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                                                                   Exhibit 10.26

                                                                           FINAL

RESIDENCE INN - SOMERSET,
NEW JERSEY

                              MANAGEMENT AGREEMENT

                                 by and between

                         RESIDENCE INN BY MARRIOTT, INC.

                                  as "MANAGER"

                                       and

                     APPLE HOSPITALITY FIVE MANAGEMENT, INC.

                                   as "OWNER"

                            Dated as of May 31, 2003

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                                TABLE OF CONTENTS

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ARTICLE I    APPOINTMENT OF MANAGER

    1.01   Appointment....................................................................................2
    1.02   Management of the Inn..........................................................................2
    1.03   Services Provided by Manager...................................................................3
    1.04   Employees......................................................................................4
    1.05   Owner's Right to Inspect.......................................................................5
    1.06   Regular Meetings...............................................................................5
    1.07   System Standards...............................................................................5
    1.08   Limitations On Manager's Authority.............................................................5

ARTICLE II   TERM

    2.01   Term...........................................................................................5
    2.02   Performance Termination........................................................................6

ARTICLE III  COMPENSATION OF MANAGER

    3.01   Management Fees................................................................................8
    3.02   Operating Profit...............................................................................8

ARTICLE IV   ACCOUNTING, BOOKKEEPING AND BANK ACCOUNTS

    4.01   Accounting, Distributions and Annual Reconciliation............................................9
    4.02   Books and Records..............................................................................9
    4.03   Accounts, Expenditures........................................................................10
    4.04   Annual Operating Projection...................................................................11
    4.05   Working Capital...............................................................................11
    4.06   Fixed Asset Supplies..........................................................................11
    4.07   Real Estate and Personal Property Taxes.......................................................12
    4.08   Sarbanes-Oxley Certification..................................................................12

ARTICLE V  REPAIRS, MAINTENANCE AND REPLACEMENTS

    5.01   Repairs and Maintenance to be Paid From Gross Revenues........................................13
    5.02   Repairs, Maintenance and Equipment Replacements to be Paid From Reserve.......................13
    5.03   Major Repairs Alterations, Improvements, Renewals, and Replacements to be Funded by Owner.....15
    5.04   Ownership of Replacements.....................................................................16
    5.05   Design Specifications.........................................................................16
    5.06   Management of Hotel Renovation and Construction Projects......................................16
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ARTICLE VI   INSURANCE

    6.01   Property Insurance............................................................................17
    6.02   Operational Insurance.........................................................................18
    6.03   Coverage......................................................................................18
    6.04   Costs and Expenses............................................................................19

ARTICLE VII  DAMAGE AND REPAIR

    7.01   Damage and Repair.............................................................................19
    7.02   Condemnation..................................................................................20

ARTICLE VIII OWNERSHIP OF THE INN

    8.01   Ownership of the Inn..........................................................................20
    8.02   Mortgages.....................................................................................21
    8.03   Subordination, Non-Disturbance and Attornment.................................................22
    8.04   No Covenants, Conditions or Restrictions......................................................23
    8.05   Liens; Credit.................................................................................24

ARTICLE IX   DEFAULTS

    9.01   Events of Default.............................................................................24
    9.02   Remedies......................................................................................25
    9.03   Additional Remedies...........................................................................25

ARTICLE X    ASSIGNMENT AND SALE

   10.01   Assignment....................................................................................26
   10.02   Sale of the Inn...............................................................................27

ARTICLE XI   MISCELLANEOUS

   11.01   Right to Make Agreement.......................................................................30
   11.02   Consents and Cooperation......................................................................30
   11.03   Relationship..................................................................................30
   11.04   Applicable Law................................................................................30
   11.05   Recordation...................................................................................31
   11.06   Headings......................................................................................31
   11.07   Notices.......................................................................................31
   11.08   Environmental Matters.........................................................................32
   11.09   Confidentiality...............................................................................33
   11.10   Projections...................................................................................34
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   11.11   Actions to be Taken Upon Termination..........................................................34
   11.12   Trademarks and Intellectual Property..........................................................36
   11.13   Waiver........................................................................................37
   11.14   Partial Invalidity............................................................................37
   11.15   Survival......................................................................................38
   11.16   Negotiation of Agreement......................................................................38
   11.17   Intentionally Deleted.........................................................................38
   11.18   Estoppel Certificates.........................................................................38
   11.19   Affiliates....................................................................................38
   11.20   Competing Facilities..........................................................................39
   11.21   Expert Decisions..............................................................................40
   11.22   Restrictions On Operating the Inn in Accordance With System Standards.........................41
   11.23   Waiver of Jury Trial and Consequential and Punitive Damages...................................41
   11.24   Counterparts..................................................................................41
   11.25   Extraordinary Events..........................................................................42
   11.26   Entire Agreement..............................................................................42

ARTICLE XII  DEFINITION OF TERMS

   12.01   Definition of Terms...........................................................................42
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Exhibit A  -  Legal Description of the Site
Exhibit B  -  Equity Interest in Owner
Exhibit C  -  Memorandum of Management Agreement
Exhibit D  -  Map of the Restricted Area

                                      iii

<PAGE>

                              MANAGEMENT AGREEMENT

     THIS MANAGEMENT AGREEMENT ("Agreement") is executed as of the 31st day of
May, 2003 ("Effective Date"), by APPLE HOSPITALITY FIVE MANAGEMENT, INC.
("Owner"), a Virginia corporation with a mailing address at c/o Apple REIT
Companies, 10 South Third Street, Richmond, Virginia 23219, and RESIDENCE INN BY
MARRIOTT, INC. ("Manager"), a Delaware corporation, with a mailing address at
c/o Marriott International, Inc., 10400 Fernwood Road, Bethesda, Maryland 20817.

                                R E C I T A L S:

     A. Apple Hospitality Five, Inc., a Virginia corporation ("Landlord") is the
owner of that certain hotel containing One Hundred Eight (108) Guest Rooms, a
lobby, meeting rooms, administrative offices, parking, and certain other
amenities and related facilities (the "Buildings") located in the City of
Somerset, County of Somerset, State of New Jersey, as more particularly set
forth in Exhibit A hereto (the "Site"). The Site and the Buildings, in addition
to certain other rights, improvements, and personal property as more
particularly described in the definition of "Inn" in Section 12.01 hereof, are
collectively referred to as the "Inn."

     B. Landlord and Owner have entered into that certain Master Hotel Lease
dated as of the Effective Date (the "Hotel Lease") pursuant to which Landlord
leases the Inn to Owner. Landlord, Owner and Manager have entered into that
certain Owner Agreement dated as of the Effective Date (the "Owner Agreement")
pursuant to which Landlord has, among other things, agreed to be primarily
liable as an obligor, and has guaranteed all of Owner's obligations under this
Agreement.

     C. All capitalized terms used in this Agreement shall have the meaning set
forth in Section 12.01 hereof.

     D. Owner desires to engage Manager to manage and operate the Inn, and
Manager desires to accept such engagement upon the terms and conditions set
forth in this Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Owner and Manager agree as follows:

<PAGE>

                                    ARTICLE I

                             APPOINTMENT OF MANAGER

     1.01 Appointment

     Owner hereby appoints and employs Manager to supervise, direct and control
the management and operation of the Inn throughout the Term. Manager accepts
said appointment and agrees to manage the Inn during the Term in accordance with
the terms and conditions of this Agreement.

     1.02 Management of the Inn

     A. Manager shall manage the Inn under standards comparable to those
prevailing in other hotels in the System, in accordance with System Standards,
including all activities in connection therewith which are customary and usual
to such an operation. Manager shall, in connection with the Inn and in
accordance with standards comparable to those prevailing at other hotels in the
System and other terms of this Agreement, perform each of the following
functions (provided that in all cases, except as otherwise specifically set
forth in this Agreement, the costs and expenses of performing such functions
shall be Deductions):

          1. Recruit, employ, supervise, direct and discharge the employees at
the Inn.

          2. Establish prices, rates and charges for services provided in the
Inn, including Guest Room rates.

          3. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.

          4. Make payments on accounts payable and collections of accounts
receivable.

          5. Arrange for and supervise public relations and advertising, and
prepare marketing plans.

          6. Procure all Inventories and replacement Fixed Asset Supplies.

          7. Prepare and deliver interim accountings, annual accountings, Annual
Operating Statements, Building Estimates, Repairs and Equipment Estimates, and
such other information as is required by this Agreement.

          8. Plan, execute and supervise repairs and maintenance at the Inn.

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          9. Provide, or cause to be provided, risk management services relating
to the types of insurance required to be obtained or provided by Manager under
this Agreement.

          10. Obtain and keep in full force and effect, either in its own name
or in Owner's name, as may be required by applicable law, any and all licenses
and permits to the extent same is within the control of Manager (or, if same is
not within the control of Manager, Manager shall use all due diligence and
reasonable efforts to obtain and keep same in full force and effect).

          11. Reasonably cooperate (provided that Manager shall not be obligated
to enter into any amendments of this Agreement) with Owner or Landlord in any
attempt(s) by Owner or Landlord to effectuate a Sale of the Inn (provided that
nothing herein shall affect the provisions of Section 10.02), or to obtain any
Mortgage.

     C. The operation of the Inn shall be under the exclusive supervision and
control of Manager which, except as otherwise specifically provided in this
Agreement, shall be responsible for the proper and efficient operation of the
Inn. In fulfilling its obligations under this Agreement, Manager will act as a
reasonable prudent operator of the Inn, having regard for the status of the Inn
and maintaining the System Standards, and shall have discretion and control,
free from interference, interruption or disturbance, in all matters relating to
management and operation of the Inn, including, without limitation, the
following: charges, terms and conditions for Guest Rooms and commercial space;
credit policies and services provided by the Inn; food and beverage services;
employment policies; granting of leases, subleases, licenses and concessions for
shops and businesses within the Inn, provided that the term of any such lease,
sublease, license or concession shall not exceed the Term; receipt, holding and
disbursement of funds; maintenance of bank accounts; procurement of Inventories,
supplies and services; promotion and publicity; payment of costs and expenses as
are specifically provided for in this Agreement or are otherwise reasonably
necessary for the proper and efficient operation of the Inn; and, generally, all
activities necessary for operation of the Inn.

     D. Manager will use its reasonable efforts to comply with and abide by all
applicable Legal Requirements pertaining to its operation of the Inn (except for
certain Legal Requirements which are Owner's responsibility under Section 5.03
and Section 11.08 hereof). Owner will use its reasonable efforts to comply with
and abide by all applicable Legal Requirements pertaining to the Inn or to
Owner's ownership interest in the Inn (including, without limitation, Owner's
obligations under Section 5.03 and Section 11.08 hereof). Either Owner or
Manager shall have the right, but not the obligation, in its reasonable
discretion, to contest or oppose, by appropriate proceedings, any such Legal
Requirements. The reasonable expenses of any such contest of a Legal Requirement
shall be paid from Gross Revenues as Deductions.

     1.03 Services Provided by Manager

     Commencing with the Effective Date and thereafter during the Term, Manager
shall cause to be furnished the following services:

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     A. System divisional executive management, divisional financial planning,
divisional contracting, divisional product planning and development, divisional
human resources planning and development, divisional marketing planning, and
services of Manager's technical and operational experts making periodic
inspection and consultation visits to the Inn (but specifically excluding "line
management" personnel such as area managers and services of Manager's
Architecture and Construction personnel who provide design, procurement,
construction or related services) (collectively, "System Services");

     B. Marriott corporate planning and policy services, Marriott financial
planning and corporate financial services, Marriott corporate executive
management, in-house legal services pertaining to Marriott corporate matters,
and protection of the "Marriott" trade name, logos, trademarks, and service
marks ("Central Office Services"); and

     C. Certain services which are furnished generally on a central or regional
basis to other inns in the System which are managed by Manager, Marriott, or any
Affiliate, and which benefit each Inn as a participant in the System as follows:
(i) certain divisional executive management; (ii) programs for training and
manpower development; payroll, accounts payable, property and other accounting
services; and (iii) such additional central or regional services as may from
time to time be furnished for the benefit of inns in the "Residence Inn by
Marriott" System or in substitution for services required at individual inns
which may be more efficiently performed on a group basis ("Chain Services").

     1.04 Employees

     All personnel employed at the Inn shall at all times from and after the
Effective Date be the employees of Manager (or one of its Affiliates). Manager
shall have absolute discretion with respect to all personnel employed at the
Inn, including, without limitation, decisions regarding hiring, promoting,
transferring, compensating, supervising, terminating, directing and training all
employees at the Inn, and, generally, establishing and maintaining all policies
relating to employment. Manager shall use best efforts to notify Owner as soon
as practical of any anticipated changes in the persons who occupy the positions
of General Manager and Director of Sales and Marketing for the Inn; provided,
however, that the parties acknowledge and agree that any failure by Manager to
provide such notice shall neither constitute an "Event of Default" under this
Agreement nor constitute a material breach of this Agreement. Manager shall
decide which, if any, of the employees of the Inn shall reside at the Inn, and
shall be permitted to provide free accommodations and amenities to its employees
and representatives living at or visiting the Inn in connection with its
management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Manager
except in accordance with usual practices of the hotel and travel industry.

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     1.05 Owner's Right to Inspect

     Owner, its agents, Affiliates and Mortgagees shall have access to the Inn
at any and all reasonable times for the purpose of inspection or showing the Inn
to prospective purchasers, tenants or Mortgagees.

     1.06 Regular Meetings

     At Owner's request, Owner and Manager shall have quarterly meetings at the
Inn and at mutually convenient times. Manager shall be represented at such
meetings by the general manager of the Inn and such other personnel as the
general manager may deem appropriate. The purpose of the meetings shall be to
discuss the performance of the Inn and other related issues, including any
variations from the Annual Operating Projection for the preceding quarter.

     1.07 System Standards.

     Owner shall take such actions consistent with this Agreement as are
necessary to enable the Inn to comply with the System Standards, and Manager
shall have discretion in operating the Inn in order that the Inn will comply
with System Standards.

     1.08 Limitations on Manager's Authority

     Manager shall not, without Owner's prior written approval, enter into any
FF&E Lease if (i) the fair market value of the FF&E subject to such FF&E Lease
at the time of entering into such FF&E Lease exceeds Fifty Thousand Dollars
($50,000), as adjusted by the GDP Deflator; (ii) the fair market value of the
FF&E subject to all FF&E Leases at the time of entering into such FF&E Lease
exceeds Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate, as
adjusted by the GDP Deflator; (iii) the FF&E subject to such FF&E Lease is FF&E
that is not customarily leased in the hotel industry in the United States; or
(iv) such FF&E Lease is on payment terms (including the amounts and schedule of
payments) that would be materially more favorable to the lessor thereof than
payment terms customary in the hotel industry in the United States for leases of
similar FF&E.

                                   ARTICLE II

                                      TERM

     2.01 Term

     The "Term" of this Agreement shall consist of an "Initial Term" and the
"Renewal Term(s)." The "Initial Term" shall begin on the Effective Date and
shall continue until the expiration of the thirtieth (30th) full Fiscal Year
after the expiration of the Fiscal Year in which the Effective Date occurs.
Thereafter, this Agreement shall automatically, and with no further action
required by Owner or Manager, be renewed on the same terms and conditions for
each of three (3) successive periods of ten (10) Fiscal Years each ("Renewal
Term(s)"), unless Owner or

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Manager shall have given prior written notice to the other party of its election
not to renew at least one hundred and eighty (180) days prior to the expiration
of the then current Initial Term or Renewal Term, as the case may be.

     2.02 Performance Termination

     A. Subject to the provisions of Section 2.02.B and Section 2.02.C. below,
Owner shall have the option to terminate this Agreement and Owner or an operator
approved by Marriott in its sole discretion shall enter into a Residence Inn by
Marriott franchise agreement in the form as shall have been published by Manager
or its Affiliate in its then-current Uniform Franchise Offering Circular (the
"Franchise Agreement") if, with respect to any two (2) consecutive Fiscal Years
(not including any portion of any Fiscal Year prior to the expiration of the
fifth (5th) full Fiscal Year after the Effective Date):

          1. Operating Profit for each such Fiscal Year is less than the
Performance Termination Threshold for such Fiscal Year; provided that, for
purposes of this Section 2.02.A.1. only, Operating Profit shall be computed
without deducting any Impositions. Notwithstanding the foregoing, real estate
and personal property taxes in an amount not to exceed the amount of such taxes
paid during the second (2nd) Fiscal Year following the Effective Date shall be
deducted in computing Operating Profit for purposes of this Section 2.02.A.1.;
and

          2. The Revenue Index of the Inn during each such Fiscal Year is less
than the Revenue Index Threshold for such Fiscal Year; and

          3. The fact that the Inn has not met the tests set forth in Section
2.02.A.1. and Section 2.02.A.2. is not wholly or partially the result of (x) an
Extraordinary Event, (y) any major renovation of the Inn which has been approved
by Owner, or (z) any default by Owner. In the event that either clause (x),
clause (y) or clause (z) has affected the ability of the Inn to meet the tests
set forth in Section 2.02.A.1. or Section 2.02.A.2. in any given Fiscal Year,
then such Fiscal Year shall not be counted for purposes of the foregoing test,
and shall be treated as not having occurred for purposes of determining whether
the tests are satisfied for two consecutive Fiscal Years.

