10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2011

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-33738

Morgans Hotel Group Co.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	16-1736884 (I.R.S. employer identification no.)
475 Tenth Avenue
New York, New York (Address of principal executive offices)	10018 (Zip Code)

212-277-4100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of November 8, 2011 was 30,731,457.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGANS HOTEL GROUP CO. CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010		4
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS		5
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		60
ITEM 4. CONTROLS AND PROCEDURES		61
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		62
ITEM 1A. RISK FACTORS		62
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		62
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		62
ITEM 4. REMOVED AND RESERVED		62
ITEM 5. OTHER INFORMATION		62
ITEM 6. EXHIBITS		62
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

2

FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for “forward-looking statements” made by or on behalf of a company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ materially from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important risks and factors that could cause our actual results to differ materially from any forward-looking statements include, but are not limited to, the risks discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and other documents filed by the Company with the Securities and Exchange Commission from time to time; downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; risks associated with the acquisition, development and integration of properties; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; the impact of any material litigation; the loss of key members of our senior management; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest.

We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

3

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Morgans Hotel Group Co.

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30,			December 31,
	2011			2010
	(unaudited)
ASSETS
Property and equipment, net	$	283,811		$	291,078
Goodwill		54,057			53,691
Investments in and advances to unconsolidated joint ventures		5,063			20,450
Assets held for sale, net		—			194,964
Investment in property held for non-sale disposition, net		—			9,775
Cash and cash equivalents		12,829			5,250
Restricted cash		7,148			28,783
Accounts receivable, net		8,250			6,018
Related party receivables		5,186			3,830
Prepaid expenses and other assets		7,202			7,007
Deferred tax asset, net		81,421			80,144
Other, net		15,834			13,786
Total assets	$	480,801		$	714,776
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations	$	433,267		$	558,779
Mortgage debt of property held for non-sale disposition		—			10,500
Accounts payable and accrued liabilities		32,353			23,604
Debt obligation, accounts payable and accrued liabilities of assets held for sale		—			107,161
Accounts payable and accrued liabilities of property held for non-sale disposition		—			1,162
Distributions and losses in excess of investment in unconsolidated joint ventures		272			1,509
Deferred gain on asset sales		77,792			—
Other liabilities		14,291			13,866
Total liabilities		557,975			716,581
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at September 30, 2011 and December 31, 2010, respectively		53,319			51,118
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at September 30, 2011 and December 31, 2010, respectively		363			363
Additional paid-in capital		289,971			297,554
Treasury stock, at cost, 5,555,654 and 5,985,045 shares of common stock at September 30, 2011 and December 31, 2010, respectively		(89,155	)		(92,688	)
Accumulated comprehensive loss		(3,683	)		(3,194	)
Accumulated deficit		(336,360	)		(265,874	)
Total Morgans Hotel Group Co. stockholders’ deficit		(85,545	)		(12,721	)
Noncontrolling interest		8,371			10,916
Total deficit		(77,174	)		(1,805	)
Total liabilities and stockholders’ deficit	$	480,801		$	714,776

See accompanying notes to these consolidated financial statements.

4

Morgans Hotel Group Co.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

	Three Months			Three Months			Nine Months			Nine Months
	Ended Sept. 30,			Ended Sept. 30,			Ended Sept. 30,			Ended Sept. 30,
	2011			2010			2011			2010
Revenues:
Rooms	$	26,432		$	35,100		$	90,951		$	99,443
Food and beverage		15,575			16,017			49,216			51,062
Other hotel		1,271			2,077			5,020			6,730
Total hotel revenues		43,278			53,194			145,187			157,235
Management fees and other income		3,408			4,547			10,112			14,079
Total revenues		46,686			57,741			155,299			171,314
Operating Costs and Expenses:
Rooms		8,263			11,061			29,122			31,377
Food and beverage		13,664			14,426			41,901			42,526
Other departmental		870			1,322			3,117			3,834
Hotel selling, general and administrative		9,951			12,275			33,301			35,523
Property taxes, insurance and other		4,247			3,650			12,136			12,461
Total hotel operating expenses		36,995			42,734			119,577			125,721
Corporate expenses, including stock compensation of $1.4 million, $2.3 million, $7.4 million, and $8.9 million, respectively		7,037			8,045			25,920			27,270
Depreciation and amortization		4,833			8,173			17,405			23,529
Restructuring, development and disposal costs		2,125			1,064			10,518			2,930
Impairment loss on receivables from unconsolidated joint venture		—			5,499			—			5,499
Total operating costs and expenses		50,990			65,515			173,420			184,949
Operating loss		(4,304	)		(7,774	)		(18,121	)		(13,635	)
Interest expense, net		8,775			8,319			27,783			33,058
Equity in loss of unconsolidated joint ventures		12,794			1,435			23,187			9,437
Gain on asset sales		(1,101	)		—			(1,721	)		—
Other non-operating expenses		616			20,299			2,885			35,491
Loss before income tax expense		(25,388	)		(37,827	)		(70,255	)		(91,621	)
Income tax expense		230			420			523			994
Net loss from continuing operations		(25,618	)		(38,247	)		(70,778	)		(92,615	)
(Loss) income from discontinued operations, net of taxes		—			(281	)		485			16,474
Net loss		(25,618	)		(38,528	)		(70,293	)		(76,141	)
Net loss attributable to noncontrolling interest		799			1,451			2,007			2,033
Net loss attributable to Morgans Hotel Group		(24,819	)		(37,077	)		(68,286	)		(74,108	)
Preferred stock dividends and accretion		2,285			2,164			6,701			6,357
Net loss attributable to common stockholders		(27,104	)		(39,241	)		(74,987	)		(80,465	)
Other comprehensive loss:
Unrealized (loss) gain on valuation of swap/cap agreements, net of tax		(12	)		1,055			(7	)		11,058
Share of unrealized loss on valuation of swap agreements from unconsolidated joint venture, net of tax		(1,444	)		(1,274	)		(423	)		(1,274	)
Realized loss on settlement of swap/cap agreements, net of tax		—			(830	)		—			(5,971	)
Foreign currency translation gain (loss), net of tax		52			(179	)		(57	)		77
Comprehensive loss	$	(28,508	)	$	(40,469	)	$	(75,474	)	$	(76,575	)
(Loss) income per share:
Basic and diluted continuing operations	$	(0.89	)	$	(1.29	)	$	(2.41	)	$	(3.18	)
Basic and diluted discontinued operations	$	(0.00	)	$	(0.01	)	$	0.02		$	0.54
Basic and diluted attributable to common stockholders	$	(0.89	)	$	(1.30	)	$	(2.39	)	$	(2.64	)
Weighted average number of common shares outstanding:
Basic and diluted		30,617			30,162			31,359			30,470

See accompanying notes to these consolidated financial statements.

5

Morgans Hotel Group Co.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended Sept. 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(70,293	)	$	(76,141	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities (including discontinued operations):
Depreciation		15,850			21,992
Amortization of other costs		1,555			1,537
Amortization of deferred financing costs		7,784			4,343
Amortization of discount on convertible notes		1,708			1,708
Amortization of deferred gain on asset sales		(1,721	)		—
Stock-based compensation		7,384			8,892
Accretion of interest on capital lease obligation		1,451			3,317
Equity in losses from unconsolidated joint ventures		23,187			9,437
Impairment loss on receivable from unconsolidated joint venture		—			5,499
Gain on disposal of property held for non-sale disposition		—			(17,766	)
Impairment and loss on disposal of assets		1,182			—
Change in value of warrants		—			32,902
Change in value of interest rate caps and swaps, net		35			26
Changes in assets and liabilities:
Accounts receivable, net		33			(2,133	)
Related party receivables		(1,348	)		(289	)
Restricted cash		20,234			(18,718	)
Prepaid expenses and other assets		2,533			2,031
Accounts payable and accrued liabilities		2,430			(330	)
Other liabilities		—			(150	)
Discontinued operations		(843	)		1,053
Net cash provided by (used in) operating activities		11,161			(22,790	)
Cash flows from investing activities:
Additions to property and equipment		(7,861	)		(10,602	)
Deposits to capital improvement escrows, net		1,091			716
Distributions from unconsolidated joint ventures		1,622			206
Proceeds from asset sales, net		267,162			—
Proceeds from sale of joint venture, net		2,500			—
Purchase of interest in food and beverage joint ventures, net of cash acquired		(19,291	)		—
Investments in and settlement related to unconsolidated joint ventures		(9,479	)		(4,340	)
Net cash provided by (used in) investing activities		235,744			(14,020	)
Cash flows from financing activities:
Proceeds from debt		193,992			—
Payments on debt and capital lease obligations		(426,159	)		—
Debt issuance costs		(5,744	)		(167	)
Cash paid in connection with vesting of stock based awards		(588	)		(772	)
Cost of issuance of preferred stock		—			(246	)
Distributions to holders of noncontrolling interests in consolidated subsidiaries		(827	)		(1,019	)
Net cash used in financing activities		(239,326	)		(2,204	)
Net increase (decrease) in cash and cash equivalents		7,579			(39,014	)
Cash and cash equivalents, beginning of period		5,250			68,956
Cash and cash equivalents, end of period	$	12,829		$	29,942
Supplemental disclosure of cash flow information:
Cash paid for interest	$	18,568		$	27,703
Cash paid for taxes	$	784		$	19
Non-cash Investing Activities
Acquisition of interest in unconsolidated joint ventures:
Furniture, fixture and equipment	$	(706	)	$	—
Other assets and liabilities, net		2,999			—
Distributions and losses in excess of investment in unconsolidated joint ventures		(1,587	)		—
Cash included in purchase of interest in food and beverage joint ventures	$	706		$	—

See accompanying notes to these consolidated financial statements.

6

Morgans Hotel Group Co.

Notes to Consolidated Financial Statements

(unaudited)

1. Organization and Formation Transaction

Morgans Hotel Group Co. (the “Company”) was incorporated on October 19, 2005 as a Delaware corporation to complete an initial public offering (“IPO”) that was part of the formation and structuring transactions described below. The Company operates, owns, acquires and redevelops hotel properties.

The Morgans Hotel Group Co. predecessor (the “Predecessor”) comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC (“Morgans Group”), the Company’s operating company. At the time of the formation and structuring transactions, the Former Parent was owned approximately 85% by NorthStar Hospitality, LLC, a subsidiary of NorthStar Capital Investment Corp., and approximately 15% by RSA Associates, L.P.

In connection with the IPO, the Former Parent contributed the subsidiaries and ownership interests in nine operating hotels in the United States and the United Kingdom to Morgans Group in exchange for membership units. Simultaneously, Morgans Group issued additional membership units to the Predecessor in exchange for cash raised by the Company from the IPO. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group in return for 1,000,000 membership units in Morgans Group exchangeable for shares of the Company’s common stock. The Company is the managing member of Morgans Group, and has full management control. On April 24, 2008, 45,935 outstanding membership units in Morgans Group were exchanged for 45,935 shares of the Company’s common stock. As of September 30, 2011, 954,065 membership units in Morgans Group remain outstanding.

On February 17, 2006, the Company completed its IPO. The Company issued 15,000,000 shares of common stock at $20 per share resulting in net proceeds of approximately $272.5 million, after underwriters’ discounts and offering expenses.

The Company has one reportable operating segment; it operates, owns, acquires and redevelops boutique hotels.

Operating Hotels

The Company’s operating hotels as of September 30, 2011 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Hudson	New York, NY		834		(1	)
Morgans	New York, NY		114		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		270		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		328		(5	)
Shore Club	Miami Beach, FL		309		(6	)
Mondrian Los Angeles	Los Angeles, CA		237		(7	)
Clift	San Francisco, CA		372		(8	)
Ames	Boston, MA		114		(9	)
Sanderson	London, England		150		(10	)
St Martins Lane	London, England		204		(10	)
Hotel Las Palapas	Playa del Carmen, Mexico		75		(11	)

7

(1)	The Company owns 100% of Hudson, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building.
(2)	Operated under a management contract; wholly-owned until May 23, 2011, when the hotel was sold to a third-party.
(3)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at September 30, 2011 based on cash contributions. See note 4.
(4)	Wholly-owned hotel.
(5)	Owned through a 50/50 unconsolidated joint venture. See note 4.
(6)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 7% as of September 30, 2011. See note 4.
(7)	Operated under a management contract; wholly-owned until May 3, 2011, when the hotel was sold to a third-party.
(8)	The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.
(9)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31% at September 30, 2011 based on cash contributions. See note 4.
(10)	Owned through a 50/50 unconsolidated joint venture. In October 2011, the Company entered into a definitive agreement to sell its equity interests in the joint venture. The transaction is expected to close in the fourth quarter of 2011. See note 4.
(11)	Operated under a management contract.

Restaurant Joint Venture

Prior to June 20, 2011, the food and beverage operations of certain of the hotels were operated under 50/50 joint ventures with a third party restaurant operator, China Grill Management Inc. (“CGM”). The joint ventures operated, and CGM managed, certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. The food and beverage joint ventures at hotels the Company owned were consolidated, as the Company believed that it was the primary beneficiary of these entities. The Company’s partner’s share of the results of operations of these food and beverage joint ventures were recorded as noncontrolling interests in the accompanying consolidated financial statements. The food and beverage joint ventures at hotels in which the Company had a joint venture ownership interest were accounted for using the equity method, as the Company did not believe it exercised control over significant asset decisions such as buying, selling or financing, and the Company was not the primary beneficiary of the entities.

On June 20, 2011, pursuant to an omnibus agreement, subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million (the “CGM Transaction”). CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassesses its food and beverage strategy.

As a result of the CGM Transaction, the Company owns 100% of the former food and beverage joint venture entities located at Morgans, Delano South Beach, Sanderson and St Martins Lane, all of which are consolidated in the Company’s consolidated financial statements. Prior to the completion of the CGM Transaction, the Company accounted for the food and beverage entities located at Sanderson and St Martins Lane using the equity method of accounting. See note 4.

The Company’s resulting ownership interests in the remaining two of these food and beverage ventures, covered by the CGM Transaction, relating to the food and beverage operations at Mondrian Los Angeles and Mondrian South Beach, was less than 100%, and were reevaluated in accordance with ASC 810-10, Consolidation (“ASC 810-10”). The Company concluded that these two ventures did not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures were accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing. See note 4. Prior to the completion of the CGM Transaction, the Company consolidated the Mondrian Los Angeles food and beverage entity, as it exercised control and was the primary beneficiary of the venture.

8

On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method, if the Company can exercise significant influence.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Effective January 1, 2010, the Financial Accounting Standards Board (“FASB”) amended the guidance in ASC 810-10, for determining whether an entity is a variable interest entity and requiring the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity. Under this guidance, an entity would be required to consolidate a variable interest entity if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the variable interest entity or the right to receive benefits from the variable interest entity that could be significant to the variable interest entity. Adoption of this guidance on January 1, 2010 did not have a material impact on the consolidated financial statements.

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable. Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense. Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement.

The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless the Company has continuing involvement, such as through a management agreement, after the sale.

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability.

9

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on a portion of its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of hotel properties or an interest therein. When the Company sells a wholly-owned hotel subject to a long-term management contract, the pretax gain is deferred and is recognized over the life of the contract. In such instances, the Company establishes a deferred tax asset on the deferred gain and recognizes the related tax benefit through the tax provision. In May 2011, the Company used a portion of its tax net operating loss carryforwards to offset the gains on the sale of Royalton, Morgans and Mondrian Los Angeles.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three and nine months ended September 30, 2011 and 2010, were computed using the Company’s effective tax rate.

Derivative Instruments and Hedging Activities

In accordance with ASC 815-10, Derivatives and Hedging (“ASC 815-10”) the Company records all derivatives on the balance sheet at fair value and provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts relating to interest payments on the Company’s borrowings. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

10

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive loss (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as a component of interest expense. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

As of September 30, 2011 and December 31, 2010, the estimated fair market value of the Company’s cash flow hedges is immaterial.

In connection with the London Sale Agreement, defined below in footnote 4, on November 2, 2011, Walton, on behalf of itself and the Company, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

Credit-risk-related Contingent Features

The Company has entered into agreements with each of its derivative counterparties in connection with the interest rate caps and hedging instruments related to the Convertible Notes, as defined and discussed in note 6, providing that in the event the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company has entered into warrant agreements with Yucaipa, as discussed in note 8, providing Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (collectively, the “Investors”) with consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

11

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2011 and December 31, 2010, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements.

In connection with the issuance of 75,000 of the Company’s Series A Preferred Securities to the Investors, as discussed in note 8, the Company also issued warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share to the Investors. Until October 15, 2010, the $6.00 exercise price of the warrants was subject to certain reductions if the Company had issued shares of common stock below $6.00 per share. The exercise price adjustments were not triggered prior to the expiration of such right on October 15, 2010. The fair value for each warrant granted was estimated at the date of grant using the Black-Scholes option pricing model, an allowable valuation method under ASC 718-10, Compensation, Stock Based Compensation (“ASC 718-10”). The estimated fair value per warrant was $1.96 on October 15, 2009.

Although the Company has determined that the majority of the inputs used to value the outstanding warrants fall within Level 1 of the fair value hierarchy, the Black-Scholes model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the warrant liability was classified as a Level 3 fair value measure. On October 15, 2010, this liability was reclassified into equity, per ASC 815-10-15, Derivatives and Hedging, Embedded Derivatives (“ASC 815-10-15”).

In connection with its Outperformance Award Program, as discussed in note 7, the Company issued OPP LTIP Units (as defined in note 7) which were initially fair valued on the date of grant, and on September 30, 2011, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. As the Company has the ability to settle the vested OPP LTIP Units with cash, these awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value.

Although the Company has determined that the majority of the inputs used to value the OPP LTIP Units fall within Level 1 of the fair value hierarchy, the Monte Carlo simulation model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the OPP LTIP Unit liability was classified as a Level 3 fair value measure.

During the three and nine months ended September 30, 2011, the Company recognized non-cash impairment charges of $1.6 million and $4.0 million, respectively, related to the Company’s investment in Mondrian SoHo, through equity in loss from joint ventures. The Company’s estimated fair value relating to this impairment assessment was based primarily upon Level 3 measurements, including a discounted cash flow analysis to estimate the fair value of the assets taking into account the assets expected cash flow, holding period and estimated proceeds from the disposition of assets, as well as market and economic conditions.

Fair Value of Financial Instruments

As mentioned below and in accordance with ASC 825-10, Financial Instruments, and ASC 270-10, Presentation, Interim Reporting, the Company provides quarterly fair value disclosures for financial instruments. Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of September 30, 2011 and December 31, 2010 due to the short-term maturity of these items or variable market interest rates.

12

The fair market value of the Company’s $222.6 million of fixed rate debt, excluding capitalized lease obligations and including the Convertible Notes at face value, as of September 30, 2011 and December 31, 2010 was approximately $205.7 million and $248.6 million, respectively, using market interest rates.

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. For awards under the Company’s Outperformance Award Program, discussed in note 7, long-term incentive awards, the total compensation expense is based on the estimated fair value using the Monte Carlo pricing model. Compensation expense is recorded ratably over the vesting period, if any. Stock compensation expense recognized for the three months ended September 30, 2011 and 2010 was $1.4 million and $2.3 million, respectively. Stock compensation expense recognized for the nine months ended September 30, 2011 and 2010 was $7.4 million and $8.9 million, respectively.

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity (deficit) in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of operations and comprehensive loss.

The membership units in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $8.4 million and $10.6 million as of September 30, 2011 and December 31, 2010, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the limited members’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the limited members’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period.

Additionally, less than $0.3 million was recorded as noncontrolling interest as of December 31, 2010, which represents the Company’s joint venture partner’s interest in food and beverage ventures at certain of the Company’s hotels.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation, including discontinued operations, discussed in note 9, and assets held for sale, discussed in note 12.

13

New Accounting Pronouncements

Accounting Standards Update No. 2011-04 — “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No. 2011-04”) generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. The Company does not believe ASU 2011-04 will have a material impact on its financial statements.

Accounting Standards Update No. 2011-05 — “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”) amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company believes the adoption of this update may provide additional detail on the consolidated financial statements when applicable, but will not have any other impact on the Company’s financial statements.

Accounting Standards Update No. 2011-08 — “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU No. 2011-08”) amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If this is the case, companies will need to perform a more detailed two-step goodwill impairment test which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. ASU No. 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not believe the adoption of this update will have a material impact on its financial statements.

3. Income (Loss) Per Share

The Company applies the two-class method as required by ASC 260-10, Earnings per Share (“ASC 260-10”). ASC 260-10 requires the net income per share for each class of stock (common stock and preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

Basic earnings (loss) per share is calculated based on the weighted average number of common stock outstanding during the period. Diluted earnings (loss) per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares and options granted under the Company’s stock incentive plan and membership units in Morgans Group, which may be exchanged for shares of the Company’s common stock under certain circumstances. The 954,065 Morgans Group membership units (which may be converted to cash, or at the Company’s option, common stock) held by third parties at September 30, 2011, warrants issued to the Investors, unvested restricted stock units, LTIP Units (as defined in note 7), stock options, and OPP LTIP Units and shares issuable upon conversion of outstanding Convertible Notes (as defined in note 6) have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share.

14

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data):

	Three Months			Three Months
	Ended			Ended
	Sept. 30, 2011			Sept. 30, 2010
Numerator:
Net loss from continuing operations	$	(25,618	)	$	(38,247	)
Net loss from discontinued operations		—			(281	)
Net loss		(25,618	)		(38,528	)
Net loss attributable to noncontrolling interest		799			1,451
Net loss attributable to Morgans Hotel Group Co.		(24,819	)		(37,077	)
Less: preferred stock dividends and accretion		2,285			2,164
Net loss attributable to common shareholders	$	(27,104	)	$	(39,241	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		30,617			30,162
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		30,617			30,162
Basic and diluted loss from continuing operations per share	$	(0.89	)	$	(1.29	)
Basic and diluted loss from discontinued operations per share	$	0.00		$	(0.01	)
Basic and diluted loss available to common stockholders per common share	$	(0.89	)	$	(1.30	)

	Nine Months			Nine Months
	Ended			Ended
	Sept. 30, 2011			Sept. 30, 2010
Numerator:
Net loss from continuing operations	$	(70,778	)	$	(92,615	)
Net income from discontinued operations		485			16,474
Net loss		(70,293	)		(76,141	)
Net loss attributable to noncontrolling interest		2,007			2,033
Net loss attributable to Morgans Hotel Group Co.		(68,286	)		(74,108	)
Less: preferred stock dividends and accretion		6,701			6,357
Net loss attributable to common shareholders	$	(74,987	)	$	(80,465	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		31,359			30,470
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		31,359			30,470
Basic and diluted loss from continuing operations per share	$	(2.41	)	$	(3.18	)
Basic and diluted income from discontinued operations per share	$	0.02		$	0.54
Basic and diluted loss available to common stockholders per common share	$	(2.39	)	$	(2.64	)

4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in earnings (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

	As of		As of
	Sept. 30,		December 31,
Investment	2011		2010
Mondrian South Beach	$	3,313	$	5,817
Morgans Hotel Group Europe Ltd.		—		1,366
Mondrian SoHo		—		—
Ames		—		10,709
Mondrian South Beach food and beverage — MC South Beach (1)		1,592		—
Other		158		2,558
Total investments in and advances to unconsolidated joint ventures	$	5,063	$	20,450

15

	As of			As of
	Sept. 30,			December 31,
Investment	2011			2010
Restaurant Venture — SC London (2)	$	—		$	(1,509	)
Morgans Hotel Group Europe Ltd.		(272	)		—
Hard Rock Hotel & Casino (3)		—			—
Total losses from and distributions in excess of investment in unconsolidated joint ventures	$	(272	)	$	(1,509	)

(1)	Following the CGM Transaction, the Company’s ownership interest in this food and beverage joint venture is less than 100%, and based on the Company’s evaluation, this venture does not meet the requirements of a variable interest entity. Accordingly, this joint venture is accounted for using the equity method.
(2)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. In connection with the CGM Transaction, the Company owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(3)	Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement (discussed below).

Equity in income (loss) of unconsolidated joint ventures

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
Investment	Sept. 30, 2011			Sept. 30, 2010			Sept. 30, 2011			Sept. 30, 2010
Morgans Hotel Group Europe Ltd.	$	499		$	1041		$	1,392		$	2,540
Restaurant Venture — SC London (1)		—			(136	)		(510	)		(584	)
Mondrian South Beach		(1,025	)		(1,576	)		(2,503	)		(1,808	)
Mondrian South Beach food and beverage — MC South Beach (2)		(108	)		—			(108	)		—
Ames		(10,597	)		(86	)		(11,062	)		(577	)
Mondrian SoHo		(1,565	)		(680	)		(4,026	)		(9,015	)
Hard Rock Hotel & Casino (3)		—			—			(6,376	)		—
Other		2			2			6			7
Total equity in loss from unconsolidated joint ventures	$	(12,794	)	$	(1,435	)	$	(23,187	)	$	(9,437	)

(1)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. As a result of the CGM Transaction, the Company now owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(2)	Following the CGM Transaction, the Company’s ownership interest in this food and beverage joint venture is less than 100%, and based on the Company’s evaluation, this venture does not meet the requirements of a variable interest entity. Accordingly, this joint venture is accounted for using the equity method.
(3)	Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement (discussed below). Reflects the period operated in 2011.

Morgans Hotel Group Europe Limited

As of September 30, 2011, the Company owned interests in two hotels in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel, through a 50/50 joint venture known as Morgans Hotel Group Europe Limited (“Morgans Europe”) with Walton MG London Investors V, L.L.C (“Walton”).

Under the joint venture agreement with Walton, the Company owns indirectly a 50% equity interest in Morgans Europe and has an equal representation on the Morgans Europe board of directors. In the event the parties cannot agree on certain specified decisions, such as approving hotel budgets or acquiring a new hotel property, or beginning any time after February 9, 2010, either party has the right to buy all the shares of the other party in the joint venture or, if its offer is rejected, require the other party to buy all of its shares at the same offered price per share in cash.

16

Under a management agreement with Morgans Europe, the Company earns management fees and a reimbursement for allocable chain service and technical service expenses. The Company is also entitled to an incentive management fee and a capital incentive fee. The Company did not earn any incentive fees during the three and nine months ended September 30, 2011 and 2010.

On July 15, 2010, the joint venture refinanced in full its then outstanding £99.3 million mortgage debt with a new £100 million loan maturing in July 2015 that is non-recourse to the Company and is secured by Sanderson and St Martins Lane. The joint venture also entered into a swap agreement that effectively fixes the interest rate at 5.22% for the term of the loan, a reduction in interest rate of approximately 105 basis points, as compared to the previous mortgage loan. As of September 30, 2011, Morgans Europe had outstanding mortgage debt of £99.3 million, or approximately $154.8 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011.

Net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. The Company accounts for this investment under the equity method of accounting.

On October 7, 2011, subsidiaries of the Company and Walton entered into an agreement (the “London Sale Agreement”) to sell their respective equity interests in the joint venture for an aggregate of £192 million (or approximately $300.0 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011) to Capital Hills Hotels Limited. On closing of the transaction, the Company will continue to operate the hotels under long-term management agreements that, including extension options, extend the term of the existing management agreements to 2041 from 2027. The transaction is expected to close in the fourth quarter of 2011 and is subject to satisfaction of customary closing conditions. The Company expects to receive net proceeds of approximately $70 million, depending on foreign currency exchange rates and working capital adjustments, after the joint venture applies a portion of the proceeds from the sale to retire the £99.5 million of outstanding mortgage debt secured by the hotels and after payment of closing costs. The joint venture partners have received a £10 million security deposit, which is non-refundable except in the event of a default by the seller.

On November 2, 2011, Walton, on behalf of itself and the Company, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture to renovate and convert an apartment building on Biscayne Bay in South Beach Miami into a condominium hotel, Mondrian South Beach, which opened in December 2008. The Company operates Mondrian South Beach under a long-term management contract.

The joint venture acquired the existing building and land for a gross purchase price of $110.0 million. An initial equity investment of $15.0 million from each of the 50/50 joint venture partners was funded at closing, and subsequently each member also contributed $8.0 million of additional equity. The Company and an affiliate of its joint venture partner provided additional mezzanine financing of approximately $22.5 million in total to the joint venture to fund completion of the construction in 2008. Additionally, the joint venture initially received non-recourse mortgage loan financing of approximately $124.0 million at a rate of LIBOR plus 300 basis points. A portion of this mortgage debt was paid down, prior to the amendments discussed below, with proceeds obtained from condominium sales. In April 2008, the Mondrian South Beach joint venture obtained a mezzanine loan from the mortgage lenders of $28.0 million bearing interest at LIBOR, based on the rate set date, plus 600 basis points. The $28.0 million mezzanine loan provided by the lender and the $22.5 million mezzanine loan provided by the joint venture partners were both amended when the loan matured in April 2010, as discussed below.

17

In April 2010, the joint venture amended the non-recourse financing secured by the property and extended the maturity date for up to seven years through extension options until April 2017, subject to certain conditions. Among other things, the amendment allows the joint venture to accrue all interest for a period of two years and a portion thereafter and provides the joint venture the ability to provide seller financing to qualified condominium buyers with up to 80% of the condominium purchase price. Each of the joint venture partners provided an additional $2.75 million to the joint venture resulting in total mezzanine financing provided by the partners of $28.0 million. The amendment also provides that this $28.0 million mezzanine financing invested in the property be elevated in the capital structure to become, in effect, on par with the lender’s mezzanine debt so that the joint venture receives at least 50% of all returns in excess of the first mortgage.

Morgans Group and affiliates of its joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2011, there are remaining payables outstanding to vendors of approximately $1.1 million. The Company believes that payment under these guaranties is not probable and the fair value of the guarantee is not material.

The Company and affiliates of its joint venture partner also have an agreement to purchase approximately $14 million each of condominium units under certain conditions, including an event of default. In the event of a default under the mortgage or mezzanine loan, the joint venture partners are obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the mezzanine loan, or the then outstanding principal balance of the mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. The Company has not recognized a liability related to the construction completion or the condominium purchase guarantees.

The joint venture is in the process of selling units as condominiums, subject to market conditions, and unit buyers will have the opportunity to place their units into the hotel’s rental program. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Management determined that the Company is not the primary beneficiary of this variable interest entity as the Company does not have a controlling financial interest in the entity. The Company’s maximum exposure to losses as a result of its involvement in the Mondrian South Beach variable interest entity is limited to its current investment, outstanding management fee receivable and advances in the form of mezzanine financing. The Company is not committed to providing financial support to this variable interest entity, other than as contractually required and all future funding is expected to be provided by the joint venture partners in accordance with their respective percentage interests in the form of capital contributions or mezzanine financing, or by third parties.

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Company initially contributed $5.0 million for a 20% equity interest in the joint venture and subsequently loaned an additional $4.3 million to the venture. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010.

Based on the decline in market conditions following the inception of the joint venture and more recently, the need for additional funding to complete the hotel, the Company wrote down its investment in Mondrian SoHo to zero in June 2010 and recorded an impairment charge through equity in loss of unconsolidated joint ventures.

18

On July 31, 2010, the lender amended the debt financing on the property to provide for, among other things, extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater.

In addition to new funds provided by the lender, Cape Advisors Inc. made cash and other contributions to the joint venture, and the Company agreed to provide up to $3.2 million of additional funds to be treated as a loan with priority over the equity, to complete the project. The Company has contributed the full amount of this priority loan, as well as additional funds of $1.1, all of which were considered impaired and recorded as impairment charges through equity in loss of unconsolidated joint ventures during the periods funds were contributed. As of September 30, 2011, the Company’s investment balance in the joint venture was zero.

The joint venture believes the hotel has achieved the required 1:1 coverage ratio as of September 30, 2011 and subject to other customary conditions, the maturity of this debt can be extended to November 2012. The joint venture has additional extension options available in 2012 subject to similar conditions, including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the twelve months ended September 30, 2012 of 1.1:1.0 or greater.

Certain affiliates of the Company’s joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct.

The Mondrian SoHo opened in February 2011 and has 270 guest rooms, a restaurant, bar and other facilities. The Company has a 10-year management contract with two 10-year extension options to operate the hotel.

As of December 31, 2010, the Mondrian SoHo joint venture was determined to be a variable interest entity, but the Company was not its primary beneficiary and, therefore, consolidation of this joint venture is not required. In February 2011, when Mondrian SoHo opened, the Company determined that the joint venture was an operating business. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting.

