Document:

<PAGE>

                                                                     EXHIBIT 4.3

PREPARED BY AND UPON RECORDATION RETURN TO:

Kilpatrick Stockton LLP
3500 One First Union Center
301 South College Center
Charlotte, North Carolina 28202-6001
Attention:  John Nicholas Suhr, Jr., Esq.

Loan No.:  26-5950580                                          Boulder, Colorado
                                                                 Homewood Suites

================================================================================

                           APPLE SUITES SPE III, INC.,
                                   as Grantor

                                       to

                        THE PUBLIC TRUSTEE OF THE COUNTY
                                       OF
                               BOULDER, COLORADO,
                                   as Trustee

                               For the benefit of

                           FIRST UNION NATIONAL BANK,
                                 as Beneficiary

                           ___________________________

                      DEED OF TRUST AND SECURITY AGREEMENT

                           ___________________________

                               Date: June 1, 2001

================================================================================
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
ARTICLE I. COVENANTS OF GRANTOR..............................................................   5
           --------------------
      1.1    Warranties of Grantor...........................................................   5
             ---------------------
      1.2    Defense of Title................................................................   9
             ----------------
      1.3    Performance of Obligations......................................................  10
             --------------------------
      1.4    Insurance.......................................................................  10
             ---------
      1.5    Payment of Taxes................................................................  13
             ----------------
      1.6    Tax and Insurance Impound Account...............................................  14
             ---------------------------------
      1.7    Intentionally Deleted...........................................................  15
             ---------------------
      1.8    Replacement Reserve.............................................................  15
             -------------------
      1.9    Casualty and Condemnation.......................................................  18
             -------------------------
      1.10   Construction Liens..............................................................  21
             ------------------
      1.11   Rents and Profits...............................................................  21
             -----------------
      1.12   Percentage Lease................................................................  22
             ----------------
      1.13   Alienation and Further Encumbrances.............................................  24
             -----------------------------------
      1.14   Payment of Utilities, Assessments, Charges, Etc.................................  28
             -----------------------------------------------
      1.15   Access Privileges and Inspections...............................................  28
             ---------------------------------
      1.16   Waste; Alteration of Improvements...............................................  29
             ---------------------------------
      1.17   Zoning..........................................................................  29
             ------
      1.18   Financial Statements and Books and Records......................................  29
             ------------------------------------------
      1.19   Further Documentation...........................................................  31
             ---------------------
      1.20   Payment of Costs; Reimbursement to Beneficiary..................................  31
             ----------------------------------------------
      1.21   Security Interest...............................................................  33
             -----------------
      1.22   Security Agreement..............................................................  33
             ------------------
      1.23   Easements and Rights-of-Way.....................................................  35
             ---------------------------
      1.24   Compliance with Laws............................................................  35
             --------------------
      1.25   Additional Taxes................................................................  36
             ----------------
      1.26   Secured Indebtedness............................................................  36
             --------------------
      1.27   Grantor's Waivers...............................................................  37
             -----------------
      1.28   SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL................................  37
             ------------------------------------------------
      1.29   Attorney-in-Fact Provisions.....................................................  38
             ---------------------------
      1.30   Management......................................................................  38
             ----------
      1.31   Hazardous Waste and Other Substances............................................  40
             ------------------------------------
      1.32   Indemnification; Subrogation....................................................  44
             ----------------------------
      1.33   Covenants with Respect to Indebtedness, Operations, Fundamental Changes of
             --------------------------------------------------------------------------
             Grantor.........................................................................  45
             -------
      1.34   Repair and Remediation Reserve..................................................  49
             ------------------------------
      1.35   ERISA...........................................................................  50
             -----
ARTICLE II. EVENTS OF DEFAULT................................................................  51
            -----------------
      2.1    Events of Default...............................................................  51
             -----------------
ARTICLE III. REMEDIES........................................................................  53
             --------
      3.1    Remedies Available..............................................................  53
             ------------------
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                            <C>
      3.2    Application of Proceeds.........................................................  56
             -----------------------
      3.3    Right and Authority of Receiver or Beneficiary in the Event of Default; Power
             -----------------------------------------------------------------------------
             of Attorney.....................................................................  56
             -----------
      3.4    Occupancy After Foreclosure.....................................................  58
             ---------------------------
      3.5    Notice to Account Debtors.......................................................  58
             -------------------------
      3.6    Cumulative Remedies.............................................................  58
             -------------------
      3.7    Payment of Expenses.............................................................  58
             -------------------
ARTICLE IV. MISCELLANEOUS TERMS AND CONDITIONS...............................................  59
            ----------------------------------
      4.1    Time of Essence.................................................................  59
             ---------------
      4.2    Release of Deed of Trust........................................................  59
             ------------------------
      4.3    Certain Rights of Beneficiary...................................................  59
             -----------------------------
      4.4    Waiver of Certain Defenses......................................................  59
             --------------------------
      4.5    Notices.........................................................................  59
             -------
      4.6    Successors and Assigns; Joint and Several Liability.............................  59
             ---------------------------------------------------
      4.7    Severability....................................................................  60
             ------------
      4.8    Gender..........................................................................  60
             ------
      4.9    Waiver; Discontinuance of Proceedings...........................................  60
             -------------------------------------
      4.10   Section Headings................................................................  60
             ----------------
      4.11   GOVERNING LAW...................................................................  61
             -------------
      4.12   Counting of Days................................................................  61
             ----------------
      4.13   Relationship of the Parties.....................................................  61
             ---------------------------
      4.14   Application of the Proceeds of the Note.........................................  61
             ---------------------------------------
      4.15   Unsecured Portion of Indebtedness...............................................  61
             ---------------------------------
      4.16   Cross-Default...................................................................  61
             -------------
      4.17   Interest After Sale.............................................................  61
             -------------------
      4.18   Inconsistency with Other Loan Documents.........................................  61
             ---------------------------------------
      4.19   Construction of this Document...................................................  62
             -----------------------------
      4.20   No Merger.......................................................................  62
             ---------
      4.21   Rights With Respect to Junior Encumbrances......................................  62
             ------------------------------------------
      4.22   Beneficiary May File Proofs of Claim............................................  62
             ------------------------------------
      4.23   Fixture Filing..................................................................  62
             --------------
      4.24   After-Acquired Trust Property...................................................  63
             -----------------------------
      4.25   No Representation...............................................................  63
             -----------------
      4.26   Counterparts....................................................................  63
             ------------
      4.27   Personal Liability..............................................................  63
             ------------------
      4.28   Recording and Filing............................................................  63
             --------------------
      4.29   Entire Agreement and Modifications..............................................  63
             ----------------------------------
      4.30   Maximum Interest................................................................  64
             ----------------
      4.31   Interest Payable by Beneficiary.................................................  64
             -------------------------------
      4.32   Secondary Market................................................................  64
             ----------------
      4.33   Dissemination of Information....................................................  65
             ----------------------------
ARTICLE V. CONCERNING THE TRUSTEE............................................................  65
           ----------------------
      5.1    Certain Rights..................................................................  65
             --------------
</TABLE>

                                       ii
<PAGE>

                     DEED OF TRUST AND SECURITY AGREEMENT
                     ------------------------------------

     THIS DEED OF TRUST AND SECURITY AGREEMENT (this "Deed of Trust") is made as
                                                      -------------
of June 1, 2001 by APPLE SUITES SPE III, INC., a Virginia corporation, as
Grantor ("Grantor"), whose address is 9 North Third Street, Richmond, Virginia
          -------
23219, to THE PUBLIC TRUSTEE OF BOULDER COUNTY, COLORADO, a Virginia
corporation, as Trustee ("Trustee"), for the benefit of FIRST UNION NATIONAL
BANK, a national banking association, as Beneficiary ("Beneficiary"), whose
                                                       -----------
address is One First Union Center, 301 South College Street, Mailcode NC0166,
Charlotte, North Carolina 28288, Attention: Contract Finance.

                              W I T N E S S E T H:
                              -------------------

     THAT FOR AND IN CONSIDERATION OF THE SUM OF TEN AND NO/100 DOLLARS ($10),
AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE
HEREBY ACKNOWLEDGED, GRANTOR HEREBY IRREVOCABLY GRANTS, BARGAINS, SELLS,
CONVEYS, TRANSFERS, PLEDGES, SETS OVER AND ASSIGNS, WITH POWER OF SALE, to
Trustee in trust, all of Grantor's estate, right, title and interest (if any)
in, to and under any and all of the following described property, whether now
owned or hereafter acquired by Grantor (exclusive of any of the following owned
or leased by tenants leasing all or part of the Improvements (as hereinafter
defined), including, without limitation, the tenant under the Percentage Lease
(as hereinafter defined)) (Grantor's estate, right, title and interest in all
such property being referred to, collectively, as the "Trust Property"):
                                                       --------------

     (A)  All that certain real property situated in the County of Boulder,
State of Colorado, more particularly described on Exhibit A attached hereto and
                                                  ---------
incorporated herein by this reference (the "Premises"), together with all of the
                                            --------
easements, rights, privileges, franchises, tenements, hereditaments and
appurtenances now or hereafter thereunto belonging or in any way appertaining
thereto, and all of the estate, right, title, interest, claim and demand
whatsoever of Grantor therein or thereto, either at law or in equity, in
possession or in expectancy, now or hereafter acquired;

     (B)  All structures, buildings and improvements of every kind and
description now or at any time hereafter located or placed on the Premises (the
"Improvements", the Premises and the Improvements being referred to as the "Real
 ------------                                                               ----
Property");
--------

     (C)  All furniture, furnishings, fixtures, goods, equipment, inventory or
personal property owned by Grantor and now or hereafter located on, attached to
or used in and about the Improvements, including, but not limited to, all
machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets,
awnings, screens, shades, blinds, carpets, draperies, lawn mowers, and all
appliances, plumbing, heating, air conditioning, lighting, ventilating,
refrigerating, disposal and incinerating equipment, and all fixtures and
appurtenances thereto, and such other goods and chattels and personal property
owned by Grantor and as are now or hereafter used or furnished in operating the
Improvements, or the activities conducted therein (including, without limitation
<PAGE>

beds, bureaus, chiffoniers, chests, chairs, desks, lamps, mirrors, bookcases,
tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds,
screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage
racks, stools, sofas, chinaware, linens, pillows, blankets, glassware,
foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other
entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers,
radios, television sets, intercom and paging equipment, electric and electronic
equipment, dictating equipment, private telephone systems, facsimile machines,
medical equipment, potted plants, heating, lighting and plumbing fixtures, fire
prevention and extinguishing apparatus, cooling and air-conditioning systems,
elevators, escalators, fittings, plants, apparatus, stoves, ranges,
refrigerators, laundry machines, tools, machinery, engines, dynamos, motors,
boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning
systems, floor cleaning, waxing and polishing equipment, call systems, brackets,
electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers,
shelving, spotlighting equipment, dishwashers, garbage disposals, washers and
dryers), other customary hotel equipment and all building materials and
equipment hereafter situated on or about the Premises or Improvements, and, to
the extent assignable, all warranties and guaranties relating thereto, and all
additions thereto and substitutions and replacements therefor;

     (D)  All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other emblements now or
hereafter located on the Premises or under or above the same or any part or
parcel thereof, and all estates, rights, titles, interests, tenements,
hereditaments and appurtenances, reversions and remainders whatsoever, in any
way belonging, relating or appertaining to the Real Property or any part
thereof, or which hereafter shall in any way belong, relate or be appurtenant
thereto, whether now owned or hereafter acquired by Grantor;

     (E)  To the extent assignable, all water, ditches, wells, reservoirs and
drains and all water, ditch, well, reservoir and drainage rights which are
appurtenant to, located on, under or above or used in connection with the
Premises or the Improvements, or any part thereof, together (i) with all
utilities, utility lines, utility commitments, utility capacity, capital
recovery charges, impact fees and other fees paid in connection with same, (ii)
reimbursements or other rights pertaining to utility or utility services
provided to the Premises and/or Improvements and (iii) the present or future use
or availability of waste water capacity, or other utility facilities to the
extent same pertain to or benefit the Premises and/or Improvements, including,
without limitation, all reservations of or commitments covering any such use in
the future whether now existing or hereafter created or acquired;

     (F)  All minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Premises;

     (G)  All funds now or hereafter on deposit in the Impound Account, the
Replacement Reserve and the Repair and Remediation Reserve (each as hereinafter
defined);

     (H)  (i)  All leases, licenses, concessions and occupancy agreements of all
or any part of the Premises or the Improvements and any and all guarantees,
extensions, renewals, replacements and modifications thereof (collectively, the
"Leases"), including, without
 ------

                                       2
<PAGE>

limitation, that certain Amended and Restated Hotel Lease Agreement, dated
June 1, 2001 between Grantor, as lessor, and Apple Suites Management,
Inc., as lessee, with any guaranty of the performance and payment thereunder
(the "Percentage Lease"), and (ii) all rents, royalties, issues, profits,
      ----------------
revenue, income, all revenues and credit card receipts collected from guest
rooms, restaurants, bars, meeting rooms, banquet rooms and recreational
facilities, parking charges, and other benefits (collectively, the "Rents" or
                                                                    -----
"Rents and Profits") of the Premises, the Improvements or the fixtures or
 -----------------
equipment, now or hereafter arising from the use or enjoyment of all or any
portion thereof or rendering of services by Grantor or any operator or manager
of the hotel or the commercial space located in the Improvements (including,
without limitation, from the rental of any office space, retail space, guest
rooms or other space, halls, stores and offices), and (iii) all concession fees
and rentals, health club membership fees, food and beverage wholesale and retail
sales, service charges, vending machine sale or from any lease, license,
tenancy, concession, occupancy agreement or other agreement pertaining thereto
or arising from any of the Contracts (as hereinafter defined) or any of the
General Intangibles (as hereinafter defined) and any other items of revenue,
receipts or other income as identified in the Uniform System of Accounts for
Hotels, 9/th/ Edition as published by the Hotel Association of New York City,
Inc. (1996) and (iv) all cash or securities (the "Security Deposits")
                                                  -----------------
deposited in any security deposit account (the "Security Deposit Account") to
                                                ------------------------
secure performance by the tenants, lessees or licensees, as applicable, of their
obligations under any such leases, licenses, concessions or occupancy
agreements, whether said cash or securities are to be held until the expiration
of the terms of said leases, licenses, concessions or occupancy agreements or
applied (exclusive of any of the foregoing owed to tenants or any third parties)
to one or more of the installments of rent coming due prior to the expiration of
said terms, subject to, however, the provisions contained in Section 1.11 of
                                                             ------------
this Deed of Trust;

     (I)  To the extent assignable:  (i) all contracts and agreements now or
hereafter entered into by Grantor or binding upon Grantor relating to the
management, maintenance or operation of any part of the Premises or the
Improvements (collectively, the "Contracts") and all revenue, income and other
                                 ---------
benefits thereof, including, without limitation, management agreements, service
contracts, maintenance contracts, equipment leases, personal property leases and
(ii) any contracts or documents relating to construction on any part of the
Premises or the Improvements (including plans, drawings, surveys, tests,
reports, bonds and governmental approvals);

     (J)  To the extent assignable, all present and future real estate tax
refunds and monetary deposits given to any public or private utility with
respect to utility services furnished to any part of the Premises or the
Improvements;

     (K)  To the extent assignable, all present and future funds, accounts,
instruments, accounts receivable, documents, causes of action, claims, general
intangibles (including, without limitation, trademarks, trade names, service
marks and symbols now or hereafter used in connection with any part of the
Premises or the Improvements, all names by which the Premises or the
Improvements may be operated or known, all rights to carry on business under
such names, and all rights, interest and privileges which Grantor has or may
have as developer or declarant under any covenants, restrictions or declarations
now or hereafter relating to the Premises or the Improvements) and all notes or
chattel paper relating to the ownership, operation

                                       3
<PAGE>

or maintenance of the Real Property (exclusive of any of the foregoing owed to
tenants or any other third parties) (collectively, the "General Intangibles");
                                                        -------------------

     (L)  To the extent assignable, all water taps, sewer taps, certificates of
occupancy, permits, licenses, franchises, certificates, consents, approvals and
other rights and privileges now or hereafter obtained in connection with the
Premises or the Improvements and all present and future warranties and
guaranties relating to the Improvements or to any equipment, fixtures,
furniture, furnishings, personal property or components of any of the foregoing
now or hereafter located or installed on the Premises or the Improvements;

     (M)  All building materials, supplies and equipment now or hereafter placed
on the Premises or in the Improvements and, to the extent assignable, all
architectural renderings, models, drawings, plans, specifications, studies and
data now or hereafter relating to the Premises or the Improvements;

     (N)  To the extent assignable, all right, title and interest of Grantor in
any insurance policies or binders now or hereafter relating to the Trust
Property, including any unearned premiums thereon;

     (O)  All proceeds, products, substitutions and accessions (including claims
and demands therefor) of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and

     (P)  All other or greater rights and interests of every nature in the
Premises or the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Grantor.

     IN TRUST TO SECURE:

     (1)  The debt evidenced by that certain Promissory Note (such Promissory
Note, together with any and all renewals, amendments, modifications,
consolidations and extensions thereof, is hereinafter referred to as the "Note")
                                                                          ----
of even date with this Deed of Trust, made by Grantor payable to the order of
Beneficiary in the principal face amount of Ten Million Seven Hundred Thousand
and No/100 Dollars ($10,700,000.00), together with interest as therein provided;

     (2)  The full and prompt payment and performance of all of the provisions,
agreements, covenants and obligations herein contained and contained in
agreements, documents or instruments now or hereafter evidencing, securing or
otherwise relating to the Debt (as hereinafter defined) and described on Exhibit
                                                                         -------
B attached hereto (together with any and all renewals, amendments, extensions,
-
modifications and restatements thereof, are hereinafter collectively referred to
as the "Loan Documents") and the payment of all other sums herein or therein
        --------------
covenanted to be paid;

                                       4
<PAGE>

     (3)  Any and all additional advances made by Beneficiary to protect or
preserve the Trust Property or the lien or security interest created hereby on
the Trust Property, or for taxes, assessments or insurance premiums as
hereinafter provided or for performance of any of Grantor's obligations
hereunder or under the other Loan Documents or for any other purpose provided
herein or in the other Loan Documents; and

     (4)  Any and all other indebtedness now owing or which may hereafter be
owing by Grantor to Beneficiary under the Loan Documents, including, without
limitation, all prepayment fees, however and whenever incurred or evidenced,
whether express or implied, direct or indirect, absolute or contingent, or due
or to become due, and all renewals, modifications, consolidations, replacements
and extensions thereof.

(All of the sums referred to in Paragraphs (1) through (4) above are herein
                                --------------------------
referred to as the "Debt").
                    ----

     TO HAVE AND TO HOLD the Trust Property unto Trustee, its successors and
assigns forever, for the benefit of Beneficiary, its successors and assigns, and
Grantor does hereby bind itself, its successors and assigns, to WARRANT AND
FOREVER DEFEND the title to the Real Property (and such other portion of the
Trust Property as may constitute real property under applicable law), subject to
the Permitted Encumbrances (as hereinafter defined), to Beneficiary and Trustee
against every person whomsoever lawfully claiming or to claim the same or any
part thereof;

     PROVIDED, HOWEVER, that if the principal and interest and all other sums
due or to become due under the Note or under the other Loan Documents,
including, without limitation, any prepayment fees required pursuant to the
terms of the Note, shall have been paid at the time and in the manner stipulated
therein and the Debt shall have been paid and all other covenants contained in
the Loan Documents shall have been performed, then, in such case, the liens,
security interests, estates and rights granted by this Deed of Trust shall be
satisfied and the estate, right, title and interest of Beneficiary in the Trust
Property shall cease, and upon payment to Beneficiary of all costs and expenses
incurred for the preparation of the release hereinafter referenced and all
recording costs if allowed by law, Beneficiary shall promptly execute a Request
for Release of Deed of Trust of record and the lien hereof by proper instrument.

                                  ARTICLE I.
                             COVENANTS OF GRANTOR
                             --------------------

     For the purpose of further securing the Debt and for the protection of the
security of this Deed of Trust, for so long as the Debt or any part thereof
remains unpaid, Grantor covenants and agrees as follows:

     1.1  Warranties of Grantor. Grantor, for itself and its successors and
          ---------------------
assigns, does hereby represent, warrant and covenant to and with Beneficiary,
its successors and assigns, that:

          (a)  Grantor has good, marketable and indefeasible fee simple title to
the Real Property, subject only to those matters expressly set forth as
exceptions to or subordinate matters

                                       5
<PAGE>

in the title insurance policy insuring the lien of this Deed of Trust delivered
as of the date hereof (the "Title Insurance Policy"), excepting therefrom all
                            ----------------------
preprinted and/or standard exceptions (such items being the "Permitted
                                                             ---------
Encumbrances"), and has full power and lawful authority to grant, bargain, sell,
------------
convey, assign, transfer, encumber and mortgage its interest in the Trust
Property in the manner and form hereby done or intended. Grantor will preserve
its interest in and title to the Real Property and will forever warrant and
defend the same to Beneficiary against any and all claims whatsoever and will
forever warrant and defend the validity and priority of the lien and security
interest created herein against the claims of all persons and parties
whomsoever, subject to the Permitted Encumbrances. The foregoing warranty of
title shall survive the foreclosure of this Deed of Trust and shall inure to the
benefit of and be enforceable by Beneficiary in the event Beneficiary acquires
title to or ownership of the Trust Property pursuant to any foreclosure;

          (b)  No bankruptcy or insolvency proceedings are pending or
contemplated by Grantor or, to the best knowledge of Grantor, against Grantor or
by or against any endorser or cosigner of the Note or of any portion of the
Debt, or any guarantor or indemnitor under the Indemnity and Guaranty Agreement
and the Environmental Indemnity Agreement executed in connection with the Note
or the loan evidenced thereby and secured hereby (the "Indemnitor");
                                                       ----------

          (c)  All written certificates, written affidavits and written
statements made by Grantor to Beneficiary in connection with the loan evidenced
by the Note are true and correct in all material respects and do not omit to
state any fact or circumstance necessary to make the statements contained
therein not materially misleading;

          (d)  The execution, delivery and performance of this Deed of Trust,
the Note and all of the other Loan Documents have been duly authorized by all
necessary action to be, and are, binding and enforceable against Grantor in
accordance with the respective terms thereof and do not in any material respect
contravene, result in a breach of or constitute a default (nor upon the giving
of notice or the passage of time or both will same constitute a default) under
the partnership agreement, articles of incorporation, operating agreement or
other organizational documents of Grantor or any material contract or agreement
to which Grantor is a party or by which Grantor or any of its property may be
bound and do not violate or contravene in any material respect any law, order,
decree, rule or regulation to which Grantor is subject;

          (e)  Grantor is not required to obtain any consent, approval or
authorization from or to file any declaration or statement with, any
governmental authority or agency in connection with or as a condition to the
execution, delivery or performance of this Deed of Trust, the Note or the other
Loan Documents which has not been so obtained or filed;

          (f)  Grantor has obtained or made all necessary (i) consents,
approvals and authorizations and registrations and filings of or with all
governmental authorities or agencies and (ii) consents, approvals, waivers and
notifications of partners, stockholders, members, creditors, lessors and other
non-governmental persons and/or entities, in each case, which are required to be
obtained or made by Grantor in connection with the execution and delivery of,
and the performance by Grantor of its obligations under, the Loan Documents;

                                       6
<PAGE>

          (g)  Grantor is not an "investment company", or a company "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended;

          (h)  No part of the proceeds of the indebtedness secured hereby will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve
System or for any other purpose which would be inconsistent with such Regulation
T, U or X or any other Regulations of such Board of Governors, or for any
purpose prohibited by legal requirements or by the terms and conditions of the
Loan Documents;

          (i)  Grantor and, if Grantor is a partnership, any general partner of
Grantor, has filed all federal, state and local tax returns required to be filed
as of the date hereof and has paid or made adequate provision for the payment of
all federal, state and local taxes, charges and assessments payable by Grantor
and its general partner, if any as of the date hereof.  Grantor and its general
partners, if any, believe that their respective tax returns properly reflect the
income and taxes of Grantor and said general partners, if any, for the periods
covered thereby, subject only to reasonable adjustments required by the Internal
Revenue Service or other applicable tax authority upon audit;

          (j)  Grantor is not an "employee benefit plan", as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to Title I of ERISA and the assets of Grantor do not
  -----
constitute "plan assets" of one or more such plans within the meaning of 29
C.F.R. Section 2510.3-101;

          (k)  The Premises and the Improvements and the current intended use
thereof by Grantor comply in all material respects with all applicable
restrictive covenants, zoning ordinances, subdivision and building codes, flood
disaster laws, health and environmental laws and regulations and all other
ordinances, orders or requirements issued by any state, federal or municipal
authorities having or claiming jurisdiction over the Trust Property.  The
Premises and Improvements constitute one or more separate tax parcels for
purposes of ad valorem taxation.  To the best of Borrower's knowledge,
information and belief, the Premises and Improvements do not require any rights
over, or restrictions against, other property in order to comply with any of the
aforesaid governmental ordinances, orders or requirements;

          (l)  All utility services necessary and sufficient for the use,
occupancy and operation of the Premises and the Improvements for their current
intended purposes are available to the Real Property, including water, storm
sewer, sanitary sewer, gas, electric, cable and telephone facilities;

          (m)  All streets, roads, highways and bridges necessary for access for
the current use, occupancy and operation of the Premises and the Improvements
have been completed, to the best of Grantor's knowledge, information and belief,
have been dedicated to and accepted by the appropriate municipal authority and
are open and available to the Premises and the Improvements without further
condition or cost to Grantor;

                                       7
<PAGE>

          (n)  All curb cuts, driveways and traffic signals (if any) shown on
the survey delivered to Beneficiary prior to the execution and delivery of this
Deed of Trust (the "Survey") are existing and, to the best of Grantor's
                    ------
knowledge, information and belief, have been fully approved by the appropriate
governmental authority;

          (o)  There are no judicial, administrative, mediation or arbitration
actions, suits or proceedings pending or threatened against or affecting Grantor
(or, if Grantor is a partnership or a limited liability company, any of its
general partners or members) or the Trust Property which, if adversely
determined, would have a material adverse effect on (a) the Trust Property, (b)
the business, prospects, profits, operations or condition (financial or
otherwise) of Grantor, (c) the enforceability, validity, perfection or priority
of the lien of any Loan Document, or (d) the ability of Grantor to perform any
obligations under any Loan Document (collectively, a "Material Adverse Effect");
                                                      -----------------------

          (p)  The Trust Property is free from delinquent water charges, sewer
rents, taxes and assessments;

          (q)  As of the date of this Deed of Trust, the Real Property is free
from unrepaired material damage caused by fire, flood, accident or other
casualty;

          (r)  As of the date of this Deed of Trust, no part of the Premises or
the Improvements has been taken in condemnation, eminent domain or like
proceeding nor is any such proceeding pending or, to Grantor's knowledge and
belief, threatened;

          (s)  Grantor possesses all material franchises, patents, copyrights,
trademarks, trade names, licenses and permits necessary for the conduct of its
business substantially as now conducted;

          (t)  Except as may otherwise be disclosed in the Engineering Report
(as hereinafter defined), (i) the Improvements are in good repair and (ii) all
major building systems located within the Improvements, including, without
limitation, the heating and air conditioning systems and the electrical and
plumbing systems, are in good working order and condition;

          (u)  Grantor has delivered to Beneficiary true, correct and complete
copies of all Contracts and all amendments thereto or modifications thereof;

          (v)  Each Contract constitutes the legal, valid and binding obligation
of Grantor and, to the best of Grantor's knowledge and belief, is enforceable
against any other party thereto.  No default exists, or with the passing of time
or the giving of notice or both would exist, under any Contract which would, in
the aggregate, have a Material Adverse Effect;

          (w)  Grantor and the Trust Property are free from any past due
obligations for sales and payroll taxes;

                                       8
<PAGE>

          (x)  There are no security agreements or financing statements
affecting all or any portion of the Trust Property of Grantor other than (i) as
disclosed in writing by Grantor to Beneficiary prior to the date hereof and (ii)
the Loan Documents;

          (y)  Grantor has delivered to Beneficiary a true, correct and complete
copy of the Percentage Lease;

          (z)  The Percentage Lease constitutes the legal, valid and binding
obligation of Grantor and, to the best of Grantor's knowledge and belief, is
enforceable against the tenant thereof.  No default exists, or with the passing
of time or the giving of notice or both would exist, under the Percentage Lease
which would, in the aggregate, have a Material Adverse Effect;

          (aa) The rents under the Percentage Lease have not been waived,
released, or otherwise discharged or compromised;

          (bb) All work to be performed by Grantor under the Percentage Lease
has been substantially performed, all contributions to be made by Grantor to the
tenant thereunder have been made and all other conditions precedent to each such
tenant's obligations thereunder have been satisfied;

          (cc) To the best of Grantor's knowledge and belief, the tenant under
the Percentage Lease is free from bankruptcy, reorganization or arrangement
proceedings or a general assignment for the benefit of creditors;

          (dd) There are no outstanding options or rights of first offer or
refusal to purchase all or any portion of the Trust Property or Grantor's
interest therein or ownership thereof;

          (ee) Grantor is not a "foreign person" within the meaning of
(S)1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations; and

          (ff) As of the date hereof, the sole shareholder of Grantor is Apple
Suites, Inc., a Virginia corporation (the "REIT").  The REIT's interest in
                                           ----
Grantor is owned by the REIT free and clear of all mortgages, assignments,
pledges and security interests and free and clear of all warrants, options and
rights to purchase, except as otherwise consented to in writing by Beneficiary,
which such consent may be granted or withheld in Beneficiary's sole discretion.

