8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): February 9, 2009

MHI HOSPITALITY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Maryland	001-32379	20-1531029
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4801 Courthouse Street, Suite 201

Williamsburg, Virginia 23188

(757) 229-5648

(Address, including Zip Code and Telephone Number, including

Area Code, of Principal Executive Offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry Into a Material Definitive Agreement

On February 9, 2009, MHI Hotel Investments Holdings, LLC (the “Borrower”), an indirect subsidiary of MHI Hospitality Corporation (the “Company”), issued a promissory note payable to the order of CRP/MHI Holdings, L.L.C. (the “Lender”) in the original principal amount of $4,750,000.00 (the “Note”). Concurrently with the issuance of the Note, the Company executed a guaranty (the “Guaranty”) for the benefit of the Lender guarantying the full payment of all amounts owing to Lender under the Note. The Note will bear interest at a LIBOR based variable rate or an alternative rate as determined by Société Générale New York Branch, pursuant to a Loan Agreement between Société Générale New York Branch, as lender, and MHI/Carlyle Sian Owner I, L.L.C. and MHI/Carlyle Sian Lessee I, L.L.C. (the “Sian Borrowers”) (the “Sian Loan Agreement”), minus fifty basis points. The Borrower is required to make monthly interest payments until the Note matures. The Note will mature and be payable on the maturity date specified in the Sian Loan Agreement which provides for an August 1, 2009 maturity date subject to two one-year extensions at the election of the Sian Borrowers, subject to certain conditions, under the Sian Loan Agreement, and at maturity the principal outstanding under the Note becomes due. The maturity date of the Note will coincide with the maturity of a note (the “Sian Note”) issued pursuant to the Sian Loan Agreement in which the Borrower has an indirect interest through its joint venture with The Carlyle Group. The Company’s interest in the principal balance of the Sian Note is expected to exceed the principal balance of the Note when the two instruments mature.

The Borrower and the Lender are the sole members of MHI/Carlyle Hotel Investment Program I, L.L.C., a joint venture whose financial results are not consolidated by the Company for purposes of the Company’s financial reporting.

The foregoing summary description of the Note and the Guaranty is not complete and is qualified in its entirety by the complete text of the Note and the Guaranty, which are attached hereto as Exhibit 10.35 and Exhibit 10.36, respectively, and which are incorporated herein by reference.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth under Item 1.01 of this report is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

10.35        Promissory Note by MHI Hotel Investments Holdings, LLC, dated February 9, 2009.

10.36        Guaranty by MHI Hospitality Corporation, dated February 9, 2009.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: February 13, 2009

MHI HOSPITALITY CORPORATION
By:	/s/ Andrew M. Sims
Name: Andrew M. Sims
Title: President and Chief Executive Officer

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Exhibit List

10.35        Promissory Note by MHI Hotel Investments Holdings, LLC, dated February 9, 2009.

10.36        Guaranty by MHI Hospitality Corporation, dated February 9, 2009.

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EX-10.35

Exhibit 10.35

PROMISSORY NOTE

$4,750,000.00 Washington, D.C. February 9, 2009

FOR VALUE RECEIVED MHI HOTEL INVESTMENTS HOLDINGS, LLC, a Delaware limited liability company (“Borrower”), as maker, having its principal place of business at c/o MHI Hospitality Corporation, 4801 Courthouse Street, Suite 201, Williamsburg, Virginia 23188, hereby unconditionally promises to pay to the order of CRP/MHI HOLDINGS, L.L.C., a Delaware limited liability company (together with its successors and assigns, “Lender”), as payee, having an address at c/o The Carlyle Group, 1001 Pennsylvania Avenue, NW, Suite 220 South, Washington, D.C. 20004, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of Four Million Seven Hundred Fifty Thousand and No/100 Dollars ($4,750,000.00), in lawful money of the United States of America, with interest thereon to be computed from the date of this Promissory Note at the Interest Rate (as defined below) with respect to this Promissory Note (as the same may hereafter be amended, supplemented, or otherwise modified from time to time, this “Note”), and to be paid in accordance with the terms of this Note.

