Document:

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                                                                     EXHIBIT 4.1

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

                                PROMISSORY NOTE
                                ---------------

$10,700,000.00                                                      June 1, 2001

     FOR VALUE RECEIVED, the undersigned, APPLE SUITES SPE III, INC., a Virginia
corporation, ("Maker"), having an address at 9 North Third Street, Richmond,
               -----
Virginia 23219, promises to pay to the order of FIRST UNION NATIONAL BANK, a
national banking association ("Payee"), at the office of Payee at One First
                               -----
Union Center, 301 South College Street, Mailcode NC0166, Charlotte, North
Carolina 28288, or at such other place as Payee may designate to Maker in
writing from time to time, the principal sum of Ten Million Seven Hundred
Thousand and No/100 Dollars ($10,700,000.00), together with interest on so much
thereof as is from time to time outstanding and unpaid, from the date of the
advance of the principal evidenced hereby, at the rate of eight and fifteen one-
hundredths percent (8.15%) per annum (the "Note Rate"), together with all other
                                           ---------
amounts due hereunder or under the other Loan Documents (as defined in the
Security Instrument), in lawful money of the United States of America, which
shall at the time of payment be legal tender in payment of all debts and dues,
public and private.

                       ARTICLE I. - TERMS AND CONDITIONS
                       ---------------------------------

     1.1. Computation of Interest.  Interest shall be computed hereunder based
          -----------------------
on a 360-day year and based on the actual number of days elapsed for any month
in which interest is being calculated. Interest shall accrue from the date on
which funds are advanced hereunder (regardless of the time of day) through and
including the day on which funds are credited pursuant to Section 1.2 hereof.

     1.2. Payment of Principal and Interest.  Payments in federal funds
          ---------------------------------
immediately available at the place designated for payment received by Payee
prior to 2:00 p.m. local time at said place of payment on a business day shall
be credited prior to close of business, while other payments, at the option of
Payee, may not be credited until immediately available to Payee in federal funds
at the place designated for payment prior to 2:00 p.m. local time at said place
of payment on a 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.
Such principal and interest shall be payable in equal consecutive monthly
installments of $83,650.38 each, beginning on the first day of the second full
calendar month following the date of this Note (or on the first day of the first
full calendar month following the date hereof, in the event the advance of the
principal amount evidenced by this Note is the first day of a calendar month)
(the "First Payment Date"), and continuing on the first day of each and every
      ------------------
calendar month thereafter through and including May 1, 2011 (each, a "Payment
                                                                      -------
Date").  On June 1, 2011 (the "Maturity Date"), the entire
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outstanding principal balance hereof, together with all accrued but unpaid
interest thereon, shall be due and payable in full.

     1.3.  Application of Payments.  So long as no Event of Default (as
           -----------------------
hereinafter defined) exists hereunder or under any other Loan Document, each
such monthly installment shall be applied first, to any amounts hereafter
advanced by Payee hereunder or under any other Loan Document, second, to any
late fees and other amounts payable to Payee, third, to the payment of accrued
interest and last to reduction of principal.

     1.4.  Payment of "Short Interest".  If the advance of the principal amount
           ---------------------------
evidenced by this Note is made on a date other than the first day of a calendar
month, Maker shall pay to Payee contemporaneously with the execution hereof
interest at the Note Rate for a period from the date hereof through and
including the last day of this calendar month.

     1.5.  Prepayment;  Defeasance.
           -----------------------

           (a) This Note may not be prepaid, in whole or in part (except as
otherwise specifically provided herein), at any time. In the event that Maker
wishes to have the Security Property (as hereinafter defined) released from the
lien of the Security Instrument (as hereinafter defined), Maker's sole option
shall be a Defeasance (as hereinafter defined) upon satisfaction of the terms
and conditions set forth in Section 1.5(d) hereof. This Note may be prepaid in
whole but not in part without premium or penalty on either of the last two (2)
Payment Dates occurring immediately prior to the Maturity Date provided (i)
written notice of such prepayment is received by Payee not more than ninety (90)
days and not less than thirty (30) days prior to the date of such prepayment,
and (ii) such prepayment is accompanied by all interest accrued hereunder
through and including the date of such prepayment and all other sums due
hereunder or under the other Loan Documents. If, upon any such permitted
prepayment on either of the last two (2) Payment Dates occurring immediately
prior to the Maturity Date, the aforesaid prior written notice has not been
timely received by Payee, there shall be due a prepayment fee equal to, an
amount equal to the lesser of (i) thirty (30) days' interest computed at the
Note Rate on the outstanding principal balance of this Note so prepaid and (ii)
interest computed at the Note Rate on the outstanding principal balance of this
Note so prepaid that would have been payable for the period from, and including,
the date of prepayment through the Maturity Date of this Note as though such
prepayment had not occurred.

          (b)  If, prior to the date which is two (2) years after the "startup
day," within the meaning of Section 860G(a) (9) of the Internal Revenue Code of
1986, as amended from time to time or any successor statute (the "Code"), of a
                                                                  ----
"real estate mortgage investment conduit" (a "REMIC"), within the meaning of
                                              -----
Section 860D of the Code, that holds this Note (the "Lockout Expiration Date"),
                                                     -----------------------
the indebtedness evidenced by this Note shall have been declared due and payable
by Payee pursuant to Article II hereof or the provisions of any other Loan
Document due to the existence of an Event of Default (as defined in the Security
Instrument) by Maker, then, in addition to the indebtedness evidenced by this
Note being immediately due and payable, there shall also then be immediately due
and payable a sum equal to the interest which would have accrued on the
principal balance of this Note at the Note Rate from the date of such
acceleration to the Lock-out Expiration Date, together with a prepayment

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fee in an amount equal to the Yield Maintenance Premium (as hereinafter defined)
based on the entire indebtedness on the date of such acceleration. If such
acceleration is on or following the Lock-out Expiration Date, the Yield
Maintenance Premium shall also then be immediately due and payable as though
Maker were prepaying the entire indebtedness on the date of such acceleration.
In addition to the amounts described in the two preceding sentences, in the
event of any such acceleration or tender of payment of such indebtedness occurs
or is made on or prior to the first (1st) anniversary of the date of this Note,
there shall also then be immediately due and payable an additional prepayment
fee of three percent (3%) of the principal balance of this Note. The term "Yield
                                                                           -----
Maintenance Premium" shall mean an amount equal to the greater of (A) two
-------------------
percent (2.0%) of the principal amount being prepaid, and (B) the present value
of a series of payments each equal to the Payment Differential (as hereinafter
defined) and payable on each Payment Date over the remaining original term of
this Note and on the Maturity Date, discounted at the Reinvestment Yield (as
hereinafter defined) for the number of months remaining as of the date of such
prepayment to each such Payment Date and the Maturity Date.  The term "Payment
                                                                       -------
Differential" shall mean an amount equal to (i) the Note Rate less the
------------
Reinvestment Yield, divided by (ii) twelve (12) and multiplied by (iii) the
principal sum outstanding under this Note after application of the constant
monthly payment due under this Note on the date of such prepayment, provided
that the Payment Differential shall in no event be less than zero. The term
"Reinvestment Yield" shall mean an amount equal to the lesser of (i) the yield
-------------------
on the U.S. Treasury issue (primary issue) with a maturity date closest to the
Maturity Date, or (ii) the yield on the U.S. Treasury issue (primary issue) with
a term equal to the remaining average life of the indebtedness evidenced by this
Note, with each such yield being based on the bid price for such issue as
published in the Wall Street Journal on the date that is fourteen (14) days
prior to the date of such prepayment set forth in the notice of prepayment (or,
if such bid price is not published on that date, the next preceding date on
which such bid price is so published) and converted to a monthly compounded
nominal yield.  In the event that any prepayment fee is due hereunder, Payee
shall deliver to Maker a statement setting forth the amount and determination of
the prepayment fee, and, provided that Payee shall have in good faith applied
the formula described above, Maker shall not have the right to challenge the
calculation or the method of calculation set forth in any such statement in the
absence of manifest error, which calculation may be made by Payee on any day
during the fifteen (15) day period preceding the date of such prepayment.  Payee
shall not be obligated or required to have actually reinvested the prepaid
principal balance at the Reinvestment Yield or otherwise as a condition to
receiving the prepayment fee.