     1.2  Defense of Title. If, while this Deed of Trust is in force, the title
          ----------------
to the Real Property or the interest of Beneficiary in the Trust Property shall
be the subject, directly or indirectly, of any action at law or in equity, or be
attached directly or indirectly, or endangered, clouded or adversely affected in
any manner except for the Permitted Encumbrances, Grantor, at Grantor's expense,
shall take all necessary and proper steps for the defense of said title or
interest, including the employment of counsel reasonably approved by
Beneficiary, the prosecution or defense of litigation, and the compromise or
discharge of claims made against said title or interest. Notwithstanding the
foregoing, if an Event of Default has occurred and is

                                       9
<PAGE>

continuing under this Section, Beneficiary may, without limiting or waiving any
other rights or remedies of Beneficiary hereunder, take such steps with respect
thereto as Beneficiary shall deem necessary or proper and any and all costs and
expenses incurred by Beneficiary in connection therewith, together with interest
thereon at the Default Interest Rate (as defined in the Note) from the date
incurred by Beneficiary until actually paid by Grantor, shall be immediately
paid by Grantor on demand and shall be secured by this Deed of Trust and by all
of the other Loan Documents securing all or any part of the indebtedness
evidenced by the Note.

     1.3  Performance of Obligations. Grantor shall pay when due the principal
          --------------------------
of and the interest on the Debt in accordance with the terms of the Note.
Grantor shall also pay all charges, fees and other sums required to be paid by
Grantor as provided in the Loan Documents, in accordance with the terms of the
Loan Documents, and shall observe, perform and discharge all obligations,
covenants and agreements to be observed, performed or discharged by Grantor set
forth in the Loan Documents in accordance with their terms. Further, Grantor
shall promptly perform and comply in all material respects with all covenants,
conditions, obligations and prohibitions required of Grantor in connection with
any other document or instrument affecting title to the Real Property or
Grantor's interest in the Trust Property, or any part thereof, regardless of
whether such document or instrument is superior or subordinate to this Deed of
Trust.

     1.4  Insurance.  Grantor shall, at Grantor's expense, maintain in force and
          ---------
effect on the Trust Property at all times while this Deed of Trust continues in
effect the following insurance:

          (a)  Insurance against loss or damage to the Trust Property by fire,
windstorm, tornado and hail and against loss and damage by such other, further
and additional risks as may be now or hereafter embraced by an "all-risk" or
"special form" type of insurance policy.  The amount of such insurance shall be
not less than one hundred percent (100%) of the full replacement cost (insurable
value) of the Improvements (as established by an MAI appraisal), without
reduction for depreciation.  The determination of the replacement cost amount
shall be adjusted annually to comply with the requirements of the insurer
issuing such coverage or, at Beneficiary's election, by reference to such
indices, appraisals or information as Beneficiary determines in its reasonable
discretion in order to reflect increased value due to inflation.  Absent such
annual adjustment, each policy shall contain inflation guard coverage insuring
that the policy limit will be increased over time to reflect the effect of
inflation.  Full replacement cost, as used herein, means, with respect to the
Improvements, the cost of replacing the Improvements without regard to deduction
for depreciation, exclusive of the cost of excavations, foundations and footings
below the lowest basement floor.  Grantor shall also maintain insurance against
loss or damage to furniture, furnishings, fixtures, equipment and other items
(whether personalty or fixtures) owned by Grantor and included in the Trust
Property and owned by Grantor from time to time to the extent applicable.  Each
policy shall contain a replacement cost endorsement and either an agreed amount
endorsement (to avoid the operation of any co-insurance provisions) or a waiver
of any co-insurance provisions, all subject to Beneficiary's approval.  The
maximum deductible shall be $10,000.00.

          (b)  Commercial General Liability Insurance against claims for
personal injury, bodily injury, death and property damage occurring on, in or
about the Premises or the

                                       10
<PAGE>

Improvements in amounts not less than $1,000,000.00 per occurrence and
$2,000,000.00 in the aggregate plus umbrella coverage in an amount not less than
$2,000,000. Beneficiary hereby retains the right to periodically review the
amount of said liability insurance being maintained by Grantor and to require an
increase in the amount of said liability insurance should Beneficiary deem an
increase to be reasonably prudent under then existing circumstances.

          (c)  Boiler and machinery insurance is required if steam boilers or
other pressure-fired vessels are in operation at the Premises.  Minimum
liability coverage per accident must equal the greater of the replacement cost
(insurable value) of the Improvements housing such boiler or pressure-fired
machinery or $2,000,000.00.  If one or more large HVAC units is in operation at
the Premises, "Systems Breakdowns" coverage shall be required, as determined by
Beneficiary.  Minimum liability coverage per accident must equal the value of
such unit(s).

          (d)  If the Improvements or any part thereof is situated in an area
designated by the Federal Emergency Management Agency ("FEMA") as a special
                                                        ----
flood hazard area (Zone A or Zone V), flood insurance in an amount equal to the
lesser of: (i) the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Debt if replacement cost coverage is not available for the type of
building insured), or (ii) the maximum insurance available under the appropriate
National Flood Insurance Administration program.  The maximum deductible shall
be $3,000.00 per building or a higher minimum amount as required by FEMA or
other applicable law.

          (e)  During the period of any construction, renovation or alteration
of the existing Improvements which exceeds the lesser of 10% of the original
principal amount of the Note or $500,000, at Beneficiary's request, a completed
value, "All Risk" Builder's Risk form or "Course of Construction" insurance
policy in non-reporting form, in an amount reasonably approved by Beneficiary,
may be required. During the period of any construction of any addition to the
existing Improvements, a completed value, "All Risk" Builder's Risk form or
"Course of Construction" insurance policy in non-reporting form, in an amount
reasonably approved by Beneficiary, shall be required

          (f)  When required by applicable law, ordinance or other regulation,
Worker's Compensation and Employer's Liability Insurance covering all persons
subject to the worker's compensation laws of the state in which the Trust
Property is located.

          (g)  Business income (loss of rents) insurance in amounts sufficient
to compensate Grantor for all Rents or income during a period of not less than
twelve (12) months. The amount of coverage shall be adjusted annually to reflect
the Rents under the Percentage Lease (or otherwise) or income payable during the
succeeding twelve (12) month period.

          (h)  Such other insurance on the Trust Property or on any replacements
or substitutions thereof or additions thereto as may from time to time be
required by Beneficiary against other insurable hazards or casualties which at
the time are commonly insured against in the case of property similarly situated
including, without limitation, Sinkhole, Mine Subsidence, Earthquake and
Environmental insurance, due regard being given to the height and type of
buildings, their construction, location, use and occupancy.

                                       11
<PAGE>

     All such insurance shall (i) be with insurers fully licensed and authorized
to do business in the state within which the Premises is located and who have
and maintain a rating of at least  A from Standard & Poors, or equivalent, (ii)
contain the complete address of the Premises (or a complete legal description),
(iii) be prepaid for at least six (6) months (provided that Beneficiary may
require up to twelve (12) months be prepaid in the event Grantor is required to
make payments to the Impound Account pursuant to Section 1.6(c) hereof), and
                                                 --------------
(iv) be subject to the approval of Beneficiary as to insurance companies
(provided such approval as to a particular company shall not be withheld if the
foregoing minimum rating requirement is satisfied), amounts, content, forms of
policies, method by which premiums are paid and expiration dates, and (v)
include a standard, non-contributory, mortgagee clause naming EXACTLY:

     First Union National Bank,
     its Successors and Assigns ATIMA
     Attn.:  Structured Products Servicing
     8739 Research Drive, URP-4
     Charlotte, NC  28262-1075

(A) as an additional insured under all liability insurance policies, (B) as the
          ------------------
first mortgagee on all property insurance policies and (C) as the loss payee on
---------------                                                   ----------
all loss of rents or loss of business income insurance policies.

     Grantor shall, as of the date hereof, deliver to Beneficiary evidence that
said insurance policies have been prepaid as required above and certified copies
of such insurance policies and original certificates of insurance signed by an
authorized agent of the applicable insurance companies evidencing such insurance
satisfactory to Beneficiary.  Grantor shall renew all such insurance and deliver
to Beneficiary certificates and policies evidencing such renewals at least
thirty (30) days before any such insurance shall expire.  Grantor further agrees
that each such insurance policy:  (i) shall provide for at least thirty (30)
days' prior written notice to Beneficiary prior to any policy reduction or
cancellation for any reason other than non-payment of premium and at least ten
(10) days' prior written notice to Beneficiary prior to any cancellation due to
non-payment of premium; (ii) shall contain an endorsement or agreement by the
insurer that any loss shall be payable to Beneficiary in accordance with the
terms of such policy notwithstanding any act or negligence of Grantor which
might otherwise result in forfeiture of such insurance; (iii) shall waive all
rights of subrogation against Beneficiary; (iv) in the event that the Premises
or the Improvements constitutes a legal non-conforming use under applicable
building, zoning or land use laws or ordinances, shall include an ordinance or
law coverage endorsement which will contain Coverage A: "Loss Due to Operation
of Law" (with a minimum liability limit equal to Replacement Cost With Agreed
Value Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased
Cost of Construction" coverages; and (v) may be in the form of a blanket policy
provided that, in the event that any such coverage is provided in the form of a
blanket policy, Grantor hereby acknowledges and agrees that failure to pay any
portion of the premium therefor which is not allocable to the Trust Property or
by any other action not relating to the Trust Property which would otherwise
permit the issuer thereof to cancel the coverage thereof, would require the
Trust Property to be insured by a separate, single-property policy.  The blanket
policy must properly identify and fully protect the Trust Property as if a
separate policy

                                       12
<PAGE>

were issued for 100% of Replacement Cost at the time of loss and otherwise meet
all of Beneficiary's applicable insurance requirements set forth in this
Section 1.4.  To the extent permitted by applicable law, in the event of
-----------
foreclosure of this Deed of Trust, or other transfer of title to the Trust
Property in extinguishment in whole or in part of the Debt, all right, title and
interest of Grantor in and to all proceeds payable under such policies then in
force concerning the Trust Property shall thereupon vest in the purchaser at
such foreclosure, or in Beneficiary or other transferee in the event of such
other transfer of title.  Approval of any insurance by Beneficiary shall not be
a representation of the solvency of any insurer or the sufficiency of any amount
of insurance.  In the event Grantor fails to provide, maintain, keep in force or
deliver and furnish to Beneficiary the policies of insurance required by this
Deed of Trust or evidence of their renewal as required herein, Beneficiary may,
but shall not be obligated to, procure such insurance and Grantor shall pay all
amounts advanced by Beneficiary therefor, together with interest thereon at the
Default Interest Rate from and after the date advanced by Beneficiary until
actually repaid by Grantor, promptly upon demand by Beneficiary.  Any amounts so
advanced by Beneficiary, together with interest thereon, shall be secured by
this Deed of Trust and by all of the other Loan Documents securing all or any
part of the Debt.  Beneficiary shall not be responsible for nor incur any
liability for the insolvency of the insurer or other failure of the insurer to
perform, even though Beneficiary has caused the insurance to be placed with the
insurer after failure of Grantor to furnish such insurance.  Grantor shall not
obtain insurance for the Trust Property in addition to that required by
Beneficiary without the prior written consent of Beneficiary, which consent will
not be unreasonably withheld provided that (i) Beneficiary is a named insured on
such insurance, (ii) Beneficiary receives complete copies of all policies
evidencing such insurance, and (iii) such insurance complies with all of the
applicable requirements set forth herein.

     1.5  Payment of Taxes.  Grantor shall pay or cause to be paid, except to
          ----------------
the extent Beneficiary is to pay the same pursuant to Section 1.6(a) of this
                                                      --------------
Deed of Trust, all taxes and assessments which are or may become a lien on the
Trust Property or which are assessed against or imposed upon the Trust Property.
If paid by Grantor, Grantor shall furnish Beneficiary with receipts (or if
receipts are not immediately available, with copies of canceled checks
evidencing payment with receipts to follow promptly after they become available)
showing payment of such taxes and assessments at least fifteen (15) days prior
to the applicable delinquency date therefor. Notwithstanding the foregoing,
Grantor may, in good faith, by appropriate proceedings and upon notice to
Beneficiary, contest the validity, applicability or amount of any asserted tax
or assessment so long as (a) such contest is diligently pursued, (b) Beneficiary
determines, in its reasonable subjective opinion, that such contest suspends the
obligation to pay the tax and that nonpayment of such tax or assessment will not
result in the sale, loss, forfeiture or diminution of the Trust Property or any
part thereof or any interest of Beneficiary therein, and (c) prior to the
earlier of the commencement of such contest or the delinquency date of the
asserted tax or assessment, Grantor deposits in the Impound Account (as
hereinafter defined) an amount determined by Beneficiary to be reasonably
adequate to cover the payment of such tax or assessment and a reasonable
additional sum to cover possible interest, costs and penalties; provided,
however, that Grantor shall promptly cause to be paid any amount adjudged by a
court of competent jurisdiction to be due, with all interest, costs and
penalties thereon, promptly after such judgment becomes final; and provided
                                                                   --------
further that in any event each such contest shall be
------- ----

                                       13
<PAGE>

concluded and the taxes, assessments, interest, costs and penalties shall be
paid prior to the date any writ or order is issued under which the Trust
Property may be sold, lost or forfeited.

     1.6  Tax and Insurance Impound Account. (a) Grantor shall establish and
          ---------------------------------
maintain at all times while this Deed of Trust continues in effect an impound
account (the "Impound Account") with Beneficiary for payment of real estate
              ------- -------
taxes and assessments and insurance on the Trust Property and as additional
security for the Debt. Simultaneously with the execution hereof, Grantor shall
deposit in the Impound Account an amount determined by Beneficiary to be
necessary to ensure that there will be on deposit with Beneficiary an amount
which, when added to the monthly payments subsequently required to be deposited
with Beneficiary hereunder on account of real estate taxes, assessments and
insurance premiums, will result in there being on deposit with Beneficiary in
the Impound Account an amount sufficient to pay the next due installment of real
estate taxes and assessments on the Trust Property at least one (1) month prior
to the earlier of (a) the due date thereof or (b) any such date by which Grantor
or Beneficiary is required by law to pay same and the next due annual insurance
premiums with respect to the Trust Property at least one (1) month prior to the
due date thereof. Commencing on the first monthly payment date under the Note
and continuing thereafter on each monthly payment date under the Note, Grantor
shall pay to Beneficiary, concurrently with and in addition to the monthly
payment due under the Note and until the Debt is fully paid and performed,
deposits in an amount equal to one-twelfth (1/12) of the amount of the annual
real estate taxes and assessments that will next become due and payable on the
Trust Property, plus one-twelfth (1/12) of the amount of the annual premiums
that will next become due and payable on insurance policies which Grantor is
required to maintain hereunder, each as estimated and determined by Beneficiary.
So long as no Event of Default has occurred, and no event has occurred or failed
to occur which with the passage of time, the giving of notice, or both would
constitute an Event of Default (a "Default"), all sums in the Impound Account
shall be held by Beneficiary in the Impound Account to pay said taxes,
assessments and insurance premiums before the same become delinquent. Grantor
shall be responsible for ensuring the receipt by Beneficiary, at least thirty
(30) days prior to the respective due date for payment thereof, of all bills,
invoices and statements for all taxes, assessments and insurance premiums to be
paid from the Impound Account, and so long as no Event of Default has occurred,
Beneficiary shall pay the governmental authority or other party entitled thereto
directly to the extent funds are available for such purpose in the Impound
Account. In making any payment from the Impound Account, Beneficiary shall be
entitled to rely on any bill, statement or estimate procured from the
appropriate public office or insurance company or agent without any inquiry into
the accuracy of such bill, statement or estimate and without any inquiry into
the accuracy, validity, enforceability or contestability of any tax, assessment,
valuation, sale, forfeiture, tax lien or title or claim thereof. No interest on
funds contained in the Impound Account, if any, shall be paid by Beneficiary to
Grantor.

          (b) Notwithstanding anything herein or in any other Loan Document to
the contrary, at any time prior to the Maturity Date (as defined in the Note),
unless and until an Event of Default shall have occurred and be continuing,
Grantor shall not be required to make deposits to the Impound Account as
required by Section 1.6(a) of this Deed of Trust with respect to insurance
            --------------
premiums (the "Insurance Obligations") provided that each of the following
               ---------------------
conditions is satisfied at all times:

                                       14
<PAGE>

          (i) Simultaneously with the execution hereof, Grantor shall deposit in
     the Impound Account the equivalent of six (6) months of insurance premiums;
     and

          (ii) Grantor timely delivers satisfactory evidence of payment for and
     renewal of the insurance policy or policies as required hereunder.

          (c) If an Event of Default shall have occurred and be continuing,
including, without limitation, with respect to Grantor's obligations under

Section 1.4 and Section 1.6(a) (as modified by Section 1.6(b)) hereof, upon
-----------     --------------                 --------------
Beneficiary's request, Grantor shall promptly commence making full payments to
the Impound Account pursuant to Section 1.6(a) above.
                                --------------

          (d) Notwithstanding anything to the contrary herein, Beneficiary shall
not require Grantor to commence making payments to the Impound Account if a
default occurs with regard to the payment and performance of the Insurance
Obligations so long as such default shall not have resulted in the expiration,
termination or lapse of insurance as required under Section 1.4 hereof and so
                                                    ------------
long as Grantor shall have cured such default by the earlier of (1) seven (7)
days after written notice thereof from Beneficiary to Grantor or (2) prior to
the date on which nonpayment of premiums would result in the lapse, expiration
or termination of insurance as required by Section 1.4 hereof.
                                           -----------

     1.7  Intentionally Deleted.
          ---------------------

     1.8  Replacement Reserve.
          -------------------

          (a) The Trust Property is currently managed by Promus Hotels, Inc.

("Promus"), pursuant to that Management Agreement dated June 30, 2000 between
--------
Promus and Apple Suites Management, Inc. (the "Promus Management Agreement").
                                               ---------------------------
If the Promus Management Agreement is terminated, then, as additional security
for the Debt, Grantor shall establish and maintain a repair and replacement
reserve (the "Replacement Reserve") with Beneficiary for payment of costs and
              -------------------
expenses incurred by Grantor in connection with the repair, replacement and
maintenance of the furniture, fixtures and equipment at the Trust Property and
the performance of work to the roofs, chimneys, gutters, downspouts, paving,
curbs, ramps, driveways, balconies, porches, patios, exterior walls, exterior
doors and doorways, windows, carpets, appliances, fixtures, furnishings,
elevators and mechanical and HVAC equipment and such other work as Grantor deems
necessary or appropriate (collectively, the "Repairs").  The Replacement Reserve
                                             -------
shall be maintained for so long as this Deed of Trust continues in effect after
the termination of the Promus Management Agreement; provided, however, no
                                                    --------  -------
monthly deposits will be required to the Replacement Reserve if and for so long
as the Trust Property is managed pursuant to a Management Agreement (as
hereinafter defined) subsequently entered into in accordance with the provisions
of Section 1.30 hereof. If deposits to the Replacement Reserve are required
hereunder, deposits shall be made on each monthly Payment Date under the Note,
concurrently with and in addition to the monthly payments due under the Note.
Deposits to the Replacement Reserve, when required, shall be in an amount equal
to five percent (5.0%) of the gross revenues of the Trust Property based upon
the most recent annual balance sheets and statement of operations for the Trust
Property.  Notwithstanding the foregoing, if a Management

                                       15
<PAGE>

Agreement reserves funds for Repairs in an amount less than five percent (5%) of
the gross revenues of the Trust Property as calculated above, then a Replacement
Reserve deposit shall be required in an amount equal to the difference between
such Management Agreement reserve percentage and five percent (5%) of the gross
revenues of the Property as calculated above. So long as no Default or Event of
Default has occurred and is continuing, Beneficiary shall, to the extent funds
are available for such purpose in the Replacement Reserve, disburse to Grantor
the amount paid or incurred by Grantor in performing such Repairs within ten
(10) days following: (a) the receipt by Beneficiary of a written request from
Grantor for disbursement from the Replacement Reserve and a certification by
Grantor that the applicable item of Repair has been completed; (b) the delivery
to Beneficiary of invoices, receipts, cancelled checks or other evidence
reasonably satisfactory to Beneficiary, verifying the cost of performing the
Repairs; (c) for disbursement requests with individual items in excess of
$50,000.00, the delivery to Beneficiary of affidavits, lien waivers, cancelled
checks or other evidence reasonably satisfactory to Beneficiary showing that all
materialmen, laborers, subcontractors and any other parties who might or could
claim statutory or common law liens and are furnishing or have furnished
material or labor to the Trust Property have been paid all amounts due for labor
and materials furnished to the Trust Property; (d) for disbursement requests in
excess of $50,000.00, delivery to Beneficiary of a certification from an
inspecting architect or other third party acceptable to Beneficiary describing
the completed Repairs and verifying the completion of the Repairs and the value
of the completed Repairs; and (e) for disbursement requests costing in excess of
$50,000.00, delivery to Beneficiary of a new certificate of occupancy or local
equivalent for the portion of the Improvements covered by such Repairs, if said
new certificate of occupancy is required by law, or a certification by Grantor
that no new certificate of occupancy is required. Beneficiary shall not be
required to make advances from the Replacement Reserve more frequently than once
in any ninety (90) day period. In making any payment from the Replacement
Reserve, Beneficiary shall be entitled to rely on such request from Grantor
without any inquiry into the accuracy, validity or contestability of any such
amount. Beneficiary may, at Grantor's expense, make or cause to be made during
the term of this Deed of Trust an annual inspection of the Trust Property to
determine the need, as determined by Beneficiary in its reasonable judgment, for
further Repairs of the Trust Property. In the event that such inspection reveals
that further Repairs of the Trust Property are required, Beneficiary shall
provide Grantor with a written description of the required Repairs and Grantor
shall respond within thirty (30) days of such request, and, thereafter, Grantor
shall make such Repairs as may be mutually agreed upon by Grantor and
Beneficiary and within such time period as may be mutually agreed upon. Funds
contained in the Replacement Reserve shall be placed in an interest-bearing
account upon receipt and interest thereon credited to Grantor as provided in
Section 4.31 hereof.
------------

          (b) As additional security for the payment and performance by Grantor
of all duties, responsibilities and obligations under the Note and the other
Loan Documents, Grantor hereby unconditionally and irrevocably assigns, conveys,
pledges, mortgages, transfers, delivers, deposits, sets over and confirms unto
Beneficiary, and hereby grants to Beneficiary a security interest in Grantor's
right, title and interest in, (i) the Impound Account, the Replacement Reserve,
the Repair and Remediation Reserve and any other reserve or escrow account
established pursuant to the terms hereof or of any other Loan Document
(collectively, the "Reserves"), (ii) the accounts into which the Reserves have
                    --------
been deposited, (iii) all insurance on

                                       16
<PAGE>

said accounts, (iv) all accounts, contract rights and general intangibles or
other rights and interests pertaining thereto, (v) all sums now or hereafter
therein or represented thereby, (vi) all replacements, substitutions or proceeds
thereof, (vii) all instruments and documents now or hereafter evidencing the
Reserves or such accounts, (viii) all powers, options, rights, privileges and
immunities pertaining to the Reserves (including the right to make withdrawals
therefrom), and (ix) all proceeds of the foregoing. Grantor hereby authorizes
and consents to the account into which the Reserves have been deposited being
held in Beneficiary's name or the name of any entity servicing the Note for
Beneficiary and hereby acknowledges and agrees that Beneficiary, or at
Beneficiary's election, such servicing agent, shall have exclusive control over
said account. Notice of the assignment and security interest granted to
Beneficiary herein may be delivered by Beneficiary at any time to the financial
institution wherein the Reserves have been established, and Beneficiary, or such
servicing entity, shall have possession of all passbooks or other evidences of
such accounts. Grantor hereby assumes all risk of loss with respect to amounts
on deposit in the Reserves, unless finally determined by a court of competent
jurisdiction to have been caused by the gross negligence or willful misconduct
of Beneficiary. Grantor hereby knowingly, voluntarily and intentionally
stipulates, acknowledges and agrees that the advancement of the funds from the
Reserves as set forth herein is at Grantor's direction and is not the exercise
by Beneficiary of any right of set-off or other remedy upon a Default or an
Event of Default. If an Event of Default shall occur hereunder or under any
other of the Loan Documents and shall be continuing, Beneficiary may, without
notice or demand on Grantor, at its option: (A) withdraw any or all of the funds
(including, without limitation, interest) then remaining in the Reserves and
apply the same, after deducting all costs and expenses of safekeeping,
collection and delivery (including, but not limited to, reasonable attorneys'
fees, costs and expenses) to the Debt or any other obligations of Grantor under
the other Loan Documents in such manner as Beneficiary shall deem appropriate in
its sole discretion, and the excess, if any, shall be paid to Grantor, (B)
exercise any and all rights and remedies of a secured party under any applicable
Uniform Commercial Code, or (C) exercise any other remedies available at law or
in equity. No such use or application of the funds contained in the Reserves
shall be deemed to cure any Default or Event of Default.