Ames

On June 17, 2008, the Company, Normandy Real Estate Partners, and Ames Hotel Partners entered into a joint venture agreement as part of the development of the Ames hotel in Boston. Ames opened on November 19, 2009 and has 114 guest rooms, a restaurant, bar and other facilities. The Company manages Ames under a 15-year management contract.

The Company has contributed approximately $11.8 million in equity through September 30, 2011 for an approximately 31% interest in the joint venture. The joint venture obtained a loan for $46.5 million secured by the hotel, which was outstanding as of September 30, 2011. The project also qualified for federal and state historic rehabilitation tax credits which were sold for approximately $16.9 million.

In September 2011, the joint venture partners funded their pro rata shares of the debt service reserve account, of which the Company’s contribution was $0.3 million, and exercised the one remaining extension option available on the mortgage debt. As a result, the mortgage debt secured by Ames will mature on October 9, 2012.

19

Based on current economic conditions and the upcoming mortgage debt maturity, the joint venture concluded that the hotel was impaired as of September 30, 2011, and recorded a $49.9 million impairment charge. The Company wrote down its investment in Ames to zero and recorded an impairment charge through equity in loss of unconsolidated joint ventures of $10.6 million.

Shore Club

The Company operates Shore Club under a management contract and owned a minority ownership interest of approximately 7% at September 30, 2011. On September 15, 2009, the joint venture that owns Shore Club received a notice of default on behalf of the special servicer for the lender on the joint venture’s mortgage loan for failure to make its September monthly payment and for failure to maintain its debt service coverage ratio, as required by the loan documents. On October 7, 2009, the joint venture received a second letter on behalf of the special servicer for the lender accelerating the payment of all outstanding principal, accrued interest, and all other amounts due on the mortgage loan. The lender also demanded that the joint venture transfer all rents and revenues directly to the lender to satisfy the joint venture’s debt. In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. The Company continues to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances the Company will continue to operate the hotel once foreclosure proceedings are complete.

MC South Beach and SC Sunset

On June 20, 2011, the Company completed the CGM Transaction, pursuant to which subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20.0 million. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassess its food and beverage strategy.

The Company’s ownership interest in one of the food and beverage ventures covered by the CGM Transaction, MC South Beach LLC (“MC South Beach”) at Mondrian South Beach, is less than 100%, and was reevaluated in accordance with ASC 810-10. The Company concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in the joint venture is accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing.

At the closing of the CGM Transaction, the Company’s ownership interest in another food and beverage venture covered by the CGM Transaction, Sunset Restaurant LLC (“SC Sunset”) at Mondrian Los Angeles, was also less than 100%, and was reevaluated at the time in accordance with ASC 810-10. The Company initially concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in joint venture was accounted for using the equity method. Subsequently, on August 5, 2011, an affiliate of Pebblebrook, the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

Hard Rock Hotel & Casino

Formation and Hard Rock Credit Facility

On February 2, 2007, the Company and Morgans Group (together, the “Morgans Parties”), an affiliate of DLJ Merchant Banking Partners (“DLJMB”), and certain other DLJMB affiliates (such affiliates, together with DLJMB, collectively the “DLJMB Parties”) completed the acquisition of the Hard Rock Hotel & Casino (“Hard Rock”). The acquisition was completed through a joint venture entity, Hard Rock Hotel Holdings, LLC, funded one-third, or approximately $57.5 million, by the Morgans Parties, and two-thirds, or approximately $115.0 million, by the DLJMB Parties. In connection with the joint venture’s acquisition of the Hard Rock, certain subsidiaries of the joint venture entered into a debt financing comprised of a senior mortgage loan and three mezzanine loans, which provided for a $760.0 million acquisition loan that was used to fund the acquisition, of which $110.0 million was subsequently repaid according to the terms of the loan, and a construction loan of up to $620.0 million, which was fully drawn for the expansion project at the Hard Rock. Morgans Group provided a standard non-recourse, carve-out guaranty for each of the mortgage and mezzanine loans.

20

Following the formation of Hard Rock Hotel Holdings, LLC, additional cash contributions were made by both the DLJMB Parties and the Morgans Parties, including disproportionate cash contributions by the DLJMB Parties. Prior to the Hard Rock settlement, discussed below, the DLJMB Parties had contributed an aggregate of $424.8 million in cash and the Morgans Parties had contributed an aggregate of $75.8 million in cash. In 2009, the Company wrote down the Company’s investment in Hard Rock to zero.

Hard Rock Settlement Agreement

On January 28, 2011, subsidiaries of Hard Rock Hotel Holdings, LLC received a notice of acceleration from the NRFC HRH Holdings, LLC (the “Second Mezzanine Lender”) pursuant to the First Amended and Restated Second Mezzanine Loan Agreement, dated as of December 24, 2009 (the “Second Mezzanine Loan Agreement”), between such subsidiaries and the Second Mezzanine Lender, declaring all unpaid principal and accrued interest under the Second Mezzanine Loan Agreement immediately due and payable.

On February 6, 2011, subsidiaries of Hard Rock Hotel Holdings, LLC, Vegas HR Private Limited (the “Mortgage Lender”), Brookfield Financial, LLC-Series B (the “First Mezzanine Lender), the Second Mezzanine Lender, Morgans Group, certain affiliates of DLJMB, and certain other related parties entered into a Standstill and Forbearance Agreement.

On March 1, 2011, Hard Rock Hotel Holdings, LLC, the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Morgans Parties and certain affiliates of DLJMB, as well as Hard Rock Mezz Holdings LLC (the “Third Mezzanine Lender”) and other interested parties entered into a comprehensive settlement to resolve the disputes among them and all matters relating to the Hard Rock and related loans and guaranties. The settlement provided, among other things, for the following:

• release of the non-recourse carve-out guaranties provided by the Company with respect to the loans made by the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender and the Third Mezzanine Lender to the direct and indirect owners of the Hard Rock;

• termination of the management agreement pursuant to which the Company’s subsidiary managed the Hard Rock;

• the transfer by Hard Rock Hotel Holdings, LLC to an affiliate of the First Mezzanine Lender of 100% of the indirect equity interests in the Hard Rock; and

• certain payments to or for the benefit of the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Third Mezzanine Lender and the Company. The Company’s net payment was approximately $3.7 million.

As a result of the settlement and completion of certain gaming de-registration procedures, the Company is no longer subject to Nevada gaming regulations.

5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of		As of
	Sept. 30,		December 31,
	2011		2010
OPP Liability (note 7)	$	425	$	—
Designer fee payable		13,866		13,866
	$	14,291	$	13,866

OPP Liability

As discussed further in note 7, the estimated fair value of the OPP LTIP Units liability was approximately $0.4 million at September 30, 2011.

21

Designer Fee Payable

As of September 30, 2011 and December 31, 2010, included in other liabilities was $13.9 million, which is related to a potential claim for a fee payable to a designer. The Former Parent had an exclusive service agreement with a hotel designer, pursuant to which the designer has initiated various claims related to the agreement. Although the Company is not a party to the agreement, it may have certain contractual obligations or liabilities to the Former Parent in connection with the agreement. According to the agreement, the designer was owed a base fee for each designed hotel, plus 1% of Gross Revenues, as defined in the agreement, for a 10-year period from the opening of each hotel. In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. A liability amount has been estimated and recorded in these consolidated financial statements before considering any defenses and/or counter-claims that may be available to the Company or the Former Parent in connection with any claim brought by the designer. The Company believes the probability of losses associated with this claim in excess of the liability that is accrued of $13.9 million is remote and cannot reasonably estimate of range of such additional losses, if any, at this time. The estimated costs of the design services were capitalized as a component of the applicable hotel and amortized over the five-year estimated life of the related design elements.

6. Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

	As of		As of
	Sept. 30,		December 31,		Interest rate at
Description	2011		2010		September 30, 2011
Notes secured by Hudson (a)	$	115,000	$	201,162	5.00% (LIBOR + 4.00%, LIBOR floor of 1.00%)
Notes secured by equity interests in Henry Hudson Holdings (a)		—		26,500	(a)
Clift debt (b)		86,484		85,033	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes, face value of $172.5 million (d)		165,576		163,869	2.38%
Revolving credit facility (e)		10,000		26,008	5.00% (LIBOR + 4.00%, LIBOR floor of 1.00%)
Capital lease obligations (f)		6,107		6,107	(f)
Debt and capital lease obligation	$	433,267	$	558,779
Mortgage debt secured by assets held for sale — Mondrian Los Angeles (a)	$	—	$	103,496
Notes secured by property held for non-sale disposition (g)	$	—	$	10,500

(a) Mortgage Agreements

Hudson Mortgage and Mezzanine Loan

On October 6, 2006, a subsidiary of the Company, Henry Hudson Holdings LLC (“Hudson Holdings”), entered into a non-recourse mortgage financing secured by Hudson (the “Hudson Mortgage”), and another subsidiary entered into a mezzanine loan related to Hudson, secured by a pledge of the Company’s equity interests in Hudson Holdings.

22

Until amended as described below, the Hudson Mortgage bore interest at 30-day LIBOR plus 0.97%. The Company had entered into an interest rate swap on the Hudson Mortgage and the mezzanine loan on Hudson which effectively fixed the 30-day LIBOR rate at approximately 5.0%. This interest rate swap expired on July 15, 2010. The Company subsequently entered into a short-term interest rate cap on the Hudson Mortgage that expired on September 12, 2010.

On October 1, 2010, Hudson Holdings entered into a modification agreement of the Hudson Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders (the “Amended Hudson Mortgage”). This modification agreement and related agreements extended the Hudson Mortgage until October 15, 2011. In connection with the Amended Hudson Mortgage, on October 1, 2010, Hudson Holdings paid down a total of $16 million on its outstanding loan balances.

The interest rate on the Amended Hudson Mortgage was also amended to 30-day LIBOR plus 1.03%. The interest rate on the Hudson mezzanine loan continued to bear interest at 30-day LIBOR plus 2.98%. The Company entered into interest rate caps expiring October 15, 2011 in connection with the Amended Hudson Mortgage, which effectively capped the 30-day LIBOR rate at 5.3% on the Amended Hudson Mortgage and effectively capped the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

The Amended Hudson Mortgage required the Company’s subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower was also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves were deposited into restricted cash accounts and released as certain conditions were met. In addition, all excess cash was required to be funded into a curtailment reserve account. The subsidiary borrower was not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

On August 12, 2011, certain of the Company’s subsidiaries entered into a new mortgage financing with Deutsche Bank Trust Company Americas and the other institutions party thereto from time to time, as lenders, consisting of two mortgage loans, each secured by Hudson and treated as a single loan once disbursed, in the following amounts: (1) a $115.0 million mortgage loan that was funded at closing, and (2) a $20.0 million delayed draw term loan, which will be available to be drawn over a 15-month period, subject to achieving a debt yield ratio of at least 9.5% (based on net operating income for the prior 12 months) after giving effect to each additional draw (collectively, the “ Hudson 2011 Mortgage Loan”).

Proceeds from the Hudson 2011 Mortgage Loan, cash on hand and cash held in escrow were applied to repay $201.2 million of outstanding mortgage debt under the Amended Hudson Mortgage, repay $26.5 million of outstanding indebtedness under the Hudson mezzanine loan, and pay fees and expenses in connection with the financing.

The Hudson 2011 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 1.0%) plus 400 basis points. The Company maintains an interest rate cap for the amount of the Hudson 2011 Mortgage Loan that will cap the LIBOR rate on the debt under the Hudson 2011 Mortgage Loan at approximately 3.0% through the maturity date of the loan.

The Hudson 2011 Mortgage Loan matures on August 12, 2013. The Company has three one-year extension options that will permit it to extend the maturity date of the Hudson 2011 Mortgage Loan to August 12, 2016 if certain conditions are satisfied at each respective extension date. The first two extension options require, among other things, the borrowers to maintain a debt service coverage ratio of at least 1-to-1 for the 12 months prior to the applicable extension dates. The third extension option requires, among other things, the borrowers to achieve a debt yield ratio of at least 13.0% (based on net operating income for the prior 12 months).

23

The Hudson 2011 Mortgage Loan provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash from the property is deposited into accounts controlled by the lenders from which debt service, operating expenses and management fees are paid and from which other reserve accounts may be funded. Any excess amounts are retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. Furthermore, if the Hudson manager is not reserving sufficient funds for property tax, ground rent, insurance premiums, and capital expenditures in accordance with the hotel management agreement, then the Company’s subsidiary borrowers would be required to fund the reserve account for such purposes. The Company’s subsidiary borrowers are not permitted to have any indebtedness other than certain permitted indebtedness customary in such transactions, including ordinary trade payables, purchase money indebtedness and capital lease obligations, subject to limits.

The Hudson 2011 Mortgage Loan may be prepaid, in whole or in part, subject to payment of a prepayment penalty for any prepayment prior to August 12, 2013. There is no prepayment premium after August 12, 2013.

The Hudson 2011 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson and the owner of Hudson and other affirmative and negative covenants and events of default customary for single asset mortgage loans. The Hudson 2011 Mortgage Loan is fully recourse to our subsidiaries that are the borrowers under the loan. The loan is nonrecourse to us, Morgans Group and our other subsidiaries, except for certain standard nonrecourse carveouts. Morgans Group has provided a customary environmental indemnity and nonrecourse carveout guaranty under which it would have liability with respect to the Hudson 2011 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, and violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires Morgans Group to maintain a net worth of at least $100 million (based on the estimated market value of our net assets) and liquidity of at least $20 million.

Mondrian Los Angeles Mortgage

On October 6, 2006, a subsidiary of the Company, Mondrian Holdings LLC (“Mondrian Holdings”), entered into a non-recourse mortgage financing secured by Mondrian Los Angeles (the “Mondrian Mortgage”).

On October 1, 2010, Mondrian Holdings entered into a modification agreement of its Mondrian Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. This modification agreement and related agreements amended and extended the Mondrian Mortgage (the “Amended Mondrian Mortgage”) until October 15, 2011. In connection with the Amended Mondrian Mortgage, on October 1, 2010, Mondrian Holdings paid down a total of $17 million on its outstanding mortgage loan balance.

The interest rate on the Amended Mondrian Mortgage was also amended to 30-day LIBOR plus 1.64%. The Company entered into an interest rate cap which expired on October 15, 2011 in connection with the Amended Mondrian Mortgage which effectively capped the 30-day LIBOR rate at 4.25%.

On May 3, 2011, the Company completed the sale of Mondrian Los Angeles for $137.0 million to Wolverines Owner LLC, an affiliate of Pebblebrook. The Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage.

(b) Clift Debt

In October 2004, Clift Holdings LLC (“Clift Holdings”), a subsidiary of the Company, sold the Clift hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, the Company is required to fund operating shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing.

Due to the amount of the payments stated in the lease, which increase periodically, and the economic environment in which the hotel operates, Clift Holdings, had not been operating Clift at a profit and Morgans Group had been funding cash shortfalls sustained at Clift in order to enable Clift Holdings to make lease payments from time to time. On March 1, 2010, however, the Company discontinued subsidizing the lease payments and Clift Holdings stopped making the scheduled monthly payments. On May 4, 2010, the owners filed a lawsuit against Clift Holdings, which the court dismissed on June 1, 2010. On June 8, 2010, the owners filed a new lawsuit and on June 17, 2010, the Company and Clift Holdings filed an affirmative lawsuit against the owners.

On September 17, 2010, the Company, Clift Holdings and another subsidiary of the Company, 495 Geary, LLC, entered into a settlement and release agreement with Hasina, LLC, Tarstone Hotels, LLC, Kalpana, LLC, Rigg Hotel, LLC, and JRIA, LLC (collectively, the “Lessors”), and Tarsadia Hotels (the “Settlement and Release Agreement”). The Settlement and Release Agreement, among other things, effectively provided for the settlement of all outstanding litigation claims and disputes among the parties relating to defaulted lease payments due with respect to the ground lease for the Clift and reduced the lease payments due to Lessors for the period March 1, 2010 through February 29, 2012. Clift Holdings and the Lessors also entered into an amendment to the lease, dated September 17, 2010 (“Lease Amendment”), to memorialize, among other things, the reduced annual lease payments of $4.97 million from March 1, 2010 to February 29, 2012. Effective March 1, 2012, the annual rent will be as stated in the lease agreement, which currently provides for base annual rent of approximately $6.0 million per year through October 2014 increasing thereafter, at 5-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum of 20% at October 2014, and at each payment date thereafter, the maximum increase is 20% and the minimum is 10%. The lease is non-recourse to the Company.

24

Morgans Group also entered into an agreement, dated September 17, 2010 (the “Limited Guaranty,” together with the Settlement and Release Agreement and Lease Amendment, the “Clift Settlement Agreements”), whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the Lessors in the event of certain “bad boy” type acts.

(c) Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Notes. The terms of the Trust Notes are substantially the same as preferred securities issued by the Trust. The Trust Notes and the preferred securities have a fixed interest rate of 8.68% per annum during the first 10 years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The Trust Notes are redeemable by the Trust, at the Company’s option, after five years at par. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of preferred securities.

Prior to the amendment described below, the Trust Notes agreement required that the Company not fall below a fixed charge coverage ratio, defined generally as consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), excluding Clift’s EBITDA, over consolidated interest expense, excluding Clift’s interest expense, of 1.4 to 1.0 for four consecutive quarters. On November 2, 2009, the Company amended the Trust Notes agreement to permanently eliminate this financial covenant. The Company paid a one-time fee of $2.0 million in exchange for the permanent removal of the covenant.

The Company has identified that the Trust is a variable interest entity under ASC 810-10. Based on management’s analysis, the Company is not the primary beneficiary under the trust. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

(d) October 2007 Convertible Notes Offering

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”) in a private offering. Net proceeds from the offering were approximately $166.8 million.

The Convertible Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by the Company’s operating company, Morgans Group. The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances and upon the occurrence of specified events.

Interest on the Convertible Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2008, and the Convertible Notes mature on October 15, 2014, unless previously repurchased by the Company or converted in accordance with their terms prior to such date. The initial conversion rate for each $1,000 principal amount of Convertible Notes is 37.1903 shares of the Company’s common stock, representing an initial conversion price of approximately $26.89 per share of common stock. The initial conversion rate is subject to adjustment under certain circumstances. The maximum conversion rate for each $1,000 principal amount of Convertible Notes is 45.5580 shares of the Company’s common stock representing a maximum conversion price of approximately $21.95 per share of common stock.

25

The Company follows ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), which clarifies the accounting for convertible notes payable. ASC 470-20 requires the proceeds from the issuance of convertible notes to be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the debt is expected to be outstanding as additional interest expense. The equity component, recorded as additional paid-in capital, was determined to be $9.0 million, which represents the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million as of the date of issuance of the Convertible Notes.

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions with respect to the Company’s common stock (the “Call Options”) with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. (collectively, the “Hedge Providers”). The Call Options are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which the Company will receive shares of the Company’s common stock from the Hedge Providers equal to the number of shares issuable to the holders of the Convertible Notes upon conversion. The Company paid approximately $58.2 million for the Call Options.

In connection with the sale of the Convertible Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The Company received approximately $34.1 million from the issuance of the Warrants.

The Company recorded the purchase of the Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of additional paid-in capital and the proceeds from the Warrants as an addition to additional paid-in capital in accordance with ASC 815-30, Derivatives and Hedging, Cash Flow Hedges.

In February 2008, the Company filed a registration statement with the Securities and Exchange Commission to cover the resale of shares of the Company’s common stock that may be issued from time to time upon the conversion of the Convertible Notes.

(e) Revolving Credit Facility

On October 6, 2006, the Company and certain of its subsidiaries entered into a revolving credit facility with Wachovia Bank, National Association, as Administrative Agent, and the other lenders party thereto, which was amended on August 5, 2009, (the “Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by the mortgages on Morgans, Royalton and Delano South Beach.

The Amended Revolving Credit Facility bore interest at a fluctuating rate measured by reference to, at the Company’s election, either LIBOR (subject to a LIBOR floor of 1%) or a base rate, plus a borrowing margin. LIBOR loans had a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum.

On May 23, 2011, in connection with the sale of Royalton and Morgans, the Company used a portion of the sales proceeds to retire all outstanding debt under the Amended Revolving Credit Facility. These hotels, along with Delano South Beach, were collateral for the Amended Revolving Credit Facility, which terminated with the sale of the properties securing the facility.

On July 28, 2011, the Company and certain of its subsidiaries (collectively, the “Borrowers”), including Beach Hotel Associates LLC (the “Florida Borrower”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

26

The Delano Credit Agreement provides commitments for a $100.0 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable.

As of September 30, 2011, the Company had $10.0 million outstanding under the Delano Credit Agreement and an additional $10.0 million letter of credit outstanding related to the Company’s key money investment in the 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. In August 2011, the Company entered into a hotel management and residential licensing agreement related to this project.

The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by the Company and a subsidiary of the Company. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by the Company and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that the Company and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter. As of September 30, 2011, the Company’s fixed charge coverage ratio under the Delano Credit Agreement was 1.59x.

The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

(f) Capital Lease Obligations

The Company has leased two condominium units at Hudson from unrelated third-parties, which are reflected as capital leases. One of the leases requires the Company to make annual payments, currently $582,180 (subject to increases due to increases in the Consumer Price Index) from acquisition through November 2096. This lease also allows the Company to purchase the unit at fair market value after November 2015.

The second lease requires the Company to make annual payments, currently $328,128 (subject to increases due to increases in the Consumer Price Index) through December 2098. The Company has allocated both of the leases’ payments between the land and building based on their estimated fair values. The portion of the payments allocated to building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%, which is based on the Company’s incremental borrowing rate at the time the lease agreement was executed. The capital lease obligations related to the units amounted to approximately $6.1 million as of September 30, 2011 and December 31, 2010. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

(g) Notes secured by property held for non sale disposition

An indirect subsidiary of the Company had issued a $10.0 million interest only non-recourse promissory note to the seller of the property across from the Delano South Beach which was due on January 24, 2011 and secured by the property. Additionally, a separate indirect subsidiary of the Company had issued a $0.5 million interest only non-recourse promissory note to an affiliate of the seller which was also due on January 24, 2011 and secured with a pledge of the equity interests in the Company’s subsidiary that owned the property. In January 2011, the Company’s indirect subsidiary transferred its interests in the property across the street from Delano South Beach to SU Gale Properties, LLC (the “Gale Transaction”). As a result of the Gale Transaction, the Company was released from the $10.5 million of non-recourse mortgage and mezzanine indebtedness.

27

7. Omnibus Stock Incentive Plan

RSUs, LTIPs and Stock Options

On February 9, 2006, the Board of Directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (the “2006 Stock Incentive Plan”). An aggregate of 3,500,000 shares of common stock of the Company were reserved and authorized for issuance under the 2006 Stock Incentive Plan, subject to equitable adjustment upon the occurrence of certain corporate events. On April 23, 2007, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 22, 2007, the stockholders approved, the Company’s 2007 Omnibus Incentive Plan (the “2007 Incentive Plan”), which amended and restated the 2006 Stock Incentive Plan and increased the number of shares reserved for issuance under the plan by up to 3,250,000 shares to a total of 6,750,000 shares. On April 10, 2008, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 20, 2008, the stockholders approved, an Amended and Restated 2007 Omnibus Incentive Plan (the “Restated 2007 Incentive Plan”) which, among other things, increased the number of shares reserved for issuance under the plan by up to 1,860,000 shares to a total of 8,610,000 shares. On November 30, 2009, the Board of Directors of the Company adopted, and at a special meeting of stockholders of the Company held on January 28, 2010, the Company’s stockholders approved, an amendment to the Restated 2007 Incentive Plan (the “Amended 2007 Incentive Plan”) to increase the number of shares reserved for issuance under the plan by 3,000,000 shares to 11,610,000 shares.

The Amended 2007 Incentive Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock units (“RSUs”) and other equity-based awards, including membership units in Morgans Group which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the Amended 2007 Incentive Plan included directors, officers and employees of the Company. Awards other than options and stock appreciation rights reduce the shares available for grant by 1.7 shares for each share subject to such an award.

During the third quarter of 2011, the Company granted newly hired employees an aggregate of 42,360 RSUs. A summary of stock-based incentive awards as of September 30, 2011 is as follows (in units, or shares, as applicable):

	Restricted Stock
	Units			LTIP Units			Stock Options
Outstanding as of January 1, 2011		805,334			2,271,437			1,506,337
Granted during 2011		379,280			300,000			1,300,000
Distributed/exercised during 2011		(286,309	)		(219,053	)		—
Forfeited during 2011		(168,142	)		—			(481,597	)
Outstanding as of September 30, 2011		730,163			2,352,384			2,324,470
Vested as of September 30, 2011		221,029			2,043,532			1,024,740

As of September 30, 2011 and December 31, 2010, there were approximately $10.3 million and $6.8 million, respectively, of total unrecognized compensation costs related to unvested RSUs, LTIP Units and options. As of September 30, 2011, the weighted-average period over which this unrecognized compensation expense will be recorded is approximately 1.3 years.

Total stock compensation expense related to RSUs, LTIPs and options, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was $1.3 million and $2.3 million for the three months ended September 30, 2011 and 2010, respectively, and $7.0 million and $8.9 million for the nine months ended September 30, 2011 and 2010, respectively.

Outperformance Award Program

In connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which is a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to shareholders over a three-year period.

28

Pursuant to the Outperformance Award Program, each of the Company’s newly hired senior managers, Messrs. Hamamoto, Gross, Flannery and Gery, will receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to shareholders (including stock price appreciation plus dividends) increases by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014 (or a prorated hurdle rate over a shorter period in the case of certain changes of control), of a new series of outperformance long-term incentive units (the “OPP LTIP Units,” as described below), subject to vesting and the achievement of certain performance targets.

The total return to shareholders will be calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to shareholders will be $8.87, the closing price of the Company’s common shares on March 18, 2011. The Participation Percentages granted to Messrs. Hamamoto, Gross, Flannery and Gery are 35%, 35%, 10% and 10%, respectively.

Each of the current participants’ Awards vests on March 20, 2014 (or earlier in the event of certain changes of control) (the “Final Valuation Date”), contingent upon each participant’s continued employment, except for certain accelerated vesting events described below.

The aggregate dollar amount available to all participants is equal to 10% of the amount by which the Company’s March 20, 2014 valuation exceeds 130% (subject to proration in the case of certain changes of control) of the Company’s March 20, 2011 valuation (the “Total Outperformance Pool”) and the dollar amount payable to each participant (the “Participation Amount”) is equal to such participant’s Participating Percentage in the Total Outperformance Pool. Following the Final Valuation Date, the participant will either forfeit existing OPP LTIP Units or receive additional OPP LTIP Units so that the value of the vested OPP LTIP Units of the participant are equivalent to the participant’s Participation Amount.

Participants will forfeit any unvested Awards upon termination of employment; provided, however, that in the event a participant’s employment terminates because of death or disability, or employment is terminated by the Company without Cause or by the participant for Good Reason, as such terms are defined in the participant’s employment agreements, the participant will not forfeit the Award and will receive, following the Final Valuation Date, a Participation Amount reflecting his partial service. If the Final Valuation Date is accelerated by reason of certain change of control transactions, each participant whose Award has not previously been forfeited will receive a Participation Amount upon the change of control reflecting the amount of time since the effective date of the program, which was March 20, 2011.

OPP LTIP Units represent a special class of membership interest in the operating company, Morgans Group, which are structured as profits interests for federal income tax purposes. Conditioned upon minimum allocations to the capital accounts of the OPP LTIP Units for federal income tax purposes, each vested OPP LTIP Unit may be converted, at the election of the holder, into one Class A Unit in Morgans Group upon the receipt of shareholder approval for the shares of common stock underlying the OPP LTIP Units.

During the six-month period following the Final Valuation Date, Morgans Group may redeem some or all of the vested OPP LTIP Units (or Class A Units into which they were converted) at a price equal to the common share price (based on a 30-day average) on the Final Valuation Date. From and after the one-year anniversary of the Final Valuation Date, for a period of six months, participants will have the right to cause Morgans Group to redeem some or all of the vested OPP LTIP Units at a price equal to the greater of the common share price at the Final Valuation Date (determined as described above) or the then current common share price (calculated as determined in Morgans Group’s limited liability company agreement). Thereafter, beginning 18 months after the Final Valuation Date, each of these OPP LTIP Units (or Class A Units into which they were converted) is redeemable at the election of the holder for: (1) cash equal to the then fair market value of one share of the Company’s common stock, or (2) at the option of the Company, one share of common stock, in the event the Company then has shares available for that purpose under its shareholder-approved equity incentive plans. Participants are entitled to receive distributions on their vested OPP LTIP Units if any distributions are paid on the Company’s common stock following the Final Valuation Date.

29

The OPP LTIP Units were valued at approximately $7.3 million on the date of grant utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest.

As the Company has the ability to settle the vested OPP LTIP Units with cash, these Awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value. As of September 30, 2011, the fair value of the OPP LTIP Units were approximately $2.4 million and compensation expense relating to these OPP LTIP Units is being recorded over the vesting period. The fair value of the OPP LTIP Units were estimated on the date of grant using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 1.46%; and no dividend payments over the measurement period. The fair value of the OPP LTIP Units were estimated on September 30, 2011 using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 0.69%; and no dividend payments over the measurement period.

Total stock compensation expense related to the OPP LTIP Units, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was less than $0.1 million for the three months ended September 30, 2011 and $0.4 million for the nine months ended September 30, 2011.

8. Preferred Securities and Warrants

On October 15, 2009, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Investors. Under the Securities Purchase Agreement, the Company issued and sold to the Investors (i) 75,000 shares of the Company’s Series A Preferred Securities, $1,000 liquidation preference per share (the “Series A Preferred Securities”), and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share.

The Series A Preferred Securities have an 8% dividend rate for the first five years, a 10% dividend rate for years six and seven, and a 20% dividend rate thereafter. The Company has the option to accrue any and all dividend payments, and as of September 30, 2011, the Company had undeclared and unpaid dividends of $12.8 million. The Company has the option to redeem any or all of the Series A Preferred Securities at par at any time. The Series A Preferred Securities have limited voting rights and only vote on the authorization to issue senior preferred securities, amendments to their certificate of designations, amendments to the Company’s charter that adversely affect the Series A Preferred Securities and certain change in control transactions.

As discussed in note 2, the warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. Until October 15, 2010, the Investors had certain rights to purchase their pro rata share of any equity or debt securities offered or sold by the Company. In addition, the $6.00 exercise price of the warrants was subject to certain reductions if, any time prior to October 15, 2010, the Company issued shares of common stock below $6.00 per share. Per ASC 815-40-15, as the strike price was adjustable until the first anniversary of issuance, the warrants were not considered indexed to the Company’s stock until that date. Therefore, through October 15, 2010, the Company accounted for the warrants as liabilities at fair value. On October 15, 2010, the Investors rights under this warrant exercise price adjustment expired, at which time the warrants met the scope exception in ASC 815-10-15 and are accounted for as equity instruments indexed to the Company’s stock. At October 15, 2010, the warrants were reclassified to equity and will no longer be adjusted periodically to fair value.

The exercise price and number of shares subject to the warrants are both subject to anti-dilution adjustments.

Under the Securities Purchase Agreement, the Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock, including (subject to certain exceptions and limitations):

• the sale of substantially all of the Company’s assets to a third party;

30

• the acquisition by the Company of a third party where the equity investment by the Company is $100 million or greater;

• the acquisition of the Company by a third party; or

• any change in the size of the Company’s Board of Directors to a number below 7 or above 9.

Subject to certain exceptions, the Investors may not transfer any Series A Preferred Securities, warrants or common stock until October 15, 2012. The Investors are also subject to certain standstill arrangements as long as they beneficially own over 15% of the Company’s common stock.

In connection with the investment by the Investors, the Company paid to the Investors a commitment fee of $2.4 million and reimbursed the Investors for $600,000 of expenses.

The Company calculated the fair value of the Series A Preferred Securities at its net present value by discounting dividend payments expected to be paid on the shares over a 7-year period using a 17.3% rate. The Company determined that the market discount rate of 17.3% was reasonable based on the Company’s best estimate of what similar securities would most likely yield when issued by entities comparable to the Company.

The initial carrying value of the Series A Preferred Securities was recorded at its net present value less costs to issue on the date of issuance. The carrying value will be periodically adjusted for accretion of the discount. As of September 30, 2011, the value of the Series A Preferred Securities was $53.3 million, which includes accretion of $5.3 million.

The Company calculated the estimated fair value of the warrants using the Black-Scholes valuation model, as discussed in note 2.