          (c)  Partial prepayments of this Note shall not be permitted, except
for partial prepayments resulting from Payee's election to apply insurance or
condemnation proceeds to reduce the outstanding principal balance of this Note
as provided in the Security Instrument, in which event no prepayment fee or
premium shall be due unless, at the time of either Payee's receipt of such
proceeds or the application of such proceeds to the outstanding principal
balance of this Note, an Event of Default, or an event which, with notice or the
passage of time, or both, would constitute an Event of Default, shall have
occurred, which default or Event of Default is unrelated to the applicable
casualty or condemnation, in which event the applicable prepayment fee or
premium shall be due and payable based upon the amount of the prepayment. No
notice of prepayment shall be required under the circumstances specified in the
preceding sentence. No principal amount repaid may be reborrowed. Any such
partial prepayments of principal shall be

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applied to the unpaid principal balance evidenced hereby but such application
shall not reduce the amount of the fixed monthly installments required to be
paid pursuant to Section 1.2 above until all principal is paid in full. Except
as otherwise expressly provided in this Section 1.5(c) and in Section 1.5(b)
above, the prepayment fees provided above shall be due, to the extent permitted
by applicable law, under any and all circumstances where all or any portion of
this Note is paid prior to the Maturity Date, whether such prepayment is
voluntary or involuntary, including, without limitation, if such prepayment
results from Payee's exercise of its rights upon the occurrence and continuances
of an Event of Default by Maker and acceleration of the Maturity Date of this
Note (irrespective of whether foreclosure proceedings have been commenced), and
shall be in addition to any other sums due hereunder or under any of the other
Loan Documents. No tender of a prepayment of this Note with respect to which a
prepayment fee is due shall be effective unless such prepayment is accompanied
by the applicable prepayment fee.

          (d)  (i)  At any time after the Lockout Expiration Date, and provided
no Event of Default has occurred and is continuing hereunder or under any of the
other Loan Documents, at Maker's option, Payee shall cause the release of the
Security Property from the lien of the Security Instrument and the other Loan
Documents (a "Defeasance") upon the satisfaction of the following conditions:
              ----------

               (A)  Maker shall give not more than ninety (90) days' or less
          than sixty (60) days' prior written notice to Payee specifying the
          date Maker intends for the Defeasance to be consummated (the "Release
                                                                        -------
          Date"), which date shall be a Payment Date.

               (B)  All accrued and unpaid interest and all other sums due under
          this Note and under the other Loan Documents specifically related to
          this Note up to and including the Release Date shall be paid in full
          on or prior to the Release Date.

               (C)  Maker shall deliver to Payee on or prior to the Release
                    Date:

               (1)  a sum of money in immediately available funds (the
                    "Defeasance Deposit") equal to the outstanding principal
                    -------------------
                    balance of this Note plus an amount, if any, which together
                    with the outstanding principal balance of this Note, shall
                    be sufficient to enable Payee to purchase, through means and
                    sources customarily employed and available to Payee, for the
                    account of Maker, direct, non-callable obligations of the
                    United States of America that provide for payments prior,
                    but as close as possible, to all successive monthly Payment
                    Dates occurring after the Release Date and to the Maturity
                    Date, with each such payment being equal to or greater than
                    the amount of the corresponding installment of principal
                    and/or interest required to be paid under this Note
                    (including, but not limited to, all amounts due on the
                    Maturity Date) for the balance of the term hereof (the
                    "Defeasance Collateral"), each of which shall
                    ----------------------

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                    be duly endorsed by the holder thereof as directed by Payee
                    or accompanied by a written instrument of transfer in form
                    and substance satisfactory to Payee in its sole discretion
                    (including, without limitation, such instruments as may be
                    required by the depository institution holding such
                    securities or the issuer thereof, as the case may be, to
                    effectuate book-entry transfers and pledges through the
                    book-entry facilities of such institution) in order to
                    perfect upon the delivery of the Defeasance Security
                    Agreement (as hereinafter defined) the first priority
                    security interest in the Defeasance Collateral in favor of
                    Payee in conformity with all applicable state and federal
                    laws governing granting of such security interests.

               (2)  A pledge and security agreement, in form and substance
                    satisfactory to Payee in its sole discretion, creating a
                    first priority security interest in favor of Payee in the
                    Defeasance Collateral (the "Defeasance Security Agreement"),
                                                -----------------------------
                    which shall provide, among other things, that any excess
                    received by Payee from the Defeasance Collateral over the
                    amounts payable by Maker hereunder shall be refunded to
                    Maker promptly after each monthly Payment Date.

               (3)  A certificate of Maker certifying that all of the
                    requirements of Maker set forth in this subsection 1.5(d)(i)
                    have been satisfied.

               (4)  An opinion of counsel for Maker in form and substance and
                    delivered by counsel satisfactory to Payee in its sole
                    discretion stating, among other things, that (w) Payee has a
                    perfected first priority security interest in the Defeasance
                    Collateral, (x) the Defeasance Security Agreement is
                    enforceable against Maker in accordance with its terms, (y)
                    the contemplated defeasance will not result in any deemed
                    exchange of the Note pursuant to Section 1001 of the Code
                    and will not adversely affect the Note's status as
                    indebtedness for Federal income tax purposes and (z) any
                    trust formed as a REMIC in connection with a Secondary
                    Market Transaction will not fail to maintain its status as
                    REMIC as a result of such defeasance or be subject to a tax
                    on a prohibited transaction under Section 860(f)(a) of the
                    Code.

               (5)  Maker and any guarantor or indemnitor of Maker's obligations
                    under the Loan Documents for which Maker has recourse
                    liability executes and delivers to Payee such documents and
                    agreements as Payee shall reasonably require to evidence and
                    effectuate the ratification of such recourse liability and
                    guaranty or indemnity, respectively; provided that Maker and
                    each such guarantor or indemnitor shall be released and
                    relieved from any of its

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                    obligations under this Note and the other Loan Documents and
                    under any guaranty or indemnity agreement executed in
                    connection with the loan evidenced by this Note for any acts
                    or events occurring or obligations arising after a
                    Defeasance which are not caused by or arising out of an any
                    acts or events occurring or obligations arising prior to or
                    simultaneously with a Defeasance.