          (c) The Reserves shall not, unless otherwise explicitly required by
applicable law, be or be deemed to be escrow or trust funds, but, at
Beneficiary's option and in Beneficiary's discretion, may either be held in a
separate account or be commingled by Beneficiary with the general funds of
Beneficiary.  The Reserves are solely for the protection of Beneficiary and
entail no responsibility on Beneficiary's part beyond the payment of the
respective items for which they are held following receipt of bills, invoices or
statements therefor in accordance with the terms hereof and beyond the allowing
of due credit for the sums actually received.  Upon assignment of this Deed of
Trust by Beneficiary and assumption by assignee of Beneficiary's obligations
hereunder, any funds in the Reserves shall be turned over to the assignee and
any responsibility of Beneficiary, as assignor, with respect thereto shall
terminate.  If the funds in the applicable Reserve shall exceed the amount of
payments actually applied by Beneficiary for the purposes and items for which
the applicable Reserve is held, such excess may be credited by Beneficiary on
subsequent payments to be made hereunder or, at the option of Beneficiary,
refunded to Grantor.  If, however, the applicable Reserve shall not contain
sufficient funds to pay the sums required by the dates on which such sums are
required to be on deposit in such account, Grantor shall, within thirty (30)
days after receipt of written notice thereof, deposit

                                       17
<PAGE>

with Beneficiary the full amount of any such deficiency. If Grantor shall fail
to deposit with Beneficiary the full amount of such deficiency as provided
above, Beneficiary shall have the option, but not the obligation, to make such
deposit, and all amounts so deposited by Beneficiary, together with interest
thereon at the Default Interest Rate from the date so deposited by Beneficiary
until actually paid by Grantor, shall be immediately paid by Grantor on demand
and shall be secured by this Deed of Trust and by all of the other Loan
Documents securing all or any part of the Debt. If there is an Event of Default
under this Deed of Trust that shall have occurred and be continuing, Beneficiary
may, but shall not be obligated to, apply at any time the balance then remaining
in any or all of the Reserves against the Debt in whatever order Beneficiary
shall subjectively determine. No such application of any or all of the Reserves
shall be deemed to cure any Event of Default. Upon full payment of the Debt in
accordance with its terms or at such earlier time as Beneficiary may elect, the
balance of any or all of the Reserves then in Beneficiary's possession shall be
paid over to Grantor and no other party shall have any right or claim thereto.

     1.9  Casualty and Condemnation. Grantor shall give Beneficiary prompt
          -------------------------
written notice of the occurrence of any casualty affecting, or the institution
of any proceedings for eminent domain or for the condemnation of, the Trust
Property or any portion thereof. Subject to the following sentence, all
insurance proceeds on the Trust Property, and all causes of action, claims,
compensation, awards and recoveries for any damage, condemnation or taking of
all or any part of the Trust Property or for any damage or injury to it for any
loss or diminution in value of the Trust Property, shall be paid to Beneficiary.
Beneficiary may participate in any suits or proceedings relating to any such
proceeds, causes of action, claims, compensation, awards or recoveries, and
Beneficiary is hereby authorized, in its own name or in Grantor's name, to
adjust any loss covered by insurance or any condemnation claim or cause of
action, and to settle or compromise any claim or cause of action in connection
therewith, and Grantor shall from time to time deliver to Beneficiary any
instruments required to permit such participation; provided, however, that, so
                                                   --------- -------
long as no Event of Default shall have occurred and be continuing, Beneficiary
shall not have the right to participate in the adjustment of any loss or the
receipt of any sums hereunder which is not in excess of the lesser of (i) five
percent (5%) of the then outstanding principal balance of the Note and (ii)
$200,000, and Grantor may receive such funds from any loss not in excess of the
foregoing directly to be used for repair or restoration of the Trust Property in
accordance with the terms hereof. Beneficiary shall apply any sums received by
it under this Section first to the payment of all of its costs and expenses
(including, but not limited to, reasonable legal fees and disbursements)
incurred in obtaining those sums, and then, as follows:

          (a)  In the event that less than forty percent (40%) of the
Improvements located on the Premises have been taken or destroyed, then if and
so long as:

               (1) no Event of Default has occurred and is continuing hereunder
     or under any of the other Loan Documents, and

               (2) the Trust Property can, in Beneficiary's reasonable judgment,
     with diligent restoration or repair, be returned in all material respects
     to a condition substantially the same as the condition thereof that existed
     prior to the casualty or partial

                                       18
<PAGE>

     taking causing the loss or damage within the earlier to occur of (i) nine
     (9) months after the receipt of insurance proceeds or condemnation awards
     by either Grantor or Beneficiary, and (ii) sixty (60) days prior to the
     stated maturity date of the Note, and

               (3) all necessary governmental approvals can be obtained to allow
     the rebuilding and reoccupancy of the Trust Property as described in

     Section (a)(2) above, and
     --------------

               (4) there are sufficient sums available (through insurance
     proceeds or condemnation awards and contributions by Grantor or otherwise,
     the full amount of which shall, at Beneficiary's option, have been
     deposited with Beneficiary) for such restoration or repair (including,
     without limitation, for any reasonable costs and expenses of Beneficiary to
     be incurred in administering said restoration or repair) and for payment of
     principal and interest to become due and payable under the Note during such
     restoration or repair, and

               (5) the economic feasibility of the Improvements after such
     restoration or repair will be such that income from their operation is
     reasonably anticipated to be sufficient to pay operating expenses of the
     Trust Property and debt service on the Debt in full with the same coverage
     ratio considered by Beneficiary in its determination to make the loan
     secured hereby, and

               (6) in the event that the insurance proceeds or condemnation
     awards received as a result of such casualty or partial taking exceed the
     lesser of (i) five percent (5%) of the then outstanding principal balance
     of the Note and (ii) $200,000, Grantor shall have delivered to Beneficiary,
     at Grantor's sole cost and expense, an appraisal report in form and
     substance reasonably satisfactory to Beneficiary appraising the value of
     the Trust Property as proposed to be restored or repaired to be not less
     than the appraised value of the Trust Property considered by Beneficiary in
     its determination to make the loan secured hereby, and

               (7) Grantor so elects by written notice delivered to Beneficiary
     within fifteen (15) days after settlement of the aforesaid insurance or
     condemnation claim, then, Beneficiary shall, solely for the purposes of
     such restoration or repair, advance so much of the remainder of such sums
     as may be required for such restoration or repair, and any funds deposited
     by Grantor therefor, to Grantor in the manner and upon such terms and
     conditions as would be required by a prudent interim construction lender,
     including, but not limited to, the reasonable prior approval by Beneficiary
     of plans and specifications, contractors and form of construction contracts
     and the furnishing to Beneficiary of permits, bonds, lien waivers,
     invoices, receipts and affidavits from contractors and subcontractors, in
     form and substance reasonably satisfactory to Beneficiary in its
     discretion, with any remainder being applied by Beneficiary for payment of
     the Debt in whatever order Beneficiary directs in its absolute discretion.

          (b)  In all other cases, namely, in the event that forty percent (40%)
or more of the Improvements located on the Premises have been taken or destroyed
or Grantor does not

                                       19
<PAGE>

elect to restore or repair the Trust Property pursuant to clause (a) above or
                                                          ----------
otherwise fails to meet the requirements of clause (a) above, then, in any of
                                            ----------
such events, Beneficiary shall elect, in Beneficiary's absolute discretion and
without regard to the adequacy of Beneficiary's security, to do either of the
following: (1) apply the remainder of such sums received pursuant to this
Section to the payment of the Debt in whatever order Beneficiary directs in its
absolute discretion (and, if required under applicable law so to do, to
accelerate the maturity date of the Note and declare any and all of the Debt to
be immediately due and payable), with any remainder being paid to Grantor, or
(2) notwithstanding that Grantor may have elected not to restore or repair the
Trust Property pursuant to the provisions of Section 1.9(a)(7) above, require
                                             -----------------
Grantor to restore or repair the Trust Property in the manner and upon such
terms and conditions as would be required by a prudent interim construction
lender, including, but not limited to, the deposit by Grantor with Beneficiary,
within thirty (30) days after demand therefor, of any deficiency reasonably
determined by Beneficiary to be necessary in order to assure the availability of
sufficient funds to pay for such restoration or repair, including Beneficiary's
costs and expenses to be incurred in connection therewith, the reasonable prior
approval by Beneficiary of plans and specifications, contractors and form of
construction contracts and the furnishing to Beneficiary of permits, bonds, lien
waivers, invoices, receipts and affidavits from contractors and subcontractors,
in form and substance reasonably satisfactory to Beneficiary in its discretion,
and apply the remainder of such sums toward such restoration and repair, with
any balance thereafter remaining being applied by Beneficiary for payment of the
Debt in whatever order Beneficiary directs in its absolute discretion.
Notwithstanding Section 1.9(b)(1) hereof, Beneficiary shall not accelerate the
                -----------------
maturity date of the Note pursuant to Section 1.9(b)(1) if the Trust Property is
                                      -----------------
released from the lien of this Deed of Trust in connection with a Defeasance (as
defined in the Note) in accordance with Section 1.5(d) of the Note.
                                        --------------

Any reduction in the Debt resulting from Beneficiary's application of any sums
received by it hereunder shall take effect only when Beneficiary actually
receives such sums and elects to apply such sums to the Debt and, in any event,
the unpaid portion of the Debt shall remain in full force and effect and Grantor
shall not be excused in the payment thereof.  Partial payments received by
Beneficiary, as described in the preceding sentence, shall be applied first to
the final payment due under the Note and thereafter to installments due under
the Note in the inverse order of their due date.  If Grantor elects or
Beneficiary directs Grantor to restore or repair the Trust Property after the
occurrence of a casualty or partial taking of the Trust Property as provided
above, Grantor shall promptly and diligently, at Grantor's sole cost and expense
and regardless of whether the insurance proceeds or condemnation award, as
appropriate, shall be sufficient for the purpose, restore, repair, replace and
rebuild the Trust Property as nearly as practicable to its value, condition and
character immediately prior to such casualty or partial taking in accordance
with the foregoing provisions and Grantor shall pay to Beneficiary all costs and
expenses of Beneficiary incurred in administering said rebuilding, restoration
or repair, provided that Beneficiary makes such proceeds or award available for
such purpose.  Grantor agrees to execute and deliver from time to time such
further instruments as may be requested by Beneficiary to confirm the foregoing
assignment to Beneficiary of any award, damage, insurance proceeds, payment or
other compensation.  Beneficiary is hereby irrevocably constituted and appointed
the attorney-in-fact of Grantor (which power of attorney shall be irrevocable so
long as any portion of the Debt is outstanding, shall be deemed coupled with an
interest, shall survive the voluntary or involuntary dissolution of Grantor and
shall not be affected by any disability or incapacity

                                       20
<PAGE>

suffered by Grantor subsequent to the date hereof), with full power of
substitution, subject to the terms of this Section, to settle for, collect and
receive any such awards, damages, insurance proceeds, payments or other
compensation from the parties or authorities making the same, to appear in and
prosecute any proceedings therefor and to give receipts and acquittances
therefor.

     1.10  Construction Liens.  Grantor shall pay when due all claims and
           ------------------
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Premises or the Improvements; provided, however,
                                                          --------  -------
that, Grantor shall have the right to contest in good faith any such claim or
demand, so long as it does so diligently, by appropriate proceedings and without
prejudice to Beneficiary and provided that neither the Trust Property nor any
interest therein would be in any danger of sale, loss or forfeiture as a result
of such proceeding or contest. In the event Grantor shall contest any such claim
or demand, Grantor shall promptly notify Beneficiary of such contest and
thereafter shall, upon Beneficiary's reasonable request, if an Event of Default
shall have occurred and is continuing, promptly provide a bond, cash deposit or
other security sufficient to pay such claim to Beneficiary to protect
Beneficiary's interest and security should the contest be unsuccessful. If
Grantor shall fail to immediately discharge or provide security against any such
claim or demand as aforesaid, Beneficiary may do so and any and all expenses
incurred by Beneficiary, together with interest thereon at the Default Interest
Rate from the date incurred by Beneficiary until actually paid by Grantor, shall
be immediately paid by Grantor on demand and shall be secured by this Deed of
Trust and by all of the other Loan Documents securing all or any part of the
Debt.

     1.11  Rents and Profits.  As additional and collateral security for the
           -----------------
payment of the Debt and cumulative of any and all rights and remedies herein
provided for, Grantor hereby absolutely and presently assigns to Beneficiary
Grantor's right, title and interest (if any) in all existing and future Rents
and Profits. Grantor hereby grants to Beneficiary the sole, exclusive and
immediate right, without taking possession of the Trust Property, to demand,
collect (by suit or otherwise), receive and give valid and sufficient receipts
for any and all of said Rents and Profits, for which purpose Grantor does hereby
irrevocably make, constitute and appoint Beneficiary its attorney-in-fact with
full power to appoint substitutes or a trustee to accomplish such purpose (which
power of attorney shall be irrevocable so long as any portion of the Debt is
outstanding, shall be deemed to be coupled with an interest, shall survive the
voluntary or involuntary dissolution of Grantor and shall not be affected by any
disability or incapacity suffered by Grantor subsequent to the date hereof).
Beneficiary shall be without liability for any loss which may arise from a
failure or inability to collect Rents, proceeds or other payments. However,
until the occurrence and continuance of an Event of Default under this Deed of
Trust or under any other of the Loan Documents, Grantor shall have a license to
collect, receive, use and enjoy the Rents and Profits when due and prepayments
thereof for not more than one (1) month prior to due date thereof, except as
otherwise may be expressly permitted or provided in the Percentage Lease. Upon
the occurrence and continuance of an Event of Default, Grantor's license shall
automatically terminate without notice to Grantor and Beneficiary may
thereafter, without taking possession of the Trust Property, collect the Rents
and Profits itself or by an agent or receiver. From and after the termination of
such license, Grantor shall be the agent of Beneficiary in collection of the
Rents and Profits, and all of the Rents and Profits so collected by Grantor
shall be held in trust by Grantor for the sole and exclusive benefit of
Beneficiary, and Grantor shall, within three (3) business days after receipt of
any Rents and Profits, pay the same

                                       21
<PAGE>

to Beneficiary to be applied by Beneficiary as hereinafter set forth. Neither
the demand for or collection of Rents and Profits by Beneficiary shall
constitute any assumption by Beneficiary of any obligations under any agreement
relating thereto. Beneficiary is obligated to account only for such Rents and
Profits as are actually collected or received by Beneficiary. Grantor
irrevocably agrees and consents that the respective payors of the Rents and
Profits shall, upon demand and notice from Beneficiary of the occurrence and
continuance of an Event of Default, pay said Rents and Profits to Beneficiary
without liability to determine the actual existence of any Event of Default
claimed by Beneficiary. Grantor hereby waives any right, claim or demand which
Grantor may now or hereafter have against any such payor by reason of such
payment of Rents and Profits to Beneficiary, and any such payment shall
discharge such payor's obligation to make such payment to Grantor. All Rents
collected or received by Beneficiary may be applied against all expenses of
collection, including, without limitation, reasonable attorneys' fees, against
costs of operation and management of the Trust Property and against the Debt, in
whatever order or priority as to any of the items so mentioned as Beneficiary
directs in its sole subjective discretion and without regard to the adequacy of
its security. Neither the exercise by Beneficiary of any rights under this
Section nor the application of any Rents to the Debt shall cure or be deemed a
waiver of any Event of Default. The assignment of Rents and Profits hereinabove
granted shall continue in full force and effect during any period of foreclosure
or redemption with respect to the Trust Property. Grantor has executed an
Assignment of Leases and Rents dated of even date herewith (the "Assignment") in
                                                                 ----------
favor of Beneficiary covering all of the right, title and interest of Grantor,
as landlord, lessor or licensor, in and to any Leases. All rights and remedies
granted to Beneficiary under the Assignment shall be in addition to and
cumulative of all rights and remedies granted to Beneficiary hereunder.

     1.12  Percentage Lease.
           ----------------

           (a) Grantor represents that the Percentage Lease is the only Lease
affecting the Trust Property and that as of the date hereof the Percentage Lease
has at least eight (8) years remaining on its term and is unmodified and in full
force and effect, and to Grantor's best knowledge, no event of default has
occurred and is continuing under the Percentage Lease.  The Percentage Lease is
and shall remain subordinate to the Deed of Trust (either by the terms of the
Percentage Lease or pursuant to a subordination agreement).  Either party to the
Percentage Lease may terminate the Percentage Lease upon an Event of Default
under the Loan Documents.  Grantor shall cause the lessee under the Percentage
Lease to comply with the terms and conditions of the Percentage Lease.

           (b) Grantor shall not do or suffer to be done any act, or omit to
take any action, that might result in a default by the landlord, lessor or
licensor under the Percentage Lease or allow the tenant thereunder to withhold
payment of rent or cancel or terminate same and shall not further assign any
such Lease or any such Rents and Profits. Grantor, at no cost or expense to
Beneficiary, shall enforce, short of termination, the performance and observance
of each and every condition and covenant of each of the parties under the
Percentage Lease and Grantor shall not anticipate, discount, release, waive,
compromise or otherwise discharge any rent payable under any of the Leases.
Grantor shall not, without the prior written consent of Beneficiary, modify the
Percentage Lease, terminate or accept the surrender of the Percentage Lease,
waive or release any other party from the performance or observance of any
obligation or

                                       22
<PAGE>

condition under the Percentage Lease except in the normal course of business in
a manner which is consistent with sound and customary leasing and management
practices for similar properties in the community in which the Trust Property is
located.  Beneficiary acknowledges that Grantor shall be permitted to terminate
or modify the Percentage Lease in connection with the REIT Modernization Act in
order for Grantor to avail itself of certain beneficial provisions therein
and/or as contemplated by Section 3.5 and Section 3.6 of the Percentage Lease.
Grantor shall not permit the prepayment of any rents under the Percentage Lease
for more than one (1) month prior to the due date thereof, except as may be
expressly permitted or provided therein.

           (c) Upon the occurrence and continuance of an Event of Default under
this Deed of Trust, whether before or after the whole principal sum secured
hereby is declared to be immediately due or whether before or after the
institution of legal proceedings to foreclose this Deed of Trust, forthwith,
upon demand of Beneficiary, Grantor shall surrender to Beneficiary, and
Beneficiary shall be entitled to take actual possession of, the Trust Property
or any part thereof personally, or by its agent or attorneys.  The power and
authority hereby given and granted by Grantor to Beneficiary shall be deemed to
be coupled with an interest, shall not be revocable by Grantor so long as any
portion of the Debt is outstanding, shall survive the voluntary or involuntary
dissolution of Grantor and shall not be affected by any disability or incapacity
suffered by Grantor subsequent to the date hereof.  In connection with any
action taken by Beneficiary pursuant to this Section, Beneficiary shall not be
liable for any loss sustained by Grantor resulting from any act or omission of
Beneficiary in managing the Trust Property, nor shall Beneficiary be obligated
to perform or discharge any obligation, duty or liability under the Percentage
Lease covering the Trust Property (if not terminated by Beneficiary) or any part
thereof or under or by reason of this instrument or the exercise of rights or
remedies hereunder.  Grantor shall, and does hereby, indemnify Beneficiary for,
and hold Beneficiary harmless from, any and all claims, actions, demands,
liabilities, loss or damage which may or might be incurred by Beneficiary under
the Percentage Lease or under this Deed of Trust or by the exercise of rights or
remedies hereunder and from any and all claims and demands whatsoever which may
be asserted against Beneficiary by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms, covenants or
agreements contained in the Percentage Lease other than those finally determined
by a court of competent jurisdiction to have resulted solely from the gross
negligence or willful misconduct of Beneficiary.  Should Beneficiary incur any
such liability, the amount thereof, including, without limitation, costs,
expenses and reasonable attorneys' fees, together with interest thereon at the
Default Interest Rate from the date incurred by Beneficiary until actually paid
by Grantor, shall be immediately due and payable to Beneficiary by Grantor on
demand and shall be secured hereby and by all of the other Loan Documents
securing all or any part of the Debt.  Nothing in this Section shall impose on
Beneficiary any duty, obligation or responsibility for the control, care,
management or repair of the Trust Property, or for the carrying out of any of
the terms and conditions of the Percentage Lease, nor shall it operate to make
Beneficiary responsible or liable for any waste committed on the Trust Property
by the tenant thereunder or by any other parties or for any dangerous or
defective condition of the Trust Property, or for any negligence in the
management, upkeep, repair or control of the Trust Property.  Grantor hereby
assents to, ratifies and confirms any and all actions of Beneficiary with
respect to the Trust Property taken under this Section.

                                       23
<PAGE>

     1.13  Alienation and Further Encumbrances.
           -----------------------------------

           (a) Grantor acknowledges that Beneficiary has relied upon the
principals of Grantor and their experience in owning and operating the Trust
Property and properties similar to the Trust Property in connection with the
closing of the loan evidenced by the Note.  Accordingly, except as specifically
allowed hereinbelow in this Section and notwithstanding anything to the contrary
contained in Section 4.6 hereof, in the event that the Trust Property or any
             -----------
part thereof or interest therein shall be sold, conveyed, disposed of,
alienated, hypothecated, leased (except pursuant to the Percentage Lease and
except for condemnation), assigned, pledged, mortgaged, further encumbered or
otherwise transferred or Grantor shall be divested of its title to the Trust
Property or any interest therein, in any manner or way, whether voluntarily or
involuntarily, without the prior written consent of Beneficiary being first
obtained, which consent may be withheld in Beneficiary's sole discretion, then
the same shall constitute an Event of Default and Beneficiary shall have the
right, at its option, to declare any or all of the Debt, irrespective of the
maturity date specified in the Note, immediately due and payable and to
otherwise exercise any of its other rights and remedies contained in Article III
                                                                     -----------
hereof.  For the purposes of this Section:  (i) in the event either Grantor or
any of its general partners or members is a corporation or trust, the sale,
conveyance, transfer or disposition of more than 50% of the issued and
outstanding capital stock of Grantor or any of its general partners or members
or of the beneficial interest of such trust (or the issuance of new shares of
capital stock in Grantor or any of its general partners or managing members so
that immediately after such issuance (in one or a series of transactions) the
total capital stock then issued and outstanding is more than 150% of the total
immediately prior to such issuance) shall be deemed to be a transfer of an
interest in the Trust Property; and (ii) in the event Grantor or any general
partner or managing member of Grantor is a limited or general partnership, a
joint venture or a limited liability company, a change of more than 50% in the
ownership interests in any general partner, any joint venturer or any managing
member, either voluntarily, involuntarily or otherwise, or the sale, conveyance,
transfer, disposition or alienation of more than 50% of, or the hypothecation or
encumbering of all or any portion of the interest of any such general partner,
joint venturer or managing member in Grantor or such general partner or managing
member (whether in the form of a beneficial or partnership interest or in the
form of a power of direction, control or management, or otherwise), shall be
deemed to be a transfer of an interest in the Trust Property. Notwithstanding
the foregoing, however, (i) limited partnership interests in Grantor or in any
general partner or member of Grantor shall be freely transferable without the
consent of Beneficiary, (ii) any involuntary transfer caused by the death of
Grantor or any general partner, shareholder, joint venturer, member or
beneficial owner of a trust shall not be an Event of Default under this Deed of
Trust so long as Grantor is reconstituted, if required, following such death and
so long as those persons primarily responsible for the management of the Trust
Property and Grantor remain unchanged as a result of such death or any
replacement management is approved by Beneficiary, (iii) shares in the REIT may
be offered and sold to investors in an offering of such shares which has been
registered with the Securities and Exchange Commission, or is exempt from
registration, without regard to the limits referred to above and (iv) gifts for
estate planning purposes of any individual's interests in Grantor or in any of
Grantor's general partners, managing members or joint venturers to the spouse or
any lineal descendant of such individual, or to a trust for the benefit of any
one or more of such individual, spouse or lineal descendant, shall not be an
Event of Default under this Deed of Trust so long as Grantor is reconstituted,
if

                                       24
<PAGE>

required, following such gift and so long as those persons primarily
responsible for the management of the Trust Property and Grantor remain
unchanged following such gift or any replacement management is approved by
Beneficiary.