The Company and Yucaipa American Alliance Fund II, LLC, an affiliate of the Investors (the “Fund Manager”), also entered into a Real Estate Fund Formation Agreement (the “Fund Formation Agreement”) on October 15, 2009 pursuant to which the Company and the Fund Manager agreed to use their good faith efforts to endeavor to raise a private investment fund (the “Fund”). The purpose of the Fund was to invest in hotel real estate projects located in North America. The Company was to be offered the opportunity to manage the hotels owned by the Fund under long-term management agreements. In connection with the Fund Formation Agreement, the Company issued to the Fund Manager 5,000,000 contingent warrants to purchase the Company’s common stock at an exercise price of $6.00 per share with a 7-1/2 year term.

The Fund Formation Agreement terminated by its terms on January 30, 2011 due to the failure to close a fund with $100 million of aggregate capital commitments by that date, and the 5,000,000 contingent warrants issued to the Fund Manager were forfeited in their entirety on October 15, 2011 due to the failure to close a fund with $250 million of aggregate capital commitments by that date.

For so long as the Investors collectively own or have the right to purchase through exercise of the warrants (assuming a cash rather than a cashless exercise) 875,000 shares of the Company’s common stock, the Company has agreed to use its reasonable best efforts to cause its Board of Directors to nominate and recommend to the Company’s stockholders the election of a person nominated by the Investors as a director of the Company and to use its reasonable best efforts to ensure that the Investors’ nominee is elected to the Company’s Board of Directors at each such meeting. If that nominee is not elected by the Company’s stockholders, the Investors have certain observer rights and, in certain circumstances, the dividend rate on the Series A Preferred Securities increases by 4% during any time that an Investors’ nominee is not a member of the Company’s Board of Directors. Effective October 15, 2009, the Investors nominated and the Company’s Board of Directors elected Michael Gross as a member of the Company’s Board of Directors. Effective March 20, 2011 when Mr. Gross was appointed Chief Executive Officer of the Company, the Investors’ nominated, and the Company’s Board of Directors elected, Ron Burkle as a member of the Company’s Board of Directors.

On April 21, 2010, the Company entered into a Waiver Agreement (the “Waiver Agreement”) with the Investors. The Waiver Agreement allowed the purchase by the Investors of up to $88 million in aggregate principal amount of the Convertible Notes within six months of April 21, 2010 and subject to the limitations and conditions set forth therein. From April 21, 2010 to July 21, 2010, the Investors purchased $88 million of the Convertible Notes. Pursuant to the Waiver Agreement, in the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock exceeds the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first refusal for the purchase of the same from the Investors. In the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock is equal to or less than the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first offer to purchase the same from the Investors.

31

9. Discontinued Operations

In May 2006, the Company obtained a $40.0 million non-recourse mortgage and mezzanine financing on Mondrian Scottsdale, which accrued interest at LIBOR plus 2.3%, and for which Morgans Group had provided a standard non-recourse carve-out guaranty. In June 2009, the non-recourse mortgage and mezzanine loans matured and the Company discontinued subsidizing the debt service. The lender foreclosed on the property and terminated the Company’s management agreement related to the property with an effective termination date of March 16, 2010.

The Company has reclassified the individual assets and liabilities to the appropriate discontinued operations line items on its December 31, 2010 balance sheet. Additionally, the Company reclassified the hotels results of operations and cash flows to discontinued operations on the Company’s statements of operations and comprehensive loss and cash flows.

Additionally, in January 2011, an indirect subsidiary of the Company transferred its interests in the property across the street from Delano South Beach to SU Gale Properties, LLC. As a result of this transaction, the Company was released from $10.5 million of non-recourse mortgage and mezzanine indebtedness previously consolidated on the Company’s balance sheet. The property across the street from Delano South Beach was a development property.

The following sets forth the discontinued operations of Mondrian Scottsdale and the property across the street from Delano South Beach for the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three Months		Three Months			Nine Months			Nine Months
	Ended		Ended			Ended			Ended
	Sept. 30, 2011		Sept. 30, 2010			Sept. 30, 2011			Sept. 30, 2010
Operating revenues	$	—	$	—		$	—		$	1,594
Operating expenses		—		(175	)		(35	)		(2,105	)
Interest expense		—		(291	)		—			(1,026	)
Depreciation and amortization expense		—		—			—			(268	)
Income tax benefit (expense)		—		185			(323	)		459
Gain on disposal		—		—			843			17,820
(Loss) income from discontinued operations	$	—	$	(281	)	$	485		$	16,474

10. Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures. These fees totaled approximately $3.4 million and $4.5 million for the three months ended September 30, 2011 and 2010, respectively, and $10.1 million and $14.1 million for the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011 and December 31, 2010, the Company had receivables from these affiliates of approximately $5.2 million and $3.8 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

11. Litigation

Petra Litigation Regarding Scottsdale Mezzanine Loan

On April 7, 2010, Petra CRE CDO 2007-1, LTD, a Cayman Islands Exempt Company (“Petra”), filed a complaint against Morgans Group LLC in the Supreme Court of the State of New York County of New York in connection with an approximately $14.0 million non-recourse mezzanine loan made on December 1, 2006 by Greenwich Capital Financial Products Company LLC (the “Original Lender”) to Mondrian Scottsdale Mezz Holding Company LLC, a wholly-owned subsidiary of Morgans Group LLC. The mezzanine loan relates to the Scottsdale, Arizona property previously owned by the Company. In connection with the mezzanine loan, Morgans Group LLC entered into a so-called “bad boy” guaranty providing for recourse liability under the mezzanine loan in certain limited circumstances. Pursuant to an assignment by the Original Lender, Petra is the holder of an interest in the mezzanine loan. The complaint alleged that the foreclosure of the Scottsdale property by a senior lender on March 16, 2010 constitutes an impermissible transfer of the property that triggered recourse liability of Morgans Group LLC pursuant to the guaranty. Petra demanded damages of approximately $15.9 million plus costs and expenses.

32

The Company believes that a foreclosure based on a payment default does not create one of the limited circumstances under which Morgans Group would have recourse liability under the guaranty. On May 27, 2010, the Company answered Petra’s complaint, denying any obligation to make payment under the guaranty. On July 9, 2010, Petra moved for summary judgment on the ground that the loan documents unambiguously establish Morgans Group’s obligation under the guaranty. The Company opposed Petra’s motion for summary judgment, and cross-moved for summary judgment in favor of the Company on grounds that the guaranty was not triggered by a foreclosure resulting from a payment default. On December 20, 2010, the court granted the Company’s motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in the Company’s favor and the dismissal of Petra’s complaint. Petra then petitioned the New York Court of Appeals for permission to appeal further and the Company opposed that petition. On September 22, 2011, the Court of Appeals denied Petra’s request for leave to appeal.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations on its current investment or on investments that may be made in the future.

12. Deferred Gain on Assets Sold

On May 3, 2011, pursuant to a purchase and sale agreement, Mondrian Holdings sold Mondrian Los Angeles for $137.0 million to Pebblebrook. The Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage. Net proceeds, after the repayment of debt and closing costs, were approximately $40 million. The Company continues to operate the hotel under a 20-year management agreement with one 10-year extension option.

On May 23, 2011, pursuant to purchase and sale agreements, Royalton LLC, a subsidiary of the Company, sold Royalton for $88.2 million to Royalton 44 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated, and Morgans Holdings LLC, a subsidiary of the Company, sold Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated. The Company applied a portion of the proceeds from the sale to retire the outstanding balance on the Amended Revolving Credit Facility. Net proceeds, after the repayment of debt and closing costs, were approximately $93 million. The Company continues to operate the hotels under a 15-year management agreement with one 10-year extension option.

The Company has reclassified the individual assets and liabilities of Mondrian Los Angeles, Royalton and Morgans to assets held for sale on its December 31, 2010 balance sheet.

The Company recorded deferred gains of approximately $11.3 million, $12.6 million and $56.1 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles. As the Company has significant continuing involvement through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. For the three months ended September 30, 2011, the Company recorded a gain of $1.1 million. For the nine months ended September 30, 2011, the Company recorded a gain of $1.7 million.

33

The Company’s hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions.

34

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the nine months ended September 30, 2011. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Overview

We are a fully integrated hospitality company that operates, owns, acquires, develops and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States, Europe and other international locations. Over our 27-year history, we have gained experience operating in a variety of market conditions.

The historical financial data presented herein is the historical financial data for:

• our wholly-owned hotels, or Owned Hotels, consisting, as of September 30, 2011, of Hudson in New York, Delano South Beach in Miami Beach, and Clift in San Francisco;

• our wholly-owned food and beverage operations, or Owned F&B Operations, consisting, as of September 30, 2011, of certain food and beverage operations located at Royalton, Morgans and Hudson in New York, Delano South Beach in Miami Beach, Clift in San Francisco, and Sanderson and St Martins Lane, both in London;

• our hotels in which we own partial interests, or Joint Venture Hotels, consisting, as of September 30, 2011, of our London hotels (Sanderson and St Martins Lane), Mondrian South Beach and Shore Club in Miami Beach, Ames in Boston and Mondrian SoHo in New York;

• our management company subsidiary, Morgans Hotel Group Management LLC, or MHG Management Company, and certain non-U.S. management company affiliates, through which we manage our portfolio of hotels that we manage with no ownership interest, or Managed Hotels, consisting of Royalton and Morgans in New York, Mondrian in Los Angeles and Hotel Las Palapas in Playa del Carmen, Mexico;

• our investment in unconsolidated food and beverage operations, or F&B Ventures, consisting, as of September 30, 2011, of certain food and beverage operations located at Mondrian South Beach in Miami Beach;

• our investments in hotels under development and other proposed properties; and

• the rights and obligations contributed to Morgans Group, our operating company, in the formation and structuring transactions described in note 1 to the consolidated financial statements, included elsewhere in this report.

Our Joint Venture Hotels as of September 30, 2011 are operated under management agreements which expire as follows:

• Sanderson — June 2018 (with one 10-year extension at our option);

• St Martins Lane — June 2018 (with one 10-year extension at our option);

• Shore Club — July 2022;

• Mondrian South Beach — August 2026;

• Ames — November 2024; and

• Mondrian SoHo — February 2021 (with two 10-year extensions at our option, subject to certain conditions).

35

Our Managed Hotels as of September 30, 2011 are operated under management agreements which expire as follows:

• Mondrian Los Angeles — May 2031 (with one 10-year extension at our option);

• Royalton — May 2026 (with one 10-year extension at our option, subject to certain conditions);

• Morgans — May 2026 (with one 10-year extension at our option, subject to certain conditions); and

• Hotel Las Palapas in Playa del Carmen, Mexico —December 2014 (with one automatic five-year extension, so long as we are not in default under the management agreement).

We have also signed management agreements to manage various other hotels that are in development, including a Delano project in Cabo San Lucas, Mexico, a Delano project on the Aegean Sea in Turkey, a hotel project in the Highline area in New York City, a Mondrian project in Doha, Qatar, and a Mondrian project in The Bahamas. However, financing has not been obtained for some of these hotel projects, and there can be no assurances that all of these projects will be developed as planned.

Our management agreements may be subject to early termination in specified circumstances. For example, our hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions provide us the option to fund a shortfall in operating performance. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions. Several of our hotels are also subject to substantial mortgage and mezzanine debt, and in some instances our management fee is subordinated to the debt, and our management agreements may be terminated by the lenders on foreclosure or certain other related events.

In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. We continue to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances we will continue to operate the hotel once foreclosure proceedings are complete.

Factors Affecting Our Results of Operations

Revenues. Changes in our revenues are most easily explained by three performance indicators that are commonly used in the hospitality industry:

• Occupancy;

• Average daily room rate (“ADR”); and

• Revenue per available rooms (“RevPAR”), which is the product of ADR and average daily occupancy, but does not include food and beverage revenue, other hotel operating revenue such as telephone, parking and other guest services, or management fee revenue.

Substantially all of our revenue is derived from the operation of our hotels. Specifically, our revenue consists of:

• Rooms revenue. Occupancy and ADR are the major drivers of rooms revenue.

• Food and beverage revenue. Most of our food and beverage revenue is driven by occupancy of our hotels and the popularity of our bars and restaurants with our local customers. In June 2011, we acquired from affiliates of China Grill Management Inc. (“CGM”) the 50% interests CGM owned in our food and beverage joint ventures for $20.0 million (the “CGM Transaction”). As a result of the CGM Transaction, we have begun to record 100% of the food and beverage revenue, and related expenses, for our Owned F&B Operations.

36

• Other hotel revenue. Other hotel revenue, which consists of ancillary revenue such as telephone, parking, spa, entertainment and other guest services, is principally driven by hotel occupancy.

• Management fee revenue and other income. We earn fees under our management agreements. These fees may include management fees as well as reimbursement for allocated chain services.

Fluctuations in revenues, which tend to correlate with changes in gross domestic product, are driven largely by general economic and local market conditions but can also be impacted by major events, such as terrorist attacks or natural disasters, which in turn affect levels of business and leisure travel.

The seasonal nature of the hospitality business can also impact revenues. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. However, given the recent global economic downturn, the impact of seasonality in 2010 and to date through 2011, was not as significant as in prior periods and may remain less pronounced throughout 2011 and into 2012 depending on the timing and strength of the economic recovery.

In addition to economic conditions, supply is another important factor that can affect revenues. Room rates and occupancy tend to fall when supply increases, unless the supply growth is offset by an equal or greater increase in demand. One reason why we focus on boutique hotels in key gateway cities is because these markets have significant barriers to entry for new competitive supply, including scarcity of available land for new development and extensive regulatory requirements resulting in a longer development lead time and additional expense for new competitors.

Finally, competition within the hospitality industry can affect revenues. Competitive factors in the hospitality industry include name recognition, quality of service, convenience of location, quality of the property, pricing, and range and quality of food services and amenities offered. In addition, all of our hotels, restaurants and bars are located in areas where there are numerous competitors, many of whom have substantially greater resources than us. New or existing competitors could offer significantly lower rates or more convenient locations, services or amenities or significantly expand, improve or introduce new service offerings in markets in which our hotels compete, thereby posing a greater competitive threat than at present. If we are unable to compete effectively, we would lose market share, which could adversely affect our revenues.

Operating Costs and Expenses. Our operating costs and expenses consist of the costs to provide hotel services, costs to operate our management company, and costs associated with the ownership of our assets, including:

• Rooms expense. Rooms expense includes the payroll and benefits for the front office, housekeeping, concierge and reservations departments and related expenses, such as laundry, rooms supplies, travel agent commissions and reservation expense. Like rooms revenue, occupancy is a major driver of rooms expense, which has a significant correlation with rooms revenue.

• Food and beverage expense. Similar to food and beverage revenue, occupancy of our hotels and the popularity of our restaurants and bars are the major drivers of food and beverage expense, which has a significant correlation with food and beverage revenue.

• Other departmental expense. Occupancy is the major driver of other departmental expense, which includes telephone and other expenses related to the generation of other hotel revenue.

• Hotel selling, general and administrative expense. Hotel selling, general and administrative expense consist of administrative and general expenses, such as payroll and related costs, travel expenses and office rent, advertising and promotion expenses, comprising the payroll of the hotel sales teams, the global sales team and advertising, marketing and promotion expenses for our hotel properties, utility expense and repairs and maintenance expenses, comprising the ongoing costs to repair and maintain our hotel properties.

• Property taxes, insurance and other. Property taxes, insurance and other consist primarily of insurance costs and property taxes.

• Corporate expenses, including stock compensation. Corporate expenses consist of the cost of our corporate office, net of any cost recoveries, which consists primarily of payroll and related costs, stock-based compensation expenses, office rent and legal and professional fees and costs associated with being a public company.

37

• Depreciation and amortization expense. Hotel properties are depreciated using the straight-line method over estimated useful lives of 39.5 years for buildings and five years for furniture, fixtures and equipment.

• Restructuring, development and disposal costs include costs incurred related to losses on asset disposals as part of major renovation projects, the write-off of abandoned development projects resulting primarily from events generally outside management’s control such as the recent tightness of the credit markets, our restructuring initiatives and severance costs related to our restructuring initiatives. These items do not relate to the ongoing operating performance of our assets.

Other Items

• Interest expense, net. Interest expense, net includes interest on our debt and amortization of financing costs and is presented net of interest income and interest capitalized.

• Equity in (income) loss of unconsolidated joint ventures. Equity in (income) loss of unconsolidated joint ventures constitutes our share of the net profits and losses of our Joint Venture Hotels and our investments in hotels under development. Further, we and our joint venture partners review our Joint Venture Hotels for other-than-temporary declines in market value. In this analysis of fair value, we use discounted cash flow analysis to estimate the fair value of our investment taking into account expected cash flow from operations, holding period and net proceeds from the dispositions of the property. Any decline that is not expected to be recovered is considered other-than-temporary and an impairment charge is recorded as a reduction in the carrying value of the investment.

• Gain on asset sales. We recorded deferred gains of approximately $11.3 million, $12.6 million and $56.1 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles, as discussed in note 12 of our consolidated financial statements. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement.

• Other non-operating (income) expenses include costs associated with executive terminations not related to restructuring initiatives, costs of financings, litigation and settlement costs and other items that relate to the financing and investing activities associated with our assets and not to the ongoing operating performance of our assets, both consolidated and unconsolidated, as well as the change in fair market value during 2010 of our warrants issued in connection with the Yucaipa transaction.

• Income tax expense (benefit). All of our foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented. We are subject to Federal and state income taxes. Income taxes for the periods ended September 30, 2011 and 2010 were computed using our calculated effective tax rate. We also recorded net deferred taxes related to cumulative differences in the basis recorded for certain assets and liabilities. We established a reserve on the deferred tax assets based on the ability to utilize net operating loss carryforwards.

• Noncontrolling interest. Noncontrolling interest constitutes the percentage of membership units in Morgans Group, our operating company, owned by Residual Hotel Interest LLC, our former parent, as discussed in note 1 of our consolidated financial statements, as well as our third-party food and beverage joint venture partner’s interest in the profits and losses of our F&B Ventures.

• Income (loss) from discontinued operations, net of tax. In March 2010, the mortgage lender foreclosed on Mondrian Scottsdale and we were terminated as the property’s manager. As such, we have recorded the income or loss earned from Mondrian Scottsdale in the income (loss) from discontinued operations, net of tax, on the accompanying consolidated financial statements. In January 2011, we recognized income from the transfer of the property across the street from Delano South Beach.

• Preferred stock dividends and accretion. Dividends attributable to our outstanding preferred stock and the accretion of the fair value discount on the issuance of the preferred stock are reflected as adjustments to our net loss to arrive at net loss attributable to common stockholders, as discussed in note 8 of our consolidated financial statements.

38

Most categories of variable operating expenses, such as operating supplies, and certain labor, such as housekeeping, fluctuate with changes in occupancy. Increases in RevPAR attributable to increases in occupancy are accompanied by increases in most categories of variable operating costs and expenses. Increases in RevPAR attributable to improvements in ADR typically only result in increases in limited categories of operating costs and expenses, primarily credit card and travel agent commissions. Thus, improvements in ADR have a more significant impact on improving our operating margins than occupancy.

Notwithstanding our efforts to reduce variable costs, there are limits to how much we can accomplish because we have significant costs that are relatively fixed costs, such as depreciation and amortization, labor costs and employee benefits, insurance, real estate taxes, interest and other expenses associated with owning hotels that do not necessarily decrease when circumstances such as market factors cause a reduction in our hotel revenues.

Recent Trends and Developments

Recent Trends. Starting in the fourth quarter of 2008 and continuing throughout 2009, the weakened U.S. and global economies resulted in considerable negative pressure on both consumer and business spending. As a result, lodging demand and revenues, which are primarily driven by growth in GDP, business investment and employment growth weakened substantially during this period as compared to the lodging demand and revenues we experienced prior to the fourth quarter of 2008. After this extremely difficult recessionary period, the outlook for the U.S. and global economies improved in 2010 and that improvement has continued into 2011. However, to date, the recovery has not been particularly robust, as spending by businesses and consumers remains restrained, and there are still several trends which make our lodging performance difficult to forecast, including shorter booking lead times at our hotels.

We have experienced positive business trends in 2011, with improvement in demand and average daily rate compared to the prior year in most of our major markets. These trends continued during the third quarter of 2011, with increased occupancies accompanied by increases in average daily rate resulting in strong increases in RevPAR performance in most of our hotels for the third quarter compared to the same period in 2010. However, we experienced some market-specific softening in demand during the third quarter of 2011 in New York and London and overall our operating results are still below pre-recessionary levels.

As demand has strengthened, we are focusing on revenue enhancement by actively managing rates and availability. With increased demand, the ability to increase pricing will be a critical component in driving profitability. Through these uncertain times, our strategy and focus continues to be to preserve profit margins by maximizing revenue, increasing our market share and managing costs. Our strategy includes re-energizing our food and beverage offerings by taking action to improve key facilities with a focus on driving higher beverage to food ratios and re-igniting the buzz around our nightlife and lobby scenes.

The pace of new lodging supply has increased over the past two years as many projects initiated before the economic downturn came to fruition. For example, we witnessed new competitive luxury and boutique properties opening in 2008, 2009 and 2010 in some of our markets, particularly in Los Angeles, Miami Beach and New York, which have impacted our performance in these markets and may continue to do so. However, we believe the timing of new development projects may be affected by the severe recession, ongoing uncertain economic conditions and reduced availability of financing compared to pre-recession periods. These factors may dampen the pace of new supply development, including our own, in the next few years.

For 2011, we believe that if various economic forecasts projecting continued modest expansion are accurate, this may lead to a gradual and modest increase in lodging demand for both leisure and business travel, although we expect there to be continued pressure on rates, as leisure and business travelers alike continue to focus on cost containment. As such, there can be no assurances that any increases in hotel revenues or earnings at our properties will occur, or be sustained, or that any losses will not increase for these or any other reasons.

We believe that the global credit market conditions will also gradually improve, although we believe there will continue to be less credit available and on less favorable terms than were obtainable in pre-recessionary periods. Given the current state of the credit markets, some of our development projects may not be able to obtain adequate project financing in a timely manner or at all. If adequate project financing is not obtained, the joint ventures or developers, as applicable, may seek additional equity investors to raise capital, limit the scope of the project, defer the project or cancel the project altogether.

39

Recent Developments.

Delano Credit Facility. On July 28, 2011, we entered into a new $100 million senior secured revolving credit facility with borrowing capacity of up to $110 million, secured by Delano South Beach (the “Delano Credit Facility”). Borrowings under the Delano Credit Facility are subject to a borrowing base test and upon closing, our availability was $100.0 million. The interest rate is LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. The Delano Credit Facility matures in three years and contains standard financial covenants, including a minimum fixed charge coverage ratio of 1.05x in the first year and 1.10x thereafter.

Baha Mar Development Deal. In August 2011, we entered into a hotel management and residential licensing agreement for a 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. This hotel is expected to represent the fifth Mondrian hotel in the expansion of our iconic brand. Upon completion and opening of the hotel, we will operate Mondrian at Baha Mar pursuant to a 20-year management agreement. The hotel is scheduled to open in late 2014. We are required to fund approximately $10 million of key money just prior to and at opening of the hotel. At signing, this amount was funded into escrow and was subsequently replaced with a $10 million standby letter of credit for up to 48 months, which is outstanding as of September 30, 2011.

Mondrian Los Angeles Food and Beverage Sale. On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011, exercised its option to purchase our remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, we no longer have any ownership interest in the food and beverage operations at Mondrian Los Angeles.

Hudson Mortgage Loan. On August 12, 2011, certain of our subsidiaries entered into a new mortgage financing with Deutsche Bank Trust Company Americas and the other institutions party thereto from time to time, as lenders, consisting of two mortgage loans, each secured by Hudson and treated as a single loan once disbursed, in the following amounts: (1) a $115.0 million mortgage loan that was funded at closing, and (2) a $20.0 million delayed draw term loan, which will be available to be drawn over a 15-month period, subject to achieving a debt yield ratio of at least 9.5% (based on net operating income for the prior 12 months) after giving effect to each additional draw (collectively, the “Hudson 2011 Mortgage Loan”).

Proceeds from the Hudson 2011 Mortgage Loan, cash on hand and cash held in escrow were applied to repay $201.2 million of outstanding mortgage debt under the Hudson Holdings Amended Mortgage (as defined in “—Debt”) prior first mortgage loan (the “2006 Hudson Mortgage Loan”) secured by Hudsonandand andnn repay $26.5 million of outstanding indebtedness under the Hudson mezzanine loan, and pay fees and expenses in connection with the financing.

London hotels sales. On October 7, 2011, our subsidiary, Royalton Europe Holdings LLC (“Royalton Europe”), and Walton MG London Hotels Investors V, L.L.C. (“Walton MG London”), each of which owns a 50% equity interest in the joint venture that owns the Sanderson and St Martins Lane hotels, entered into an agreement (the “London Sale Agreement”) to sell their respective equity interests in the joint venture for an aggregate of £192 million (or approximately $300 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011) to Capital Hills Hotels Limited, a Middle Eastern investor with other global hotel holdings. Also parties to the London Sale Agreement were Morgans Group LLC, as guarantor for Royalton Europe, and Walton Street Real Estate Fund V, L.P., as guarantor for Walton MG London. On closing of the transaction, we will continue to operate the hotels under long-term management agreements that, including extension options, extend the term of the existing management agreements to 2041 from 2027. The transaction is expected to close in the fourth quarter of 2011 and is subject to satisfaction of customary closing conditions.

We expect to receive net proceeds of approximately $70 million, depending on foreign currency exchange rates and working capital adjustments, after the joint venture applies a portion of the proceeds from the sale to retire the £99.5 million of outstanding mortgage debt secured by the hotels and after payment of closing costs. The joint venture partners have received a £10 million security deposit, which is non-refundable except in the event of a default by a seller.

On November 2, 2011, Walton MG London, on behalf of itself and us, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

40

Operating Results

Comparison of Three Months Ended September 30, 2011 to Three Months Ended September 30, 2010

The following table presents our operating results for the three months ended September 30, 2011 and 2010, including the amount and percentage change in these results between the two periods. The consolidated operating results for the three months ended September 30, 2011 is comparable to the consolidated operating results for the three months ended September 30, 2010, with the exception of Mondrian Los Angeles, which we owned until May 3, 2011, Royalton and Morgans, which we owned until May 23, 2011, the Hard Rock Hotel & Casino in Las Vegas (“Hard Rock”), which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, the completion of the CGM Transaction in June 2011, resulting in our full ownership of certain food and beverage operations previously owned through a 50/50 joint venture, and the management of the San Juan Water and Beach Club, which terminated effective July 13, 2011. The consolidated operating results are as follows:

	Three Months Ended
	Sept. 30,			Sept. 30,			Changes			Changes
	2011			2010			($)			(%)
	(Dollars in thousands)
Revenues:
Rooms	$	26,432		$	35,100		$	(8,668	)		(24.7	)%
Food and beverage		15,575			16,017			(442	)		(2.8	)
Other hotel		1,271			2,077			(806	)		(38.8	)
Total hotel revenues		43,278			53,194			(9,916	)		(18.6	)
Management fee and other income		3,408			4,547			(1,139	)		(25.0	)
Total revenues		46,686			57,741			(11,055	)		(19.1	)
Operating Costs and Expenses:
Rooms		8,263			11,061			(2,798	)		(25.3	)
Food and beverage		13,664			14,426			(762	)		(5.3	)
Other departmental		870			1,322			(452	)		(34.2	)
Hotel selling, general and administrative		9,951			12,275			(2,324	)		(18.9	)
Property taxes, insurance and other		4,247			3,650			597			16.4
Total hotel operating expenses		36,995			42,734			(5,739	)		(13.4	)
Corporate expenses, including stock compensation		7,037			8,045			(1,008	)		(12.5	)
Depreciation and amortization		4,833			8,173			(3,340	)		(40.9	)
Restructuring, development and disposal costs		2,125			1,064			1,061			99.7
Impairment loss on receivables from unconsolidated joint venture		—			5,499			(5,499	)		(1	)
Total operating costs and expenses		50,990			65,515			(14,525	)		(22.2	)
Operating loss		(4,304	)		(7,774	)		3,470			(44.6	)
Interest expense, net		8,775			8,319			456			5.5
Equity in loss of unconsolidated joint venture		12,794			1,435			11,359			(1	)
Gain on asset sales		(1,101	)		—			(1,101	)		(1	)
Other non-operating expenses		616			20,299			(19,683	)		(97.0	)
Loss before income tax expense		(25,388	)		(37,827	)		12,439			(32.9	)
Income tax expense		230			420			(190	)		(45.2	)
Net loss from continuing operations		(25,618	)		(38,247	)		12,629			(33.0	)
Loss from discontinued operations, net of tax		—			(281	)		281			(1	)
Net loss		(25,618	)		(38,528	)		12,910			(33.5	)
Net loss attributable to non controlling interest		799			1,451			(652	)		(44.9	)
Net loss attributable to Morgans Hotel Group Co.		(24,819	)		(37,077	)		12,258			(33.1	)
Preferred stock dividends and accretion		2,285			2,164			121			5.6
Net loss attributable to common stockholders	$	(27,104	)	$	(39,241	)	$	12,137			(30.9	)%

(1) Not meaningful.

41

Total Hotel Revenues. Total hotel revenues decreased 18.6% to $43.3 million for the three months ended September 30, 2011 compared to $53.2 million for the three months ended September 30, 2010. The components of RevPAR from our Owned Hotels, which consisted of Hudson, Delano South Beach and Clift for the three months ended September 30, 2011 and 2010, are summarized as follows:

	Three Months Ended
	Sept. 30,			Sept. 30,			Change		Change
	2011			2010			($)		(%)
Occupancy		87.2	%		87.0	%		—		0.2	%
ADR	$	235		$	219		$	16		7.4	%
RevPAR	$	205		$	191		$	14		7.7	%

RevPAR from our Owned Hotels increased 7.7.% to $205 for the three months ended September 30, 2011 compared to $191 for the three months ended September 30, 2010.

Rooms revenue decreased 24.7% to $26.4 million for the three months ended September 30, 2011 compared to $35.1 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms revenue increased 7.8%, which was directly attributable to the increase in RevPAR presented above.

Food and beverage revenue decreased 2.8% to $15.6 million for the three months ended September 30, 2011 compared to $16.0 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Partially offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels.

Other hotel revenue decreased 38.8% to $1.3 million for the three months ended September 30, 2011 compared to $2.1 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels’ other hotel revenue decreased 5.3% primarily due to decreased telephone revenues at Hudson as a result of a policy change in June 2011 to no longer charge for internet connectivity and a slight decrease in revenues related to our ancillary services, such as our spa at Delano South Beach, as guests are still spending conservatively in light of the uncertain economic recovery.

Management Fee and Other Income. Management fee and other income decreased by 25.0% to $3.4 million for the three months ended September 30, 2011 compared to $4.5 million for the three months ended September 30, 2010. This decrease was primarily attributable to the termination of our management agreement at Hard Rock effective March 1, 2011 in connection with the Hard Rock settlement, as discussed further in note 4 to the consolidated financial statements.

Operating Costs and Expenses

Rooms expense decreased 25.3% to $8.3 million for the three months ended September 30, 2011 compared to $11.1 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms expense increased 8.5% as a result of the increase in rooms revenue attributable to increased occupancy and increased costs at Hudson primarily due to a rooms’ renewal project that we undertook during the quarter which resulted in increased labor and rooms supply expenses.

Food and beverage expense decreased 5.3% to $13.7 million for the three months ended September 30, 2011 compared to $14.4 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned, as well as a decrease in food and beverage expenses at Hudson as a result of the primary restaurant being closed for lunch during the third quarter of 2011. Partially offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels.

Other departmental expense decreased 34.2% to $0.9 million for the three months ended September 30, 2011 compared to $1.3 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels experienced a decrease of 14.5% as a direct result of the decrease in other hotel revenue noted above.

Hotel selling, general and administrative expense decreased 18.9% to $10.0 million for the three months ended September 30, 2011 compared to $12.3 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these hotels during all periods presented, our Owned Hotels selling, general and administrative expense increased 2.3%.

42

Property taxes, insurance and other expense increased 16.4% to $4.2 million for the three months ended September 30, 2011 compared to $3.7 million for the three months ended September 30, 2010. This increase was primarily due to an increase in property tax assessments at Hudson during the three months ended September 30, 2011 as compared to the same period in 2010.

Corporate expenses, including stock compensation decreased 12.5% to $7.0 million for the three months ended September 30, 2011 compared to $8.0 million for the three months ended September 30, 2010. This decrease was primarily due to a decrease in stock compensation expense recognized during the three months ended September 30, 2011 as a result of the accelerated vesting of unvested equity awards granted to our former Chief Executive Officer and our former President in connection with their separation from the Company in March 2011, which would have normally vested throughout the year.

