors, L.P., a Delaware limited
partnership (the "Partnership") hereby confirm their respective agreements with
respect to the purchase of the Common Shares by the Underwriter as follows:

          SECTION 2.  Representations and Warranties of the Company and the
Partnership.  The Company and the Partnership hereby jointly and severally
represent and warrant to the Underwriter that:

          (a)    The Company meets the requirements for use of Form S-3 and a
     registration statement on Form S-3 (File No.
<PAGE>   2
     333-16887) with respect to the Common Shares, including a prospectus (the
     "Base Prospectus"), has been prepared by the Company in conformity with
     the requirements of the Securities Act of 1933, as amended (the "Act"),
     and the rules and regulations (the "Rules and Regulations") of the
     Securities and Exchange Commission (the "Commission") thereunder and filed
     with the Commission and has become effective.  There have been delivered
     to you two signed copies of such Registration Statement and amendments,
     together with two copies of each exhibit filed therewith.  Conformed
     copies of such Registration Statement and amendments (but without
     exhibits) and of the related preliminary prospectus (the "Preliminary
     Prospectus") have been delivered to you in such reasonable quantities as
     you have requested for the Underwriter.  No stop order suspending the
     effectiveness of the registration statement has been issued, and no
     proceeding for that purpose has been instituted or, to the Company's
     knowledge, threatened by the Commission.  The Company will next file with
     the Commission one of the following:  (i) prior to effectiveness of such
     registration statement, a further amendment thereto, including the form of
     final prospectus, or (ii) a final prospectus and/or a prospectus
     supplement in accordance with Rules 430A and 424(b) of the Rules and
     Regulations.  As filed, such amendment and form of final prospectus and/or
     prospectus supplement, or such final prospectus, shall include all Rule
     430A Information (as hereinafter defined) and, except to the extent that
     you shall agree in writing to a modification, shall be in all substantive
     respects in the form furnished to you prior to the date and time that this
     Agreement was executed and delivered by the parties hereto, or, to the
     extent not completed at such date and time, shall contain only such
     specific additional information and other changes (beyond that contained
     in the latest Preliminary Prospectus) as the Company shall have previously
     advised you in writing would be included or made therein.

     The term "Registration Statement" shall mean the registration statement as
     amended at the time such registration statement becomes or became
     effective (the "Effective Date"), including financial statements and all
     exhibits and any information deemed by virtue of Rule 430A of the Rules
     and Regulations to be included in such Registration Statement at the
     Effective Date and any prospectus supplement filed thereafter with the
     Commission and shall include the documents incorporated by reference
     therein pursuant to Item 12 of Form S-3 which were filed under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act").  The
     term "Prospectus" means, collectively, the Base Prospectus together with
     any prospectus supplement (the "Prospectus Supplement"), in the respective
     forms they are filed with the Commission pursuant to Rule 424(b) of the
     Rules and Regulations.   Any reference herein to the terms





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     "amend," "amendment" or "supplement" with respect to the Registration
     Statement, the Base Prospectus, any prospectus supplement or the
     Prospectus shall be deemed to refer to and include the filing of any
     document under the Exchange Act after the Effective Date, or the date of
     the Prospectus, as the case may be, that is incorporated therein by
     reference.

          (b)  The Commission has not issued any order preventing or suspending
     the use of any Preliminary Prospectus, and each Preliminary Prospectus has
     conformed in all material respects to the requirements of the Act and the
     Rules and Regulations and, as of its date, has not included any untrue
     statement of a material fact or omitted to state a material fact necessary
     to make the statements therein, in the light of the circumstances under
     which they were made, not misleading; and at the time the Registration
     Statement becomes effective, and at all times subsequent thereto up to and
     including each Closing Date (as hereinafter defined), the Registration
     Statement and the Prospectus, and any amendments or supplements thereto,
     will contain all material statements and information required to be
     included therein by the Act and the Rules and Regulations and will in all
     material respects conform to the requirements of the Act and the Rules and
     Regulations, and neither the Registration Statement nor the Prospectus,
     nor any amendment or supplement thereto, will include 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 not misleading;
     provided, however, no representation or warranty contained in this Section
     2(b) shall be applicable to information contained in or omitted from any
     Preliminary Prospectus, the Registration Statement, the Prospectus or any
     such amendment or supplement in reliance upon and in conformity with
     written information furnished to the Company by or on behalf of any
     Underwriter, directly or through the Representatives, specifically for use
     in the preparation thereof.

          (c)  The Company has been duly formed and is validly existing as a
     corporation, is in good standing under the laws of the State of Maryland,
     with full power and authority (corporate and other) to own and lease its
     properties and conduct its business as currently conducted or as described
     in the Prospectus.  Except as disclosed in the Registration Statement
     neither the Company nor the Partnership owns or controls, directly or
     indirectly, any corporation, partnership, association or other entity.

          (d)  Sunstone Hotel Properties, Inc. (the "Lessee") has been duly
     incorporated and is validly existing as a corporation in good standing
     under the laws of the State of Colorado with full power and authority
     (corporate and other) to own and lease its properties and conduct its
     business as





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     described in the Prospectus.  Sunstone Hotel Management, Inc., a Colorado
     corporation (the "Manager"), has been duly incorporated and is validly
     existing as a corporation in good standing under the laws of its
     jurisdiction of incorporation, with full power and authority (corporate
     and other) to own and lease its properties and conduct its respective
     business as described in the Prospectus.

          (e)  The Partnership has been duly formed and is validly existing as
     a limited partnership under the laws of the State of Delaware with full
     power and authority (partnership and other) to own and lease its
     properties and conduct its business as currently conducted or as described
     in the Prospectus.  The Company is and will on each Closing Date be the
     sole general partner of the Partnership.  Upon the consummation of the
     Offering, the Company will own the Units it holds free and clear of all
     liens, encumbrances, equities, claims, security interests, voting trusts
     or charges.  Except as set forth in the Prospectus, each of the Company,
     the Partnership, the Lessee and each property to be owned by the
     Partnership as of the First Closing Date is, and after the consummation of
     the Offering will be, in possession of and operating in compliance with
     all authorizations, licenses, permits, consents, certificates and orders
     material to the conduct of its business, all of which are valid and in
     full force and effect.  Each of the Company, the Partnership, the Manager
     and the Lessee is, and after the consummation of the Offering will be,
     duly qualified to do business and in good standing as a foreign
     corporation, real estate investment trust or partnership, as applicable,
     in each jurisdiction in which the ownership or leasing of properties or
     the conduct of its respective business requires such qualification, except
     for jurisdictions in which the failure to so qualify would not have a
     material adverse effect upon the Company, the Partnership, the Manager or
     the Lessee, as the case may be, and no proceeding has been instituted in
     any such jurisdiction, revoking, limiting or curtailing, or seeking to
     revoke, limit or curtail, such power and authority or qualification.

          (f)  All of the issued and outstanding Shares of the Company (the
     "Current Shares") have been duly authorized and validly issued, are fully
     paid and nonassessable, have been issued in compliance with all federal
     and state securities laws, were not issued in violation of or subject to
     any preemptive rights or other rights to subscribe for or purchase
     securities, and conform in all material respects to the description
     thereof contained in the Prospectus.  All of the issued and outstanding
     Units of the Partnership have been validly issued and are fully paid and
     nonassessable and have been issued in compliance with all federal and
     state securities laws.  Except as disclosed in or contemplated by





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     the Prospectus and the financial statements of the Company, and the
     related notes thereto and except for warrants to acquire 67,892 Units (the
     "Warrants"), neither the Company nor the Partnership has outstanding any
     options to purchase, or any preemptive rights or other rights to subscribe
     for or to purchase, any securities or obligations convertible into, or any
     contracts or commitments to issue or sell, shares of its capital stock or
     partnership interests, as the case may be, or any such options, rights,
     convertible securities or obligations.

          (g)  The Common Shares to be sold by the Company in the public
     offering contemplated by this Agreement, when issued, delivered and paid
     for in the manner set forth in this Agreement, will be duly authorized,
     validly issued, fully paid and nonassessable, have been duly authorized
     for listing on the New York Stock Exchange upon official notice of
     issuance and will conform in all material respects to the description
     thereof contained in the Prospectus.   No shareholder of the Company has
     any right which has not been waived to require the Company to register the
     sale of any shares owned by such shareholder under the Act in the public
     offering contemplated by this Agreement.  No further approval or authority
     of the shareholders or the Board of Directors of the Company will be
     required for the issuance and sale of the Common Shares to be sold by the
     Company as contemplated herein.  The description of the Company's share
     option, share bonus and other share plans or arrangements, and the options
     or other rights granted and exercised thereunder, set forth in the
     Prospectus are accurate in all material respects the information required
     to be shown with respect to such plans, arrangements, options and rights.
     The Company is, and following the issuance and sale of the Common Shares
     will be, in compliance in all material respects with all of the rules and
     regulations of the New York Stock Exchange applicable to the Company.

          (h)  Each of the Company and the Partnership has full legal right,
     power and authority to enter into this Agreement and perform the
     transactions contemplated hereby.  This Agreement has been duly authorized
     by the Company and the Partnership, has been duly executed and delivered
     by the Company and the Partnership and constitutes a valid and binding
     obligation of each of the Company and the Partnership in accordance with
     its terms.  The making and performance of this Agreement by each of the
     Company and the Partnership and the consummation of the transactions
     herein contemplated will not violate any provisions of the partnership
     agreement, certificate of partnership, charter, by-laws or other
     organizational documents, as applicable, of the Company or the Partnership
     and will not conflict with, result in the breach or violation of, or
     constitute, either by itself or upon notice or the passage of time or
     both, a





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     material default under (i) any agreement, mortgage, deed of trust, lease,
     franchise, license, indenture, permit or other instrument to which the
     Company or the Partnership is a party or by which the Company or the
     Partnership or any of their respective properties may be bound or affected
     or (ii) any statute or any authorization, judgment, decree, order, rule or
     regulation of any court or any regulatory body, administrative agency or
     other governmental body applicable to the Company or the Partnership or
     any of their respective properties.  No consent, approval, authorization
     or other order of any court, regulatory body, administrative agency or
     other governmental body is required, including the satisfaction of any
     requirements pursuant to the Hart-Scott- Rodino Antitrust Improvements Act
     of 1976, as amended, for the execution and delivery of this Agreement or
     the consummation of the transactions contemplated by this Agreement,
     except for compliance with the Act, the Blue Sky and Canadian securities
     laws applicable to the public offering of the Common Shares by the
     Underwriter and the clearance of such offering with the National
     Association of Securities Dealers, Inc. (the "NASD") and the listing of
     additional shares with the New York Stock Exchange.