           (b) Notwithstanding the foregoing provisions of this Section,
Beneficiary shall consent to an unlimited number of sales, conveyances or
transfers of the Trust Property in its entirety (hereinafter, each a "Sale"), to
                                                                      ----
any person or entity provided that each of the following terms and conditions
are satisfied as to each Sale:

               (1) No Default and no Event of Default is then continuing
     hereunder or under any of the other Loan Documents;

               (2) Grantor, or its successor pursuant to a prior Sale under the
     terms and conditions hereof, gives Beneficiary written notice of the terms
     of such prospective Sale not less than sixty (60) days before the date on
     which such Sale is scheduled to close and, concurrently therewith, gives
     Beneficiary all such information concerning the proposed transferee of the
     Trust Property (hereinafter, "Buyer") as Beneficiary would require in
                                   -----
     evaluating an initial extension of credit to a borrower under a loan
     comparable to the Loan and pays to Beneficiary a non-refundable application
     fee in the amount of $5,000.  Beneficiary shall have the right to approve
     or disapprove the proposed Buyer. In determining whether to give or
     withhold its approval of the proposed Buyer, Beneficiary shall consider the
     Buyer's experience and track record in owning and operating facilities
     similar to the Trust Property, the Buyer's financial strength, the Buyer's
     general business standing and the Buyer's relationships and experience with
     contractors, vendors, tenants, lenders and other business entities;
     provided, however, that, notwithstanding Beneficiary's agreement to
     --------  -------
     consider the foregoing factors in determining whether to give or withhold
     such approval, such approval shall be given or withheld based on what
     Beneficiary reasonably determines to be commercially reasonable in
     Beneficiary's sole discretion and, if given, may be given subject to such
     reasonable conditions as Beneficiary may deem appropriate;

               (3) Grantor, or its successor pursuant to a prior Sale under the
     terms and conditions hereof, pays Beneficiary, concurrently with the
     closing of such Sale, a non-refundable assumption fee in an amount equal to
     all out-of-pocket costs and expenses, including, without limitation,
     reasonable attorneys' fees, incurred by Beneficiary in connection with the
     Sale, plus an amount equal to three quarters of one percent (0.75%) of the
     then outstanding principal balance of the Note;

               (4) The Buyer assumes and agrees to pay the Debt (or ratifies
     such obligation) subject to the provisions of Section 4.27 hereof and,
                                                   ------------
     prior to or concurrently with the closing of such Sale, the Buyer executes,
     without any cost or expense to Beneficiary, such assumption (or
     ratification, as applicable) documents and agreements as Beneficiary shall
     reasonably require to evidence and effectuate said assumption and delivers
     such legal opinions as Beneficiary may reasonably require;

                                       25
<PAGE>

               (5) The current Indemnitor or its successor ratifies its
     obligations under its guaranty or indemnity agreement or a party associated
     with the Buyer approved by Beneficiary in its sole discretion assumes the
     obligations of the current Indemnitor under its guaranty or indemnity
     agreement and such party associated with the Buyer executes, without any
     cost or expense to Beneficiary, a new guaranty or indemnity agreement in
     form and substance reasonably satisfactory to Beneficiary and delivers such
     legal opinions as Beneficiary may reasonably require;

               (6) Upon request if reasonably required, Grantor, or its
     successor pursuant to the proposed or any prior Sale under the terms and
     conditions hereof, and the Buyer execute, without any cost or expense to
     Beneficiary, new financing statements or financing statement amendments and
     any additional documents reasonably requested by Beneficiary;

               (7) Upon request if reasonably required, Grantor, or its
     successor pursuant to the proposed or any prior Sale under the terms and
     conditions hereof, delivers to Beneficiary, without any cost or expense to
     Beneficiary, such endorsements to Beneficiary's title insurance policy,
     hazard insurance policy endorsements or certificates as Beneficiary may
     deem reasonably necessary at the time of the Sale, all in form and
     substance reasonably satisfactory to Beneficiary, including, without
     limitation, an endorsement or endorsements to Beneficiary's title insurance
     policy insuring the lien of this Deed of Trust, extending the effective
     date of such policy to the date of execution and delivery (or, if later, of
     recording) of the assumption agreement referenced above in subparagraph (4)
                                                                ----------------
     of this Section, with no additional exceptions added to such policy except
     those approved by Beneficiary in its discretion, and insuring that fee
     simple title to the Real Property is vested in the Buyer;

               (8) Grantor, or its successor pursuant to a prior Sale under the
     terms and conditions hereof, executes and delivers to Beneficiary, without
     any cost or expense to Beneficiary, a release of Beneficiary, its officers,
     directors, employees and agents, from all claims and liability relating to
     the transactions evidenced by the Loan Documents, through and including the
     date of the closing of the Sale, which agreement shall be in form and
     substance reasonably satisfactory to Beneficiary and shall be binding upon
     the Buyer;

               (9) Subject to the provisions of Section 4.27 hereof, such Sale
                                                ------------
     is not construed so as to relieve Grantor, or its successor pursuant to the
     proposed or any prior Sale under the terms and conditions hereof, of any
     personal liability under the Note or any of the other Loan Documents for
     any acts or events occurring or obligations arising prior to or
     simultaneously with the closing of such Sale, whether or not same is
     discovered prior or subsequent to the closing of such Sale, and Grantor, or
     its successor pursuant to the proposed or any prior Sale under the terms
     and conditions hereof, executes, without any cost or expense to
     Beneficiary, such documents and agreements as Beneficiary shall reasonably
     require to evidence and effectuate the ratification of said personal
     liability.  Grantor shall be released from and relieved of any personal
     liability under the Note or any of the other Loan Documents for any acts or
     events occurring or

                                       26
<PAGE>

     obligations arising after the closing of such Sale which are not caused by
     or arising out of any acts or events occurring or obligations arising prior
     to or simultaneously with the closing of such Sale;

               (10) Such Sale is not construed so as to relieve any current
     Indemnitor or its successor of its obligations under any guaranty or
     indemnity agreement for any acts or events occurring or obligations arising
     prior to or simultaneously with the closing of such Sale, and each such
     current Indemnitor executes, without any cost or expense to Beneficiary,
     such documents and agreements as Beneficiary shall reasonably require to
     evidence and effectuate the ratification of each such guaranty and
     indemnity agreement.  Each such current Indemnitor shall be released from
     and relieved of any of its obligations under any guaranty or indemnity
     agreement executed in connection with the loan secured hereby for any acts
     or events occurring or obligations arising after the closing of such Sale
     which are not caused by or arising out of any acts or events occurring or
     obligations arising prior to or simultaneously with the closing of such
     Sale;

               (11) The Buyer shall furnish, if the Buyer is a corporation,
     partnership or other entity, all documents evidencing the Buyer's capacity
     and good standing, and the qualification of the signers to execute the
     assumption of the indebtedness secured hereby, which documents shall
     include, but not in any way be limited to, certified copies of all
     documents relating to the organization and formation of the Buyer and of
     the entities, if any, which are partners of the Buyer. The Buyer and such
     constituent partners, members or shareholders of Buyer (as the case may
     be), as Beneficiary may require, shall be single-purpose, single-asset
     "bankruptcy remote" entities, whose formation documents shall be approved
     by counsel to Beneficiary.  An individual recommended by the Buyer and
     approved by Beneficiary shall serve as an Independent Director (as defined
     in Section 1.33(z) of this Deed of Trust) of the Buyer (if the Buyer is a
        ---------------
     corporation) or the Buyer's corporate general partner or an independent
     member or, in Beneficiary's discretion, manager of Buyer if the Buyer is a
     limited liability company.  Unanimous consent of the board of directors
     (including the Independent Director) shall be required for, among other
     things, any merger, consolidation, dissolution, bankruptcy or insolvency of
     any such constituent partner, member or shareholder of the Buyer (as the
     case may be) or of the Buyer;

               (12) The Buyer, if required by Beneficiary and, in the case of
     clauses (i) and (ii) herein only if the outstanding principal balance of
     the Loan is in excess of $7,500,000, shall furnish an opinion of counsel
     satisfactory to Beneficiary and its counsel (i) that the Buyer's formation
     documents provide for the matters described in subparagraph (11) of this
                                                    -----------------
     Section 1.13(b), (ii) that the assets of the Buyer will not be consolidated
     ---------------
     with the assets of any other entity (including the Buyer's general partner
     or members, if any), as applicable, having an interest in, or affiliation
     with, the Buyer, in the event of bankruptcy or insolvency of any such
     entity or such general partner or members, (iii) that the assumption of the
     indebtedness evidenced hereby has been duly authorized, executed and
     delivered, and that the Loan Documents are valid, binding and enforceable
     against the Buyer in accordance with their terms, (iv) that the Buyer and
     any entity which is a controlling stockholder, general partner or member of
     Buyer, have been duly

                                       27
<PAGE>

     organized, and are in existence and good standing, and (v) with respect to
     such other matters, as Beneficiary may request; and

               (13) If required under the operative documents with respect to a
     Secondary Market Transaction (as hereinafter defined), Beneficiary shall
     have received evidence in writing from the Rating Agency to the effect that
     the proposed transfer will not result in a re-qualification, reduction,
     downgrade or withdrawal of any rating initially assigned or to be assigned
     in a Secondary Market Transaction or, if no such rating has been issued, in
     Beneficiary's good faith judgment, such transfer shall not have an adverse
     effect on the level of rating obtainable in connection with the loan
     secured hereby.

     1.14  Payment of Utilities, Assessments, Charges, Etc. Grantor shall pay
           ------------------------------------------------
when due all utility charges which are incurred by Grantor or which may become a
charge or lien against any portion of the Trust Property for gas, electricity,
water and sewer services furnished to the Premises and/or the Improvements and
all other assessments or charges of a similar nature (excluding taxes and
assessments escrowed in the Impound Account), or assessments payable pursuant to
any restrictive covenants, whether public or private, affecting the Premises
and/or the Improvements or any portion thereof, whether or not such assessments
or charges are or may become liens thereon. Notwithstanding the foregoing,
Grantor may, in good faith, by appropriate proceedings and upon notice to
Beneficiary, contest the validity, applicability or amount of any asserted
utilities, assessments or other charges that may become a charge or lien against
any portion of the Trust Property as long as (a) such contest is diligently
pursued, (b) Beneficiary determines, in its reasonable subjective opinion, that
such contest suspends the obligation to pay such utility charges or assessments
and that non-payment of such charges or assessments will not result in the sale,
loss, forfeiture or diminution of the Trust Property or any part thereof or any
interest of Beneficiary therein, and (c) prior to the earlier of commencement of
such contest or the delinquency date of the asserted charge or assessment,
Grantor deposits the Impound Account an amount determined by Beneficiary to be
reasonably adequate to cover payment of such charge or assessment and a
reasonable additional sum to cover possible interest, costs and penalties;
provided, however, that Grantor shall promptly cause to be paid any amount
--------  -------
adjudged by a court of competent jurisdiction be due, with all interest, costs
and penalties thereon, promptly after such judgment becomes final beyond any
appeal period; and provided, further, that in any event such contest shall be
                   --------  -------
concluded and the charges or assessments shall be paid prior to the date any
writ or order is issued under which the Trust Property may be sold, lost or
forfeited.

     1.15  Access Privileges and Inspections.  Beneficiary and the agents,
           ---------------------------------
representatives and employees of Beneficiary shall, subject to the rights of
Tenants, have full and free access to the Premises and the Improvements and any
other location where books and records concerning the Trust Property are kept at
all reasonable times and, except in the event of an emergency, upon not less
than three (3) days prior notice (which notice may be telephonic) for the
purposes of inspecting the Trust Property and of examining, copying and making
extracts from the books and records of Grantor relating to the Trust Property.
Grantor shall lend assistance to all such agents, representatives and employees
of Beneficiary.

                                       28
<PAGE>

     1.16  Waste; Alteration of Improvements.  Grantor shall not commit, suffer
           ---------------------------------
or permit any waste on the Trust Property nor take any actions that might
invalidate any insurance carried on the Trust Property. Grantor shall maintain
the Trust Property in good condition and repair. No part of the Improvements may
be removed, demolished or materially altered, without the prior written consent
of Beneficiary except as provided herein. Without the prior written consent of
Beneficiary, Grantor shall not commence construction of any improvements on the
Premises other than improvements required for the maintenance or repair of the
Trust Property or as otherwise provided herein.

     1.17  Zoning.  Without the prior written consent of Beneficiary, not to be
           ------
unreasonably withheld or delayed, Grantor shall not seek, make, suffer, consent
to or acquiesce in any change in the zoning or conditions of use of the Premises
or the Improvements. Grantor shall have the same right to contest zoning,
conditions on use and other land use matters and/or any proposed changes in the
same in a manner similar to the provisions relating to the contests of
Environmental Laws as provided for in Section 1.31 hereof. Grantor shall comply
                                      ------------
with and make all payments required under the provisions of any covenants,
conditions or restrictions affecting the Premises or the Improvements. Grantor
shall comply with all existing and future requirements of all governmental
authorities having jurisdiction over the Real Property. Grantor shall keep all
licenses, permits, franchises and other approvals necessary for the operation of
the Trust Property in full force and effect. Grantor shall operate the Real
Property as a an upscale, extended stay suite hotel and incidental and ancillary
uses or other lawful use approved by Beneficiary for so long as the Debt is
outstanding. If, under applicable zoning provisions, the use of all or any part
of the Premises or the Improvements is or becomes a nonconforming use, Grantor
shall not cause or permit such use to be discontinued or abandoned without the
prior written consent of Beneficiary. Further, without Beneficiary's prior
written consent, Grantor shall not file or subject any part of the Premises or
the Improvements to any declaration of condominium or co-operative or convert
any part of the Premises or the Improvements to a condominium, co-operative or
other form of multiple ownership and governance.

     1.18  Financial Statements and Books and Records.  Grantor shall keep
           ------------------------------------------
accurate books and records of account of the Trust Property and its own
financial affairs sufficient to permit the preparation of financial statements
therefrom in accordance with generally accepted accounting principles.
Beneficiary and its duly authorized representatives shall have the right to
examine, copy and audit Grantor's records and books of account at all reasonable
times. Prior to the first Sale hereunder, and for so long as this Deed of Trust
continues in effect, Grantor shall provide to Beneficiary, in addition to any
other financial statements required hereunder or under any of the other Loan
Documents, the following financial statements and information, all of which must
be certified to Beneficiary as being true and correct by the chief financial
officer of the REIT, and, with respect to the financial statements and
information set forth in subsection (e) hereof, audited by an independent
certified public accountant, be prepared in accordance with generally accepted
accounting principles consistently applied and be in form and substance
acceptable to Beneficiary:

          (a) monthly balance sheets and statement of operations for the Trust
Property, within thirty (30) days after the end of each of the first (1st)
twelve (12) calendar months following the date hereof; and

                                       29
<PAGE>

          (b) quarterly balance sheets and statement of operations for the Trust
Property, within thirty (30) days after the end of each March, June, September
and December commencing with the first (1st) of such months to occur following
the first (1st) anniversary of the date hereof;

          (c) copy of the REIT's 10-Q as filed with the Securities and Exchange
Commission, within forty-five (45) days after the end of each calendar quarter
following the date hereof;

          (d) annual balance sheets and statement of operations for the Trust
Property;

          (e) the REIT's annual financial statements, within ninety (90) days
after the end of each fiscal year of the REIT;

          (f) annual occupancy summary for the Real Property setting forth the
occupancy rates, average daily room rates and room revenues for each month of
the preceding calendar year, as well as annual averages of the same, and such
other information as may customarily be reflected thereon or reasonably
requested by Beneficiary.

     Following the first Sale hereunder, and for so long as this Deed of Trust
continues in effect, Grantor shall provide to Beneficiary, in addition to any
other financial statements required hereunder or under any of the other Loan
Documents, the following financial statements and information, all of which must
be certified to Beneficiary as being true and correct by Grantor or the person
or entity to which they pertain, as applicable, and, with respect to the
financial statements and information set forth in subsection (d) hereof, audited
by an independent certified public accountant, be prepared in accordance with
generally accepted accounting principles consistently applied and be in form and
substance acceptable to Beneficiary:

          (a) copies of all tax returns filed by Grantor, within thirty (30)
days after the date of filing;

          (b) monthly operating statements for the Trust Property, within
fifteen (15) days after the end of each of the first (1st) twelve (12) calendar
months following the date hereof; and

          (c) quarterly operating statements for the Trust Property, within
thirty (30) days after the end of each March, June, September and December
commencing with the first (1st) of such months to occur following the first
(1st) anniversary of the date hereof;

          (d) annual balance sheets for the Trust Property and annual financial
statements for Grantor, each principal or general partner in Grantor, and each
Indemnitor, within ninety (90) days after the end of each calendar year;

          (e) annual occupancy summary for the Trust Property setting forth the
occupancy rates, average daily room rates and room revenues for each month of
the preceding

                                       30
<PAGE>

calendar year, as well as annual averages of the same, and such other
information as may customarily be reflected thereon or reasonably requested by
Beneficiary; and

          (f) such other information with respect to the Trust Property,
Grantor, the principals or general partners in Grantor, and each Indemnitor,
which may be reasonably requested from time to time by Beneficiary, within a
reasonable time after the applicable request.

     If any of the aforementioned materials are not furnished to Beneficiary
within the applicable time periods or Beneficiary is dissatisfied with the
contents of any of the foregoing and has notified Grantor of its
dissatisfaction, in addition to any other rights and remedies of Beneficiary
contained herein, Beneficiary shall have the right, but not the obligation,
after Grantor's failure to cure such satisfaction within thirty (30) business
days following Grantor's receipt of such notice, to obtain the same by means of
an audit by an independent certified public accountant selected by Beneficiary,
in which event Grantor agrees to pay, or to reimburse Beneficiary for, any
expense of such audit and further agrees to provide all necessary information to
said accountant and to otherwise cooperate in the making of such audit.

     1.19  Further Documentation.  Grantor shall, on the request of Beneficiary
           ---------------------
and at the expense of Grantor: (a) promptly correct any defect, error or
omission which may be discovered in the contents of this Deed of Trust or in the
contents of any of the other Loan Documents; (b) promptly execute, acknowledge,
deliver and record or file such further instruments (including, without
limitation, further mortgages, deeds of trust, security deeds, security
agreements, financing statements, continuation statements and assignments of
rents or leases) and promptly do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Deed of
Trust and the other Loan Documents and to subject to the liens and security
interests hereof and thereof any property intended by the terms hereof and
thereof to be covered hereby and thereby, including specifically, but without
limitation, any renewals, additions, substitutions, replacements or
appurtenances to the Trust Property; (c) promptly execute, acknowledge, deliver,
procure and record or file any document or instrument (including specifically,
without limitation, any financing statement) reasonably deemed advisable by
Beneficiary to protect, continue or perfect the liens or the security interests
hereunder against the rights or interests of third persons; and (d) promptly
furnish to Beneficiary, upon Beneficiary's request, a duly acknowledged written
statement and estoppel certificate addressed to such party or parties as
directed by Beneficiary and in form and substance supplied by Beneficiary,
setting forth all amounts due under the Note, stating whether any Event of
Default has occurred hereunder and is continuing, and stating whether any
offsets or defenses exist against the Debt.

     1.20  Payment of Costs; Reimbursement to Beneficiary.  Grantor shall pay
           ----------------------------------------------
all reasonable costs and expenses of every character reasonably incurred in
connection with the closing of the loan evidenced by the Note and secured hereby
or otherwise attributable or chargeable to Grantor as the owner of the Trust
Property, including, without limitation, appraisal fees, recording fees,
documentary, stamp, mortgage or intangible taxes, brokerage fees and
commissions, title policy premiums and title search fees, uniform commercial
code/tax lien/litigation search fees, escrow fees and reasonable attorneys'
fees. If Grantor defaults in any such payment, which default is not cured within
any applicable grace or cure period, Beneficiary may, after reasonable prior
written notice to Grantor, pay the same and Grantor shall reimburse

                                       31
<PAGE>

Beneficiary on demand for all such costs and expenses incurred or paid by
Beneficiary, together with such interest thereon at the Default Interest Rate
from and after the date of Beneficiary's making such payment until reimbursement
thereof by Grantor. Any such sums disbursed by Beneficiary, together with such
interest thereon, shall be additional indebtedness of Grantor secured by this
Deed of Trust and by all of the other Loan Documents securing all or any part of
the Debt. Further, Grantor shall promptly notify Beneficiary in writing of any
litigation or threatened litigation affecting the Trust Property, or any other
demand or claim which, if enforced, could impair or threaten to impair
Beneficiary's security hereunder. Without limiting or waiving any other rights
and remedies of Beneficiary hereunder, if Grantor fails to perform any of its
covenants or agreements contained in this Deed of Trust or in any of the other
Loan Documents and such failure is not cured within any applicable grace or cure
period, or if any action or proceeding of any kind (including, but not limited
to, any bankruptcy, insolvency, arrangement, reorganization or other debtor
relief proceeding) is commenced which might adversely affect Beneficiary's
interest in the Trust Property or Beneficiary's right to enforce its security,
then Beneficiary may, at its option, with or without notice to Grantor, make any
appearances, disburse any sums and take any actions as may be necessary or
desirable to protect or enforce the security of this Deed of Trust or to remedy
the failure of Grantor to perform its covenants and agreements (without,
however, waiving any default of Grantor). Grantor agrees to pay on demand all
expenses of Beneficiary or Trustee incurred with respect to the foregoing
(including, but not limited to, reasonable fees and disbursements of counsel),
together with interest thereon at the Default Interest Rate from and after the
date on which Beneficiary or Trustee incurs such expenses until reimbursement
thereof by Grantor. Any such expenses so incurred by Beneficiary, together with
interest thereon as provided above, shall be additional indebtedness of Grantor
secured by this Deed of Trust and by all of the other Loan Documents securing
all or any part of the Debt. The necessity for any such actions and of the
amounts to be paid shall be determined by Beneficiary in its discretion.
Beneficiary is hereby empowered to enter and to authorize others to enter upon
the Trust Property or any part thereof for the purpose of performing or
observing any such defaulted term, covenant or condition without thereby
becoming liable to Grantor or any person in possession holding under Grantor.
Grantor hereby acknowledges and agrees that the remedies set forth in this
Section 1.20 shall be exercisable by Beneficiary, and any and all payments made
------------
or costs or expenses incurred by Beneficiary in connection therewith shall be
secured hereby and shall be, without demand, immediately repaid by Grantor with
interest thereon at the Default Interest Rate, notwithstanding the fact that
such remedies were exercised and such payments made and costs incurred by
Beneficiary after the filing by Grantor of a voluntary case or the filing
against Grantor of an involuntary case pursuant to or within the meaning of the
Bankruptcy Reform Act of 1978, as amended, Title 11 U.S.C., or after any similar
action pursuant to any other debtor relief law (whether statutory, common law,
case law or otherwise) of any jurisdiction whatsoever, now or hereafter in
effect, which may be or become applicable to Grantor, Beneficiary, any
Indemnitor, the Debt or any of the Loan Documents. Grantor hereby indemnifies
and holds Beneficiary harmless from and against all loss, cost and expenses with
respect to any Event of Default hereof, any liens (i.e., judgments, mechanics'
and materialmen's liens, or otherwise), charges and encumbrances filed against
the Trust Property, and from any claims and demands for damages or injury,
including claims for property damage, personal injury or wrongful death, arising
out of or in connection with any accident or fire or other casualty on the
Premises or the Improvements or any nuisance made or suffered thereon, except
those that are due to Beneficiary's gross negligence or willful

                                       32
<PAGE>

misconduct as finally determined by a court of competent jurisdiction,
including, without limitation, in any case, reasonable attorneys' fees, costs
and expenses as aforesaid, whether at pretrial, trial or appellate level, and
such indemnity shall survive payment in full of the Debt. This Section shall not
be construed to require Beneficiary to incur any expenses, make any appearances
or take any actions.

     1.21  Security Interest.  This Deed of Trust is also intended to encumber
           -----------------
and create a security interest in, and Grantor hereby grants to Beneficiary a
security interest in, Grantor's right, title and interest (if any) in all sums
on deposit with Beneficiary pursuant to the provisions of Section 1.6, Section
                                                          -----------  -------
1.8 and Section 1.34 hereof or any other Section hereof or of any other Loan
---     ------------
Document and Grantor's right, title and interest (if any) in all fixtures,
chattels, accounts, equipment, inventory, contract rights, general intangibles
and other personal property included within the Trust Property, all renewals,
replacements of any of the aforementioned items, or articles in substitution
therefor or in addition thereto or the proceeds thereof (said property is
hereinafter referred to collectively as the "Collateral"), whether or not the
                                             ----------
same shall be attached to the Premises or the Improvements in any manner. It is
hereby agreed that to the extent permitted by law, all of the foregoing
Collateral consisting of furniture, fixtures and equipment ("FF&E") is to be
deemed and held to be a part of and affixed to the Premises and the
Improvements. The foregoing security interest shall also cover Grantor's
leasehold interest in any of the foregoing property which is leased by Grantor.
Grantor shall, from time to time upon the request of Beneficiary, supply
Beneficiary with a current inventory of all of the Collateral consisting of FF&E
in which Beneficiary is granted a security interest hereunder, in such detail as
Beneficiary may reasonably require. Subject to the same being taken care of by
the tenant under the Percentage Lease, Grantor shall promptly replace all of the
Collateral subject to the lien or security interest of this Deed of Trust when
worn or obsolete with Collateral comparable to the worn out or obsolete
Collateral when new and will not, without the prior written consent of
Beneficiary, remove from the Premises or the Improvements any of the Collateral
subject to the lien or security interest of this Deed of Trust except such as is
replaced by an article of similar suitability and value as above provided, owned
by Grantor free and clear of any lien or security interest except that created
by this Deed of Trust and the other Loan Documents. All of the Collateral shall
be kept at the location of the Premises except as otherwise required by the
terms of the Loan Documents. Grantor shall not use any of the Collateral in
violation of any applicable statute, ordinance or insurance policy.

     1.22  Security Agreement.  This Deed of Trust constitutes a security
           ------------------
agreement between Grantor and Beneficiary with respect to the Collateral in
which Beneficiary is granted a security interest hereunder, and, cumulative of
all other rights and remedies of Beneficiary hereunder, Beneficiary shall have
all of the rights and remedies of a secured party under any applicable Uniform
Commercial Code. Grantor hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Beneficiary the attorney-in-fact of
Grantor to execute and deliver and, if appropriate, to file with the appropriate
filing officer or office, such security agreements, financing statements,
continuation statements or other instruments as Beneficiary may request or
require in order to impose, perfect or continue the perfection of the lien or
security interest created hereby. To the extent specifically provided herein and
subject to the rights of tenant under the Percentage Lease and the terms and
provisions thereof, Beneficiary shall have the right of possession of all cash,
securities, instruments, negotiable instruments,

                                       33
<PAGE>

documents, certificates and any other evidences of cash or other property or
evidences of rights to cash rather than property, which are now or hereafter a
part of the Trust Property, and Grantor shall promptly deliver the same to
Beneficiary, endorsed to Beneficiary, without further notice from Beneficiary.
Grantor agrees to furnish Beneficiary with notice of any change in the name,
identity, organizational structure, residence, or principal place of business or
mailing address of Grantor within ten (10) days of the effective date of any
such change. Upon the occurrence of any Event of Default, Beneficiary shall have
the rights and remedies as prescribed in this Deed of Trust, or as prescribed by
general law, or as prescribed by any applicable Uniform Commercial Code, all at
Beneficiary's election. Any disposition of the Collateral following the
occurrence and continuance of an Event of Default may be conducted by an
employee or agent of Beneficiary. Any person, including both Grantor and
Beneficiary, shall be eligible to purchase any part or all of the Collateral at
any such disposition. Expenses of retaking, holding, preparing for sale, selling
or the like (including, without limitation, Beneficiary's reasonable attorneys'
fees and legal expenses), together with interest thereon at the Default Interest
Rate from the date incurred by Beneficiary until actually paid by Grantor, shall
be paid by Grantor on demand and shall be secured by this Deed of Trust and by
all of the other Loan Documents securing all or any part of the Debt.
Beneficiary shall have the right to enter upon the Premises and the Improvements
or any real property where any of the property which is the subject of the
security interest granted herein is located to take possession of, assemble and
collect the same or to render it unusable, or Grantor, upon demand of
Beneficiary, shall assemble such property and make it available to Beneficiary
at the Premises, or at a place which is mutually agreed upon or, if no such
place is agreed upon, at a place reasonably designated by Beneficiary to be
reasonably convenient to Beneficiary and Grantor. If notice is required by law,
Beneficiary shall give Grantor at least ten (10) days' prior written notice of
the time and place of any public sale of such property, or adjournments thereof,
or of the time of or after which any private sale or any other intended
disposition thereof is to be made, and if such notice is sent to Grantor, as the
same is provided for the mailing of notices herein, it is hereby deemed that
such notice shall be and is reasonable notice to Grantor. No such notice is
necessary for any such property which is perishable, threatens to decline
speedily in value or is of a type customarily sold on a recognized market. Any
sale made pursuant to the provisions of this Section shall be deemed to have
been a public sale conducted in a commercially reasonable manner if held
contemporaneously with a foreclosure sale as provided in Section 3.1(e) hereof
                                                         --------------
upon giving the same notice with respect to the sale of the Trust Property
hereunder as is required under said Section 3.1(e). Furthermore, to
                                    --------------
the extent permitted by law, in conjunction with, in addition to or in
substitution for the rights and remedies available to Beneficiary pursuant to
any applicable Uniform Commercial Code:

          (a) In the event of a foreclosure sale, the Trust Property may, at the
option of Beneficiary, be sold as a whole; and

          (b) It shall not be necessary that Beneficiary take possession of the
aforementioned Collateral, or any part thereof, prior to the time that any sale
pursuant to the provisions of this Section is conducted and it shall not be
necessary that said Collateral, or any part thereof, be present at the location
of such sale; and

                                       34
<PAGE>

          (c) Beneficiary may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Beneficiary, including the sending of notices and the conduct of the sale, but
in the name and on behalf of Beneficiary.

The name and address of Grantor (as Debtor under any applicable Uniform
Commercial Code) are:

               APPLE SUITES SPE III, INC.
               9 North Third Street
               Richmond, Virginia  23219
               Attention:  Glade M. Knight

The name and address of Beneficiary (as Secured Party under any applicable
Uniform Commercial Code) are:

               FIRST UNION NATIONAL BANK
               Commercial Real Estate Finance Group
               One First Union Center
               301 South College Street
               Mailcode NC 0166
               Loan Number:  26-5950580
               Charlotte, North Carolina  28288
               Attention:  Contract Finance

     1.23  Easements and Rights-of-Way.  Grantor shall not grant any easement
           ---------------------------
or right-of-way with respect to all or any portion of the Premises or the
Improvements without the prior written consent of Beneficiary, which shall not
be unreasonably withheld or delayed. The purchaser at any foreclosure sale
hereunder may, at its discretion, disaffirm any easement or right-of-way granted
in violation of any of the provisions of this Deed of Trust and may take
immediate possession of the Trust Property free from, and despite the terms of,
such grant of easement or right-of-way. If Beneficiary consents to the grant of
an easement or right-of-way, Beneficiary agrees to grant such consent without
charge to Grantor other than reasonable expenses, including, without limitation,
reasonable attorneys' fees, incurred by Beneficiary in the review of Grantor's
request and in the preparation of documents effecting the subordination.