     Owner shall exercise such option to terminate by serving written notice
thereof on Manager no later than sixty (60) days after Owner's receipt of the
annual accounting under Section 4.01.B. for the second (2nd) of the two (2)
Fiscal Years referred to in Section 2.02.A. If Manager does not elect to avoid
such Termination pursuant to Section 2.02.B. below, this Agreement shall
terminate as of the end of the fourth (4th) full Accounting Period following the
later of the date on which Manager receives (i) the above-described notice from
Owner and (ii) the Franchise Agreement executed by Owner or an operator approved
by Marriott in its sole discretion; provided that such period of time shall be
extended as required by applicable Legal Requirements pertaining to the
termination of the employment of the employees at the Inn unless the entity
which succeeds Manager as the operator of the Inn hires a sufficient number of
the employees at the Inn to avoid the occurrence, in connection with such
Termination, of a "closing" under the WARN Act and otherwise complies with
applicable Legal Requirements.

                                       6

<PAGE>

Owner's failure to exercise its right to terminate this Agreement pursuant to
Section 2.02.A. with respect to any given Fiscal Year shall not be deemed an
estoppel or waiver of Owner's right to terminate this Agreement with respect to
subsequent Fiscal Years to which this Section 2.02.A. may apply.

     B. Upon receipt of Owner's written notice of Termination under Section
2.02.A., Manager shall have the option, to be exercised within sixty (60) days
after receipt of said notice, to avoid such Termination by electing (in a
written notice to Owner) to either (i) waive the payment of the Base Management
Fee (beginning as of the first (1st) day of the first (1st) full Accounting
Period following the date of such notice from Manager) until such time as the
total cumulative amount of such waived Base Management Fee equals the total
amount by which Operating Profit for each of the Fiscal Years in question (i.e.,
the two (2) Fiscal Years referred to in Section 2.02.A.1.) was less than the
Performance Termination Threshold for such Fiscal Years; or (ii) pay to Owner
the total amount by which Operating Profit for each of the Fiscal Years in
question (i.e., the two (2) Fiscal Years referred to in Section 2.02.A.1.) was
less than the Performance Termination Threshold for such Fiscal Years (the
amounts set forth in clauses (i) and (ii) shall be referred to as the "Cure
Payment"). Notwithstanding the foregoing, any such waived Base Management Fee
shall be deemed paid by Owner for purposes of computing Operating Profit for the
period during which such Base Management Fee is waived by Manager. In the event
Manager makes a Cure Payment pursuant to this Section 2.02.B., the then prior
two (2) Fiscal Years with respect to which such Cure Payment was made shall
thereafter not be treated, for purposes of subsequent elections by Owner
pursuant to Section 2.02.A., as Fiscal Years in which the circumstances
described in Section 2.02.A.1. have occurred. If Manager exercises such option
to make such Cure Payment, then the foregoing Owner's election to terminate this
Agreement under Section 2.02.A. shall be canceled and of no force or effect with
respect to the two (2) Fiscal Years in question, and this Agreement shall not
terminate. Such cancellation, however, shall not affect the right of Owner, as
to each subsequent Fiscal Year to which Section 2.02.A. applies, to again elect
to terminate this Agreement pursuant to the provisions of Section 2.02.A. (which
subsequent election shall again be subject to Manager's rights under this
Section 2.02.B.). If Manager does not exercise its option to make a Cure Payment
as aforesaid, then this Agreement shall be terminated as of the date set forth
in Section 2.02.A.

     C. Notwithstanding anything in this Section 2.02 to the contrary, if
Manager does not elect to avoid such Termination within the sixty (60) day
period set forth in Section 2.02.B, upon execution of the Franchise Agreement,
Owner shall cause a third party operator approved by Manager in its sole
discretion to operate the Inn. Manager shall provide to Owner a list of at least
five (5) operators acceptable to Manager within ten (10) Business Days after
Owner's request therefor. If Owne' selects a [ ] hereforeor from such list to
operate the Inn, Manager shall be deemed to have approved such operator.

                                       7

<PAGE>

                                   ARTICLE III

                             COMPENSATION OF MANAGER

     3.01 Management Fees

     In consideration of services to be performed during the Term, Manager shall
be paid the sum of the following as its management fees:

     A. the Base Management Fee, which shall be retained by Manager from Gross
Revenues; plus

     B. the Incentive Management Fee.

     3.02 Operating Profit

     A. Operating Profit, to the extent available, shall be distributed to Owner
and to Manager in the following order of priority:

          1. An amount up to the maximum amount of Owner's Priority shall be
paid to Owner;

          2. The Incentive Management Fee shall be paid to Manager; and

          3. Any remaining balance of Operating Profit shall be paid to Owner.

     Owner's Priority is not cumulative from one Fiscal Year to the next, and to
the extent the maximum amount of Owner's Priority is unpaid in any Fiscal Year,
such unpaid amount shall not accrue or otherwise be payable in any subsequent
Fiscal Year.

     B. To the extent of available Operating Profit with respect to each
Accounting Period, Manager shall distribute a prorated portion of the Owner's
Priority to Owner for each such Accounting Period in accordance with Section
4.01.A., and shall be entitled to retain a prorated portion of the Incentive
Management Fee, which shall be retained by Manager from Operating Profit in
accordance with Section 3.02 and Section 4.01 for each such Accounting Period
based on its good faith estimate of the Incentive Management Fee for the full
Fiscal Year.

                                       8

<PAGE>

                                   ARTICLE IV

                    ACCOUNTING, BOOKKEEPING AND BANK ACCOUNTS

     4.01 Accounting, Distributions and Annual Reconciliation

     A. Within twenty (20) days after the close of each Accounting Period,
Manager shall deliver an interim accounting (the "Accounting Period Statement")
to Owner showing Gross Revenues, Deductions, Operating Profit, and applications
and distributions thereof for the preceding Accounting Period. Manager shall
transfer to Owner, with each Accounting Period Statement, any interim amounts
due Owner, subject to Working Capital needs, and shall retain any interim
amounts due Manager.

     B. Calculations and payments of the Incentive Management Fee, the Base
Management Fee, and distributions of Operating Profit made with respect to each
Accounting Period shall be accounted for cumulatively within a Fiscal Year, but
shall not be cumulative from one Fiscal Year to the next. Within the SEC Filing
Period, Manager shall deliver to Owner a statement (the "Annual Operating
Statement") in reasonable detail summarizing the operations of the Inn for the
immediately preceding Fiscal Year and a certificate of Manager's chief
accounting officer certifying that, to the best of his or her knowledge, such
Annual Operating Statement is true and correct. The parties shall, within five
(5) business days after Owner's receipt of such Annual Operating Statement, make
any adjustments, by cash payment, in the amounts paid or retained for such
Fiscal Year as are needed because of the final figures set forth in such Annual
Operating Statement. Such Annual Operating Statement shall be controlling over
the preceding Accounting Period Statements. No adjustments shall be made for any
Operating Loss in any preceding Fiscal Year.

     C. To the extent there is an Operating Loss for any Accounting Period,
additional funds in the amount of any such Operating Loss shall be provided by
Owner within thirty (30) days after Manager has delivered written notice thereof
to Owner. If Owner does not so fund such Operating Loss within the thirty (30)
day time period, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw an amount to cover such Operating
Loss from future distributions of funds otherwise due to Owner. Furthermore, if
Owner fails to fund a deficiency upon request by Manager, Manager may also
withdraw interest upon such sum from the date payment was due until repayment to
Manager at a rate equal to the Prime Rate plus three (3) percentage points.

     4.02 Books and Records

     A. Books of control and account pertaining to operations at the Inn shall
be kept on the accrual basis and in all material respects in accordance with the
Uniform System of Accounts. Owner may at reasonable intervals during Manager's
normal business hours examine such records. If Owner desires to audit, examine,
or review the Annual Operating Statement, Owner shall notify Manager in writing
within sixty (60) days after receipt of such Annual Operating Statement of its
intention to audit and begin such audit no sooner than thirty (30) days and no

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later than sixty (60) days after Manager's receipt of such notice. Owner shall
complete such audit within ninety (90) days after commencement thereof. If Owner
does not make such an audit, then such Annual Operating Statement shall be
deemed to be conclusively accepted by Owner as being correct, and Owner shall
have no right thereafter, except in the event of fraud by Manager, to question
or examine the same. If any audit by Owner discloses an understatement of any
amounts due Owner, Manager shall promptly pay Owner such amounts found to be
due, plus interest thereon (at the Prime Rate plus one percent (1%) per annum)
from the date such amounts should originally have been paid. If any audit
discloses that Manager has not received any amounts due it, Owner shall pay
Manager such amounts, plus interest thereon (at the Prime Rate plus one percent
(1%) per annum) from the date such amounts should originally have been paid. The
cost of the audit shall be paid by Owner; provided, however, Manager shall pay
for such cost if such audit discloses an underpayment to Owner for the Fiscal
Year so audited of more than five percent (5%) of the amount that should have
been paid to Owner for such Fiscal Year. Any dispute concerning the correctness
of an audit shall be settled by the Expert in accordance with Section 11.21.

     B. All information regarding the operation of the Inn which is obtained by
Owner through an audit, other than aggregated financial information regarding
the results of operations of the inns in Owner's portfolio, shall be considered
confidential information and Owner agrees not to disclose such information
except as necessary to its advisors, attorneys and consultants participating in
the audit process, who shall likewise be informed of the confidential nature of
the information and of the duty not to disclose such information to third
parties.

     4.03 Accounts, Expenditures

     A. All funds derived from operation of the Inn shall be deposited by
Manager in bank accounts (the "Operating Accounts") established by Manager in a
bank or banks designated by Manager. Withdrawals from said Operating Accounts
shall be made solely by representatives of Manager whose signatures have been
authorized. Reasonable petty cash funds shall be maintained at the Inn.

     B. All payments made by Manager hereunder shall be made from the Operating
Accounts, petty cash funds, or from the Reserve (in accordance with Section
5.02). Manager shall not be required to make any advance or payment with respect
to the Inn except out of such funds, and Manager shall not be obligated to incur
any liability or obligation with respect to the Inn. In any event, if any such
liability or obligation is incurred by Manager with respect to the Inn, Manager
shall have the option to deduct such amounts from Owner's share of Operating
Profit if Owner has not fully reimbursed Manager for said amounts within ten
(10) days after Owner's receipt of notice from Manager that said amounts are
due.

     C. Debts and liabilities incurred by Manager as a result of its operation
and management of the Inn pursuant to the terms hereof, whether asserted before
or after Termination, will be paid by Owner to the extent funds are not
available for that purpose from Gross Revenues; Owner shall indemnify, defend
and hold Manager harmless from and against all loss, costs, liability, and
damage (including, without limitation, attorneys' fees and expenses)

                                       10

<PAGE>

arising from Owner's failure to pay such debts and liabilities; and the
provisions of this Section 4.03.C. shall survive Termination.

     4.04 Annual Operating Projection

     Manager shall deliver to Owner for its review, at least thirty (30) days
prior to the beginning of each Fiscal Year after the first Fiscal Year following
the Effective Date, a preliminary draft of the business plan and a projection of
the estimated Gross Revenues, departmental profits, Deductions, and Operating
Profit for the forthcoming Fiscal Year for the Inn (the "Annual Operating
Projection"). Manager will consider in good faith suggestions made by Owner with
respect to the Annual Operating Projection and make modifications thereto that
Manager deems appropriate. Manager in good faith shall endeavor to adhere to the
Annual Operating Projection. It is understood, however, that the Annual
Operating Projection is an estimate only and that unforeseen circumstances such
as, but not limited to, the costs of labor, material, services and supplies,
casualty, operation of law, or economic and market conditions may make adherence
to the Annual Operating Projection impracticable, and Manager shall be entitled
to depart therefrom due to causes of the foregoing nature.

     4.05 Working Capital

     On the Effective Date, Owner shall provide to Manager the initial Working
Capital for the Inn in the amount of Forty Three Thousand Two Hundred Dollars
($43,200). Owner shall from time to time during the Term promptly, but no later
than ten (10) days after written request by Manager, advance any additional
funds necessary to maintain Working Capital at levels reasonably determined by
Manager to be necessary to satisfy the needs of the Inn as its operation may
from time to time require. If Owner does not so fund additional Working Capital
within the said ten (10) day time period, Manager shall have the right (without
affecting Manager's other remedies under this Agreement) to withdraw an amount
equal to the funds requested by Manager for additional Working Capital from
future distributions of funds otherwise due to Owner. All funds so advanced for
Working Capital shall be utilized by Manager for the purposes of this Agreement
pursuant to cash-management policies established for the System. Upon
Termination, Manager shall, except as otIerwise provideI in this Agreement,
return the outstanding balance of the Working Capital to Owner.

     4.06 Fixed Asset Supplies

     The parties recognize that, as of the Effective Date, the level of funds
for Fixed Asset Supplies is reasonably believed to be reasonably sufficient for
the operations of the Inn, subject at all times to seasonal differences and
changes in circumstances after the Effective Date. Any additional funds which
are necessary to maintain Fixed Asset Supplies at levels determined by Manager
to be necessary to satisfy the needs of the Inn, as its operation may from time
to time require, shall be paid from Gross Revenues as Deductions. Fixed Asset
Supplies shall remain the property of Owner throughout the term of this
Agreement and upon Termination, except for Fixed Asset Supplies purchased by
Manager pursuant to Section 11.11.E.

                                       11

<PAGE>

     4.07 Real Estate and Personal Property Taxes

     A. Except as specifically set forth in Section 4.07.B. below, all real
estate and personal property taxes, levies, assessments (including special
assessments (regardless of when due or whether they are paid as a lump sum or in
installments over time) imposed because of facilities which are constructed by
or on behalf of the assessing jurisdiction (for example, roads, sidewalks,
sewers, culverts, etc.) which directly benefit the Inn (regardless of whether or
not they also benefit other buildings)), "Impact Fees" (regardless of when due
or whether they are paid as a lump sum or in installments over time) which are
required of Owner as a condition to the issuance of zoning variances or building
permits, and similar charges on or relating to the Inn (collectively,
"Impositions") during the Term shall be paid by Manager from Gross Revenues,
before any fine, penalty, or interest is added thereto or lien placed upon the
Inn or upon this Agreement, unless payment thereof is in good faith being
contested and enforcement thereof is stayed. Any such payments shall be
Deductions in determining Operating Profit. Owner shall, within five (5) days
after receipt, furnish Manager with copies of official tax bills and assessments
which it may receive with respect to the Inn. Either Owner or Manager (in which
case Owner agrees to sign the required applications and otherwise cooperate with
Manager in expediting the matter) may initiate proceedings to contest any
negotiations or proceedings with respect to any Imposition, and all reasonable
costs of any such contest shall be paid from Gross Revenues and shall be a
Deduction in determining Operating Profit. Manager shall, as part of its contest
or negotiation of any Imposition, be entitled, on Owner's behalf, to waive any
applicable statute of limitations in order to avoid paying the Imposition during
the pendency of any proceedings or negotiations with applicable authorities.

     B. The word "Impositions" as used in this Agreement shall not include the
following, all of which shall be paid solely by Owner, not from Gross Revenues
nor from the Reserve:

          1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article III hereof); or

          2. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Inn by temporarily reducing or abating normal Impositions in
return for substantially higher levels of Impositions at later dates.

     4.08 Sarbanes-Oxley Certification

     Owner may, in connection with its quarterly Securities and Exchange
Commission reporting requirements (and in any event no more than four (4) times
in any Fiscal Year), request that Manager deliver to Owner a certificate from an
accounting officer of Manager, in a form approved by Manager's accounting firm,
certifying that, to his or her knowledge, the information contained in the
Accounting Period Statements for the Accounting Periods contained within the
applicable quarter are true and correct in all material respects, subject to
final adjustment based on the annual review conducted by Manager in preparing
the Annual Operating Statement.

                                       12

<PAGE>

Owner shall submit such request in writing, along with the date by which such
certificate is to be delivered, not less than five (5) business days prior to
the requested delivery date, and Manager shall deliver the certificate by the
requested date or, if later, within five (5) business days after Manager's
receipt of Owner's request' If Owner and its'Affiliates own more than one hotel
managed by Manager and its Affiliates, Manager and its Affiliates shall only be
required to deliver to Owner and its Affiliates one such certificate, which
certificate shall apply in the aggregate to the Accounting Period Statements
prepared by Manager and its Affiliates for all such hotels.

                                    ARTICLE V

                      REPAIRS, MAINTENANCE AND REPLACEMENTS

     5.01 Repairs and Maintenance to be Paid from Gross Revenues

     Manager shall maintain the Inn in good repair and condition, use its
commercially reasonable best efforts (which efforts shall not require Manager to
expend any of its own funds) to comply with and abide by all applicable Legal
Requirements pertaining to its operation of the Inn (except for certain Legal
Requirements which are Owner's responsibility under Section 5.03 and Section
11.08 hereof), and shall make or cause to be made such routine maintenance,
repairs and minor alterations as it determines are necessary for such purposes.
The phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the Reserve) and
shall be treated as a Deduction.