          (i)  Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), who has
     expressed its opinion with respect to the financial statements and
     schedules filed with the Commission or incorporated by reference as a part
     of the Registration Statement and included in the Prospectus and in the
     Registration Statement, is an independent accountant as required by the
     Act and the Rules and Regulations.

          (j)  The financial statements, together with the related notes
     thereto, of the Company and the Lessee set forth or incorporated by
     reference in the Registration Statement and Prospectus fairly present the
     financial condition of such entities as of the dates indicated and the
     results of operations and changes in financial position for the periods
     presented.  The pro forma financial statements included in the
     Registration Statement and the Prospectus comply in all material respects
     with the applicable requirements of Rule 11-02 of Regulation S-X of the
     Commission and the pro forma adjustments have been properly applied to the
     historical amounts in the compilation of such statements.  Such
     statements, schedules and related notes have been prepared in accordance
     with generally accepted accounting principles applied on a consistent
     basis as certified by the independent accountants named in Section 2(i).
     No other financial statements or schedules are required to be included in
     the Registration Statement.  The selected financial data set forth in the
     Prospectus under the caption "Selected Financial Information" fairly
     presents the information set forth therein on the basis stated in the
     Registration Statement.





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          (k)  There are no contracts or other documents required to be
     described in the Registration Statement or to be filed as exhibits to the
     Registration Statement by the Act or by the Rules and Regulations which
     have not been described or filed as required other than a copy of this
     Agreement and the tax opinion to be rendered in connection with this
     Offering which will be filed on Form 8-K on or before March 26, 1997.

          (l)  There are no legal or governmental actions, suits or proceedings
     pending in which service of process has been received by an employee of
     the Company or, to the best of the Company's knowledge, threatened to
     which the Company, the Partnership, the Manager or the Lessee is or may
     be, a party or of which property owned or leased by the Company, the
     Partnership, or the Lessee is or may be, the subject, or related to
     environmental or discrimination matters, which actions, suits or
     proceedings might, individually or in the aggregate, prevent or adversely
     affect the transactions contemplated by this Agreement or result in a
     material adverse change in the condition (financial or otherwise),
     properties, business, results of operations or prospects of the Company,
     the Partnership, the Manager or the Lessee, taken as a whole; and no labor
     disturbance by the employees of the Company, the Partnership, the Manager
     or the Lessee exists or to the Company's knowledge is imminent which might
     be expected to affect adversely such condition (financial or otherwise),
     properties, business, results of operations or prospects.  None of the
     Company, the Partnership, the Manager nor the Lessee is a party or subject
     to the provisions of any material injunction, judgment, decree or order of
     any court, regulatory body, administrative agency or other governmental
     body.

          (m)  The Partnership has good and marketable title to the Hotels (as
     defined in the Prospectus), subject to no lien, mortgage, pledge, charge
     or encumbrance of any kind except (i) those reflected in the financial
     statements (or described elsewhere in the Prospectus), or (ii) those which
     are not material in amount and do not adversely affect the use made and
     proposed to be made of such property by the Company and the Partnership.
     The Partnership holds its leased properties under valid and binding
     leases, with such exceptions as are not or will not be materially
     significant in relation to the business of any of the Partnership.  The
     Company does not own or lease any real property.  The Partnership owns or
     leases all such real and personal properties (except for items of
     inventory, vehicles, liquor licenses and Franchise Agreements to be held
     by the Lessee) as are necessary to operate the Properties as now operated
     or as proposed to be operated.





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         (n)  To the knowledge of the Company (i) no lessee, licensee,
     concessionaire or vendor of any portion of any of the Hotels is in default
     under any of the leases or licenses governing such properties and there is
     no event which, but for the passage of time or the giving of notice, or
     both, would constitute a default under any of such leases or licenses,
     except such defaults that would not have a material adverse effect on the
     condition (financial or otherwise) or on the earnings, business affairs or
     business prospects of the Company, the Partnership or the Lessee; (ii) all
     such material leases or licenses are assignable without consent or
     approval or if such consent or approval is required the applicable consent
     or approval has been obtained to assign any such lease or license, to the
     Partnership or the Lessee, as applicable; (iii) the current and intended
     use and occupancy of each of the Hotels complies with all applicable codes
     and zoning laws and regulations, if any, except for such failures to
     comply which would not, individually or in the aggregate, have a material
     adverse effect on the condition (financial or otherwise) or on the
     earnings, business affairs or business prospects of the Company, the
     Partnership or the Lessee; and (iv) there is no pending or to the
     Company's knowledge threatened condemnation, zoning change, environmental
     or other proceeding or action that will in any material respect affect the
     size of, use of, improvements on, construction on, or access to any of the
     Hotels or actions that would reasonably be expected to have a material
     adverse effect on the condition (financial or otherwise) or on the
     earnings, business affairs or business prospects of the Company, the
     Partnership or the Lessee.

          (o)  Since December 31, 1996, and except as described in or
     specifically contemplated by the Prospectus:  (i) none of the Company, the
     Partnership, the Manager nor the Lessee has incurred any material
     liabilities or obligations, indirect, direct or contingent, or entered
     into any material verbal or written agreement or other transaction which
     is not in the ordinary course of business or which could result in a
     material reduction in the future earnings of the Company, the Partnership,
     the Manager or the Lessee; (ii) none of the Company, the Partnership, the
     Manager nor the Lessee has sustained any material loss or interference
     with its respective businesses or properties from fire, flood, windstorm,
     accident or other calamity, whether or not covered by insurance; (iii)
     none of the Company, the Partnership nor the Lessee has paid or declared
     any dividends or other distributions with respect to its capital stock
     other than a dividend of $0.25 paid by the Company and a distribution of
     $0.25 per Unit paid by the Partnership in February, 1997, and none of the
     Company, the Partnership, the Manager nor the Lessee is in default in the
     payment of principal or interest on any outstanding material debt





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     obligations; (iv) there has not been any change in the number of
     outstanding Shares (other than upon the sale of the Common Shares or
     purchase of shares pursuant to the Company's dividend reinvestment
     program) of the Company, the ownership interests in any of the Partnership
     or the common stock of the Lessee or indebtedness material to the Company,
     the Partnership, the Manager or the Lessee (other than in the ordinary
     course of business); and (v) there has not been any material adverse
     change in the condition (financial or otherwise), business, properties,
     results of operations or prospects of the Company, the Partnership, the
     Manager or the Lessee.

          (p)  Except as disclosed in or specifically contemplated by the
     Prospectus, the Company, the Partnership, the Manager and the Lessee have
     sufficient trademarks, trade names, patent rights, copyrights, licenses or
     other similar rights and proprietary knowledge (collectively,
     "Intangibles"), approvals and governmental authorizations to conduct their
     businesses as now conducted; the expiration of any Intangibles, approvals
     or governmental authorizations would not have a material adverse effect on
     the condition (financial or otherwise), business, results of operations or
     prospects of the Partnership or the Company or the Lessee; and the Company
     has no knowledge of any material infringement by the Partnership of any
     Intangibles, and there is no claim being made against the Company, the
     Partnership, the Manager or the Lessee regarding any Intangible or other
     infringement which could have a material adverse effect on the condition
     (financial or otherwise), business, results of operations or prospects of
     the Company, the Partnership, the Manager or the Lessee.

          (q)  Neither the Company nor the Partnership has been advised, or has
     reason to believe, that the Company, the Partnership, the Manager and the
     Lessee are not conducting business in compliance with all applicable laws,
     rules and regulations of the jurisdictions in which any of them is
     conducting business, including, without limitation, all applicable local,
     state and federal environmental laws and regulations; except where failure
     to be in compliance would not materially adversely affect the condition
     (financial or otherwise), business, results of operations or prospects of
     any such entity.

          (r)  The Company, the Partnership, the Manager and the Lessee each
     has filed all necessary federal, state and foreign income and franchise
     tax returns and has paid all taxes shown as due thereon; and to the
     Company's knowledge, there is no tax deficiency which has been or might be
     asserted or threatened against which could materially and adversely affect
     the business, operations or properties of,





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     the Company, the Partnership, the Manager or the Lessee, as the case may
     be.

          (s)  Neither the Company nor the Partnership has distributed or will
     distribute prior to the First Closing Date any offering material in
     connection with the offering and sale of the Common Shares other than the
     Prospectus, the Registration Statement and the other materials permitted
     by the Act.

          (t)   None of the Company, the Partnership, the Manager nor the
     Lessee has at any time during the last five years (i) made any unlawful
     contribution to any candidate for foreign office or failed to disclose
     fully any contribution in violation of law or (ii) made any payment to any
     federal or state governmental officer or official, or other person charged
     with similar public or quasi-public duties, other than payments required
     or permitted by the laws of the United States or any jurisdiction thereof.

          (u)  Neither the Company nor any of its affiliates has taken or will
     take, directly or indirectly, any action designed to or that might be
     reasonably expected to cause or result in stabilization or manipulation of
     the price of the Common Shares to facilitate the sale or resale of the
     Common Shares.