BACKGROUND:

Borrower and Lender are the sole members of MHI/Carlyle Hotel Investment Program I, L.L.C., a Delaware limited liability company (the “JV Entity”). The JV Entity is the sole member of each of MHI/Carlyle Sian Owner I, L.L.C., and MHI/Carlyle Sian Lessee I, L.L.C., each a Delaware limited liability company (the “SocGen Borrowers”). The SocGen Borrowers are parties to that certain Loan Agreement between Société Générale New York Branch, the New York branch of a French banking corporation, as lender (“SocGen”), and the SocGen Borrowers, jointly and severally as borrowers, and dated as of August 8, 2007 (as amended from time to time, the “Sian Loan Agreement”). The promissory note evidencing the loan from SocGen to the SocGen Borrowers was split into two notes, Note A and Note B, pursuant to that certain Note Splitter and Modification Agreement by and among the SocGen Borrowers and SocGen, dated as of June 13, 2008. A portion of the loan from SocGen to the SocGen Borrowers is evidenced by that certain Promissory Note B, dated as of June 13, 2008, in the original principal amount of $22,000,000.00, made by the SocGen Borrowers, as maker, for the benefit of SocGen (the “B Note”). SocGen assigned the B Note to MHI/Carlyle B Note Holder I, L.L.C., a Delaware limited liability company (“B Note Holder”) pursuant to (i) that certain Assignment and Assumption Agreement between SocGen and B Note Holder, dated as of June 13, 2008, and (ii) that certain Allonge Endorsement to Promissory Note by SocGen, dated as of June 13, 2008, for the purchase price of $19,000,000.00 (the “Purchase Price”), paid by B Note Holder to SocGen. The Purchase Price was funded to B Note Holder by a capital contribution (the “Capital Contribution”) to B Note Holder from the JV Entity. The Capital Contribution was seventy-five percent (75%) funded by Lender and twenty-five percent (25%) funded by Borrower (“Borrower’s Contribution”). Borrower has elected to have Lender provide it with a loan in the amount of $4,750,000 (the “Loan”), which is equal to Borrower’s Contribution in accordance with Section 11.6 of that certain Limited Liability Company Agreement of MHI/Carlyle Hotel Investment Program I, L.L.C., between Lender and Borrower, dated as of April 26, 2007, as amended by that certain First Amendment to Limited Liability Company

Agreement of MHI/Carlyle Hotel Investment Program I, L.L.C., between Lender and Borrower, dated as of June 13, 2008 (as amended, the “JV Agreement”). Lender is making the Loan to Borrower subject to the terms and conditions set forth in this Note and the other Loan Documents (as defined below) and this Note represents and evidences the Loan made by Lender to Borrower.

ARTICLE 1: DEFINITIONS

For purposes of this Promissory Note to Borrower and except as otherwise expressly provided:

“Business Day” shall mean any day other than a Saturday, a Sunday or a legal holiday on which national banks are not open for general business in the District of Columbia.

“Default Rate” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) five percent (5%) above the Interest Rate.

“Distributions” has the meaning ascribed to it in the JV Agreement.

“Event of Default” has the meaning ascribed to it in Section 3.1.

“Guarantor” has the meaning ascribed to it in Article 4.

“Guaranty” has the meaning ascribed to it in Article 4.

“Interest Period” shall mean (a) for the first interest period hereunder, (i) if the closing of the Loan occurs on or before the fourteenth (14th) day of a calendar month, the period commencing on the date of such closing and ending on (and including) the fourteenth (14th) day of the calendar month in which such closing occurs and (ii) if the closing of the Loan occurs on or after the fifteenth (15th) day of a calendar month, the period commencing on the date of such closing and ending on (and including) the fourteenth (14th) day of the following calendar month and (b) for each interest period thereafter commencing February 15, 2009, the period commencing on the fifteenth (15th) day of each calendar month and ending on (and including) the fourteenth (14th) day of the following calendar month. Each Interest Period as set forth in clause (b) above shall be a full month and shall not be shortened by reason of any payment of the Loan prior to the expiration of such Interest Period.

“Interest Rate” shall mean the Applicable Interest Rate (as defined in, and calculated by SocGen pursuant to, the Sian Loan Agreement) minus fifty (50) basis points.

“Loan Documents” shall mean this Note and the Guaranty.

“Maturity Date” has the meaning ascribed to it in the Sian Loan Agreement.