               (6)  Evidence from any Rating Agency (as defined in the Security
                    Instrument) confirming that such Defeasance and release of
                    the Security Property from the lien of the Security
                    Instrument shall not result in a requalification, 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 Payee's good faith judgment,
                    such Defeasance shall not have an adverse affect on the
                    level of rating obtainable in connection with the loan
                    evidenced hereby.

               (7)  Such other certificates, documents or instruments as Payee
                    may reasonably require.

               (8)  Payment of all reasonable fees, costs, expenses and charges
                    incurred by Payee in connection with the Defeasance of the
                    Security Property and the purchase of the Defeasance
                    Collateral, including, without limitation, all reasonable
                    legal fees and costs and expenses incurred by Payee or its
                    agents in connection with release of the Security Property,
                    review of the proposed Defeasance Collateral and preparation
                    of the Defeasance Security Agreement and related
                    documentation, any revenue, documentary, stamp, intangible
                    or other taxes, charges or fees due in connection with
                    substitution of the Defeasance Collateral for the Security
                    Property shall be paid on or before the Release Date.
                    Without limiting Maker's obligations with respect thereto,
                    Payee shall be entitled to deduct all such fees, costs,
                    expenses and charges from the Defeasance Deposit to the
                    extent of any portion of the Defeasance Deposit which
                    exceeds the amount necessary to purchase the Defeasance
                    Collateral.

               (D)  In connection with the Defeasance Deposit, Maker hereby
          authorizes and directs Payee using the means and sources customarily
          employed and available to Payee to use the Defeasance Deposit to
          purchase for the account of Maker the Defeasance Collateral.
          Furthermore, the Defeasance Collateral shall be arranged such that
          payments received from such Defeasance Collateral shall be paid
          directly to Payee to be applied on account of the indebtedness of this
          Note. Any part of the Defeasance Deposit in excess of the amount
          necessary to purchase the Defeasance Collateral and to pay the other
          and related costs Maker is obligated to pay under this Section 1.5
          shall be refunded to Maker.

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          (ii)  Upon compliance with the requirements of subsection 1.5(d)(i),
     the Security Property shall be released from the lien of the Security
     Instrument and the other Loan Documents, and the Defeasance Collateral
     shall constitute collateral which shall secure this Note and all other
     obligations under the Loan Documents. Payee will, at Maker's reasonable
     expense, execute and deliver any agreements reasonably requested by Maker
     to release the lien of the Security Instrument from the Security Property.

          (iii) Upon the release of the Security Property in accordance with
     this Section 1.5(d), Maker shall assign all its obligations and rights
     under this Note, together with the pledged Defeasance Collateral, to a
     newly created successor entity which complies with the terms of Section
     1.33 of the Security Instrument designated by Maker and approved by Payee
     in its sole discretion. Such successor entity shall execute an assumption
     agreement in form and substance satisfactory to Payee in its sole
     discretion pursuant to which it shall assume Maker's obligations under this
     Note and the Defeasance Security Agreement. As conditions to such
     assignment and assumption, Maker shall (x) deliver to Payee an opinion of
     counsel in form and substance and delivered by counsel satisfactory to
     Payee in its sole discretion stating, among other things, that such
     assumption agreement is enforceable against Maker and such successor entity
     in accordance with its terms and that this Note and the Defeasance Security
     Agreement as so assumed, are enforceable against such successor entity in
     accordance with their respective terms, and (y) pay all costs and expenses
     (including, but not limited to, reasonable legal fees) incurred by Payee or
     its agents in connection with such assignment and assumption (including,
     without limitation, the review of the proposed transferee and the
     preparation of the assumption agreement and related documentation). Upon
     such assumption, Maker shall be relieved of its obligations hereunder,
     under the other Loan Documents other than as specified in Section
     1.5(d)(C)(5) above and under the Defeasance Security Agreement.

     1.6. Security.  The indebtedness evidenced by this Note and the obligations
          --------
created hereby are secured by, among other things, that certain mortgage, deed
of trust or deed to secure debt and security agreement (the "Security
                                                             --------
Instrument") from Maker for the benefit of Payee, dated of even date herewith,
----------
covering property located in Boulder County, Colorado. Some of the Loan
Documents are to be filed for record on or about the date hereof in the
appropriate public records.

                             ARTICLE II. - DEFAULT
                             ---------------------

     2.1. Events of Default.  It is hereby expressly agreed that should any
          -----------------
default occur in the payment of principal or interest as stipulated above and
such payment is not made within seven (7) days of the date such payment is due
(provided that no grace period is provided for the payment of principal and
interest due on the Maturity Date), or should any other Event of Default occur
and be continuing, the indebtedness evidenced hereby, including all sums
advanced or accrued hereunder or under any other Loan Document, and all unpaid
interest accrued thereon, shall, at the option of Payee and without notice to
Maker, at once become due and payable and may be collected forthwith, whether or
not there has been a prior demand for payment and regardless of the stipulated
date of maturity.

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     2.2.  Late Charges.  In the event that any payment is not received by Payee
           ------------
within seven (7) days of the date when due, then, in addition to any default
interest payments due hereunder, Maker shall also pay to Payee a late charge in
an amount equal to five percent (5%) of the amount of such overdue payment.

     2.3.  Default Interest Rate.  So long as any Event of Default exists
           ---------------------
hereunder, regardless of whether or not there has been an acceleration of the
indebtedness evidenced hereby, and at all times after maturity of the
indebtedness evidenced hereby (whether by acceleration or otherwise), interest
shall accrue on the outstanding principal balance of this Note, from the date
due until the date credited, at a rate per annum equal to four percent (4%) in
excess of the Note Rate, or, if such increased rate of interest may not be
collected under applicable law, then at the maximum rate of interest, if any,
which may be collected from Maker under applicable law (the "Default Interest
                                                             ----------------
Rate"), and such default interest shall be immediately due and payable.
----

     2.4.  Maker's Agreements.  Maker acknowledges that it would be extremely
           ------------------
difficult or impracticable to determine Payee's actual damages resulting from
any late payment or default, and such late charges and default interest are
reasonable estimates of those damages and do not constitute a penalty. The
remedies of Payee in this Note or in the Loan Documents, or at law or in equity,
shall be cumulative and concurrent, and may be pursued singly, successively or
together, in Payee's discretion.

     2.5.  Maker to Pay Costs.  In the event that this Note, or any part hereof,
           ------------------
is collected by or through an attorney-at-law, Maker agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees.