          (v)  The Company, the Partnership, the Manager or the Lessee, as
     applicable, have and maintains liability, property and casualty insurance
     (insured by insurers of recognized financial responsibility) in favor of
     the Partnership, and in the case of liability insurance, the Lessee and
     the Partnership and the Manager, with respect to each of the Hotels, in an
     amount and on such terms as is reasonable and customary for businesses of
     the type proposed to be conducted by the Partnership, the Manager and the
     Lessee, including, among other things, insurance against theft, damage,
     destruction and acts of vandalism.  Neither the Company nor the
     Partnership has received from any insurance company written notice of any
     material defects or deficiencies affecting the insurability of any such
     Hotels.

          (w)  Title insurance in favor of the Partnership is in force with
     respect to each of the Hotels.

          (x)  The mortgages and deeds of trust encumbering the Hotels are not
     convertible nor does the Company or the Partnership hold a participating
     interest therein and such mortgages and deeds of trust are not
     cross-defaulted or cross-collateralized to any property not to be owned
     directly or indirectly by the Company or the Partnership.





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          (y)  Each of the Company, the Partnership, the Manager and the Lessee
     (i) is in compliance with any and all applicable foreign, federal, state
     and local laws and regulations relating to the protection of human health
     and safety, the environment or any Hazardous Material (as hereinafter
     defined) ("Environmental Laws"), (ii) has received all permits, licenses
     or other approvals required of them under applicable Environmental Laws to
     conduct their respective businesses and (iii) is in compliance with all
     terms and conditions of any such permit, license or approval, except where
     such noncompliance with Environmental Laws, failure to receive required
     permits, licenses or other approvals or failure to comply with the terms
     and conditions of such permits, licenses or approvals are otherwise
     disclosed in the Prospectus or would not, singly or in the aggregate, have
     a material adverse effect on the Company, the Partnership or the Lessee.
     As used herein, "Hazardous Material" shall mean (a) any "hazardous
     substance" as defined by the Comprehensive Environmental Response,
     Compensation, and Liability Act of 1980, as amended ("CERCLA"), (b) any
     "hazardous waste" as defined by the Resource Conservation and Recovery
     Act, as amended, (c) any petroleum or petroleum product, (d) any
     polychlorinated biphenyl and (e) any pollutant or contaminant or
     hazardous, dangerous, or toxic chemical, material, waste or substance
     regulated under or within the meaning of any other Environmental Law.

          (z)  To the knowledge of the Company, there is no liability, alleged
     liability or potential liability (including, without limitation,
     liability, alleged liability or potential liability for investigatory
     costs, cleanup costs, governmental response costs, natural resources
     damages, property damages, personal injuries or penalties), of the
     Company, the Partnership, the Manager or the Lessee arising out of, based
     on or resulting from (a) the presence or release into the environment of
     any Hazardous Material at any location, whether or not owned by the
     Company or the Lessee or (b) any violation or alleged violation of any
     Environmental Law, which liability, alleged liability or potential
     liability is required to be disclosed in the Registration Statement, other
     than as disclosed therein, or which liability, alleged liability or
     potential liability, singly or in the aggregate, would have a material and
     adverse effect on the respective business, prospects, properties,
     condition (financial or otherwise) or results of operations of any of the
     Hotels or the Company, the Partnership, the Manager or the Lessee.

          (aa) None of the Company, the Partnership, the Manager nor the Lessee
     is or will conduct their respective businesses in a manner in which any
     such entity would become an "investment company" or an entity "controlled"
     by an





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<PAGE>   12
     "investment company" as such terms are defined in the Investment Company
     Act of 1940, as amended (the "1940 Act").

          (bb) Neither the assets of the Company nor the Partnership
     constitutes, nor will such assets, as of the Closing Date, constitute
     "plan assets" under the Employee Retirement Income Security Act of 1974,
     as amended ("ERISA").

          (cc)  As of the Closing Date, the Company will be organized and will
     operate in a manner so as to qualify as a "real estate investment trust"
     ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
     1986, as amended (the "Code"), and has elected to, is qualified to and
     intends to remain qualified to, be taxed as a REIT under the Code and
     pursuant to any applicable state tax laws.  As of the Closing Date, less
     than 15 percent of the aggregate adjusted tax bases of both the personal
     property and the real property (the "Total Bases") to be leased pursuant
     to any Percentage Lease shall consist of the adjusted tax bases of the
     personal property (the "Personal Property Bases"), except in each instance
     where the failure to maintain such ratios will not disqualify the
     Company's election as a REIT or otherwise have a material adverse effect
     on the business and operations of the Company; in each succeeding year the
     Personal Property Bases in connection with each Percentage Lease will not
     exceed 15 percent of the Total Bases for such lease, except in each
     instance where the failure to maintain such ratios will not cause the
     Company to fail to qualify as a REIT or otherwise have a material adverse
     effect on the business and operations of the Company; and the Company has
     received a segmentation study from Coopers & Lybrand L.L.P. stating that
     based on its projections, during the first five years of the term of each
     Percentage Lease less than 15 percent of the Total Bases of each such
     Percentage Lease is expected to consist of Personal Property Bases, except
     in each instance where the failure to maintain such ratios will not cause
     the Company to fail to qualify as a REIT or otherwise have a material
     adverse effect on the business and operations of the Company.  The Company
     does not know of any event which would cause or is likely to cause the
     Company to fail to qualify as a REIT at any time.  All of the assets,
     liabilities and items of income, deduction and credit of the Partnership
     are treated as assets, liabilities and items of income, deduction and
     credit of the Company under the provisions of the Code and the Partnership
     is not, nor will it be, treated as a separate corporation under the
     provisions of the Code.  The Partnership is treated for federal income tax
     purposes as a partnership and not as an association taxable as a
     corporation.

          (dd)   The Company, the Partnership and the Lessee each maintain a
     system of internal accounting controls sufficient





                                       12
<PAGE>   13
     to provide reasonable assurances that (i) transactions are executed in
     accordance with management's general or specific authorization; (ii)
     transactions are recorded as necessary to permit preparation of financial
     statements in conformity with generally accepted accounting principles and
     to maintain accountability for assets; (iii) access to financial and
     corporate books and records is permitted only in accordance with
     management's general or specific authorization; and (iv) the recorded
     accountability for assets is compared with existing assets at reasonable
     intervals and appropriate action is taken with respect to any differences.

          (ee)  Neither the Company, the Partnership nor any other affiliate of
     the Company has incurred any liability for a fee, commission or other
     compensation on account of the employment of a broker or finder in
     connection with the transactions contemplated by this Agreement other than
     as disclosed in the Registration Statement.

          (ff)  No environmental engineering firm which prepared Phase I
     environmental assessment reports of the Properties with respect to the
     Hotels as set forth in the Registration Statement was employed for such
     purpose on a contingent basis or has any substantial interest in the
     Company, the Partnership or the Lessee.

          (gg)  To the best knowledge of the Company, no general labor problem
     exists or is imminent with the employees of any of the Hotels, the
     Company, the Manager, the Partnership or the Lessee.

          (hh)  Each certificate signed by any officer of the Company, the
     Partnership or the Lessee or any of their affiliates and delivered to the
     Representatives or counsel for the Underwriter shall be deemed to be a
     representation and warranty by the Company, the Partnership or the Lessee,
     as the case may be, as to the matters covered thereby.

          SECTION 3.  Representations and Warranties of the Underwriter.  The
Underwriter represents and warrants to the Company and the Partnership that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under "Underwriting" in the Prospectus was furnished to the Company by and on
behalf of the Underwriter for use in connection with the preparation of the
Registration Statement and the Prospectus and is complete and correct in all
material respects.

          SECTION 4.  Purchase, Sale and Delivery of Common Shares.  On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell





                                       13
<PAGE>   14
to the Underwriter the Firm Common Shares.  The Underwriter agrees to purchase
from the Company the number of Firm Common Shares described below.  The
purchase price per share to be paid by the Underwriter to the Company shall be
$13.20 per share.

          Delivery of certificates for the Firm Common Shares to be purchased
by the Underwriter and payment therefor shall be made at such place as set
forth below at such time and date, not later than the third (or, if the Firm
Common Shares are priced, as contemplated by Rule 15c6-1(c) of the Securities
Exchange Act of 1934, after 4:30 P.M. Washington, D.C. Time, the fourth) full
business day following the first date that any of the Common Shares are
released by you for sale to the public, as you shall designate by at least 48
hours' prior notice to the Company (or at such other time and date, not later
than one week after such third full business day as may be agreed upon by the
Company and the Representatives) (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later
of the third or fourth, as the case may be, full business day following the
first date that any of the Common Shares are released by you for sale to the
public or the date that is 48 hours after the date that the Prospectus has been
so recirculated.

          Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company to you, against payment by you, for your account,
of the purchase price therefor by wire transfer of same day funds to the order
of the Company for the purposes set forth in the Prospectus.  At your option,
the certificates for the Firm Common Shares shall be registered in such names
and denominations as you shall have requested in writing to the Company or the
Company's transfer agent at least two full business days prior to the First
Closing Date, and shall be made available for checking and packaging on the
business day preceding the First Closing Date at a location in New York, New
York or such other location, as may be designated by you.  Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.

          In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to you to purchase the Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you in the sale
and distribution of the Firm Common Shares.  The option granted hereunder may
be exercised at any time (but not more than once) within 30 days after the
first date that any of the Common Shares are released by you for sale to the
public, upon notice by you to the Company setting forth the aggregate number of
Optional





                                       14
<PAGE>   15
Common Shares as to which you are exercising the option, the names and
denominations in which the certificates for such shares are to be registered
and the time and place at which such certificates will be delivered. Such time
of delivery (which may not be earlier than the First Closing Date), being
herein referred to as the "Second Closing Date," shall be determined by you,
but if at any time other than the First Closing Date shall not be earlier than
three nor later than five full business days after delivery of such notice of
exercise.  At your option, certificates for the Optional Common Shares will be
made available for checking and packaging on the business day preceding the
Second Closing Date at a location in New York, New York or such other location,
as may be designated by you.  Payment for the Optional Common Shares shall be
made directly to the Company, or such other party as designated by the Company,
by wire transfer of same-day funds and delivery of the Optional Common Shares
shall be the same as for the Firm Common Shares purchased from the Company as
specified in the two preceding paragraphs.  At any time before lapse of the
option, you may cancel such option by giving written notice of such
cancellation to the Company.