Depreciation and amortization decreased 40.9% to $4.8 million for the three months ended September 30, 2011 compared to $8.2 million for the three months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels depreciation and amortization increased 7.1% as a result of depreciation on renovation and capital improvements at Hudson and Delano South Beach, which were incurred during 2010 and 2011.

Restructuring, development and disposal costs increased to $2.1 million for the three months ended September 30, 2011 compared to $1.1 million for the three months ended September 30, 2010. The increase in expense was primarily due to severance costs related to employee and executive restructurings incurred during the three months ended September 30, 2011, for which there was no comparable costs incurred during the three months ended September 30, 2010.

Impairment loss on receivables from unconsolidated joint venture decreased to zero for the three months ended September 30, 2011 compared to $5.5 million for the three months ended September 30, 2010. During 2010, we recorded an impairment charge on uncollectible receivables for which there was no comparable charge during the three months ended September 30, 2011.

Interest expense, net increased 5.5% to $8.8 million for the three months ended September 30, 2011 compared to $8.3 million for the three months ended September 30, 2010. This increase was primarily due to financing fees associated with the repayment and refinancing of the loan secured by Hudson in August 2011.

Equity in loss of unconsolidated joint ventures increased to $12.8 million for the three months ended September 30, 2011 compared to $1.4 million for the three months ended September 30, 2010. This change was primarily a result of our recognition in September 2011 of a $10.6 million impairment charge on our investment in Ames for which there was no comparable impairment charge in 2010. Based on current economic conditions and the October 2012 mortgage debt maturity, the joint venture concluded that Ames was impaired as of September 30, 2011, and recorded a $49.9 million impairment charge. We wrote down our investment in Ames to zero.

The components of RevPAR from our comparable Joint Venture Hotels for the three months ended September 30, 2011 and 2010, which includes Sanderson, St Martins Lane, Shore Club, Mondrian South Beach and Ames, but excludes the Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, and San Juan Water and Beach Club in Isla Verde, Puerto Rico, which we managed until July 13, 2011, are summarized as follows (in constant dollars):

	Three Months Ended
	Sept. 30,			Sept. 30,			Change		Change
	2011			2010			($)		(%)
Occupancy		68.9	%		63.4	%		—		8.6	%
ADR	$	290		$	290		$	—		(0.1	)%
RevPAR	$	200		$	184		$	16		8.5	%

43

Gain on asset sales resulted in income of $1.1 million for the three months ended September 30, 2011. This income was related to the recognition of gains we recorded on the sales of Royalton, Morgans and Mondrian Los Angeles in 2011. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. There were no comparable asset sales in 2010.

Other non-operating expense decreased to $0.6 million for the three months ended September 30, 2011 as compared to $20.3 million for the three months ended September 30, 2010. The decrease was primarily due to a change in accounting for the warrants issued to the Investors, as defined below in “—Derivative Financial Instruments,” in connection with our Series A preferred securities. During the three months ended September 30, 2010, we recorded $19.1 million in expenses related to these warrants for which there was no similar expense recorded during the three months ended September 30, 2011. For further discussion, see notes 2 and 8 of our consolidated financial statements.

Income tax expense decreased 45.2% to $0.2 million for the three months ended September 30, 2011 as compared to $0.4 million for the three months ended September 30, 2010. The change was primarily due to lower state and local taxes during the three months ended September 30, 2011 as compared to the same period in 2010.

Loss from discontinued operations, net of tax was $0.3 million for the three months ended September 30, 2010. There were no discontinued operations during the three months ended September 30, 2011.

44

Operating Results

Comparison of Nine Months Ended September 30, 2011 to Nine Months Ended September 30, 2010

The following table presents our operating results for the nine months ended September 30, 2011 and 2010, including the amount and percentage change in these results between the two periods. The consolidated operating results for the nine months ended September 30, 2011 is comparable to the consolidated operating results for the nine months ended September 30, 2010, with the exception of Mondrian Los Angeles, which we owned until May 3, 2011, Royalton and Morgans, which we owned until May 23, 2011, Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, the completion of the CGM Transaction in June 2011, resulting in our full ownership of certain food and beverage operations previously owned through a 50/50 joint venture, and the management of the San Juan Water and Beach Club, which terminated effective July 13, 2011. The consolidated operating results are as follows:

	Nine Months Ended
	Sept. 30,			Sept. 30,			Changes			Changes
	2011			2010			($)			(%)
	(Dollars in thousands)
Revenues:
Rooms	$	90,951		$	99,443		$	(8,492	)		(8.5	)%
Food and beverage		49,216			51,062			(1,846	)		(3.6	)
Other hotel		5,020			6,730			(1,710	)		(25.4	)
Total hotel revenues		145,187			157,235			(12,048	)		(7.7	)
Management fee and other income		10,112			14,079			(3,967	)		(28.2	)
Total revenues		155,299			171,314			(16,015	)		(9.3	)
Operating Costs and Expenses:
Rooms		29,122			31,377			(2,255	)		(7.2	)
Food and beverage		41,901			42,526			(625	)		(1.5	)
Other departmental		3,117			3,834			(717	)		(18.7	)
Hotel selling, general and administrative		33,301			35,523			(2,222	)		(6.3	)
Property taxes, insurance and other		12,136			12,461			(325	)		(2.6	)
Total hotel operating expenses		119,577			125,721			(6,144	)		(4.9	)
Corporate expenses, including stock compensation		25,920			27,270			(1,350	)		(5.0	)
Depreciation and amortization		17,405			23,529			(6,124	)		(26.0	)
Restructuring, development and disposal costs		10,518			2,930			7,588			(1	)
Impairment loss on receivables from unconsolidated joint ventures		—			5,499			(5,499	)		(1	)
Total operating costs and expenses		173,420			184,949			(11,529	)		(6.2	)
Operating loss		(18,121	)		(13,635	)		(4,486	)		32.9
Interest expense, net		27,783			33,058			(5,275	)		(16.0	)
Equity in loss of unconsolidated joint venture		23,187			9,437			13,750			(1	)
Gain on asset sales		(1,721	)		—			(1,721	)		(1	)
Other non-operating expenses		2,885			35,491			(32,606	)		(91.9	)
Loss before income tax expense		(70,255	)		(91,621	)		21,366			(23.3	)
Income tax expense		523			994			(471	)		(47.4	)
Net loss from continuing operations		(70,778	)		(92,615	)		21,837			(23.6	)
Income from discontinued operations, net of tax		485			16,474			(15,989	)		(97.1	)
Net loss		(70,293	)		(76,141	)		5,848			(7.7	)
Net loss attributable to non controlling interest		2,007			2,033			(26	)		(1.3	)
Net loss attributable to Morgans Hotel Group Co.		(68,286	)		(74,108	)		5,822			(7.9	)
Preferred stock dividends and accretion		(6,701	)		(6,357	)		(344	)		(5.4	)
Net loss attributable to common stockholders	$	(74,987	)	$	(80,465	)	$	5,478			(6.8	)%

(1) Not meaningful.

45

Total Hotel Revenues. Total hotel revenues decreased 7.7% to $145.2 million for the nine months ended September 30, 2011 compared to $157.2 million for the nine months ended September 30, 2010. The components of RevPAR from our Owned Hotels, which consisted, as of September 30, 2011, of Hudson, Delano South Beach and Clift, for the nine months ended September 30, 2011 and 2010 are summarized as follows:

	Nine Months Ended
	Sept. 30,			Sept. 30,			Change		Change
	2011			2010			($)		(%)
Occupancy		83.1	%		80.7	%		—		3.0	%
ADR	$	239		$	226		$	13		5.8	%
RevPAR	$	199		$	182		$	17		8.9	%

RevPAR from our Owned Hotels increased 8.9% to $199 for the nine months ended September 30, 2011 compared to $182 for the nine months ended September 30, 2010.

Rooms revenue decreased 8.5% to $91.0 million for the nine months ended September 30, 2011 compared to $99.4 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms revenue increased 9.1%, which was directly attributable to the increase in RevPAR, as presented above.

Food and beverage revenue decreased 3.6% to $49.2 million for the nine months ended September 30, 2011 compared to $51.1 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Slightly offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels.

Other hotel revenue decreased 25.4% to $5.0 million for the nine months ended September 30, 2011 compared to $6.7 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results for these three hotels during all periods presented, our Owned Hotels other hotel revenue decreased 12.6% primarily due to decreased revenues related to ancillary services, such as our spa at Delano South Beach, as guests are still spending conservatively in light of the uncertain economic recovery.

Management Fee and Other Income. Management fee and other income decreased by 28.2% to $10.1 million for the nine months ended September 30, 2011 compared to $14.1 million for the nine months ended September 30, 2010. This decrease was primarily attributable to the termination of our management agreement at Hard Rock effective March 1, 2011 in connection with the Hard Rock settlement, as discussed further in note 4 to our consolidated financial statements.

Operating Costs and Expenses

Rooms expense decreased 7.2% to $29.1 million for the nine months ended September 30, 2011 compared to $31.4 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms expense increased 11.1% as a result of the increase in occupancy, noted above. In addition, we experienced an increase at Hudson related to the rooms’ renewal project, discussed above, and increased travel agent commissions as rooms were sold through commissionable channels.

Food and beverage expense decreased 1.5% to $41.9 million for the nine months ended September 30, 2011 compared to $42.5 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Partially offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels.

Other departmental expense decreased 18.7% to $3.1 million for the nine months ended September 30, 2011 compared to $3.8 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results for these three hotels during all periods presented, our Owned Hotels experienced a decrease of 9.2% as a direct result of the decrease in other hotel revenue noted above.

Hotel selling, general and administrative expense decreased 6.3% to $33.3 million for the nine months ended September 30, 2011 compared to $35.5 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these hotels during all periods presented, our Owned Hotels selling, general and administrative expense increased by 6.8% as a result of increased selling and marketing initiatives implemented across our hotel portfolio.

46

Property taxes, insurance and other expense decreased 2.6% to $12.1 million for the nine months ended September 30, 2011 compared to $12.5 million for the nine months ended September 30, 2010. This slight decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels property taxes, insurance and other expense increased 6.5% primarily due to an increase in property tax assessments at Hudson during the nine months ended September 30, 2011 as compared to the same period in 2010.

Corporate expenses, including stock compensation decreased 5.0% to $25.9 million for the nine months ended September, 2011 compared to $27.3 million for the nine months ended September 30, 2010. This decrease was primarily due to a decrease in stock compensation expense recognized during the nine months ended September 30, 2011, primarily due to previously granted higher valued awards becoming fully vested in 2010, as compared to the value of the awards vesting in 2011.

Depreciation and amortization decreased 26.0% to $17.4 million for the nine months ended September 30, 2011 compared to $23.5 million for the nine months ended September 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels depreciation and amortization increased 5.5% as a result of as a result of depreciation on renovation and capital improvements at Hudson and Delano South Beach, which were incurred during 2010 and 2011.

Restructuring, development and disposal costs increased to $10.5 million for the nine months ended September 30, 2011 compared to $2.9 million for the nine months ended September 30, 2010. The increase in expense was primarily due to severance costs related to employee and executive restructurings incurred during the nine months ended September 30, 2011, for which there was no comparable costs incurred during the nine months ended September 30, 2010.

Impairment loss on receivables from unconsolidated joint venture decreased to zero for the nine months ended September 30, 2011 compared to $5.5 million for the nine months ended September 30, 2010. During 2010, we recorded an impairment charge on uncollectible receivables for which there was no comparable charge during the nine months ended September 30, 2011.

Interest expense, net decreased 16.0% to $27.8 million for the nine months ended September 30, 2011 compared to $33.1 million for the nine months ended September 30, 2010. This decrease was primarily due to the expiration in July 2010 of the interest rate swaps related to the loans secured by the Hudson and Mondrian Los Angeles hotels, which had fixed our interest expense on those loans during the nine months ended September 30, 2010 at a much higher rate than the rates applicable during the nine months ended September 30, 2011. Partially offsetting this decrease was an increase in financing fees incurred in 2011 related to the repayment of the mortgage and mezzanine debt secured by Hudson and Mondrian Los Angeles and the restructuring of our revolving credit facility.

Equity in loss of unconsolidated joint ventures increased to $23.2 million for the nine months ended September 30, 2011 compared to $9.4 million for the nine months ended September 30, 2010. During September 2011, we recognized a $10.6 million impairment loss on our investment in Ames, in March 2011 we recognized additional impairment losses and expenses related to the Hard Rock settlement, described in the notes to consolidated financial statements, and throughout 2011, we have recognized approximately $4.0 million in impairment losses on our investment in Mondrian SoHo. In June 2010, we recorded an $8.3 million impairment charge on our investment in Mondrian SoHo.

47

The components of RevPAR from our comparable Joint Venture Hotels for the nine months ended September 30, 2011 and 2010, which includes Sanderson, St Martins Lane, Shore Club, Mondrian South Beach and Ames, but excludes the Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, and San Juan Water and Beach Club in Isla Verde, Puerto Rico, which we managed until July 13, 2011, are summarized as follows (in constant dollars):

	Nine Months Ended
	Sept. 30,			Sept. 30,			Change		Change
	2011			2010			($)		(%)
Occupancy		68.4	%		63.8	%		—		7.1	%
ADR	$	313		$	306		$	7		2.1	%
RevPAR	$	214		$	196		$	18		9.4	%

Gain on asset sales resulted in income of $1.7 million for the nine months ended September 30, 2011. This income was related to the recognition of gains we recorded on the sales of Royalton, Morgans and Mondrian Los Angeles in 2011. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. There were no comparable hotel sales in 2010.

Other non-operating expense decreased 91.9% to $2.9 million for the nine months ended September 30, 2011 as compared to $35.5 million for the nine months ended September 30, 2010. The decrease was primarily due to a change in accounting for warrants issued to the Investors, defined below in “—Derivative Financial Instruments,” in connection with the Series A preferred securities. During the nine months ended September 30, 2010, we recorded $32.9 million of expense related to these warrants for which there was no similar expense recorded during the nine months ended September 30, 2011. For further discussion, see notes 2 and 8 of our consolidated financial statements.

Income tax expense decreased 47.4% to $0.5 million for the nine months ended September 30, 2011 as compared to $1.0 million for the nine months ended September 30, 2010. The change was primarily due to lower state and local taxes during the nine months ended September 30, 2011 as compared to the same period in 2010.

Income from discontinued operations, net of tax resulted in income of $0.5 million for the nine months ended September 30, 2011 compared to income of $16.5 million for the nine months ended September 30, 2010. The income recorded in 2011 relates to the transfer of our ownership interests in the property across the street from Delano South Beach to a third party. The income recorded in 2010 was primarily a result of the gain recognized on disposal of Mondrian Scottsdale in March 2010.

Liquidity and Capital Resources

As of September 30, 2011, we had approximately $12.8 million in cash and cash equivalents, and the maximum amount of borrowings available under our new revolving credit facility, was $100.0 million, of which $10.0 million of borrowings were outstanding and $10.0 million of letters of credit were posted. As of September 30, 2011, total restricted cash was $7.1 million.

On October 7, 2011, we entered into the London Sale Agreement, as discussed above in “—Recent Trends and Developments.” The transaction is expected to close in the fourth quarter of 2011. We anticipate receiving net proceeds of approximately $70.0 million from the sale.

We have both short-term and long-term liquidity requirements as described in more detail below.

Liquidity Requirements

Short-Term Liquidity Requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries within the next 12 months and believe those requirements currently consist primarily of funds necessary to pay operating expenses and other expenditures directly associated with our properties, including the funding of our reserve accounts, and capital commitments associated with certain of our development projects and existing hotels.

We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels, with the exception of Delano South Beach. Our Joint Venture Hotels and our Managed Hotels generally are subject to similar obligations under our management agreements or under debt agreements related to such hotels. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require us to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash. In addition, the F&B Ventures require between 2% to 4% of gross revenues of the restaurant of restricted cash to be to set aside for future replacement or refurbishment of furniture, fixtures and equipment.

48

We intend to utilize the majority of our liquidity to fund growth and development efforts, renovations at existing hotels and infrastructure improvements.

We are focused on growing our portfolio, primarily with our core brands, in major gateway markets and key resort destinations. In August, we entered into a hotel management and residential licensing agreement for a 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. The hotel is scheduled to open in late 2014. We are required to fund approximately $10 million of key money just prior to and at opening of the hotel. We have a $10.0 million standby letter of credit outstanding on the Delano Credit Facility for up to 48 months to cover this obligation.

We intend to spend approximately $8 to $10 million on projects at Delano South Beach and approximately $18 to $20 million at Hudson. At Delano South Beach, we plan to upgrade the exclusive bungalows and suites, improve public areas, including the pool, restaurant and bar space, and create additional meeting space. This work was begun in the third quarter of 2011 and will continue into early 2012.

At Hudson, we intend to convert a minimum of 23 single room dwelling units (“SRO units”) into guest rooms at a cost of approximately $130,000 per room, significantly below recent trading prices of hotel rooms in New York City. Additionally, we plan to upgrade the Hudson rooms with new furniture and fixtures, lighting and technology, and completely renovate the hotel corridors. We anticipate the renovation work will commence during New York’s seasonally slow first quarter of 2012 continuing through mid-year.

In addition to reserve funds for capital expenditures, our Owned Hotels debt and lease agreements also require us to deposit cash into escrow accounts for taxes, insurance and debt service payments.

Historically, we have satisfied our liquidity requirements through various sources of capital, including borrowings under our revolving credit facility, our existing working capital, cash provided by operations, equity and debt offerings, and long-term mortgages on our properties. Other sources may include cash generated through asset dispositions and joint venture transactions. Additionally, we may secure other financing opportunities. Given the uncertain economic environment and continuing difficult conditions in the credit markets, however, we may not be able to obtain such financings, or succeed in selling any assets, on terms acceptable to us or at all. We may require additional borrowings to satisfy these liquidity requirements. See also “—Other Liquidity Matters” below for additional liquidity that may be required in the short-term, depending on market and other circumstances.

Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries beyond the next 12 months and believe these requirements consist primarily of funds necessary to pay scheduled debt maturities, renovations and other non-recurring capital expenditures that need to be made periodically to our properties and the costs associated with acquisitions and development of properties under contract and new acquisitions and development projects that we may pursue.

Our Series A preferred securities issued in October 2009 have an 8% dividend rate for the first five years, a 10% dividend rate for years six and seven, and a 20% dividend rate thereafter. We have the option to accrue any and all dividend payments, and as of September 30, 2011, have not declared any dividends. We have the option to redeem any or all of the Series A preferred securities at any time.

Other long-term liquidity requirements include our obligations under our Convertible Notes, defined below under “—Debt,” our obligations under our trust preferred securities, and our obligations under the Clift lease, each as described under “—Debt.” Historically, we have satisfied our long-term liquidity requirements through various sources of capital, including our existing working capital, cash provided by operations, equity and debt offerings, and long-term mortgages on our properties. Other sources may include cash generated through asset dispositions and joint venture transactions. Additionally, we may secure other financing opportunities. Given the uncertain economic environment and continuing challenging conditions in the credit markets, however, we may not be able to obtain such financings on terms acceptable to us or at all. We may require additional borrowings to satisfy our long-term liquidity requirements.

We anticipate we will need to renovate Clift in the next few years, which will require capital and will most likely be funded by owner equity contributions, debt financing, possible asset sales, future operating cash flows or a combination of these sources.

49

Although the credit and equity markets remain challenging, we believe that these sources of capital will become available to us in the future to fund our long-term liquidity requirements. However, our ability to incur additional debt is dependent upon a number of factors, including our degree of leverage, borrowing restrictions imposed by existing lenders and general market conditions. We will continue to analyze which source of capital is most advantageous to us at any particular point in time.

Other Liquidity Matters

In addition to our expected short-term and long-term liquidity requirements, our liquidity could also be affected by potential liquidity matters at our Joint Venture Hotels, as discussed below.

Mondrian South Beach Mortgage and Mezzanine Agreements. The non-recourse mortgage loan and mezzanine loan agreements related to Mondrian South Beach matured on August 1, 2009. In April 2010, the Mondrian South Beach joint venture amended the non-recourse financing and mezzanine loan agreements secured by Mondrian South Beach and extended the maturity date for up to seven years through extension options until April 2017, subject to certain conditions.

Morgans Group and affiliates of our joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of our joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of our joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of our joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of our joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2011, there are remaining payables outstanding to vendors of approximately $1.1 million. We believe that payment under these guaranties is not probable and the fair value of the guarantee is not material.

We and affiliates of our joint venture partner also have an agreement to purchase approximately $14 million each of condominium units under certain conditions, including an event of default. In the event of a default under the mortgage or mezzanine loan, the joint venture partners are obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the mezzanine loan, or the then outstanding principal balance of the mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. We have not recognized a liability related to the construction completion or the condominium purchase guarantees.

Mondrian SoHo. The mortgage loan on the Mondrian SoHo property matured in June 2010. On July 31, 2010, the lender amended the debt financing on the property to provide for, among other things, extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater. The joint venture believes the hotel has achieved the required 1:1 coverage ratio as of September 30, 2011 and subject to other customary conditions, the maturity of this debt can be extended to November 2012. The joint venture has additional extension options available in 2012 subject to similar conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the twelve months ended September 30, 2012 of 1.1:1.0 or greater.

Certain affiliates of our joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its respective gross negligence or willful misconduct.

50

Mondrian SoHo opened in February 2011, and we are operating the hotel under a 10-year management contract with two 10-year extension options. There may be cash shortfalls from the operations of the hotel from time to time and there may not be enough operating cash flow to cover debt service payments in all months going forward, which could require additional contributions by the joint venture partners.

Ames in Boston. As of September 30, 2011, the ownership joint venture’s outstanding mortgage debt secured by the hotel was $46.5 million. In October 2010, the mortgage loan matured, and the joint venture did not satisfy the conditions necessary to exercise the first of two remaining one-year extension options available under the loan, which included funding a debt service reserve account, among other things. As a result, the mortgage lender for Ames served the joint venture with a notice of default and acceleration of debt. In February 2011, the joint venture reached an agreement with the lender whereby the lender waived the default, reinstated the loan and extended the loan maturity date until October 9, 2011. In September 2011, the joint venture partners funded their pro rata shares of the debt service reserve account, of which our contribution was $0.3 million, and exercised the one remaining extension option available on the mortgage debt. As a result, the mortgage debt secured by Ames will mature on October 9, 2012.

Other Possible Uses of Capital. We have a number of development projects signed or under consideration, some of which may require equity investments, key money or credit support from us.

Comparison of Cash Flows for the Nine Months Ended September 30, 2011 to the Nine Months ended September 30, 2010 —

Operating Activities. Net cash provided by operating activities was $11.2 million for the nine months ended September 30, 2011 as compared to net cash used in operating activities of $22.8 million for the nine months ended September 30, 2010. This increase in cash was primarily due to a release of deposits from the curtailment reserve escrow account as a result of our repayment of the Hudson mortgage loan in August 2011.

Investing Activities. Net cash provided by investing activities amounted to $235.7 million for the nine months ended September 30, 2011 as compared to net cash used in investing activities of $14.0 million for the nine months ended September 30, 2010. The change was primarily related to the net proceeds we received from the sale of Mondrian Los Angeles, Royalton and Morgans during May 2011 slightly offset by the purchase of joint venture interests in certain food and beverage entities in the CGM Transaction.

Financing Activities. Net cash used in financing activities amounted to $239.3 million for the nine months ended September 30, 2011 as compared to $2.2 million for the nine months ended September 30, 2010. This increase in the use of cash was primarily due to the repayment of debt associated with the three hotels we sold during May 2011 and the repayment of the Hudson mortgage and mezzanine loans in August 2011, for which there was no comparable transaction during 2010.

Debt

Hudson Mortgage and Mezzanine Loan. On October 6, 2006, our subsidiary, Henry Hudson Holdings LLC (“Hudson Holdings”), entered into a non-recourse mortgage financing secured by Hudson ( the “Hudson Mortgage”), and another subsidiary entered into a mezzanine loan related to Hudson, secured by a pledge of our equity interests in Hudson Holdings.

51

Until amended as described below, the Hudson Mortgage bore interest at 30-day LIBOR plus 0.97%. We had entered into an interest rate swap on the Hudson Mortgage and the mezzanine loan on Hudson which effectively fixed the 30-day LIBOR rate at approximately 5.0%. This interest rate swap expired on July 15, 2010. We subsequently entered into a short-term interest rate cap on the Hudson Mortgage that expired on September 12, 2010.

On October 1, 2010, Hudson Holdings entered into a modification agreement of the Hudson Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders (the “Amended Hudson Mortgage”). This modification agreement and related agreements extended the Hudson Mortgage until October 15, 2011. In connection with the Amended Hudson Mortgage, on October 1, 2010, Hudson Holdings paid down a total of $16 million on its outstanding loan balances.

The interest rate on the Amended Hudson Mortgage was also amended to 30-day LIBOR plus 1.03%. The interest rate on the Hudson mezzanine loan continued to bear interest at 30-day LIBOR plus 2.98%. We entered into interest rate caps expiring October 15, 2011 in connection with the Amended Hudson Mortgage, which effectively capped the 30-day LIBOR rate at 5.3% on the Amended Hudson Mortgage and effectively capped the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

The Amended Hudson Mortgage required our subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower was also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves were deposited into restricted cash accounts and released as certain conditions were met. In addition, all excess cash was required to be funded into a curtailment reserve account. The subsidiary borrower was not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

On August 12, 2011, certain of our subsidiaries entered into the Hudson 2011 Mortgage Loan with Deutsche Bank Trust Company Americas and the other institutions party thereto from time to time, as lenders, consisting of two mortgage loans, each secured by Hudson and treated as a single loan once disbursed, in the following amounts: (1) a $115.0 million mortgage loan that was funded at closing, and (2) a $20.0 million delayed draw term loan, which will be available to be drawn over a 15-month period, subject to achieving a debt yield ratio of at least 9.5% (based on net operating income for the prior 12 months) after giving effect to each additional draw.

Proceeds from the Hudson 2011 Mortgage Loan, cash on hand and cash held in escrow were applied to repay $201.2 million of outstanding mortgage debt under the Amended Hudson Mortgage, prior first mortgage loan (the “2006 Hudson Mortgage Loan”) secured by Hudsonandand andnn repay $26.5 million of outstanding indebtedness under the Hudson mezzanine loan, and pay fees and expenses in connection with the financing.

The Hudson 2011 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 1.0%) plus 400 basis points. We maintain an interest rate cap for the amount of the Hudson 2011 Mortgage Loan that will cap the LIBOR rate on the debt under the Hudson 2011 Mortgage Loan at approximately 3.0% through the maturity date of the loan.

The Hudson 2011 Mortgage Loan matures on August 12, 2013. We have three one-year extension options that will permit us to extend the maturity date of the Hudson 2011 Mortgage Loan to August 12, 2016 if certain conditions are satisfied at each respective extension date. The first two extension options require, among other things, the borrowers to maintain a debt service coverage ratio of at least 1-to-1 for the 12 months prior to the applicable extension dates. The third extension option requires, among other things, the borrowers to achieve a debt yield ratio of at least 13.0% (based on net operating income for the prior 12 months).

The Hudson 2011 Mortgage Loan provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash from the property is deposited into accounts controlled by the lenders from which debt service, operating expenses and management fees are paid and from which other reserve accounts may be funded. Any excess amounts are retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. Furthermore, if the Hudson manager is not reserving sufficient funds for property tax, ground rent, insurance premiums, and capital expenditures in accordance with the hotel management agreement, then our subsidiary borrowers would be required to fund the reserve account for such purposes. Our subsidiary borrowers are not permitted to have any indebtedness other than certain permitted indebtedness customary in such transactions, including ordinary trade payables, purchase money indebtedness and capital lease obligations, subject to limits.

52

The Hudson 2011 Mortgage Loan may be prepaid, in whole or in part, subject to payment of a prepayment penalty for any prepayment prior to August 12, 2013. There is no prepayment premium after August 12, 2013.

The Hudson 2011 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson and the owner of Hudson and other affirmative and negative covenants and events of default customary for single asset mortgage loans. The Hudson 2011 Mortgage Loan is fully recourse to our subsidiaries that are the borrowers under the loan. The loan is nonrecourse to us, Morgans Group and our other subsidiaries, except for certain standard nonrecourse carveouts. Morgans Group has provided a customary environmental indemnity and nonrecourse carveout guaranty under which it would have liability with respect to the Hudson 2011 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, and violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires Morgans Group to maintain a net worth of at least $100 million (based on the estimated market value of our net assets) and liquidity of at least $20 million.

Notes to a Subsidiary Trust Issuing Preferred Securities. In August 2006, we formed a trust, MHG Capital Trust I (the “Trust”), to issue $50.0 million of trust preferred securities in a private placement. The sole assets of the Trust consist of the trust notes due October 30, 2036 issued by Morgans Group and guaranteed by Morgans Hotel Group Co. The trust notes have a 30-year term, ending October 30, 2036, and bear interest at a fixed rate of 8.68% for the first 10 years, ending October 2016, and thereafter will bear interest at a floating rate based on the three-month LIBOR plus 3.25%. These securities are redeemable by the Trust at par beginning on October 30, 2011.

Clift. We lease Clift under a 99-year non-recourse lease agreement expiring in 2103. The lease is accounted for as a financing with a liability balance of $86.5 million at September 30, 2011.

Due to the amount of the payments stated in the lease, which increase periodically, and the economic environment in which the hotel operates, our subsidiary that leases Clift had not been operating Clift at a profit and Morgans Group had been funding cash shortfalls sustained at Clift in order to enable our subsidiary to make lease payments from time to time. On March 1, 2010, however, we discontinued subsidizing the lease payments and stopped making the scheduled monthly payments. On May 4, 2010, the lessors under the Clift ground lease filed a lawsuit against Clift Holdings LLC, which the court dismissed on June 1, 2010. On June 8, 2010, the lessors filed a new lawsuit and on June 17, 2010, we and our subsidiary filed an affirmative lawsuit against the lessors.

On September 17, 2010, we and our subsidiaries entered into a settlement and release agreement with the lessors under the Clift ground lease, which among other things, effectively provided for the settlement of all outstanding litigation claims and disputes among the parties relating to defaulted lease payments due with respect to the ground lease for the Clift and reduced the lease payments due to the lessors for the period March 1, 2010 through February 29, 2012. Effective March 1, 2012, the annual rent will be as stated in the lease agreement, which currently provides for base annual rent of approximately $6.0 million per year through October 2014 increasing thereafter, at 5-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum of 20% at October 2014, and at each payment date thereafter, the maximum increase is 20% and the minimum is 10%. The lease is non-recourse to us. Morgans Group also entered into a limited guaranty, whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the lessors in the event of certain “bad boy” type acts.

Convertible Notes. On October 17, 2007, we completed an offering of $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes (“Convertible Notes”), in a private offering, which included an additional issuance of $22.5 million in aggregate principal amount of Convertible Notes as a result of the initial purchasers’ exercise in full of their overallotment option. The Convertible Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by our operating company, Morgans Group. The Convertible Notes are convertible into shares of our common stock under certain circumstances and upon the occurrence of specified events. The Convertible Notes mature on October 15, 2014, unless repurchased by us or converted in accordance with their terms prior to such date.

In connection with the private offering, we entered into certain Convertible Note hedge and warrant transactions. These transactions are intended to reduce the potential dilution to the holders of our common stock upon conversion of the Convertible Notes and will generally have the effect of increasing the conversion price of the Convertible Notes to approximately $40.00 per share, representing a 82.23% premium based on the closing sale price of our common stock of $21.95 per share on October 11, 2007. The net proceeds to us from the sale of the Convertible Notes were approximately $166.8 million (of which approximately $24.1 million was used to fund the Convertible Note call options and warrant transactions).

53

We follow Accounting Standard Codification (“ASC”) 470-20, Debt with Conversion and other Options (“ASC 470-20”). ASC 470-20 requires the proceeds from the sale of the Convertible Notes to be allocated between a liability component and an equity component. The resulting debt discount is amortized over the period the debt is expected to remain outstanding as additional interest expense. The equity component, recorded as additional paid-in capital, was $9.0 million, which represents the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million, as of the date of issuance of the Convertible Notes.

Amended Revolving Credit Facility. On October 6, 2006, we and certain of our subsidiaries entered into a revolving credit facility with Wachovia Bank, National Association, as Administrative Agent, and the lenders thereto, which was amended on August 5, 2009, and which we refer to as our amended revolving credit facility.