     2.6.  Exculpation.  Notwithstanding anything in this Note or the Loan
           -----------
Documents to the contrary, but subject to the qualifications hereinbelow set
forth, Payee agrees that:

           (a)      Maker shall be liable upon the indebtedness evidenced hereby
and for the other obligations arising under the Loan Documents to the full
extent (but only to the extent) of the security provided for in the Loan
Documents, the same being all properties (whether real or personal), rights,
estates and interests now or at any time hereafter securing the payment of this
Note and/or the other obligations of Maker under the Loan Documents pursuant to
the terms thereof (collectively, the "Security Property");
                                      -----------------

           (b)      if a default occurs in the timely and proper payment of all
or any part of such indebtedness evidenced hereby or in the timely and proper
performance of the other obligations of Maker under the Loan Documents, any
judicial proceedings brought by Payee against Maker shall be limited to the
preservation, enforcement and foreclosure, or any thereof, of the liens,
security titles, estates, assignments, rights and security interests now or at
any time hereafter securing the payment of this Note and/or the other
obligations of Maker under the Loan Documents pursuant to the terms thereof, and
no attachment, execution or other writ of process shall be sought, issued or
levied upon any assets, properties or funds of Maker other than the Security
Property, except with respect to the liability described below in this section;
and

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          (c)  in the event of a foreclosure of such liens, security titles,
estates, assignments, rights or security interests with respect to the Security
Property securing the payment of this Note and/or the other obligations of Maker
under the Loan Documents, no judgment for any deficiency upon the indebtedness
evidenced hereby shall be sought or obtained by Payee against Maker, except with
respect to the liability described below in this section; provided, however,
that, notwithstanding the foregoing provisions of this section, Maker shall be
fully and personally liable and subject to legal action (i) for misapplication
or misappropriation by Maker of proceeds paid under any insurance policies (or
paid to Maker as a result of any other claim or cause of action against any
person or entity) by reason of damage, loss or destruction to all or any portion
of the Security Property, to the full extent of such proceeds not previously
delivered to Payee, but which, under the terms of the Loan Documents, should
have been delivered to Payee, (ii) for misapplication or misappropriation by
Maker of proceeds or awards resulting from the condemnation or other taking in
lieu of condemnation of all or any portion of the Security Property, to the full
extent of such proceeds or awards not previously delivered to Payee, but which,
under the terms of the Loan Documents, should have been delivered to Payee,
(iii) for misapplication or misappropriation by Maker of all tenant security
deposits or other refundable deposits paid to or held by Maker or any other
person or entity under the control or direction of Maker, if any, in connection
with leases of all or any portion of the Security Property which are not applied
in accordance with the terms of the applicable lease or other agreement, (iv)
for misapplication or misappropriation of rent and other payments received from
tenants under leases of all or any portion of the Security Property paid more
than one (1) month in advance, except as otherwise expressly provided or
permitted in the Percentage Lease (as defined in the Security Instrument), (v)
for misapplication or misappropriation by Maker of rents, issues, profits and
revenues of all or any portion of the Security Property received by Maker or any
other person or entity under the control or direction of Maker that are
applicable to a period after the occurrence and continuance of any Event of
Default or any event which, with notice or the passage of time, or both, would
constitute an Event of Default, hereunder or under the Loan Documents which are
not either applied to the ordinary and necessary expenses or capital
expenditures in connection with owning and operating the Security Property or
paid to Payee or otherwise as contemplated or permitted by the Loan Documents,
(vi) for waste committed on the Security Property, damage to the Security
Property as a result of the intentional misconduct or gross negligence of Maker
or any of its officers, general partners or members, as the case may be,
Indemnitor (as defined in the Indemnity Agreement (as hereinafter defined)), or
any agent or employee of any such persons, or any removal of any portion of the
Security Property not repaired as required by the Loan Documents (except as
otherwise provided in the Percentage Lease), in violation of the terms of the
Loan Documents, to the full extent of the losses or damages actually incurred by
Payee on account of such occurrence, (vii) for failure by Maker to pay any valid
taxes, assessments, mechanic's liens, materialmen's liens or other liens which
could create liens on any portion of the Security Property which would be
superior to the lien or security title of the Security Instrument or the other
Loan Documents except, with respect to any such taxes or assessments, to the
extent that funds have been deposited with Payee pursuant to the terms of the
Security Instrument specifically for the applicable taxes or assessments and not
applied by Payee to pay such taxes and assessments, (viii) for all obligations
and indemnities of Maker under Section 1.31 of the Security Instrument and the
Environmental Indemnity Agreement (as hereinafter defined) relating to hazardous
or toxic substances or radon or compliance with environmental laws and
regulations, and (ix) for fraud, material

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<PAGE>

misrepresentation or failure to disclose a material fact by Maker or any of its
officers, general partners or members, as the case may be, Indemnitor or any
agent, employee or other person authorized to make statements, representations
or disclosures on behalf of Maker, any officer, general partner or member, as
the case may be, of Maker orIndemnitor, to the full extent of any losses,
damages and expenses actually incurred by Payee on account thereof. Nothing
contained in this section shall (1) be deemed to be a release or impairment of
the indebtedness evidenced by this Note or the other oblig ations of Maker under
the Loan Documents or the lien of the Loan Documents upon the Security Property,
or (2) preclude Payee from foreclosing the Loan Documents in case of any Event
of Default or from enforcing any of the other rights of Payee except as stated
in this section, or (3) limit or impair in any way whatsoever (A) the Indemnity
and Guaranty Agreement (the "Indemnity Agreement") or (B) the Environmental
                            --------------------
Indemnity Agreement (the "Environmental Indemnity Agreement"), each of even date
                          ---------------------------------
herewith executed and delivered in connection with the indebtedness evidenced by
this Note or release, relieve, reduce, waive or impair in any way whatsoever,
any obligation of any party to the Indemnity Agreement or the Environmental
Indemnity Agreement.

     Notwithstanding anything to the contrary in this Note, the Security
Instrument or any of the other Loan Documents, Payee shall not be deemed to have
waived any right which Payee may have under Section 506(a), 506(b), 1111(b) or
any other provisions of the U.S. Bankruptcy Code to file a claim for the full
amount of the indebtedness evidenced hereby or secured by the Security
Instrument or any of the other Loan Documents or to require that all collateral
shall continue to secure all of the indebtedness owing to Payee in accordance
with this Note, the Security Instrument and the other Loan Documents.

                       ARTICLE III. - GENERAL CONDITIONS
                       ---------------------------------

     3.1. No Waiver; Amendment.  No failure to accelerate the indebtedness
          --------------------
evidenced hereby by reason of default hereunder, acceptance of a partial or past
due payment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a reinstatement of the indebtedness evidenced
hereby or as a waiver of such right of acceleration or of the right of Payee
thereafter to insist upon strict compliance with the terms of this Note, or (ii)
to prevent the exercise of such right of acceleration or any other right granted
hereunder or by any applicable laws; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or in conflict
with the foregoing. No extension of the time for the payment of this Note or
any installment due hereunder made by agreement with any person now or hereafter
liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in
whole or in part, unless Payee agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.

     3.2. Waivers.  Presentment for payment, demand, protest and notice of
          -------
demand, protest and nonpayment and all other notices are hereby waived by Maker.
Maker hereby further waives and renounces, to the fullest extent permitted by
law, all rights to the benefits of any moratorium, reinstatement, marshaling,
forbearance, valuation, stay, extension, redemption, appraisement, exemption and
homestead now or hereafter provided by the Constitution and laws

                                       10
<PAGE>

of the United States of America and of each state thereof, both as to itself and
in and to all of its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note or the other Loan
Documents.