     5.02 Repairs, Maintenance and Equipment Replacements to be Paid from
Reserve

     A. Manager shall establish a reserve account (the "Reserve"), in a bank or
similar institution reasonably acceptable to both Manager and Owner, to cover
the cost of:

          1. Replacements, renewals and additions to the FF&E at the Inn; and

          2. Routine Capital Expenditures.

     B. During the period from the Effective Date to the expiration of the
thirteenth (13th) full Accounting Period after the Effective Date, Manager shall
transfer into the Reserve an amount equal to three percent (3%) of Gross
Revenues for such period; during the period from the beginning of the fourteenth
(14th) full Accounting Period to the expiration of the twenty-sixth (26th) full
Accounting Period, Manager shall transfer into the Reserve an amount equal to
four percent (4%) of Gross Revenues for each such Accounting Period; commencing
with the beginning of the twenty-seventh (27th) full Accounting Period and for
all Accounting Periods thereafter, subject to the provisions of Section 5.02.E.,
below, Manager shall transfer into the Reserve an amount equal to five percent
(5%) of Gross Revenues for each such Accounting

                                       13

<PAGE>

Period. Transfers into the Reserve shall be made at the time of each interim
accounting described in Section 4.01 hereof. All amounts transferred to the
Reserve shall be deducted from Gross Revenues in determining Operating Profit
and shall be deposited in the special Reserve account described in Section
5.02.A.

     C. Manager shall from time to time make such (1) replacements and renewals
to the FF&E of the Inn, and (2) Routine Capital Expenditures, as it deems
necessary, up to the balance in the Reserve. No expenditures will be made in
excess of said balance without the approval of Owner. At the end of each Fiscal
Year, any amounts remaining in the Reserve shall be carried forward to the next
Fiscal Year. Proceeds from the sale of FF&E no longer necessary to the operation
of the Inn shall be added to the Reserve. The Reserve will be kept in an
interest-bearing account, and any interest which accrues thereon shall be
retained in the Reserve. Neither (1) proceeds from the disposition of FF&E, nor
(2) interest which accrues on amounts held in the Reserve, shall (a) result in
any reduction in the required contributions to the Reserve set forth in Section
5.02.B. above, nor (b) be included in Gross Revenues.

     D. Manager shall prepare an estimate ("Repairs and Equipment Estimate") of
the expenditures necessary for (1) replacements, renewals and additions to the
FF&E of the Inn, and (2) Routine Capital Expenditures during the ensuing Fiscal
Year and shall deliver the Repairs and Equipment Estimate to Owner at the same
time it submits the Annual Operating Projection described in Section 4.04. The
Repairs and Equipment Estimate shall also indicate the estimated time schedule
for making such replacements, renewals and expenditures. Owner shall have thirty
(30) days after receipt to review and comment on such Repairs and Equipment
Estimate. Manager shall consider in good faith Owner's comments regarding the
Repairs and Equipment Estimate, provided that Owner's comments are consistent
with maintaining System Standards and acknowledging that FF&E replacements occur
at regular cycles for soft goods and case goods, which cycles are incorporated
in System Standards. Owner shall have the right to approve any individual
expenditure in the Repair and Equipment Estimate of $10,000 (as adjusted by the
GDP Deflator) or more, and in the event Owner disapproves any such individual
expenditure, Owner will provide Manager in writing with the specific reasons for
its disapproval within such thirty (30) day period; provided, however, Owner
shall not withhold its approval of any Routine Capital Expenditures or any
replacements, renewals and additions to the FF&E that are required, in Manager's
reasonable judgment, to keep the Inn in a first-class condition at least in
accordance with System Standards or otherwise required for the continued safe
and orderly operation of the Inn. Thereafter, in the thirty (30) day period
following Manager's receipt of Owner's disapproval of such individual
expenditure, the parties will attempt to resolve in good faith Owner's
objections and if one or more of Owner's objections have not been resolved as of
the end of such thirty (30) day period, such dispute shall be referred to the
Expert as provided in Section 11.21. FF&E Leases shall be subject to Section
1.08.

     E. As the Inn ages, these percentages may not be sufficient to keep the
Reserve at the levels necessary to make the replacements, renewals and additions
to the FF&E of the Inn, or to make the Routine Capital Expenditures which are
required to maintain the Inn in accordance with the System Standards therefor.
If the Repairs and [ ] hereforent Estimate prepared in good faith by Manager
exceeds the available funds in the Reserve, Owner shall:

                                       14

<PAGE>

          1. agree in writing to increase temporarily the annual percentage in
Section 5.02.B. to provide the additional funds required, or

          2. make a lump sum contribution to the Reserve in the necessary
amount; such amount (plus interest at the Prime Rate plus one percent (1%) per
annum) shall be fully repaid to Owner from Gross Revenues in equal installments
over the period of the next sixty-five (65) Accounting Periods, and such
installment repayments shall be Deductions.

     If Owner fails to elect one of the above alternatives within sixty (60)
days after Manager's request therefor, Owner shall be deem [ ] hereforeve
elected the alternative set forth in Section 5.02.E.1. above. If Owner elects
the alternative set forth in Section 5.02.E.2. above and fails to provide the
additional funds required thereunder within sixty (60) days after Owner's
receipt of Manager's request for additional funding, such failure shall
constitute an Event of Default by Owner.

     5.03 Major Repairs Alterations, Improvements, Renewals, and Replacements to
be Funded by Owner

     A. Manager shall prepare an annual estimate (the "Building Estimate") of
the expenses necessary for non-routine or major repairs, alterations,
improvements, renewals and replacements (which repairs, alterations,
improvements, renewals and replacements are not Routine Capital Expenditures) to
the Inn including, without limitation, the structure, the exterior facade, the
mechanical, electrical, heating, ventilating, air conditioning, plumbing or
vertical transportation elements of each of the Inn buildings, and other
non-routine repairs and maintenance to the Buildings. Manager shall not make any
expenditures for such purposes without the prior written consent of Owner unless
otherwise permitted herein. Manager shall submit the Building Estimate to Owner
for its approval at the same time the Annual Operating Projection is submitted.
Owner shall have thirty (30) days after receipt to review and approve such
Building Estimate, it being agreed that Owner shall not withhold its approval
with respect to Capital Expenditures as are required, in Manager's reasonable
judgment, to keep the Inn in a first-class, competitive, efficient and
economical operating condition in accordance with System Standards or otherwise
required for the continued safe and orderly operation of the Inn, including the
removal of Hazardous Materials in compliance with all Environmental Laws (as
more particularly described in Section 11.08). Manager shall be authorized to
take appropriate remedial action without receiving Owner's prior consent as
follows: (i) in an emergency threatening the Inn or the life or property of its
guests, invitees or employees; (ii) if the Capital Expenditures are necessary to
satisfy a Legal Requirement (subject to Owner's right to contest or oppose, by
appropriate proceedings, any such Legal Requirement); or (iii) if the
continuation of the given condition will subject Manager and/or Owner to civil
or criminal liability. Manager shall cooperate with Owner in the pursuit of any
such action and shall have the right to participate therein.

     B. The cost of all repairs, alterations, improvements, renewals or
replacements referred to in this Section 5.03 (including the expenses incurred
by either Owner or Manager

                                       15

<PAGE>

in connection with any civil or criminal proceeding described above) shall be
borne solely by Owner, and shall not be paid from Gross Revenues nor from the
Reserve.

     C. If Owner fails to approve and fund any proposed expenditures described
in Section 5.03.A. within sixty (60) days after the submission to Owner of the
request therefor, Manager shall have,[ ] hereforetion to any other rights it may
have under this Agreement, the option of terminating this Agreement upon six (6)
months' written notice to Owner.

     5.04 Ownership of Replacements

     All repairs, alterations, improvements, renewals or replacements made
pursuant to this Article V, and all amounts kept in the Reserve, shall be the
property of Owner, subject to Manager's rights to such funds as otherwise
provided in this Agreement.

     5.05 Design Specifications

     Subject to brand design standards generally employed for the System, with
respect to any capital expenditure programs submitted to Owner by Manager, Owner
shall have the right to choose in its reasonable discretion one prototype
package for such capital expenditure program from the variety of standard
prototype packages available to complete such program. With respect to custom
design packages that fall outside the scope of the then-current brand design
standards and prototype packages generally employed for the System, Owner and
Manager must mutually agree upon the details of such custom design packages,
including design specifications.

     5.06 Management of Hotel Renovation and Construction Projects

     Owner shall "ave the r"g"t to manage the construction of any repair,
refurbishment (including FF&E replacement), renovation or construction project
at the Inn, that exceeds a total budgeted cost of Five Hundred Thousand Dollars
($500,000), as adjusted by the GDP Deflator; provided, however, that (i)
Marriott International Design & Construction Services, Inc. be allowed to bid on
all projects funded from the Reserve; (ii) prior to commencement of a renovation
or construction project, Owner shall submit to Manager's Hotel Design Review
Committee (or such similar committee), for its approval, all project plans,
drawings and specifications and shall ensure that the final plans, drawings and
specifications pursuant to which the project is undertaken conform to those
approved by such committee; (iii) all materials used and quality of installation
and finish shall be equal to or better than those required by System Standards;
(iv) the contractors, architects and other consultants utilized by Owner shall
be subject to the approval of Manager (based upon reputation and experience) and
shall be fully insured and bonded to the reasonable satisfaction of Manager; (v)
the project shall not be deemed completed until Manager, in its reasonable
judgment, certifies that the renovation or construction work conforms with all
project plans, drawings, and specifications approved by Manager; and (vi) Owner
shall work cooperatively with Manager to minimize interruption to Inn
operations, and to the experience of the Hotel's guests, from the project. Any
construction project or Inn renovation that has a total budgeted cost of Five
Hundred Thousand Dollars ($500,000), or less,

                                       16

<PAGE>

as adjusted by the GDP Deflator, shall be managed through Marriott International
Design & Construction Services, Inc. or such other design and construction firm
selected by Manager.

                                   ARTICLE VI

                                    INSURANCE

     6.01 Property Insurance

     A. Manager shall, commencing with the Effective Date and for the duration
of the Term, procure and maintain, using funds deducted from Gross Revenues in
determining Operating Profit, a minimum of the following insurance:

          1. Insurance on the Inn (including contents) against loss or damage by
all perils included in "all risk" (as such term is commonly used in the
insurance industry) coverage, in an amount not less than one hundred percent
(100%) of the replacement cost thereof, except that if such 100% replacement
cost coverage is not available on reasonable rates and terms, then such
insurance shall be in an amount not less than ninety percent (90%) of the
replacement cost thereof (less excavation and foundation costs), of the Inn;

          2. Earthquake (except in California) and flood insurance, if available
on reasonable rates and terms, to be determined at the discretion of Manager;

          3. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable,
installed in the Inn;

          4. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 6.01.A.1, 2 and 3, for a period of not
less than one (1) year after the occurrence, of a type and in amounts and with
such deductible limits as are generally established by Manager at the other inns
it owns or manages under the Marriott Residence Inn name in the United States.

     B. All policies of insurance required under Section 6.01. A. 1, 2, 3 and 4
shall insure Owner, Manager, and the holder of the first mortgage indebtedness
with respect to the Inn (a "First Mortgage"); and any losses thereunder shall be
payable to the parties as and to the extent their respective interests, if any,
may appear.

     C. Any Mortgage on the Inn shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 6.01
shall be available for repair and restoration of the Inn.

                                       17

<PAGE>

     6.02 Operational Insurance

     Manager shall, commencing with the Effective Date and for the duration of
the Term, procure and maintain, using funds deducted from Gross Revenues in
determining Operating Profit, with insurance companies approved by Owner the
following insurance:

     A. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Manager's employees at the Inn,
with such deductible limits or self-insured retentions as are generally
established by Manager at the other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States;

     B. Fidelity bonds, with reasonable limits and deductibles to be determined
by Manager, covering its employees in job classifications normally bonded in the
other inns it owns or manages under the "Residence Inn by Marriott" name in the
United States or as otherwise required by law, and comprehensive crime insurance
to the extent Manager and Owner mutually agree it is necessary for the Inn;

     C. Comprehensive general public liability insurance against claims for
personal injury, death or property damage occurring on, in, or about the Inn,
and automobile insurance on vehicles operated in conjunction with the Inn, with
a combined single limit of not less than Twenty-five Million Dollars
($25,000,000) for each occurrence for personal injury, death and property
damage, with such deductible limits or self-insured retentions as are generally
established by Manager at the other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States; if Manager feels in its reasonable
discretion that higher limits are appropriate, it will obtain them; and

     D. Such other insurance in amounts as Manager in its reasonable judgment
deems advisable for protection against claims, liabilities and losses arising
out of or connected with the operation of the Inn or as reasonably required by
Owner's lenders holding Qualified Mortgages on the Inn.

     6.03 Coverage

     All insurance described in Sections 6.01 and 6.02 may be obtained by
Manager by endorsement or equivalent means under its or Marriott's blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein. Deductible limits and self-insured retentions
shall be as provided in the blanket policies covering the inns owned or managed
by Manager under the "Residence Inn by Marriott" name in the United States. In
addition, Manager may self-insure workers' compensation insurance (if it has
legally qualified to do so) or otherwise retain such risks or portions thereof
as it does with respect to other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States.

                                       18

<PAGE>

     6.04 Costs and Expenses

     Insurance premiums and any costs or expenses with respect to the insurance
described in this Article VI shall be Deductions in determining Operating
Profit. Premiums on policies for more than one year shall be charged pro rata
against Gross Revenues over the period of the policies. The expenses incurred in
maintaining Manager's self-insurance program shall be charged on an equitable
basis to the inns participating in such programs. Any reserves, losses, costs,
damages or expenses which are uninsured, or fall within deductible limits, shall
be treated as a cost of insurance and shall be Deductions in determining
Operating Profit. Upon Termination, an escrow fund in an amount reasonably
acceptable to Manager (which amount, when funded, shall thereafter be final as
between Owner and Manager) shall be established from Gross Revenues (or, if
Gross Revenues are not sufficient, with funds provided by Owner) to cover the
amount of any deductible limits and all other costs which will eventually have
to be paid by Manager with respect to pending or contingent claims, including
those which arise after Termination for causes arising during the term of the
Agreement.

                                   ARTICLE VII

                                DAMAGE AND REPAIR

     7.01 Damage and Repair

     A. If, during the Term, the Inn is damaged or destroyed by fire, casualty
or other cause, Owner shall, at its cost and expense and with all reasonable
diligence, repair or replace the damaged or destroyed portion of the Inn to the
same condition as existed previously and Manager shall have the right to
discontinue operating the Inn to the extent it deems necessary to comply with
applicable law, ordinance, regulation or order or as necessary for the safe and
orderly operation of the Inn. To the extent available, proceeds from the
insurance described in this Agreement shall be applied to such repairs or
replacements. Notwithstanding the foregoing, Owner shall not be obligated to
repair or replace the damaged or destroyed portion of the Inn if one or more of
the following is true: (i) the Inn is so badly damaged or destroyed that it
cannot reasonably be repaired or replaced within eighteen (18) months of the
date on which the construction work relating to the repair and/or replacement
would begin; (ii) with respect to insurance obtained by Manager under Section
6.01, the proceeds of such insurance available for such repair or replacement
are less than ninety percent (90%) of the estimated repair and replacement
costs; or (iii) the remainder of the Term is less than ten (10) years and, upon
Owner's request, Manager fails to agree to extend the Term to a date which is at
least ten (10) years after the estimated date of the completion of such repair
and/or replacement. If Owner elects not to repair or replace said damaged
portion of the Inn for one or more of the foregoing reasons, it shall so notify
Manager by written notice within ninety (90) days after the date of the
casualty.

     B. In the event damage or destruction to the Inn from any cause materially
and adversely affects the operation of the Inn and (i) Owner fails to promptly
commence and

                                       19

<PAGE>

complete the repairing, rebuilding or replacement of the same as required by
Section 7.01.A. so that the Inn shall be substantially the same as it was prior
to such damage or destruction, Manager may, at its option, elect to either
undertake such work for the account of Owner, terminate this Agreement by
written notice to Owner and this Agreement shall terminate on the date that is
sixty (60) days after receipt of such written notice by Owner, and/or pursue all
other rights and remedies pursuant to this Agreement; or (ii) Owner notifies
Manager within the time period set forth in Section 7.01.A. above, that Owner
will not repair or replace such damage for one or more of the reasons set forth
in Section 7.01.A., Manager may, at its option, terminate this Agreement by
written notice to Owner and this Agreement shall terminate on the date that is
sixty (60) days after receipt of such written notice by Owner.

     7.02 Condemnation

     A. In the event all or substantially all of the Inn shall be taken in any
eminent domain, condemnation, compulsory acquisition, or similar proceeding by
any competent authority for any public or quasi-public use or purpose, or in the
event a portion of the Inn shall be so taken, but the result is that it is
unreasonable to continue to operate the Inn in accordance with the standards
required by this Agreement, this Agreement shall terminate. Owner and Manager
shall each have the right to initiate such proceedings as they deem advisable to
recover any compensation to which they may be entitled.

     B. In the event a portion of the Inn shall be taken by the events described
in Section 7.02.A., or the entire Inn is affected but on a temporary basis, and
the result is not to make it unreasonable to continue to operate the Inn, this
Agreement shall not terminate. However, so much of any award for any such
partial taking or condemnation as shall be necessary to render the Inn
equivalent to its condition prior to such event shall be used for such purpose,
and the balance of such award shall be distributed in accordance with the
provisions of a Qualified Mortgage; provided, however, that such balance shall
be deemed to be included in Gross Revenues. Manager shall have the right to
discontinue operating the Inn to the extent it deems necessary for the safe and
orderly operation of the Inn.