The amended revolving credit facility provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by mortgages on Morgans, Royalton and Delano South Beach.

The amended revolving credit facility bore interest at a fluctuating rate measured by reference to, at our election, either LIBOR (subject to a LIBOR floor of 1%) or a base rate, plus a borrowing margin. LIBOR loans have a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum.

On May 23, 2011, in connection with the sale of Royalton and Morgans, we used a portion of the sales proceeds to retire all outstanding debt under the amended revolving credit facility. These hotels, along with Delano South Beach, were collateral for the amended revolving credit facility, which terminated upon the sale of any of the properties securing the facility.

Delano Credit Facility. On July 28, 2011, we and certain of our subsidiaries (collectively, the “Borrowers”), including Beach Hotel Associates LLC (the “Florida Borrower”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

The Delano Credit Agreement provides commitments for a $100 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable. Our availability under the Delano Credit Agreement was $100.0 million as of September 30, 2011, of which $10.0 million of borrowings were outstanding, and approximately $10.0 million of letters of credit were posted.

The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by us. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by us and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that we and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter. As of September 30, 2011, our fixed charge coverage ratio was 1.59x.

54

The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

Hudson Capital Leases. We lease two condominium units at Hudson which are reflected as capital leases with balances of $6.1 million at September 30, 2011. Currently annual lease payments total approximately $900,000 and are subject to increases in line with inflation. The leases expire in 2096 and 2098.

Mondrian Los Angeles Mortgage. On October 6, 2006, our subsidiary, Mondrian Holdings LLC (“Mondrian Holdings”), entered into a non-recourse mortgage financing secured by Mondrian Los Angeles (the “Mondrian Mortgage”).

On October 1, 2010, Mondrian Holdings entered into a modification agreement of its Mondrian Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. This modification agreement and related agreements amended and extended the Mondrian Mortgage (the “Amended Mondrian Mortgage”) until October 15, 2011. In connection with the Amended Mondrian Mortgage, on October 1, 2010, Mondrian Holdings paid down a total of $17 million on its outstanding mortgage loan balance.

The interest rate on the Amended Mondrian Mortgage was also amended to 30-day LIBOR plus 1.64%. We entered into an interest rate cap which expired on October 15, 2011 in connection with the Amended Mondrian Mortgage which effectively capped the 30-day LIBOR rate at 4.25%.

On May 3, 2011, we completed the sale of Mondrian Los Angeles for $137.0 million to Wolverines Owner LLC, an affiliate of Pebblebrook. We applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage.

Joint Venture Debt. See “—Off-Balance Sheet Arrangements” for descriptions of joint venture debt.

Seasonality

The hospitality business is seasonal in nature. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. Quarterly revenues also may be adversely affected by events beyond our control, such as the current recession, extreme weather conditions, terrorist attacks or alerts, natural disasters, airline strikes, and other considerations affecting travel. Given the recent global economic downturn, the impact of seasonality in 2010 and to date through 2011, was not as significant as in prior periods and may remain less pronounced throughout 2011 and into 2012 depending on the timing and strength of the economic recovery.

To the extent that cash flows from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may have to enter into additional short-term borrowings or increase our borrowings, if available, to meet cash requirements.

Capital Expenditures and Reserve Funds

We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels, with the exception of Delano South Beach. Our Joint Venture Hotels and our Managed Hotels generally are subject to similar obligations under our management agreements or under debt agreements related to such hotels. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require the hotel owners to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash. In addition, the F&B Ventures require the ventures to set aside restricted cash of between 2% to 4% of gross revenues of the restaurant. As of September 30, 2011, approximately $1.8 million was available in restricted cash reserves for future capital expenditures under these obligations related to our Owned Hotels.

55

We intend to spend approximately $8 to $10 million on projects at Delano South Beach and approximately $18 to $20 million at Hudson. At Delano South Beach, we plan to upgrade the exclusive bungalows and suites, improve public areas, including the pool, restaurant and bar space, and create additional meeting space. This work was begun in the third quarter of 2011 and will continue into early 2012.

At Hudson, we intend to convert a minimum of 23 SRO units into guest rooms at a cost of approximately $4 million, or $130,000 per room, significantly below recent trading prices of hotel rooms in New York City. Additionally, we plan to upgrade the Hudson rooms with new furniture and fixtures, lighting and technology, and install new carpeting and lighting in the hotel corridors. We anticipate the renovation work will commence during New York’s seasonally slow first quarter of 2012 continuing through mid-year.

Additionally, we anticipate we will need to renovate Clift in the next few years which will require capital and will most likely be funded by owner equity contributions, debt financing, possible asset sales, future operating cash flows or a combination of these sources.

The Hudson 2011 Mortgage Loan provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash from the property is deposited into accounts controlled by the lenders from which debt service, operating expenses and management fees are paid and from which other reserve accounts may be funded. Any excess amounts are retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. Furthermore, if the Hudson manager is not reserving sufficient funds for property tax, ground rent, insurance premiums, and capital expenditures in accordance with the hotel management agreement, then our subsidiary borrowers would be required to fund the reserve account for such purposes. Our subsidiary borrowers are not permitted to have any indebtedness other than certain permitted indebtedness customary in such transactions, including ordinary trade payables, purchase money indebtedness and capital lease obligations, subject to limits.

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to the interest rate risks related to our variable rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. We determine the fair value of our derivative financial instruments using models which incorporate standard market conventions and techniques such as discounted cash flow and option pricing models to determine fair value. We believe these methods of estimating fair value result in general approximation of value, and such value may or may not be realized.

We use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. The fair value of our interest rate caps was insignificant as of September 30, 2011.

In connection with the sale of the Convertible Notes, we entered into call options which are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which we will receive shares of our common stock from counterparties equal to the number of shares of our common stock, or other property, deliverable by us to the holders of the Convertible Notes upon conversion of the Convertible Notes, in excess of an amount of shares or other property with a value, at then current prices, equal to the principal amount of the converted Convertible Notes. Simultaneously, we also entered into warrant transactions, whereby we sold warrants to purchase in the aggregate 6,415,327 shares of our common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The warrants may be exercised over a 90-day trading period commencing January 15, 2015. The call options and the warrants are separate contracts and are not part of the terms of the Convertible Notes and will not affect the holders’ rights under the Convertible Notes. The call options are intended to offset potential dilution upon conversion of the Convertible Notes in the event that the market value per share of the common stock at the time of exercise is greater than the exercise price of the call options, which is equal to the initial conversion price of the Convertible Notes and is subject to certain customary adjustments.

On October 15, 2009, we entered into a securities purchase agreement with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., which we refer to collectively as the Investors. Under the securities purchase agreement, we issued and sold to the Investors (i) 75,000 shares of the our Series A preferred securities, $1,000 liquidation preference per share, and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The warrants have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. The exercise price and number of shares subject to the warrant are both subject to anti-dilution adjustments.

56

We and Yucaipa American Alliance Fund II, LLC, an affiliate of the Investors, as the fund manager, also entered into a real estate fund formation agreement on October 15, 2009 pursuant to which we and the fund manager agreed to use good faith efforts to endeavor to raise a private investment fund. In connection with the agreement, we issued to the fund manager 5,000,000 contingent warrants to purchase our common stock at an exercise price of $6.00 per share with a 7-1/2 year term.

The fund formation agreement terminated by its terms on January 30, 2011 due to the failure to close a fund with $100 million of aggregate capital commitments by that date, and the 5,000,000 contingent warrants issued to the fund manager were forfeited in their entirety on October 15, 2011 due to the failure to close a fund with $250 million of aggregate capital commitments by that date.

Off-Balance Sheet Arrangements

As of September 30, 2011, we have unconsolidated joint ventures that we account for using the equity method of accounting, most of which have mortgage or related debt, as described below. In some cases, we provide non-recourse carve-out guaranties of joint venture debt, which guaranty is only triggered in the event of certain “bad boy” acts, and other limited liquidity or credit support, as described below.

Morgans Europe. As of September 30, 2011, we owned interests in two hotels through a 50/50 joint venture known as Morgans Europe. Morgans Europe owns two hotels located in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel. Under a management agreement with Morgans Europe, we earn management fees and a reimbursement for allocable chain service and technical service expenses.

On July 15, 2010, Morgans Europe venture refinanced in full its then outstanding £99.3 million mortgage debt with a new £100 million loan maturing in July 2015 that is non-recourse to us and is secured by Sanderson and St Martins Lane. As of September 30, 2011, Morgans Europe had outstanding mortgage debt of £99.3 million, or approximately $154.8 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011. As discussed above in “— Recent Trends and Developments,” in October 2011, we and Walton MG London entered into the London Sale Agreement to sell the equity interests in Morgans Europe for an aggregate of £192 million. The transaction is expected to close in the fourth quarter of 2011 and is subject to customary closing conditions. We expect to receive net proceeds of approximately $70 million, depending on foreign currency exchange rates and working capital adjustments, after Morgans Europe applies a portion of the proceeds from the sale to repay this outstanding debt. After completion of the sale, we will continue to manage the hotels under long-term management agreements.

Morgans Europe’s net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. At September 30, 2011, we had a negative investment in Morgans Europe of $0.3 million. We account for this investment under the equity method of accounting. Our equity in income of the joint venture amounted to income of $0.5 million and income of $1.0 million for the three months ended September 30, 2011 and 2010, respectively, and income of $1.4 million and $2.5 million for the nine months ended September 30, 2011 and 2010, respectively.

Mondrian South Beach. We own a 50% interest in Mondrian South Beach, a recently renovated apartment building which was converted into a condominium and hotel. Mondrian South Beach opened in December 2008, at which time we began operating the property under a long-term management contract.

In April 2010, the Mondrian South Beach joint venture amended its non-recourse financing secured by the property and extended the maturity date for up to seven years, through extension options until April 2017, subject to certain conditions. In April 2010, in connection with the loan amendment, each of the joint venture partners provided an additional $2.75 million to the joint venture resulting in total mezzanine financing provided by the partners of $28.0 million. As of September 30, 2011, the joint venture’s outstanding mortgage and mezzanine debt was $87.5 million, which does not include the $28.0 million mezzanine loan provided by the joint venture partners, which in effect is on par with the lender’s mezzanine debt.

57

Morgans Group and affiliates of our joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of our joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of our joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of our joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of our joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2011, there are remaining payables outstanding to vendors of approximately $1.1 million. We believe that payment under these guaranties is not probable and the fair value of the guarantee is not material. For further discussion, see note 4 of our consolidated financial statements.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. In April 2010, each of the joint venture partners provided an additional $2.75 million of mezzanine financing to the joint venture in order to complete a refinancing of the outstanding mortgage debt of the venture. We determined that we are not the primary beneficiary of this variable interest entity as we do not have a controlling financial interest in the entity. Our maximum exposure to losses as result of our involvement in the Mondrian South Beach variable interest entity is limited to our current investment, outstanding management fee receivable and advances in the form of mezzanine financing. We have not committed to providing financial support to this variable interest entity, other than as contractually required and all future funding is expected to be provided by the joint venture partners in accordance with their respective ownership interests in the form of capital contributions or mezzanine financing, or by third parties.

We account for this investment under the equity method of accounting. At September 30, 2011, our investment in Mondrian South Beach was $3.3 million. Our equity in loss of Mondrian South Beach was $1.0 million and $1.6 million for the three months ended September 30, 2011 and 2010, respectively. Our equity in loss of Mondrian South Beach was $2.5 million and $1.8 million for the nine months ended September 30, 2011 and 2010, respectively.

Ames in Boston. On June 17, 2008, we, Normandy Real Estate Partners, and Ames Hotel Partners, entered into a joint venture to develop the Ames hotel in Boston. Upon the hotel’s completion in November 2009, we began operating Ames under a 20-year management contract. As of September 30, 2011, we had an approximately 31% economic interest in the joint venture.

As of September 30, 2011, the joint venture’s outstanding mortgage debt secured by the hotel was $46.5 million. In September 2011, the joint venture partners funded their pro rata shares of the debt service reserve account, of which our contribution was $0.3 million, and exercised the one remaining extension option available on the mortgage debt. As a result, the mortgage debt secured by Ames will mature October 9, 2012.

Based on current economic conditions and the October 2012 mortgage debt maturity, we wrote down our investment in Ames in September 2011 and recorded an impairment charge through equity in loss of unconsolidated joint ventures of $10.6 million.

58

Our equity in loss of Ames was $10.6 million and $0.1 million for the three months ended September 30, 2011 and 2010, respectively. Our equity in loss of Ames was $11.1 million and $0.6 million for the nine months ended September 30, 2011 and 2010, respectively.

Mondrian SoHo. In June 2007, we contributed approximately $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. to develop a Mondrian hotel in the SoHo neighborhood of New York. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel. We subsequently loaned an additional $4.3 million to the joint venture. As a result of the decline in general market conditions and real estate values since the inception of the joint venture, and more recently, the need for additional funding to complete the hotel, in June 2010, we wrote down our investment in Mondrian SoHo to zero. All of our subsequent fundings in 2010 and 2011, all of which are in the form of loans, have been impaired, and as of September 30, 2011, our investment balance in Mondrian SoHo is zero.

The mortgage loan on the property matured in June 2010. On July 31, 2010, the loan was amended to, among other things, provide for extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater.

The joint venture believes the hotel has achieved the required 1:1 coverage ratio as of September 30, 2011 and subject to other customary conditions, the maturity of this debt can be extended to November 2012. The joint venture has additional extension options available in 2012 subject to similar conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the twelve months ended September 30, 2012 of 1.1:1.0 or greater.

Certain affiliates of our joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its respective gross negligence or willful misconduct.

In July 2010, the joint venture partners each agreed to provide additional funding to the joint venture in proportionate to their equity interest in order to complete the project. At that time, the Mondrian SoHo joint venture was determined to be a variable interest entity as its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Further, we determined that we were not the primary beneficiary of this variable interest entity as we do not have a controlling financial interest in the entity. In February 2011, the hotel opened and as such, we determined that the joint venture was an operating business.

We continue to account for our investment in Mondrian SoHo using the equity method of accounting. The loss we recorded, due to impairment charges and operating results, on our investment in Mondrian SoHo was $1.6 million and $0.7 million for the three months ended September 30, 2011 and 2010, respectively, and $4.0 million and $9.0 million for the nine months ended September 30, 2011 and 2010, respectively.

Mondrian SoHo opened in February 2011, and we are operating the hotel under a 10-year management contract with two 10-year extension options.

Shore Club. As of September 30, 2011, we owned approximately 7% of the joint venture that owns Shore Club. On September 15, 2009, the joint venture received a notice of default on behalf of the special servicer for the lender on the joint venture’s mortgage loan for failure to make its September monthly payment and for failure to maintain its debt service coverage ratio, as required by the loan documents. On October 7, 2009, the joint venture received a second letter on behalf of the special servicer for the lender accelerating the payment of all outstanding principal, accrued interest, and all other amounts due on the mortgage loan. The lender also demanded that the joint venture transfer all rents and revenues directly to the lender to satisfy the joint venture’s debt. In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. We continue to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances we will continue to operate the hotel once foreclosure proceedings are complete.

59

For further information regarding our off balance sheet arrangements, see note 4 to our consolidated financial statements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We consider properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and the sale is probable. Upon designation as an asset held for sale, we record the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and we stop recording depreciation expense. Any gain realized in connection with the sale of the properties for which we has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement. The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless we have continuing involvement, such as through a management agreement, after the sale.

We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. No material changes to our critical accounting policies have occurred since December 31, 2010.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Some of our outstanding debt has a variable interest rate. As described in “Management’s Discussion and Analysis of Financial Results of Operations — Derivative Financial Instruments” above, we use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of September 30, 2011, our total outstanding consolidated debt, including capital lease obligations, was approximately $433.3 million, of which approximately $125.0 million, or 28.9%, was variable rate debt. At September 30, 2011, the one month LIBOR rate was 0.24%.

As of September 30, 2011, the $125.0 million of variable rate debt consists of our outstanding balances of $115.0 million on the Hudson Mortgage Loan and $10.0 million on the Delano Credit Facility. In connection with the Hudson 2011 Mortgage Loan, an interest rate cap for 3.0% in the amount of approximately $135.0 million, the full amount available under the mortgage after certain hurdles are met, as discussed above in “— Debt,” was entered into in August 2011, and was outstanding as of September 30, 2011. This interest rate cap matures in August 2013. As of September 30, 2011, we have $115.0 million outstanding on the Hudson 2011 Mortgage Loan. If market rates of interest on this $115.0 million variable rate debt increase by 1.0%, or 100 basis points, the increase in interest expense would reduce future pre-tax earnings and cash flows by approximately $1.2 million annually and the maximum annual amount the interest expense would increase on this variable rate debt is $3.2 million due to our interest rate cap agreement, which would reduce future pre-tax earnings and cash flows by the same amount annually. If market rates of interest on this $115.0 million variable rate decrease by 1.0%, the decrease in interest expense would increase pre-tax earnings and cash flow by approximately $1.2 million annually.

The Delano Credit facility does not have a derivative financial instrument associated with it. If market rates of interest on the $10.0 million or variable rate debt outstanding on the Delano Credit Facility increase by 1.0%, or 100 basis points, the increase in interest expense would reduce future pre-tax earnings and cash flows by approximately $0.1 million annually. If market rates of interest on this $10.0 million variable rate decrease by 1.0%, the decrease in interest expense would increase pre-tax earnings and cash flow by approximately $0.1 million annually.

60

As of September 30, 2011, our fixed rate debt, excluding capital lease obligations, of $302.2 million consisted of the trust notes underlying our trust preferred securities, the Convertible Notes, and the Clift lease. The fair value of some of this debt is greater than the book value. As such, if market rates of interest increase by 1.0%, or approximately 100 basis points, the fair value of our fixed rate debt at September 30, 2011 would decrease by approximately $27.6 million. If market rates of interest decrease by 1.0%, or 100 basis points, the fair value of our fixed rate debt at September 30, 2011 would increase by $33.2 million.

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments and future cash flows. These analyses do not consider the effect of a reduced level of overall economic activity. If overall economic activity is significantly reduced, we may take actions to further mitigate our exposure. However, because we cannot determine the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

We have entered into agreements with each of our derivative counterparties in connection with our interest rate caps and hedging instruments related to the Convertible Notes, providing that in the event we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations.

Currency Exchange Risk

As we have international operations with our two London hotels and the hotel we manage in Mexico, currency exchange risks between the U.S. dollar and the British pound and the U.S. dollar and Mexican peso, respectively, arise as a normal part of our business. We reduce these risks by transacting these businesses in their local currency. As of September 30, 2011, we had a 50% ownership in Morgans Europe, and a change in prevailing rates would have an impact on the value of our equity in Morgans Europe. A change in the exchange rate between the U.S. dollar and the British pound would also impact the amount of proceeds that we expect from the sale of our interests in Morgans Europe, which is expected to close in the fourth quarter of 2011. The U.S. dollar/British pound and U.S. dollar/Mexican peso currency exchanges are currently the only currency exchange rates to which we are directly exposed.

In connection with the London Sale Agreement, on November 2, 2011, Walton MG London, on behalf of itself and us, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

Generally, we do not enter into forward or option contracts to manage our exposure applicable to day-to-day net operating cash flows. We do not foresee any significant changes in either our exposure to fluctuations in foreign exchange rates or how such exposure is managed in the future, with the exception of the transactions contemplated by the London Sale Agreement, in connection with which we entered into a foreign currency forward contract, as discussed above due to the material nature of the transaction.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and the chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15) that occurred during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

61

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Litigation

Petra Litigation Regarding Scottsdale Mezzanine Loan

On April 7, 2010, Petra CRE CDO 2007-1, LTD, a Cayman Islands Exempt Company (“Petra”), filed a complaint against Morgans Group in the Supreme Court of the State of New York County of New York in connection with an approximately $14.0 million non-recourse mezzanine loan made on December 1, 2006 by Greenwich Capital Financial Products Company LLC, the original lender, to Mondrian Scottsdale Mezz Holding Company LLC, a wholly-owned subsidiary of Morgans Group LLC. The mezzanine loan relates to the Scottsdale, Arizona property previously owned by us. In connection with the mezzanine loan, Morgans Group entered into a so-called “bad boy” guaranty providing for recourse liability under the mezzanine loan in certain limited circumstances. Pursuant to an assignment by the original lender, Petra is the holder of an interest in the mezzanine loan. The complaint alleged that the foreclosure of the Scottsdale property by a senior lender on March 16, 2010 constitutes an impermissible transfer of the property that triggered recourse liability of Morgans Group pursuant to the guaranty. Petra demanded damages of approximately $15.9 million plus costs and expenses.

We believe that a foreclosure based on a payment default does not create one of the limited circumstances under which Morgans Group would have recourse liability under the guaranty. On May 27, 2010, we answered Petra’s complaint, denying any obligation to make payment under the guaranty. On July 9, 2010, Petra moved for summary judgment on the ground that the loan documents unambiguously establish Morgans Group’s obligation under the guaranty. We opposed Petra’s motion for summary judgment, and cross-moved for summary judgment in favor of us on grounds that the guaranty was not triggered by a foreclosure resulting from a payment default. On December 20, 2010, the court granted our motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in our favor and the dismissal of Petra’s complaint. Petra then petitioned the New York Court of Appeals for permission to appeal further and we opposed that petition. On September 22, 2011, the Court of Appeals denied Petra’s request for leave to appeal.

Other Litigation

We are involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. REMOVED AND RESERVED.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The exhibits listed in the accompanying Exhibit Index are filed as part of this report.

62

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.

Morgans Hotel Group Co.

/s/ Michael J. Gross Michael J. Gross

Chief Executive Officer

/s/ Richard Szymanski Richard Szymanski

Chief Financial Officer and Secretary

November 9, 2011

63

EXHIBIT INDEX

Exhibit
Number		Description
	2.1	Agreement and Plan of Merger, dated May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter Morton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	2.2	First Amendment to Agreement and Plan of Merger, dated as of January 31, 2007, by and between Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc., (solely with respect to Section 1.6 and Section 1.8 thereof) 510 Development Corporation and (solely with respect to Section 1.7 thereof) Peter A. Morton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 6, 2007)
	3.1	Amended and Restated Certificate of Incorporation of Morgans Hotel Group Co.(incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	3.2	Amended and Restated By-laws of Morgans Hotel Group Co. (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	3.3	Certificate of Designations for Series A Preferred Securities (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.1	Specimen Certificate of Common Stock of Morgans Hotel Group Co. (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on January 17, 2006)
	4.2	Junior Subordinated Indenture, dated as of August 4, 2006, between Morgans Hotel Group Co., Morgans Group LLC and JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4.3	Amended and Restated Trust Agreement of MHG Capital Trust I, dated as of August 4, 2006, among Morgans Group LLC, JPMorgan Chase Bank, National Association, Chase Bank USA, National Association, and the Administrative Trustees Named Therein (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4.4	Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (including Forms of Rights Certificate and Assignment and of Election to Exercise as Exhibit A thereto and Form of Certificate of Designation and Terms of Participating Preferred Stock as Exhibit B thereto) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 2, 2009)
	4.5	Amendment No. 1, dated as of October 15, 2009, to Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.6	Amendment No. 2, dated as of April 21, 2010, to Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 22, 2010)
	4.7	Indenture related to the Senior Subordinated Convertible Notes due 2014, dated as of October 17, 2007, by and among Morgans Hotel Group Co., Morgans Group LLC and The Bank of New York, as trustee (including form of 2.375% Senior Subordinated Convertible Note due 2014) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 17, 2007)

64

Exhibit
Number			Description
	4.8		Supplemental Indenture, dated as of November 2, 2009, by and among Morgans Group LLC, the Company and The Bank of New York Mellon Trust Company, National Association (as successor to JPMorgan Chase Bank, National Association), as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009)
	4.9		Registration Rights Agreement, dated as of October 17, 2007, between Morgans Hotel Group Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	4.10		Form of Warrant for Warrants issued under Securities Purchase Agreement to Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.11		Warrant, dated October 15, 2009, issued to Yucaipa American Alliance Fund II, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.12		Warrant, dated October 15, 2009, issued to Yucaipa American Alliance Fund II, LLC (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.13		Form of Amended Common Stock Purchase Warrants issued under Securities Purchase Agreement to Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	4.14		Amendment No. 1 to Common Stock Purchase Warrant issued under the Real Estate Fund Formation Agreement to Yucaipa American Alliance Fund II, LLC, dated as of December 11, 2009 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	4.15		Amendment No. 1 to Common Stock Purchase Warrant issued under the Real Estate Fund Formation Agreement to Yucaipa American Alliance Fund II, LLC, dated as of December 11, 2009 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	10.1	*	Amendment No. 2 to Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, dated as of September 15, 2011 and effective as of October 15, 2009
	10.2	*	Amendment No. 3 to Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, dated as of September 15, 2011
	10.3	*	Loan and Security Agreement, dated as of August 12, 2011, by and among Henry Hudson Holdings LLC, 58th Street Bar Company LLC and Hudson Leaseco LLC (collectively, the Borrower), the institutions from time to time a party thereto, as Lenders, and Deutsche Bank Trust Company Americas, as Administrative Agent for Lenders
	10.4	*	Amended, Restated and Consolidated Mortgage, Assignment of Leases and Rents, Hotel Revenue and Security Agreement, dated as of August 12, 2011, by Henry Hudson Holdings LLC, Hudson Leaseco LLC and 58th Street Bar Company LLC, for the benefit of Deutsche Bank Trust Company Americas, as Administrative Agent for the benefit of the lenders from time to time party to the Loan and Security Agreement

65

Exhibit
Number		Description
	31.1*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

66

EX-10.1

Exhibit 10.1

AMENDMENT NO. 2 TO
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MORGANS GROUP LLC

THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF MORGANS GROUP LLC (this “Amendment”), dated as of September 15, 2011 and effective as of October 15, 2009, is entered into by Morgans Hotel Group Co., a Delaware corporation, as managing member (the “Managing Member”) of Morgans Group LLC (the “Company”).

WHEREAS, the Company was formed by the filing of a certificate of formation with the Secretary of State of the State of Delaware on October 25, 2005 by an authorized person of the Company;

WHEREAS, on October 25, 2005, Morgans Hotel Group LLC, a Delaware limited liability company, as the sole initial member of the Company, entered into the initial Limited Liability Company Agreement of the Company (the “Original Operating Agreement”);

WHEREAS, the Original Operating Agreement was amended and restated as of February 17, 2006, by an Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, entered into by and among the Managing Member and the Persons named as Non-Managing Members on the signature pages thereto, and such agreement was further amended by Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, dated April 4, 2008 (as so amended, the “Agreement”);

WHEREAS, the Managing Member entered into a Securities Purchase Agreement, dated October 15, 2009, with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (collectively, the “Investors”), pursuant to which the Managing Member agreed, among other things, to issue a newly created series of capital stock designated as “Series A Preferred Securities”;

WHEREAS, the Managing Member issued and sold 75,000 shares of such Series A Preferred Securities to the Investors on October 15, 2009; and

WHEREAS, pursuant to the authority granted to the Managing Member under Sections 4.2(b) and 14.1(b)(2) of the Agreement, the Managing Member desires to amend the Agreement (i) to establish a new class of preferred Membership Units, to be entitled Series A Preferred Units (the “Series A Preferred Units”), and to set forth the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions of such Series A Preferred Units, which are substantially similar to those of the Series A Preferred Securities, and (ii) to make certain other changes to the Agreement, cure certain ambiguities, and supplement certain provisions thereof pursuant to the authority granted to the Managing Member under Section 14.1(b)(4) of the Agreement.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Managing Member hereby amends the Agreement, effective as of October 15, 2009, as follows:

1. The exhibit attached to this Amendment as Attachment 1 is hereby added to the Agreement as Exhibit E thereto.

2. Article I of the Agreement is hereby amended as follows:

(a) By adding the following defined term after the definition of “Debt”:

“Deemed Value of the Membership Interest” means, as of any date with respect to any class or series of Membership Interests—

(a) with respect to the class of Membership Interests corresponding to the Common Shares, (i) the total number of Class A Units corresponding to such class of Membership Interests issued and outstanding as of the close of business on such date (excluding any treasury shares) multiplied by the Value of one Common Share on such date;

(b) with respect to any class or series of Membership Interests that is entitled to a preference as compared to the class of Membership Interests corresponding to Common Shares, (i) the stated liquidation preference or value of one Unit of such class or series of Membership Interests provided in the instrument establishing such class or series of Membership Interests (unless otherwise provided in such instrument) multiplied by (ii) the total number of Units of such class or series then outstanding; and

(c) with respect to any class or series of Membership Interests not described in paragraph (a) or (b) above, (i) the amount that a holder of one Unit of such class or series would receive if each of the assets of the Company were to be sold for its fair market value on the date with respect to which the determination is being made, the Company were to pay all of its outstanding liabilities, and the remaining proceeds were to be distributed to the Members in accordance with the terms of this Agreement multiplied by (ii) the total number of Units of such class or series then outstanding. Such amount in clause (i) shall be determined by the Managing Member, acting in good faith and based upon a commercially reasonable estimate of the amount that would be realized by the Company if each asset of the Company (and each asset of each partnership, limited liability company, trust, joint venture or other entity in which the Company owns a direct or indirect interest) were sold to an unrelated purchaser in an arms’ length transaction where neither the purchaser nor the seller were under economic compulsion to enter into the transaction (without regard to any discount in value as a result of the Company’s minority interest in any property or any illiquidity of the Company’s interest in any property). Any determination of Value made by the Managing Member shall be conclusive and binding for all purposes hereof absent manifest error.

2

(b) By amending the definition of “Membership Unit” to read in its entirety as follows:

“Membership Unit” or “Unit” means a fractional, undivided share of a class or series of Membership Interests and includes Class A Units, Series A Preferred Units and Units of any other classes or series of Membership Interests established after the date hereof. The number of Units outstanding and the Percentage Interests in the Company represented by each class of Units are set forth in Exhibit A, as such Exhibit may be amended from time to time.”

(c) By amending the definition of “Percentage Interest” to read in its entirety as follows:

“Percentage Interest” means, as to a Member holding a Membership Interest of any class or series issued hereunder, its interest in such class or series, determined by dividing the Membership Units of such class or series owned by such Member by the total number of Membership Units of such class or series then outstanding as specified in Exhibit A attached hereto, as such exhibit may be amended from time to time, multiplied by the aggregate Percentage Interest allocable to such class or series of Membership Interests. For such time or times as the Company shall at any time have outstanding more than one class or series of Membership Interests, the Percentage Interest attributable to each class of Membership Interests shall be equal to a fraction, the numerator of which is the Deemed Value of the Membership Interest of such class or series and the denominator of which is equal to the Deemed Value of the Membership Interests for all outstanding classes and series.”

(d) By amending the defined term “Membership Unit Economic Balance” to read “Class A Economic Balance”.

3. Section 4.2 of the Agreement is hereby supplemented by adding the following paragraphs after Section 4.2(e):

“(f) The Managing Member shall maintain the information set forth in Exhibit A to the LLC Agreement, as such information shall change from time to time, in such form as the Managing Member deems appropriate for the conduct of the Company’s affairs, and Exhibit A shall be deemed amended from time to time to reflect the information so maintained by the Managing Member, whether or not a formal amendment to the Agreement has been executed amending such Exhibit A. In addition to the designation of Series A Preferred Units, such information shall reflect (and Exhibit A shall be deemed amended from time to time to reflect) the issuance of any additional Membership Units or LTIP Units of any class or series to the Managing Member or any other Person, the transfer of Membership Units and the redemption of any Membership Units, all as contemplated herein.”

4. Article IV of the Agreement is hereby supplemented by adding after Section 4.6 the following section:

“Section 4.7. Series A Preferred Units. The Company is authorized to issue an additional class of preferred Membership Units to the Managing Member entitled “Series A Preferred Units” (the “Series A Preferred Units”). Series A Preferred Units shall have the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions set forth in Exhibit E hereto.”

3

5. Clauses (i) and (ii) in the first sentence of Section 5.1 shall be amended to read in their entirety as follows:

“(i) first, to holders of Units of any class or series of Membership Interests that is entitled to any preference in distribution shall be made in accordance with the rights of such class or series of Membership Interests to holders of such Units on the applicable record date established for the distribution to such class or series of Membership Interests (and, within such class or series, to each holder thereof pro rata in proportion to its respective Percentage Interests in such class or series on such record date); and (ii) thereafter, to holders of Class A Units and Units of any other class or series of Membership Interests that are not entitled to any preference in distribution shall be made, to the extent there is any distributable amount remaining after the payment of distributions in respect of any classes or series of Membership Interests entitled to a preference in distribution in accordance with the foregoing clause (i), in accordance with the terms of such class or series as set forth in this Agreement or otherwise established by the Managing Member pursuant to Section 4.2(a) or 4.2(b) to holders of such Units on the record date established for the distribution to each such class or series of Membership Interests (and, within each such class, to each holder thereof pro rata in proportion to its respective Percentage Interests in such class or series on such record date).”