     3.3. Limit of Validity.  The provisions of this Note and of all agreements
          -----------------
between Maker and Payee, whether now  existing or hereafter arising and whether
written or oral, including, but not limited to, the Loan Documents, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of demand or acceleration of the maturity of this Note or otherwise,
shall the amount contracted for, charged, taken, reserved, paid or agreed to be
paid  to Payee for the use, forbearance or detention of the money loaned under
this Note ("Interest") 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 Maker and Payee 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, Payee 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 this Note in the inverse order of its maturity (whether or not then
due) or, at the option of Payee, be paid over to Maker, and not to the payment
of Interest. All Interest (including any amounts or payments judicially or
otherwise under the law deemed to be Interest) contracted for, charged, taken,
reserved, paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of this Note, including any extensions and renewals hereof until payment in
full of the principal balance of this Note so that the Interest thereon for such
full term will not exceed at any time the maximum amount permitted by applicable
law.  Additionally, to the extent permitted by applicable law now or hereafter
in effect, Payee may, at its option and from time to time, implement any other
method of computing the maximum lawful rate under the law of the State in which
the Security Property is located or under other applicable law by giving notice,
if required, to Maker as provided by applicable law now or hereafter in effect.
This Section 3.3 will control all agreements between Maker and Payee.
     -----------

     3.4. Use of Funds.  Maker hereby warrants, represents and covenants that
          ------------
the funds disbursed hereunder shall be used for business purposes.

     3.5. Unconditional Payment.  Maker is and shall be obligated to pay
          ---------------------
principal, interest and any and all other amounts which become payable hereunder
or under the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Payee hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Maker and shall not be discharged or satisfied with any prior payment thereof or
cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.

                                       11
<PAGE>

     3.6. Governing Law.  THIS NOTE SHALL BE INTERPRETED, CONSTRUED AND ENFORCED
          -------------
ACCORDING TO THE LAWS OF THE STATE IN WHICH THE SECURITY PROPERTY IS LOCATED.

     3.7. Waiver of Jury Trial.  MAKER, 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 EVIDENCED BY THIS NOTE OR ANY CONDUCT, ACT OR OMISSION OF
PAYEE OR MAKER, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS,
MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH
PAYEE OR MAKER, IN EACH OR THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE.

     3.8. Secondary Market.  Payee may sell, transfer and deliver the Loan
          ----------------
Documents to one or more investors in the secondary mortgage market.  In
connection with such sale, Payee may retain or assign responsibility for
servicing the loan evidenced by this 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.

     3.9. Dissemination of Information.  If Payee determines at any time to
          ----------------------------
sell, transfer or assign this Note, the Security Instrument and the 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"), Payee may
                                                   ----------
forward to each purchaser, transferee, assignee, servicer, participant,
investor, or their respective successors in such Participations and/or
Securities (collectively, the "Investor") or any Rating Agency (as defined in
                               --------
the Security Instrument) rating such Securities, each prospective Investor and
each of the foregoing's respective counsel, all documents and information which
Payee now has or may hereafter acquire relating to the debt evidenced by this
Note and to Maker, Indemnitor and the Security Property, which shall have been
furnished by Maker or Indemnitor as Payee determines necessary or desirable.

                    ARTICLE IV. - MISCELLANEOUS PROVISIONS
                    --------------------------------------

     4.1. The terms and provisions hereof shall be binding upon and inure to the
benefit of Maker and Payee 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 Note.  This Note and
the other Loan Documents contain the entire agreements between the

                                       12
<PAGE>

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.

     4.2. Maker's Tax Identification Number is 54-2037743.

        [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
     IN WITNESS WHEREOF, Maker has executed this Note as of the date first
written above.

                              MAKER:
                              -----

                              APPLE SUITES SPE III, INC.,
                              a Virginia corporation

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

                                       13<PAGE>

                                                                     EXHIBIT 4.2

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

                        INDEMNITY AND GUARANTY AGREEMENT
                        --------------------------------

     THIS INDEMNITY AND GUARANTY AGREEMENT (this "Agreement"), made as of June
                                                  ---------
1, 2001 by APPLE SUITES, INC., a Virginia corporation ("Indemnitor"), whose
                                                        ----------
address is 9 North Third Street, Richmond, Virginia 23219, Attention:  S. J.
Olander, in favor of FIRST UNION NATIONAL BANK, a national banking association
("Lender"), 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:

     WHEREAS, Apple Suites SPE III, Inc., a Virginia corporation ("Borrower"),
                                                                   --------
has obtained a loan (the "Loan") in the principal amount of Ten Million Seven
                          ----
Hundred Thousand and No/100 Dollars ($10,700,000.00) from Lender; and

     WHEREAS, the Loan is evidenced by a Promissory Note (the "Note") dated of
                                                               ----
even date herewith, executed by Borrower and payable to the order of Lender, in
the stated principal amount of Ten Million Seven Hundred Thousand and No/100
Dollars ($10,700,000.00), and is secured by a Deed of Trust and Security
Agreement dated of even date herewith (the "Deed of Trust") from Borrower for
                                            -------------
the benefit of Lender, encumbering that certain real property situated in the
County of Boulder, State of Colorado, as more particularly described on Exhibit
                                                                        -------
A attached hereto and incorporated herein by this reference, together with the
-
buildings, structures and other improvements now or hereafter located thereon
(the "Property") and by other Loan Documents (as defined in the Deed of Trust);
      --------
and

     WHEREAS, as a condition to making the Loan to Borrower, Lender has required
that Indemnitor indemnify Lender from and against and guarantee payment to
Lender of those items for which Borrower has recourse liability and for which
Lender has recourse against Borrower under the terms of Section 2.6 of the Note;
and

     WHEREAS, Indemnitor is the sole shareholder of Borrower, the extension of
the Loan to Borrower is of substantial benefit to Indemnitor and, therefore,
Indemnitor desires to indemnify Lender from and against and guarantee payment to
Lender of those items for which Borrower is personally liable and for which
Lender has recourse against Borrower under the terms of the Note and the Deed of
Trust.

     NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Indemnitor hereby covenants and agrees for the benefit of Lender, as follows:
<PAGE>

     1.   Indemnity and Guaranty.  Indemnitor hereby assumes liability for,
          ----------------------
hereby guarantees payment to Lender of, hereby agrees to pay, protect, defend
and save Lender harmless from and against, and hereby indemnifies Lender from
and against any and all liabilities, obligations, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees), causes of
action, suits, claims, demands and judgments of any nature or description
whatsoever (collectively, "Costs") which may at any time be actually imposed
                           -----
upon, incurred by or awarded against Lender as a result of:

          (a) Misapplication or misappropriation by Borrower of proceeds paid
under any insurance policies (or paid to Borrower as a result of any other claim
or cause of action against any person or entity) by reason of damage, loss or
destruction to all or any portion of the Property, to the full extent of such
proceeds not previously delivered to Lender, but which, under the terms of the
Loan Documents, should have been delivered to Lender;

          (b) Misapplication or misappropriation by Borrower of proceeds or
awards resulting from the condemnation or other taking in lieu of condemnation
of all or any portion of the Property to the full extent of such proceeds or
awards not previously delivered to Lender, but which, under the terms of the
Loan Documents, should have been delivered to Lender;