     1.24  Compliance with Laws.  (a) Grantor shall at all times comply with
           --------------------
all statutes, ordinances, regulations and other governmental or quasi-
governmental requirements and private covenants now or hereafter relating to the
ownership, construction, use or operation of the Trust Property, including, but
not limited to, those concerning employment and compensation of persons engaged
in operation and maintenance of the Trust Property and any environmental or
ecological requirements, even if such compliance shall require structural
changes to the Trust Property; provided, however, that, Grantor may, upon
                               --------  -------  ----
providing Beneficiary with security satisfactory to Beneficiary, proceed
diligently and in good faith to contest the validity or applicability of any
such statute, ordinance, regulation or requirement so long as during such
contest the Trust Property shall not be subject to any lien, charge, fine or
other liability and shall not be in danger of being forfeited, lost or closed.
Grantor shall not use or occupy, or allow the

                                       35
<PAGE>

use or occupancy of, the Trust Property in any manner which violates any Lease
of or any other agreement applicable to the Trust Property or any applicable
law, rule, regulation or order or which constitutes a public or private nuisance
or which makes void, voidable or cancelable, or increases the premium of, any
insurance then in force with respect thereto.

          (b) Grantor agrees that the Trust Property shall at all times comply
to the extent applicable with the requirements of the Americans with
Disabilities Act of 1990, the Fair Housing Amendments Act of 1988 and all other
state and local laws and ordinances related to handicapped access and all rules,
regulations, and orders issued pursuant thereto including, without limitation,
the Americans with Disabilities Act Accessibility Guidelines for Buildings and
Facilities (collectively, the "Access Laws"). Grantor agrees to give prompt
                               -----------
notice to Beneficiary of the receipt by Grantor of any complaints related to
violations of any Access Laws and of the commencement of any proceedings or
investigations which relate to compliance with applicable Access Laws.

     1.25  Additional Taxes.  In the event of the enactment after the date
           ----------------
hereof of any law of the state in which the Trust Property is located or of any
other governmental entity deducting from the value of the Trust Property for the
purpose of taxing any lien or security interest thereon, or imposing upon
Beneficiary the payment of the whole or any part of the taxes or assessments or
charges or liens herein required to be paid by Grantor, or changing in any way
the laws relating to the taxation of deeds of trust, mortgages or security
agreements or debts secured by deeds of trust, mortgages or security agreements
or the interest of the beneficiary, Beneficiary or secured party in the property
covered thereby, or the manner of collection of such taxes, so as to adversely
affect this Deed of Trust or the Debt or Beneficiary, then, and in any such
event, Grantor, upon demand by Beneficiary, shall pay such taxes, assessments,
charges or liens, or reimburse Beneficiary therefor; provided, however, that if
                                                     --------  -------  ----
in the opinion of counsel for Beneficiary (a) it might be unlawful to require
Grantor to make such payment, or (b) the making of such payment might result in
the imposition of interest beyond the maximum amount permitted by law, then and
in either such event, Beneficiary may elect, by notice in writing given to
Grantor, to declare all of the Debt to be and become due and payable in full
thirty (30) days from the giving of such notice, and, in connection with the
payment of such Debt, no prepayment premium or fee shall be due unless, at the
time of such payment, an Event of Default or a Default shall have occurred and
is continuing, which Default or Event of Default is unrelated to the provisions
of this Section 1.25, in which event any applicable prepayment premium or fee in
        ------------
accordance with the terms of the Note shall be due and payable.

     1.26  Secured Indebtedness.  It is understood and agreed that this Deed of
           --------------------
Trust shall secure payment of not only the indebtedness evidenced by the Note
but also any and all substitutions, replacements, renewals and extensions of the
Note, any and all indebtedness and obligations arising pursuant to the terms
hereof and any and all indebtedness and obligations arising pursuant to the
terms of any of the other Loan Documents, all of which indebtedness is equally
secured with and has the same priority as any amounts advanced as of the date
hereof. It is agreed that any future advances made by Beneficiary to or for the
benefit of Grantor from time to time under this Deed of Trust or the other Loan
Documents and whether or not such advances are obligatory or are made at the
option of Beneficiary, or otherwise, made for any purpose, within twenty (20)
years from the date hereof, and all interest accruing thereon, shall be equally

                                       36
<PAGE>

secured by this Deed of Trust and shall have the same priority as all amounts,
if any, advanced as of the date hereof and shall be subject to all of the terms
and provisions of this Deed of Trust.

     1.27  Grantor's Waivers.  To the full extent permitted by law, Grantor
           -----------------
agrees that Grantor shall not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, moratorium or extension, or any law now or
hereafter in force providing for the reinstatement of the Debt prior to any sale
of the Trust Property to be made pursuant to any provisions contained herein or
prior to the entering of any decree, judgment or order of any court of competent
jurisdiction, or any right under any statute to redeem all or any part of the
Trust Property so sold. Grantor, for Grantor and Grantor's successors and
assigns, and for any and all persons ever claiming any interest in the Trust
Property, to the full extent permitted by law, hereby knowingly, intentionally
and voluntarily, with and upon the advice of competent counsel: (a) waives,
releases, relinquishes and forever forgoes all rights of valuation,
appraisement, stay of execution, reinstatement and notice of election or
intention to mature or declare due the Debt (except such notices as are
specifically provided for herein); (b) waives, releases, relinquishes and
forever forgoes all right to a marshaling of the assets of Grantor, including
the Trust Property, to a sale in the inverse order of alienation, or to direct
the order in which any of the Trust Property shall be sold in the event of
foreclosure of the liens and security interests hereby created and agrees that
any court having jurisdiction to foreclose such liens and security interests may
order the Trust Property sold as an entirety; and (c) waives, releases,
relinquishes and forever forgoes all rights and periods of redemption provided
under applicable law. To the full extent permitted by law, Grantor shall not
have or assert any right under any statute or rule of law pertaining to the
exemption of homestead or other exemption under any federal, state or local law
now or hereafter in effect, the administration of estates of decedents or other
matters whatever to defeat, reduce or affect the right of Beneficiary under the
terms of this Deed of Trust to a sale of the Trust Property, for the collection
of the Debt without any prior or different resort for collection, or the right
of Beneficiary under the terms of this Deed of Trust to the payment of the Debt
out of the proceeds of sale of the Trust Property in preference to every other
claimant whatever. Furthermore, Grantor hereby knowingly, intentionally and
voluntarily, with and upon the advice of competent counsel, waives, releases,
relinquishes and forever forgoes all present and future statutes of limitations
as a defense to any action to enforce the provisions of this Deed of Trust or to
collect any of the Debt to the fullest extent permitted by law. Grantor
covenants and agrees that upon the commencement of a voluntary or involuntary
bankruptcy proceeding by or against Grantor, Grantor shall not seek a
supplemental stay or otherwise shall not seek pursuant to 11 U.S.C. (S)105 or
any other provision of the Bankruptcy Reform Act of 1978, as amended, or any
other debtor relief law (whether statutory, common law, case law, or otherwise)
of any jurisdiction whatsoever, now or hereafter in effect, which may be or
become applicable, to stay, interdict, condition, reduce or inhibit the ability
of Beneficiary to enforce any rights of Beneficiary against any guarantor or
indemnitor of the secured obligations or any other party liable with respect
thereto by virtue of any indemnity, guaranty or otherwise.

     1.28  SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
           ------------------------------------------------

          (a) GRANTOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON

                                       37
<PAGE>

THE ADVICE OF COMPETENT COUNSEL, (i) SUBMITS TO PERSONAL JURISDICTION IN THE
STATE IN WHICH THE PREMISES IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY
ANY PERSON ARISING FROM OR RELATING TO THE NOTE, THIS DEED OF TRUST OR ANY OTHER
OF THE LOAN DOCUMENTS, (ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN
THE COUNTY IN WHICH THE PREMISES IS LOCATED, (iii) SUBMITS TO THE JURISDICTION
OF SUCH COURTS, AND (iv) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT
WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING
HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO BRING ANY ACTION, SUIT OR
PROCEEDING IN ANY OTHER FORUM).

          (b) GRANTOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE
DEBT OR ANY CONDUCT, ACT OR OMISSION OF BENEFICIARY OR GRANTOR, OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR
ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH BENEFICIARY OR GRANTOR, IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

     1.29  Attorney-in-Fact Provisions.  With respect to any provision of this
           ---------------------------
Deed of Trust or any other Loan Document whereby Grantor grants to Beneficiary a
power-of-attorney, provided no Event of Default has occurred and is continuing
under this Deed of Trust, Beneficiary shall first give Grantor written notice at
least five (5) days prior to acting under such power, which notice shall demand
that Grantor first take the proposed action within such period and advising
Grantor that if it fails to do so, Beneficiary will so act under the power;
provided, however, that, in the event that a Default or an Event of Default has
occurred and is continuing, or if necessary to prevent imminent death, serious
injury, damage, loss, forfeiture or diminution in value to the Trust Property or
any surrounding property or to prevent any adverse affect on Beneficiary's
interest in the Trust Property, Beneficiary may act immediately and without
first giving such notice. In such event, Beneficiary will give Grantor notice of
such action as soon thereafter as reasonably practical.

     1.30  Management.  (a) Grantor shall cause the operation and management of
           ----------
the Trust Property to be by either: (i) the lessee under and in accordance with
the terms of the Percentage Lease; (ii) Promus Hotels, Inc., its successors or
assigns, and/or Apple Suites Management, Inc., its successors or assigns, or
(iii) such other professional property management company reasonably approved by
Beneficiary. Such management by an affiliated entity or a professional property
management company shall be pursuant to a written agreement reasonably approved
by Beneficiary (any such person or entity which manages the Trust Property,
including the lessee under the Percentage Lease, is hereinafter referred to as
the "Manager", and any such written agreement approved by Beneficiary is
     -------
hereinafter referred to as the "Management Agreement").  In no event shall any
                                --------------------
Manager be removed or replaced or the terms of the

                                       38
<PAGE>

Percentage Lease or any Management Agreement modified or amended without the
prior written consent of Beneficiary, except as otherwise provided herein. In
the event (x) an Event of Default has occurred and is continuing hereunder or
under any other Loan Document or under any Management Agreement or the
Percentage Lease then in effect, which default is not cured within any
applicable grace or cure period, Beneficiary shall have the right, solely to the
extent provided therein or in any separate subordination agreement by the lessee
under the Percentage Lease or by consent agreement by Promus, to terminate, or
to direct Grantor to terminate, solely to the extent provided therein or in any
separate subordination agreement by the lessee under the Percentage Lease or by
consent agreement by Promus, the Percentage Lease or such Management Agreement
upon thirty (30) days' notice or (y) (1) of a change in control (fifty percent
or more) of the ownership of Manager or (2) in the event Manager provides cause
for termination, including, without limitation, gross negligence, willful
misconduct or fraud, Beneficiary shall have the right, solely to the extent
provided therein or in any separate subordination agreement by the lessee under
the Percentage Lease or consent agreement by Promus, to terminate, or direct
Grantor to terminate, solely to the extent provided therein or in any separate
subordination agreement by the lessee under the Percentage Lease or consent
agreement by Promus, the Percentage Lease or such Management Agreement at any
time and, in any such event of the termination of the Percentage Lease or
Management Agreement, to retain, or to direct Grantor to retain, a new lessee or
management agent reasonably approved by Beneficiary. Any such successor manager
shall be a reputable management company having a senior executive with at least
seven (7) years' experience in the management of similar extended stay suite
hotels in the state in which the Trust Property is located, shall be the manager
of at least five (5) projects comparable to the Trust Property and shall be
reasonably acceptable to Beneficiary.

          (b) Grantor shall, or shall cause the Manager to (i) operate the hotel
located on the Trust Property in accordance with the terms of the Franchise
Agreement dated June 30, 2000 between Promus Hotels, Inc. and Apple Suites
Management, Inc. (the "Franchise Agreement"); (ii) promptly perform and observe
                       -------------------
(or cause to be performed or observed) all of the covenants required to be
performed and observed by it under the Franchise Agreement and do all things
necessary to preserve and to keep unimpaired its material rights thereunder;
(iii) promptly notify Beneficiary of any Event of Default under the Franchise
Agreement of which it is aware; (iv) promptly deliver to Beneficiary a copy of
each financial statement, business plan, capital expenditures plan, notice,
report and estimate received by it under the Franchise Agreement; and (v)
promptly enforce the performance and observance of all of the covenants required
to be performed and observed by the franchisor under the Franchise Agreement.
Without Beneficiary's prior consent, Grantor shall not and shall not permit the
Lessee under the Percentage Lease or any Manager to: (i) surrender, terminate or
cancel the Franchise Agreement; (ii) reduce or consent to the reduction of the
term of the Franchise Agreement; (iii) increase or consent to the increase of
the amount of any charges under the Franchise Agreement; (iv) otherwise modify,
change, supplement, alter or amend, or waive or release any of its rights and
remedies under, the Franchise Agreement or (v) suffer or permit the occurrence
of continuance a default beyond any applicable cure period under the Franchise
Agreement (or any successor franchise agreement with a national hotel chain
approved by the Beneficiary) if such default permits the franchiser to terminate
or cancel the Franchise Agreement (or any successor franchise agreement with a
national hotel chain approved by Beneficiary);

                                       39
<PAGE>

     1.31  Hazardous Waste and Other Substances.
           ------------------------------------

          (a) Grantor hereby represents and warrants to Beneficiary that, as of
the date hereof:  (i) to the best of Grantor's knowledge, information and
belief, none of Grantor nor the Trust Property nor any Tenant at the Premises
nor the operations conducted thereon is in direct or indirect violation of or
otherwise exposed to any liability under any local, state or federal law, rule
or regulation or common law duty pertaining to human health as affected by the
environment, natural resources or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. (S)9601 et seq.), the Resource Conservation and Recovery
                               -- ---
Act of 1976 (42 U.S.C. (S)6901 et seq.), the Federal Water Pollution Control Act
                               -- ---
(33 U.S.C. (S)1251 et seq.), the Clean Air Act (42 U.S.C. (S)7401 et seq.), the
                   -- ---                                         -- ---
Emergency Planning and Community-Right-to-Know Act (42 U.S.C. (S)11001 et seq.),
                                                                       -------
the Endangered Species Act (16 U.S.C. (S)1531 et seq.), the Toxic Substances
                                              -- ---
Control Act (15 U.S.C. (S)2601 et seq.), the Occupational Safety and Health Act
                               -- ---
(29 U.S.C. (S)651 et seq.) and the Hazardous Materials Transportation Act (49
                  -------
U.S.C. (S)1801 et seq.), including any regulations promulgated pursuant to said
               -- ---
laws, all as amended from time to time ("Environmental Laws") or otherwise
                                         ------------------
exposed to any liability under any Environmental Law relating to or affecting
the Trust Property, whether or not used by or within the control of Grantor;
(ii) to the best of Grantor's knowledge, information and belief, no hazardous,
toxic or harmful substances, wastes, materials, pollutants or contaminants
(including, without limitation, materials containing more than 1% asbestos, lead
based paint, polychlorinated biphenyls, petroleum or petroleum products or
byproducts, flammable explosives, radioactive materials, infectious substances
or raw materials which include hazardous constituents) or any other substances
or materials which are included under or regulated by Environmental Laws
(collectively, "Hazardous Substances") are located on, in or under or have been
                --------------------
handled, generated, stored, processed or disposed of on or released or
discharged from the Trust Property (including underground contamination), except
for those substances used by Grantor or any Tenant in the ordinary course of
their respective businesses and in compliance with all Environmental Laws and
where such would not reasonably be expected to give rise to liability under
Environmental Laws; (iii) to the best of Grantor's knowledge, information and
belief, radon is not present at the Trust Property in excess or in violation of
any applicable thresholds or standards or in amounts that require under
applicable law disclosure to any tenant or occupant of or invitee to the Trust
Property or to any governmental agency or the general public; (iv) to the best
of Grantor's knowledge, information and belief, the Trust Property is not
subject to any private or governmental lien or judicial or administrative notice
or action arising under Environmental Laws; (v) there is no pending, nor, to
Grantor's knowledge, information or belief, threatened litigation arising under
Environmental Laws affecting Grantor or the Trust Property; (vi) to the best of
Grantor's knowledge, information and belief, there are no and have been no
existing or closed underground storage tanks or other underground storage
receptacles for Hazardous Substances or landfills or dumps on the Trust
Property; (vii) Grantor has received no notice of, and to the best of Grantor's
knowledge and belief, there exists no investigation, action, proceeding or claim
by any agency, authority or unit of government or by any third party which could
result in any liability, penalty, sanction or judgment under any Environmental
Laws with respect to any condition, use or operation of the Trust Property, nor
does Grantor know of any basis for such an investigation, action, proceeding or
claim; (viii) Grantor has received no notice

                                       40
<PAGE>

of and, to the best of Grantor's knowledge and belief, there has been no claim
by any party that any use, operation or condition of the Trust Property has
caused any nuisance or any other liability or adverse condition on any other
property, nor does Grantor know of any basis for such an investigation, action,
proceeding or claim.

          (b) Grantor has not received nor to the best of Grantor's knowledge,
information and belief has there been issued, any notice, notification, demand,
request for information, citation, summons, or order in any way relating to any
actual, alleged or potential violation or liability arising under Environmental
Laws.

          (c) To the best of Grantor's knowledge, information and belief, the
Trust Property is not listed or, to the best of Grantor's knowledge, information
and belief, proposed for listing on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal
or state list of sites requiring environmental investigation or clean-up.

          (d) Grantor shall comply with all applicable Environmental Laws.
Grantor shall keep or cause the Trust Property to be kept free from Hazardous
Substances (except those substances used by Grantor or any Tenant in the
ordinary course of their respective businesses and except in compliance with all
Environmental Laws and where such would not reasonably be expected to give rise
to liability under Environmental Laws) and in compliance with all Environmental
Laws, Grantor shall not install or use any underground storage tanks, shall
expressly prohibit the use, generation, handling, storage, production,
processing and disposal of Hazardous Substances by all Tenants in quantities or
conditions that would violate or give rise to any obligation to take remedial or
other action under any applicable Environmental Laws. Without limiting the
generality of the foregoing, during the term of this Deed of Trust, Grantor
shall not install in the Improvements or permit to be installed in the
Improvements any asbestos or asbestos-containing materials.

          (e) Grantor shall promptly notify Beneficiary if Grantor shall become
aware of (i) the actual or potential existence of any Hazardous Substances on
the Trust Property other than those occurring in the ordinary course of
Grantor's business and which do not violate, or would not otherwise give rise to
liability under Environmental Laws, (ii) any direct or indirect violation of, or
other exposure to liability under, any Environmental Laws, (iii) any lien,
action or notice affecting the Trust Property or Grantor resulting from any
violation or alleged violation of or liability or alleged liability under any
Environmental Laws, (iv) the institution of any investigation, inquiry or
proceeding concerning Grantor or the Trust Property pursuant to any
Environmental Laws or otherwise relating to Hazardous Substances, or (v) the
discovery of any occurrence, condition or state of facts which would render any
representation or warranty contained in this Deed of Trust incorrect in any
material respect if made at the time of such discovery. Immediately upon receipt
of same, Grantor, shall deliver to Beneficiary copies of any and all requests
for information, complaints, citations, summonses, orders, notices, reports or
other communications, documents or instruments in any way relating to any
actual, alleged or potential violation or liability of any nature whatsoever
arising under Environmental Laws and relating to the Trust Property or to
Grantor.  Grantor shall remedy or cause to be remedied in a timely manner (and
in any event within the time period permitted by applicable Environmental

                                       41
<PAGE>

Laws) any violation of Environmental Laws or any condition that could give rise
to liability under Environmental Laws. Without limiting the foregoing, Grantor
shall, at its own expense, take all actions as required by applicable
Environmental Laws, for the clean-up of any and all portions of the Trust
Property or other affected property, including, without limitation, all
investigative, monitoring, removal, containment and remedial actions in
accordance with all applicable Environmental Laws (and in all events in a manner
reasonably satisfactory to Beneficiary) and shall further pay or cause to be
paid, at no expense to Beneficiary, all clean-up, administrative and enforcement
costs of applicable governmental agencies which may be asserted against the
Trust Property. Notwithstanding the foregoing, Grantor may, in good faith, by
appropriate proceedings and upon notice to Beneficiary, contest the validity or
applicability of any such Environmental Laws to any portion of the Trust
Property as long as (a) such contest is diligently pursued, (b) Beneficiary
determines, in its reasonable subjective opinion, that such contest suspends the
requirement for Grantor to comply with such Environmental Laws. Prior to the
earlier commencement of such contest or the delinquency date of any asserted
costs related thereto, Grantor shall deposit into the Impound Account an amount
determined by Beneficiary to the reasonably adequate covered payment of such
costs and a reasonable additional sum to cover possible interest, costs and
penalties; provided, however, that Grantor shall promptly cause to be paid any
           --------  -------
amount adjudged by a court of competent jurisdiction be due, with all interest,
costs and penalties thereon, promptly after such judgment becomes final; and
provided, further, that in any event such contest shall be concluded and the
--------  -------
charges or assessments shall be paid prior to the date any writ or order is
issued under which the Trust Property may be sold, lost or forfeited. In the
event Grantor fails to do so, Beneficiary may, if required by Environmental Laws
(and after reasonable prior written notice to Grantor), but shall not be
obligated to, cause the Trust Property or other affected property to be freed
from any Hazardous Substances or otherwise brought into conformance with
Environmental Laws and any and all costs and expenses incurred by Beneficiary in
connection therewith, together with interest thereon at the Default Interest
Rate from the date incurred by Beneficiary until actually paid by Grantor, shall
be immediately paid by Grantor on demand and shall be secured by this Deed of
Trust and by all of the other Loan Documents securing all or any part of the
Debt. Grantor hereby grants to Beneficiary and its agents and employees access
to the Trust Property and a license to remove any items deemed by Beneficiary to
be Hazardous Substances and to do all things Beneficiary shall deem necessary to
bring the Trust Property into conformance with Environmental Laws.

          (f) Grantor covenants and agrees, at Grantor's sole cost and expense,
to indemnify, defend (at trial and appellate levels, and with attorneys,
consultants and experts reasonably acceptable to Beneficiary), and hold
Beneficiary harmless from and against any and all liens, damages (including
without limitation, punitive or exemplary damages), losses, liabilities
(including, without limitation, strict liability), obligations, settlement
payments, penalties, fines, assessments, citations, directives, claims,
litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind as required by applicable Environmental
Laws or of any nature whatsoever (including, without limitation, reasonable
attorneys', consultants' and experts' fees and disbursements actually incurred
in investigating, defending, settling or prosecuting any claim, litigation or
proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against Beneficiary or the Trust Property, and arising from or out of:
(i) any violation or alleged violation of, or liability or alleged liability
under, any Environmental Law; (ii) the presence, release or threat of release of

                                       42
<PAGE>

or exposure to any Hazardous Substances or radon on, in, under or affecting all
or any portion of the Trust Property or any surrounding areas, regardless of
whether or not caused by or within the control of Grantor; (iii) any transport,
treatment, recycling, storage, disposal or arrangement therefor of Hazardous
Substances whether on the Trust Property, originating from the Trust Property,
or otherwise associated with Grantor or any operations conducted on the Trust
Property at any time; (iv) the failure by Grantor to comply fully with the terms
and conditions of this Section 1.31; (v) the breach of any representation or
                       ------------
warranty contained in this Section 1.31 in any material respect; (vi) the
                           ------------
enforcement of this Section 1.31, including, without limitation, the cost of
                    ------------
assessment, investigation, containment, removal and/or remediation of any and
all Hazardous Substances from all or any portion of the Trust Property or any
surrounding areas as required by applicable Environmental Laws, the cost of any
actions taken in response to the presence, release or threat of release of any
Hazardous Substances on, in, under or affecting any portion of the Trust
Property or any surrounding areas to prevent or minimize such release or threat
of release so that it does not migrate or otherwise cause or threaten danger to
present or future public health, safety, welfare or the environment, and costs
incurred to comply with Environmental Laws in connection with all or any portion
of the Trust Property or any surrounding areas. The indemnity set forth in this
Section 1.31 shall also include any diminution in the value of the security
------------
afforded by the Trust Property or any future reduction in the sales price of the
Trust Property by reason of any matter set forth in this Section 1.31. The
                                                         ------------
foregoing indemnity shall specifically not include any such costs relating to
Hazardous Substances which are initially placed on, in or under the Trust
Property after foreclosure or other taking of title to the Trust Property by
Beneficiary or its successor or assigns.  Beneficiary's rights under this
Section shall survive payment in full of the Debt and shall be in addition to
all other rights of Beneficiary under this Deed of Trust, the Note and the other
Loan Documents.

          (g) Upon Beneficiary's request, at any time during the continuance of
an Event of Default or at such other time as Beneficiary has reasonable grounds
to believe, and so notifies Grantor, that Hazardous Substances are or have been
released, stored or disposed of on the Trust Property, or on property contiguous
with the Trust Property, or that the Trust Property may be in violation of the
Environmental Laws, Grantor shall perform or cause to be performed, at Grantor's
sole cost and expense and in scope, form and substance reasonably satisfactory
to Beneficiary, an inspection or audit of the Trust Property prepared by a
hydrogeologist or environmental engineer or other appropriate consultant
approved by Beneficiary indicating the presence or absence of Hazardous
Substances on the Trust Property, the compliance or non-compliance status of the
Trust Property and the operations conducted thereon with applicable
Environmental Laws, or an inspection or audit of the Trust Property prepared by
an engineering or consulting firm reasonably approved by Beneficiary indicating
the presence or absence of friable asbestos or substances containing asbestos in
excess of 1% or lead or substances containing lead or lead based paint ("Lead
                                                                         ----
Based Paint") on the Trust Property. If Grantor fails to provide reports of
-----------
such inspection or audit within thirty (30) days after such request, Beneficiary
may order the same, and Grantor hereby grants to Beneficiary and its employees
and agents access to the Trust Property and an irrevocable license to undertake
such inspection or audit.  The cost of such inspection or audit, together with
interest thereon at the Default Interest Rate from the date incurred by
Beneficiary until actually paid by Grantor, shall be immediately paid by Grantor
on demand and shall be secured by this Deed of Trust and by all of the other
Loan Documents securing all or any part of the Debt.

                                       43
<PAGE>

          (h) Reference is made to that certain Environmental Indemnity
Agreement of even date herewith by and among Grantor, the REIT and Beneficiary
(the "Environmental Indemnity Agreement"). The provisions of this Deed of Trust
      ---------------------------------
and the Environmental Indemnity Agreement shall be read together to maximize the
coverage with respect to the subject matter thereof, as determined by
Beneficiary.

          (i) If, prior to the date hereof, it was determined that the Trust
Property contains Lead Based Paint, Grantor had prepared an assessment report
describing the location and condition of the Lead Based Paint (a "Lead Based
                                                                  ----------
Paint Report"). If, at any time hereafter, Lead Based Paint is suspected of
------------
being present on the Trust Property, Grantor agrees, at its sole cost and
expense and within sixty (60) days thereafter, to cause to be prepared a Lead
Based Paint Report prepared by an expert, and in form, scope and substance,
acceptable to Beneficiary.