                                  ARTICLE VIII

                              OWNERSHIP OF THE INN

     8.01 Ownership of the Inn

     A. Owner hereby covenants that (i) Owner holds leasehold title to the Site
pursuant to the Hotel Lease; (ii) Landlord holds good and marketable fee title
to the Site; and (iii) Landlord will have, keep, and maintain good and
marketable fee title to the Inn free and clear of any and all liens,
encumbrances or other charges, except as follows:

          1. easements or other encumbrances (other than those described in this
Section 8.01 below) that do not adversely affect the operation of the Inn by
Manager and that are

                                       20

<PAGE>

not prohibited pursuant to Section 8.04 of this Agreement, including, without
limitation, (i) any encumbrances or other defects of title subject to which
title was conveyed to Landlord, or (ii) liens, encumbrances or other charges
resulting from Manager's acts that are the fault of Manager pursuant to Section
8.05.

          2. Qualified Mortgages; or

          3. liens for taxes, assessments, levies or other public charges not
yet due or due but not yet payable.

     B. Owner (and its Affiliates) shall pay and discharge, or cause to be paid
and discharged, on or before the due date, any and all (i) payments due under
any Mortgage with respect to the Inn; and (ii) any rent due under the Hotel
Lease. Owner shall indemnify, defend, and hold Manager harmless from and against
all claims, Litigation and damages arising from the failure to make any such
payments as and when required; and this obligation of Owner shall survive
Termination. Manager shall have no responsibility for payment of debt service or
rent due with respect to the Inn, from Gross Revenues or otherwise, and such
responsibility shall be solely that of Owner (and its Affiliates).

     C. Owner covenants that Manager shall quietly hold, occupy and enjoy the
Inn in accordance with the terms of this Agreement throughout the Term hereof
free from hindrance, ejection or molestation by Owner or any other party
claiming under, through or by right of Owner. Owner agrees to pay and discharge
any payments and charges and, at its expense, to prosecute all appropriate
actions, judicial or otherwise, necessary to assure such free and quiet
occupation.

     8.02 Mortgages

     A. Owner shall be permitted to encumber the Inn and/or the Site with any
Mortgage, provided that such Mortgage meets all of the following requirements:

          1. The proposed Mortgage is from an Institutional Lender and is on
commercially reasonable terms and conditions;

          2. As of the date of the proposed financing, the aggregate principal
balance of all Mortgages encumbering the Inn, including the proposed Mortgage,
shall be no greater than the lesser of: (x) seventy percent (70%) of the fair
market value of the Inn; or (y) the dollar amount obtained by (a) dividing the
average annual Operating Profit for the twenty-six (26) most recent full
Accounting Periods by the Coverage Ratio; then (b) multiplying the result of
clause (a) by the Capitalization Multiple; and

          3. Owner, Manager and the holder of such Mortgage shall have entered
into a Subordination Agreement (to be recorded in the real property records in
the jurisdiction where the Site is located) as further described in Section 8.03
below.

                                       21

<PAGE>

     B. For purposes of this Section 8.02, the fair market value of the Inn
shall be (i) as set forth in any then current appraisal obtained or accepted by
an Institutional Lender in connection with a Qualified Mortgage, or (ii) in the
absence of such an appraisal, as reasonably determined by Owner and Manager. If
Owner and Manager do not agree on such fair market value, either party may
request that a licensed appraiser (reasonably acceptable to both parties) shall
determine the fair market value of the Inn. If the parties cannot agree on an
appraiser within thirty (30) days after the date on which either party notifies
the other that it wishes to have the fair market value of the Inn be determined
by an appraisal, either party may elect to have such fair market value
determined by the Expert pursuant to Section 11.21. Any Mortgage which meets all
of the requirements set forth in this Section 8.02 shall be referred to in this
Agreement as a "Qualified Mortgage."

     C. In the event Manager receives any reasonable request for information on
the Inn from the holder of any Qualified Mortgage (and including any Affiliate
of Manager providing any financing in connection with the Inn), Owner agrees
that Manager II hereby authorized to provide or distribute such information
directly to such lender.

     D. Without altering any of Manager's rights under this Agreemen', and
provided that none of Manager's rights under this Agreement are adversely
affected, Manager shall cooperate, at no cost to Manager, in good faith with
Owner and its Mortgagee in connection with any Qualified Mortgage including the
negotiation and execution of any other agreements customarily required by
Institutional Lenders in connection with the Qualified Mortgage.

     8.03 Subordination, Non-Disturbance and Attornment

     A. Owner will obtain from any Mortgagee which holds a Mortgage as of the
Effective Date (or thereafter) an instrument (the "Subordination Agreement"),
reasonably satisfactory in all respects to Manager and such Mortgagee, which
shall be recordable in the jurisdiction where the Inn is located, pursuant to
which:

          1. This Agreement and any extensions, renewals, replacements or
modifications thereto, and all right and interest of Manager in and to the Inn,
shall be subject and subordinate to such Mortgage, with notice and opportunity
to cure rights and post-default cure rights in favor of Mortgagee;

          2. Manager shall be obligated to each of the Subsequent Owners (as
defined below) to perform all of the terms and conditions of this Agreement for
the balance of the remaining Term hereof, with the same force and effect as if
such Subsequent Owner were the Owner; and

          3. In the event that there is a foreclosure of such Mortgage (or a
deed in lieu of foreclosure), or other exercise by such Mortgagee (or its
successor) of its remedies in the event of default, in connection with which
title or possession of the Inn is transferred to the Mortgagee (or its designee)
or to a purchaser at foreclosure or to a subsequent purchaser from the Mortgagee
(or from its designee) (all of the foregoing shall collectively be referred to
as "Subsequent

                                       22

<PAGE>

Owners"), this Agreement shall not be terminated and Manager shall not be
disturbed in its rights under this Agreement.

     B. In the event that the Subordination Agreement contains provisions
requiring Manager (upon a default under the Mortgage, or upon various other
stipulated conditions) to pay certain amounts which are otherwise due to Owner
under this Agreement to the Mortgagee or its designee (rather than to Owner),
Owner hereby gives its consent to such provisions, which consent shall be deemed
to be irrevocable until the entire debt secured by the Mortgage has been
discharged.

     C. Prior to encumbering the Inn or the Site with any Mortgage, Owner shall
be obligated to obtain from the proposed Mortgagee an executed, recordable
Subordination Agreement. Manager agrees to execute such Subordination Agreement
for the benefit of such proposed Mortgagee. If Owner encumbers the Inn or the
Site with a Mortgage without first obtaining such a Subordination Agreement froI
the Mortgagee: (i) it shall be a Default If Iwner under this Agreement,
entitling Manager to all of the remedies set forth in Article IX; and (ii) in
addition, Manager shall thereafter have a continuing right to terminate this
Agreement upon sixty (60) days' prior written notice to Owner. In addition, any
Mortgage described in the preceding sentence shall be subject and subordinate to
Manager's rights under this Agreement.

     D. Notwithstanding the subordination of this Agreement which is described
in Section 8.03.A.1., if, in connection with the exercise by any Mortgagee of
its remedies under any Mortgage, there is a material adverse impact upon the
operation of the Inn by Manager in accordance with the System Standards, the
foregoing shall be deemed to be an Event of Default by Owner entitling Manager
to all of the remedies set forth in Article IX.

     8.04 No Covenants, Conditions or Restrictions

     A. Owner covenants that, as of the Effective Date and during the Term,
there will not be (unless Manager has given its prior consent thereto) any
covenants, conditions or restrictions, including reciprocal easement agreements
or cost-sharing arrangements (individually or collectively referred to as
"CC&R(s)") affecting the Site or the Inn which: (i) would prohibit or limit
Manager from operating the Inn in accordance with the System Standards; (ii)
would allow the Inn facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Inn; (iii) would allow
the Inn facilities to be used for specified charges or rates which have not been
approved by Manager; or (iv) would subject the Inn to exclusive arrangements
regarding food and beverage operation or retail merchandise.

     B. Unless otherwise agreed by both Owner and Manager, all financial
obligations imposed on Owner or on the Inn pursuant to any CC&Rs hereafter
affecting the Inn shall be paid by Owner from its own funds, and not from Gross
Revenues or from the Reserve. Manager's consent to any such CC&R shall be
conditioned (among other things) on satisfactory evidence that: (i) the CC&R in
question provides a reasonable and cost-effective benefit to the operation of
the Inn; (ii) the costs incurred (including administrative expenses) pursuant to
such CC&R will be both reasonable and allocated to the Inn on a reasonable
basis; and (iii) no capital

                                       23

<PAGE>

expenditures incurred pursuant to said CC&R will be paid from Gross Revenues or
from the Reserve (but rather, such capital expenditures will be paid separately
by Owner).

     8.05 Liens; Credit

     Manager and Owner shall use commercially reasonable efforts to prevent any
liens from being filed against the Inn which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Inn,
and shall cooperate fully in obtaining the release of any such liens. If the
lien was not occasioned by the fault of either party, the cost of releasing any
lien shall be treated the same as the cost of the matter to which it relates. If
the lien arises as a result of the fault of either party, then the party at
fault shall bear the cost of obtaining the lien release. In no event shall
either party borrow money in the name of or pledge the credit of the other.

                                   ARTICLE IX

                                    DEFAULTS

     9.01 Events of Default

     Each of the following shall, to the extent permitted by applicable law,
constitute a "Default" under this Agreement.

     A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this Section 9.01.A., said Default shall
be deemed an "Event of Default" under this Agreement.

     B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party. Upon the occurrence of any
Default by either party as described under this Section 9.01.B., said Default
shall be deemed an "Event of Default" under this Agreement.

     C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
Section 9.01.C., said Default shall be deemed an "Event of Default" under this
Agreement.

     D. The failure of either party to make any payment required to be made in
accordance with the terms of this Agreement, as of the due date as specified in
this Agreement. Upon the occurrence of any Default by either party as described
under this Section 9.01.D., said Default

                                       24

<PAGE>

shall be deemed an "Event of Default" under this Agreement if the defaulting
party fails to cure such Default within ten (10) days after receipt of written
notice from the non-defaulting party demanding such cure.

     E. Owner or any of Owner's Affiliates is or becomes a Specially Designated
National or Blocked Person. Upon the occurrence of any Default as described in
this Section 9.01.E., said Default shall be deemed an "Event of Default" under
this Agreement.

     F. The failure of either party to perform, keep or fulfill any of the other
covenants, undertakings, obligations or conditions set forth in this Agreement,
and the continuance of such default for a period of thirty (30) days after the
defaulting party's receipt of written notice from the non-defaulting party of
said failure. Upon the occurrence of any Default by either party as described
under this Section 9.01.F., said Default shall be deemed an "Event of Default"
under this Agreement if the defaulting party fails to cure the Default within
thirty (30) days after receipt of written notice from the non-defaulting party
demanding such cure, or, if the Default is such that it cannot reasonably be
cured within said thirty (30) day period of time, if the defaulting party fails
to commence the cure of such Default within said thirty (30) day period of time
or thereafter fails to diligently pursue such efforts to completion.

     9.02 Remedies

     Upon the occurrence of an Event of Default, the non-defaulting party shall
have the right to pursue any one or more of the following courses of action: (1)
if the Event of Default has a material adverse impact on the non-defaulting
party, to terminate this Agreement by written notice to the defaulting party,
which termination shall be effective as of the effective date which is set forth
in said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice and further provided that, if the defaulting
party is Manager, the foregoing period of thirty (30) days shall be extended to
seventy-five (75) days (or such longer period of time as may be necessary under
Legal Requirements pertaining to termination of employment); (2) to institute
forthwith any and all proceedings permitted by law or equity including, without
limitation (but subject to the provisions of Section 11.23 hereof), actions for
specific performance and/or damages; and/or (3) to avail itself of the remedies
described in Section 9.03.

     9.03 Additional Remedies

     A. Upon the occurrence of a Default by either party under the provisions of
Section 9.01.D., the amount owed to the non-defaulting party shall accrue
interest, at an annual rate equal to the Prime Rate plus three (3) percentage
points, from and after the date on which the Default occurred.

     B. Upon the occurrence of a Default by Owner under the provisions of
Section 9.01.D., Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount (plus accrued interest as
described in Section 9.03.A. above) owed to Manager by Owner from distributions
otherwise payable to Owner pursuant to Section 3.02 and Section 4.01 of this
Agreement.

                                       25

<PAGE>

     C. Manager and/or any Affiliate of Manager shall be entitled, in case of
any breach of the covenants of Section 11.11.E., Section 11.11.F. or Section
11.12 by Owner or others claiming through it, to injunctive relief and to any
other right or remedy available at law or in equity.

     D. The remedies granted under Section 9.02 and Section 9.03 shall not be in
substitution for, but shall be in addition, to, any and all rights and remedies
available to the non-defaulting party (including, without limitation, injunctive
relief and damages) by reason of applicable provisions of law or equity and
shall survive Termination.

                                    ARTICLE X

                               ASSIGNMENT AND SALE

     10.01 Assignment

     A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner; provided, however, that Manager
shall have the right, without Owner's consent, to (1) assign its interest in
this Agreement to Marriott or any Affiliate of Marriott which (i) has adequate
experience in managing hotels and has adequate capital to conduct its business
as Manager under this Agreement, and (ii) agrees in writing to be bound by and
comply with the terms of this Agreement (such written agreement to be delivered
to Owner), (2) lease shops or grant concessions at the Inn in accordance with
the terms hereof so long as the terms of any such leases or concessions do not
exceed the Term, (3) assign its interest in this Agreement in connection with a
merger or consolidation or a sale of all or substantially all of the assets of
Manager or Marriott, and (4) assign its interest in this Agreement in connection
with a merger or consolidation or a sale of all or substantially all of the
System assets owned by Manager, Marriott or any Affiliate of Manager or
Marriott, if the successor or purchaser (i) has adequate experience in managing
hotels and has adequate capital to conduct its business as Manager under this
Agreement, and (ii) agrees in writing to be bound by and comply with the terms
of this Agreement (such written agreement to be delivered to Owner).

     B. Owner shall not assign or transfer its interest in this Agreement
without the prior written consent of the Manager; provided, however, that Owner
shall have the right, without such consent, to (1) conditionally assign this
Agreement as security for a Mortgage of the Inn in accordance with this
Agreement, (2) assign its interest in this Agreement in connection with a Sale
of the Inn which complies with the provisions of Section 10.02 of this
Agreement, (3) assign its interest in this Agreement in connection with any
sale, assignment, transfer or other disposition of the Inn by Owner or Landlord
to an Affiliate of Owner, subject to compliance with the provisions of Section
10.02.A, and (4) assign its interest in this Agreement in connection with a
merger or consolidation or a sale of all or substantially all of the assets of
Apple Hospitality Five, Inc., subject to the provisions of Section 10.02.A.

                                       26

<PAGE>

     C. In the event either party consents to an assignment of this Agreement by
the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement. An assignment by either Owner
or Manager of its interest in this Agreement shall not relieve Owner or Manager,
as the case may be, from its respective obligations under this Agreement, and
shall inure to the benefit of, and be binding upon, its respective successors,
heirs, legal representatives, or assigns.

     10.02 Sale of the Inn

     A. Neither Owner nor Landlord shall enter into any Sale of the Inn to any
Person (or any Affiliate of any Person) who (1) does not, in Manager's
reasonable judgment, have sufficient financial resources to fulfill Owner's
obligations under this Agreement; (2) is known in the community as being of bad
moral character, or has been convicted of a felony in any state or federal
court, or is in control of or controlled by Persons who have been convicted of
felonies in any state or federal court; (3) either directly or indirectly, has
an ownership interest (other than the ownership of not more than five percent
(5%) of the outstanding common stock of any publicly-held company) in a brand of
hotels totaling at least twenty (20) hotels, or in a group of hotels totaling at
least twenty (20) hotels that are not affiliated with a brand but that are
marketed and operated as a collective group, if such brand or group of hotels
competes with Manager, Marriott or any Affiliate thereof; or (4) such Person or
any of its Affiliates is a Specially Designated National or Blocked Person. An
individual or entity shall not be deemed to be in the business of operating
hotels or other lodging facilities in competition with Manager, Marriott or any
Affiliate solely by virtue of (x) the ownership of such hotels or other lodging
facilities, either directly or indirectly through subsidiaries, affiliates and
partnerships, or (y) holding a mortgage or mortgages secured by one or more
hotels or other lodging facilities. Furthermore, Owner shall not enter into a
Sale of the Inn if Owner is at the time in Default under the terms of this
Agreement.

