NOTE 4 - DEVELOPMENT LOANS RECEIVABLE

Historically, we provided first mortgage and mezzanine loans to hotel developers, including entities in which certain of our executive officers and trustees own an interest, that enabled such entities to construct hotels and conduct related improvements on specific hotel projects at interest rates ranging from 10% to 11%. These loans were initially originated as part of our acquisition strategy. During the six months ended June 30, 2011, no such loans were originated by us. Interest income from development loans was $1,063 and $1,176 for the three months ended June 30, 2011 and 2010, respectively. Interest income from development loans was $2,154 and $2,550 for the six months ended June 30, 2011 and 2010, respectively. Accrued interest on our development loans receivable was $3,727 and $3,013 as of June 30, 2011 and December 31, 2010, respectively. Accrued interest on our development loans receivable as of June 30, 2011 does not include cumulative interest income of $6,968 which has been accrued and paid in-kind by adding it to the principal balance of certain loans as indicated in the table below.

Hotel Property	Borrower	Principal Outstanding June 30, 2011			Principal Outstanding December 31, 2010		Interest Rate			Maturity Date (1)
Operational Hotels
Renaissance by Marriott - Woodbridge, NJ	Hersha Woodbridge Associates, LLC		5,000			5,000		11	%	April 1, 2012	*
Element Hotel - Ewing, NJ	American Properties @ Scotch Road, LLC		2,000			2,000		11	%	August 6, 2012	*
Hilton Garden Inn - Dover, DE	44 Aasha Hospitality Associates, LLC		1,000			1,000		10	%	November 1, 2011	*

Construction Hotels
Hyatt 48Lex - New York, NY	44 Lexington Holding, LLC		13,665	(2)		12,939		11	%	December 31, 2011	*
Hyatt Union Square - New York, NY (3)	Risingsam Union Square, LLC		13,303	(2)		12,714		10	%	December 31, 2011
Hampton Inn - New York, NY (4)	SC Waterview, LLC		8,000			8,000		10	%	December 31, 2011

Total Development Loans Receivable		$	42,968		$	41,653

*	Indicates borrower is a related party.

(1)

Represents current maturity date in effect. Agreements for our development loans receivable typically allow for two one-year extensions which can be exercised by the borrower if the loan is not in default. As these loans typically finance hotel development projects, it is common for the borrower to exercise their options to extend the loans, in whole or in part, until the project has been completed and the project provides cash flow to the developer or is refinanced by the developer.

(2)	We have amended the following development loans to allow the borrower to elect, quarterly, to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan:

	Interest Income Three Months Ended June 30,				Interest Income Six Months Ended June 30,				Cumulative Interest Income Paid In Kind
Borrower	2011		2010		2011		2010		Cumulative Interest Income Paid In Kind
Risingsam Union Square, LLC	$	271	$	298	$	589	$	585	$	3,303
44 Lexington Holding, LLC		370		331		726		650		3,665

Total	$	641	$	629	$	1,315	$	1,235	$	6,968

(3)

On June 14, 2011 we entered into a purchase and sale agreement to acquire the Hyatt Union Square hotel in New York, NY for total consideration of $104,303. The consideration to the seller consists of $36,000 to be paid to the seller in cash, the cancellation by the Company of a $10,000 development loan, and $3,303 of accrued interest on the loan and the assumption by the Company of two mortgage loans secured by the hotel in the original aggregate principal amount of $55,000. In accordance with terms of the purchase and sale agreement, we have ceased accruing interest on this $10,000 development loan as of June 14, 2011.

(4)

On July 22, 2011, we completed the acquisition of the real property and improvements located at 32 Pearl Street, New York, NY from SC Waterview, LLC. Consideration given in exchange for the property include the cancellation of a development loan in the original principal amount of $8,000, made to an affiliate of the seller and the cancellation of $2,093 of accrued interest receivable on the development loan. See Note 13 – Subsequent Events for additional discussion of this transaction.