          (j) Grantor agrees that if it has been, or if at any time hereafter it
is, determined that the Trust Property contains Lead Based Paint, on or before
thirty (30) days following (i) the date hereof, if such determination was made
prior to the date hereof or (ii) such determination, if such determination is
hereafter made, as applicable, Grantor shall, at its sole cost and expenses,
develop and implement, and thereafter diligently and continuously carry out (or
cause to be developed and implemented and thereafter diligently and continually
to be carried out), an operations, abatement and maintenance plan for the Lead
Based Paint on the Trust Property, which plan shall be prepared by an expert,
and be in form, scope and substance, acceptable to Beneficiary (together with
any Lead Based Paint Report, the "O&M Plan"). (If an O&M Plan has been prepared
                                  --------
prior to the date hereof, Grantor agrees to diligently and continually carry out
(or cause to be carried out) the provisions thereof.) Compliance with the O&M
Plan shall require or be deemed to require, without limitation, the proper
preparation and maintenance of all records, papers and forms required under the
Environmental Laws.

     1.32  Indemnification; Subrogation.
           ----------------------------

          (a) Grantor shall indemnify, defend and hold Beneficiary harmless
against: (i) any and all claims for brokerage, leasing, finders or similar fees
which may be made relating to the Trust Property or the Debt, and (ii) any and
all liability, obligations, losses, damages, penalties, claims, actions, suits,
costs and expenses (including Beneficiary's reasonable attorneys' fees) of
whatever kind or nature which may be asserted against, imposed on or incurred by
Beneficiary in connection with the Debt, this Deed of Trust, the Trust Property,
or any part thereof, or the exercise by Beneficiary of any rights or remedies
granted to it under this Deed of Trust; provided, however, that nothing herein
                                        --------  -------
shall be construed to obligate Grantor to indemnify, defend and hold harmless
Beneficiary from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses enacted against,
imposed on or incurred by Beneficiary by reason of Beneficiary's willful
misconduct or gross negligence or in connection with Beneficiary effecting a
Secondary Market Transaction.

          (b) If Beneficiary is made a party defendant to any litigation or any
claim is threatened or brought against Beneficiary concerning the making or
enforcement of the Debt, this Deed of Trust, the Trust Property, or any part
thereof, or any interest therein, or the

                                       44
<PAGE>

construction, maintenance, operation or occupancy or use thereof, then Grantor
shall indemnify, defend and hold Beneficiary harmless from and against all
liability by reason of said litigation or claims, including reasonable
attorneys' fees and expenses incurred by Beneficiary in any such litigation or
claim, whether or not any such litigation or claim is prosecuted to judgment. If
Beneficiary commences an action against Grantor to enforce any of the terms
hereof or to prosecute any breach by Grantor of any of the terms hereof or to
recover any sum secured hereby, Grantor shall pay to Beneficiary its reasonable
attorneys' fees and expenses. The right to such attorneys' fees and expenses
shall be deemed to have accrued on the commencement of such action, and shall be
enforceable whether or not such action is prosecuted to judgment. If Grantor
breaches any term of this Deed of Trust, Beneficiary may engage the services of
an attorney or attorneys to protect its rights hereunder, and in the event of
such engagement following any breach by Grantor, Grantor shall pay Beneficiary
reasonable attorneys' fees and expenses incurred by Beneficiary, whether or not
an action is actually commenced against Grantor by reason of such breach. All
references to "attorneys" in this Subsection and elsewhere in this Deed of Trust
               ---------
shall include, without limitation, any attorney or law firm engaged by
Beneficiary and Beneficiary's in-house counsel, and all references to "fees and
                                                                       --------
expenses" in this Subsection and elsewhere in this Deed of Trust shall include,
--------
without limitation, any fees of such attorney or law firm, any appellate counsel
fees, if applicable, and any allocation charges and allocation costs of
Beneficiary's in-house counsel.

          (c) A waiver of subrogation shall be obtained by Grantor from its
insurance carrier and, consequently, Grantor waives any and all right to claim
or recover against Beneficiary, its officers, employees, agents and
representatives, for loss of or damage to Grantor, the Trust Property, Grantor's
property or the property of others under Grantor's control from any cause
insured against or required to be insured against by the provisions of this Deed
of Trust.

     1.33  Covenants with Respect to Indebtedness, Operations, Fundamental
           ---------------------------------------------------------------
Changes of Grantor.  Grantor hereby represents, warrants and covenants as of
------------------
the date hereof and until such time as the Debt is paid in full, that Grantor
has been, is, and shall remain a Single-Purpose Entity (as hereinafter defined).
Grantor has complied and will at all times comply, or if Grantor is a limited
partnership or a limited liability company, each general partner or the SPE
Member (as hereinafter defined) of Grantor (each, an "SPE Equity Owner"), has
                                                      ----------------
complied, will at all times comply, and will cause Grantor to comply, with each
of the representations, warranties and covenants contained in this Section 1.33
                                                                   ------------
as if such representation, warranty or covenant was made directly by Grantor or
such SPE Equity Owner, as the case may be. A "Single-Purpose Entity" or "SPE"
                                              ---------------------      ---
means a corporation, limited partnership, or limited liability company that:

          (a) if a corporation, must have at least one Independent Director (as
hereinafter defined), or if requested by Beneficiary (which request Grantor
shall comply with within five (5) business days) in connection with a Secondary
Market Transaction, two Independent Directors, and must not take any action
that, under the terms of any certificate or articles of incorporation, by-laws,
or any voting trust agreement with respect to such entity's common stock,
requires the unanimous affirmative vote of 100% of the members of the board of
directors unless all of the directors, including, without limitation, all
Independent Directors, shall have participated in such vote ("SPE Corporation");
                                                              ---------------
provided, however, the foregoing

                                       45
<PAGE>

Independent Director provision shall only apply from and after the first Sale
and pursuant to the requirements of Section 1.13(b)(11) hereof;
                                    -------------------

          (b) if a limited partnership, must have each general partner be an SPE
Corporation;

          (c) if a limited liability company, must have one managing member (the
"SPE Member") and such managing member must be an SPE Corporation. Only the SPE
 ----------
Member may be designated as a manager under the Grantor's operating agreement
and pursuant to the law where the Grantor is organized. Grantor may be a single
member Delaware limited liability company without an SPE Corporation managing
member so long as Grantor has two "special members" who shall serve as
Independent Directors of Grantor; provided, however, the foregoing Independent
Director provision shall only apply from and after the first Sale and pursuant
to the requirements of Section 1.13(b)(11) hereof;
                       -------------------

          (d) was and will be organized solely for the purpose of (i) owning an
interest in the Trust Property and the Other Mortgaged Properties, (ii) acting
as a general partner of a limited partnership that owns an interest in the Trust
Property and the Other Mortgaged Properties, or (iii) acting as the member of a
limited liability company that owns an interest in the Trust Property and the
Other Mortgaged Properties;

          (e) will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation, by-
laws, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Grantor's existence as a single purpose entity,
bankruptcy-remote entity;

          (f) will not liquidate or dissolve (or suffer any liquidation or
dissolution), or enter into any transaction of merger or consolidation, or
acquire by purchase or otherwise all or substantially all the business or assets
of, or any stock or other evidence of beneficial ownership of any entity;

          (g) has not and will not guarantee, pledge its assets for the benefit
of, or otherwise become liable on or in connection with, any obligation of any
other person or entity;

          (h) does not own and will not own any asset other than (i) the Trust
Property and (ii) incidental personal property necessary for the operation of
the Trust Property;

          (i) is not engaged and will not engage, either directly or indirectly,
in any business other than the ownership, management and operation of the Trust
Property;

          (j) will not enter into any contract or agreement with any general
partner, principal, affiliate or member of Grantor, as applicable, or any
affiliate of any general partner, principal or member of Grantor, except upon
terms and conditions that are intrinsically fair and

                                       46
<PAGE>

substantially similar to those that would be available on an arms-length basis
with third parties other than an affiliate;

          (k) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Debt, (ii) affiliate advances or trade payables or accrued expenses
incurred in the ordinary course of business of operating the Trust Property
customarily satisfied within thirty (30) days in an aggregate amount, as to the
Trust Property, not to exceed one percent (1%) of the outstanding principal
balance of the Note, and no other debt will be secured (senior, subordinate or
pari passu) by the Trust Property;

          (l) has not made and will not make any loans or advances to any third
party (including any affiliate);

          (m) is and will be solvent and pay its debts from its assets as the
same shall become due;

          (n) has done or caused to be done and will do all things necessary to
preserve its existence, and will observe all formalities applicable to it;

          (o) will conduct and operate its business in its own name and as
presently conducted and operated;

          (p) will maintain financial statements, books and records and bank
accounts separate from those of its affiliates, including, without limitation,
its general partners or members, as applicable;

          (q) will be, and at all times will hold itself out to the public as, a
legal entity separate and distinct from any other entity (including, without
limitation, any affiliate, general partner, or member, as applicable, or any
affiliate of any general partner or member of Grantor, as applicable);

          (r) will file its own tax returns; provided that for so long as the
Grantor is a qualified REIT subsidiary or includible on a consolidated basis in
the tax return of the REIT, Grantor shall only be required to have its own
employer identification number;

          (s) will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;

          (t) will establish and maintain an office through which its business
will be conducted separate and apart from those of its affiliates and shall
allocate fairly and reasonably any overhead and expense for shared office space;

          (u) will not commingle the funds and other assets of Grantor with
those of any general partner, member, affiliate, principal or any other person;

                                       47
<PAGE>

          (v) has and will maintain its assets in such a manner that it is not
costly or difficult to segregate, ascertain or identify its individual assets
from those of any affiliate or any other person;

          (w) does not and will not hold itself out to be responsible for the
debts or obligations of any other person;

          (x) will pay any liabilities out of its own funds, including salaries
of its employees, not funds of any affiliate;

          (y) will use stationery, invoices, and checks separate from its
affiliates; and

          (z) As used in this Section 1.33, "Independent Director" shall mean a
                              ------------   --------------------
duly appointed member of the board of directors of an SPE Corporation or single
member Delaware limited liability company who has not been at any time during
the five (5) years preceding his or her initial appointment, and shall not be at
any time while serving as Independent Director any of the following: (a) a
stockholder, director (other than in his or her capacity as an Independent
Director), officer, employee, partner, or member of Grantor, any SPE Equity
Owner, any partner, shareholder or member of any SPE Equity Owner, or any
affiliate of any of the foregoing; (b) a stockholder, director, officer,
employee, partner, or member of any customer of, supplier or service provider
(including professionals) to, or other person who derives more than 10% of its
purchases, revenues, compensation, or other financial remuneration from its
activities with Grantor, any SPE Equity Owner, any partner, shareholder or
member of any SPE Equity Owner, any affiliate of any of the foregoing, or any
person or entity who otherwise is financially dependent upon an officer,
director, or employee of Grantor, any SPE Equity Owner, any partner or member of
any SPE Equity Owner, or any family member (by blood or marriage) of any such
officer, director, or employee, or a business entity owned or controlled by any
of the foregoing; (c) a person or other entity controlling or under common
control with any such stockholder, director, officer, employee, partner, member,
customer, supplier or other person; or (d) a member of the immediate family of
any individual described in clause (a), (b) or (c) above.  Notwithstanding
                            ----------  ---    ---
anything to the contrary contained herein, the Independent Director of a general
partner or managing member of Grantor shall be permitted to serve as an
Independent Director of other Special Purpose Entities which are now, or may in
the future be, established by any affiliate of Grantor, or any partner or member
of Grantor.  As used in this subsection, the term "control" means the
                                                   -------
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
ownership of voting securities, by contract or otherwise.  As used herein, the
term "affiliate" shall mean:
      ---------

          (aa) any person or entity directly or indirectly owning, controlling
or holding with power to vote ten percent (10%) or more of the outstanding
voting securities or interests of such other person or entity;

          (bb) any person or entity ten percent (10%) or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such other person or entity;

                                       48
<PAGE>

          (cc) any person or entity directly or indirectly controlling,
controlled by or under common control with such other person or entity;

          (dd) any officer, director or partner of such other person or entity;

          (ee) if such other person or entity is an officer, director or
partner, any company for which such person or entity acts in any such capacity;
and

          (ff) any close relative or spouse of the specified person.

     1.34  Repair and Remediation Reserve.  Prior to the execution of this Deed
           ------------------------------
of Trust, Beneficiary has caused the Trust Property to be inspected and such
inspection has revealed that the Trust Property is in need of certain
maintenance, repairs and/or remedial or corrective work. Contemporaneously with
the execution hereof, Grantor has established with the Beneficiary a reserve in
the amount of $13,000.00 (the "Repair and Remediation Reserve") by depositing
                               -------------------------------
such amount with Beneficiary. Grantor shall cause each of the items described in
that certain Engineering Report (the "Engineering Report") entitled Property
                                      ------------------
Condition Report, dated May 7, 2001 and prepared by IVI (the "Deferred
                                                              --------
Maintenance") to be completed, performed, remediated and corrected to the
-----------
satisfaction of Beneficiary and as necessary to bring the Trust Property into
compliance with all applicable laws, ordinances, rules and regulations on or
before the expiration of six (6) months after the effective date hereof, as such
time period may be extended by Beneficiary in its sole discretion. So long as no
Event of Default has occurred and is continuing, all sums in the Repair and
Remediation Reserve shall be held by Beneficiary in the Repair and Remediation
Reserve to pay the costs and expenses of completing the Deferred Maintenance. So
long as no Default or Event of Default has occurred and is continuing,
Beneficiary shall, to the extent funds are available for such purpose in the
Repair and Remediation Reserve, disburse to Grantor the amount paid or incurred
by Grantor in completing, performing, remediating or correcting the Deferred
Maintenance or, if greater, the amount reserved for the applicable Deferred
Maintenance item, upon (a) the receipt by Beneficiary of a written request from
Grantor for disbursement from the Repair and Remediation Reserve and a
certification by Grantor that the applicable item of Deferred Maintenance has
been completed in accordance with the terms of this Deed of Trust, (b) delivery
to Beneficiary of invoices, receipts, cancelled checks or other evidence
satisfactory to Beneficiary verifying the costs of the Deferred Maintenance to
be reimbursed, (c) for disbursement requests for individual items costing in
excess of $50,000.00, delivery to Beneficiary of a certification from a third
party reasonably acceptable to Beneficiary describing the completed work, and
(d) for disbursement requests for individual items costing in excess of
$50,000.00, delivery to Beneficiary of affidavits, lien waivers, cancelled
checks or other evidence reasonably satisfactory to Beneficiary showing that all
materialmen, laborers, subcontractors and any other parties who might or could
claim statutory or common law liens and are furnishing or have furnished
materials or labor to the Trust Property have been paid all amounts due for such
labor and materials furnished to the Trust Property. Beneficiary shall not be
required to make advances from the Repair and Remediation Reserve more
frequently than twice in any ninety (90) day period. In making any payment from
the Repair and Remediation Reserve, Beneficiary shall be entitled to rely on
such request from Grantor without any inquiry into the accuracy, validity or
contestability of any such amount. No

                                       49
<PAGE>

interest on the funds contained in the Repair and Remediation Reserve shall be
paid by Beneficiary to Grantor. Grantor hereby grants to Beneficiary a power-of-
attorney, coupled with an interest, to cause the Deferred Maintenance to be
completed, performed, remediated and corrected to the satisfaction of
Beneficiary following the expiration of the six-month period referred to in this
subparagraph and upon Grantor's failure to do so in accordance with the terms
and conditions of this Section 1.34, and to apply the amounts on deposit in the
                       ------------
Repair and Remediation Reserve to the costs associated therewith, all as
Beneficiary may determine in its sole and absolute discretion but without
obligation to do so.

     1.35  ERISA.
           -----

          (a) Grantor shall not engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise by
Beneficiary of any of its rights under the Note, this Deed of Trust or any of
the other Loan Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA.

          (b) Grantor further covenants and agrees to deliver to Beneficiary
such certifications or other evidence from time to time throughout the term of
this Deed of Trust, as requested by Beneficiary in its sole discretion, that (i)
Grantor is not an "employee benefit plan" as defined in Section 3(32) of ERISA,
which is subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(3) of ERISA; (ii) Grantor is not subject to state statutes
regulating investments and fiduciary obligations with respect to governmental
plans; and (iii) one or more of the following circumstances is true:

          (1) Equity interests in Grantor are publicly offered securities within
     the meaning of 29 C.F.R. Section 2510.3-101(b)(2);

          (2) Less than 25 percent of each outstanding class of equity interests
     in Grantor are held by "benefit plan investors" within the meaning of 29
     C.F.R. Section 2510.3-101(f)(2); or

          (3) Grantor qualifies as an "operating company" within the meaning of
     29 C.F.R. Section 2510.3-101 or an investment company registered under the
     Investment Company Act of 1940.

          (c) Grantor shall indemnify Beneficiary and defend and hold
Beneficiary harmless from and against all civil penalties, excise taxes, or
other loss, cost damage and expense (including, without limitation, reasonable
attorneys' fees and disbursements and costs incurred in the investigation,
defense and settlement of claims and losses incurred in correcting any
prohibited transaction or in the sale of a prohibited loan, and in obtaining any
individual prohibited transaction exemption under ERISA that may be required, in
Beneficiary's sole discretion) that Beneficiary may incur, directly or
indirectly, as a result of a default under this Section.  This indemnity shall
survive any termination, satisfaction or foreclosure of this Deed of Trust.

                                       50
<PAGE>

                                  ARTICLE II.
                               EVENTS OF DEFAULT
                               -----------------

     2.1  Events of Default.  The occurrence of any of the following events
          -----------------
shall be an Event of Default hereunder:

          (a)  Grantor fails to pay any money to Beneficiary required hereunder
at the time or within any applicable grace period set forth herein or in any
other Loan Document, or if no grace period is set forth herein or therein, then
within seven (7) days after the date of Beneficiary's written notice to Grantor
that such payment is due (except those regarding payments to be made under the
Note, which failure is subject to any grace periods set forth in the Note).

          (b)  Grantor fails to provide insurance as required by Section 1.4
                                                                 -----------
hereof or fails to perform any material covenant, agreement, obligation, term or
condition set forth in Section 1.31 or Section 1.33 hereof (provided, however,
                       ------------    ------------
so long as Grantor shall be undertaking any obligations required under Section
                                                                       -------
1.31 in accordance with Environmental Laws, Grantor shall be entitled to such
----
time as may reasonably required to fulfill such obligations so long as the same
are completed within any timeframe established under applicable law or
governmental authority).

          (c)  Grantor fails to perform any other covenant, agreement,
obligation, term or condition set forth herein or in any other Loan Document,
other than those otherwise described in this Section 2.1, and, to the extent
                                             -----------
such failure or default is susceptible of being cured, the continuance of such
failure or default for thirty (30) days after written notice thereof from
Beneficiary to Grantor; provided, however, that if such default is susceptible
                        --------  -------
of cure but such cure cannot be accomplished with reasonable diligence within
said period of time, and if Grantor commences to cure such default promptly
after receipt of written notice thereof from Beneficiary, and thereafter
prosecutes the curing of such default with reasonable diligence, such period of
time shall be extended for such period of time as may be necessary to cure such
default with reasonable diligence, but not to exceed an additional ninety (90)
days.

          (d)  Any representation or warranty made herein, in or in connection
with any application or commitment relating to the loan evidenced by the Note,
or in any of the other Loan Documents to Beneficiary by Grantor, by any general
partner, manager or member in Grantor, or by any Indemnitor is determined by
Beneficiary to have been false or misleading in any material respect at the time
made and any such false or misleading representation or warranty has resulted in
a Material Adverse Effect.

          (e)  There shall be a sale, conveyance, disposition, alienation,
hypothecation, leasing, assignment, pledge, mortgage, granting of a security
interest in or other transfer or further encumbrancing of the Trust Property,
Grantor or its general partners or managing members, or any portion thereof or
any interest therein, in violation of Section 1.13 hereof.
                                      ------------

          (f)  Grantor, general partner or managing member in Grantor or any
Indemnitor becomes insolvent, or makes a transfer in fraud of creditors, or
makes an assignment

                                       51
<PAGE>

for the benefit of creditors, or files a petition in bankruptcy, or is
voluntarily adjudicated insolvent or bankrupt or admits in writing the inability
to pay its debts as they mature, or petitions or applies to any tribunal for or
consents to or fails to contest the appointment of a receiver, trustee,
custodian or similar officer for Grantor, for any such general partner or
managing member of Grantor or for any Indemnitor or for a substantial part of
the assets of Grantor, of any such general partner or managing member of Grantor
or of any Indemnitor, or commences any case, proceeding or other action under
any bankruptcy, reorganization, arrangement, readjustment or debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect.

          (g)  A petition is filed or any case, proceeding or other action is
commenced against Grantor, against any general partner or managing member, as
the case may be, of Grantor or against any Indemnitor seeking to have an order
for relief entered against it as debtor or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or other
relief under any law relating to bankruptcy, insolvency, arrangement,
reorganization, receivership or other debtor relief under any law or statute of
any jurisdiction, whether now or hereafter in effect, or a court of competent
jurisdiction enters an order for relief against Grantor, against any general
partner or managing member, as the case may be, of Grantor or against any
Indemnitor, as debtor, or an order, judgment or decree is entered appointing,
with or without the consent of Grantor, of any such general partner or managing
member, as the case may be, of Grantor or of any Indemnitor, a receiver,
trustee, custodian or similar officer for Grantor, for any such general partner
or managing member, as the case may be, of Grantor or for any Indemnitor, or for
any substantial part of any of the properties of Grantor, of any such general
partner or managing member, as the case may be, of Grantor or of any Indemnitor,
and if any such event shall occur, such petition, case, proceeding, action,
order, judgment or decree is not dismissed within sixty (60) days after being
commenced.

          (h)  The Trust Property or any part thereof is taken on execution or
other process of law in any final and non-appealable legal proceeding, without
the right of redemption against Grantor, other than in connection a condemnation
or the exercise of the power of eminent domain or police power.

          (i)  Grantor abandons all or a material portion of the Trust Property
for a period in excess of thirty (30) consecutive days other than as a result of
a force majeure.

          (j)  The holder of any lien or security interest on the Trust Property
(without implying the consent of Beneficiary to the existence or creation of any
such lien or security interest), whether superior or subordinate to this Deed of
Trust or any of the other Loan Documents, declares a default and such default is
not cured within any applicable grace or cure period set forth in the applicable
document or such holder institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder.

          (k)  The Trust Property, or any part thereof, is subjected to waste or
to removal, demolition or material alteration so that the value of the Trust
Property is materially diminished thereby and Beneficiary determines that it is
not adequately protected from any loss, damage or risk associated therewith.

                                       52
<PAGE>

          (l)  Any dissolution, termination, partial or complete liquidation,
merger or consolidation of Grantor, any general partner or any managing member,
or any Indemnitor.

          (m)  Except as otherwise provided herein, if without Beneficiary's
prior consent, (a) the Percentage Lease is amended, modified or terminated or
(b) the ownership, management or control of the lessee thereunder is transferred
to a person other than Grantor or an affiliate of Grantor.

          (n)  If, so long as lessee under the Percentage Lease is an affiliate
of any Grantor, an Event of Default as defined in the Percentage Lease occurs
thereunder.

          (o)  If lessee under the Percentage Lease shall default in the
performance or observance of any of the obligations under the subordination and
attornment agreement delivered to Beneficiary beyond any applicable period of
notice and grace thereunder.

          (p)  If, without Beneficiary's prior consent, there is any material
adverse change in the Franchise Agreement or Management Agreement or the
Franchise Agreement or Management Agreement is terminated, except as otherwise
provided herein.

          (q)  If a default has occurred and for so long as it continues beyond
any applicable cure period under the Franchise Agreement or the Management
Agreement if such default permits the franchisor or Manager to terminate or
cancel such Franchise Agreement or Management Agreement.

                                  ARTICLE III.
                                    REMEDIES
                                    --------

     3.1  Remedies Available.  If there shall occur and be continuing an Event
          ------------------
of Default under this Deed of Trust, then this Deed of Trust is subject to
foreclosure as provided by law and Beneficiary may, at its option and by or
through a trustee, nominee, assignee or otherwise (including, without
limitation, the Trustee), to the fullest extent permitted by law, exercise any
or all of the following rights, remedies and recourses, either successively or
concurrently:

          (a)  Acceleration.  Accelerate the maturity date of the Note and
               ------------
declare any or all of the Debt to be immediately due and payable without any
presentment, demand, protest, notice or action of any kind whatever (each of
which is hereby expressly waived by Grantor), whereupon the same shall become
immediately due and payable.  Upon any such acceleration, payment of such
accelerated amount shall constitute a prepayment of the principal balance of the
Note and any applicable prepayment fee provided for in the Note shall then be
immediately due and payable.

          (b)  Entry on the Trust Property.  Either in person or by agent, with
               ---------------------------
or without bringing any action or proceeding, or by a receiver appointed by a
court and without regard to the adequacy of its security, enter upon and take
possession of the Trust Property, or any part

                                       53
<PAGE>

thereof, without force or with such force as is permitted by law and without
notice or process or with such notice or process as is required by law, unless
such notice and process is waivable, in which case Grantor hereby waives such
notice and process, and do any and all acts and perform any and all work which
may be desirable or necessary in Beneficiary's judgment to complete any
unfinished construction on the Premises, to preserve the value, marketability or
rentability of the Trust Property, to increase the income therefrom, to manage
and operate the Trust Property or to protect the security hereof, and all sums
expended by Beneficiary therefor, together with interest thereon at the Default
Interest Rate, shall be immediately due and payable to Beneficiary by Grantor on
demand and shall be secured hereby and by all of the other Loan Documents
securing all or any part of the Debt.

          (c)  Collect Rents.  With or without taking possession of the Trust
               -------------
Property, sue or otherwise collect the Rents, including those past due and
unpaid.

          (d)  Appointment of Receiver.  Upon, or at any time prior or after,
               -----------------------
initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application to a court of competent jurisdiction for appointment of a receiver
for all or any part of the Trust Property, as a matter of strict right and
without notice to Grantor and without regard to the adequacy of the Trust
Property for the repayment of the Debt or the solvency of Grantor or any person
or persons liable for the payment of the Debt, and Grantor does hereby
irrevocably consent to such appointment, waive any and all notices of and
defenses to such appointment and agree not to oppose any application therefor by
Beneficiary, but nothing herein is to be construed to deprive Beneficiary of any
other right, remedy or privilege Beneficiary may now have under the law to have
a receiver appointed, provided, however, that the appointment of such receiver,
                      --------  -------
trustee or other appointee by virtue of any court order, statute or regulation
shall not impair or in any manner prejudice the rights of Beneficiary to receive
payment of the Rents pursuant to other terms and provisions hereof.  Any such
receiver shall have all of the usual powers and duties of receivers in similar
cases, including, without limitation, the full power to hold, develop, rent,
lease, manage, maintain, operate and otherwise use or permit the use of the
Trust Property upon such terms and conditions as said receiver may deem to be
prudent and reasonable under the circumstances as more fully set forth in

Section 3.3 below.  Such receivership shall, at the option of Beneficiary,
-----------
continue until full payment of all of the Debt or until title to the Trust
Property subject to foreclosure shall have passed by foreclosure sale under this
Deed of Trust or deed in lieu of foreclosure.

          (e)  Foreclosure.  Immediately commence an action to foreclose this
               -----------
Deed of Trust or to specifically enforce its provisions with respect to any of
the Debt, pursuant to applicable law, and sell the Trust Property or cause the
Trust Property subject to foreclosure hereunder to be sold in accordance with
the requirements and procedures provided by said statutes in a single parcel or
in several parcels at the option of Beneficiary.  In the event foreclosure
proceedings are instituted by Beneficiary, all expenses incident to such
proceedings, including, but not limited to, reasonable attorneys' fees and
costs, shall be paid by Grantor and secured by this Deed of Trust and by all of
the other Loan Documents securing all or any part of the Debt.  The Debt and all
other obligations secured by this Deed of Trust, including, without limitation,
interest at the Default Interest Rate any prepayment charge, fee or premium
required

                                       54
<PAGE>

to be paid under the Note in order to prepay principal (to the extent permitted
by applicable law), reasonable attorneys' fees and any other amounts due and
unpaid to Beneficiary under the Loan Documents, may be bid by Beneficiary in the
event of a foreclosure sale hereunder. In the event of a judicial sale pursuant
to a foreclosure decree, it is understood and agreed that Beneficiary or its
assigns may become the purchaser of such Trust Property or any part thereof.