“Monthly Payment Date” shall mean the first (1st) calendar day of each calendar month during the term of the Loan, and if such day is not a Business Day, then the Business Day immediately preceding such day, commencing on February 27, 2009 and continuing to and including the Maturity Date.

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All capitalized terms not defined herein shall have the respective meanings set forth in the Sian Loan Agreement.

ARTICLE 2: THE LOAN AND PAYMENT TERMS

Section 2.1 The Loan.

2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein and in the other Loan Documents, Lender has made the Loan to Borrower and Borrower has accepted the Loan from Lender on the date hereof.

2.1.2 Single Disbursement to Borrower. Borrower shall receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed.

Section 2.2 Interest Rate.

Section 2.2.1 Interest Rate. Interest on the principal balance of the Loan from time to time shall accrue from the date hereof up to and including the Maturity Date at the Interest Rate.

Section 2.2.2 Interest Rate and Payment after Default. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal balance of the Loan and any other sums due and payable by Borrower under the Loan Documents shall accrue interest at the Default Rate, calculated from the date the Event of Default occurred.

Section 2.2.3 Late Payment Charges. If any principal, interest or any other sum due under the Loan Documents, other than the payment of principal due on the Maturity Date, is not paid by Borrower on or before the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Guaranty.

Section 2.3 Loan Payments.

2.3.1. Payment Before Maturity Date.

(a) Borrower shall make a payment to Lender of interest only on the Monthly Payment Date occurring on February 27, 2009 and on each Monthly Payment Date thereafter to and including the Maturity Date in an amount equal to the Interest Rate times the principal balance of the Loan then outstanding during the Interest Period in which such Monthly Payment Date occurs.

(b) Until the Loan is fully repaid, including any and all amounts due under this Note, fifty percent (50%) of all Distributions payable to Borrower from the JV Entity (the

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“Distribution Share”) shall be paid directly to Lender, which Distribution Share, if and when paid, shall be applied to pay down the then-outstanding principal balance of the Loan and any other amounts then due and payable under this Note.

2.3.2 Payment on Maturity Date. Borrower shall pay to Lender on the Maturity Date the outstanding principal balance of the Loan, all accrued and unpaid interest thereon and all other amounts due hereunder, including, without limitation, all interest that would accrue on the outstanding principal balance of the Loan through and including the end of the Interest Period in which the Maturity Date occurs (even if such Interest Period extends beyond the Maturity Date).

2.3.3 Method of Payment. All payments of interest, principal and fees shall be made in lawful money of the United States in immediately available funds, without counterclaim or setoff and free and clear of, and without any deduction or withholding for, any taxes or other payments, by wire transfer to Lender or to such other bank or address as the holder of the Loan may designate in a written notice to Borrower. Payments shall be credited on the Business Day on which immediately available funds are received prior to three o’clock P.M. Eastern Time; payments received after three o’clock P.M. Eastern Time shall be credited to the Loan on the next Business Day. Payments which are by check or which are not in the form of immediately available funds shall not be credited to the Loan until such funds become immediately available to Lender, and, with respect to payments by check, such credit shall be provisional until the item is finally paid by the payor bank.

ARTICLE 3: EVENTS OF DEFAULT; REMEDIES

Section 3.1 Events of Default

(a) Events of Default: Each of the following events shall constitute an event of default hereunder (an “Event of Default”):

(i) if any regularly scheduled installment of principal and/or interest due under this Note or other payment due under the Loan Documents (other than the payment due on the Maturity Date) is not paid prior to the fifth (5th) day after the same is due;

(ii) if any representation or warranty made by Borrower or Guarantor herein or in any other Loan Document shall have been false or misleading in any material respect as of the date the representation or warranty was made;

(iii) if Borrower or Guarantor shall make an assignment for the benefit of creditors;

(iv) if a receiver, liquidator or trustee shall be appointed for Borrower or Guarantor, or if Borrower or Guarantor shall be adjudicated bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or Guarantor, or if any proceeding for the dissolution or liquidation of Borrower or Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days;

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(v) if Borrower or Guarantor, as applicable, attempts to assign any of its rights and obligations under this Note or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;

(vi) if Borrower or Guarantor, as applicable, shall continue to be in default under any of the other terms, covenants or conditions of any of the Loan Documents not specified in subsections (i) through (v) above, for ten (10) days after notice to Borrower or Guarantor, as applicable, from Lender, in the case of any default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower or Guarantor, as applicable, shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower or Guarantor, as applicable, in the exercise of due diligence to cure such default, such additional period not to exceed ninety (90) days;

(b) Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (iii), (iv) or (v) above) and at any time thereafter Lender may, in addition to any other rights or remedies available to it pursuant to this Note and the other Loan Documents, or at law or in equity, take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and/or Guarantor, including, without limitation, declaring the Loan to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and Guarantor, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (iii), (iv) or (v) above, the Loan and all other obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.