     B. If Owner or Landlord decides to sell or lease the Inn to a third party,
then prior to offering the Inn for sale or lease or negotiating a Sale of the
Inn with any third party, Owner and Landlord will give Manager notice of such
decision ("Notice of Intent to Sell"), "nd Owner and Landlord, a" applicable,
and Manager will, during the period of thirty (30) days after such notice,
attempt in good faith to negotiate a mutually satisfactory agreement for the
purchase of the Inn. For purposes of this Section 10.02.B., a sale to a third
party shall not include any transfer, sale or assignment to a Mortgagee nor to a
sale at Foreclosure under a Mortgage. If, after the expiration of thirty (30)
days following the date of Owner's notice of its desire to sell or lease the
Inn, Owner, Landlord and Manager have not entered into a mutually acceptable
agreement for the purchase or lease of the Inn, Owner or Landlord shall be free,
subject to the conditions of this Section 10.02, to sell or lease the Inn to a
third party provided; (i) the Inn is to be sold or leased in conjunction with
other hotels not operated by Manager or its Affiliates, or other hotels operated
by Manager or it Affiliates but for which Manager or such Affiliates do not have
a right of first negotiation as described in this Section 10.02.B; or (ii) the
Inn is sold as a single asset or is sold in conjunction with other hotels
operated by Manager or its Affiliates for which Manager or such Affiliates have
a right of first negotiation as described in this Section 10.02.B, and the

                                       27

<PAGE>

price or rental for the Inn to such third party has not been reduced by more
than five percent (5%) of the price or rental which Owner or Landlord offered to
sell or rent the Inn to Manager. Notwithstanding the foregoing, any sale or
lease shall be subject to the following further conditions:

          1. Owner and Landlord shall deliver a written notice (the "Notice of
Proposed Sale") (which Notice of Proposed Sale may be given concurrently with
the Notice of Intent to Sell), of the proposed Sale of the Inn to Manager
stating: (i) the name of the prospective purchaser or tenant, as the case may
be; (ii) the price or rental; and (iii) the terms and conditions of such
proposed Sale of the Inn, together with all other information reasonably
requested by Manager.

          2. Within thirty (30) days after the date of receipt of such Notice of
Proposed Sale from Owner and such other information, if Manager and Landlord or
Owner have not entered into a mutually acceptable agreement for the purchase or
lease of the Inn, Manager shall elect, by written notice to Owner and Landlord,
one of the following two (2) alternatives:

               a. To consent to such Sale of the Inn and to the assignment of
this Agreement to such purchaser or tenant, provided that concurrently with the
closing thereof, the purchaser or tenant, as the case may be, shall, by
appropriate instrument in form satisfactory to Manager, assume all of Owner's
obligations under this Agreement. An executed original of such assumption
agreement shall be delivered to Manager; or

               b. To not consent to such proposed Sale of the Inn, based upon
such Sale of the Inn not being in compliance with Section 10.02.A. above,
specifying in reasonable detail the reasons for such decision, in which event
such Sale of the Inn shall not be permitted hereunder and it shall be an Event
of Default for Owner to proceed with such Sale of the Inn.

     C. If Manager shall fail to elect one of the alternatives set forth in
Section 10.02.B.2. above, within said thirty (30) day period, such failure shall
be deemed to constitute an election to consent under Section 10.02.B.2.a. above,
and the provisions thereof shall prevail as if Manager had consented in writing
thereto. Any proposed Sale of the Inn with respect to which a Notice of Proposed
Sale has been delivered by Owner to Manager hereunder must be finalized within
one hundred eighty (180) days following the date of Manager's written notice in
response to such Notice of Proposed Sale. Failing such finalization, such Notice
of Proposed Sale, and any response thereto given by Manager, shall be null and
void and all of the provisions of Section 10.02.B. and Section 10.02.C. must
again be complied with before Owner or Landlord, as applicable, shall have the
right to finalize a Sale of the Inn upon the terms contained in said Notice of
Proposed Sale, or otherwise.

     D. If Manager consents (or is deemed to have consented) to the proposed
Sale of the Inn, then Manager shall have the option to require (in lieu of
receipt of the assumption agreement described in Section 10.02.B.2.a.) that such
purchaser or tenant enter into a new management agreement with Manager, which
new management agreement will be on all of the terms and conditions of this
Agreement except that the Initial Term and Renewal Term(s) of any such new

                                       28

<PAGE>

agreement shall consist only of the balance of the Initial Term and Renewal
Term(s) remaining under this Agreement at the time of execution of any such new
management agreement. Such new management agreement shall be executed by Manager
and such new owner at the time of closing of the Sale of the Inn, and a
memorandum of such new management agreement shall be executed by the parties and
recorded immediately following recording of the deed or memorandum of lease (or
assignment) and prior to recordation of any other documents.

     E. Each party hereby represents and warrants to the other that neither such
party nor any of its Affiliates is a Specially Designated National or Blocked
Person. Owner hereby represents and warrants to Manager that its equity is
directly and (if applicable) indirectly owned as shown on Exhibit B. In
connection with the possibility of a Sale of the Inn achieved by means of a
transfer of the controlling interest in Owner or Landlord, Owner shall, from
time to time, within thirty (30) days after written request by Manager, furnish
Manager with a list of the names and addresses of the direct and indirect owners
of capital stock, partnership interest, or other proprietary interest of Owner
and Landlord, provided that Owner and Landlord shall not be required to provide
the names and addresses of shareholders of a public company.

     F. It is understood that no Sale of the Inn shall reduce, require any
increase or otherwise affect: (i) the current level of Working Capital; (ii) the
outstanding balance deposited in the Reserve; (iii) the outstanding balance in
any of the Operating Accounts maintained by Manager pursuant to this Agreement;
or (iv) Owner's Priority. If, in connection with any Sale of the Inn, the
selling Owner intends to withdraw, for its own use, any of the cash deposits
described in the preceding sentence, the selling Owner must obtain the
contractual obligation of the buying Owner to replenish those deposits (in the
identical amounts) simultaneously with such withdrawal. The selling Owner is
hereby contractually obligated to Manager to ensure that such replenishment in
fact occurs. The obligations described in this Section 10.02.F. shall survive
such Sale of the Inn and shall survive Termination.

     G. The terms and provisions of this Agreement shall be binding upon all
successors to Owner's and Landlord's interest in the Site and/or the Inn. Each
selling Owner shall be obligated to Manager to obtain from each buying Owner an
assumption (reasonably satisfactory to Manager) of this Agreement.

     H. To the extent permitted by applicable law, Manager shall have the right
(without prejudice to its rights to declare an Event of Default and seek damages
or other compensation) to terminate this Agreement, on thirty (30) days' written
notice, if title to or possession of the Inn is transferred by judicial or
administrative process (including, without limitation, a Foreclosure, or a sale
pursuant to an order of a bankruptcy court, or a sale by a court-appointed
receiver) to an individual or entity which would not qualify as a permitted
transferee under Section 10.02.A., regardless of whether or not such transfer is
the voluntary action of the transferring Owner, or whether (under applicable
law) the Owner is in fact the transferor.

                                       29

<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

     11.01 Right to Make Agreement

     Each party warrants, with respect to itself, that neither the execution of
this Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or,
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the Term and any
extensions thereof, the full right to enter into this Agreement and perform its
obligations hereunder.

     11.02 Consents and Cooperation

     Wherever in this Agreement the consent or approval of Owner or Manager is
required, such consent or approval shall not be unreasonably withheld, delayed
or conditioned, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such consent or approval. If either Owner
or Manager fails to respond within thirty (30) days to a request by the other
party for a consent or approval, such consent or approval shall be deemed to
have been given (except as otherwise provided in this Agreement). Additionally,
Owner agrees to cooperate with Manager by executing such leases, subleases,
licenses, concessions, equipment leases, service contracts and other agreements
negotiated in good faith by Manager and pertaining to the Inn that, in Manager's
reasonable judgment, should be made in the name of the Owner.

     11.03 Relationship

     In the performance of this Agreement, Manager shall act solely as an
independent contractor. Neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Manager a partner, joint venturer
with, or agent of, Owner. Owner and Manager agree that neither party will make
any contrary assertion, claim or counterclaim in any action, suit, Expert
resolution pursuant to Section 11.21, arbitration or other legal proceedings
involving Owner and Manager.

     11.04 Applicable Law

     This Agreement shall be construed under and shall be governed by the laws
of the State where the Inn is located, without regard to that state's conflict
of laws provisions.

                                       30

<PAGE>

     11.05 Recordation

     The terms and provisions of this Agreement shall run with the parcel of
land designated as the Site, and with Owner's interest therein, and shall be
binding upon all successors to such interest. Simultaneously with the execution
of this Agreement, the parties shall execute a recordable "Memorandum of
Management Agreement," in the form which is attached hereto as Exhibit C. Such
memorandum shall be recorded or registered, at Manager's cost, promptly
following the Effective Date in the jurisdiction in which the Inn is located.
Upon Termination of this Agreement for any reason other than a default by Owner,
Manager shall, at its own expense, promptly record a release of any such
memorandum recorded hereunder.

     11.06 Headings

     Headings of articles and sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.

     11.07 Notices

     Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail (with a copy by first class mail) or Express
Mail service, in each case postage prepaid, return receipt requested or by
nationally utilized overnight delivery service, addressed to the parties as
follows:

          To Owner:       Apple Hospitality Five Management, Inc.
                          c/o Apple REIT Companies
                          10 South Third Street
                          Richmond, Virginia 23219
                          Attn: Samuel F. Reynolds, Director of Acquisitions/
                                   Dispositions & Portfolio Management
                          Attn: General Counsel
                          Phone: (804) 344-8121
                          Fax: (804) 344-8129

          To Manager:     Residence Inn by Marriott, Inc.
                          c/o Marriott International, Inc.
                          10400 Fernwood Road
                          Bethesda, Maryland 20817
                          Attn: Department 52/923-Lodging Operations
                          Phone: (301) 380-9555
                          Fax: (301) 380-6727

                                       31

<PAGE>

          with copy to:   Residence Inn by Marriott, Inc.
                          c/o Marriott International, Inc.
                          10400 Fernwood Road
                          Bethesda, Maryland 20817
                          Attn: Dept. 51/911.95 - Global Asset Management
                          Phone: (301) 380-1380
                          Fax: (301) 380-4700

or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service on the business day
following such transmission. Telephone facsimiles shall be deemed delivered on
the date of such transmission.

     11.08 Environmental Matters

     A. Except as otherwise disclosed in that certain Phase I Environmental Site
Assessment Report dated February 25, 2000 prepared for Manager by Secor
International Incorporated, Owner hereby represents and warrants to Manager
that, to Owner's actual knowledge, as of the Effective Date, there are no
Hazardous Materials (as defined below) on any portion of the Site or the Inn,
nor have any Hazardous Materials been released or discharged on any portion of
the Site or the Inn. In addition, Owner hereby represents and warrants that it
has previously delivered to Manager copies of all reports concerning
environmental conditions which have been received by Owner or any of its
Affiliates. In the event of the discovery of Hazardous Materials on any portion
of the Site or in the Inn during the Term, Owner shall promptly remove such
Hazardous Materials, together with all contaminated soil and containers, and
shall otherwise remedy the problem in accordance with (1) the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., as amended; (2) the regulations promulgated thereunder, from time to
time; (3) all federal, state and local laws, rules and regulations (now or
hereafter in effect) dealing with the use, generation, treatment, storage,
disposal or abatement of Hazardous Materials; and (4) the regulations
promulgated thereunder, from time to time (collectively referred to as
"Environmental Laws"). Owner shall indemnify, defend and hold Manager harmless
from and against all loss, costs, liability and damage (including, without
limitation, engineers' and attorneys' fees and expenses, and the cost of
Litigation) to the extent arising from the presence of Hazardous Materials on
the Site or in the Inn; and this obligation of Owner shall survive Termination.
"Hazardous Materials" shall mean and include any substance or material
containing one or more of any of the following: "hazardous material," "hazardous
waste," "hazardous substance," "regulated substance," "petroleum," "pollutant,"
"contaminant," "polychlorinated biphenyls," "lead or lead-based paint" or
"asbestos" as such terms are defined in any applicable Environmental Law in such
concentration(s) or amount(s) as may impose clean-up, removal, monitoring or
other responsibility under the Environmental Laws, as the same may be amended
from time to time, or which may present a significant risk of harm to guests,
invitees or employees of the Inn.

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<PAGE>

     B. All costs and expenses of the aforesaid removal of Hazardous Materials
from the Site or the Inn, and of the aforesaid compliance with all Environmental
Laws, and any amounts paid to Manager pursuant to the indemnity set forth in
Section 11.08.A. (collectively, the "Environmental Costs"), shall be paid by
Owner from its own funds, and not from Gross Revenues or from the Reserve. If
the Environmental Costs exceed the combined Operating Profit for the two full
Fiscal Years immediately preceding the Fiscal Year(s) in which such
Environmental Costs are incurred, Owner shall provide written notice to Manager
thereof, and Manager shall have thirty (30) days from receipt of such notice to
elect by written notice to Owner to either (i) terminate this Agreement in which
event this Agreement shall terminate on the date that is sixty (60) days after
Owner's receipt of such written te'mination notice from Manager; or (ii)
increase Owner's Priority by an amount equal to twelve percent (12%) of such
Environmental Costs. If Manager does not provide notice of its election to
Owner, Manager shall be deemed to have elected to increase Owner's Priority in
accordance wit' Section 11.08.B(ii). If Manager elects, or is deemed to have
elected, to increase Owner's Priority in accordance with Section 11.08.B(ii),
such increase shall be effective upon (and to the extent of) the payment of such
Environmental Costs. Notwithstanding anything to the contrary in this Agreement,
Environmental Costs shall not be added to Owner's Priority for purposes of
calculating the Performance Termination Threshold. Any dispute with respect to
such Environmental Costs shall be referred to the Expert as provided in Section
11.21.

     11.09 Confidentiality

     Owner and Manager agree that the terms of this Agreement are strictly
confidential and will use their reasonable efforts to ensure that such matters
and information are not disclosed to any outside person or entities without the
prior written consent of the other party, except (1) as required by any law,
rule, regulation or judicial process, or by any regulatory or supervisory
authority having jurisdiction over the parties or their Affiliates or, (2) to
the extent necessary, (i) to obtain licenses, permits and other public
approvals, (ii) in connection with a financing of the Inn, Owner, Landlord or
any Affiliate thereof, (iii) in connection with a Sale of the Inn or other sale
of Owner, Landlord or any Affiliate thereof or its or their corporate assets,
(iv) in connection with a financing or sale of Manager, Marriott, or any
Affiliate thereof or its or their corporate assets, or (v) subject to the
provisions of Section 4.02, in connection with an audit or other investigation
conducted pursuant to this Agreement. Notwithstanding the foregoing or anything
to the contrary set forth herein, the terms of this Agreement shall not be
deemed confidential to the extent: (a) such information becomes generally
available to the public other than as a result of unauthorized disclosure by the
recipient or persons to whom such recipient has made the information available;
(b) the recipient can demonstrate that such information was received by such
recipient on a non-confidential basis, prior to receipt from the other party,
from a third party lawfully possessing and lawfully entitled to disclose such
information; (c) such confidential information consists of aggregated historical
financial information for the inns in Owner's portfolio; and (d) the party
seeking to disclose such confidential information can demonstrate to the
reasonable satisfaction of the other party that the information sought to be
disclosed is customarily disclosed by at least 80% of all hotel owners directly
or indirectly owning hotels in the United States.

                                       33

<PAGE>

     11.10 Projections

     Owner acknowledges that any written or oral projections, pro formas, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term) be provided by Manager or Marriott (or any Affiliate
of either) to Owner is for information purposes only, and that Manager,
Marriott, and any such Affiliate do not guarantee that the Inn will achieve the
results set forth in any such projections, pro formas, or other similar
information. Owner further acknowledges that any such projections, pro formas,
or other similar information are based on assumptions and estimates,
unanticipated events may occur subsequent to the date of preparation of such
projections, pro formas, and other similar information, and the actual results
achieved by the Inn are likely to vary from the estimates contained in any such
projections, pro formas, or other similar information and such variations might
be material.

     11.11 Actions to be Taken Upon Termination

     Upon a Termination, the following shall be applicable:

     A. Manager shall, within ninety (90) days after Termination, prepare and
deliver to Owner a final accounting statement with respect to the Inn, as more
particularly described in Section 4.01 hereof, along with a statement of any
sums due from Owner to Manager pursuant hereto, dated as of the date of
Termination. Within thirty (30) days of the receipt by Owner of such final
accounting statement, the parties will make whatever cash adjustments are
necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of a Default by either party, in which case the defaulting party shall
pay such cost. Manager and Owner acknowledge that there may be certain
adjustments for which the information will not be available at the time of the
final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that all accounts shall be deemed final two (2) years after
Termination.

     B. Manager shall release and transfer to Owner any of Owner's funds which
are held or controlled by Manager with respect to the Inn with the exception of
funds to be held in accordance with Section 6.04.B. and Section 11.11.G. and
otherwise in accordance herewith.

     C. Manager shall make available to Owner such books and records respecting
the Inn (including those from prior years, subject to Manager's reasonable
records retention policies) as will be needed by Owner to prepare the accounting
statements, in accordance with the Uniform System of Accounts, for the Inn for
the year in which the Termination occurs and for any subsequent year.

     D. Manager shall (to the extent permitted by law) assign to Owner or to the
new manager all operating licenses and permits for the Inn which have been
issued in Manager's name (including liquor and restaurant licenses, if any);
provided that if Manager has expended any of its own funds in the acquisition of
any of such licenses or permits, Owner shall reimburse Manager therefor if it
has not done s [ ] hereforey.