          Subject to the terms and conditions hereof, the Underwriter proposes
to make a public offering of the Common Shares as soon after the effective date
of the Registration Statement as in your judgment is advisable and at the
public offering price set forth on the cover page of and on the terms set forth
in the Prospectus.

          SECTION 5.  Covenants of the Company and the Partnership.  The
Company and the Partnership covenant and agree that:

          (a)  The Company will file the Prospectus, properly completed,
     pursuant to the applicable paragraph of Rule 424(b) of the Rules and
     Regulations within the time period prescribed and will provide evidence
     satisfactory to you of such timely filing.  Notwithstanding the foregoing,
     the Company may file any filing required under the Exchange Act which will
     be incorporated by reference into the Registration Statement, any
     Preliminary Prospectus or the Prospectus without the need to furnish a
     copy to the Underwriter prior to such filing.  The Company will promptly
     advise you in writing (i) of the receipt of any comments of the
     Commission, (ii) of any request of the Commission for amendment of or
     supplement to the Registration Statement (either before or after it
     becomes effective), any Preliminary Prospectus or the Prospectus or for
     additional information, (iii) when the Registration Statement shall have
     become effective and (iv) of the issuance by the Commission of any stop
     order suspending the effectiveness of the Registration Statement or of the
     institution of any proceedings for that purpose. If the Commission shall
     enter





                                       15
<PAGE>   16
     any such stop order at any time, the Company will use its best efforts to
     obtain the lifting of such order at the earliest possible moment.  The
     Company will not file any amendment or supplement to the Registration
     Statement (either before or after it becomes effective), any Preliminary
     Prospectus or the Prospectus of which you have not been furnished with a
     copy a reasonable time prior to such filing or to which you reasonably
     object or which is not in compliance with the Act and the Rules and
     Regulations.

          (b)  The Company will prepare and file with the Commission, promptly
     upon your request, any amendments or supplements to the Registration
     Statement or the Prospectus which in your judgment may be necessary or
     advisable to enable the Underwriter to continue the distribution of the
     Common Shares and will use its best efforts to cause the same to become
     effective as promptly as possible.  The Company will fully and completely
     comply with the provisions of Rule 430A of the Rules and Regulations with
     respect to information omitted from the Registration Statement in reliance
     upon such Rule.

          (c)  If at any time within the applicable period referred to in
     Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations
     during which a prospectus relating to the Common Shares is required to be
     delivered any event occurs, as a result of which the Prospectus, including
     any amendments or supplements, would include an untrue statement of a
     material fact, or omit to state any material fact required to be stated
     therein or necessary to make the statements therein not misleading, or if
     it is necessary at any time to amend the Prospectus, including any
     amendments or supplements, to comply with the Act or the Rules and
     Regulations, the Company will promptly advise you thereof and will
     promptly prepare and file with the Commission, at its own expense, an
     amendment or supplement which will correct such statement or omission or
     an amendment or supplement which will effect such compliance and will use
     its best efforts to cause the same to become effective as soon as
     possible; and, in case the Underwriter is required to deliver a prospectus
     after the applicable time period, the Company upon request, but at the
     expense of the Underwriter, will promptly prepare such amendment or
     amendments to the Registration Statement and such Prospectus or
     Prospectuses as may be necessary to permit compliance with the
     requirements of Section 10(a)(3) of the Act and Rule 174 of the Rules and
     Regulations, as applicable.

          (d)  As soon as practicable, but not later than 45 days (or 90 days
     if such quarter is the fiscal year end) after the end of the first quarter
     ending after one year following the effective date of the Registration
     Statement (as defined





                                       16
<PAGE>   17
     in Rule 158(c) of the Rules and Regulations), the Company will make
     generally available to its security holders an earnings statement (which
     need not be audited) covering a period of 12 consecutive months beginning
     after the effective date of the Registration Statement which will satisfy
     the provisions of the last paragraph of Section 11(a) of the Act.

          (e)  During such period as a prospectus is required by law to be
     delivered in connection with sales by the Underwriter or a dealer, the
     Company, at its expense, but only for the applicable period referred to in
     Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations, will
     furnish to you or mail to your order copies of the Registration Statement,
     the Prospectus, the Preliminary Prospectus and all amendments and
     supplements to any such documents in each case as soon as available and in
     such quantities as you may reasonably request, for the purposes
     contemplated by the Act and the Rules and Regulations.

          (f)  The Company shall cooperate with you and your counsel in order
     to qualify or register the Common Shares for sale under (or obtain
     exemptions from the application of) the Blue Sky and Canadian securities
     laws of such jurisdictions as you designate, will comply with such laws
     and will continue such qualifications, registrations and exemptions in
     effect so long as reasonably required for the distribution of the Common
     Shares; provided, however, that neither the Company nor the Partnership
     shall be required to qualify as a foreign real estate investment trust,
     corporation or partnership, as applicable, or to file a general consent to
     service of process in any such jurisdiction where it is not presently
     qualified or where it would be subject to taxation as a foreign real
     estate investment trust, corporation or partnership.  The Company will
     advise you promptly of the suspension of the qualification or registration
     of (or any such exemption relating to) the Common Shares for offering;
     sale or trading in any jurisdiction or any initiation or threat of any
     proceeding for any such purpose, and in the event of the issuance of any
     order suspending such qualification, registration or exemption, the
     Company, with your cooperation, will use its best efforts to obtain the
     withdrawal thereof.

          (g)  During the period of five years hereafter, the Company will
     furnish to the Underwriter: (i) as soon as available after the end of each
     fiscal year and mailing to the shareholders, copies of the Annual Report
     of the Company containing the balance sheet of the Company as of the close
     of such fiscal year and statements of income, shareholders' equity and
     cash flows for the year then ended and the





                                       17
<PAGE>   18
     opinion thereon of the Company's independent public accountants; (ii) as
     soon as practicable after the filing thereof, copies of each proxy
     statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
     Report on Form 8-K or other report filed by the Company with the
     Commission, the NASD or any securities exchange; and (iii) as soon as
     available, copies of any report or communication of the Company mailed
     generally to holders of its Shares.

          (h)  During the period of 120 days after the first date that any of
     the Common Shares are released by you for sale to the public, without the
     prior written consent of Montgomery Securities (which consent may be
     withheld at the sole discretion of Montgomery Securities), the Company
     will not, other than pursuant to the Company's share incentive plans and
     dividend reinvestment plan, pursuant to redemptions in accordance with the
     Partnership Agreement or in connection with the acquisition of real estate
     or hotel properties, or in response to the exercise of any outstanding
     warrants or in connection with a merger, consolidation or similar
     transaction issue, offer, sell, grant options to purchase or otherwise
     dispose of any of the Company's equity securities or any other securities
     convertible into or exchangeable with its Shares or other equity security.

          (i)  The Company and the Partnership will apply the net proceeds of
     the sale of the Common Shares sold by the Company substantially in
     accordance with the statements under the caption "Use of Proceeds" in the
     Prospectus.

          (j)  As necessary, the Company will use its reasonable best efforts
     to qualify or register its Common Shares for sale in non-issuer
     transactions under (or obtain exemptions from the application of) the Blue
     Sky laws of the State of California and the provincial laws of Canada as
     specified by the Representatives (and thereby permit market making
     transactions and secondary trading in the Company's Common Shares in
     California and such Canadian provinces as specified by the
     Representatives), will comply with such Blue Sky or Canadian provincial
     laws and will use its reasonable best efforts to continue such
     qualifications, registrations and exemptions in effect for a period of
     five years after the date hereof; provided, however, that neither the
     Company nor the Partnership shall be required to qualify as a foreign real
     estate investment trust, corporation or partnership, as applicable, or to
     file a general consent to service of process in any such jurisdiction
     where it is not presently qualified or where it would be subject to
     taxation as a foreign real estate investment trust, corporation or
     partnership.





                                       18
<PAGE>   19
          (k)  The Company will use its reasonable best efforts to continue the
     listing of the Common Shares on the New York Stock Exchange and will
     continue to comply in all material respects with all of the rules and
     regulations of the New York Stock Exchange applicable to the Company and
     the trading of the Common Shares.

          (l)  The Company will continue to meet the requirements to qualify as
     a REIT, effective for the year ending December 31, 1995 and thereafter.

          (m)  The Company will maintain a transfer agent for the Common Shares
     and, if necessary under the jurisdiction of formation of the Company, a
     registrar (which may be the same entity as the transfer agent).

          (n)  The Company and the Partnership will not permit the conversion
     of any of the Units into Shares in any manner which would or might affect
     the Company's qualification as a REIT.

          (o)  The Company and the Partnership in good faith will expend
     reasonable efforts to enforce the terms of any agreements with the Lessee,
     the Manager, Messrs. Alter, Biederman and Enever, or any parties
     affiliated with the Lessee or Messrs. Alter, Biederman or Enever.

          (p)  The Partnership will, per quarter on a cumulative basis, make
     available for periodic replacement and refurbishment of furniture,
     fixtures and equipment at each of the Hotels an amount equal to 4% of room
     revenues (as defined in the Percentage Leases).

You, on behalf of the Underwriter, may, in your sole discretion, waive in
writing the performance by the Company or the Partnership, as applicable, of
any one or more of the foregoing covenants or extend the time for their
performance.