Notwithstanding anything to the contrary in the JV Agreement, the occurrence of an Event of Default hereunder shall also constitute a Default Trigger Event (as defined in the JV Agreement) under the JV Agreement.

Section 3.2 Remedies

(a) Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower and/or Guarantor, as applicable, under this Note and the Guaranty executed and delivered by, or applicable to, Borrower and/or Guarantor, as applicable, or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Loan shall be declared due and payable, and whether or not Lender shall have commenced any proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. Any such actions

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taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one or more Events of Default with respect to Borrower and/or Guarantor, as applicable, shall not be construed to be a waiver of any subsequent Event of Default by Borrower and/or Guarantor, as applicable, or to impair any remedy, right or power consequent thereon. Without limiting the generality of the foregoing, if an Event of Default is continuing (i) Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii) all rights, remedies or privileges provided to Lender shall remain in full force and effect until the Loan has been paid in full.

(b) Any amounts recovered after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine.

ARTICLE 4: LOAN DOCUMENTS

The amounts due and payable under this Note are fully guaranteed by MHI Hospitality Corporation, a Maryland corporation (the “Guarantor”), pursuant to that certain Guaranty dated as of even date herewith by the MHI Guarantor for the benefit of Lender (the “Guaranty”) (this Note and the Guaranty, together with all amendments and modifications thereto, are collectively referred to herein as the “Loan Documents”).

ARTICLE 5: SAVINGS CLAUSE

Notwithstanding anything to the contrary, (a) all agreements and communications between Borrower and Lender are hereby and shall automatically be limited so that, after taking into account all amounts deemed interest, the interest contracted for, charged or received by Lender shall never exceed the maximum lawful rate or amount, (b) in calculating whether any interest exceeds the lawful maximum, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Borrower to Lender, and (c) if through any contingency or event, Lender receives or is deemed to receive interest in excess of the lawful maximum, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Borrower to Lender, or if there is no such indebtedness, shall immediately be returned to Borrower.

ARTICLE 6: NO ORAL CHANGE

This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

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ARTICLE 7: WAIVERS

Borrower and all others who may become liable for the payment of all or any part of the amounts owed to Lender under this Note do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and nonpayment and all other notices of any kind. No extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement, the Guaranty or the any other agreement made by agreement between Lender or any other Person shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower or any other Person who may become liable for the payment of all or any part of the amounts owed to Lender under this Note or the Guaranty. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note. Borrower is a limited liability company and, as such, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals comprising the limited liability company, and the term “Borrower,” as used herein, shall include any alternate or successor limited liability company, but any predecessor limited liability company and their members shall not thereby be released from any liability.

ARTICLE 8: GOVERNING LAW

(A) THIS NOTE WAS NEGOTIATED IN THE DISTRICT OF COLUMBIA, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE DISTRICT OF COLUMBIA, AND THE PROCEEDS OF THIS NOTE WERE DISBURSED FROM THE DISTRICT OF COLUMBIA, WHICH THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE DISTRICT OF COLUMBIA (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA.