          (c) Misapplication or misappropriation by Borrower of all tenant
security deposits or other refundable deposits paid to or held by Borrower or
any other person or entity under the control or direction of Borrower, if any,
in connection with leases of all or any portion of the Property, which are not
applied in accordance with the terms of the applicable lease or other agreement;

          (d) Misapplication or misappropriation by Borrower of rent and other
payments received from tenants under leases of all or any portion of the
Property paid more than one (1) month in advance, except as otherwise expressly
provided or permitted in the Percentage Lease (as defined in the Deed of Trust);

          (e) Misapplication or misappropriation by Borrower of rents, issues,
profits and revenues of all or any portion of the Property received by Borrower
or any other person or entity under the control or direction of Borrower that
are applicable to a period after the occurrence and continuance of an Event of
Default under the Loan Documents, or any event which with notice or the passage
of time, or both, would constitute an Event of Default, which are not either
applied to the ordinary and necessary expenses or capital expenditures in
connection with owning and operating the Property or paid to Lender or otherwise
as contemplated or permitted by the Loan Documents;

          (f) Waste committed on the Property, or damage to the Property as a
result of the intentional misconduct or gross negligence of Borrower or any of
its officers, general partners or members, as the case may be, Indemnitor, or
any agent or employee of any such persons, or any removal of any portion of the
Property not repaired as required by the Loan Documents (except as otherwise
provided in the Percentage Lease) in violation of the terms of

                                       2
<PAGE>

the Loan Documents, to the full extent of the losses or damages actually
incurred by Lender on account of such occurrence;

          (g) Failure by Borrower to pay any valid taxes, assessments,
mechanic's liens, materialmen's liens or other liens which could create liens on
any portion of the Property which would be superior to the lien or security
title of the Deed of Trust or the other Loan Documents except, with respect to
any such taxes or assessments, to the extent that funds have been deposited with
Lender pursuant to the terms of the Deed of Trust specifically for the
applicable taxes or assessments and not applied by Lender to pay such taxes and
assessments;

          (h) All obligations and indemnities of Borrower under Section 1.31 of
the Deed of Trust and the Environmental Indemnity Agreement (as defined in the
Note) relating to hazardous or toxic substances or radon or compliance with
environmental laws and regulations; and

          (i) Fraud, material misrepresentation or failure to disclose a
material fact by Borrower or any of its officers, general partners or members,
as the case may be, Indemnitor, or any agent, employee or other person
authorized to make statements, representations or disclosures on behalf of
Borrower, any officer, general partner or member, as the case may be, of
Borrower, or Indemnitor, to the full extent of any losses, damages and expenses
actually incurred by Lender on account thereof.

     This is a guaranty of payment and performance and not of collection.  The
liability of Indemnitor for Costs under this Agreement shall be direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against Borrower or any other person (including, without limitation, other
guarantors, if any), nor against the collateral for the Loan.  Indemnitor waives
any right to require that an action be brought against Borrower or any other
person or to require that resort be made to any collateral for the Loan or to
any balance of any deposit account or credit on the books of Lender in favor of
Borrower or any other person.  In the event, on account 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, Borrower shall be
relieved of or fail to incur any debt, obligation or liability as provided in
the Loan Documents, Indemnitor shall nevertheless be fully liable for Costs
hereunder.  In an Event of Default under the Loan Documents which is not cured
within any applicable grace or cure period, Lender shall have the right to
enforce its rights, powers and remedies (including, without limitation,
foreclosure of all or any portion of the collateral for the Loan) thereunder or
hereunder, in any order, and all rights, powers and remedies available to Lender
in such event shall be non-exclusive and cumulative of all other rights, powers
and remedies provided thereunder or hereunder or by law or in equity.  If the
Costs guaranteed hereby are partially paid or discharged by reason of the
exercise of any of the remedies available to Lender, this Agreement shall
nevertheless remain in full force and effect, and Indemnitor shall remain liable
for all remaining Costs guaranteed hereby, even though any rights which
Indemnitor may have against Borrower may be destroyed or diminished by the
exercise of any such remedy.

                                       3
<PAGE>

     2.   Indemnification Procedures.
          --------------------------

          (a) If any action shall be brought against Lender based upon any of
the Costs for which Lender is indemnified hereunder, Lender shall notify
Indemnitor in writing thereof and Indemnitor shall promptly assume the defense
thereof, including, without limitation, the employment of counsel reasonably
acceptable to Lender and the negotiation of any settlement; provided, however,
                                                            --------  -------
that any failure of Lender to notify Indemnitor of such matter shall not impair
or reduce the obligations of Indemnitor hereunder.  In the event Indemnitor
shall fail to discharge or undertake to defend Lender against any Costs for
which Lender is indemnified hereunder, Lender may, at its sole option and
election, defend or settle such claim, loss or liability, and, upon reasonable
prior written notice to Indemnitor, Lender shall have the right, at the expense
of Indemnitor (which expense shall be included in Costs), to employ separate
counsel in any such action and to participate in the defense thereof.  The
liability of Indemnitor to Lender hereunder shall be conclusively established by
such settlement (absent manifest error), provided such settlement is made in
good faith, the amount of such liability to include both the settlement
consideration and the costs and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, actually incurred by Lender in
effecting such settlement.  In such event, such settlement consideration, costs
and expenses shall be included in Costs and Indemnitor shall pay the same as
hereinafter provided.

          (b) Indemnitor shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld or delayed:  (i) settle or
compromise any action, suit, proceeding or claim or consent to the entry of any
judgment that does not include as an unconditional term thereof the delivery by
the claimant or plaintiff to Lender of a full and complete written release of
Lender (in form, scope and substance satisfactory to Lender in its sole
discretion) from all liability in respect of such action, suit, proceeding or
claim and a dismissal with prejudice of such action, suit, proceeding or claim;
or (ii) settle or compromise any action, suit, proceeding or claim in any manner
that may adversely affect Lender or obligate Lender to pay any sum or perform
any obligation as reasonably determined by Lender.

          (c) All Costs shall be immediately reimbursable to Lender when and as
incurred and, in the event of any litigation, claim or other proceeding, without
any requirement of waiting for the ultimate outcome of such litigation, claim or
other proceeding, and Indemnitor shall pay to Lender any and all Costs within
ten (10) days after receipt of written notice from Lender itemizing in
reasonable detail the amounts thereof incurred to the date of such notice.  In
addition to any other remedy available for the failure of Indemnitor to
periodically pay such Costs, such Costs, if not paid within said ten-day period,
shall bear interest at the Default Interest Rate (as defined in the Note).

     3.   Reinstatement of Obligations.  If at any time all or any part of any
          ----------------------------
payment made by Indemnitor or received by Lender from Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the insolvency, bankruptcy or
reorganization of Indemnitor or Borrower), then the obligations of Indemnitor
hereunder shall, to the extent of the payment rescinded or returned, be deemed
to have continued in existence, notwithstanding such previous payment made by
Indemnitor, or receipt of payment by Lender, and the obligations of Indemnitor
hereunder shall continue to be

                                       4
<PAGE>

effective or be reinstated, as the case may be, as to such payment, all as
though such previous payment by Indemnitor had never been made.