6. Section 6.1 of the Agreement is hereby deleted and replaced with the following:

“Section 6.1 Allocations For Capital Account Purposes Other than the Taxable Year of Liquidation. For purposes of maintaining the Capital Accounts and in determining the rights of the Members among themselves, the Company’s items of income, gain, loss and deduction (computed in accordance with Section 4.4) shall be allocated among the Members in each taxable year (or portion thereof) as provided herein below.

(a) Net Income. After giving effect to the special allocations set forth in Sections 6.2 and 6.3 below, Net Income shall be allocated:

(1)

first, to the holders of any class or series of Membership Units that are entitled to any preference upon liquidation until the cumulative Net Income allocated under this clause (1) equals the cumulative Net Losses allocated to such Members under Section 6.1(b)(3);

(2)

second, to the holders of any class or series Membership Units that are entitled to any preference in distribution in accordance with the rights of any other class or series of Membership Units until each such Membership Unit has been allocated, on a cumulative basis pursuant to this clause (2), Net Income equal to the amount of distributions payable that are attributable to the preference of such class or series of Membership Units whether or not paid (and, within such class or series, pro rata in proportion to their respective Percentage Interests as of the last day of the period for which such allocation is being made); and

4

(3) third, with respect to any class or series of Membership Units that are not entitled to any preference in distribution or with respect to which distributions are not limited to any preference in distribution, pro rata to each such class in accordance with the terms of such class (and, within such class or series, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made).

(b) Net Losses. After giving effect to the special allocations set forth in Sections 6.2 and 6.3 below, Net Losses shall be allocated:

(1) first, to the holders of Membership Units, in proportion to, and to the extent that, their share of the Net Income previously allocated pursuant to Section 6.1(a)(3) exceeds, on a cumulative basis, the sum of (a) distributions with respect to such Membership Units pursuant to clause (ii) of Section 5.1 and (b) Net Losses allocated under this clause (1);

(2) second, with respect to any class or series of Membership Units that is not entitled to any preference in distribution upon liquidation, pro rata to each such class or series in accordance with the terms of such class or series (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); provided, however, that Net Losses shall not be allocated to any Member pursuant to this Section 6.1(b)(2) to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case of a Member who also holds a class or series of Membership Units that is entitled to any preferences in distribution upon liquidation, by subtracting from such Members’ Adjusted Capital Account the amount of such preferred distribution to be made upon liquidation) at the end of such taxable year (or portion thereof); and

(3) third, with respect to any class or series of Membership Units that is entitled to any preference in distribution upon liquidation, in reverse order of the priorities of each such class or series (and within each such class or series, pro rata in proportion to their respective Percentage Interests as of the last day of the period for which such allocation is being made); provided, however, that Net Losses shall not be allocated to any Member pursuant to this Section 6.1(b)(3) to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such taxable year (or portion thereof).

5

(c) Nonrecourse Liabilities. For purposes of Regulations Section 1.752-3(a), the Members agree that Nonrecourse Liabilities of the Company in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among the Members in the manner determined by the Managing Member, provided that such allocation shall be permissible under Regulations Section 1.752-3.

(d) Gains. Any gain allocated to the Members upon the sale or other taxable disposition of any Company asset shall to the extent possible, after taking into account other required allocations of gain pursuant to Section 6.3 below, be characterized as Recapture Income in the same proportions and to the same extent as such Members have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income, all in such a manner consistent with Regulations Section 1.1245-1.”

7. Section 6.3(a) of the Agreement is hereby deleted and replaced with the following:

“(a) Special Allocations With Respect to LTIP Units. After giving effect to the special allocations set forth in the following provisions of this Section 6.3, but before giving effect to the allocations set forth in Section 6.1(a), any Liquidating Gains shall first be allocated to the LTIP Unitholders until the Economic Capital Account Balances of such Holders, to the extent attributable to their ownership of LTIP Units, are equal to (i) the Class A Unit Economic Balance, multiplied by (ii) the number of their LTIP Units. The “Economic Capital Account Balances” of the LTIP Unitholders will be equal to their Capital Account balances, plus the amount of their shares of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to their ownership of LTIP Units. Similarly, the “Membership Unit Economic Balance” shall mean (i) the Capital Account balance of the Managing Member, plus the amount of the Managing Member’s share of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to the Managing Member’s ownership of Membership Units and computed on a hypothetical basis after taking into account all allocations through the date on which any allocation is made under this Section 6.3(a), divided by (ii) the number of the Managing Member’s Class A Units. Any such allocations shall be made among the LTIP Unitholders in proportion to the amounts required to be allocated to each under this Section 6.3(a). The parties agree that the intent of this Section 6.3(a) is to make the Capital Account balance associated with each LTIP Unit economically equivalent to the Capital Account balance associated with the Managing Member’s Class A Units (on a per-unit basis).”

8. The following sections, subsections, exhibits and sentences are hereby amended by replacing each occurrence of the term “Membership Unit” or “Membership Units,” as described below, with “Class A Unit” or “Class A Units” as appropriate:

(a)	Section 4.2(d);
(b)	Section 4.2(e)(1), 4.2(e)(2), 4.2(e)(3) and 4.2(e)(7);
(c)	Section 4.5;
(d)	Section 4.6;

6

(e)	Section 7.3(d);
(f)	Section 7.5(b);
(g)	Section 7.6(c);
(h)	Section 11.2(c);
(i)	Section 11.2(d);
(j)	Section 13.2;
(k)	Section 14.1;
(l)	Section 14.2;
(m)	the third occurrence of the term in Section 14.3(ii);
(n)	the first full paragraph of Section 14.3;
(o)	the last sentence of Section 14.3; and
(p)	Exhibits B, C and D.

9. Section 13.2(a) is hereby supplemented by adding the following clause after clause (2) and renumbering clause (3) as clause (4):

“(3) Third, to the holders of any class or series of Membership Interests that are entitled to any preference in distribution upon liquidation, in accordance with the rights of any such class or series of Membership Interests (and, within each such class or series, to each holder thereof pro rata in proportion to its respective Percentage Interest in such class or series); and”

10. Section References. Section references in this Amendment refer to sections of the Agreement.

11. Certain Capitalized Terms. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

12. Severability. If any term or other provision of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms and provisions of this Amendment shall remain in full force and effect and shall in no way be effectively impaired or invalidated.

13. Full Force and Effect. Except as expressly amended hereby, the Agreement shall remain in full force and effect.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

7

IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 2 as of the date first set forth above.

MORGANS HOTEL GROUP CO., as Managing Member of Morgans Group LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

8

Exhibit E

DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS,
QUALIFICATIONS, LIMITATIONS, AND RESTRICTIONS

OF THE

SERIES A
PREFERRED UNITS
OF MORGANS GROUP LLC

The Series A Preferred Units (the “Series A Preferred Units”) shall have the following voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions:

Section 1. Definitions. In addition to those terms defined in the Agreement, the following capitalized terms used in this Exhibit E shall have the respective meanings set forth below:

“Board Trigger Event” has the meaning set forth in the Series A Preferred Securities Certificate of Designations.

“Class A Units” shall have the meaning ascribed thereto in Section 4.2(a) of the Agreement.

“Distribution Payment Date” shall have the meaning set forth in Section 2(a) hereof.

“Distribution Rate” means (i) prior to the fifth anniversary of the Original Issue Date, a per annum rate of 8%, (ii) during the period on and after the fifth anniversary date of the Original Issue Date to the day immediately preceding the seventh anniversary date of the Original Issue Date, a per annum rate of 10%, and (iii) at any time on and after the seventh anniversary of the Original Issue Date, a per annum rate of 20%; provided, that, during the continuance of a Board Trigger Event, the Distribution Rate under each of clause (i), (ii) or (iii), as applicable, shall be increased by 4% per annum.

“Junior Units” means the Class A Units, the LTIP Units, and any other class or series of Membership Units of the Company (other than the Series A Preferred Units) the terms of which expressly provide that it ranks junior to Series A Preferred Units either or both as to the payment of dividends and/or as to the distribution of assets on any liquidation, dissolution or winding up of the Company.

“Original Issue Date” means October 15, 2009.

“Parity Units” means any class or series of Membership Units of the Company (other than Series A Preferred Units and the Junior Units) the terms of which do not expressly provide that such class or series will rank senior or junior to Series A Preferred Units as to dividend rights and/or as to rights on any liquidation, dissolution or winding up of the Company (in each case without regard to whether distributions accumulate cumulatively or non-cumulatively).

1

“Series A Preferred Securities Certificate of Designations” shall mean the Certificate of Designations of Series of Preferred Stock Designated as Series A Preferred Securities of Morgans Hotel Group Co., as it may be amended from time to time.

“Series A Preferred Securities” shall mean the Series A Preferred Securities, par value $0.01 per share, of the Managing Member as designated pursuant to the Series A Preferred Securities Certificate of Designations.

“Series A Preferred Units” shall have the meaning set forth in the first paragraph of this Exhibit E.

Section 2. Distributions.

(a) Rate. The Managing Member, in its capacity as the holder of the outstanding Series A Preferred Units, shall be entitled to receive, on each Series A Preferred Unit, cumulative cash distributions with respect to each Distribution Period (as defined below) at a rate per annum equal to the Distribution Rate on (i) the amount of $1,000 per Series A Preferred Unit and (ii) the amount of accumulated and unpaid dividends on such Series A Preferred Unit. Such distributions begin to accumulate and be cumulative from the Original Issue Date, shall compound on each Distribution Payment Date and shall be payable in arrears (as provided below in this Section 2(a)), but only if, as and when dividends on the Series A Preferred Securities are declared by the Board of Directors or a duly authorized committee of the Board of Directors of the Managing Member on each January 15, April 15, July 15 and October 15 (each, a “Distribution Payment Date”), commencing on January 15, 2010; provided, that, if any such Distribution Payment Date would otherwise occur on a day that is not a Business Day, any distribution payable on Series A Preferred Units on such Distribution Payment Date shall instead be payable on the immediately succeeding Business Day, and no additional distributions will accumulate as a result of that postponement. Distributions payable on the Series A Preferred Units in respect of any Distribution Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of distributions payable on the Series A Preferred Units on any date prior to the end of a Distribution Period, and for the initial Distribution Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Each distribution period (a “Distribution Period”) shall commence on and include a Distribution Payment Date (other than the initial Distribution Period, which shall commence on and include the Original Issue Date) and shall end on and include the calendar day immediately preceding the next Distribution Payment Date. Distributions payable in respect of a Distribution Period shall be payable in arrears on the first Distribution Payment Date after such Distribution Period.

The Managing Member, in its capacity as the holder of Series A Preferred Units, shall not be entitled to any distributions, whether payable in cash, securities or other property, other than distributions (if any) declared and payable on the Series A Preferred Units as specified in this Section 2 (subject to the other provisions of this Exhibit E).

2

(b) Priority of Distributions. So long as any Series A Preferred Units remain outstanding, no distributions shall be declared or paid on the Class A Units or any other Junior Units (other than distributions payable solely in Class A Units or Junior Units), and no Class A Units, Junior Units or Parity Units shall be purchased, redeemed or otherwise acquired for consideration by the Company, directly or indirectly during a Distribution Period, unless all accumulated and unpaid distributions for all past completed Distribution Periods, including the latest completed Distribution Period (including, if applicable, distributions on such amount as provided in Section 2(a) above), on all outstanding Series A Preferred Units have been declared and paid in full (or declared and a sum sufficient for the payment thereof has been set aside in trust for the benefit of the Managing Member, in its capacity as the holder of Series A Preferred Units, on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of Class A Units or other Junior Units by the Company pursuant to the terms of or in connection with the administration in the ordinary course of business of any employee benefit or management incentive compensation plan of the Managing Member or the Company or any of its subsidiaries, (ii) any distributions of rights or Junior Units in connection with a stockholders’ rights plan of the Managing Member or any redemption or repurchase of rights pursuant to any such stockholders’ rights plan; (iii) the acquisition by the Managing Member, the Company or any of its subsidiaries of record ownership in Junior Units or Parity Units for the beneficial ownership of any other persons (other than the Corporation, the Company or any of its subsidiaries), including as trustee or custodians; and (iv) the exchange or conversion of Junior Units for or into other Junior Units or of Parity Units for or into other Parity Units (with the same or lesser aggregate liquidation amount) or Junior Units.

(c) The Company shall not permit any subsidiary of the Company to redeem, purchase or otherwise acquire for value, or set apart money for any sinking fund for the purpose thereof, any Class A Units or any other Junior Units unless the Company is permitted, pursuant to the immediately preceding paragraph, to so redeem, purchase or otherwise acquire such Class A Units or any other Junior Units at such time and in such manner.

(d) When distributions are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date therefor falling within a Distribution Period related to such Distribution Payment Date) in full upon the Series A Preferred Units and any Parity Units, all distributions declared on the Series A Preferred Units and all such Parity Units and payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date therefor falling within the Distribution Period related to such Distribution Payment Date) shall be declared pro rata so that the respective amounts of such distributions declared shall bear the same ratio to each other as all accumulated and unpaid distributions per Unit on the Series A Preferred Units (including, if applicable, distributions on such amount as provided in Section 2(a) above) and all Parity Units payable on such Distribution Payment Date (or, in the case of Parity Units having distribution payment dates different from the Distribution Payment Dates, on a distribution payment date therefor falling within the Distribution Period related to such Distribution Payment Date) bear to each other.

3

(e) Subject to the foregoing, the Managing Member, in its capacity as the holder of Series A Preferred Units, shall not be entitled to participate in any distributions (payable in cash, securities or other property) that are paid on any Units (other than the Series A Preferred Units), including Class A Units and other Junior Units, from time to time.

Section 3. Liquidation Rights.

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the Managing Member, in its capacity as the holder of Series A Preferred Units, shall be entitled to receive for each Series A Preferred Unit, out of the assets of the Company or proceeds thereof available for distribution to holders of Membership Units, and after satisfaction of all liabilities and obligations to creditors of the Company, before any distribution of such assets or proceeds is made to or set aside for the holders of Class A Units and any other Membership Units ranking junior to the Series A Preferred Units as to such distribution, payment in full in an amount equal to the sum of (i) $1,000 per Unit and (ii) the amount of any accumulated and unpaid distributions thereon (including, if applicable, distributions on such amount as provided in Section 2(a) above), whether or not declared, to the date of payment.

(b) Partial Payment. If, in any distribution described in Section 3(a) above, the assets of the Company or proceeds thereof are not sufficient to pay the Liquidation Preferences (as defined below) in full to the Managing Member, in its capacity as the holder of Series A Preferred Units, and all holders of any Membership Units ranking equally with the Series A Preferred Units as to such distribution, the amounts paid to the Managing Member, in its capacity as holder of Series A Preferred Units, and to the holders of all such other Membership Units shall be paid pro rata in accordance with the respective aggregate Liquidation Preferences of the Managing Member, in its capacity as holder of Series A Preferred Units, and the holders of all such other Membership Units. In any such distribution, the “Liquidation Preference” of any holder of Membership Units shall mean the amount otherwise payable to such holder (other than in respect of Junior Units) in such distribution (assuming no limitation on the assets of the Company available for such distribution), including an amount equal to any declared but unpaid distributions (and, in the case of any holder of Membership Units, including the Series A Preferred Units, on which distributions accumulate on a cumulative basis, an amount equal to any accumulated and unpaid distributions (including, if applicable, distributions on such amount as provided in Section 2(a) above), whether or not declared, as applicable), provided, that, the Liquidation Preference for any Series A Preferred Units shall be determined in accordance with Section 3(a) above.

(c) Residual Distributions. If the Liquidation Preference has been paid in full to the Managing Member, in its capacity as the holder of Series A Preferred Units, and the corresponding amounts payable with respect of any other Membership Units in the Company ranking equally with Series A Preferred Units as to distributions has been paid in full, the holders of Class A Units and any other Membership Units in the Company ranking junior to the Series A Preferred Units as to distributions shall be entitled to receive all remaining assets of the Company (or proceeds thereof) according to their respective rights and preferences.

4

(d) Merger or Consolidation Not Liquidation. For purposes of this Section 3, the merger or consolidation of the Company with any other corporation or other entity, including a merger or consolidation in which the Managing Member, in its capacity as holder of Series A Preferred Units, receives cash, securities or other property for its Series A Preferred Units, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Company, shall not constitute a liquidation, dissolution or winding up of the Company.

Section 4. Redemption. In the event that the Managing Member redeems or purchases any shares of Series A Preferred Securities in accordance with the terms of the Series A Preferred Securities Certificate of Designations, the Company shall concurrently redeem an equivalent number of Series A Preferred Units for consideration equal (in amount and form) to the consideration payable by the Managing Member upon such redemption or purchase. Any Series A Preferred Units so redeemed may be reissued to the Managing Member at such time as the Managing Member re-issues a corresponding number of shares of Series A Preferred Securities so redeemed or purchased, in exchange for the contribution by the Managing Member to the Company of the proceeds of such reissuance.

Section 5. No Other Conversion or Redemption Rights. The Series A Preferred Units are not convertible into or redeemable or exchangeable for any other property or securities of the Company or the Managing Member, except as provided in Section 4 hereof.

Section 6. Voting Rights. Except as required by applicable law, the Managing Member, in its capacity as the holder of the Series A Preferred Units, shall have no voting rights.

Section 7. Restriction on Ownership. The Series A Preferred Units shall be owned and held solely by the Managing Member.

Section 8. General.

(a) The rights of the Managing Member, in its capacity as the holder of the Series A Preferred Units, are in addition to and not in limitation of any other rights or authority of the Managing Member in any other capacity under the Agreement or applicable law. In addition, nothing contained in this Exhibit E shall be deemed to limit or otherwise restrict the authority of the Managing Member under the Agreement, other than in its capacity as the holder of the Series A Preferred Units.

(b) Anything herein contained to the contrary notwithstanding, the Managing Member shall take all steps that it determines are necessary or appropriate (including modifying the foregoing terms of the Series A Preferred Units) to ensure that the Series A Preferred Units (including, without limitation the redemption and conversion terms thereof) permit the Managing Member to satisfy its obligations (including its obligations to make dividend payments on the Series A Preferred Securities) with respect to the Series A Preferred Securities, it being the intention that the terms of the Series A Preferred Units shall be substantially similar to the terms of the Series A Preferred Securities.

5

EX-10.2

Exhibit 10.2

AMENDMENT NO. 3 TO
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MORGANS GROUP LLC

THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF MORGANS GROUP LLC (this “Amendment”), dated as of September 15, 2011, is entered into by Morgans Hotel Group Co., a Delaware corporation, as managing member (the “Managing Member”) of Morgans Group LLC (the “Company”).

WHEREAS, the Company was formed by the filing of a certificate of formation with the Secretary of State of the State of Delaware on October 25, 2005 by an authorized person of the Company;

WHEREAS, on October 25, 2005, Morgans Hotel Group LLC, a Delaware limited liability company, as the sole initial member of the Company, entered into the initial Limited Liability Company Agreement of the Company (the “Original Operating Agreement”);

WHEREAS, the Original Operating Agreement was amended and restated as of February 17, 2006, by an Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, entered into by and among the Managing Member and the Persons named as Non-Managing Members on the signature pages thereto, and such agreement was further amended by Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, dated April 4, 2008, and Amendment No. 2 to the Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, effective October 15, 2009 (as so amended, the “Agreement”);

WHEREAS, Sections 4.2, 7.1(a), and 14.1(b)(2) of the Agreement authorize the Managing Member to create new classes or series of Membership Interests, issue additional Membership Interests, and amend the Agreement in connection with the issuance of additional Membership Interests;

WHEREAS, pursuant to the authority granted to the Managing Member under Section 14.1(b) of the Agreement, the Managing Member desires to amend the Agreement to provide for the terms of the 2011 outperformance plan units (the “2011 OPP Units”), issued pursuant to the Managing Member’s 2007 Omnibus Stock Incentive Plan, as amended, or other Incentive Plan, as follows:

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Managing Member hereby amends the Agreement as follows:

1. The exhibit attached to this Amendment as Attachment 1 is hereby added to the Agreement as Exhibit F thereto.

2. Article IV of the Agreement is hereby supplemented by adding after Section 4.7 the following section:

“Section 4.8. 2011 OPP LTIP Units. The Company is authorized to issue an additional class of Membership Units and LTIP Units entitled “2011 OPP LTIP Units” (the “2011 OPP Units”). 2011 OPP Units shall have the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions set forth in Exhibit F hereto.”

3. Section References. Section references in this Amendment refer to sections of the Agreement.

4. Certain Capitalized Terms. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

5. Severability. If any term or other provision of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms and provisions of this Amendment shall remain in full force and effect and shall in no way be effectively impaired or invalidated.

6. Full Force and Effect. Except as expressly amended hereby, the Agreement shall remain in full force and effect.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

2

IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 3 as of the date first set forth above.

MORGANS HOTEL GROUP CO., as Managing Member of Morgans Group LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

3

Exhibit F

DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS,
QUALIFICATIONS, LIMITATIONS, AND RESTRICTIONS

OF THE

2011 OPP LTIP UNITS
OF MORGANS GROUP LLC

The 2011 OPP LTIP Units (the “2011 OPP Units”) shall have the following voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions:

1. LTIP Equivalence. Except as otherwise expressly provided in this Exhibit F, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable award agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Company in an amount per unit equal to the amount of any such distributions payable on the Class A Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the award agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the award agreement or other documentation pursuant to which such 2011 OPP Units are issued.

1

3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Class A Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Class A Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Class A Units into which they may be converted pursuant to Section 4.6 of the Agreement until the later of (i) the date that is one year and six months after the Final Valuation Date and (ii) the date on which the applicable 2011 OPP Units are converted into Class A Units in accordance with Section 4.6 of the Agreement and Section 6 of this Exhibit F, after which date the Redemption Right shall be available on the terms and conditions set forth in the Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable award agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Company shall be entitled to redeem some or all of the 2011 OPP Units held by any Holder (or Class A Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the applicable award agreement) as of the Final Valuation Date (as defined in the applicable award agreement).

(c) From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Class A Units into which they were converted by the Holder) shall have the right to cause the Company to redeem some or all of the 2011 OPP Units held by such Holder (or Class A Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Class A Unit, as the case may be, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the applicable award agreement) as of the Final Valuation Date (as defined in the applicable award agreement) and (y) the Cash Amount (as defined in the applicable award agreement) determined as of the date of the notice of redemption.

(d) From and after the end of the period set forth in Section 4(c), a Holder of 2011 OPP Units shall have the right to cause the Company to redeem some or all of the 2011 OPP Units (or Class A Units into which they were converted by the Holder) held by such Holder at a redemption price per 2011 OPP Unit or Class A Unit, as applicable, payable in cash, equal to the Cash Amount determined as of the date of the notice of redemption.

2

(e) The Company may exercise its redemption right under Section 4(b) above by sending a notice to each Holder of 2011 OPP Units (or Class A Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Class A Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Class A Units that are being redeemed. The Holder may exercise its redemption right under Section 4(c) or 4(d) above by sending a notice to the Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Class A Units into which they were converted by the Holder) to be redeemed. The Managing Member shall be entitled to acquire 2011 OPP Units (or Class A Units into which they were converted by the Holder) pursuant to any exercise by the Company or the Holder of the foregoing redemption rights (under Section 4.2(b) or Section 4.2(c) or 4(d) above) in exchange for issuance of a number of Common Shares, which will be issued under an Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the Holders of LTIP Units; but subject, in any case, to the following provisions:

(i) Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the Holders of LTIP Units;

(ii) Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the Holders of LTIP Units; and

3

(iii) any waiver by the Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

6. Conversion of LTIP Units into Membership Units Under Section 4.6 of the Agreement. Notwithstanding anything to the contrary set forth in this Exhibit F or the Agreement, in no event shall a Holder of 2011 OPP Units have the right to convert such 2011 OPP Units into Class A Units under Section 4.6 of the Agreement, and the Company shall not have the right to cause a Forced Conversion of 2011 OPP Units pursuant to Section 4.6(d) of the Agreement, unless and until such time as shareholders of the Managing Member have approved an increase to the number of shares of common stock available under the Managing Member’s shareholder-approved 2007 Omnibus Stock Incentive Plan, as amended, or other Incentive Plan, a number of which additional shares are then allocated by the Managing Member to the OPP LTIP Units.

7. Treatment of 2011 OPP Units in Connection with a Transaction. If the Company or the Managing Member shall be a party to any Transaction (as defined in the Agreement) after the Final Valuation Date, as a result of which Class A Units shall be exchanged for or converted into the right, or the LTIP Unitholders of such Class A Units shall otherwise be entitled, to receive cash, securities or other property or any combination thereof, and at such time the 2011 OPP Units are not eligible to be converted into Class A Units (after giving effect to any vote of shareholders of the Managing Member in connection with the Transaction), then the Company shall, concurrently with the closing of such Transaction, redeem all of the 2011 OPP Units for an amount per 2011 OPP Unit payable in cash equal to the value (determined by the Board of Directors of the Managing Member in good faith) of the consideration received in exchange for, or ascribed to, each Class A Unit in such Transaction, or shall cause the terms of the Transaction to provide a payment to Holders of 2011 OPP Units of such amount in exchange for their 2011 OPP Units upon closing of such Transaction.

8. Section References. Except as otherwise expressly provided, Section references in this Exhibit F refer to sections of the Agreement.

9. Certain Capitalized Terms. All capitalized terms used in this Exhibit F and not otherwise defined shall have the meanings assigned in the Agreement.

4

EX-10.3

Exhibit 10.3

Execution Version

LOAN AND SECURITY AGREEMENT

Dated as of August 12, 2011

by and among

HENRY HUDSON HOLDINGS LLC,
58^th STREET BAR COMPANY LLC,
AND HUDSON LEASECO LLC, collectively,
as Borrower,

DEUTSCHE BANK TRUST COMPANY AMERICAS,
and
THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
as Lenders,

DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Administrative Agent for Lenders,

DEUTSCHE BANK SECURITIES INC.,
as Lead Arranger and Bookrunner.

Table of Contents

	Page
ARTICLE I Definitions; Principles of Construction		1
Section 1.1 Definitions		1
Section 1.2 Principles of Construction		32
ARTICLE II General Terms		33
Section 2.1 Loan; Disbursement to Borrower		33
Section 2.2 Interest Rate and Yield-Related Provisions		37
Section 2.3 Payments		44
Section 2.4 Conditions Precedent to Closing		48
Section 2.5 Delayed Draw Term Loan Conditions Precedent		53
ARTICLE III Cash Management		54
Section 3.1 Cash Management		54
ARTICLE IV Representations and Warranties		65
Section 4.1 Borrower Representations		65
ARTICLE V Borrower Covenants		79
Section 5.1 Affirmative Covenants		79
Section 5.2 Negative Covenants		92
ARTICLE VI Insurance; Casualty; Condemnation; Restoration		96
Section 6.1 Insurance Coverage Requirements		96
Section 6.2 Condemnation and Insurance Proceeds		102
ARTICLE VII Impositions, Other Charges, Liens and Other Items		107
Section 7.1 Impositions and Other Charges		107
Section 7.2 No Liens		108
Section 7.3 Contest		108
ARTICLE VIII Transfers and Leases		109
Section 8.1 Restrictions on Transfers		109
Section 8.2 Sale of Equipment		109
Section 8.3 Immaterial Transfers and Easements, etc.		110
Section 8.4 Transfers of Interests in Borrower		110
Section 8.5 Loan Assumption		111
Section 8.6 Notice Required; Legal Opinions		111
Section 8.7 Leases		111
ARTICLE IX Interest Rate Cap Agreement		115
Section 9.1 Interest Rate Cap Agreement		115
Section 9.2 Pledge and Collateral Assignment		115
Section 9.3 Covenants		116

(i)

Table of Contents
(continued)

	Page
Section 9.4 Representations and Warranties		117
Section 9.5 Payments		118
Section 9.6 Remedies		118
Section 9.7 Sales of Rate Cap Collateral		120
Section 9.8 Public Sales Not Possible		121
Section 9.9 Receipt of Sale Proceeds		121
Section 9.10 Extension Interest Rate Cap Agreement		121
Section 9.11 Filing of Financing Statements Authorized		121
ARTICLE X Maintenance of Property; Alterations		121
Section 10.1 Maintenance of Property		121
Section 10.2 Alterations and Expansions		122
ARTICLE XI Books and Records, Financial Statements, Reports and Other Information		125
Section 11.1 Books and Records		125
Section 11.2 Financial Statements		125
ARTICLE XII Environmental Matters		129
Section 12.1 Representations		129
Section 12.2 Covenant		129
Section 12.3 Environmental Reports		130
Section 12.4 Environmental Indemnification		130
Section 12.5 Recourse Nature of Certain Indemnifications		131
ARTICLE XIII Reserved		132
ARTICLE XIV Administrative Agent		132
Section 14.1 Appointment		132
Section 14.2 Delegation of Duties		132
Section 14.3 Exculpatory Provisions		132
Section 14.4 Reliance by the Agents		132
Section 14.5 Notice of Default		133
Section 14.6 Non-Reliance on Agents and Other Lenders		133
Section 14.7 Indemnification; Reimbursement of Protective Advances		134
Section 14.8 Agents in Their Individual Capacity		135
Section 14.9 Successor Administrative Agent		135
Section 14.10 Limitations on Agents Liability		135
Section 14.11 Approvals of Lenders		136
ARTICLE XV Assignments and Participations		136
Section 15.1 Assignments, Delegations and Pledges		136
Section 15.2 Register; Effect of Assignment and Acceptance		136
Section 15.3 Substitute Notes		137
Section 15.4 Participations		137
Section 15.5 Security Interest in Favor of Federal Reserve Bank		138
Section 15.6 Redirection Notice		138

(ii)

Table of Contents
(continued)

	Page
Section 15.7 Syndication		138
Section 15.8 Pfandbrief Appraisal		139
ARTICLE XVI Reserve Accounts		139
Section 16.1 Tax Reserve Account		139
Section 16.2 Insurance Reserve Account		140
Section 16.3 Cash Sweep Reserve Account		141
Section 16.4 Required Repairs Reserve Account		141
Section 16.5 FF&E Reserve Account		142
Section 16.6 Ground Rent Reserve Account		143
ARTICLE XVII Defaults		143
Section 17.1 Event of Default		143
Section 17.2 Remedies		146
Section 17.3 Remedies Cumulative; Waivers		148
Section 17.4 Costs of Collection		148
ARTICLE XVIII Special Provisions		149
Section 18.1 Exculpation		149
ARTICLE XIX Miscellaneous		153
Section 19.1 Survival		153
Section 19.2 Administrative Agent’s Discretion		154
Section 19.3 Governing Law		154
Section 19.4 No Assignment by Borrower		156
Section 19.5 Modification		156
Section 19.6 Modification, Waiver in Writing		156
Section 19.7 Delay Not a Waiver		156
Section 19.8 Notices		157
Section 19.9 TRIAL BY JURY		158
Section 19.10 Headings		158
Section 19.11 Severability		159
Section 19.12 Preferences		159
Section 19.13 Waiver of Notice		159
Section 19.14 Expenses; Indemnity; No Consequential Damages		159
Section 19.15 Exhibits and Schedules Incorporated		162
Section 19.16 Offsets, Counterclaims and Defenses		162
Section 19.17 Liability of Assignees of Lenders		162
Section 19.18 Sharing of Payments		163
Section 19.19 Set-off		163
Section 19.20 No Joint Venture or Partnership; No Third Party Beneficiaries		163
Section 19.21 Confidentiality		164
Section 19.22 Waiver of Marshalling of Assets		164
Section 19.23 Waiver of Counterclaim and other Actions		165
Section 19.24 Conflict; Construction of Documents; Reliance		165

(iii)

Table of Contents
(continued)

	Page
Section 19.25 Prior Agreements		165
Section 19.26 Reinstatement		166
Section 19.27 Counterparts		166
Section 19.28 Nature of Borrower Obligations		166

EXHIBITS
Exhibit A	—	Title Insurance Requirements
Exhibit B	—	Survey Requirements
Exhibit C	—	Single Purpose Entity Provisions
Exhibit D	—	Intentionally Omitted
Exhibit E	—	Non-Consolidation Opinion Requirements
Exhibit F	—	Counterparty Opinion Requirements
Exhibit G	—	Form of Tenant Estoppel Letter
Exhibit H	—	Borrower Organizational Structure
Exhibit I	—	Interest Rate Cap Agreement Requirements
Exhibit J	—	Form of Assignment and Acceptance Agreement
Exhibit K	—	Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit L	—	Form of Note
Exhibit M	—	Counterparty Acknowledgment
Exhibit N	—	Funding Notice
Exhibit O	—	Form of Independent Director Certificate
Exhibit P	—	Form of IP Security Agreement

SCHEDULES
Schedule I	—	Litigation Schedule
Schedule II	—	Labor Matters Schedule
Schedule III	—	Rent Roll
Schedule IV	—	Intentionally Omitted
Schedule V	—	SRO Tenancies
Schedule VI	—	Required Repairs
Schedule VII	—	Percentage Share
Schedule VIII	—	Ground Lease
Schedule IX	—	IP Schedule

(iv)

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT, dated as of August 12, 2011 (as Modified from time to time, this “Agreement”), by and among HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company (“Owner”), 58^th STREET BAR COMPANY LLC, a Delaware limited liability company (“Bar Lessee”), and HUDSON LEASECO LLC, a New York limited liability company (“Operating Lessee”; Operating Lessee, Bar Lessee and Owner, together with their respective successors and assigns, collectively “Borrower”), each having an address at c/o Morgans Hotel Group, 475 Tenth Avenue, New York, New York 10018, THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO (together with their successors and assigns, collectively and severally, “Lenders”); and DEUTSCHE BANK TRUST COMPANY AMERICAS (“DBTCA”), as administrative agent for Lenders (in such capacity, together with its successors and assigns, “Administrative Agent”).