(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS NOTE MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE DISTRICT OF COLUMBIA, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER

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HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT:

MHI HOSPITALITY CORPORATION

4801 COURTHOUSE STREET

SUITE 201

WILLIAMSBURG, VA 23188

ATTENTION: ANDREW M. SIMS

FACSIMILE NO. (757) 564-8801

OR

MHI HOSPITALITY CORPORATION

6411 IVY LANE, SUITE 510

GREENBELT, MD 20770

ATTENTION: ANDREW M. SIMS

FACSIMILE NO. (301) 474-0807

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR DISTRICT OF COLUMBIA COURT IN THE DISTRICT OF COLUMBIA, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE DISTRICT OF COLUMBIA. BORROWER (I) SHALL NOTIFY LENDER WITHIN FIVE (5) BUSINESS DAYS OF ANY CHANGE IN THE ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN THE DISTRICT OF COLUMBIA (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN THE DISTRICT OF COLUMBIA OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

ARTICLE 9: NOTICES

All notices given hereunder shall be in writing and shall be either hand delivered or mailed, by registered U.S. mail, return receipt requested, first class postage prepaid, or sent by reputable and traceable overnight delivery service, to the parties at their respective addresses below or at such other address for any party as such party may designate by notice to the other parties hereto:

If to Lender:	c/o The Carlyle Group
	1001 Pennsylvania Ave., NW
	Suite 220 South
	Washington, DC 20004
	Attention: Hayden R. Jones
	Facsimile No. (202) 639-9389

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with a copy to:	Katten Muchin Rosenman LLP
	2900 K Street, NW
	Suite 200
	Washington, DC 20007
	Attention: John D. Muir, Jr., Esq.
	Facsimile No. (202) 339-6054
If to Guarantor:	c/o MHI Hospitality Corporation
	4801 Courthouse Street
	Suite 201
	Williamsburg, VA 23188
	Attention: Andrew M. Sims
	Facsimile No. (757) 564-8801
with a copy to:	Baker & McKenzie, LLP
	815 Connecticut Avenue, NW
	Washington, DC 20006
	Attention: Thomas Egan, Jr., Esq.
	Facsimile No. (202) 452-7050

ARTICLE 10: MISCELLANEOUS

Section 10.1 No joint venture or partnership; no third party beneficiaries

(a) Borrower and Lender intend that the relationships created hereunder be solely that of borrower and lender. Nothing herein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender (it being understood that this Note is independent of, and separate and apart from, the JV Agreement, and Lender’s right to enforce its rights and remedies under this Note shall not be subject to any duties under the JV Agreement and the arrangements created thereby, including, without limitation, any fiduciary duty or duty of loyalty, if any, and Borrower hereby waives and releases Lender from any claim that it may have under the JV Agreement against Lender as a result of Lender’s exercising its rights and remedies available to Lender under this Note or at law or in equity with regard to any Event of Default under this Note).

(b) This Note is solely for the benefit of Lender and Borrower and nothing contained in this Note shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all

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thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

Section 10.2 Setoff; Counterclaim.

All amounts payable by Borrower under this Note shall be made without set-off or counterclaim of any nature whatsoever and Borrower’s obligations hereunder are hereby established unconditionally.

Section 10.3 Headings.

The headings in this Note are for convenience of reference only and shall not limit or otherwise affect any of the terms hereof.

Section 10.4 Assignment.

The rights and obligations of Borrower hereunder may not be assigned, conveyed, or transferred in whole or in part without the express written consent of Lender which consent may be given or withheld in the sole and absolute discretion of Lender. The rights and obligations of Lender hereunder may be assigned, transferred, hypothecated, or conveyed in whole or in part by Lender.

Section 10.5 Jury Trial Waiver

BORROWER AND LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF THEIR RESPECTIVE SEPARATE COUNSEL, UNCONDITIONALLY WAIVE TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY AS BORROWER AND LENDER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES, AND, THEREFORE, BORROWER AND LENDER AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED BY A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

Section 10.6 Effect of Partial Invalidity

The parties hereto intend and believe that each provision of this Note comports with all applicable local, state and federal laws and judicial decisions; however, if any provision or portion of any provision of this Note is found by a court of competent jurisdiction to be in violation of any applicable local, state or federal ordinance, statute, law, common law, rule, regulation, or administrative or judicial decision, or public policy, and if such court would declare or has declared such provision or provisions of this Note to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of Borrower and Lender that such portion, provision or provisions shall be given force and effect to the fullest possible extent that they are legal, valid and enforceable, and that the remainder of this Note shall be construed as if such

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illegal, invalid, unlawful, void or unenforceable portion, provision or provisions of this Note were severable and not contained herein, and that the rights, obligations and interest of Borrower and Lender under the remainder of this Note shall continue in full force and effect.