          (f)  Judicial Remedies.  Proceed by suit or suits, at law or in
               -----------------
equity, instituted by or on behalf of Beneficiary, upon written request of
Beneficiary, to enforce the payment of the Debt or the other obligations of
Grantor hereunder or pursuant to the Loan Documents, to foreclose the liens and
security interests of this Deed of Trust as against all or any part of the Trust
Property, and to have all or any part of the Trust Property sold under the
judgment or decree of a court of competent jurisdiction. This remedy shall be
cumulative of any other non-judicial remedies available to Beneficiary with
respect to the Loan Documents. Proceeding with the request or receiving a
judgment for legal relief shall not be or be deemed to be an election of
remedies or bar any available non-judicial remedy of Beneficiary.

          (g)  Sale of Property.  (i)  Following an Event of Default,
               ----------------
Beneficiary may invoke the power of sale and any other remedies permitted by
law. If Beneficiary invokes the power of sale, Beneficiary shall give written
notice to Trustee of such election. Trustee shall give such notice to Grantor of
Grantor's rights as is provided by law. Trustee shall record a copy of such
notice as required by law. Trustee shall advertise the time and place of the
sale of the Trust Property for not less than four (4) weeks in a newspaper of
general circulation in each county in which the Trust Property is situated, and
shall mail copies of such notice of sale to Grantor and other persons as
prescribed by law. After the lapse of such time as may be required by law,
Trustee, without demand on Grantor, shall sell the Trust Property at public
auction to the highest bidder for cash at the time and at the place (which may
be on the Premises or any part thereof as permitted by law) then authorized by
law as may be specified in the notice of sale, in one or more parcels and in
such order as Trustee and Beneficiary may direct. Trustee shall apply the
proceeds of the sale in the following order: (a) to all reasonable costs and
expenses of the sale; (b) to reduce or discharge the Debt in such order as
Beneficiary may elect; and (c) the excess, if any, to the person or persons
legally entitled thereto. Nothing in this section dealing with foreclosure
procedures or specifying particular actions to be taken by Beneficiary or by
Trustee or any similar officer shall be deemed to contradict or add to the
requirements and procedures now or hereafter specified by Colorado law, and any
such inconsistency shall be resolved in favor of Colorado law applicable at the
time of foreclosure.

          (ii) In the event of any sale made under or by virtue of this Deed of
Trust (whether made under the power of sale herein granted or under or by virtue
of judicial proceedings or a judgment or decree of foreclosure and sale), the
entire Debt relative to the Trust Property, immediately thereupon shall,
anything in the Note, this Deed of Trust or any other of the Loan Documents to
the contrary notwithstanding, become due and payable.

          (iii) Upon any sale under or by virtue of this Deed of Trust (whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), Beneficiary may
bid for and acquire the Trust Property or any part thereof and in lieu of paying
cash therefor may make settlement for the

                                       55
<PAGE>

purchase price by crediting the Debt to and against the net sales price after
deducting therefrom the expenses of the sale and the costs of the action.

          (iv) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or any part thereof or upon
any other property of Grantor shall release the lien of this Deed of Trust upon
the Trust Property or any part thereof, or any liens, rights, powers or remedies
of Beneficiary hereunder, but such liens, rights, powers and remedies of
Beneficiary shall continue unimpaired until the entire Debt is paid in full.

          (h)  Other.  Exercise any other right or remedy available hereunder,
               -----
under any of the other Loan Documents or at law or in equity.

     3.2  Application of Proceeds.  To the fullest extent permitted by law, the
          -----------------------
proceeds of any sale under this Deed of Trust following the occurrence and
continuance of an Event of Default shall be applied, to the extent funds are so
available, to the following items in such order as Beneficiary in its discretion
may determine:

          (a)  To payment of the reasonable costs, expenses and fees of taking
possession of the Trust Property, and of holding, operating, maintaining, using,
leasing, repairing, improving, marketing and selling the same and of otherwise
enforcing Beneficiary's rights and remedies hereunder and under the other Loan
Documents, including, but not limited to trustees' fees, advertising costs,
postage, receivers' fees, court costs, attorneys', accountants', appraisers',
managers' and other professional fees, title charges and transfer taxes.

          (b)  To payment of all sums expended by Beneficiary under the terms of
any of the Loan Documents and not yet repaid, together with interest on such
sums at the Default Interest Rate.

          (c)  To payment of the Debt and all other obligations secured by this
Deed of Trust, including, without limitation, interest at the Default Interest
Rate and, to the extent permitted by applicable law, any prepayment fee, charge
or premium required to be paid under the Note in order to prepay principal,
subject to applicable law, in any order that Beneficiary chooses in its sole
discretion.

          (d)  The remainder, if any, of such funds shall be disbursed to
Grantor or to the person or persons legally entitled thereto.

     3.3  Right and Authority of Receiver or Beneficiary in the Event of
          --------------------------------------------------------------
Default; Power of Attorney.  Upon the occurrence and continuance of an Event of
--------------------------
Default, and entry upon the Trust Property pursuant to Section 3.1(b) hereof or
                                                       --------------
appointment of a receiver pursuant to Section 3.1(d) hereof, and under such
                                      --------------
terms and conditions as may be prudent and reasonable under the circumstances in
Beneficiary's or the receiver's sole discretion, all at Grantor's expense,
Beneficiary or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Trust Property; (b) take and maintain possession
of all documents, books, records, papers and accounts relating to the Trust

                                       56
<PAGE>

Property; (c) exclude Grantor and its agents, servants and employees wholly from
the Trust Property; (d) manage and operate the Trust Property; (e) preserve and
maintain the Trust Property; (f) make repairs and alterations to the Trust
Property; (g) complete any construction or repair of the Improvements, with such
changes, additions or modifications of the plans and specifications or intended
disposition and use of the Improvements as Beneficiary may in its sole
discretion deem appropriate or desirable to place the Trust Property in such
condition as will, in Beneficiary's sole discretion, make it or any part thereof
readily marketable or rentable; (h) conduct a marketing or leasing program with
respect to the Trust Property, or employ a marketing or leasing agent or agents
to do so, directed to the leasing or sale of the Trust Property under such terms
and conditions as Beneficiary may in its sole discretion deem appropriate or
desirable; (i) employ such contractors, subcontractors, materialmen, architects,
engineers, consultants, managers, brokers, marketing agents, or other employees,
agents, independent contractors or professionals, as Beneficiary may in its sole
discretion deem appropriate or desirable to implement and effectuate the rights
and powers herein granted; (j) execute and deliver, in the name of Beneficiary
as attorney-in-fact and agent of Grantor or in its own name as Beneficiary, such
documents and instruments as are necessary or appropriate to consummate
transactions authorized hereunder; (k) enter such leases, whether of real or
personal property, or tenancy agreements, under such terms and conditions as
Beneficiary may in its sole discretion deem appropriate or desirable; (1)
collect and receive the Rents from the Trust Property; (m) eject tenants or
repossess personal property, as provided by law, for breaches of the conditions
of their leases or other agreements; (n) sue for unpaid Rents, payments, income
or proceeds in the name of Grantor or Beneficiary; (o) maintain actions in
forcible entry and detainer, ejectment for possession and actions in distress
for rent; (p) compromise or give acquittance for Rents, payments, income or
proceeds that may become due; (q) delegate or assign any and all rights and
powers given to Beneficiary by this Deed of Trust; and (r) do any acts which
Beneficiary in its sole discretion deems appropriate or desirable to protect the
security hereof and use such measures, legal or equitable, as Beneficiary may in
its sole discretion deem appropriate or desirable to implement and effectuate
the provisions of this Deed of Trust. This Deed of Trust shall constitute a
direction to and full authority to any lessee, or other third party who has
heretofore dealt or contracted or may hereafter deal or contract with Grantor or
Beneficiary, at the request of Beneficiary following the occurrence and
continuance of an Event of Default or as otherwise provided in the Loan
Documents, to pay all amounts owing under any lease, contract, concession,
license or other agreement to Beneficiary without proof of the Event of Default
relied upon. Any such lessee or third party is hereby irrevocably authorized to
rely upon and comply with (and shall be fully protected by Grantor in so doing)
any request, notice or demand by Beneficiary for the payment to Beneficiary of
any Rents or other sums which may be or thereafter become due under its lease,
contract, concession, license or other agreement, or for the performance of any
undertakings under any such lease, contract, concession, license or other
agreement, and shall have no right or duty to inquire whether any Event of
Default under this Deed of Trust or under any of the other Loan Documents has
actually occurred or is then existing. Grantor hereby constitutes and appoints
Beneficiary, its assignees, successors, transferees and nominees, as Grantor's
true and lawful attorney-in-fact and agent, with full power of substitution in
the Trust Property, in Grantor's name, place and stead, to do or permit any one
or more of the foregoing described rights, remedies, powers and authorities,
successively or concurrently, and said power of attorney shall be deemed a power
coupled with an interest and irrevocable so long as any portion of the Debt is
outstanding. Any money advanced by

                                       57
<PAGE>

Beneficiary in connection with any action taken under this Section 3.3, together
                                                           -----------
with interest thereon at the Default Interest Rate from the date of making such
advancement by Beneficiary until actually paid by Grantor, shall be a demand
obligation owing by Grantor to Beneficiary and shall be secured by this Deed of
Trust and by every other instrument securing all or any portion of the Debt.

     3.4  Occupancy After Foreclosure.  In the event there is a foreclosure sale
          ---------------------------
hereunder resulting from the occurrence and continuance of an Event of Default,
and at the time of such sale, Grantor or Grantor's representatives, successors
or assigns, or any other persons claiming any interest in the Trust Property by,
through or under Grantor (except to the tenant under the Percentage Lease if not
terminated by Beneficiary), are occupying or using the Trust Property, or any
part thereof, then, to the extent not prohibited by applicable law, each and all
shall, at the option of Beneficiary or the purchaser at such sale, as the case
may be, immediately become the tenant of the purchaser at such sale, which
tenancy shall be a tenancy from day-to-day, terminable at the will of either
landlord or tenant, at a reasonable rental per day based upon the value of the
Trust Property occupied or used, such rental to be due daily to the purchaser.
Further, to the extent permitted by applicable law, in the event the tenant
fails to surrender possession of the Trust Property upon the termination of such
tenancy, the purchaser shall be entitled to institute and maintain an action for
unlawful detainer of the Trust Property in the appropriate court of the county
in which the Premises is located.

     3.5  Notice to Account Debtors.  Beneficiary may, at any time after the
          -------------------------
occurrence and continuance of an Event of Default, notify the account debtors
and obligors of any accounts, chattel paper, negotiable instruments or other
evidences of indebtedness to Grantor included in the Trust Property to pay
Beneficiary directly. Grantor shall at any time or from time to time upon the
request of Beneficiary following the occurrence and continuance of an Event of
Default, provide to Beneficiary a current list of all such account debtors and
obligors and their addresses.

     3.6  Cumulative Remedies.  All remedies contained in this Deed of Trust are
          -------------------
cumulative and Beneficiary shall also have all other remedies provided at law
and in equity or in any other Loan Documents. Such remedies may be pursued
separately, successively or concurrently at the sole subjective direction of
Beneficiary and may be exercised in any order and as often as occasion therefor
shall arise. No act of Beneficiary shall be construed as an election to proceed
under any particular provisions of this Deed of Trust to the exclusion of any
other provision of this Deed of Trust or as an election of remedies to the
exclusion of any other remedy which may then or thereafter be available to
Beneficiary. No delay or failure by Beneficiary to exercise any right or remedy
under this Deed of Trust shall be construed to be a waiver of that right or
remedy or of any Event of Default. Beneficiary may exercise any one or more of
its rights and remedies at its option without regard to the adequacy of its
security.

     3.7  Payment of Expenses.  Grantor shall pay on demand all of Beneficiary's
          -------------------
expenses incurred in any efforts to enforce any terms of this Deed of Trust,
whether or not any lawsuit is filed and whether or not foreclosure is commenced
but not completed, including, but not limited to, reasonable legal fees and
disbursements, foreclosure costs and title charges, together with interest
thereon from and after the date incurred by Beneficiary until actually paid by
Grantor at

                                       58
<PAGE>

the Default Interest Rate, and the same shall be secured by this Deed of Trust
and by all of the other Loan Documents securing all or any part of the Debt.

                                  ARTICLE IV.
                      MISCELLANEOUS TERMS AND CONDITIONS
                      ----------------------------------

     4.1  Time of Essence.  Time is of the essence with respect to all
          ---------------
provisions of this Deed of Trust.

     4.2  Release of Deed of Trust.  If all of the Debt be paid, then and in
          ------------------------
that event only, Beneficiary shall execute a Request for Release of Deed of
Trust. No release of this Deed of Trust or the lien hereof shall be valid unless
executed by Beneficiary and Trustee.

     4.3  Certain Rights of Beneficiary.  Without affecting Grantor's liability
          -----------------------------
for the payment of any of the Debt, Beneficiary may from time to time and
without notice to Grantor: (a) release any person liable for the payment of the
Debt; (b) extend or modify the terms of payment of the Debt; (c) accept
additional real or personal property of any kind as security or alter,
substitute or release any property securing the Debt; (d) recover any part of
the Trust Property; (e) consent in writing to the making of any subdivision map
or plat thereof; (f) join in granting any easement therein; or (g) join in any
extension agreement of this Deed of Trust or any agreement subordinating the
lien hereof.

     4.4  Waiver of Certain Defenses.  No action for the enforcement of the lien
          --------------------------
hereof or of any provision hereof shall be subject to any defense which would
not be good and available to the party interposing the same in an action at law
upon the Note or any of the other Loan Documents.

     4.5  Notices.  All notices, demands, requests or other communications to be
          -------
sent by one party to the other hereunder or required by law shall be in writing
and shall be deemed to have been validly given or served by delivery of the same
in person to the intended addressee, or by depositing the same with Federal
Express or another reputable private courier service for next business day
delivery, or by depositing the same in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, in any event addressed
to the intended addressee at its address set forth on the first page of this
Deed of Trust or at such other address as may be designated by such party as
herein provided. All notices, demands and requests shall be effective upon such
personal delivery, or one (1) business day after being deposited with the
private courier service, or two (2) business days after being deposited in the
United States mail as required above. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.

     4.6  Successors and Assigns; Joint and Several Liability.  The terms,
          ---------------------------------------------------
provisions, indemnities, covenants and conditions hereof shall be binding upon
Grantor and the successors

                                       59
<PAGE>

and assigns of Grantor, including all successors in interest of Grantor in and
to all or any part of the Trust Property, and shall inure to the benefit of
Beneficiary, its directors, officers, shareholders, employees and agents and
their respective successors and assigns and shall constitute covenants running
with the land. All references in this Deed of Trust to Grantor or Beneficiary
shall be deemed to include all such parties' successors and assigns, and the
term "Beneficiary" as used herein shall also mean and refer to any lawful holder
or owner, including pledgees and participants, of any of the Debt.

     4.7  Severability.  A determination that any provision of this Deed of
          ------------
Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the application of
any provision of this Deed of Trust to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.

     4.8  Gender.  Within this Deed of Trust, words of any gender shall be held
          ------
and construed to include any other gender, and words in the singular shall be
held and construed to include the plural, and vice versa, unless the context
otherwise requires.

     4.9  Waiver; Discontinuance of Proceedings.  Beneficiary may waive any
          -------------------------------------
single Event of Default by Grantor hereunder without waiving any other prior or
subsequent Event of Default. Beneficiary may remedy any Event of Default by
Grantor hereunder without waiving the Event of Default remedied. Neither the
failure by Beneficiary to exercise, nor the delay by Beneficiary in exercising,
any right, power or remedy upon any Event of Default by Grantor hereunder shall
be construed as a waiver of such Event of Default or as a waiver of the right to
exercise any such right, power or remedy at a later date. No single or partial
exercise by Beneficiary of any right, power or remedy hereunder shall exhaust
the same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof nor consent to any
departure by Grantor therefrom shall in any event be effective unless the same
shall be in writing and signed by Beneficiary, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
given. No notice to nor demand on Grantor in any case shall of itself entitle
Grantor to any other or further notice or demand in similar or other
circumstances. Acceptance by Beneficiary of any payment in an amount less than
the amount then due on any of the Debt shall be deemed an acceptance on account
only and shall not in any way affect the existence of an Event of Default. In
case Beneficiary shall have proceeded to invoke any right, remedy or recourse
permitted hereunder or under the other Loan Documents and shall thereafter elect
to discontinue or abandon the same for any reason, Beneficiary shall have the
unqualified right to do so and, in such an event, Grantor and Beneficiary shall
be restored to their former positions with respect to the Debt, the Loan
Documents, the Trust Property and otherwise, and the rights, remedies, recourses
and powers of Beneficiary shall continue as if the same had never been invoked.

     4.10  Section Headings.  The headings of the sections and paragraphs of
           ----------------
this Deed of Trust are for convenience of reference only, are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.

                                       60
<PAGE>

     4.11  GOVERNING LAW.  THIS DEED OF TRUST WILL BE GOVERNED BY AND CONSTRUED
           -------------
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED,
PROVIDED THAT TO THE EXTENT THAT ANY OF SUCH LAWS MAY NOW OR HEREAFTER BE
PREEMPTED BY FEDERAL LAW, SUCH FEDERAL LAW SHALL SO GOVERN AND BE CONTROLLING,
AND PROVIDED FURTHER THAT THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED
SHALL GOVERN AS TO THE CREATION, PRIORITY AND ENFORCEMENT OF LIENS AND SECURITY
INTERESTS IN THE TRUST PROPERTY LOCATED IN SUCH STATE.

     4.12  Counting of Days.  The term "days" when used herein shall mean
           ----------------
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Premises is located, the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday, Monday through Friday,
except a legal holiday or a day on which banking institutions in New York, New
York are authorized by law to be closed.

     4.13  Relationship of the Parties.  The relationship between Grantor and
           ---------------------------
Beneficiary is that of a borrower and a lender only and neither of those parties
is, nor shall it hold itself out to be, the agent, employee, joint venturer or
partner of the other party.

     4.14  Application of the Proceeds of the Note.  To the extent that proceeds
           ---------------------------------------
of the Note are used to pay indebtedness secured by any outstanding lien,
security interest, charge or prior encumbrance against the Trust Property, such
proceeds have been advanced by Beneficiary at Grantor's request and Beneficiary
shall be subrogated to any and all rights, security interests and liens owned by
any owner or holder of such outstanding liens, security interests, charges or
encumbrances, irrespective of whether said liens, security interests, charges or
encumbrances are released.

     4.15  Unsecured Portion of Indebtedness.  If any part of the Debt cannot be
           ---------------------------------
lawfully secured by this Deed of Trust or if any part of the Trust Property
cannot be lawfully subject to the lien and security interest hereof to the full
extent of such indebtedness, then all payments made shall be applied on said
indebtedness first in discharge of that portion thereof which is unsecured by
this Deed of Trust.

     4.16  Cross-Default.  An Event of Default under either this Deed of Trust
           -------------
or any of the other Loan Documents shall constitute an Event of Default under
both this Deed of Trust and the other Loan Documents.

     4.17  Interest After Sale.  In the event the Trust Property or any part
           -------------------
thereof shall be sold upon foreclosure as provided hereunder, to the extent
permitted by law, the sum for which the same shall have been sold shall, for
purposes of redemption (pursuant to the laws of the state in which the Premises
is located), bear interest at the Default Interest Rate.

     4.18  Inconsistency with Other Loan Documents.  In the event of any
           ---------------------------------------
inconsistency between the provisions hereof and the provisions in any of the
other Loan Documents, it is intended that the provisions of the Note shall
control over the provisions of this Deed of Trust,

                                       61
<PAGE>

and that the provisions of this Deed of Trust shall control over the provisions
of the Assignment of Leases and Rents, the Guaranty and Indemnity Agreement, the
Environmental Indemnity Agreement, and the other Loan Documents.

     4.19  Construction of this Document. This document may be construed as a
           -----------------------------
mortgage, security deed, deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of the foregoing, in order to fully effectuate the
liens and security interests created hereby and the purposes and agreements
herein set forth.

     4.20  No Merger. It is the desire and intention of the parties hereto that
           ---------
this Deed of Trust and the lien hereof do not merge in fee simple title to the
Trust Property. It is hereby understood and agreed that should Beneficiary
acquire any additional or other interests in or to the Trust Property or the
ownership thereof, then, unless a contrary intent is manifested by Beneficiary
as evidenced by an appropriate document duly recorded, this Deed of Trust and
the lien hereof shall not merge in such other or additional interests in or to
the Trust Property, toward the end that this Deed of Trust may be foreclosed as
if owned by a stranger to said other or additional interests.

     4.21  Rights With Respect to Junior Encumbrances. Any person or entity
           ------------------------------------------
purporting to have or to take a junior mortgage or other lien upon the Trust
Property or any interest therein shall be subject to the rights of Beneficiary
to amend, modify, increase, vary, alter or supplement this Deed of Trust, the
Note or any of the other Loan Documents, and to extend the maturity date of the
Debt, and to increase the amount of the Debt, and to waive or forebear the
exercise of any of its rights and remedies hereunder or under any of the other
Loan Documents and to release any collateral or security for the Debt, in each
and every case without obtaining the consent of the holder of such junior lien
and without the lien or security interest of this Deed of Trust losing its
priority over the rights of any such junior lien.

     4.22  Beneficiary May File Proofs of Claim. In the case of any
           ------------------------------------
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Grantor or the principals, general
partners or managing members in Grantor, or their respective creditors or
property, Beneficiary, to the extent permitted by law, shall be entitled to file
such proofs of claim and other documents as may be necessary or advisable in
order to have the claims of Beneficiary allowed in such proceedings for the
entire Debt at the date of the institution of such proceedings and for any
additional amount which may become due and payable by Grantor hereunder after
such date.

     4.23  Fixture Filing. This Deed of Trust shall be effective from the date
           --------------
of its recording as a financing statement filed as a fixture filing with respect
to all goods constituting part of the Trust Property which are or are to become
fixtures. This Deed of Trust shall also be effective as a financing statement
covering minerals or the like (including oil and gas) and is to be filed for
record in the real estate records of the county where the Premises is situated.
The mailing address of Grantor and the address of Beneficiary from which
information concerning the security interests may be obtained are set forth in
Section 1.22 above.
------------

                                       62
<PAGE>

     4.24  After-Acquired Trust Property. All property acquired by Grantor after
           -----------------------------
the date of this Deed of Trust which by the terms of this Deed of Trust shall be
subject to the lien and the security interest created hereby, shall immediately
upon the acquisition thereof by Grantor and without further mortgage, conveyance
or assignment become subject to the lien and security interest created by this
Deed of Trust. Nevertheless, Grantor shall execute, acknowledge, deliver and
record or file, as appropriate, all and every such further mortgages, security
agreements, financing statements, assignments and assurances as Beneficiary
shall require for accomplishing the purposes of this Deed of Trust.

     4.25  No Representation. By accepting delivery of any item required to be
           -----------------
observed, performed or fulfilled or to be given to Beneficiary pursuant to the
Loan Documents, including, but not limited to, any officer's certificate,
balance sheet, statement of profit and loss or other financial statement,
survey, appraisal or insurance policy, Beneficiary shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, legality, effectiveness or
legal effect of the same, or of any term, provision or condition thereof, and
such acceptance of delivery thereof shall not be or constitute any warranty,
consent or affirmation with respect thereto by Beneficiary.

     4.26  Counterparts. This Deed of Trust may be executed in any number of
           ------------
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page. Any signature page of this Deed of Trust may be detached
from any counterpart of this Deed of Trust without impairing the legal effect of
any signatures thereon and may be attached to another counterpart of this Deed
of Trust identical in form hereto but having attached to it one or more
additional signature pages.

     4.27  Personal Liability. Notwithstanding anything to the contrary
           ------------------
contained in this Deed of Trust, the liability of Grantor and its officers,
directors, general partners, managers, members and principals for the Debt and
for the performance of the other agreements, covenants and obligations contained
herein and in the Loan Documents shall be limited as set forth in Section 2.6 of
                                                                  -----------
the Note.

     4.28  Recording and Filing. Grantor will cause the Loan Documents and all
           --------------------
amendments and supplements thereto and substitutions therefor to be recorded,
filed, re-recorded and re-filed in such manner and in such places as Beneficiary
shall reasonably request, and will pay on demand all such recording, filing, re-
recording and re-filing taxes, fees and other charges. Grantor shall reimburse
Beneficiary, or its servicing agent, for the costs incurred in obtaining a tax
service company to verify the status of payment of taxes and assessments on the
Trust Property.

     4.29  Entire Agreement and Modifications. This Deed of Trust and the other
           ----------------------------------
Loan Documents contain the entire agreements between the parties relating to the
subject matter hereof and thereof and all prior agreements relative hereto and
thereto which are not contained herein or therein are terminated. This Deed of
Trust and the other Loan Documents may not be amended, revised, waived,
discharged, released or terminated orally but only by a written instrument or
instruments executed by the party against which enforcement of the amendment,

                                       63
<PAGE>

revision, waiver, discharge, release or termination is asserted. Any alleged
amendment, revision, waiver, discharge, release or termination which is not so
documented shall not be effective as to any party.

     4.30  Maximum Interest. The provisions of this Deed of Trust and of all
           ----------------
agreements between Grantor and Beneficiary, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of the Note or otherwise, shall the amount paid, or agreed to be
paid ("Interest") to Beneficiary for the use, forbearance or retention of the
       --------
money loaned under the Note exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, performance or fulfillment
of any provision hereof or of any agreement between Grantor and Beneficiary
shall, at the time performance or fulfillment of such provision shall be due,
exceed the limit for Interest prescribed by law or otherwise transcend the limit
of validity prescribed by applicable law, then, ipso facto, the obligation to be
                                                ---- -----
performed or fulfilled shall be reduced to such limit, and if, from any
circumstance whatsoever, Beneficiary shall ever receive anything of value deemed
Interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive Interest shall be applied to the reduction of the
principal balance owing under the Note in the inverse order of its maturity
(whether or not then due) or, at the option of Beneficiary, be paid over to
Grantor, and not to the payment of Interest. All Interest (including any amounts
or payments deemed to be Interest) paid or agreed to be paid to Beneficiary
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal balance of the Note so that the Interest thereon for such full period
will not exceed the maximum amount permitted by applicable law. This Section
will control all agreements between Grantor and Beneficiary.

     4.31  Interest Payable by Beneficiary. Beneficiary shall cause funds in the
           -------------------------------
Replacement Reserve to be deposited into interest bearing accounts of the type
customarily maintained by Beneficiary or its servicing agent for the investment
of similar reserves, which accounts may not yield the highest interest rate then
available. Interest payable on such amounts shall be computed based on the daily
outstanding balance in the Replacement Reserve. Such interest shall be
calculated on a simple, non-compounded interest basis based solely on
contributions made to the Replacement Reserve by Grantor. All interest earned on
amounts contributed to the Replacement Reserve shall be retained by Beneficiary
and accumulated for the benefit of Grantor and added to the balance in the
Replacement Reserve and shall be disbursed for payment of the items for which
other funds in the Replacement Reserve are to be disbursed.