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<PAGE>

     E. Manager shall have the option, to be exercised within thirty (30) days
after Termination, to purchase, at their then Iook value, aIy items of the Inn's
InveItories and Fixed Asset Supplies as may be marked with any Marriott
Trademarks. Upon Termination, all use of or right to use the Marriott Trademarks
at or in connection with the Inn shall cease forthwith, and Owner shall (i)
immediately, as of the date of such Termination, place coverings over any signs
or similar identification which contain any of the Marriott Trademarks, or shall
otherwise render such signs or other similar identification not visible to the
public; (ii) remove any such signs or similar identification from the Inn by no
later than ten (10) days after the date of Termination; and (iii) no later than
ten (10) days after the date of such Termination, remove from the Inn all Fixed
Asset Supplies, Inventories and other items bearing any Marriott Trademark or
remove all Marriott Trademarks from such items. If Owner has not removed such
signs or other items bearing Marriott Trademarks within ten (10) days after
Termination, Manager shall have the right to do so at Owner's expense; and if
Owner fails to reimburse Manager for such expense within ten (10) days after
receipt of written notice thereof from Manager to Owner, then Manager shall have
the right (without affecting Manager's other remedies under this Agreement) to
withdraw the amount of such expenses from the Operating Accounts, the Reserve,
or any other funds of Owner held by or under the control of Manager. Manager
shall have the right to seek injunctive or other relief in a court of competent
jurisdiction to enforce the foregoing provisions, and if such enforcement shall
be necessary, Owner shall bear all of Manager's costs of such enforcement,
including attorneys' fees.

     F. All Software used at the Inn which is owned by any of the Marriott
Companies (or any Affiliates thereof) or the licensor of any of them is
proprietary to such Marriott Company (or such Affiliate) or the licensor of any
of them, and shall in all events remain the exclusive property of such Marriott
Company (or such Affiliate) or the licensor of any of them, as the case may be,
and nothing contained in this Agreement shall confer on Owner the right to use
any of such Software. Manager shall have the right to remove from the Inn
without compensation to Owner any Software (including upgrades and
replacements). Furthermore, upon Termination, notwithstanding Section 5.04
hereof, Manager shall be entitled to remove from the Inn any computer equipment
which is: (i) owned by a party other than Owner (without reimbursement to
Owner); or (ii) owned by Owner, but utilized as part of a centralized
reservation or property management system (with reimbursement to Owner of all
previous expenditures made by Owner with respect to such equipment, subject to a
reasonable allowance for depreciation). Manager shall provide Owner hard copies
(or to the extent technologically feasible, the electronic transfer) of guest
information contained on such Software, sufficient to allow Owner to service
existing guests of the Inn as of the Termination date and bookings (including
group and transient business) on dates following the Termination of this
Agreement.

     G. If this Agreement is terminated for any reason, other than a Termination
by reason of an Event of Default of Manager hereunder, a reasonable reserve
shall be established from Gross Revenues to reimburse Manager for all costs and
expenses incurred by Manager in terminating its employees at the Inn, such as
severance pay, unemployment compensation, employment relocation, and other
employee liability costs arising out of the termination of employment of
Manager's employees at the Inn. If Gross Revenues are insufficient to meet the

                                       35

<PAGE>

requirements of such reserve, then Owner shall deliver to Manager, within ten
(10) days after receipt of Manager's written request therefor, the sums
necessary [ ] hereforelish such reserve; and if Owner fails to timely deliver
such sums to Manager, Manager shall have the right (without affecting Manager's
other remedies under this Agreement) to withdraw the amount of such expenses
from the Operating Accounts, the Reserve, or any other funds of Owner held by or
under the control of Manager.

     H. Other than in connection with a Termination by reason of an Event of
Default of Manager hereunder, Owner shall cause the entity which shall succeed
Manager as the operator of the Inn to hire a sufficient number of the employees
at the Inn to avoid the occurrence, in connection with such Termination, of a
"closing" under the WARN Act.

     I. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Section 4.05 and Section
6.04.B.

     J. Manager shall peacefully vacate and surrender the Inn to Owner.

     The provisions of this Section 11.11 shall survive Termination.

     11.12 Trademarks and Intellectual Property

     A. During the Term, the Inn shall be known as a "Residence Inn by Marriott"
or a "Marriott Residence Inn," with such alternative identification determined
by Manager from time to time as may be necessary to provide local or specific
geographic definition to the name of the Inn. However, if the name of the
Residence Inn by Marriott system of hotels is changed, Manager will have the
right to change the name of the Inn to conform thereto.

     B. Owner acknowledges that Manager and its Affiliates are the sole and
exclusive owners of all rights, title and interest to the Marriott Trademarks,
which shall in all events remain the exclusive property of Manager (or one of
its Affiliates). All use of the Marriott Trademarks at or in connection with the
Inn, or as otherwise contemplated by this Agreement, shall be made solely by and
inure solely to the benefit of Manager and its Affiliates. Nothing in this
Agreement shall be construed to grant Owner any right of ownership in or right
to use or license others to use the Marriott Trademarks. Except for disclosure
to the extent required by applicable Legal Requirements, Owner may not use the
Marriott Trademarks without the prior written consent of Manager, which may be
withheld in Manager's sole and absolute discretion, in any manner whatsoever,
including, without limitation, the following:

          1. No reference to Manager, any Affiliate of Manager, or any Marriott
Trademark will be made in any prospectus, private placement memorandum, offering
circular or offering documentation related thereto (collectively referred to as
the "Prospectus"), issued by Owner or by one of Owner's Affiliates or by one or
more Mortgagees, which is designed to interest potential investors in debt or
equity securities related to the Inn, unless Manager has given its prior written
approval to each such reference, which Manager may withhold in its sole and
absolute discretion. However, regardless of whether Manager has approved all
such

                                       36

<PAGE>

references, neither Manager nor any Affiliate of Manager will be deemed a
sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Owner shall
indemnify, defend and hold Manager harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation) arising out of any Prospectus or the offering described therein.

          2. No reference to Manager, any Affiliate of Manager, or any Marriott
Trademark will be made in any material prepared for the purpose of a Sale of the
Inn, unless Manager has given its prior written approval to each such reference.

          3. No Trade Name adopted by Owner or its Affiliates may include any
Marriott Trademark or a term that is confusingly similar to a Marriott
Trademark. Owner shall not apply for registration of any Marriott Trademark in
any jurisdiction.

     C. All right, title and interest (including copyright and patent rights) to
Intellectual Property shall at all times be the exclusive property of Manager
(or any other Marriott Company). Neither Manager nor any other Marriott Company
shall be restricted in disclosing or using any Intellectual Property directly or
indirectly by this Agreement, and Manager shall have the right to use it for any
purpose. Owner shall not have any rights to any Intellectual Property, shall
treat as confidential any Intellectual Property in its possession, and shall not
disclose to any third party any Intellectual Property or use any Intellectual
Property for any purpose whatsoever. Upon Termination, all Intellectual Property
sIall be removed from the Inn by Manager, without compensation to Owner, subject
to the provisions of Section 11.11.E. regarding Marriott Trademarks.

     D. Manager and/or its Affiliates shall be entitled, in case of any breach
by Owner of any of the covenants of this Section 11.12, to injunctive relief and
to any other right or remedy available at law or in equity.

     E. The provisions of this Section 11.12 shall survive Termination.

     11.13 Waiver

     The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.

     11.14 Partial Invalidity

     If any portion of any term or provision of this Agreement, or the
application thereof to any person or circumstance shall be invalid or
unenforceable, at any time or to any extent, the remainder of this Agreement, or
the application of such term or provision to persons or

                                       37

<PAGE>

circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and be enforced to the fullest extent permitted by law.

     11.15 Survival

     Except as otherwise specifically provided in this Agreement, the rights and
obligations of the parties herein shall not survive any Termination.

     11.16 Negotiation of Agreement

     Owner and Manager are both business entities having substantial experience
with the subject matter of this Agreement, and each has fully participated in
the negotiation and drafting of this Agreement. Accordingly, this Agreement
shall be construed without regard to the rule that ambiguities in a document are
to be construed against the draftsman. No inferences shall be drawn from the
fact that the final, duly executed Agreement differs in any respect from any
previous draft hereof.

     11.17 Intentionally Deleted

     11.18 Estoppel Certificates

     Each party to this Agreement shall at any time and from time to time, upon
not less than fifteen (15) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); and (b) stating to the best knowledge of the certifying party
(i) whether or not there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, (ii) whether or not there shall have
occurred any event which, with the giving of notice or passage of time or both,
would become a Default or Event of Default, and, if so, specifying each such
Default or Event of Default or occurrence of which the certifying party may have
knowledge; (iii) the amount, if any, of the Additional Capital Investment; (iv)
the amount, if any, of any past due fees or other past due amounts owed to
Manager; and (v) whether or not there are any past due and unpaid obligations
with respect to the Inn, other than in the ordinary course of business. Such
statement shall be binding upon the certifying party and may be relied upon by
the non-certifying party and/or such third party specified by the non-certifying
party as aforesaid. In addition, upon written request after a Termination, each
party agrees to execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated.

     11.19 Affiliates

     Manager shall be entitled to contract with companies that are Affiliates
(or companies in which Manager has an ownership interest if such interest is not
sufficient to make such a

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<PAGE>

company an Affiliate) to provide goods and/or serIices to the Inn; provIded that
the prices and/or terms for such goods and/or services are competitive.
Additionally, Manager may contract for the purchase of goods and services for
the Inn with third parties that have other contractual relationships with
Manager, Marriott and their Affiliates, so long as the prices and terms are
competitive. In determining, pursuant to the foregoing, whether such prices
and/or terms are competitive, they will be compared to the prices and/or terms
which would be available to Owner from reputable and qualified parties for goods
and/or services of similar quality, and the goods and/or services which are
being purchased shall be grouped in reasonable categories, rather than being
compared item by item. Any dispute as to whether prices and/or terms are
competitive shall be referred to the Expert as provided in Section 11.21. The
prices paid may include overhead and the allowance of a reasonable return to
Manager's Affiliates (or companies in which Manager has an ownership interest if
such interest is not sufficient to make such a company an Affiliate). Owner
acknowledges and agrees that, with respect to any purchases of goods or services
pursuant to this Section 11.19 and subject to the foregoing qualification that
prices and/or terms are competitive, Manager's Affiliates may retain for their
own benefit any allowances, credits, rebates, commissions and discounts received
with respect to any such purchases.

     11.20 Competing Facilities

     A. Neither Manager nor any of its Affiliates shall open for business, or
permit any other person to open for business, any Restricted Hotel within the
Restricted Area during the period from the Effective Date to the fifth (5th)
anniversary of the Effective Date.

                                       39

<PAGE>

     B. Except as set forth in Section 11.20.A, neither this Agreement nor
anything implied by the relationship between Manager and Owner shall prohibit
any of the Marriott Companies from constructing, operating, promoting, and/or
authorizing others to construct, operate, or promote one or more Marriott
Hotels, Marriott Resorts, Marriott Suites Hotels, RITZ-CARLTON Hotels, Bvlgari
Hotels, Renaissance Hotels, Renaissance Suites, Conference Centers by Marriott,
Residence Inn by Marriott Hotels, Courtyard by Marriott Hotels, Fairfield Inns,
Fairfield Suites, Marriott Vacation Club International, TownePlace Suites by
Marriott, SpringHill Suites by Marriott, or any other lodging concepts,
time-share facilities, restaurants, or other business operations of any type, at
any location, including a location proximate to the Site. Owner acknowledges,
accepts and agrees further that the Marriott Companies retain the right, from
time to time, to construct or operate, or both, or promote or acquire, or
authorize or otherwise license others to construct or operate, or both, or
promote or acquire any hotels, lodging concepts or products, restaurants or
other business operations of any type whatsoever, including, but not by way of
limitation, those listed above, at any location including one or more sites
which may be adjacent, adjoining or proximate to the Site, which business
operations may be in direct competition with the Inn and that any such exercise
may adversely affect the operation of the Inn.

     11.21 Expert Decisions

     Where this Agreement calls for a matter to be referred to an Expert for
determination, the following provisions shall apply:

     A. The use of the Expert shall be the exclusive remedy of the parties and
neither party shall attempt to adjudicate any dispute in any other forum. The
decision of the Expert shall be final and binding on the parties and shall not
be capable of challenge, whether by arbitration, in court or otherwise;

     B. Each party shall be entitled to make written submissions to the Expert,
and if a party makes any submission it shall also provide a copy to the other
party and the other party shall have the right to comment on such submission.
The parties shall make available to the Expert all books and records relating to
the issue in dispute and shall render to the Expert any assistance requested of
the parties. The costs of the Expert and the proceedings shall be borne as
directed by the Expert unless otherwise provided for herein. The Expert may
direct that such costs be treated as Deductions;

     C. The Expert shall make its decision with respect to the matter referred
for determination by applying the standards applicable to first-class hotels in
accordance with the System Standards (including compliance with the requirements
of any quality assurance program) and determining whether the matter at issue is
necessary to satisfy such standards; and

     D. The terms of engagement of the Expert shall include an obligation on the
part of the Expert to: (i) notify the parties in writing of his decision within
forty-five (45) days from the date on which the Expert has been selected (or
such other period as the parties may agree or as set forth herein); and (ii)
establish a timetable for the making of submissions and replies.

                                       40

<PAGE>

     11.22 Restrictions on Operating the Inn in Accordance with System Standards

     In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Inn in
accordance with System Standards (including without limitation, any restrictions
on expenditures by Manager from the Operating Accounts or from the Reserve,
other than restrictions which are set forth in this Agreement), Manager shall be
entitled, at its option, to terminate this Agreement upon sixty (60) days'
written notice to Owner. The foregoing shall not reduce or otherwise affect the
rights of the parties under Article IX.

     11.23 Waiver of Jury Trial and Consequential and Punitive Damages

     Owner and Manager each hereby absolutely, irrevocably and unconditionally
waive trial by jury and the right to claim or receive consequential, incidental,
special or punitive damages in any litigation, action, claim, suit or
proceeding, at law or in equity, arising out of, pertaining to or in any way
associated with the covenants, undertakings, representations or warranties set
forth herein, the relationships of the parties hereto, whether as "Owner" or
"Manager" or otherwise, this Agreement or any other agreement, instrument or
document entered into in connection herewith, or any actions or omissions in
connection with any of the foregoing.

     11.24 Counterparts

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which shall constitute one and the
same instrument. Such executed counterparts may be delivered by facsimile which,
upon transmission to the other party, shall have the same force and effect as
delivery of the original signed counterpart. The submission of an unsigned copy
of this Agreement or an electronic instrument with or without electronic
signature to either party shall not constitute an offer or acceptance. This
Agreement shall become effective and binding only upon execution and delivery of
this Agreement in non-electronic form by both parties in accordance with this
Section 11.24.

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<PAGE>

     11.25 Extraordinary Events

     If either O"ner's or "a"ager's failure to co'form to, kee', perform,
fulfill, or satisfy any representation, warranty, covenant, undertaking,
obligation, standard, test, or condition set forth in this Agreement, other than
an obligation to make monetary payments or provide monetary funding, is caused
in whole or in part by one or more Extraordinary Events, such failure shall not
constitute an Event of Default or Default under this Agreement, and such failure
shall be excused for as long as the failure is caused in whole or in part by
such Extraordinary Event(s). In order to have any such failure excused pursuant
to this Section, the party claiming that an Extraordinary Event caused such
failure must notify the other party in writing within ninety (90) days after the
Extraordinary Event first begins to affect its performance.

     11.26 Entire Agreement

     This Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto (including, without limitation, the
Owner Agreement) and together with any instruments to be executed and delivered
pursuant to this Agreement, constitutes the entire agreement between the parties
and supersedes all prior understandings and writings, and may be changed only by
a written non-electronic instrument that has been duly executed by the
non-electronic (which shall not be deemed to exclude facsimile) signature of an
authorized representative of the parties hereto.

                                   ARTICLE XII

                               DEFINITION OF TERMS

     12.01 Definition of Terms

     The following terms when used in this Agreement shall have the meanings
indicated:

     "Accounting Period" shall mean the four (4) week accounting periods having
the same beginning and ending dates as Manager's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Manager's accounting system to the calendar.

     "Accounting Period Statement" shall have the meaning ascribed to it in
Section 4.01.A.

     "Additional Capital Investment" shall mean, as of any given point in time,
the total amount of Capital Expenditures funded by Owner pursuant to Section
5.03, through such point in time.

     "Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For purposes of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under

                                       42

<PAGE>

common control with") of a Person means the possession, directly or indirectly,
of the power: (i) to vote more than fifty percent (50%) of the voting stock of
such Person; or (ii) to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting stock, by
contract or otherwise.

     "Agreement" shall mean this Management Agreement between Owner and Manager,
including the exhibits attached hereto.

     "Annual Operating Projection" shall have the meaning ascribed to it in
Section 4.04.

     "Annual Operating Statement" shall have the meaning set forth in Section
4.01.B.

     "Available Cash Flow" shall mean an amount, with respect to each Fiscal
Year or portion thereof during the Term, equal to the excess, if any, of the
Operating Profit over the Owner's Priority.

     "Base Management Fee" shall mean an amount payable to Manager as a
Deduction from Gross Revenues for Central Office Services, System Services and
Chain Services (except as provided in the definition of Chain Services),
pursuant to Section 3.01 and Section 4.01. The Base Management Fee shall be
calculated as follows: (i) five percent (5%) of Gross Revenues for the period
beginning on the Effective Date through the 13th full Accounting Period; (ii)
six percent (6%) of Gross Revenues beginning with the 14th Accounting Period
through the 26th full Accounting Period; and (iii) seven percent (7%) of Gross
Revenues beginning on the 27th Accounting Period and continuing thereafter.
Notwithstanding the foregoing, beginning on the Effective Date through the 65th
full Accounting Period of this Agreement, Manager shall subordinate and waive a
portion of its annual Base Fee, not to exceed two percent (2%) of Gross Revenues
in any Fiscal Year, to a ten percent (10%) non-cumulative annual return
(pro-rated for any partial Fiscal Year) on the sum of the (i) Initial Investment
and (ii) the cost of any Capital Expenditures funded by Owner pursuant to
Section 5.03.