W I T N E S S E T H:

WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lenders and requests that DBTCA act as administrative agent for the benefit of Lenders with respect to the Loan;

WHEREAS, Lenders are willing to make the Loan to Borrower and DBTCA is willing to act as administrative agent on behalf of Lenders, subject to and in accordance with the terms of this Agreement and the other Loan Documents (as hereinafter defined).

NOW, THEREFORE, in consideration of the above recitals and the making of the Loan by Lenders and the covenants, agreements, representations and warranties set forth in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I

Definitions; Principles of Construction

Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

“Acceptable Counterparty” shall mean a bank or other financial institution which has (a) either (i) a long-term unsecured debt rating or counterparty rating of “A-” or higher by S&P or (ii) if the long-term unsecured debt rating or counterparty rating is “A” or lower by S&P, a short-term rating of not less than “A-1” from S&P; (b) a long-term unsecured debt rating of not less than “A3” by Moody’s; and (c) if the counterparty is rated by Fitch, either a long-term unsecured debt rating or counterparty rating of not less than “A-” from Fitch or a short-term unsecured debt rating of not less than “F-1” from Fitch.

“Acceptable Management Agreement” shall mean, with respect to the Property, the Management Agreement in effect as of the Closing Date or such other agreement for managing the Property as may be approved by Administrative Agent in accordance with this Agreement.

“Acceptable Manager” shall mean (i) the current Manager as of the Closing Date or (ii) any other reputable and experienced professional hotel management company approved by Administrative Agent.

“Accommodation Security Documents” shall mean the Security Instrument, the IP Security Agreement, the Assignment of Leases and UCC-1 Financing Statements which have been executed by Borrower and any other Transaction Party in favor of Administrative Agent to secure Borrower’s obligations under the Loan Documents.

“Account Collateral” shall have the meaning set forth in Section 3.1.2.

“Acknowledgment” shall mean the Acknowledgment, dated on or about the date hereof made by Counterparty, or as applicable, Acceptable Counterparty in the form of Exhibit M.

“Additional Non-Consolidation Opinion” shall have the meaning set forth in Section 4.1.29(B).

“Affected Lender” shall have the meaning set forth in Section 2.2.7(ii).

“Affiliate” shall mean, with respect to any specified Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with, or any general partner or managing member in, such specified Person.

“Agents” shall have the meaning set forth in Section 14.2.

“Agreement” shall mean this Agreement, as the same may be Modified from time to time.

“Allocable Amount” shall have the meaning set forth in Section 19.28(g).

“Allocable Chain Expenses” shall mean the fees expressed as a percentage of Hotel Revenue paid to Manager in respect of Chain Services (as defined in the Management Agreement) rendered by Manager pursuant to the Management Agreement.

“ALTA” shall mean American Land Title Association, or any successor thereto.

“Alteration” shall mean any demolition, alteration, installation, improvement, or excavation of or to the Property or any part thereof or the Improvements (including FF&E) thereon.

“Applicable Base Rate” shall mean the floating rate per annum equal to the daily average Base Rate in effect during the applicable calculation period plus the Base Rate Spread.

-2-

“Applicable LIBO Rate” shall mean, with respect to the applicable Interest Period, the per annum rate equal to the Reserve Adjusted LIBO Rate plus the LIBO Rate Spread.

“Appraisal” shall mean a FIRREA-compliant, MAI appraisal of the Property acceptable to Administrative Agent in its reasonable discretion.

“Approved Operating Expenses” shall mean, with respect to any calendar month during a Cash Sweep Period, the monthly Operating Expenses as set forth for such calendar month on the Budget approved by Administrative Agent during a Cash Sweep Period pursuant to Section 11.2.6(C); provided, however, that if such Budget has not been so approved by Administrative Agent, then the term Approved Operating Expenses shall mean the amount of Operating Expenses set forth for such calendar month on the immediately preceding Budget approved by Administrative Agent (or if no such Budget has been approved by Administrative Agent, on the then current Budget in effect) with increases thereto for Impositions, increased management fees due to increases in revenue at the Property, utility costs and insurance costs.

“Assignee” shall have the meaning set forth in Section 15.1.

“Assignment and Acceptance Agreement” shall mean an assignment and acceptance agreement entered into by a Lender and an assignee, and accepted by such Lender in accordance with Article XV and in substantially the form of Exhibit J or such other form customarily used by the applicable Lender in connection with the participation or syndication of mortgage loans at the time of such assignment or such other form approved in writing by Administrative Agent in its reasonable discretion.

“Assignment of Leases” shall mean that certain first priority Assignment of Leases, Rents and Hotel Revenue, dated as of the date hereof, from Borrower, as assignor, to Administrative Agent, as assignee, assigning to Administrative Agent all of Borrower’s interest in and to the Leases, Rents, Hotel Revenue and Security Deposits as security for the Loan, as the same may be Modified from time to time.

“Assignment of Management Agreement” shall mean that certain Assignment of Management Agreement and Subordination of Management Fees, dated as of the date hereof, among Administrative Agent, Borrower and Manager.

“Assumed Interest Expense” shall mean, with respect to the immediately preceding twelve (12) calendar months, an amount equal to the product of the Principal Amount then outstanding multiplied by the greater of (A) (i) with respect to the calculation of DSCR in connection with entering into an Extension Interest Rate Cap Agreement, the proposed LIBOR Cap Strike Rate and (ii) in all other cases, seven percent (7%), or (B) the weighted average Applicable Base Rate or Applicable LIBO Rate, as applicable, then applicable under the Loan (which constant, in each case shall be calculated at all times using an actual/360 accrual convention).

“Bankruptcy Code” shall mean Title 11, U.S.C.A., as amended from time to time and any successor statute thereto.

-3-

“Bar Lease” shall mean that certain Lease dated as of August 12, 2011 between Operating Lessee and Bar Lessee with respect to certain premises to be used for bar/lounge purposes at the Property.

“Bar Lessee” has the meaning set forth in the first paragraph of this Agreement.

“Base Rate” shall mean on any day the highest of: (a) the Prime Rate in effect on such day, (b) the sum of the Federal Funds Rate in effect on such day plus one half of one percent (0.50%), and (c) the Reserve Adjusted LIBO Rate in effect on such day plus one half of one percent (0.50%).

“Base Rate Spread” shall mean three percent (3.00%).

“Beneficial” when used in the context of beneficial ownership has the analogous meaning to that specified in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.

“Best of Borrower’s Knowledge”, shall mean the actual (as opposed to imputed or constructive) present knowledge of Richard Szymanski and/or Daniel Flannery after due inquiry, and without creating any personal liability on the part of any said individuals. In the case where the term “Best of Borrower’s Knowledge” is used in the context of representations or warranties of Borrower to be made after the date hereof, the term shall include the Person or Persons, as applicable, that occupy the capacities of said individuals on the date such representation or warranty to the extent that one or more of such individuals no longer occupy their current capacities.

“Borrower” has the meaning set forth in the first paragraph of this Agreement.

“Borrower’s Account” shall mean the account identified in a written notice from Borrower to Administrative Agent, which Borrower’s Account shall be under the sole dominion and control of Borrower.

“Budget” shall mean the operating budget for the Property prepared by Borrower or Manager on Borrower’s behalf, pursuant to the Management Agreement, for the applicable Fiscal Year or other period setting forth, in reasonable detail, Borrower’s or Manager’s estimates of the anticipated results of operations of the Property, including revenues from all sources, all Operating Expenses, Management Fees and Capital Expenditures.

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business. When used with respect to an Interest Determination Date, Business Day shall mean any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

“Calculation Date” shall mean the last day of each calendar quarter during the Term.

“Capital Expenditures” shall mean any amount incurred in respect of capital items which in accordance with GAAP would not be included in Borrower’s annual financial statements for an applicable period as an operating expense of the Property.

-4-

“Cash” shall mean the legal tender of the United States of America.

“Cash and Cash Equivalents” shall mean any one or a combination of the following: (i) Cash, and (ii) U.S. Government Obligations.

“Cash Management Bank” shall mean a financial institution approved by Administrative Agent.

“Cash Sweep Period” shall commence if (i) as of any Calculation Date occurring on or after September 30, 2012 and before the Initial Maturity Date (such period, the “Second Loan Year”), the Debt Yield Ratio for the immediately preceding twelve (12) calendar months is less than 9.5% (the “Second Loan Year Cash Flow Sweep Trigger”) and (ii) as of any Calculation Date occurring on or after the Initial Maturity Date until the date the Loan is repaid in full (such period, the “Extension Period”), the Debt Yield Ratio for the immediately preceding twelve (12) calendar months is less than 11.0% (the “Extension Period Cash Flow Sweep Trigger”). A Cash Sweep Period which (x) commenced due to a Second Loan Year Cash Flow Sweep Trigger shall end if the Property has achieved a Debt Yield Ratio for the immediately preceding twelve (12) calendar months exceeding 9.5% for two consecutive Calculation Dates (and no other Cash Sweep Period is then in effect) or (y) commenced due to an Extension Period Cash Flow Sweep Trigger shall end if the Property has achieved a Debt Yield Ratio for the immediately preceding twelve (12) calendar months exceeding 11.0% for two consecutive Calculation Dates (and no other Cash Sweep Period is then in effect).

“Cash Sweep Reserve Account” shall have the meaning set forth in Section 3.1.1(H).

“Casualty” shall mean a fire, explosion, flood, collapse, earthquake or other casualty affecting the Property.

“Change in Law” shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or by any lending office of such Lender or by such Lender’s holding company, if any) with any guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Close Affiliate” shall mean with respect to any Person (the “First Person”) any other Person (each, a “Second Person”) which is an Affiliate of the First Person and in respect of which any of the following are true: (a) the Second Person owns, directly or indirectly, at least 75% of all of the ownership interests in such First Person, (b) the First Person owns, directly or indirectly, at least 75% of all of the ownership interests in such Second Person, or (c) a third Person owns, directly or indirectly, at least 75% of all of the ownership interests in both the First Person and the Second Person.

“Closing Date” shall mean the date of this Agreement set forth in the first paragraph hereof.

-5-

“Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Collateral” shall mean the Property, the Account Collateral, the Rate Cap Collateral, the IP Collateral and any other real or personal property in which Administrative Agent has been granted a security interest in respect of the Loan or other collateral securing the Loan, in whole or in part.

“Collateral Accounts” shall have the meaning set forth in Section 3.1.1.

“Collection Account” shall have the meaning set forth in Section 3.1.1.

“Collection Account Agreement” shall mean the Blocked Account Control Agreement, dated as of the date hereof, among Administrative Agent, Operating Lessee and Collection Bank relating to the Collection Account.

“Collection Bank” shall mean JPMorgan Chase Bank, N.A. or any successor financial institution approved by Administrative Agent.

“Common Elements” shall have the meaning set forth in the Condominium Declaration.

“Condemnation” shall mean a taking or voluntary conveyance during the term hereof of all or any part of the Property or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any condemnation or other eminent domain proceeding by any Governmental Authority, whether or not the same shall have actually been commenced.

“Condominium Declaration” shall have the meaning set forth in the Security Instrument.

“Condominium Regime” shall have the meaning set forth in the Security Instrument.

“Condominium Rules” shall have the meaning set forth in Section 5.1.27.

“Condominium Units” shall mean collectively, the Owned Units and the Leasehold Units.

“Contact Office” shall mean the office of DBTCA located at Deutsche Bank Trust Company Americas, c/o DB Services New Jersey Inc., 5022 Gate Parkway, # 200, Jacksonville, FL 32256, Attention: Tihana Mesic, or such other offices as Administrative Agent may notify Borrower and Lenders from time to time in writing.

“Control” shall mean (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise and (ii) the ownership, direct or indirect, of 51% or more of the voting securities of such Person, and the terms Controlled, Controlling and Common Control shall have correlative meanings (it being agreed that Manager does not Control any Person by virtue of the exercise of its rights under the Management Agreement).

-6-

“Counterparty” shall mean the counterparty to the Interest Rate Cap Agreement and any counterparty under a Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement and, if applicable, any credit support provider identified in the Interest Rate Cap Agreement, Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement.

“Counterparty Opinion” shall have the meaning set forth in Section 9.3.

“Current Debt Service Reserve Account” shall have the meaning set forth in Section 3.1.1(D).

“Debt” shall mean, with respect to any Person at any time, (a) indebtedness or liability of such Person for borrowed money whether or not evidenced by bonds, debentures, notes or other instruments, or for the deferred purchase price of property or services; (b) obligations of such Person as lessee under leases which should have been or should be, in accordance with GAAP, recorded as capital leases; (c) current liabilities of such Person in respect of unfunded vested benefits under plans covered by Title IV of ERISA; (d) intentionally omitted; (e) obligations or liabilities of such Person arising under letters of credit, credit facilities or other acceptance facilities; (f) obligations of such Person under any guarantees or other agreement to become secondarily liable for any obligation of any other Person, endorsements (other than for collection or deposit in the Ordinary Course of Business) and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or otherwise to assure a creditor against loss; (g) obligations of such Person secured by any Lien on any property of such Person, whether or not the obligations have been assumed by such Person (other than Liens relating to Taxes and mechanics’ and materialmen’s Liens permitted under the Loan Documents); or (h) obligations of such Person under any interest rate or currency swap agreements.

“Debt Service” shall mean, with respect to any particular period of time, scheduled interest payments under the Notes.

“Debt Yield Ratio” shall mean, with respect to any applicable period, a ratio in which:

(a) the numerator is Net Operating Income for such period; and

(b) the denominator is the Principal Amount as of the date of determination.

“Debt Yield Test” shall mean the test with respect to the trailing twelve (12) calendar month period ending on the last day of the most recent Fiscal Quarter immediately preceding the Second Extended Maturity Date to determine the Debt Yield Ratio for such period (based on the financial information delivered by Borrower pursuant to Section 11.2 hereof with respect to such period).

-7-

“Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

“Default Rate” shall have the meaning set forth in Section 2.2.10.

“Delayed Draw Term Loan Available Amount” shall mean, on any Funding Date, a principal amount of Delayed Draw Term Loans equal to the positive difference, if any, between (i) that Principal Amount which, when divided into Net Operating Income (calculated as provided in Section 2.5(B)(i)), produces a Debt Yield Ratio of 9.5% or greater and (ii) the Principal Amount outstanding immediately prior, and without giving effect, to the making of any Delayed Draw Term Loans on such Funding Date.

“Delayed Draw Term Loan” shall mean any term loan made pursuant to Section 2.1.1(b).

“Delayed Draw Term Loan Availability Period” shall mean the period from the Closing Date through and including the Business Day immediately preceding the fifteen month anniversary of the Closing Date.

“Delayed Draw Term Loan Commitment” shall mean, with respect to any Lender, such Lender’s commitment to make or otherwise fund a Delayed Draw Term Loan pursuant to Section 2.1.1(b), and “Delayed Draw Term Loan Commitments” shall mean such commitments of all such Lenders in the aggregate. The amount of each Lender’s Delayed Draw Term Loan Commitment is set forth on Schedule VII to this Agreement and/or in any Assignment and Acceptance pursuant to which such Lender assumed any Delayed Draw Term Loan Commitments, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Delayed Draw Term Loan Commitments as of the Closing Date is $20,000,000.

“Disqualified Transferee” shall mean any Person or its Close Affiliate that, (i) has been convicted in a criminal proceeding for a felony or a crime involving moral turpitude or that is an organized crime figure or is reputed (as determined by Administrative Agent in its sole discretion) to have substantial business or other affiliations with an organized crime figure; (ii) has at any time filed a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law; (iii) as to which an involuntary petition (which was not subsequently dismissed) has at any time been filed under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law; (iv) has at any time filed an answer consenting to or acquiescing in any involuntary petition filed against it by any other person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law; (v) has at any time consented to or acquiesced in or joined in an application for the appointment of a custodian, receiver, trustee or examiner for itself or any of its property; (vi) has at any time made an assignment for the benefit of creditors, or has at any time admitted its insolvency or inability to pay its debts as they become due; or (vii) has been found by a court of competent jurisdiction or other governmental authority in a comparable proceeding to have violated any federal or state securities laws or regulations promulgated thereunder.

-8-

“Downgrade” shall have the meaning as set forth in Section 9.3(c) hereof.

“DSCR” shall mean, with respect to a particular period, the ratio (expressed in terms of a percentage) of Net Operating Income for the trailing twelve (12) calendar month period ending on the last day of the most recent Fiscal Quarter for which Borrower has delivered financial statements to Administrative Agent to the aggregate amount of Assumed Interest Expense that is payable in respect of such period, as computed by Administrative Agent from time to time pursuant to the terms hereof.

“EBC Unit” shall have the meaning set forth in the Condominium Declaration.

“Eligible Assignee” shall mean any of the following:

(a) A commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000;

(b) A commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the “OECD”), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000 (provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD);

(c) A Person that is Controlled by a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000 (provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD);

(d) A Person that is engaged in the business of commercial banking or an insurance company that engages in commercial lending and that is: (1) an Affiliate of a Lender, (2) an Affiliate of a Person of which a Lender is an Affiliate, or (3) a Person of which a Lender is an Affiliate;

(e) An insurance company, mutual fund or other financial institution organized under the laws of the United States, any state thereof, any other country which is a member of the OECD or a political subdivision of any such country, which invests in bank loans and has a net worth of $500,000,000;

(f) Any fund (other than a mutual fund) which invests in bank loans and whose assets exceed $100,000,000; and

(g) A Pfandbrief,

provided, however, that no Person shall be an “Eligible Assignee” unless at the time of the proposed assignment to such Person: (i) such Person is able to make or maintain, as applicable, its portion of the Loan in U.S. dollars, (ii) such Person is exempt from withholding of tax on interest and is able to deliver the documents related thereto pursuant to Section 2.2.9(v) of this Agreement, and (iii) such Person is not a Transaction Party or an Affiliate of a Transaction Party.

-9-

“Eligible Collateral” shall mean U.S. Government Obligations, or Cash and Cash Equivalents, or any combination thereof.

“Embargoed Person” shall have the meaning set forth in Section 4.1.41(c).

“Environmental Certificate” shall have the meaning set forth in Section 12.2.1.

“Environmental Claim” shall mean any claim, action, cause of action, investigation or written notice by any Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, natural resource damages, property damages, personal injuries or penalties) arising out of, based upon or resulting from (a) the presence, threatened presence, release or threatened release into the environment of any Hazardous Materials from or at the Property, or (b) the violation, or alleged violation, of any Environmental Law relating to the Property.

“Environmental Event” shall have the meaning set forth in Section 12.2.1.

“Environmental Indemnity” shall mean the Environmental Indemnity, dated the date hereof, made by Borrower and Guarantor in favor of Administrative Agent as may be Modified from time to time.

“Environmental Law” shall have the meaning provided in the Environmental Indemnity.

“Environmental Reports” shall have the meaning set forth in Section 12.1.

“Equipment” shall have the meaning set forth in the Security Instrument.

“ERISA” shall mean the United States Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

“Eurodollar Business Day” shall mean a Business Day on which commercial banks in London, England are open for domestic and international business.

“Event of Default” shall have the meaning set forth in Section 17.1.

“Evidence of No Withholding” shall have the meaning set forth in Section 2.2.9(v).

“Excess Cash Flow” shall have the meaning set forth in Section 3.1.5(A)(x).

“Excluded Taxes” shall mean, with respect to Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of Borrower hereunder or under the other Loan Documents, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by any state, locality or foreign jurisdiction under the laws of which such recipient is organized or in which it maintains an office or permanent establishment, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which Borrower is located and (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender’s failure to comply with Section 2.2.9 of this Agreement; provided, however, Excluded Taxes shall not include any withholding tax resulting from any inability to comply with Section 2.2.9 of this Agreement solely by reason of there having occurred a Change in Law.

-10-

“Exculpated Parties” shall have the meaning set forth in Section 18.1.1.

“Excusable Delay” shall mean a delay due to acts of god, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, earthquake, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of Borrower, but Borrower’s lack of funds in and of itself shall not be deemed a cause beyond the control of Borrower.

“Expansion” shall mean any expansion or reduction of the Property or any portion thereof or the Improvements thereon.

“Extension Interest Rate Cap Agreement” shall mean, following Borrower’s exercise of its option to extend the Maturity Date pursuant to 2.1.6, an Interest Rate Cap Agreement or Agreements (together with the confirmations and schedules relating thereto), each from an Acceptable Counterparty and satisfying the requirements set forth on Exhibit I hereto; provided that, to the extent any such interest rate cap agreement does not meet the foregoing requirements, an “Extension Interest Rate Cap Agreement” shall be such interest rate cap agreement as may be approved by Administrative Agent in its sole and absolute discretion.

“Federal Funds Rate” shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal Funds brokers of recognized standing selected by Administrative Agent.

“Fee Letter” shall mean the Fee Letter, dated as of the Closing Date, among, Borrower, Administrative Agent and Deutsche Bank Securities, Inc., as Lead Arranger.

“FF&E” shall mean furniture, fixtures and equipment.

“FF&E Reserve Account” shall have the meaning set forth in Section 3.1.1(F).

“Final Completion” shall mean, with respect to any specified work, the final completion of all such work, including the performance of all “punch list” items, as confirmed by an Officer’s Certificate and, with respect to any Material Alteration, a certificate of the Independent Architect, if applicable.

-11-

“Final Extended Maturity Date” shall have the meaning given such term in Section 2.1.6(iii).

“First Extended Maturity Date” shall have the meaning given such term in Section 2.1.6(i).

“Fiscal Quarter” shall mean each quarter within a Fiscal Year in accordance with GAAP.

“Fiscal Year” shall mean the period commencing on the Closing Date and ending on and including December 31 of the calendar year in which the Closing Date occurs and thereafter each twelve month period commencing on January 1 and ending on December 31 until the Indebtedness is repaid in full, or such other common fiscal year of Borrower as Borrower may select from time to time with the prior consent of Administrative Agent, such consent not to be unreasonably withheld.

“Fitch” shall mean Fitch Ratings Inc.

“Foreign Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than that in which Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Franchise Agreement” shall mean a document or instrument pursuant to which a Borrower or Manager is granted the right to operate the Property as a franchise.

“Franchisor” shall mean a franchisor under a Franchise Agreement.

“Funding Date” shall have the meaning set forth in Section 2.1.2(b).

“Funding Notice” shall mean a notice substantially in the form of Exhibit N.

“GAAP” shall mean the generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession, to the extent such principles are applicable to the facts and circumstances on the date of determination, as appropriately modified by the Uniform System.

“Government Lists” shall have the meaning set forth in Section 4.1.41(b).

“Governmental Authority” shall mean any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any court, board, agency, commission, office or other entity or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) exercising executive, legislative, judicial, regulatory or administrative functions, in each case whether now or hereafter in existence.

-12-

“Ground Lease” shall mean collectively those certain ground leases more particularly described on Schedule VIII attached hereto and made a part hereof as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement.

“Ground Rent” shall mean any rent, additional rent or other charge payable by the tenant under the Ground Lease.

“Ground Rent Reserve Account” shall have the meaning set forth in Section 3.1.1(G).

“Guarantor” shall mean, Morgans Group LLC, a Delaware limited liability company, which shall execute and deliver the Recourse Guaranty and the Environmental Indemnity.

“Hazardous Materials” shall have the meaning given to “Hazardous Substances” in the Environmental Indemnity.

“Holdco” shall mean Morgans Hotel Group Co., a Delaware corporation.

“Holding Account” shall have the meaning set forth in Section 3.1.1.

“Holding Account Agreement” shall mean the securities account control agreement to be entered into following the Closing Date in accordance with Section 3.1.1 among Administrative Agent, Borrower and Cash Management Bank relating to the Holding Account in form and substance satisfactory to Administrative Agent.

“Hotel Operating Account” shall mean an “Operating Account” (as defined in the Management Agreement) maintained by Manager in the name of Operating Lessee with respect to Hotel Operating Expenses at the Property and in accordance with the terms of the Management Agreement.

“Hotel Operating Account Agreement” shall mean the deposit account control agreement to be entered into following the Closing Date in accordance with Section 3.1.1 among Administrative Agent, Operating Lessee and Cash Management Bank relating to the Hotel Operating Account in form and substance satisfactory to Administrative Agent.

“Hotel Operating Account Bank” shall mean JPMorgan Chase Bank, N.A. or any successor financial institution approved by Administrative Agent.

“Hotel Operating Expenses” shall mean all expenses of Borrower (or of Manager for the account of Borrower) in connection with the ownership or operation of the Property, including costs (including labor) of providing services including rooms, food and beverage, telecommunications, garage and parking and other operating departments, as well as Impositions and Other Charges, Ground Rent, rental expenses, insurance premiums, utilities costs, administrative and general costs (other than Management Fees and Allocable Chain Expenses under the Management Agreement), repair and maintenance costs (excluding for purposes of this clause any amounts payable out of the FF&E Reserve Account and any amounts that are treated as capital expenditures under GAAP) and marketing and legal expenses incurred in connection with the operation of the Property.

-13-

“Hotel Revenue” shall mean all revenues, income, Rents, issues, profits, termination or surrender fees, penalties and other amounts arising from the use or enjoyment of all or any portion of the Property, including, without limitation, the rental or surrender of any office space, retail space, parking space, halls, stores, and offices of every kind, the rental or licensing of signs, sign space or advertising space, rentals, revenues, receipts, income, accounts, accounts receivable, cancellation fees, penalties, credit card receipts and other receivables relating to or arising from rentals, rent equivalent income, income and profits from guest rooms, meeting rooms, conference and banquet rooms, food and beverage facilities, health clubs, spas, vending machines, parking facilities, telecommunication and television systems, guest laundry, the provision or sale of other goods and services, and any other items of revenue, receipts or other income as identified in the Uniform System; plus business interruption insurance Proceeds.

“Impositions” shall mean all taxes (including all ad valorem, sales (including those imposed on lease rentals), use, single business, gross receipts, value added, intangible transaction, privilege or license or similar taxes), governmental assessments (including all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not commenced or completed within the term of this Agreement), water, sewer or other rents and charges, excises, levies, fees (including license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Property and/or any Rents and Hotel Revenue (including all interest and penalties thereon), which at any time prior to, during or in respect of the term hereof may be assessed or imposed on or in respect of or be a Lien upon (a) Borrower (including all income, franchise, single business or other taxes imposed on Borrower for the privilege of doing business in the jurisdiction in which the Property is located), (b) the Property, or any other Collateral or any part thereof, or any Rents or other Hotel Revenue therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Property or the leasing or use of all or any part thereof. Nothing contained in this Agreement shall be construed to require Borrower to pay any tax, assessment, levy or charge imposed on (i) any tenant occupying any portion of the Property, (ii) any manager of the Property, including any Manager, or (iii) servicer, Lenders, Administrative Agent or any other third party in the nature of a capital levy, estate, inheritance, succession, income or net revenue tax.

“Improvements” shall have the meaning set forth in the Security Instrument.

“Incremental Payment” shall have the meaning set forth in Section 2.2.8.

“Indebtedness” shall mean, at any given time, the Principal Amount, together with all accrued and unpaid interest thereon and all other obligations and liabilities due or to become due to Lenders pursuant hereto, under the Notes or in accordance with the other Loan Documents and all other amounts, sums and expenses paid by or payable to Lenders hereunder or pursuant to the Notes or the other Loan Documents.

-14-

“Indemnified Parties” shall have the meaning set forth in Section 19.14(b).

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

“Independent” shall mean, when used with respect to any Person, a Person who: (i) does not have any direct financial interest or any material indirect financial interest in any Borrower or in any Affiliate of any Borrower, (ii) is not connected with Borrower or any Affiliate of Borrower as an officer, employee, promoter, underwriter, trustee, partner, member, manager, creditor, director, supplier, customer or person performing similar functions and (iii) is not a member of the immediate family of a Person defined in (i) or (ii) above.

“Independent Architect” shall mean an architect, engineer or construction consultant selected by Borrower which is licensed to practice in the State and has at least five (5) years of architectural experience and which is reasonably acceptable to Administrative Agent and (i) does not have any direct financial interest or any material indirect financial interest in any Borrower or in any Affiliate of any Borrower, (ii) is not connected with Borrower or any Affiliate of Borrower as an officer, employee, partner, member, manager, director, or Person performing similar functions and (iii) is not a member of the immediate family of a Person defined in (i) or (ii) above.

“Independent Director, Independent Manager, or Independent Member” shall mean a natural person selected by Borrower (a) with prior experience as an independent director, independent manager or independent member, (b) with at least three (3) years of employment experience, (c) who is provided by a Nationally Recognized Service Company, (d) who is duly appointed as an Independent Director, Independent Manager, or Independent Member and is not, will not be while serving in such capacity, and shall not have been at any time during the preceding five (5) years, any of the following:

(i) a stockholder, director (other than as an independent director), officer, employee, partner, attorney or counsel of Borrower, any Affiliate of Borrower or any direct or indirect parent of Borrower;

(ii) a customer, supplier or other Person who derives any of its purchases or revenues from its activities with Borrower or any Affiliate of Borrower;

(iii) a Person or other entity Controlling or under Common Control with any such stockholder, partner, customer, supplier or other Person; or

(iv) a member of the immediate family of any such stockholder, director, officer, employee, partner, customer, supplier or other Person.

-15-

A natural person who otherwise satisfies the foregoing definition and satisfies subparagraph (i) by reason of being the Independent Director of a “special purpose entity” affiliated with Borrower shall be qualified to serve as an Independent Director, Independent Manager, or Independent Member of Borrower, provided that the fees that such individual earns from serving as Independent Director of Affiliates of Borrower in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year.

A natural person who satisfies the foregoing definition other than clause (ii) shall not be disqualified from serving as an Independent Director of Borrower if such individual is an independent director, independent manager, independent member or special manager provided by a Nationally Recognized Service Company that provides professional independent directors, independent managers, independent members and special managers and also provides other corporate services in the ordinary course of its business.

“Initial LIBOR Cap Strike Rate” shall mean 3.00% per annum.

“Initial Maturity Date” shall mean August 12, 2013.

“Insurance Premiums” shall have the meaning set forth in Section 6.1.14(A).

“Insurance Requirements” shall mean, collectively, (i) all material terms of any insurance policy required pursuant to this Agreement and (ii) all material regulations and then-current standards applicable to or affecting the Property or any part thereof or any use or condition thereof, which may, at any time, be recommended by the Board of Fire Underwriters, if any, having jurisdiction over the Property, or such other body exercising similar functions.

“Insurance Reserve Account” shall have the meaning set forth in Section 3.1.1(b).

“Insurance Reserve Amount” shall have the meaning set forth in Section 16.2.

“Insurance Reserve Trigger” shall mean Borrower’s failure to deliver to Administrative Agent not less than five Business Days prior to each Payment Date (unless Borrower has provided to Administrative Agent evidence reasonably satisfactory to Administrative Agent that Borrower had prepaid such insurance premiums through a future Payment Date), evidence that all insurance premiums for the insurance required to be maintained pursuant to the terms of this Agreement have been paid in full.