          SECTION 6.  Payment of Expenses.  Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or
is terminated, the Company agrees to pay all costs, fees and expenses incurred
in connection with the performance of its obligations hereunder and in
connection with the transactions contemplated hereby, including without
limiting the generality of the foregoing, (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Common Shares, (iii) all necessary issue, transfer and other stamp
taxes in connection with the issuance and sale of the Common Shares to the
Underwriter, (iv) all fees and expenses of the Company's counsel and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation,





                                       19
<PAGE>   20
printing, filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein and the Blue
Sky memorandum, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriter in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws or the
provincial securities laws of Canada, (vii) the filing fee of the NASD and the
related legal fees in connection with such filing (other than counsel fees
incurred relating to compensation issues) and (viii) all other fees, costs and
expenses referred to in Item 14 of the Registration Statement.  Except as
provided in this Section 6, Section 8 and Section 10 hereof, the Underwriter
shall pay all of its own expenses, including the fees and disbursements of its
counsel (excluding those relating to qualification, registration or exemption
under the Blue Sky and Canadian provincial securities laws and the Blue Sky
memorandum  which fees shall be paid on the First Closing Date or the Second
Closing Date, as applicable).

          SECTION 7.  Conditions of the Obligations of the Underwriter.  The
obligation of the Underwriter to purchase and pay for the Firm Common Shares on
the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Partnership herein set forth as of the date
hereof and as of the First Closing Date or the Second Closing Date, as the case
may be, to the accuracy of the statements of the Company's officers and the
Partnership's officers made pursuant to the provisions hereof, to the
performance by each of the Company and the Partnership of its obligations
hereunder, and to the following additional conditions:

          (a)  The Registration Statement shall have become effective not later
     than 5:00 P.M. (or, in the case of a registration statement filed pursuant
     to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
     not later than 10:00 P.M.) New York time, on the date of this Agreement,
     or at such later time as shall have been consented to by you; if the
     filing of the Prospectus, or any supplement thereto, is required pursuant
     to Rule 424(b) of the Rules and Regulations, the Prospectus shall have
     been filed in the manner and within the time period required by Rule
     424(b) of the Rules and Regulations; and prior to such Closing Date, no
     stop order suspending the effectiveness of the Registration Statement
     shall have been issued and no proceedings for that purpose shall have been
     instituted or shall be pending or, to the knowledge of the Company or you,
     shall be contemplated by the Commission; and any request of the Commission
     for inclusion of additional information in





                                       20
<PAGE>   21
     the Registration Statement, or otherwise, shall have been complied with to
     your satisfaction.

          (b)  There shall have been furnished to you on each Closing Date, in
     form and substance satisfactory to you, except as otherwise expressly
     provided below:

               (i)  An opinion of Brobeck, Phleger & Harrison LLP, counsel for
          the Company, the Partnership, the Manager and the Lessee, or Ballard
          Spahr Andrews & Ingersoll, special Maryland counsel to the Company,
          addressed to the Underwriter and dated the First Closing Date, or the
          Second Closing Date, as the case may be, to the effect that:

                    (1)  The Company has been duly formed and is validly
               existing as a corporation, is in good standing under the laws of
               the state of Maryland, and is duly qualified to do business as a
               foreign corporation and is in good standing in all other
               jurisdictions where the ownership or leasing of properties or
               the conduct of its business requires such qualification, except
               for jurisdictions in which the failure to so qualify would not
               reasonably be expected to have a material adverse effect on the
               Company, the Partnership or any Property, and has the requisite
               power to own its properties and conduct its business
               substantially as described in the Registration Statement; and,
               to such counsel's knowledge, other than the Partnership, the
               Company does not own or control, directly or indirectly, any
               corporation, association, partnership or other entity;

                    (2)  Each of the Lessee and Manager has been duly
               incorporated and is validly existing as a corporation in good
               standing under the laws of the State of Colorado, and is duly
               qualified to do business as a foreign corporation and is in good
               standing in each of the states in which it leases real property
               from the Partnership and has the requisite corporate power and
               authority to own its properties and conduct its business as
               described in the Registration Statement;

                    (3)  The Partnership has been duly formed and is validly
               existing as a limited partnership under the laws of the State of
               Delaware, is duly qualified to do business as a foreign limited
               partnership and is in good standing in each of the states in
               which it owns real property, has the requisite partnership power
               and authority to own and lease its properties and conduct its
               business





                                       21
<PAGE>   22
               as currently conducted as described in the Prospectus.  The
               Company is the sole general partner of the Partnership, which
               Units, to such counsel's knowledge shall be held free and clear
               of all liens, encumbrances, equities, claims, security interests,
               voting trusts or charges;

                    (4)  All of the issued and outstanding Shares have been
               duly authorized and validly issued; all outstanding Shares were
               duly registered under the Act or were issued in transactions
               exempt from the registration requirements of the Act and were
               duly registered or subject to an available exemption from the
               registration requirements of the applicable state securities or
               blue sky laws, are fully paid and nonassessable, were not
               issued in violation of or subject to any statutory, or to such
               counsel's knowledge, other preemptive rights or other rights to
               subscribe for or purchase any securities and conformed in all
               material respects to the description thereof incorporated by
               reference in the Registration Statement; provided however that
               such counsel need not express any opinion with respect to the
               registration or availability of an exemption under applicable
               state securities or blue sky laws for Common Shares issued
               pursuant to an underwritten public offering;

                    (5)  The Company has given proper authorization to
               ChaseMellon Shareholder Service, L.L.C. (the "Transfer Agent")
               to issue the Firm Common Shares to you at the First Closing by
               electronic transfer through the FAST system of The Depository
               Trust Company, upon receipt of telephonic notification from you
               and the Company to issue such shares.  Upon your payment of the
               agreed consideration for the Firm Common Shares in accordance
               with the provisions of the Underwriting Agreement, and the
               electronic transfer to you of the Firm Common Shares by the
               Transfer Agent, the Firm Common Shares will be duly authorized
               and validly issued, fully paid and nonassessable, and will not
               have been issued in violation of or subject to any preemptive
               rights or (to our knowledge) other rights to subscribe for or
               purchase securities from the Company;

                    (6)  Except as disclosed in or specifically contemplated by
               the Prospectus, the Company's Annual Report on 10-K for the year
               ended December 31, 1996 or the Company's Proxy Statement 
               prepared in connection with its 1997 annual stockholders 
               meeting, to such counsel's knowledge, there are no outstanding
               options, warrants or other rights calling for the issuance of,
               and no commitments, plans or arrangements to





                                       22
<PAGE>   23
               issue, any shares of capital stock of the Company or any security
               convertible into or exchangeable for capital stock of the
               Company;

                    (7)(a) To such counsel's knowledge, no stop order
               suspending the effectiveness of the Registration Statement or
               preventing the use of the Prospectus has been issued and no
               proceedings for that purpose have been instituted or are pending
               or contemplated by the Commission and any required filing of the
               Prospectus and any supplement thereto pursuant to Rule 424(b) of
               the Rules and Regulations has been made in the manner and within
               the time period required by such Rule 424(b);

                    (b)  The Registration Statement, the Prospectus and any
               amendment or supplement thereto (except for the financial
               statements and schedules and other financial and statistical
               information included therein as to which such counsel need
               express no opinion) comply as to form in all material respects
               with the requirements of the Act and the Rules and Regulations;
               and

                    (c)  To such counsel's knowledge, there are no legal or
               governmental actions, suits or proceedings pending (in which
               service or notice of process has been received by the Company)
               or threatened against the Company which are required to be
               described in the Prospectus which are not described as required;

                    (8)  The Company has the corporate power and authority to
               enter into this Agreement, to sell and deliver the Common Shares
               to be sold by it to the Underwriter and to consummate the other
               transactions contemplated herein; the Partnership has the
               partnership power and authority to enter into this Agreement and
               to consummate the transactions contemplated herein; this
               Agreement has been duly and validly authorized by all necessary
               partnership action by each of the Company and the Partnership,
               respectively, has been duly and validly executed and delivered
               by and on behalf of each of the Company and the Partnership; and
               no approval, authorization, order, consent, registration,
               filing, qualification, license or permit of or with any court,
               regulatory, administrative or other governmental body is
               required for the execution and delivery of this Agreement by
               each of the Company and the Partnership or the consummation of





                                       23
<PAGE>   24
               the transactions contemplated by this Agreement, except such as
               have been obtained and are in full force and effect under the Act
               and such as may be required under applicable Blue Sky or Canadian
               securities laws in connection with the purchase and distribution
               of the Common Shares by the Underwriter and the clearance of such
               offering with the NASD;

                    (9)  The execution and delivery of the Underwriting
               Agreement and the issuance of the Common Shares contemplated
               therein will not conflict with, result in the material breach
               of, or constitute, either by itself or upon notice or the
               passage of time or both, a material default under, any
               agreement, mortgage, deed of trust, lease, franchise, license,
               indenture, permit or other instrument listed on Schedule 1 to
               any of the Backup Officers' Certificates; or violate any of the
               provisions of the partnership certificate, partnership
               agreement, articles of incorporation or bylaws, or other
               organizational documents, as applicable, of the Company, the
               Partnership, or the Lessee; or to our knowledge, violate any
               California statute, judgment, decree, order, rule or regulation
               of any court or California governmental body having jurisdiction
               over the Company, the Partnership, the Lessee, or any of their
               property;

                    (10)  Such counsel has not received written notice that the
               Company, the Partnership or the Lessee is in violation of its
               respective declaration of trust, partnership certificate,
               partnership agreement, certificate of incorporation or bylaws,
               or other organizational documents, as applicable, or is in
               breach of or default with respect to any provision of any
               agreements, mortgages, deeds of trust, leases, franchises,
               licenses, indentures, permits or other instruments listed in
               Schedule 1 to any of the Officers' Certificates delivered
               pursuant to Section 7(b)(iii) of this Agreement, known to such
               counsel and which is required to be filed as an item 10 exhibit
               to the Company's Annual Report on Form 10-K for the year ended
               December 31, 1996, to which the Company, the Partnership or the
               Lessee is a party or by which they or any of their properties
               may be bound or affected, except where such default would not
               materially adversely affect the Company, the Partnership or the
               Lessee, as the case may be;





                                       24
<PAGE>   25
                    (11)  To such counsel's knowledge, no holders of securities
               of the Company or the Partnership have rights to register
               Shares, Units or other securities because of the filing of the
               Registration Statement by the Company or the offering;

                    (12)  No transfer taxes are required to be paid to the
               states of Maryland and New York in connection with the sale and
               delivery of the Common Shares to the Underwriter hereunder;

                    (13)  Neither the Company nor the Partnership is or will be
               an "investment company" within the meaning of the 1940 Act;

                    (14)  Each of the Closing Agreements has been duly
               authorized, executed and delivered by the Company, the
               Partnership or the Lessee, as applicable, and constitutes a
               valid and binding agreement on such parties, enforceable in
               accordance with its terms, except as may be limited or otherwise
               affected by general equitable principles, bankruptcy,
               insolvency, reorganization, moratorium or other laws affecting
               the rights of creditors generally and by principles of equity,
               whether considered at law or in equity, and except with respect
               to those provisions relating to indemnities or contributions for
               liabilities under the Act, as to which no opinion need be
               expressed;

                    (15)  The Common Shares have been duly authorized for
               listing by the New York Stock Exchange upon official notice of
               issuance; and

                    (16)  An opinion on the REIT status of the Company and the
               treatment of the Partnership as a partnership for federal income
               tax purposes in form and substance satisfactory to Underwriter's
               counsel.