     4.   Waivers by Indemnitor.  To the fullest extent permitted by law,
          ---------------------
Indemnitor hereby waives and agrees not to assert or take advantage of:

          (a) Any right to require Lender to proceed against Borrower or any
other person or to proceed against or exhaust any security held by Lender at any
time or to pursue any other remedy in Lender's power or under any other
agreement before proceeding against Indemnitor hereunder;

          (b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons;

          (c) Except as expressly provided herein, demand, presentment for
payment, notice of nonpayment, protest, notice of protest and all other notices
of any kind, or the lack of any thereof, including, without limiting the
generality of the foregoing, notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of Borrower, Lender, any endorser or creditor of Borrower or of
Indemnitor or on the part of any other person whomsoever under this or any other
Loan Document held by Lender;

          (d) Any defense based upon an election of remedies by Lender;

          (e) Any right or claim or right to cause a marshalling of the assets
of Indemnitor;

          (f) Any principle or provision of law, statutory or otherwise, which
is or might be in conflict with the terms and provisions of this Agreement;

          (g) Any duty on the part of Lender to disclose to Indemnitor any facts
Lender may now or hereafter know about Borrower or the Property, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Indemnitor intends to assume or has reason to believe
that such facts are unknown to Indemnitor or has a reasonable opportunity to
communicate such facts to Indemnitor, it being understood and agreed that
Indemnitor is fully responsible for being and keeping informed of the financial
condition of Borrower, of the condition of the Property and of any and all
circumstances bearing on the risk that liability may be incurred by Indemnitor
hereunder;

          (h) Any lack of notice of disposition or of manner of disposition of
any collateral for the Loan;

          (i) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more of the Loan Documents;

                                       5
<PAGE>

          (j) Any lack of commercial reasonableness in dealing with the
collateral for the Loan;

          (k) Any deficiencies in the collateral for the Loan or any deficiency
in the ability of Lender to collect or to obtain performance from any persons or
entities now or hereafter liable for the payment and performance of any
obligation hereby guaranteed;

          (l) An assertion or claim that the automatic stay provided by 11
U.S.C. (S)362 (arising upon the voluntary or involuntary bankruptcy proceeding
of Borrower) or any other stay provided under 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, shall
operate or be interpreted to stay, interdict, condition, reduce or inhibit the
ability of Lender to enforce any of its rights, whether now or hereafter
required, which Lender may have against Indemnitor or the collateral for the
Loan;

          (m) Any modifications of the Loan Documents or any obligation of
Borrower relating to the Loan by operation of law or by action of any court,
whether pursuant to 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, or otherwise; and

          (n) Any action, occurrence, event or matter consented to by Indemnitor
under Section 6(h) hereof, under any other provision hereof, or otherwise.
      -----------

     5.   Representation and Warranty.  Indemnitor hereby represents, warrants
          ---------------------------
and covenants that Indemnitor's net worth is, and at all times while this
Agreement shall be in effect, shall be not less than $500,000, as determined in
accordance with generally accepted accounting principles consistently applied.

     6.   General Provisions.
          ------------------

          (a) Fully Recourse.  All Costs guaranteed hereunder are recourse
              --------------
obligations of Indemnitor and not restricted by any limitation on recourse
liability set forth in any of the Loan Documents.

          (b) Unsecured Obligations.  Indemnitor hereby acknowledges that
              ---------------------
Lender's appraisal of the Property is such that Lender is not willing to accept
the consequences of the inclusion of Indemnitor's indemnity set forth herein
among the obligations secured by the Deed of Trust and the other Loan Documents
and that Lender would not make the Loan but for the unsecured recourse liability
undertaken by Indemnitor herein.

          (c) Survival.  This Agreement shall be deemed to be continuing in
              --------
nature and shall remain in full force and effect and shall survive the exercise
of any remedy by Lender under the Deed of Trust or any of the other Loan
Documents, including, without limitation, any

                                       6
<PAGE>

foreclosure or deed in lieu thereof, even if, as a part of such remedy, the Loan
is paid or satisfied in full.

          (d) No Subrogation; No Recourse Against Lender.  Notwithstanding the
              ------------------------------------------
satisfaction by Indemnitor of any liability hereunder, Indemnitor shall not have
any right of subrogation, contribution, reimbursement or indemnity whatsoever or
any right of recourse to or with respect to the assets or property of Borrower
or to any collateral for the Loan.  In connection with the foregoing, Indemnitor
expressly waives any and all rights of subrogation to Lender against Borrower,
and Indemnitor hereby waives any rights to enforce any remedy which Lender may
have against Borrower and any right to participate in any collateral for the
Loan.  In addition to and without in any way limiting the foregoing, Indemnitor
hereby subordinates any and all indebtedness of Borrower now or hereafter owed
to Indemnitor to all indebtedness of Borrower to Lender, and agrees with Lender
that Indemnitor shall not demand or accept any payment of principal or interest
from Borrower, shall not claim any offset or other reduction of Indemnitor's
obligations hereunder because of any such indebtedness and shall not take any
action to obtain any of the collateral from the Loan.  Further, Indemnitor shall
not have any right of recourse against Lender by reason of any action Lender may
take or omit to take under the provisions of this Agreement or under the
provisions of any of the Loan Documents.

          (e) Reservation of Rights.  Nothing contained in this Agreement shall
              ---------------------
prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution, which Lender may have
against Borrower, Indemnitor or any other party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. (S)9601 et seq.), as it may be amended from time to time, or any
                        -- ---
other applicable federal, state or local laws, all such rights being hereby
expressly reserved.

          (f) Financial Statements.  Indemnitor hereby agrees, as a material
              --------------------
inducement to Lender to make the Loan to Borrower, to comply with the provisions
of Section 1.18(f) of the Deed of Trust as concerns Indemnitor.  Indemnitor
hereby warrants and represents unto Lender that any and all financial data which
have heretofore been given or may hereafter be given to Lender with respect to
Indemnitor did or will at the time of such delivery fairly and accurately
present the financial condition of Indemnitor.

          (g) Rights Cumulative; Payments.  Lender's rights under this Agreement
              ---------------------------
shall be in addition to all rights of Lender under the Note, the Deed of Trust
and the other Loan Documents.  FURTHER, PAYMENTS MADE BY INDEMNITOR UNDER THIS
AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS AND LIABILITIES
UNDER THE NOTE, THE DEED OF TRUST AND THE OTHER LOAN DOCUMENTS EXCEPT WITH
RESPECT TO, AND TO THE EXTENT OF, BORROWER'S OBLIGATION AND LIABILITY FOR THE
PAYMENT MADE BY INDEMNITOR.