     4.32 Secondary Market. Beneficiary may sell, assign, participate, transfer
          ----------------
or deliver the Note and the Loan Documents to one or more investors (directly or
through a trust of other entity which may sell certificates or other instruments
to investor) in the secondary mortgage market (a "Secondary Market
                                                  ----------------
Transaction"). In connection with such sale, assignment, participation, transfer
-----------
or delivery, Beneficiary may retain or assign responsibility for servicing the
loan evidenced by the Note or may delegate some or all of such responsibility
and/or obligations to a servicer, including, but not limited to, any subservicer
or master servicer, on behalf of the investors.

                                       64
<PAGE>

     4.33  Dissemination of Information. If Beneficiary determines at any time
           ----------------------------
to sell, transfer or assign the Note, this Deed of Trust and other Loan
Documents, and any or all servicing rights with respect thereto, or to grant
participations therein (the "Participations") or issue mortgage pass-through
                             --------------
certificates or other securities evidencing a beneficial interest in a rated or
unrated public offering or private placement (the "Securities"), Beneficiary may
                                                   ----------
forward to each purchaser, transferee, Beneficiary, servicer, participant,
investor, or their respective successors in such Participations and/or
Securities (collectively, the "Investors") or any Rating Agency rating such
                               ---------
Securities, each prospective Investor and each of the foregoing's respective
counsel, all documents and information which Beneficiary now has or may
hereafter acquire relating to the Debt, to Beneficiary, any guarantor, any
indemnitor, and the Trust Property, which shall have been furnished by
Beneficiary and any Indemnitor, as Beneficiary determines necessary or
desirable. If at any time during which the Loan is an asset of a securitization
or is otherwise an asset of any rated transaction, "Rating Agency" or "Rating
                                                    -------------      ------
Agencies" shall mean the rating agency or rating agencies that from time to time
--------
rate the securities, certificates or other instruments issued in connection with
such securitization or other transaction.

                                  ARTICLE V.
                            CONCERNING THE TRUSTEE
                            ----------------------

     5.1   Certain Rights. All rights of Trustee shall be as set forth in and
           --------------
established by applicable laws in the State of Colorado.

                                       65
<PAGE>

     IN WITNESS WHEREOF, Grantor has executed this Deed of Trust on the day and
year first written above.

                                       GRANTOR:
                                       -------

                                       APPLE SUITES SPE III, INC.,
                                       a Virginia corporation

                                       By:/s/ Glade M. Knight
                                          --------------------------------------
                                            Name:  Glade M. Knight
                                            Title:  President
<PAGE>

COMMONWEALTH OF VIRGINIA
CITY OF RICHMOND

The foregoing instrument was acknowledged before me this 30th day of May, 2001
by Glade M. Knight, the President of Apple Suites SPE III, Inc., a Virginia
corporation, on behalf of said corporation.

[SEAL]

/s/ Kay T. Eaves
----------------------------------
Notary Public

My Commission expires: 2/29/2004
                       -----------
<PAGE>

                                   EXHIBIT A
                                   ---------

                               Legal Description

                                   [OMITTED]
<PAGE>

                                    EXHIBIT B
                                    ---------

                                 Loan Documents

  1.       $10,700,000 Promissory Note from Apple Suites SPE III, Inc. to First
           Union National Bank

  2.       Deed of Trust and Security Agreement from Apple Suites SPE III, Inc.
           to First Union National Bank

  3.       Security Agreement from Apple Suites SPE III, Inc. to First Union
           National Bank

  4.       Indemnity and Guaranty Agreement from Apple Suites, Inc. to First
           Union National Bank

  5.       Environmental Indemnity Agreement from Apple Suites SPE III, Inc. and
           Apple Suites, Inc. to First Union National Bank

  6.       Assignment of Leases, Rents and Profits from Apple Suites SPE III,
           Inc. to First Union National Bank

  7.       Assignment of Contracts and Permits Apple Suites SPE III, Inc. to
           First Union National Bank

  8.       Consent and Agreement of Manager by Promus Hotels, Inc.

  9.       Disbursement Authorization by Apple Suites SPE III, Inc.

  10.      Receipt and Closing Certificate by Apple Suites SPE III, Inc.
           and Apple Suites, Inc.

  11.      Form W-9 by Apple Suites SPE III, Inc.

  12.      Certificate Regarding Organizational Documents by Apple Suites SPE
           III, Inc.

  13.      UCC-1 Financing Statements by Apple Suites SPE III, Inc. (Colorado
           Secretary of State and Boulder County)

  14.      UCC-1 Financing Statements by Apple Suites III, Inc. (City of
           Richmond and Virginia Secretary of State)<PAGE>

                                                                     EXHIBIT 4.4

Loan No.: 26-5950580                                           Boulder, Colorado
                                                                 Homewood Suites

                              SECURITY AGREEMENT
                              ------------------

          SECURITY AGREEMENT (this "Agreement"), made as of June 1, 2001, by
                                    ---------
APPLE SUITES SPE III, INC., a Virginia corporation ("Debtor"), in favor of FIRST
                                                     ------
UNION NATIONAL BANK, a national banking association, its successors and assigns
("Secured Party").
  -------------

                             W I T N E S S E T H:
                             - - - - - - - - - -

     WHEREAS, concurrently herewith, Secured Party has extended to Debtor a loan
in the principal amount of Ten Million Seven Hundred Thousand and No/100 Dollars
($10,700,000.00) (the "Loan"), which is evidenced by that certain Promissory
                       ----
Note dated of even date herewith (the "Note"), executed by Debtor and payable to
                                       ----
the order of Secured Party in such amount and is secured by, among other things,
that certain Deed of Trust and Security Agreement, dated of even date herewith,
given by Debtor for the benefit of Secured Party (the "Deed of Trust"),
                                                       -------------
encumbering that certain real property situated in the County of Boulder, State
of Colorado (the "State"), as more particularly described on Exhibit A attached
                  -----                                      ---------
hereto and incorporated herein by this reference (collectively, the "Premises");
                                                                     --------
and

     WHEREAS, as a condition to making the Loan, Secured Party has required that
Debtor grant to Secured Party a security interest with respect to certain
property of Debtor, upon the terms and conditions as hereinafter set forth,

     NOW, THEREFORE, in consideration of the making of the Loan, the foregoing
premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby covenants and agrees
for the benefit of Secured Party as follows:

     1.   COLLATERAL:  As security for the prompt and complete payment and
          ----------
performance when due (whether at stated maturity, by acceleration or otherwise)
of all the Obligations (as hereinafter defined) and to induce Secured Party to
make the Loan, Debtor hereby grants to Secured Party a continuing security
interest in all of Debtor's right, title and interest (if any) in, to and under
the following property now or hereafter located on or relating to the Premises,
whether presently owned or hereafter acquired (exclusive of any of the foregoing
owned or leased by tenants of space in the Premises, including, without
limitation, the tenant under the Percentage Lease (as hereinafter defined))
(Debtor's right, title and interest in all such property being referred to,
collectively, as the "Collateral"):
                      ----------

     (a)  all structures, buildings and improvements of every kind and
description now or at any time hereafter located or placed on the Premises (the
"Improvements", the Premises and the Improvements being referred to as the "Real
 ------------                                                               ----
Property");
--------

     (b)  all furniture, furnishings, fixtures, goods, equipment, inventory or
personal property owned by Debtor and now or hereafter located on, attached to
or used in and about the Improvements, including, but not limited to, all
machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets,
awnings, screens, shades, blinds, carpets, draperies, lawn mowers, and

                                       1

<PAGE>

all appliances, plumbing, heating, air conditioning, lighting, ventilating,
refrigerating, disposal and incinerating equipment, and all fixtures and
appurtenances thereto, and such other goods and chattels and personal property
owned by Debtor as are now and hereafter used or furnished in operating the
Improvements, or the activities conducted therein (including, without limitation
beds, bureaus, chiffoniers, chests, chairs, desks, lamps, mirrors, bookcases,
tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds,
screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage
racks, stools, sofas, chinaware, linens, pillows, blankets, glassware,
foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other
entry systems bars, bar fixtures, liquor and other drink dispensers, icemakers,
radios, television sets, intercom and paging equipment, electric and electronic
equipment, dictating equipment, private telephone systems, facsimile machines,
medical equipment, potted plants, heating, lighting and plumbing fixtures, fire
prevention and extinguishing apparatus, cooling an air-conditioning systems,
elevators, escalators, fittings, plants, apparatus, stoves, ranges,
refrigerators, laundry machines, tools, machinery, engines, dynamos, motors,
boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning
systems, floor cleaning, waxing and polishing equipment, call systems, brackets,
electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers,
shelving, spotlighting equipment, dishwashers, garbage disposals, washers and
dryers), other customary hotel equipment and all building materials and
equipment hereafter situated on or about the Premises or Improvements, and, to
the extent assignable, all warranties and guaranties relating thereto, and all
additions thereto and substitutions and replacements therefor;

     (c)  all easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other emblements now or
hereafter located on the Premises or under or above the same or any part or
parcel thereof, and all estates, rights, titles, interests, tenements,
hereditaments and appurtenances, reversions and remainders whatsoever, in any
way belonging, relating or appertaining to the Trust Property (as defined in the
Deed of Trust) or any part thereof, or which hereafter shall in any way belong,
relate or be appurtenant thereto, whether now owned or hereafter acquired by
Debtor;

     (d)  to the extent assignable, all water, ditches, wells, reservoirs and
drains and all water, ditch, well, reservoir and drainage rights which are
appurtenant to, located on, under or above or used in connection with the
Premises or the Improvements, or any part thereof, together (i) with all
utilities, utility lines, utility commitments, utility capacity, capital
recovery charges, impact fees and other fees paid in connection with same, (ii)
reimbursements or other rights pertaining to utility or utility services
provided to the Premises and/or Improvements and (iii) the present or future use
or availability of waste water capacity, or other utility facilities to the
extent same pertain to or benefit the Premises and/or Improvements, including,
without limitation, all reservations of or commitments covering any such use in
the future whether now existing or hereafter created or acquired;

     (e)  all minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Premises;

     (f)  all funds now or hereafter on deposit in the Impound Account and the
Replacement Reserve (each as defined in the Deed of Trust);

                                       2
<PAGE>

     (g)  (i)  all leases, licenses, concessions and occupancy agreements of all
or any part of the Premises or the Improvements and any and all guarantees,
extensions, renewals, replacements and modifications thereof (collectively, the
"Leases"), including, without limitation, that certain Amended and Restated
 ------
Hotel Lease Agreement dated June 1, 2001, between Debtor, as lessor, and Apple
Suites Management, Inc., as lessee, with any guaranty of the performance and
payment thereunder (the "Percentage Lease"), and (ii) all rents, royalties,
                         ----------------
issues, profits, revenue, income, all revenues and credit card receipts
collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and
recreational facilities, parking charges, and other benefits (collectively, the
"Rents" or "Rents and Profits") of the Premises, the Improvements or the
 -----      -----------------
fixtures or equipment, now or hereafter arising from the use or enjoyment of all
or any portion thereof or rendering of services by Debtor or any operator or
manager of the hotel or the commercial space located in the Improvements
(including, without limitation, from the rental of any office space, retail
space, guest rooms or other space, halls, stores and offices), and (iii) all
concession fees and rentals, health club membership fees, food and beverage
wholesale and retail sales, service charges, vending machine sale or from any
lease, license, tenancy, concession, occupancy agreement or other agreement
pertaining thereto or arising from any of the Contracts (as hereinafter defined)
or any of the General Intangibles (as hereinafter defined) and any other items
of revenue, receipts or other income as identified in the Uniform System of
Accounts for Hotels, 9/th/ Edition as published by the Hotel Association of New
York City, Inc. (1996) and (iv) all cash or securities (the "Security Deposits')
                                                             -----------------
deposited in any security deposit account (the "Security Deposit Account") to
                                                ------------------------
secure performance by the tenants, lessees or licensees, as applicable, of their
obligations under any such leases, licenses, concessions or occupancy
agreements, whether said cash or securities are to be held until the expiration
of the terms of said leases, licenses, concessions or occupancy agreements or
applied to one or more of the installments of rent coming due prior to the
expiration of said terms;

     (h)  To the extent assignable (i) all contracts and agreements now or
hereafter entered into or binding upon Debtor relating to the management,
maintenance or operation of any part of the Premises or the Improvements
(collectively, the "Contracts") and all revenue, income and other benefits
                    ---------
thereof, including, without limitation, management agreements, service
contracts, maintenance contracts, equipment leases, personal property leases and
(ii) any contracts or documents relating to construction on any part of the
Premises or the Improvements (including plans, drawings, surveys, tests,
reports, bonds and governmental approvals);

     (i)  to the extent assignable, all present and future real estate tax
refunds and monetary deposits given to any public or private utility with
respect to utility services furnished to any part of the Premises or the
Improvements;

     (j)  to the extent assignable, all present and future funds, accounts,
instruments, accounts receivable, documents, causes of action, claims, general
intangibles (including, without limitation, trademarks, trade names, service
marks and symbols now or hereafter used in connection with any part of the
Premises or the Improvements, all names by which the Premises or the
Improvements may be operated or known, all rights to carry on business under
such names, and all rights, interest and privileges which Debtor has or may have
as developer or declarant under any covenants, restrictions or declarations now
or hereafter relating to the

                                       3
<PAGE>

Premises or the Improvements) and all notes or chattel paper relating to the
ownership, operation or maintenance of the Real Property (exclusive of any of
the foregoing owed to tenants or any other third parties) (collectively, the
"General Intangibles");
 -------------------

     (k)  to the extent assignable, all water taps, sewer taps, certificates of
occupancy, permits, licenses, franchises, certificates, consents, approvals and
other rights and privileges now or hereafter obtained in connection with the
Premises or the Improvements and all present and future warranties and
guaranties relating to the Improvements or to any equipment, fixtures,
furniture, furnishings, personal property or components of any of the foregoing
now or hereafter located or installed on the Premises or the Improvements;

     (l)  all building materials, supplies and equipment now or hereafter placed
on the Premises or in the Improvements and, to the extent assignable, all
architectural renderings, models, drawings, plans, specifications, studies and
data now or hereafter relating to the Premises or the Improvements;

     (m)  to the extent assignable, all right, title and interest of Debtor in
any insurance policies or binders now or hereafter relating to the Trust
Property, including any unearned premiums thereon;

     (n)  all proceeds, products, substitutions and accessions (including claims
and demands therefor) of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and

     (o)  all other or greater rights and interests of every nature in the
Premises or the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Debtor.

     2.   USE OF COLLATERAL:  The Collateral shall be used only for business
          -----------------
purposes.

     3.   OBLIGATIONS:  As used herein, the term "Obligations" shall mean,
          -----------                             -----------
collectively, the following:

     (a)  All obligations of Debtor or any indemnitor or guarantor under the
Loan to Secured Party, direct or indirect, absolute or contingent, now existing
or hereafter arising in connection with the Loan, including, but not limited to,
the payment, performance and observance of any obligation, term or condition of
the Loan Documents (as defined in the Deed of Trust);

     (b)  All expenditures made or incurred by Secured Party to protect and
maintain the Collateral and to enforce its rights under this Security Agreement,
as more fully set forth herein; and

                                       4
<PAGE>

     (c)  Any and all future advances made under the Note, the Deed of Trust or
any of the other Loan Documents.

     4.   WARRANTIES AND REPRESENTATIONS:  Debtor warrants and represents to
          ------------------------------
Secured Party that:

     (a)  With respect to that portion of the Collateral in which Debtor has any
right, title or interest on the date hereof, such ownership or other right,
title or interest is free and clear of all liens, security interests, adverse
claims and encumbrances (other than the security interest created hereby, the
security interest created by the Deed of Trust, the other Loan Documents and
those subordinate security interests, if any, created in connection with any
junior encumbrances on the Property to which Secured Party shall have consented
in writing in its sole and absolute discretion).

     (b)  No financing statement covering Debtor's interest in any of the
Collateral is on file in any public office, other than the financing statement
evidencing the security interest created hereby.

     (c)  The execution and delivery of this Security Agreement will not violate
any law, agreement or document governing Debtor or to which Debtor is a party.

     (d)  The principal place of business of Debtor is 9 North 3/rd/ Street,
Richmond, VA 23219.

     5.   COVENANTS OF DEBTOR:  Except as may otherwise be set forth in or
          -------------------
allowed under the terms of any of the other Loan Documents, Debtor covenants and
agrees that unless and until Secured Party expressly agrees in writing to
another course of action:

     (a)  The Collateral shall not be removed from the County of Boulder, State
of Colorado, without the prior written consent of Secured Party.

     (b)  Debtor shall not sell, pledge, hypothecate, transfer, lease, assign,
abandon or otherwise dispose of its interest in any of the Collateral or any
interest therein except (i) in connection with a transfer expressly permitted
under the Deed of Trust, or (ii) replacement of collateral in accordance with
the Deed of Trust provided that simultaneously therewith, new items of
Collateral of a similar kind and of at least equivalent value are substituted
therefor on which Secured Party will immediately have a valid first lien and
security interest.

     (c)  Debtor (or the tenant under the Percentage Lease, as the case may be)
shall keep the Collateral in good condition and repair, subject to ordinary wear
and tear, properly maintained and free of liens, security interests and
encumbrances (other than the security interest created hereby, the security
interest created by the Deed of Trust and the other Loan Documents) and subject
to Permitted Encumbrances (as defined in the Deed of Trust).

     (d)  Debtor shall promptly notify Secured Party of any default under this
Security Agreement.

                                       5
<PAGE>

     (e)  Except as otherwise provided in the Deed of Trust, Debtor shall not
use the Collateral in violation of any applicable statute, ordinance or
insurance policy.

     (f)  Debtor shall defend Debtor's title, if any, the Collateral against the
claims and demands of all persons and entities.

     (g)  Except as otherwise may be provided for in the Deed of Trust, Debtor
shall pay promptly and before delinquency all taxes and assessments with respect
to the Collateral and shall deliver to Secured Party, on demand, a receipt or
other evidence satisfactory to Secured Party of the payment thereof.

     (h)  Debtor shall, at any time upon demand of Secured Party, exhibit to and
allow inspection by Secured Party of the Collateral and shall, promptly upon
request from Secured Party, deliver to Secured Party an accurate, current
inventory of the Collateral in such detail as Secured Party shall reasonably
require.

     (i)  Debtor shall keep (or cause the tenant under the Percentage Lease to
keep) the Collateral insured as required in the Deed of Trust.  The provisions
of the Deed of Trust shall apply with respect to application of insurance
proceeds following any damage to the Collateral covered by insurance.

     (j)  Provided Secured Party shall have given Debtor reasonable prior notice
and an opportunity to cure, and subject to the terms and conditions of the Deed
of Trust, Secured Party, at its option, may discharge taxes, liens, security
interests and other encumbrances against the Collateral (except for any such
liens, security interests or encumbrances provided in or permitted by the terms
of the Deed of Trust) and may pay for the repair of any damage to the
Collateral, the maintenance and preservation thereof and insurance thereon if
not otherwise promptly paid or performed by Debtor.  Debtor shall reimburse
Secured Party on demand for any payments as made, plus interest thereon at the
Default Interest Rate (as defined in the Note) from the date of such payment.
Any such payments made by Secured Party, together with interest thereon, shall
be secured by the Collateral as provided herein and by all of the other Loan
Documents securing all or any part of the indebtedness evidenced by the Note.

     (k)  From time to time Debtor shall execute financing statements and other
documents in form satisfactory to Secured Party (and pay the cost of filing or
recording thereof in whatever public offices Secured Party deems necessary) and
perform such other acts as Secured Party may reasonably request to perfect and
maintain a valid security interest in the Collateral, including, upon Secured
Party's request, transferring to Secured Party any Collateral in which a
security interest may be perfected only by taking possession thereof.

     (l)  Debtor shall not move its principal place of business or its books and
records relating to the Collateral without first giving thirty (30) days' prior
written notice thereof to Secured Party.

                                       6
<PAGE>

     (m)  Debtor shall not change its name or otherwise do anything which would
make the information set forth in the financing statements relating to the
Collateral materially misleading without first giving thirty (30) days' prior
written notice thereof to Secured Party.

     6.   EVENTS OF DEFAULT:  An Event of Default (as defined in the Deed of
          -----------------
Trust) shall constitute an Event of Default under this Security Agreement.

An Event of Default under this Security Agreement shall constitute an Event of
Default under each of the other Loan Documents.

     7.   RIGHTS AND REMEDIES:
          -------------------

     (a)  Upon the occurrence of an Event of Default hereunder, Secured Party
may, without further notice or demand, declare any of the Obligations
immediately due and payable and this Security Agreement in default, and
thereafter, Secured Party shall have the remedies of a secured party under the
Uniform Commercial Code as then in effect in the State and all other rights and
remedies at law or in equity available to secured creditors in the State,
including, without limitation, the right to take possession of the Collateral
and any proceeds thereof.  To take possession, Secured Party may enter upon any
premises where the Collateral is kept and remove the Collateral or any proceeds
therefrom to the extent permitted by applicable law.  If notice is required by
law, ten (10) days' prior written notice given to Debtor (pursuant to the notice
provisions contained in the Deed of Trust) of the time and place of any public
sale of the Collateral or of the time of or after which any private sale or any
other intended disposition of the Collateral is to be made shall be deemed to be
reasonable notice to Debtor.  No such notice shall be necessary if the
Collateral is perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market.  Proceeds of any sale or other
disposition of the Collateral may be applied to the Obligations in whatever
order or priority Secured Party may subjectively determine.

     (b)  During the time that Secured Party is in possession of the Collateral,
and to the extent permitted by law, Secured Party shall have the right to hold,
use, operate, manage and control all or any part of the Collateral, to make all
such repairs, replacements, alterations and improvements of the Collateral it
deems proper, and to demand, collect and retain all earnings, proceeds and other
sums due or to become due with respect to the Collateral, accounting only for
the net earnings arising from such use and charging against receipts from such
use all costs, expenses, charges, damage or loss by reason of such use.
Notwithstanding the foregoing, Secured Party shall be entitled also, without
further notice or demand and to the extent permitted by law, to have a receiver
appointed to take charge of all or any part of the Collateral, exercising all of
the rights specified in the immediately preceding sentence.

     (c)  Debtor shall pay to Secured Party on demand all reasonable expenses
(including, without limitation, reasonable attorneys' fees, costs and
disbursements) actually incurred by Secured Party incidental to taking, holding,
preparing for sale, selling and the like or otherwise dealing with the
Collateral, or actually incurred by Secured Party otherwise in enforcing any
term or condition of this Security Agreement or any other Loan Document,
together with interest thereon at the Default Interest Rate (as defined in the
Note), and all such expenses and interest

                                       7
<PAGE>

shall be secured by the Collateral as provided herein and by all of the other
Loan Documents securing all or any part of the indebtedness evidenced by the
Note.

     (d)  Secured Party may require Debtor to assemble the Collateral and make
it available at a place Secured Party designates which is mutually convenient to
allow Secured Party to take possession or dispose of the Collateral.

     (e)  Any and all statements of fact or other recitals made in any bill of
sale or assignment or other instrument evidencing any foreclosure sale hereunder
as to nonpayment of indebtedness, as to the occurrence of any default, as to
Secured Party having declared all of such indebtedness to be due and payable, or
as to notice of time, place and terms of sale and of the properties to be sold
having been duly given by Secured Party shall be taken as prima facie evidence
of the truth of the facts so stated and recited, absent manifest error.

     (f)  Secured Party may appoint or delegate any one or more persons or
entities as agent to perform any act or acts necessary or incident to any sale
of the Collateral held by Secured Party, including the sending of notices and
the conduct of the sale, in the name and on behalf of Secured Party.

     (g)  Any sale made pursuant to the provisions of this paragraph shall be
deemed to have been a public sale conducted in a commercially reasonable manner
if held contemporaneously with the foreclosure sale as provided in the Deed of
Trust upon giving the same notice with respect to the sale of the Collateral
hereunder as is required by the Deed of Trust.

     8.   GENERAL:
          -------

     (a)  The terms and provisions hereof shall be binding upon and inure to the
benefit of Debtor and Secured Party and their respective heirs, executors, legal
representatives, successors, successors-in-title and assigns, whether by
voluntary action of the parties or by operation of law.  All personal pronouns
used herein, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural and vice versa.
Titles of articles and sections are for convenience only and in no way define,
limit, amplify or describe the scope or intent of any provisions hereof.  Time
is of the essence with respect to all provisions of this Security Agreement.
This Security Agreement and the other Loan Documents contain the entire
agreements between the parties hereto relating to the subject matter hereof and
thereof and all prior agreements relative hereto and thereto which are not
contained herein or therein are terminated.

     (b)  This Security Agreement shall not be construed to derogate from or
impair the lien or provisions of the Deed of Trust with respect to any property
described therein which is real property and/or fixtures or which the parties
have agreed to treat as real property and/or fixtures.  The financing statement
filed and the fixture filing recorded pursuant to this Security Agreement are,
in part, for the protection of Secured Party if any court shall at any time hold
that notice of Secured Party's priority of interest in any property described in
the Deed of Trust must, in order to be effective against a particular class of
Persons, including, but not limited to, the

                                       8
<PAGE>

Federal government or any subdivision or entity thereof, be filed in the Uniform
Commercial Code records.

     (c)  Debtor hereby indemnifies and holds harmless Secured Party, and its
employees, officers and agents, from and against any and all liabilities, claims
and obligations which may be incurred, asserted or imposed upon them or any of
them as a result of or in connection with any use, operation, lease or
consumption of any of the Collateral (except to the extent any such liabilities,
claims or obligations are finally determined by a court of competent
jurisdiction to have resulted from Secured Party's willful misconduct or gross
negligence) or as a result of Secured Party's seeking to obtain performance of
any of the Obligations.

     (d)  Without affecting any obligations of Debtor under this Security
Agreement and without prejudice to any of its rights hereunder, Secured Party
may, without notice or demand, renew, extend or grant indulgences with respect
to any of the Obligations, take or release any other collateral as security for
any of the Obligations, or add or release any guarantor, endorser, surety or
other party to any of the Obligations.

     (e)  Debtor hereby waives diligence, presentment, protest, demand and,
except as provided in the Loan Documents or as required by applicable law,
notice of every kind, as well as the right to require Secured Party to proceed
against any Person liable for the payment or performance of any of the
Obligations or to foreclose upon, sell or otherwise realize upon or collect or
apply any other property, real or personal, securing any of the Obligations, as
a condition or prior to proceeding hereunder.

     (f)  Unless the context otherwise requires, or unless otherwise defined
herein, all terms used herein which are defined in the Uniform Commercial Code
as in effect in the State shall have the meanings therein stated.

     (g)  Notwithstanding anything to the contrary contained in this Agreement,
the liability of Debtor and its officers, directors, general partners, managers,
members and principals for the indebtedness secured hereby and for the
performance of the other agreements, covenants and obligations contained herein
and in the Loan Documents shall be limited as set forth in Section 2.6 of the
Note.

            [THE BALANCE OF THIS PAGE WAS LEFT BLANK INTENTIONALLY]

                                       9
<PAGE>

     IN WITNESS WHEREOF, this Agreement is executed and delivered as of the
first date set forth hereinabove.

                                       DEBTOR:

                                       APPLE SUITES SPE III, INC.,
                                       a Virginia corporation

                                       By:/s/ Glade M. Knight
                                          -------------------------------------
                                          Name:  Glade M. Knight
                                          Title:  President

<PAGE>

                                   EXHIBIT A
                                   ---------

                               Legal Description

                                   [OMITTED]

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