     "Building Estimate" shall have the meaning ascribed to it in Section
5.03.A.

     "Buildings" shall have the meaning ascribed to it in Section A of the
Recitals.

     "Capital Expenditure(s)" shall mean the costs necessary for non-routine,
major repairs, alterations, improvements, renewals, replacements, and additions
to the Inn including, without limitation, to the structure, the exterior facade
and all of the mechanical, electrical, heating, ventilating, air conditioning,
plumbing or vertical transportation elements of the Inn building, together with
all other expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles. Capital Expenditures shall not include
Routine Capital Expenditures.

     "Capitalization Multiple" shall mean the number ten (10).

     "CC&R's" shall have the meaning ascribed to it in Section 8.04.A.

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     "Central Office Services" shall have the meaning ascribed to it in Section
1.03.B.

     "Chain Services" shall have the meaning ascribed to it in Section 1.03;
provided, however, that the Base Management Fee is intended to cover only the
services currently listed (as of the Effective Date) in clause (i) and clause
(ii) of the definition of Chain Services in Section 1.03. Accordingly, if there
are expenditures that were originally treated as Deductions but that are later
determined to be more properly treated as Chain Services or if additional
central or regional services are (after the Effective Date) furnished for the
benefit of inns in the "Residence Inn by Marriott" System, the Inn's allocable
share of such expenditures shall be treated as Deductions (over and above the
Deductions listed in paragraph 7 and paragraph 8 of the definition of
Deductions) and shall not be covered by the Base Management Fee. Conversely, if
there are expenditures that were (as of the Effective Date) listed in clause (i)
or clause (ii) of the definition of Chain Services and included in Chain
Services (as of the Effective Date) but that are later determined to be more
properly furnished at the Inn instead of on a central or regional basis, such
expenditures shall not later be treated as Deductions (over and above the
Deductions listed in paragraph 7 and paragraph 8 of the definition of
Deductions) but shall continue to be covered by the Base Management Fee.

     "Competitive Set" shall mean the group of hotels which are closest in
geographical distance from the Inn and which are generally within the same hotel
market segment as the Inn. As of the Effective Date, the parties agree that the
Competitive Set shall consist of: Embassy Suites Piscataway Somerset,
Summerfield By Wyndham Somerset, Sierra Suites Piscataway, Candlewood Hotel
Somerset, and Courtyard By Marriott Somerset. If any of such hotels, subsequent
to the Effective Date, either changes its chain affiliation or ceases to operate
or otherwise ceases to reflect the general criteria set forth in the first
sentence of this definition, Owner and Manager agree to mutually, reasonably and
in good faith, discuss appropriate changes to the foregoing list of the hotels
that shall comprise the Competitive Set. Disputes regarding such changes to the
Competitive Set will be resolved by the Expert in accordance with the provisions
of Section 11.21.

     "Coverage Ratio" shall mean the number one and four tenths (1.4).

     "Cure Payment" shall have the meaning set forth in Section 2.02.B.

     "Deductions" shall have the meaning ascribed to it in the definition of
Operating Profit.

     "Default" shall have the meaning ascribed to it in Section 9.01.

     "Effective Date" shall have the meaning ascribed to it in the Preamble.

     "Environmental Laws" shall have the meaning ascribed to it in Section
11.08.A.

     "Event of Default" shall have the meaning ascribed to it in Section 9.01.

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<PAGE>

     "Expert" shall mean an independent, nationally recognized hotel consulting
firm or individual who is qualified to resolve the issue in question, and who is
appointed in each instance by agreement of the parties or, failing agreement,
each party shall select one (1) such nationally recognized consulting firm or
individual and the two (2) respective firms and/or individuals so selected shall
select another such nationally recognized consulting firm or individual to be
the Expert. Each party agrees that it shall not appoint an individual as an
Expert hereunder if the individual is, as of the date of appointment or within
six (6) months prior to such date, employed by such party or its Affiliates,
either directly or as a consultant, in connection with any other matter. In the
event that either party calls for an Expert determination pursuant to the terms
hereof, the parties shall have ten (10) days from the date of such request to
agree upon an Expert and, if they fail to agree, each party shall have an
additional ten (10) days to make its respective selection of a firm or
individual, and within ten (10) days of such respective selections, the two (2)
respective firms and/or individuals so selected shall select another such
nationally recognized consulting firm or individual to be the Expert. If either
party fails to make its respective selection of a firm or individual within the
ten (10) day period provided for above, then the other party's selection shall
be the Expert. Also, if the two (2) respective firms and/or individuals so
selected shall fail to select a third nationally recognized consulting firm or
individual to be the Expert, then such Expert shall be appointed by the American
Arbitration Association and shall be a qualified person having at least ten (10)
years recent professional experience as to the subject matter in question.

     "Extraordinary Event" shall mean any of the following events, regardless of
where it occurs or its duration: acts of nature without the interference of any
human agency (including hurricanes, typhoons, tornadoes, cyclones, other severe
storms, winds, lightning, floods, earthquakes, volcanic eruptions, fires,
explosions, disease, or epidemics); fires and explosions caused wholly or in
part by human agency; acts of war or armed conflict; riots or other civil
commotion; terrorism (including hijacking, sabotage, chemical or biological
attack, bombing, murder, assault and kidnapping), or the threat thereof; strikes
or similar labor disturbances; shortage of critical materials or supplies;
action or inaction of governmental authorities having jurisdiction over the Inn
(including the imposition of restrictions on room rates or wages or other
material aspects of operation, or the revocation or refusal to grant licenses or
permits, where such revocation or refusal is not due to the fault of the party
whose performance is to be excused for reasons of the Extraordinary Event); and
any other events beyond the reasonable control of Owner or Management Company,
excluding, however, general economic and/or market conditions not caused by any
of the events described herein.

     "FF&E" shall mean furniture, furnishings, fixtures, soft goods, case goods,
signage, audio-visual equipment, kitchen appliances, vehicles, carpeting and
equipment, including front desk and back-of-the house computer equipment, but
shall not include Fixed Asset Supplies or Software.

     "FF&E Lease" means a lease of any FF&E, which lease is properly capitalized
for financial accounting purposes.

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<PAGE>

     "Fiscal Year" shall mean Manager's Fiscal Year which as of the Effective
Date ends at midnight on the Friday closest to December 31 in each calendar
year; the new Fiscal Year begins on the Saturday immediately following said
Friday. Any partial Fiscal Year between the Effective Date and the commencement
of the first full Fiscal Year shall constitute a separate Fiscal Year. A partial
Fiscal Year between the end of the last full Fiscal Year and the Termination of
this Agreement shall also constitute a separate Fiscal Year. If Manager's Fiscal
Year is changed in the future, appropriate adjustment to this Agreement's
reporting and accounting procedures shall be made; provided, however, that no
such change or adjustment shall alter the term of this Agreement or in any way
reduce the distributions of Operating Profit or other payments due hereunder.

     "Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.

     "Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Inn. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Inn; (iv) a transfer of either ownership or control of the Owner, by
exercise of a stock pledge or otherwise; (v) if title to the Inn is held by a
tenant under a ground lease, an assignment of the tenant's interest in such
ground lease; or (vi) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee resulting in actual ownership or control of the
Inn by such Mortgagee or its designee.

     "GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Manager (a "Substitute Index") then prepared and
published by an agency of the Government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by the
Expert in accordance with Section 11.21. Except as otherwise expressly stated
herein, whenever a number or amount is required to be "adjusted by the GDP
Deflator," or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP Deflator for such
month is not yet publicly available, the GDP Deflator for the most recent month
for which the GDP Deflator is publicly available) as compared to the GDP
Deflator which was issued for the month in which the Effective Date occurred.

     "Gross Revenues" shall mean all revenues and receipts of every kind derived
from operating the Inn and all departments and parts thereof, including, but not
limited to: income

                                       46

<PAGE>

(from both cash and credit transactions) from rental of Guest Rooms, telephone
charges, stores, offices, exhibit or sales space of every kind; license, lease
and concession fees and rentals (not including gross receipts of licensees,
lessees and concessionaires); income from vending machines; income from parking;
health club membership fees; food and beverage sales; wholesale and retail sales
of merchandise; service charges; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to employees of the Inn;
federal, state or municipal excise, sales or use taxes or any other taxes
collected directly from patrons or guests or included as part of the sales price
of any goods or services; proceeds from the sale of FF & E; interest received or
accrued with respect to the funds in the Reserve or the other operating accounts
of the Inn; any refunds, rebates, discounts and credits of a similar nature,
given, paid or returned in the course of obtaining Gross Revenues or components
thereof; insurance proceeds (other than proceeds from business interruption or
other loss of income insurance); condemnation proceeds (other than for a
temporary taking); or any proceeds from any Sale of the Inn or from the
refinancing of any debt encumbering the Inn.

     "Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences, including, without limitation, any information
derived from or contained in any frequent traveler program.

     "Guest Room" shall mean a separately-keyed lodging unit in the Inn.

     "Guest Room Revenues" shall mean the portion of Gross Revenues of the Inn
which is attributed to the rental of Guest Rooms.

     "Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.A.

     "Hotel Lease" shall have the meaning ascribed to it in Section B of the
Recitals.

     "Impositions" shall have the meaning ascribed to it in Section 4.07.

     "Incentive Management Fee" shall mean an amount payable to Manager,
pursuant to Section 3.01 and Section 4.01, that is equal to twenty-five percent
(25%) of Available Cash Flow in any Fiscal Year (or portion thereof).

     "Initial Investment" shall mean Fourteen Million Seven Hundred Fourteen
Thousand Ninety One Dollars ($14,714,091).

     "Initial Term" shall have the meaning ascribed to it in Section 2.01.

     "Inn" shall mean the Site together with the Buildings and all other
improvements constructed or to be constructed on the Site pursuant to this
Agreement, all FF&E and Fixed Asset Supplies installed or located on the Site or
in the Buildings, and all easements or other appurtenant rights thereto.

                                       47

<PAGE>

     "Institutional Lender" shall mean a foreign or domestic commercial bank,
trust company, savings bank, savings and loan association, life insurance
company, real estate investment trust, pension trust, pension plan or pension
fund, a public or privately-held fund engaged in real estate and/or corporate
lending, or any other financial institution or financial services company then
commonly known as an institutional lender (or any Affiliate thereof,) having a
minimum paid up capital or minimum net worth (or net assets in the case of a
pension fund) of One Hundred Million Dollars ($100,000,000); provided, however,
such lender shall be deemed to have satisfied this criteria if an Affiliate of
such lender satisfies such criteria.

     "Insurance Retention" shall have the meaning ascribed to it in Section
6.04.C.

     "Intellectual Property" shall mean: (i) all Software, including the data
and information processed or stored thereby; (ii) all manuals, brochures,
directives, policies, programs and other information issued by Manager to its
employees at the Inn or otherwise used in the operation of the Inn or any other
hotel in the Residence Inn by Marriott system of hotels; (iii) customer
information, customer lists and Guest Profile Data; (iv) all Marriott
Trademarks; and (v) all Marriott (or other Marriott Company) trade secrets,
confidential information and all other information, materials, and copyrightable
or patentable subject matter developed, acquired, licensed or used by any
Marriott Company in the operation of the Inn or in any other hotel in the
Residence Inn by Marriott System of hotels, including, without limitation,
materials relating to sales and marketing programs, revenue management programs,
brand and pricing strategies, business and technology plans, and research and
development reports. The foregoing shall apply regardless of the form or medium
involved (e.g., paper, electronic, tape, tangible or intangible).

     "Inventories" shall mean "Inventories" as defined in the Uniform System of
Accounts, such as, but not limited to, provisions in storerooms, refrigerators,
pantries and kitchens; beverages in wine cellars and bars; other merchandise
intended for sale; fuel; mechanical supplies; stationery; and other expensed
supplies and similar items.

     "Landlord" shall have the meaning ascribed to it in Section A of the
Recitals.

     "Legal Requirement(s)" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Inn or the matters
which are the subject of this Agreement, including, without limitation, the
following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.

     "Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).

     "Manager" shall have the meaning ascribed to it in the Preamble hereto or
shall mean any successor or permitted assign, as applicable.

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<PAGE>

     "Marketing Fund" shall mean that certain fund (or any successor to such
fund) maintained by Manager or one of its Affiliates, in its capacity as
franchisor of the System, to pay for the following System costs: all costs
associated with developing, preparing, producing, directing, administering,
conducting, maintaining and disseminating advertising, marketing, promotional
and public relations materials, programs, campaigns, sales and marketing
seminars and training programs, and similar activities of every kind and nature,
including the Residence Inn directory; conducting market research; and paying
the central operational costs of the Residence Inn reservation system; provided,
however, that any costs described in this definition of Marketing Fund may, at
the option of the Manager and any association which may be formed by the
Residence Inn by Marriott franchisees, be charged directly to each inn in the
System on the basis of actual use by or benefit to each inn and, in such event,
shall become Deductions. Owner shall contribute to the Marketing Fund. As of the
Effective Date, the current system-wide charge is two and one-half percent
(2.5%) of Guest Room Revenues, but is subject to change on an annual basis;
provided, however, the system-wide charge shall not be increased without a
majority vote by members of The Residence Inn Association or its successor in
favor of such increase.

     "Marriott" shall mean Marriott International, Inc., a Delaware corporation,
and its successors and assigns.

     "Marriott Company(ies)" shall mean Manager, Marriott, and any Affiliate of
Manager or Marriott.

     "Marriott Trademark" shall mean (i) the name and mark "Marriott"; (ii) the
federally registered "M" logo; (iii) the name and mark "Residence Inn"; and (iv)
any word, name, device, symbol, logo, slogan, design, brand, service mark, Trade
Name, other distinctive feature or any combination of the foregoing, whether
registered or unregistered, and whether or not such term contains the "Marriott"
and/or "Residence Inn" mark, that is used in connection with the Inn or by
reason of extent of usage is associated with hotels in the Residence Inn by
Marriott and/or Marriott system of hotels.

     "Mortgage(s)" shall mean any mortgage, deed of trust, or security document
encumbering the Inn and/or the Site.

     "Mortgagee" shall mean the holder of any Mortgage encumbering the Inn or
the Site.

     "Notice of Intent to Sell" shall have the meaning set forth in Section
10.02.B.

     "Notice of Proposed Sale" shall have the meaning set forth in Section
10.02.B.

     "Operating Accounts" shall have the meaning set forth in Section 4.03.A.

     "Operating Loss" shall mean a negative Operating Profit.

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<PAGE>

     "Operating Profit" shall mean the excess of Gross Revenues over the
following deductions ("Deductions") incurred by Manager, on behalf of Owner, in
operating the Inn:

          1. the cost of sales, including, without limitation, compensation,
fringe benefits, payroll taxes and other costs related to Inn employees (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of Manager who do not work at the Inn on a regular basis; except that
Ihe foregoing cIsts shall include the equitably allocable portion of the salary
and other employee costs of any general manager or other supervisory personnel
assigned to a "cluster" of hotels which includes the Inn);

          2. departmental expenses incurred at departments within the Inn;
administrative and general expenses; the cost of marketing incurred by the Inn;
advertising and business promotion incurred by the Inn; heat, light, and power;
computer line charges; and routine repairs, maintenance and minor alterations
treated as Deductions under Section 5.01;

          3. the cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Inn;

          4. a reasonable reserve for uncollectible accounts receivable as
reasonably determined by Manager;

          5. all costs and fees of independent professionals or other third
parties who are retained by Manager to perform services required or permitted
hereunder;

          6. all costs and fees of technical consultants and operational experts
who are retained or employed by Manager and/or Affiliates of the Manager for
specialized services (including, without limitation, quality assurance
inspectors) and the cost of attendance by employees of the Inn at training and
manpower development programs sponsored by Manager;

          7. the Base Management Fee;

          8. insurance costs and expenses as provided in Section 6.04;

          9. taxes, if any, payable by or assessed against Manager related to
this Agreement or to Manager's operation of the Inn (exclusive of Manager's
income taxes or franchise taxes) and all Impositions;

          10. transfers to the Reserve required pursuant to Section 5.02;

          11. transfers required to be made, as they may change from time to
time, to the Marketing Fund in order for the Inn to remain a member of the
System (such contribution, as of the Effective Date, shall be two and one-half
percent (2.5%) of Guest Room Revenues); and

                                       50

<PAGE>

          12. such other costs and expenses incurred by Manager as are
specifically provided for elsewhere in this Agreement or are otherwise
reasonably necessary for the proper and efficient operation of the Inn.

     The term "Deductions" shall not include (a) debt service payments pursuant
to the First Mortgage or any other mortgage financing on the Inn, (b) payments
pursuant to FF&E Leases or other forms of financing obtained for the FF&E
located in or connected with the Inn, (c) rental payments pursuant to any ground
lease of the Site, or (d) rental payments under the Hotel Lease, all of which
shall be paid by Owner from its own funds.