          (h) No Limitation on Liability.  Indemnitor hereby consents and agrees
              --------------------------
that Lender may at any time and from time to time without further consent from
Indemnitor do any of the following events, and the liability of Indemnitor under
this Agreement shall be unconditional and absolute and shall in no way be
impaired or limited by any of the following events, whether occurring with or
without notice to Indemnitor or with or without consideration unless the same

                                       7
<PAGE>

shall have the effect of satisfying Borrower's obligations under the Loan
Documents: (i) any extensions of time for performance required by any of the
Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or
foreclosure of the Note, the Deed of Trust or any of the other Loan Documents or
any sale or transfer of the Property (but subject to the provisions of Section
1.5(d)(C)(5) of the Note and Section 1.13(b)(10) of the Deed of Trust); (iii)
any change in the composition of Borrower, including, without limitation, the
withdrawal or removal of Indemnitor from any current or future position of
ownership, management or control of Borrower; (iv) the accuracy or inaccuracy of
the representations and warranties made by Indemnitor herein or by Borrower in
any of the Loan Documents; (v) the release of Borrower or of any other person or
entity from performance or observance of any of the agreements, covenants, terms
or conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; (vi) the release or substitution in whole
or in part of any security for the Loan; (vii) Lender's failure to record the
Deed of Trust or to file any financing statement (or Lender's improper recording
or filing thereof) or to otherwise perfect, protect, secure or insure any lien
or security interest given as security for the Loan; or (viii) the modification
of the terms of any one or more of the Loan Documents. No such action which
Lender shall take or fail to take in connection with the Loan Documents or any
collateral for the Loan, nor any course of dealing with Borrower or any other
person, shall limit, impair or release Indemnitor's obligations hereunder,
affect this Agreement in any way or afford Indemnitor any recourse against
Lender. Nothing contained in this Section shall be construed to require Lender
to take or refrain from taking any action referred to herein.

          (i)  Entire Agreement; Amendment; Severability.  This Agreement
               -----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters.  Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by the parties hereto.
A determination that any provision of this Agreement 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 Agreement 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.

          (j)  Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
               -------------
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED,
EXCEPT TO THE EXTENT THAT THE APPLICABILITY OF ANY OF SUCH LAWS MAY NOW OR
HEREAFTER BE PREEMPTED BY FEDERAL LAW, IN WHICH CASE SUCH FEDERAL LAW SHALL SO
GOVERN AND BE CONTROLLING.

          (k)  Binding Effect; Waiver of Acceptance. This Agreement shall bind
               ------------------------------------
Indemnitor and its heirs, personal representatives, successors and assigns and
shall inure to the benefit of Lender and the officers, directors, shareholders,
agents and employees of Lender and their respective heirs, successors and
assigns. Notwithstanding the foregoing, Indemnitor shall not assign any of its
rights or obligations under this Agreement without the prior written consent of
Lender, which consent may be withheld by Lender in its sole discretion.
Indemnitor hereby

                                       8
<PAGE>

waives any acceptance of this Agreement by Lender, and this Agreement shall
immediately be binding upon Indemnitor.

          (l)  Notice. 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 to the intended addressee at its address set forth on the first
page of this Agreement or at such other address as may be designated by such
party as herein provided, or by depositing the same in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the intended addressee at its address set forth on the first page
of this Agreement 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.

          (m)  No Waiver; Time of Essence; Business Day.  The failure of any
               ----------------------------------------
party hereto to enforce any right or remedy hereunder, or to promptly enforce
any such right or remedy, shall not constitute a waiver thereof nor give rise to
any estoppel against such party nor excuse any of the parties hereto from their
respective obligations hereunder. Any waiver of such right or remedy must be in
writing and signed by the party to be bound. This Agreement is subject to
enforcement at law or in equity, including actions for damages or specific
performance. Time is of the essence hereof. The term "business day" as 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.

          (n)  Captions for Convenience.  The captions and headings of the
               ------------------------
sections and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.

          (o)  Reasonable Attorney's Fees.  In the event it is necessary for
               --------------------------
Lender to retain the services of an attorney or any other consultants in order
to enforce this Agreement, or any portion thereof, Indemnitor agrees to pay to
Lender any and all costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Lender as a result thereof and such costs, fees and
expenses shall be included in Costs.

          (p)  Successive Actions.  A separate right of action hereunder shall
               ------------------
arise each time Lender acquires knowledge of any matter indemnified or
guaranteed by Indemnitor under this Agreement. Separate and successive actions
may be brought hereunder to enforce any of the provisions hereof at any time and
from time to time. No action hereunder shall preclude any

                                       9
<PAGE>

subsequent action, and Indemnitor hereby waives and covenants not to assert any
defense in the nature of splitting of causes of action or merger of judgments.

          (q)  Reliance. Lender would not make the Loan to Borrower without this
               --------
Agreement. Accordingly, Indemnitor intentionally and unconditionally enters into
the covenants and agreements as set forth above and understands that, in
reliance upon and in consideration of such covenants and agreements, the Loan
shall be made and, as part and parcel thereof, specific monetary and other
obligations have been, are being and shall be entered into which would not be
made or entered into but for such reliance.

          (r)  Counterparts.  This Agreement 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 Agreement may be detached from
any counterpart of this Agreement without impairing the legal effect of any
signatures thereon and may be attached to another counterpart of this Agreement
identical in form hereto but having attached to it one or more additional
signature pages.

          (s)  SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
               ------------------------------------------------

          (1)  INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
     KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
     COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN
     WHICH THE PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY
     PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH
     ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
     COMPETENT JURISDICTION SITTING IN THE COUNTY AND STATE IN WHICH THE
     PROPERTY IS LOCATED, (C) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND
     (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT INDEMNITOR WILL NOT
     BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN
     SHALL AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN
     ANY OTHER FORUM).

          (2)  INDEMNITOR, 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 THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF
     LENDER OR INDEMNITOR, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS,
     MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED
     WITH LENDER OR INDEMNITOR, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING
     IN CONTRACT, TORT OR OTHERWISE.

                                       10
<PAGE>

          (t)  Waiver by Indemnitor.  Indemnitor covenants and agrees that, upon
               --------------------
the commencement of a voluntary or involuntary bankruptcy proceeding by or
against Borrower, Indemnitor shall not seek or cause Borrower or any other
person or entity to seek a supplemental stay or other relief, whether injunctive
or otherwise, 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 Lender to enforce
any rights of Lender against Indemnitor or the collateral for the Loan by virtue
of this Agreement or otherwise.

          (u)  Secondary Market.  Lender may sell, transfer and deliver the Loan
               ----------------
Documents to one or more investors in the secondary mortgage market.  In
connection with such sale, Lender may retain or assign responsibility for
servicing the Loan 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.

          (v)  Dissemination of Information. If Lender determines at any time to
               ----------------------------
sell, transfer or assign the Note, the Deed of Trust and the 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"), Lender may
                                                   ----------
forward to each purchaser, transferee, assignee, servicer, participant,
investor, or their respective successors in such Participations and/or
Securities (collectively, the "Investor") or any Rating Agency (as defined in
                               --------
the Deed of Trust) rating such Securities, each prospective Investor and each of
the foregoing's respective counsel, all documents and information which Lender
now has or may hereafter acquire relating to the Loan and to Borrower, any
Indemnitor and the Property, which shall have been furnished by Borrower, or any
Indemnitor as Lender determines necessary or desirable.

            [THE BALANCE OF THIS PAGE WAS LEFT BLANK INTENTIONALLY]

                                       11
<PAGE>

     IN WITNESS WHEREOF, Indemnitor has executed this Indemnity Agreement as of
the day and year first written above.

                                   INDEMNITOR:
                                   ----------

                                   APPLE SUITES, 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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