Section 10.7 Costs of Collection

Borrower agrees to pay all reasonable costs of collection, including, without limitation, attorneys’ and paralegals’ fees and expenses, whether at the pretrial, trial or appellate level, reasonably incurred by Lender in connection with the enforcement or collection of this Note, whether suit is brought or not, and including, without limitation, any such fees or costs reasonably incurred by Lender with respect to any action or participation in, or in connection with, any case or proceeding under the Bankruptcy Code, 11 U.S.C. Section 101 et seq., as the same may be amended.

Reasonable attorneys’ fees and costs incurred in enforcing any judgment or in connection with any appeal shall be recoverable separately from and in addition to any other amount included in such judgment. This Section 10.7 is intended to be severable from the other provisions of this Note, and the prevailing party’s rights under this Section 10.7 shall not merge into any judgment and any judgment shall survive until all such fees and costs have been paid.

[Signatures appear on following page.]

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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written.

MHI HOTEL INVESTMENTS HOLDINGS, LLC,
a Delaware limited liability company
By:	MHI Hospitality Corporation, a Maryland corporation, its managing member
	By:	/s/ Andrew Sims
	Name:	Andrew Sims
	Title:	President and Chief Executive Officer

EX-10.36

Exhibit 10.36

GUARANTY

THIS GUARANTY (this “Guaranty”) is executed as of February 9, 2009, by MHI HOSPITALITY CORPORATION, a Maryland corporation (“Guarantor”), for the benefit of CRP/MHI HOLDINGS, L.L.C., a Delaware limited liability company (“Lender”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Promissory Note, dated as of February 9, 2009, in the original principal amount of $4,750,000.000 (the “Note”) made by MHI Hotel Investments Holdings, LLC, a Delaware limited liability company, as maker, having its principal place of business at c/o MHI Hospitality Corporation, 4801 Courthouse Street, Suite 201, Williamsburg, Virginia 23188 (the “Borrower”), and payable to the order of Lender, Borrower has become indebted to Lender with respect to a loan (the “Loan”) made pursuant to the Note;

WHEREAS, Guarantor is the general partner of the limited partnership that indirectly owns 100% of the ownership interest in Borrower, and Lender has required, as a condition of making the Loan, that Guarantor enter into this Guaranty;

WHEREAS, Guarantor will directly benefit from the making of the Loan and Lender is not willing to make the Loan to Borrower unless Guarantor unconditionally guaranteed payment and performance to Lender of the Guaranteed Obligations (as herein defined);

NOW, THEREFORE, in consideration for the making of the Loan to Borrower, and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, and to induce Lender to make the Loan to Borrower, Guarantor does hereby unconditionally, absolutely and irrevocably guarantee to Lender, its successors and assigns, the due payment, fulfillment and performance of the Guaranteed Obligations (as more particularly set forth below).

ARTICLE I

NATURE AND SCOPE OF GUARANTY

1.1 Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means the full, complete and prompt payment of all amounts now or hereafter owing to Lender under the Note, whether principal, interest (including, without limitation, interest at the Default Rate (as defined in the Note)), fees, expenses or otherwise plus all costs of collection (including, without limitation, reasonable attorneys’ fees and court costs).

1.2 Guaranty of Obligation. Guarantor hereby irrevocably, absolutely and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor. The fact that at any time or from time to time the Guaranteed Obligations may be extended or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower or any other party against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

1.5 Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity or any other notice whatsoever, pay in lawful money of the United States of America, the unpaid amount of the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

1.6 No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan, (ii) enforce Lender’s rights against any collateral which may have been given to secure the Loan, (iii) join Borrower or any others liable on the Loan in any action seeking to enforce this Guaranty, (iv) exhaust any remedies available to Lender against any collateral which may have been given to secure the Loan, or (v) resort to any other means of obtaining payment of the Guaranteed Obligations. Unless required by applicable law, Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

1.7 Waivers. Guarantor agrees to the provisions of the Note and hereby waives notice of (i) any assignments of the Note by Lender, (ii) acceptance of this Guaranty, (iii) any amendment not increasing the principal amount of the Note and any extension of the Note, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of the Note or other documents arising under the Loan, (v) the occurrence of any breach by Borrower under the Note or the occurrence of an Event of Default (as defined in the Note), (vi) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest or proof of non-payment

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by Borrower, or (ix) any other action at any time taken or omitted by Lender and, generally, all demands and notices of every kind in connection with this Guaranty, the Note and any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

1.8 Payment of Expenses. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all reasonable costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligations.