     "Owner" shall have the meaning ascribed to it in the Preamble or shall mean
any successor or permitted assign, as applicable.

     "Owner Agreement" shall have the meaning ascribed to it in Section B of the
Recitals.

     "Owner's Priority" shall mean an amount per Fiscal Year (prorated for any
partial Fiscal Year) equal to twelve percent (12%) of the Initial Investment.
Owner's Priority for each Fiscal Year shall be paid to the extent of Operating
Profit available in such Fiscal Year, as provided in Section 3.02 of this
Agreement. During the Term, Owner's Priority automatically shall be increased by
an amount equal to twelve percent (12%) of the cost of any Capital Expenditures
funded by Owner pursuant to Section 5.03.

     "Performance Termination Threshold" shall mean an amount equal to eighty
percent (80%) of the Initial Investment.

     "Person" means an individual (and the heirs, executors, administrators, or
other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.

     "Prime Rate" shall mean the "prime rate" of interest announced from time to
time in the "Money Rates" section of the Wall Street Journal (Eastern Edition).

     "Prospectus" shall have the meaning ascribed to it in Section 11.12.B.

     "Qualified Mortgage" shall have the meaning ascribed to it in Section 8.02.

     "Renewal Term" shall have the meaning ascribed to it in Section 2.01.

     "Repairs and Equipment Estimate" shall have the meaning ascribed to it in
Section 5.02.D.

     "Reserve" shall have the meaning ascribed to it in Section 5.02.A.

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<PAGE>

     "Restricted Area" shall mean that area within a three (3) mile radius of
the front door of the Inn and that is shown on the map attached hereto as
Exhibit D. In the event of any conflict between the description set forth in
this definition and the map attached hereto as Exhibit D, the description set
forth in this definition shall govern.

     "Restricted Hotel" shall mean any select-service hotel operating under the
"Residence Inn by Marriott" trade name as a member of the System. The term
"Restricted Hotel" shall not include any one or more of the following: (i) any
existing (as of the Effective Date) Residence Inn by Marriott hotel; (ii) any
full-service Marriott Hotel or Marriott Suites (or any similar full service
lodging product), RITZ-CARLTON hotel, Bvlgari hotel, Conference Center by
Marriott, Renaissance, Renaissance Suites, Courtyard by Marriott Hotel,
Fairfield Inn, Fairfield Suites, Marriott Vacation Club International,
SpringHill Suites, TownePlace Suites or any other lodging product (including
time share or interval ownership facilities) which is not operated as a
select-service hotel under the "Residence Inn by Marriott" trade name and as a
member of the System;(iii) any hotel or hotels which are members of a chain of
hotels (provided that such chain has a minimum of five (5) or more hotels in
operation), all or substantially all (but in no event less than four (4) hotels)
of which are acquired by, or merged with, or franchised by or joined through a
marketing agreement with, Manager or one of its Affiliates (or the operation of
which is transferred to Manager or one of its Affiliates); (iv) any hotel or
hotels which are members of a group of hotels which is (in a single transaction
with a single seller or transferor) acquired by, or merged with, or franchised
by or joined through a marketing agreement with, Manager or one of its
Affiliates, or the operation of which is transferred to Manager or one of its
Affiliates, provided that such group of hotels contains no fewer than five (5)
hotels; (v) any future lodging product developed by Manager or one of its
Affiliates which is not included within the System; or (vi) in the event that
any existing hotel in the Restricted Area described in clause (i) above ceases
to operate under the "Residence Inn by Marriott" trade name as a member of the
System, then for each such hotel (if any), an additional hotel which may operate
under the "Residence Inn by Marriott" trade name as a member of the System.

     "Revenue Data Publication" shall mean Smith's STAR Report, a monthly
publication distributed by Smith Travel Research, Inc. of Gallatin, Tennessee,
or an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Available Room of hotels in the general trade area of
the Inn. If such Smith's STAR Report is discontinued in the future, or ceases
(in the reasonable opinion of either Owner or Manager) to be a satisfactory
source of data regarding the Revenue Per Available Room of various hotels in the
general trade area of the Inn, Manager shall select an alternative source for
such data, subject to Owner's approval. If the parties fail to agree on such
alternative source within a reasonable period of time, the matter shall be
resolved by the Expert in accordance with the provisions of Section 11.21.

     "Revenue Index" shall mean that fraction that is equal to (a) the Revenue
Per Available Room for the Inn divided by (b) the average Revenue Per Available
Room for the hotels in the Competitive Set, as set forth in the Revenue Data
Publication. Appropriate adjustments to the Revenue Index shall be made in the
event of a major renovation of the Inn.

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<PAGE>

     "Revenue Index Threshold" shall mean 1.00. However, if the entry of a new
hotel into the Competitive Set (or the removal of a hotel from the Competitive
Set) causes significant variations in the Revenue Index that do not reflect the
Inn's true position in the relevant market, appropriate adjustments shall be
made to the Revenue Index Threshold by mutual consent of Owner and Manager each
acting in good faith.

     "Revenue Per Available Room" shall mean (i) the term "revenue per available
room" as defined by the Revenue Data Publication, or (ii) if the Revenue Data
Publication is no longer being used (as more particularly set forth in the
definition of "Revenue Data Publication"), the aggregate gross room revenues of
the hotel in question for a given period of time divided by the total room
nights for such period. If clause (ii) of the preceding sentence is being used,
a "room" shall be an available hotel guestroom that is keyed as a single unit.

     "Routine Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Routine Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting; resurfacing building walls and
floors; resurfacing parking areas; and miscellaneous similar expenditures (all
such types of expenditures to be in accordance with Manager's policies as then
generally implemented throughout the Residence Inn by Marriott system of
hotels).

     "Sale of the Inn" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title to the Site and/or the Inn. For purposes of this Agreement, a Sale of the
Inn shall also include: (i) a lease (or sublease) of all or substantially all of
the Inn or Site; or (ii) any sale, assignment, transfer or other disposition,
for value or otherwise, voluntary or involuntary, in a single transaction or a
series of transactions, of the controlling interest in Owner. The phrase
"controlling interest," as used in the preceding sentence, shall mean either:
(x) the right to exercise, directly or indirectly, more than fifty percent (50%)
of the voting rights attributable to the shares of Owner (through ownership of
such shares or by contract); or (y) the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
Owner. Subject to the provisions of Section 10.02.A, for purposes of this
Agreement, a Sale of the Inn shall not be deemed or construed to include (i) any
transfer, conversion, exchange or repurchase of publicly-held or publicly-traded
securities of Owner's ultimate parent entity, Apple Hospitality Five, Inc., a
Virginia corporation ("Apple Five"), by operation of law or otherwise, or any
issuance of additional securities of Apple Five; (ii) any merger, consolidation
or sale of all or substantially all of the assets of Apple Five; or (iii) any
sale, assignment, transfer or other disposition of the Inn or Hotel Lease (or
permitted amendment thereof) by Owner or Landlord to an Affiliate of Owner or
Landlord, provided that, a subsequent sale, assignment, transfer, lease,
sublease or other disposition of the Inn by, or a change in "controlling
interest" of, such Affiliate would constitute a "Sale of the Inn".

     "SEC Filing Period" shall mean such period of time (not to exceed sixty
(60) days) after the close of each Fiscal Year within which Owner must receive
the Annual Operating Statement

                                       53

<PAGE>

from Manager with respect to such Fiscal Year in order for Owner to have a
reasonable period of time within which to prepare and make all required filings
with the Securities and Exchange Commission and other applicable governmental
agencies.

     "Site" shall have the meaning ascribed to it in Section A of the Recitals.

     "Software" shall mean all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is generally
commercially available, which are used by Manager in connection with operating
or otherwise providing services to the Inn and/or the Residence Inn by Marriott
system of hotels, including without limitation the property management system,
the reservation system and the other electronic systems used by Manager in
connection with operating or otherwise providing services to the Inn and/or the
Residence Inn by Marriott system of hotels.

     "Specially Designated National or Blocked Person" shall mean (i) a person
designated by the U.S. Department of Treasury's Office of Foreign Assets Control
from time to time as a "specially designated national or blocked person" or
similar status, (ii) a person described in Section 1 of U.S. Executive Order
13224 issued on September 23, 2001, or (iii) a person otherwise identified by
government or legal authority as a person with whom Manager or its Affiliates
are prohibited from transacting business. Currently, a listing of such
designations and the text of the Executive Order are published under the
internet website address www.ustreas.gov/offices/enforcement/ofac.

     "Subordination Agreement" shall have the meaning ascribed to it in Section
8.02.A. and Section 8.03.

     "Subsequent Owners" shall have the meaning ascribed to it in Section
8.03.A.

     "System" shall mean all hotels which are operated under the "Residence
Inn," "Residence Inn by Marriott" or "Marriott Residence Inn" Trade Names.

     "System Services" shall have the meaning ascribed to it in Section 1.03.A.

     "System Standards" shall mean any one or more (as the context requires) of
the following three (3) categories of standards: (i) operational standards (for
example, services offered to guests, quality of food and beverages, cleanliness,
staffing and employee compensation and benefits, Chain Services, frequent
traveler programs such as the Marriott Rewards Program and other similar
programs, etc.); (ii) physical standards (for example, quality of the hotel,
FF&E, and Fixed Asset Supplies, frequency of FF&E replacements, etc.); and (iii)
technology standards (for example, those relating to software, hardware,
telecommunications, systems security and information technology); each of such
standards shall be the standard which is generally prevailing or in the process
of being implemented at other then existing hotels in the Residence Inn by
Marriott system of hotels, including all services and facilities in connection
therewith that are customary and usual at comparable hotels in the Residence Inn
by Marriott system of hotels.

                                       54

<PAGE>

     "Term" shall have the meaning ascribed to it in Section 2.01.

     "Termination" shall mean the expiration or sooner cessation of this
Agreement.

     "Trade Name" shall mean any name, whether informal (such as a fictitious
name or d/b/a) or formal (such as the full legal name of a corporation or
partnership) which is used to identify an entity.

     "Uniform System of Accounts" shall mean the Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the
Educational Institute of the American Inn & Motel Association, as revised from
time to time to the extent such revision has been or is in the process of being
generally implemented within the Residence Inn by Marriott system of hotels.

     "WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.

     "Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Inn, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in payroll accounts,
prepaid expenses and funds required to maintain Inventories, less accounts
payable and accrued current liabilities.

                        [SIGNATURES FOLLOW ON NEXT PAGE]

                                       55

<PAGE>

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

                                        OWNER:

                                        APPLE HOSPITALITY FIVE MANAGEMENT, INC.,
ATTEST:                                 a Virginia corporation


By:     [unable to conform]             By: /s/ J. Philip Hart
        ------------------------            ------------------------------------
Name:                                   Name:  J. Philip Hart
        ------------------------
Title:                                  Title: Senior Vice President
        ------------------------


                                        MANAGER:

                                        RESIDENCE INN BY MARRIOTT, INC.,
ATTEST:                                 a Delaware corporation


By:     [unable to conform]             By: /s/ Joel Eisemann
        ------------------------            ------------------------------------
Name:                                   Name:  Joel Eisemann
        ------------------------
Title:                                  Title: Vice President
        ------------------------

<PAGE>

                                 ACKNOWLEDGMENT

STATE OF                   )
         -----------------
                           )   ss:
COUNTY OF                  )
          ----------------

     On the      day of May, 2003, before me, the undersigned, a Notary Public,
            ----
in and for the State of                 , personally appeared J. Philip Hart,
                        ----------------
who acknowledged himself to be the Senior Vice President of Apple Hospitality
Five Management, Inc., a corporation, and that he, as such Senior Vice
President, being authorized to do so, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by himself as
Senior Vice President.

     In witness whereof, I hereunto set my hand and official seal.


                                                         [unable to conform]
                                                         -----------------------
                                                         Notary Public


My commission expires:
                       -------------------------------

                                 ACKNOWLEDGMENT

STATE OF MARYLAND     )
                      )   ss:
COUNTY OF MONTGOMERY  )

     On the      day of May, 2003, before me, the undersigned, a Notary Public,
            ----
in and for the State of Maryland, personally appeared Joel Eisemann, who
acknowledged himself to be the Vice President of Residence Inn By Marriott,
Inc., a corporation, and that he, as such Vice President, being authorized to do
so, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as Vice President.

     In witness whereof, I hereunto set my hand and official seal.


                                                         [unable to conform]
                                                         -----------------------
                                                         Notary Public


My commission expires:
                       -------------------------------

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

                                    [omitted]

<PAGE>

                                    EXHIBIT B

                            EQUITY INTEREST IN OWNER

 Apple Hospitality Five, Inc. owns one hundred percent (100%) of the equity of
                                     Owner.

<PAGE>

                                    EXHIBIT C

                       MEMORANDUM OF MANAGEMENT AGREEMENT

Prepared by and after Recording, return to:

Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department - Lodging Operations
      Dept. 52-923.27

                       MEMORANDUM OF MANAGEMENT AGREEMENT

     THIS MEMORANDUM OF MANAGEMENT AGREEMENT (the "Memorandum") is made and
entered into as of this 31st day of May, 2003, by and between APPLE HOSPITALITY
FIVE MANAGEMENT, INC., a Virginia corporation ("Owner"), with a mailing address
at c/o Apple Real Estate Investment Trust Companies, 10 South Third Street,
Richmond, Virginia 23219 and RESIDENCE INN BY MARRIOTT, INC., a Delaware
corporation ("Manager"), and acknowledged by APPLE HOSPITALITY FIVE, INC., a
Virginia corporation with a mailing address at c/o Apple Real Estate Investment
Trust Companies, 10 South Third Street, Richmond, Virginia 23219 ("Landlord").

                               W I T N E S S E T H

     Owner and Manager have entered into that certain Management Agreement dated
on even date herewith (herein, the "Management Agreement") with respect to the
operation of a hotel on the premises located in the City of Somerset, County of
Somerset, State of New Jersey, as more particularly described in Exhibit A
attached hereto (the "Site").

     Owner, as tenant, and Landlord, are parties to that certain Master Hotel
Lease executed on even date herewith wherein Owner leased the Site from
Landlord.

     The Management Agreement is in effect. The term of the Management Agreement
expires at the expiration of the thirtieth (30th) full Fiscal Year after the
expiration of the Fiscal Year in which the Effective Date occurs. Subject to
certain conditions contained in the Management Agreement, the Term will be
automatically renewed, on the same terms and conditions contained in the
Management Agreement, for each of three (3) successive periods of ten (10)
Fiscal Years each.

                                       2

<PAGE>

     The Management Agreement contains terms and restrictions relating to
financing of the Inn. The Management Agreement also contains terms and
conditions relating to Owner's ability to sell or transfer interests in itself
or the Inn or the Site.

     This Memorandum is not intended to alter or modify in any way the terms and
conditions of the Management Agreement. Terms not specifically defined in this
Memorandum are defined in the Management Agreement.

                        [SIGNATURES FOLLOW ON NEXT PAGE]

                                       3

<PAGE>

     IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day first
above written, for the purpose of providing an instrument for recording and
giving notice of the Management Agreement and certain of the terms and
conditions thereto.

                                        OWNER:

                                        APPLE HOSPITALITY FIVE MANAGEMENT, INC.,
ATTEST:                                 a Virginia corporation


By:                                     By:
    ----------------------------            ------------------------------------
Print Name:                             Print Name: J. Philip Hart
            --------------------
Title:                                  Title:      Senior Vice President
       -------------------------


                                        MANAGER:


                                        RESIDENCE INN BY MARRIOTT, INC.,
ATTEST:                                 a Delaware corporation


By:                                     By:
    ----------------------------            ------------------------------------
Print Name:                             Print Name: Joel Eisemann
            --------------------
Title:                                  Title:      Vice President
       -------------------------

ACKNOWLEDGED on MAY   , 2003:
                   ---

LANDLORD:

APPLE HOSPITALITY FIVE, INC.,
a Virginia corporation


By:
    ----------------------------
Name:  J. Philip Hart
Title: Senior Vice President

                                       4

<PAGE>

                                 ACKNOWLEDGMENT

STATE OF                   )
         -----------------
                           )   ss:
COUNTY OF                  )
          ----------------

     On the       day of May, 2003, before me, the undersigned, a Notary Public,
            -----
in and for the State of                 , personally appeared J. Philip Hart,
                        ----------------
who acknowledged himself to be the Senior Vice President of Apple Hospitality
Five Management, Inc., a corporation, and that he, as such Senior Vice
President, being authorized to do so, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by himself as
Senior Vice President.

     In witness whereof, I hereunto set my hand and official seal.


                                                         -----------------------
                                                         Notary Public

My commission expires:
                           -------------------------------

                                 ACKNOWLEDGMENT

STATE OF MARYLAND     )
                      )   ss:
COUNTY OF MONTGOMERY  )

     On the     day of May, 2003, before me, the undersigned, a Notary Public,
            ---
in and for the State of Maryland, personally appeared Joel Eisemann, who
acknowledged himself to be the Vice President of Residence Inn By Marriott,
Inc., a corporation, and that he, as such Vice President, being authorized to do
so, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as Vice President.

         In witness whereof, I hereunto set my hand and official seal.


                                                         -----------------------
                                                         Notary Public

My commission expires:
                       -------------------------------

                                       5

<PAGE>

                                    EXHIBIT A
                                       TO
                       MEMORANDUM OF MANAGEMENT AGREEMENT
                                LEGAL DESCRIPTION