               In rendering such opinion, such counsel may rely as to matters
          of local law, on opinions of local counsel, and as to matters of
          fact, on certificates of officers of the Company, the Partnership or
          the Lessee, as applicable, and certificates and verbal advice of
          governmental officials, in which case their opinion is to state that
          they are so doing and that the Underwriter is justified in relying on
          such opinions or certificates and copies of said opinions or
          certificates are to be attached to the opinion.  Such counsel shall
          also include a statement to the effect





                                       25
<PAGE>   26
          that although such counsel is not passing upon and does not assume
          responsibility for the accuracy, completeness or fairness of the
          statements contained therein, nothing has come to such counsel's
          attention that would lead such counsel to believe that either at the
          effective date of the Registration Statement or at the applicable
          Closing Date the Registration Statement or the Prospectus, or any
          amendment or supplement thereto, contains any untrue statement of a
          material fact or omits to state a material fact required to be stated
          therein or necessary to make the statements therein not misleading
          (other than with respect to the financial statements, the notes
          thereto and the related financial schedules and other financial or
          statistical data as to which such counsel need express no opinion).

               (ii) Such opinion or opinions of O'Melveny & Myers LLP, counsel
          for the Underwriter, dated the First Closing Date or the Second
          Closing Date, as the case may be, with respect to the formation of
          the Company, the execution and delivery of the Agreement, the
          validity of the Common Shares, certain legal matters related to the
          Registration Statement and the Prospectus and other related matters
          as you may reasonably require, and the Company shall have furnished
          to such counsel such documents and shall have exhibited to them such
          papers and records as they may reasonably request for the purpose of
          enabling them to pass upon such matters.  In connection with such
          opinions, such counsel may rely on representations or certificates of
          officers of the Company and governmental officials.

               (iii)  A certificate of each of the Company, executed by the
          Chairman of the Board and President of the Company solely in their
          capacity as such, and the Partnership executed by an authorized
          officer of its general partner solely in his capacity as such, dated
          the First Closing Date or the Second Closing Date, as the case may
          be, to the effect that:

                    (1)  The representations and warranties of the Company and
               the Partnership set forth in Section 2 of this Agreement are
               true and correct as of the date of this Agreement and as of the
               First Closing Date or the Second Closing Date, as the case may
               be, and the Company and the Partnership each has complied with
               all the agreements and satisfied all of the conditions on its
               part to be performed or satisfied on or prior to such Closing
               Date;





                                       26
<PAGE>   27
                    (2)  The Commission has not issued any order preventing or
               suspending the use of the Prospectus or any Preliminary
               Prospectus filed as a part of the Registration Statement or any
               amendment thereto; no stop order suspending the effectiveness of
               the Registration Statement has been issued; and to the best of
               the knowledge of the respective signers, no proceedings for that
               purpose have been instituted or are pending or contemplated
               under the Act;

                    (3)  Each of the respective signers of each certificate has
               carefully examined the Registration Statement and the
               Prospectus; in his opinion and to the best of his knowledge, the
               Registration Statement and the Prospectus and any amendments or
               supplements thereto contain all statements required to be stated
               therein; and neither the Registration Statement nor the
               Prospectus nor any amendment or supplement thereto includes any
               untrue statement of a material fact or omits to state any
               material fact required to be stated therein, in light of the
               circumstances under which they were made, or necessary to make
               the statements therein not misleading;

                    (4)  Since the initial date on which the Registration
               Statement was filed, no agreement, written or oral, transaction
               or event has occurred which should have been set forth in an
               amendment to the Registration Statement or in a supplement to or
               amendment of any prospectus which has not been incorporated by
               reference into the Prospectus or Registration Statement or
               disclosed in such a supplement or amendment;

                    (5)  As to the Company's certificate only, since the
               respective dates as of which information is given in the
               Registration Statement and the Prospectus, and except as
               disclosed in or contemplated by the Prospectus, there has not
               been any material adverse change or a development involving a
               material adverse change in the condition (financial or
               otherwise), business, properties, results of operations,
               management or prospects of the Company or, to the best of such
               officer's knowledge, any of the Hotels; and no legal or
               governmental action, suit or proceeding is pending or, to the
               best knowledge of such officer, threatened against the Company,
               or, to the best of such officer's knowledge, any of the Hotels
               which is material to the Company or any of the Hotels, as
               applicable, whether or not arising





                                       27
<PAGE>   28
               from transactions in the ordinary course of business, or which
               may adversely affect the transactions contemplated by this
               Agreement; since such dates and except as so disclosed, the
               Company has not entered into any verbal or written agreement or
               other transaction which is not in the ordinary course of business
               or which could reasonably be expected to result in a material
               reduction in the future earnings of the Company or the
               Partnership or incurred any material liability or obligation,
               direct, contingent or indirect, made any material adverse change
               in its short-term debt or funded debt or repurchased or otherwise
               acquired any of the Company's Shares or the Partnership's
               interests; and the Company, has not declared or paid any
               dividend, or made any other distribution, upon its outstanding
               Shares payable to shareholders of record on a date prior to the
               First Closing Date or Second Closing Date except as set forth in
               the Prospectus and except for the dividend of $0.25 paid by the
               Company in February, 1997;

                    (6)  As to the Partnership's certificate only, since the
               respective dates as of which information is given in the
               Registration Statement and the Prospectus, and except as
               disclosed in or contemplated by the Prospectus, there has not
               been any material adverse change or a development involving a
               material adverse change in the condition (financial or
               otherwise), business, properties, results of operations,
               management or prospects of the Partnership, or to the best of
               such officer's knowledge, any of the Hotels; and no legal or
               governmental action, suit or proceeding is pending or, to the
               best knowledge of such officer, threatened against the
               Partnership or, to the best of such officer's knowledge, any of
               the Hotels, which is material to the Partnership or any of the
               Hotels, as applicable, whether or not arising from transactions
               in the ordinary course of business, or which may adversely
               affect the transactions contemplated by this Agreement; since
               such dates and except as so disclosed, the Partnership has not
               entered into any verbal or written agreement or other
               transaction which is not in the ordinary course of business or
               which could reasonably be expected to result in a material
               reduction in the future earnings of the Company or the
               Partnership or incurred any material liability or obligation,
               direct, contingent or indirect, made any change in its
               partnership interests, made any material





                                       28
<PAGE>   29
               adverse change in its short-term debt or funded debt or
               repurchased or otherwise acquired any of the Partnership's
               interests other than as set forth on Schedule B; and the
               Partnership has not declared or paid any dividend, or made any
               other distribution, upon its outstanding partnership interests
               payable to partners of record on a date prior to the First
               Closing Date or Second Closing Date, except as set forth in the
               Prospectus and except for the distribution of $0.25 per Unit paid
               by the Partnership in February, 1997;

                    (7)  Since the respective dates as of which information is
               given in the Registration Statement and the Prospectus and
               except as disclosed in or contemplated by the Prospectus, none
               of the Hotels (or any other hotel property owned by the
               Partnership) has sustained a material loss or damage by strike,
               fire, flood, windstorm, accident or other calamity (whether or
               not insured); and

                    (8)  To the best knowledge of such officer, each of the
               Company, the Partnership and each of the Hotels owned by the
               Partnership (i) will be in compliance with any and all
               applicable Environmental Laws, (ii) will have received all
               permits, licenses or other approvals required under applicable
               Environmental Laws to conduct its operations and (iii) will be
               in compliance with all terms and conditions of any such permit,
               license or approval except where such noncompliance with
               Environmental Laws, failure to receive required permits,
               licenses or other approvals or failure to comply with the terms
               and conditions of such permits, licenses or approvals are
               otherwise disclosed in the Prospectus or would not, singly or in
               the aggregate, have a material adverse effect on the Company,
               the Partnership or any Hotel.