1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Lender must rescind or restore any payment or any part thereof received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect and this Guaranty shall remain in full force and effect. It is the intention of Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s performance of such obligations and then only to the extent of such performance.

1.10 Waiver of Subrogation- Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise.

1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower.

ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS

Guarantor hereby consents and agrees to each of the following and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:

2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note or any other document, instrument, contract or understanding between Lender, Borrower and/or Guarantor pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action.

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2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or Guarantor.

2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower or Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor.

2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations for any reason whatsoever, including without limitation the fact that (1) the Guaranteed Obligations or any part thereof exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) Guarantor has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Guarantor, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note has been forged or otherwise is irregular or not genuine or authentic.

2.5 Release of Obligors. Any partial release of the liability of Guarantor on the Guaranteed Obligations or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

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2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (ii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. Notwithstanding the foregoing or any other provision in this Guaranty, the Guaranteed Obligations shall not include any damages, losses, costs or expenses resulting from the gross negligence, fraud, willful misconduct or illegal acts of Lender.

2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of the Guarantor to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower and/or Guarantor against Lender, or any other party, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

2.11 Merger. The reorganization, merger or consolidation of Borrower or Guarantor into or with any other Person (as defined in that certain Loan Agreement by and among Société Générale New York Branch, the New York branch of a French banking corporation, as lender and MHI/Carlyle Sian Owner I, L.L.C. and MHI/Carlyle Sian Lessee I, L.L.C., each a Delaware limited liability company, jointly and severally as borrowers, dated as of even date herewith (as amended from time to time, the “Sian Loan Agreement”)).

2.12 Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else.

2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Note or the Guaranteed Obligations whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, but provided such acts are taken in good faith and in a commercially reasonable manner if required under the Note, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever (subject to the terms of this Guaranty and the Note), whether contemplated or

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uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce Lender to make the Loan to Borrower, Guarantor represents and warrants to Lender as follows:

3.1 Benefit. Guarantor is an Affiliate (as defined in the Sian Loan Agreement) of Borrower, is the owner of an indirect interest in Borrower and has received, or will receive, benefit from the making of the Note and this Guaranty with respect to the Guaranteed Obligations.

3.2 Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower; however, Guarantor is not relying on such financial condition as an inducement to enter into this Guaranty.

3.4 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty.

3.5 Guarantor’s Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is and will be solvent and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities.

3.6 Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not and will not contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, charge, lien, or any material contract, material agreement or other material instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

3.7 Survival. All representations and warranties made by Guarantor herein shall survive the execution hereof.

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ARTICLE IV

SUBORDINATION OF CERTAIN INDEBTEDNESS

4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations. After the occurrence of an Event of Default (as defined in the Note), Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims.

4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any dividend or payment which is otherwise payable to Guarantor and which, as between Borrower and Guarantor, shall constitute a credit against the Guarantor Claims, then, upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

4.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender.

4.4 Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgage, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.

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ARTICLE V

MISCELLANEOUS

5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

5.2 Notices. All notices given hereunder shall be in writing and shall be either hand delivered or mailed, by registered U.S. mail, return receipt requested, first class postage prepaid, or sent by reputable and traceable overnight delivery service, to the parties at their respective addresses below or at such other address for any party as such party may designate by notice to the other parties hereto:

If to Lender:	c/o The Carlyle Group
	1001 Pennsylvania Ave., NW
	Suite 220 South
	Washington, DC 20004
	Attention: Hayden R. Jones
	Facsimile No. (202) 639-9389
with a copy to:	Katten Muchin Rosenman LLP
	2900 K Street, NW
	Suite 200
	Washington, DC 20007
	Attention: John D. Muir, Jr., Esq.
	Facsimile No. (202) 339-6054
If to Guarantor:	c/o MHI Hospitality Corporation
	4801 Courthouse Street
	Suite 201
	Williamsburg, VA 23188
	Attention: Andrew M. Sims
	Facsimile No. (757) 564-8801
with a copy to:	Baker & McKenzie, LLP
	815 Connecticut Avenue, NW
	Washington, DC 20006
	Attention: Thomas Egan, Jr., Esq.
	Facsimile No. (202) 452-7050