             (iv)  On the date that this Agreement is executed and also on the
          First Closing Date and the Second Closing Date a letter addressed to
          you from Coopers & Lybrand L.L.P., as independent accountants, the 
          first one to be dated the day of this Agreement, the second one to 
          be dated the First Closing Date and the third one (in the event of a 
          Second Closing) to be dated the Second Closing Date, in form and 
          substance satisfactory to the Representatives, to the effect that:

                    (1)  Coopers & Lybrand L.L.P. is an independent certified 
               public accountants with respect to the





                                       29
<PAGE>   30
               Company and the Partnership within the meaning of the Act and the
               Rules and Regulations;

                    (2)  It is its opinion that the financial statements,
               historical summaries and any supplementary financial information
               and supporting schedule included or incorporated by reference in
               the Registration Statement and the Prospectus examined by them
               comply as to form in all material respects with the applicable
               accounting requirements of the Act and the Rules and
               Regulations;

                    (3)  The financial statements of each of the entities and
               properties included in the Prospectus for the periods referenced
               therein to the extent applicable, were reviewed by them in
               accordance with the standards established by the American
               Institute of Certified Public Accountants and based upon their
               review they are not aware of any material modifications that
               should be made to such financial statements or historical
               summaries for them to be in conformity with generally accepted
               accounting principles and such financial statements comply as to
               form in all material respects with the applicable requirements
               of the Act and the Rules and Regulations;

                    (4)  Based upon procedures set forth in detail in such
               letter, including a reading of the latest available interim
               financial statements of the Company and inquiries of officials
               of the Company responsible for financial and accounting matters,
               nothing has come to their attention which causes them to believe
               that:

                    (A)  the unaudited financial information with respect to
               the results of operations for and at the end of each of the five
               years (or such lesser period, if applicable) in the period ended
               December 31, 1996 do not comply as to form in all material
               respects with the applicable accounting requirements of the 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, or do not
               agree with the corresponding amounts in the audited financial
               statements for each of the years then





                                       30
<PAGE>   31
               ended, or that with respect to the unaudited pro forma financial
               statements, such financial statements do not comply as to form
               in all material respects with the applicable accounting
               requirements of the Act and the Rules and Regulations and the
               pro forma adjustments have not been properly applied to the
               historical amounts in the compilation of such statements, or

                    (B)  at a specified date not more than five days prior to
               the date of this Agreement, (i) there has been any change in the
               assets or shareholders' equity, as compared with the amounts
               shown in the December 31, 1996 balance sheet of the Company
               included in the Registration Statement, (ii) there has been any
               increase in indebtedness or other liabilities as compared with
               the amounts shown in the December 31, 1996 historical or pro
               forma balance sheets related to the Hotels (other than accrued
               interest) or during the period December 31, 1996 to a specified
               date not more than five days prior to the date of this
               Agreement, there were any decreases, as compared with the
               corresponding period in the preceding year, in combined revenues
               or net income of the Hotels, except in all instances for
               changes, increases or decreases which the Registration Statement
               and the Prospectus disclose have occurred or may occur or (iii)
               there has been any decrease since December 31, 1996 in room
               revenues or total revenues from the Hotels which would adversely
               affect the Percentage Lease revenue of the Company or the
               Partnership, in each case as compared with the corresponding
               period of the preceding year, except in each case for decreases
               which the Prospectus discloses have occurred or may occur or
               which are described in such letter; and

                    (5)  In addition to the examination referred to in their
               opinions and the procedures referred to above, 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 which are included in the Registration Statement and
               Prospectus and which were specified by you, and have found such
               amounts, percentages and financial information to be in
               agreement with, or derived from, the relevant accounting,
               financial and other records of the Company, the Partnership and
               the Present Owners.





                                       31
<PAGE>   32
               (v)  On or before the First Closing Date, a copy of the
          segmentation study of Coopers & Lybrand L.L.P. referred to in 
          Section 2(cc).

          (c)  The Firm Common Shares and the Optional Common Shares shall have
     been approved for listing on the New York Stock Exchange, subject to
     official notice of issuance, and the NASD, upon review of the terms of the
     public offering, shall not have objected to such offering, such terms or
     the Underwriter's participation in the same.

          (d)  The Company shall have furnished to you such further
     certificates and documents as you shall have reasonably requested.

          (e)  There shall have been delivered to you the Firm Common Shares
     and, if any Optional Common Shares are purchased, the Optional Common
     Shares in the manner required pursuant to Section 4 hereof.

          All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to O'Melveny & Myers LLP, counsel for you.  The Company shall furnish
you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed by
any officer of the Company and delivered to you or to your counsel shall be
deemed to be a representation and warranty by the Company to you as to the
statements made therein.

          If any condition to the Underwriter's obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon written notification by you to
the Company without liability on the part of you or the Company, except for the
expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 10 hereof.

          SECTION 8.  Reimbursement of Underwriter's Expenses.  Notwithstanding
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to the last paragraph of Section 7, or if the sale to the Underwriter
of the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by you and them in connection with the proposed purchase
and the sale of the Common Shares, including but not limited to fees and
disbursements of counsel relating directly to the offering contemplated by the
Prospectus.  Any such termination shall be without liability of any party to
any other party except that the





                                       32
<PAGE>   33
provisions of this Section 8, Section 6 and Section 10 shall at all times be
effective and shall apply.

          SECTION 9.  Effectiveness of Registration Statement.  You and the
Company will use your and its best efforts to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.

          SECTION 10.  Indemnification.  (a)  The Company and the Partnership,
jointly and severally, agree to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of the Act
against any losses, claims, damages, liabilities or expenses, joint or several,
to which the Underwriter or such controlling person may become subject, under
the Act, the Exchange Act, or other federal, state or Canadian statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company or the Partnership, as applicable), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state in
any of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading, or arise out of or are based in
whole or in part on any inaccuracy in the representations and warranties of the
Company or the Partnership contained herein or any failure of the Company or
the Partnership to perform its obligations hereunder or under law; and will
reimburse the Underwriter and each such controlling person for any legal and
other expenses as such expenses are reasonably incurred by the Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that neither the Company nor the Partnership will be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with the
information furnished to the Company and the Partnership pursuant to Section 3
hereof; and provided further, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 10(a) shall not
inure to the benefit of the Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Common Shares
concerned (or to the benefit of any person controlling the Underwriter) to the





                                       33
<PAGE>   34
extent that any such loss, claim, damage, liability or expense of the
Underwriter or controlling person results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required by the
Act.  In addition to its other obligations under this Section 10(a), the
Company and the Partnership agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and warranties
of the Company or the Partnership herein or failure to perform its obligations
hereunder, all as described in this Section 10(a), they will reimburse the
Underwriter not less than on a quarterly basis for all reasonable legal or
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 or the Partnership's obligation to reimburse the Underwriter for
such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction.  To the extent that
any such interim reimbursement payment is so held to have been improper, the
Underwriter shall promptly return it to the Company or the Partnership, as
applicable, together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America NT&SA,
San Francisco, California (the "Prime Rate").  Any such interim reimbursement
payments which are not made to the Underwriter within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.  This indemnity agreement will be in addition to any liability which
the Company or the Partnership may otherwise have.

          (b)  The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, the Partnership and each person, if any, who controls the Company or
the Partnership within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses to which the Company, or any such director,
officer, the Partnership, or controlling person may become subject, under the
Act, the Exchange Act, or other federal or state statutory law or regulation,
or at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Underwriter),
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof as contemplated below) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state





                                       34
<PAGE>   35
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 the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the information furnished to the Company and the
Partnership pursuant to Section 3 hereof; and will reimburse the Company, or
any such director, officer, the Partnership or any controlling person of the
Company or the Partnership for any legal and other expense reasonably incurred
by the Company, or any such director, officer, the Partnership, any controlling
person of the Company or the Partnership in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to its other obligations under this
Section 10(b), the Underwriter agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and warranties
of the Underwriter herein or the failure to perform its obligations hereunder,
all as described in this Section 10(b), that it will reimburse expenses as
provided in this Section 10(b) as incurred, but no less frequently than
quarterly, notwithstanding the absence of a judicial determination at to the
propriety and enforceability of the Underwriter's obligation to reimburse the
Company, the Partnership (and, to the extent applicable, each officer, trustee
or controlling person of the Company or the Partnership) on a quarterly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction.  To the extent that
any such interim reimbursement payment is so held to have been improper, the
Company or the Partnership (and, to the extent applicable, each officer,
director or controlling person of the Company or the Partnership) shall
promptly return it to the Underwriter together with interest, compounded daily,
determined on the basis of the Prime Rate.  Any such interim reimbursement
payments which are not made within 30 days of a request for reimbursement,
shall bear interest at the Prime Rate from the date of such request.  This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.

          (c)  Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission to notify the indemnifying party will
not relieve it from any liability which it may have to any





                                       35
<PAGE>   36
indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section or to the extent it is not prejudiced as a
proximate result of such failure.  In case any such action is brought against
any indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall have the
right to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties; provided, however, that the indemnifying party shall only be
obligated to pay the reasonable fees and expenses of a single law firm employed
by all of the indemnified parties.  Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.

          (d)  If the indemnification provided for in this Section 10 is
required by its terms, but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under Sections
(a), (b) or (c) of this Section 10 in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Partnership and the Underwriter from
the offering of the Common Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such





                                       36
<PAGE>   37
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the
Partnership and the Underwriter in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations.  The respective relative benefits received
by the Company, the Partnership and the Underwriter shall be deemed to be in
the same proportion, in the case of the Company and the Partnership as the
total price paid to the Company, for the Common Shares sold by the Company to
the Underwriter (net of underwriting commissions, but before deducting
expenses), and in the case of the Underwriter as the underwriting commissions
received by it bears to the total of such amounts paid to the Company and
received by the Underwriter as underwriting commissions.  The relative fault of
the Company, the Partnership and the Underwriter shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company, the Partnership or the
Underwriter 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, subject
to the limitations set forth in Section (c) of this Section 10, any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.  The provisions set forth in
Section (c) of this Section 10 with respect to notice of commencement of any
action shall apply if a claim for contribution is to be made under this Section
(d); provided, however, that no additional notice shall be required with
respect to any action for which notice has been given under Section (c) of this
Section 10 for purposes of indemnification.  The Company, the Partnership and
the Underwriter agree that it would not be just and equitable if contribution
pursuant to this Section 10 were determined solely by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, the Underwriter shall not be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by the Underwriter in connection with the
Common Shares underwritten by it and distributed to the public.  No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.

          (e)  It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth





                                       37
<PAGE>   38
in Sections 10(a) or 10(b) hereof, including the amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or
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
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.  Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in Section 10(a) hereof and would not resolve the ultimate
propriety or enforceability of the obligation to reimburse expenses which is
created by the provisions of such Sections 10(a) and 10(b) hereof.