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5.3 Governing Law Submission to Jurisdiction. This Guaranty shall be governed by and construed in accordance with the laws of the District of Columbia and the applicable laws of the United States of America. Any legal suit, action or proceeding against Lender or Guarantor arising out of or relating to this Guaranty may at Lender’s option be instituted in any Federal or State court in the District of Columbia and Guarantor waives any objections which it may now or hereafter have based on venue and/or forum non conveniens of any such suit, action or proceeding, and Guarantor hereby irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. Guarantor does hereby designate and appoint:

MHI Hospitality Corporation

4801 Courthouse Street

Suite 201

Williamsburg, VA 23188

Attention: Andrew M. Sims

Facsimile No. (757) 564-8801

as its authorized agent to accept and acknowledge on its behalf service of any and all process which may be served in any such suit, action or proceeding in any Federal or State court in the District of Columbia, and agrees that service of process upon said agent at said address and written notice of said service mailed or delivered to Guarantor in the manner provided herein shall be deemed in every respect effective service of process upon Guarantor in any such suit, action or proceeding in the District of Columbia.

5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

5.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several.

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5.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

5.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facia evidence of the facts and documents referred to therein.

5.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

5.11 No Joint venture or Partnership; no Third Party Beneficiaries.

(a) Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Lender and Guarantor.

(b) This Note and the other Loan Documents are solely for the benefit of Lender and Borrower and/or Guarantor, as applicable, and nothing contained in this Note or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower and/or Guarantor, as applicable, any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender and no other Person (as defined in the Sian Loan Agreement) shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person (as defined in the Sian Loan Agreement) shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR’S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT

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MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.

5.13 Waiver of Right To Trial By Jury. GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR AND LENDER (BY ACCEPTANCE HEREOF), AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND GUARANTOR ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.

5.14 Cooperation. Guarantor acknowledges that Lender and its successors and assigns may, at no cost to Guarantor, (i) sell this Guaranty and the Note to one or more investors as a whole loan, (ii) participate the Loan secured by this Guaranty to one or more investors, (iii) deposit this Guaranty and the Note with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iv) otherwise sell the Loan or interest therein or portions thereof to investors (the transactions referred to in clauses (i) through (iv) are hereinafter each referred to as “Secondary Market Transaction”). Provided Guarantor may lawfully do so including, without limitation, provided Guarantor may do so consistent with U.S. federal and state securities law requirements, Guarantor shall cooperate with Lender in effecting any such Secondary Market Transaction, cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction and provide such information and documents relating to Guarantor and Borrower as Lender may reasonably request in connection with such Secondary Market Transaction. Any information about Guarantor or any of its subsidiaries or affiliates shall be deemed Company Information within the meaning of such term ascribed by that certain Limited Liability Company Agreement of MHI/Carlyle Hotel Investment Program I, L.L.C., between Lender and Borrower, dated as of April 26, 2007 (as amended, the “JV Agreement”), and such information shall be afforded the same protections as if Guarantor were a party to the JV Agreement and a Member of the Company. Subject to the foregoing confidentiality agreement, Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Note or the applicable Secondary Market Transaction, and Lender shall cause the same to keep such information confidential and not to use such information for any reason other than for evaluating a Secondary Market Transaction. It is understood that such information provided by Guarantor to Lender may ultimately be

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incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of such information. Lender shall provide drafts of any such offering material to Guarantor sufficiently prior to any offer of a Secondary Market Transaction to afford Guarantor a reasonable opportunity to comment on the offering materials, and shall include Guarantor’s comments about such information in any offering materials related to a Secondary Market Transaction. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on such information supplied by, or on behalf of, Guarantor in the form as provided by Guarantor. Lender may publicize the existence of the Note and the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development, but shall not include any information provided by Guarantor in any free writing prospectus without Guarantor’s prior written consent.

5.15 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Note is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

[Signatures appear on following page.]

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IN WITNESS WHEREOF, Guarantor has duly executed and delivered this Guaranty as of the date first written above.

MHI HOSPITALITY CORPORATION, a Maryland corporation
By:	/s/ Andrew Sims
Name:	Andrew Sims
Title:	President and Chief Executive Officer

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