          SECTION 11.  Default of Underwriter.  It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, that the Underwriter shall purchase and pay for all the
Common Shares agreed to be purchased by it hereunder upon tender to it in
accordance with the terms hereof.

          SECTION 12.  Effective Date.  This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement
has not become effective, at 8:00 A.M., California time, on the first full
business day following the effectiveness of the Registration Statement, or (ii)
if at the time of execution of this Agreement the Registration Statement has
been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the
public.  For the purposes of this Section 12, the Common Shares shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
telegrams offering the Common Shares for sale to securities dealers, whichever
may occur first.

          SECTION 13.  Termination.  Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:

          (a)  This Agreement may be terminated by the Company by notice to you
     or by you by notice to the Company at any time prior to the time this
     Agreement shall become effective as to all its provisions, and any such
     termination shall be





                                       38
<PAGE>   39
     without liability on the part of the Company to you (except for the
     expenses to be paid or reimbursed by the Company pursuant to Sections 6
     and 8 (if applicable) hereof and except to the extent provided in Section
     10 hereof) or of you to the Company (except to the extent provided in
     Section 10 hereof).

          (b)  This Agreement may also be terminated by you prior to the First
     Closing Date by notice to the Company (i) if additional material
     governmental restrictions, not in force and effect on the date hereof,
     shall have been imposed upon trading in securities generally or minimum or
     maximum prices shall have been generally established on the New York Stock
     Exchange or on the American Stock Exchange or in the over the counter
     market by the NASD, or trading in securities generally shall have been
     suspended on either such Exchange or in the over the counter market by the
     NASD, or a general banking moratorium shall have been established by
     federal, New York or California authorities; (ii) if an outbreak of major
     hostilities or other national or international calamity or any substantial
     change in political, financial or economic conditions shall have occurred
     or shall have accelerated or escalated to such an extent, as, in your
     judgment, to affect adversely the marketability of the Common Shares;
     (iii) if any adverse event shall have occurred or shall exist which makes
     untrue or incorrect in any material respect any statement or information
     contained in the Registration Statement or Prospectus or which is not
     reflected in the Registration Statement or Prospectus but should be
     reflected therein in order to make the statements or information contained
     therein not misleading in any material respect; or (iv) if there shall be
     any action, suit or proceeding pending or threatened, or there shall have
     been any development involving particularly the business or properties or
     securities of the Company, the Partnership or the transactions
     contemplated by this Agreement, which, in your reasonable judgment, may
     materially and adversely affect the Company's or the Partnership's
     business or earnings and makes it impracticable or inadvisable to offer or
     sell the Common Shares.  Any termination pursuant to this Section (b)
     shall be without liability on the part of you to the Company or on the
     part of the Company to you (except for expenses to be paid or reimbursed
     by the Company pursuant to Sections 6 and 8 hereof and except to the
     extent provided in Section 10 hereof).

          SECTION 14.  Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of the Company, the Partnership, the Company's and the Partnership's
officers and of the Underwriter set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by
or on behalf of you or the Company or the





                                       39
<PAGE>   40
Partnership or any of its or their partners, officers or trustees or any
controlling person, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.

          SECTION 15.  Notices.  All communications hereunder shall be in
writing and, if sent to the Underwriter shall be mailed, delivered, telecopied
or telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Telecopier: (415) 249-5513, Attention: Sam Wilkins III
with a copy to O'Melveny & Myers LLP, Embarcadero Center West 275 Battery
Street, San Francisco, California 94111, Telecopier: (415) 984-8701,
Attention: Peter T. Healy; and if sent to the Company or the Partnership
shall be mailed, delivered or telegraphed and confirmed to the Company at 115
Calle de Industrias, Suite 201 San Clemente, California 92672, Telecopier:
(714) 361-3900, Attention: Robert A. Alter with a copy to Brobeck, Phleger &
Harrison LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California
92660, Telecopier: (714) 752-7522, Attention: Roger M. Cohen.  The Company,
the Partnership or you may change the address for receipt of communications
hereunder by giving notice to the others.

          SECTION 16.  Successors.  This Agreement will inure to the benefit of
and be binding upon the parties hereto, and to the benefit of the officers and
directors and controlling persons referred to in Section 10, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder.  No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from you merely by reason of
such purchase.

          SECTION 17.  Intentionally Omitted.

          SECTION 18.  Partial Unenforceability.  The invalidity or
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof.  If any section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.

          SECTION 19.  Applicable Law.  This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.

          SECTION 20.  General.  This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the





                                       40
<PAGE>   41
subject matter hereof.  This Agreement may be executed in several counterparts,
each one of which shall be an original, and all of which shall constitute one
and the same document.

          In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another.  The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement.  This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Partnership and you.

          If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement among the Company, the Partnership and you, 
all in accordance with its terms.

                                        Very truly yours,

                                        SUNSTONE HOTEL INVESTORS, INC.



                                        By: /s/ ROBERT A. ALTER
                                            ---------------------------------
                                                Robert A. Alter, President


                                        SUNSTONE HOTEL INVESTORS, L.P.

                                        By:  SUNSTONE HOTEL INVESTORS, INC.

                                        Its: General Partner



                                        By: /s/ ROBERT A. ALTER
                                            ---------------------------------
                                                Robert A. Alter, President


                                        The foregoing Underwriting Agreement 
                                        is hereby confirmed and accepted by us 
                                        in San Francisco, California as of the 
                                        date first above written.

                                        MONTGOMERY SECURITIES


                                        -------------------------------------
                                        Managing Director

 


                                       41
<PAGE>   42
                                   SCHEDULE A


                                                 Amount of
                                                 Securities
                                                   to be
Underwriter                                      Purchased
-----------                                      ---------
Montgomery Securities                             700,000
                                                  -------
Total                                             700,000  
                                                  =======





<PAGE>   43
                                   SCHEDULE B

                         CUMULATIVE UNIT ISSUANCE CHART
                       FOR SUNSTONE HOTEL INVESTORS, INC.


                                 SSI REIT UNITS

<TABLE>
<CAPTION>

       1.                   2.         3.        4.           5.          6.          7.           8.         9.

                                                            COMMON                             OTHER LPs     TOTAL
  TRANSACTION             DATE     NEW UNITS NEW SHARES    STOCK(1)     GP(2)         LP         UNITS      UNITS(3)
  -----------             ----     --------- ----------   ----------   -------    ----------   ---------   ---------- 
<S>                     <C>        <C>        <C>        <C>          <C>        <C>          <C>         <C>
Opening Balance         08/23/96        N/A        N/A    10,323,500   117,823    10,205,677   1,458,800   11,782,300 

Over-Allotment          09/10/96    600,000    600,000    10,923,500   123,823    10,799,677   1,458,800   12,382,300
for Secondary
Public Offering

Redemption of           10/04/96     (3,000)       N/A    10,923,500   123,793    10,799,707   1,455,800   12,379,300
Units by
Steamboat Hotel
Partners, Ltd.

Issuance of Shares      10/10/96      7,500      7,500    10,931,000   123,868    10,807,132   1,455,800   12,386,800
to Directors

Issuance of Shares      10/16/96      1,250      1,250    10,932,250   123,881    10,808,369   1,455,800   12,388,050
to Laurence Geller

Acquisition of          10/29/96    706,347        N/A    10,932,250   130,944    10,801,306   2,162,147   13,094,397
Summit Hotels

Issuance of shares to
Fredric Gould           11/10/96      1,500      1,500    10,933,750   130,959    10,802,791   2,162,147   13,095,897

DRIP Issuance           11/15/96      1,182      1,182    10,934,932   130,971    10,803,961   2,162,147   13,070,079

DRIP Issuance           12/15/96      1,525      1,525    10,986,457   130,986    10,805,471   2,162,147   13,098,604

Public Offering          1/15/97  4,000,000  4,000,000    14,936,457   170,986    14,765,471   2,162,147   17,098,604

Over-Allotment for
Public Offering          1/15/97    600,000    600,000    15,536,457   176,986    15,359,471   2,162,147   17,698,604

DRIP Issuance            1/15/97      1,448      1,448    15,537,905   177,000    15,360,905   2,162,147   17,700,052

Acquisition of Holiday
Inn - San Diego          1/17/97     68,936        N/A    15,537,905   177,000    15,360,905   2,231,083   17,768,988

Adjustment to Sunstone
GP Account               1/17/97        N/A        N/A    15,537,905   177,690    15,360,215   2,231,083   17,768,988

Issuance of Shares to
Laurence Geller          1/17/97      1,250      1,250    15,539,155   177,702    15,361,453   2,231,083   17,770,238

DRIP Issuance            2/14/97      4,564      4,564    15,543,719   177,748    15,365,971   2,231,083   17,774,802

Johnson Unit
Redemption               2/19/97     (1,170)       N/A    15,543,719   177,737    15,365,982   2,229,913   17,773,632

Issuance of Director's
Shares                   3/21/97        190        190    15,543,909                                       17,773,822

Adjustment of
Sunstone GP Account                     N/A        N/A    15,543,909   177,740    15,366,169   2,230,103   17,774,012

Dooley Unit Redemption   3/10/97     (5,170)       N/A    15,543,909   177,688    15,366,221   2,224,933   17,768,842

Issuance of Shares to
Robert Enever            3/12/97      3,000      3,000    15,546,909   177,718    15,369,191   2,224,933   17,771,842

DRIP Issuance            3/17/97      3,335      3,335    15,550,244   177,751    15,372,493   2,224,933   17,775,177
</TABLE>





____________________

(1)   Common Stock (column 5) should always equal SSI REIT Units outstanding
      (column 6 + column 7).

(2)   Units held by Sunstone Hotel Investors, Inc. as G.P. (column 6) must
      always equal 1% of the total outstanding limited partnership units
      (column 9).

(3)   Total Units (column 9) should always equal REIT Units (columns 6 + 7)
      plus Other LP Units (column 8).