“Intellectual Property” shall mean all intellectual property worldwide including: (a) Trademarks; (b) patents issued by the United States Patent and Trademark Office or the equivalent thereof in any other country, industrial designs, and applications for any of the foregoing, including any continuations, divisionals, continuations in part, renewals, extensions and reissues, and the inventions disclosed or claimed therein; (c) copyrights in published and unpublished works of authorship, whether registered or unregistered in the United States or any other country, whether as author, assignee, or transferee (including without limitation databases and other compilations of information, computer software, middleware, user interface, source code, object code, and the like, and user manuals and other training documentation related thereto), all derivative works, renewals, extensions, restorations, and reversions thereof; (d) domain names; (e) trade secrets, proprietary confidential information and operational systems, including confidential know-how, processes, schematics, concepts, ideas, inventions, business methods and processes, marketing plans, research and development, formulae, drawings, prototypes, models, designs, customer and supplier information and lists, databases and other compilations of information, historical guest lists, mailing lists, computer software and systems (including reservations and other hotel systems), middleware, user interface, source code, object code, algorithms, and the like, and user manuals and other training documentation related thereto, and other nonpublic, confidential, or proprietary information; (f) any registrations, applications for registration or issuance, recordings, reissues, renewals, divisions, continuations, and extensions relating to any or all of the foregoing; (g) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including, without limitation, damages, claims and payments for past, present or future infringements or other violations thereof relating to any or all of the foregoing; (i) rights to sue for past, present and future infringements and other violations thereof relating to any or all of the foregoing; and (j) for all of the foregoing, any of which is now owned, acquired or developed after the Closing Date.

-16-

“Interest Determination Date” shall mean, with respect to each Interest Period, the date which is two (2) Business Days prior to the fifteenth (15^th) day of each calendar month.

“Interest Period” shall mean (i) while the Loan bears interest at the Applicable LIBO Rate or Default Rate based on Applicable LIBO Rate, a period of one month commencing on the expiration of the preceding Interest Period (or, in the case of the first Interest Period, on the Closing Date) and (ii) while the Loan bears interest at the Applicable Base Rate or the Default Rate based on the Applicable Base Rate, the period commencing on the date of conversion and ending on the last day of the calendar month in which the date of conversion occurred, and each succeeding calendar month thereafter; provided, that (x) while the Loan bears interest at the Applicable LIBO Rate, if an Interest Period would otherwise end on a day which is not a Eurodollar Business Day, such Interest Period shall end on the next succeeding Eurodollar Business Day, provided, however, that if said next succeeding Eurodollar Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Eurodollar Business Day, and (y) no Interest Period may continue past the Maturity Date.

“Interest Rate Cap Agreement” shall mean an interest rate cap agreement or agreements (together with the confirmation and schedules relating thereto), or, with Administrative Agent’s prior written consent (which shall not be unreasonably withheld, delayed or conditioned), a swap or other interest rate hedging instrument, each between a Counterparty and Borrower obtained by Borrower and collaterally assigned to Administrative Agent pursuant to this Agreement, and each satisfying the requirements set forth in Exhibit I (and, in the case of a swap or other interest rate hedging agreement, consented to by Administrative Agent in its reasonable discretion).

“IP Collateral” shall mean all Borrower’s right, title and interest in, to and under Intellectual Property and IP Licenses.

“IP Licenses” shall mean all licenses of Intellectual Property with respect to Intellectual Property (regardless of whether such agreements and covenants are contained within an agreement that also covers other matters, such as development, consulting services or distribution of products) and regardless of whether Borrower is a licensor or licensee under any such agreement, together with any and all (i) amendments, renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future breaches or violations thereof, and (iii) the right to sue for past, present and future breaches or violations thereof.

-17-

“IP Schedule” shall have the meaning provided in Section 4.1.46.

“IP Security Agreement” shall mean the IP Security Agreement in form and substance substantially similar to the form attached hereto as Exhibit P.

“Joint Venture Partner” shall mean any Person (other than a Person in which Holdco owns a direct or indirect ownership interest) that (x) is not a Disqualified Transferee and (y) acquires either (i) a direct ownership interest in Borrower or (ii) a direct ownership interest in a Person that holds a direct or indirect ownership interest in Borrower and in which Guarantor owns a direct or indirect ownership interest as the result of a Transfer made in compliance with Section 8.4.

“Land” shall have the meaning set forth in the Security Instrument.

“Late Payment Charge” shall have the meaning set forth in Section 2.2.2.

“Lease” shall mean any lease (including, without limitation, the Operating Lease and the Bar Lease), sublease or sub sublease, letting, license, concession, or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted by Borrower a possessory interest in, or right to use or occupy all or any portion of any space in the Property or any facilities at the Property (other than Ordinary Course of Business (a) short-term occupancy rights of hotel guests, (b) occupancy agreements or other occupancy rights for groups of hotel guests for transitory periods of time and (c) agreements for catering, business and similar special events or functions at the Property), and every Modification or other agreement relating to such lease, sublease, sub-sublease, or other agreement entered into in connection with such lease, sublease, sub-sublease, or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto.

“Lease Modification” shall have the meaning set forth in Section 8.7.1.

“Leaseco Intercompany Loan” shall mean that certain indebtedness of Owner to Operating Lessee in the principal amount of $6,500,000 evidenced by a promissory note dated August 28, 2000.

“Leasehold Units” shall mean the Tenth Floor Unit and the Store Unit leased by Borrower pursuant to the Ground Lease.

“Legal Requirements” shall mean all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations and requirements, and irrespective of the nature of the work to be done, of every Governmental Authority including, without limitation, Environmental Laws, and all covenants, restrictions and conditions now or hereafter of record which may be applicable to Borrower or to the Property and the Improvements and the Equipment thereon, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of the Property and the Improvements and the Equipment thereon including, without limitation, building and zoning codes and ordinances and laws relating to handicapped accessibility.

-18-

“Lenders” shall have the meaning set forth in the first paragraph of this Agreement.

“Liabilities” shall mean all liabilities, claims, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable attorney’s fees and expenses) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loan and the termination, resignation or replacement of Administrative Agent or replacement of any Lender) be imposed on, incurred by or asserted against Administrative Agent, Lenders, or, as applicable, any other Indemnified Party.

“LIBO Rate” shall mean, with respect to any Interest Period, the average of interbank offered rates for dollar deposits having a maturity approximately equal to such Interest Period in the London interbank market as set forth on Reuters Screen LIBOR01 Page (i.e., the LIBOR page), or any successor page, of the Reuters System, titled “British Banker Association Interest Settlement Rates” at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period or if such rate is not then quoted, the arithmetic average as determined by Administrative Agent of the rates at which deposits in immediately available U.S. dollars in an amount equal to the amount of such LIBOR Rate Loan having a maturity approximately equal to such Interest Period are offered by four (4) major reference banks to be selected by Administrative Agent in the London interbank market, at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period.

“LIBO Rate Spread” shall mean four percent (4.00%).

“LIBO Reserve Percentage” shall mean with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments) which is actually imposed on a Lender under Regulation D on eurocurrency liabilities.

“LIBOR Cap Strike Rate” shall mean, (i) with respect to the Interest Rate Cap Agreement in effect prior to the Initial Maturity Date, the Initial LIBOR Cap Strike Rate; and (ii) with respect to any Extension Interest Rate Cap Agreement, a rate equal to that sufficient to maintain a DSCR of 1.10x measured for the period applicable to the Fiscal Quarter immediately preceding the Initial Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable.

“License” shall have the meaning set forth in Section 4.1.23.

“Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, or any other encumbrance or charge on or affecting Borrower, the Property, any portion thereof or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and the filing of mechanic’s, materialmen’s and other similar liens and encumbrances.

-19-

“Loan” shall mean, collectively, (i) the Term Loans made by Lenders to Borrower on the Closing Date pursuant to this Agreement and (ii) any Delayed Draw Term Loans made by Lenders to Borrower during the Delayed Draw Term Loan Availability Period pursuant to this Agreement.

“Loan Documents” shall mean, collectively, this Agreement, the Notes, the Security Instrument, the Assignment of Leases, the Environmental Indemnity, the Assignment of Management Agreement, the Account Agreement, the Post Closing Agreement, the Fee Letter, the Recourse Guaranty and all other documents executed and/or delivered by Borrower or any of its Affiliates in connection with the Loan including any certifications or representations delivered by or on behalf of Borrower, any Affiliate of Borrower, the Manager, or any Affiliate of the Manager (including, without limitation, any certificates in connection with any legal opinions delivered on the date hereof).

“Loan Sale” shall have the meaning set forth in Section 15.7.

“Management Agreement” shall mean the First Amended and Restated Hotel Management Agreement, dated as of August 12, 2011, by and between Operating Lessee and Morgans Hotel Group Management LLC, a Delaware limited liability company, as the same may be Modified from time to time in accordance with the terms hereof.

“Management Control” shall mean, with respect to any direct or indirect ownership interest in Borrower or the Property (not including Manager’s interest under an Acceptable Management Agreement), the power and authority to make and implement or cause to be made and implemented all material decisions with respect to the operation, management, financing and disposition of the specified interest.

“Management Fee” shall mean an amount equal to the monthly property management fees payable to the Manager pursuant to the terms of the Management Agreement for management services, incentive management fees and any other fees described in the Management Agreement, and any allocated franchise fees.

“Manager” shall mean Morgans Hotel Group Management LLC, a Delaware limited liability company, or any replacement “Manager” appointed in accordance with Section 5.2.14 hereof.

“Manager Reimbursable Expenses” shall mean the expenses of manager to be reimbursed under the Management Agreement.

“Material Adverse Effect” shall mean any event or condition that has a material adverse effect on (i) the Property taken as a whole, (ii) the use, operation, or value of the Property, (iii) the business, profits, operations or financial condition of the (a) Borrower (considered as a whole) or (b) Guarantor; or (iv) the ability of Borrower to repay the principal and interest of the Loan as it becomes due or to satisfy any of Borrower’s obligations under the Loan Documents.

-20-

“Material Alteration” shall mean any Alteration the estimated total cost of which (including, without limitation, construction costs and costs of architects, engineers and other professionals), as reasonably estimated by an Independent Architect, exceeds the Threshold Amount; provided, however, that in no event shall (i) any Required Repairs, (ii) Alterations performed as part of a Restoration, or (iii) the replacement of fixtures, furnishings and equipment to the extent being of a routine and recurring nature and performed in the ordinary course of business, constitute a Material Alteration.

“Material Casualty” shall mean a Casualty where the loss (i) is in an aggregate amount equal to or in excess of the Threshold Amount or (ii) has caused fifteen percent (15%) or more of the hotel rooms in the Property to be unavailable for its applicable use for longer than thirty (30) days.

“Material Condemnation” shall mean a Condemnation where the loss (i) is in an aggregate amount equal to or in excess of the Threshold Amount or (ii) has caused fifteen percent (15%) or more of the hotel rooms in the Property to be unavailable for its applicable use.

“Material Lease” shall mean any Lease (a) demising a premises within the Property that is more than 5,000 net rentable square feet or (b) that is for a term equal to or greater than 120 months (inclusive of all extension and renewal options), provided that the initial term of such Lease is no longer than 60 months.

“Maturity Date” initially shall mean the Initial Maturity Date; provided that the “Maturity Date” shall mean the First Extended Maturity Date, the Second Extended Maturity Date or the Final Extended Maturity Date if Borrower extends the Initial Maturity Date, the First Extended Maturity Date, or the Second Extended Maturity Date, as applicable, in accordance with the terms and conditions of Section 2.1.6 of this Agreement. The Maturity Date shall be subject to acceleration upon an Event of Default as otherwise provided in this Agreement.

“Maturity Date Payment” shall have the meaning set forth in Section 2.1.5.

“Maximum Legal Rate” shall mean the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Notes and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

“Modifications” shall mean any amendments, supplements, modifications, renewals, replacements, consolidations, severances, substitutions and extensions of any document or instrument from time to time; “Modify,” “Modified,” or related words shall have meanings correlative thereto.

“Modified Hotel Unit” shall have the meaning set forth in the Condominium Declaration.

“Monthly FF&E Reserve Amount” shall mean an amount determined by Administrative Agent (based upon the most recent monthly operating statements delivered pursuant hereto) equal to 4% of Operating Revenues unless otherwise determined by Administrative Agent in its reasonable discretion.

-21-

“Monthly Ground Rent Reserve Amount” shall have the meaning set forth in Section 16.6.

“Monthly Insurance Reserve Amount” shall have the meaning set forth in Section 16.2.

“Monthly Tax Reserve Amount” shall have the meaning set forth in Section 16.1.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Nationally Recognized Service Company” shall mean any of CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company or such other nationally recognized company that provides independent director, independent manager or independent member services and that is reasonably satisfactory to Administrative Agent, in each case that is not an Affiliate of Borrower and that provides professional independent directors and other corporate services in the ordinary course of its business.

“Net Operating Income” shall mean, for any specified period, the excess of Operating Revenues over Operating Expenses for the immediately preceding twelve (12) calendar month period. Notwithstanding the foregoing, for purposes of calculating Net Operating Income, unless otherwise specified herein, Operating Expenses shall be calculated assuming that the Allocable Chain Expenses and Management Fee under the Management Agreement in effect (or, in the case of Section 5.2.22, as proposed to be increased) at the time of such calculation had been in effect for such specified period.

“New Lease” shall have the meaning set forth in Section 8.7.1.

“Non-Consenting Lender” shall have the meaning set forth in Section 2.2.7(ii).

“Non-Consolidation Opinion” shall have the meaning provided in Section 2.4.5.

“Non-Disturbance Agreement” shall have the meaning set forth in Section 8.7.9.

“Northstar Guarantee” shall mean that certain Guarantee, dated as of the date hereof, by Northstar Guarantor in favor of Lenders, as the same may be Modified from time to time.

“Northstar Guarantor” shall mean NorthStar Partnership, LP, a Delaware limited partnership.

“Note” shall mean any of the promissory notes in the form of that attached to the Agreement as Exhibit L issued by Borrower to a Lender, as the same may be Modified from time to time.

-22-

“Obligations” shall mean any and all debts, obligations and liabilities of Borrower or the other Transaction Parties to Administrative Agent and Lenders (whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred), arising out of or related to the Loan Documents.

“Officer’s Certificate” shall mean a certificate executed by an authorized signatory of Borrower that is familiar with the financial condition of Borrower and the operation of the Property or the particular matter which is the subject of such Officer’s Certificate.

“Operating Expense Reserve Account” shall have the meaning set forth in Section 3.1.1(C).

“Operating Expenses” shall mean, for any specified period, without duplication, all expenses of Borrower (or of Manager for the account of Borrower) during such period in connection with the ownership or operation of the Property, including costs (including labor) of providing services including rooms, food and beverage, telecommunications, garage and parking and other operating departments, as well as real estate and other business taxes, rental expenses, insurance premiums, utilities costs, administrative and general costs, repair and maintenance costs (excluding for purposes of this clause any amounts payable out of the FF&E Reserve Account), Third-Party Franchise Fees, Management Fees under the Management Agreement calculated as the greater of (i) actual Management Fees or (ii) 3% of Operating Revenues, other costs and expenses relating to the Property, required FF&E reserves calculated as 4% of Hotel Revenue, and legal expenses incurred in connection with the operation of the Property, determined, in each case on an accrual basis in accordance with GAAP. “Operating Expenses” shall not include (i) depreciation or amortization or other noncash items, (ii) the principal of and interest on the Notes or on any Permitted Debt, (iii) income taxes or other taxes in the nature of income taxes, (iv) any expenses (including legal, accounting and other professional fees, expenses and disbursements) incurred in connection with and allocable to the issuance of the Notes, (v) Capital Expenditures, (vi) distributions to the shareholders of Borrower or (vii) any item of expense which would otherwise be considered within Operating Expenses pursuant to the provisions above but is paid directly by any Tenant (other than a Borrower). Expenses that are accrued as Operating Expenses during any period shall not be included in Operating Expenses when paid during any subsequent period.

“Operating Revenues” shall mean, for any specified period, all revenues received by Borrower (or by Manager for the account of Borrower) from any Person during such period in connection with the ownership or operation of the Property, determined on an accrual basis of accounting in accordance with GAAP, including the following:

(i) all amounts payable to Borrower (or to Manager for the account of Borrower) by any Person as Rent and/or Hotel Revenue;

(ii) all amounts payable to Borrower (or to Manager for the account of Borrower) pursuant to any reciprocal easement and/or operating agreements, covenants, conditions and restrictions, condominium documents and similar agreements affecting the Property and binding upon and/or benefiting Borrower and other third parties;

-23-

(iii) condemnation awards to the extent that such awards are compensation for lost rent allocable to such specified period;

(iv) business interruption and loss of “rental value” insurance proceeds to the extent such proceeds are allocable to such specified period; and

(v) all investment income with respect to the Collateral Accounts.

Notwithstanding the foregoing clauses (i) through (v), Operating Revenues shall not include (A) any Proceeds (other than of the types described in clauses (iii) and (iv) above), (B) any proceeds resulting from the sale, exchange, transfer, financing or refinancing of all or any part of the Property (other than of the types described in clause (i) and (iii) above), (C) any repayments received from Tenants of principal loaned or advanced to Tenants by Borrower, (D) any type of income that would otherwise be considered Operating Revenues pursuant to the provisions above but is paid directly by any Tenant to a Person other than Borrower or Manager or its agent and (E) any fees or other amounts payable by a Tenant or another Person to Borrower that are reimbursable by Borrower or Manager on behalf of Borrower to Tenant or such other Person.

“Operating Lease” shall mean the Lease dated August 28, 2000 by and between Owner, as landlord, and Operating Lessee, as tenant, with respect to the Property.

“Operating Lease Subordination” shall mean that certain Operating Lease Subordination Agreement, dated as the date hereof, by and among Owner, Operating Lessee and Administrative Agent.

“Operating Lessee” has the meaning set forth in the first paragraph of this Agreement.

“Opinion of Counsel” shall mean an opinion of counsel of law firm(s) licensed to practice in New York and Delaware and selected by Borrower and reasonably acceptable to Administrative Agent.

“Ordinary Course of Business” shall mean with respect to a specific Person, the ordinary course of such Person’s business, substantially as conducted by such Person prior to and as of the Closing Date, and (A) undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Loan Document, and (B) which shall not in any event interfere with the ongoing operation of the assets of such Person in a manner consistent with similar properties and shall not interfere with the day-to-day operations of such assets as contemplated in the Loan Documents.

“Originating Lender” shall have the meaning set forth in Section 15.4.

-24-

“Other Charges” shall mean maintenance charges, impositions other than Impositions, and any other charges, including, without limitation, condominium common charges and assessments, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof by any Governmental Authority, other than those required to be paid by a Tenant pursuant to its respective Lease.

“Other Taxes” shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of a Governmental Authority with respect to any payment made under any Loan Document or from the execution, delivery or enforcement of any Loan Document, excluding Excluded Taxes.

“Owned Units” shall mean the EBC Unit and the Modified Hotel Unit.

“Owner” has the meaning set forth in the first paragraph of this Agreement.

“Participant” shall have the meaning set forth in Section 15.4.

“Patriot Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT ACT) of 2001, as the same may be Modified from time to time, and corresponding provisions of future laws.

“Patriot Act Offense” shall have the meaning set forth in Section 4.1.41(b).

“Payment Date” shall mean, commencing on September 1, 2011, the first (1^st) day of each month, or if such day is not a Business Day, the immediately succeeding Business Day, and the Maturity Date.

“Percentage Share” shall mean for any Lender at any date the percentage set forth next to such Lender’s name on Schedule VII to this Agreement, as the same may be Modified from time to time, including, without limitation, to reflect the addition or withdrawal of a Lender or the assignment of all or a portion of an existing Lender’s Percentage Share as permitted pursuant to Section 15.1

“Permitted Debt” shall mean collectively, (a) the Notes and the other obligations, indebtedness and liabilities specifically provided for in any Loan Document and secured by this Agreement, the Security Instrument and the other Loan Documents, (b) trade payables and other liabilities incurred in the Ordinary Course of Business and payable by or on behalf of Borrower in respect of the operation of the Property, not secured by Liens on the Property (other than liens being properly contested in accordance with the provisions of this Agreement or the Security Instrument), such payables and liabilities (which shall not include taxes, accrued payroll and benefits, customer, security deposits and deferred income), not to exceed at any one time outstanding two percent (2%) of the outstanding Principal Amount, provided that (but subject to the remaining terms of this definition) each such payable and liability shall be paid within sixty (60) days following the date of the invoice for such payable or liability, provided, that such two percent (2.0%) limitation shall not include normal and customary retainages related to Alterations that are reserved for by Borrower, (c) purchase money indebtedness and capital lease obligations incurred in the Ordinary Course of Business, having scheduled annual

-25-

debt service not to exceed $500,000, (d) contingent obligations to repay customer and Tenant security deposits held in the Ordinary Course of Business, (e) obligations incurred in the Ordinary Course of Business for the financing of any applicable portfolio insurance premiums, (f) indebtedness of Borrower to any partner or member of Borrower or its Affiliates provided such indebtedness is evidenced by a promissory note that evidences such indebtedness and provides that the obligation of the maker thereof to repay such indebtedness is fully subordinated to Borrower’s obligation to repay in full of all amounts under the Notes and (g) the Leaseco Intercompany Loan. Subject to Section 7.3, nothing contained herein shall be deemed to require Borrower to pay any amount, so long as Borrower is in good faith diligently contesting (including, without limitation, by instituting appropriate legal proceedings, when necessary) the validity, amount or application thereof, provided that in each case, at the time of the commencement of any such action or proceeding, and during the pendency of such action or proceeding (i) adequate reserves with respect thereto are maintained on the books of Borrower in accordance with GAAP and (ii) such contest is maintained and prosecuted continuously and with diligence. Notwithstanding anything set forth herein, in no event shall Borrower be permitted under this provision to enter into a note (other than the Notes and the other Loan Documents) or other instrument for borrowed money other than permitted purchase money indebtedness as described in this definition or a note described in clause (f) of this definition.

“Permitted Encumbrances” shall mean collectively, (a) the Liens and security interests created or permitted by the Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Policy, (c) Liens, if any, for Impositions imposed by any Governmental Authority not yet due or delinquent (other than any such Lien imposed pursuant to Section 401(a)(29) of the Code or by ERISA), (d) Liens and security interests on personal property items that are the subject of clause (c) of the definition of Permitted Debt, (e) non-exclusive IP Licenses issued in the ordinary course of business and the IP Licenses set forth on the IP Schedule, (f) any workers’, mechanics’ or other similar Liens on the Property provided that any such Lien is bonded or discharged within thirty (30) days after Borrower first receives written notice of such Lien or which is being contested in good faith in accordance with the requirements of Section 7.3, (g) pledges or deposits made to secure payment of workers’ compensation insurance (or to participate in any fund in connection with workers’ compensation insurance), unemployment insurance, pensions or social security programs, incurred in the Ordinary Course of Business and (h) any Leases existing or entered into in accordance with the terms hereof and rights to use the Property granted to hotel guests in the Ordinary Course of Business, including (i) short term occupancy rights of hotel guests, (ii) occupancy agreements or other occupancy rights of groups of hotel guests for transitory periods of time and (iii) agreements for catering, business and similar special events or functions at the Property.

“Permitted Investments” shall have the meaning set forth in the Account Agreement.

“Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

“Pfandbrief” shall mean the trustee, administrator or receiver (or a nominee, collateral agent or collateral trustee) of, a mortgage pool securing covered mortgage bonds issued by an eligible German bank (Pfandbriefbanken), by the bondholders (as a collective whole) thereof, or by any other Person otherwise permitted to issue covered mortgage bonds (Hypothekenpfandbriefe) under German bond law (Pfandbriefgesetz 2005, as the same may be amended or modified and in effect from time to time, and/or any substitute or successor legislation thereto).

-26-

“Physical Conditions Report” shall mean, with respect to the Property, a structural engineering report (prepared by an Independent Architect), which is (a) addressed to Administrative Agent (b) prepared based on a scope of work determined by Administrative Agent in Administrative Agent’s reasonable discretion, and (c) in form and content acceptable to Administrative Agent in Administrative Agent’s reasonable discretion, together with any amendments or supplements thereto.

“Plan” shall have the meaning set forth in Section 4.1.10.

“Pledgee” shall have the meaning set forth in Section 15.1.

“Post Closing Agreement” shall mean the Post Closing Agreement, dated the Closing Date, between Borrower and Administrative Agent.

“Pre-Approved Manager” shall mean any entity set forth on Schedule IV.

“Prepayment Premium” shall mean with respect to any voluntary or involuntary prepayment of the Principal Amount before the Restricted Prepayment Date, a non-refundable fee equal to the product of the following: (A) the amount of the Principal Amount then being prepaid, multiplied by (B) the sum of (i) Reserve Adjusted LIBO Rate (determined as of the Interest Determination Date immediately preceding the commencement of the Interest Period in which such prepayment occurs) and (ii) 3.00%, multiplied by (C) a fraction (expressed as a percentage) having (x) a numerator equal to the number of days during the period extending from and including the date such prepayment occurs to but excluding the Restricted Prepayment Date and (y) a denominator equal to seven-hundred thirty (730). No Prepayment Premium shall be due on any prepayments made on or after the Restricted Prepayment Date. The Prepayment Premium shall be payable simultaneously with Borrower’s prepayment of the Principal Amount.

“Prime Rate” shall mean the fluctuating per annum rate announced from time to time by DBTCA (or any successor bank designated by Administrative Agent) at its principal office in New York, New York as its “prime rate”. The Prime Rate is a rate set by DBTCA as one of its base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as DBTCA may designate. The Prime Rate is not tied to any external index and does not necessarily represent the lowest or best rate of interest actually charged to any class or category of customers. Each change in the Prime Rate will be effective on the day the change is announced within DBTCA.

“Primarily Liable” shall have the meaning set forth in Section 19.28(g).

-27-

“Principal Amount” shall mean One Hundred Thirty Five Million and NO/100 U.S. dollars ($135,000,000) or so much as may be outstanding under the Notes from time to time.

“Proceeds” shall mean amounts, awards or payments payable to Borrower (including, without limitation, amounts payable under any title insurance policies covering Borrower’s ownership interest in the Property) or Administrative Agent with respect to any insurance required to be maintained hereunder (after the deduction therefrom and payment to Borrower and Administrative Agent, respectively, of any and all reasonable expenses incurred by Borrower and Administrative Agent in the recovery thereof, including all attorneys’ fees and disbursements, the fees of insurance experts and adjusters and the costs incurred in any litigation or arbitration with respect to any claim under such insurance policies).

“Proceeds Reserve Account” shall have the meaning set forth in Section 3.1.1(E).

“Property” shall mean the “Property,” “Mortgaged Property” and other collateral described in the Security Instrument.

“Rate Cap Collateral” shall have the meaning set forth in Section 9.2.

“Rating Agencies” shall mean each of S&P, Moody’s and Fitch and any other nationally-recognized statistical rating agency which has been approved by Administrative Agent.

“Real Property” shall mean, collectively, the Land, the Improvements and the Appurtenances (as defined in the Security Instrument).

“Recourse Guaranty” shall mean that certain Guaranty of Recourse Obligations of Borrower, dated as of the date hereof, by Guarantor in favor of Administrative Agent, as the same may be Modified from time to time.

“Redirection Notice” shall have the meaning set forth in Section 15.6.

“Register” shall have the meaning set forth in Section 15.2.

“Rents” shall mean all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower from any and all sources arising from or attributable to the Property and Proceeds, if any, from business interruption or other loss of income insurance.

“Replacement Interest Rate Cap Agreement” shall mean, in connection with a replacement of an Interest Rate Cap Agreement following a Downgrade of the Counterparty thereto, an interest rate cap agreement (together with the confirmation and schedules relating thereto) from an Acceptable Counterparty and satisfying the requirements set forth on Exhibit I hereto; provided that to the extent any such interest rate cap agreement does not meet the foregoing requirements a “Replacement Interest Cap Agreement” shall be such interest rate cap agreement approved by Administrative Agent in its sole discretion.

-28-

“Required Lenders” shall mean, at any date, those Lenders holding in aggregate greater than 2/3^rd of the outstanding principal amount of the Loan; provided, that (i) such Lenders shall be entitled to their voting, consent and approval rights, and (ii) at all times when two (2) or more Lenders that are entitled to their voting, consent and approval rights, the term “Required Lenders” shall in no event mean less than two (2) Lenders.

“Required Repairs” shall have the meaning set forth in Section 16.4.

“Required Repairs Funds” shall have the meaning set forth in Section 16.4.

“Required Repairs Reserve Account” shall have the meaning set forth in Section 3.1.1(J).

“Required Terrorism Amount” shall have the meaning set forth in Section 6.1.8.

“Reserve Adjusted LIBO Rate” shall mean the rate per annum calculated as of the first day of such Interest Period in accordance with the following formula:

Reserve Adjusted LIBO Rate =	LR
	1-LRP

where

LR = LIBO Rate

LRP = LIBO Reserve Percentage; provided that in no event shall the Reserve Adjusted LIBO Rate be less than one percent (1.00%).

“Reserve Funds” shall mean, collectively, all funds deposited by Borrower with Administrative Agent or Cash Management Bank pursuant to Article 16 of this Agreement.

“Restoration” shall have the meaning provided in Section 6.2.2.

“Restricted Prepayment Date” shall mean August 12, 2013.

“S&P” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

“Second Extended Maturity Date” shall have the meaning given such term in Section 2.1.6(ii).

“Security Instrument” shall mean first priority Amended, Restated and Consolidated Mortgage, Assignment of Leases and Rents, Hotel Revenue and Security Agreement, dated as of the date hereof, executed and delivered by Borrower to Administrative Agent and encumbering the Property, as the same may be Modified from time to time.

-29-

“Single Purpose Entity” shall have the meaning set forth on Exhibit C attached hereto.

“Solvent” means, when used with respect to any Person, that (a) the fair value and the fair salable value of its assets (excluding any Debt due from any affiliate of such Person) are each in excess of the fair valuation of its total liabilities (including all contingent liabilities computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that could reasonably be expected to become an actual and matured liability); (b) such Person is able to pay its debts or other obligations in the ordinary course as they mature; and (c) such Person has capital not unreasonably small to carry on its business and all business in which it proposes to be engaged.

“SRO Tenancies” shall mean the tenancies describe on Schedule V.

“SRO Unit” shall mean a guestroom or other single-room unit at the Property that is leased for the use as a primary residence by the occupant(s) thereof.

“State” shall mean the State of New York.

“Sub-Account(s)” shall have the meaning set forth in Section 3.1.1.

“Survey” shall mean a survey of the Property prepared by a surveyor licensed in the State and satisfactory to Administrative Agent and the company or companies issuing the Title Policy, and containing a certification of such surveyor satisfactory to Administrative Agent.

“Taxes” shall mean any and all federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“Tax Reserve Account” shall have the meaning set forth in Section 3.1.1(A).

“Tax Reserve Amount” shall have the meaning set forth in Section 16.1.

“Tenant” shall mean any Person leasing, subleasing or otherwise occupying any portion of the Property or permitted to use any portion of the facilities at the Property, other than the Manager and its employees, agents and assigns.

“Tenth Floor Unit” shall have the meaning assigned to it in the Condominium Declaration.

“Term” shall mean the entire term of this Agreement, which shall expire upon repayment in full of all Obligations and full performance of each and every Obligation to be performed by Borrower pursuant to the Loan Documents.

-30-

“Term Loan” shall mean the term loan in the principal amount of One Hundred Fifteen Million and No/100 U.S. dollars ($115,000,000.00) made by Lenders to Borrower pursuant to Section 2.1.1(a).

“Terrorism Insurance” shall have the meaning set forth in Section 6.1.8.

“Third-Party Franchise Fee” shall mean the monthly franchise fee, if any, payable to the Manager under the Management Agreement or any separate franchise agreement (provided such Management Agreement or franchise agreement is with a third-party manager that is not an Affiliate of Borrower and has been approved by Administrative Agent). As of the Closing Date, no Third-Party Franchise Fee is payable under the Management Agreement.

“Threshold Amount” shall mean an amount equal to, in the aggregate, $7,500,000.

“Title Company” shall mean, collectively, First American Title Insurance Company, Stewart Title Insurance Company and Commonwealth Land Title Insurance Company.

“Title Policy” shall mean an ALTA mortgagee title insurance policy in a form acceptable to Administrative Agent issued by the Title Company with respect to the Property and insuring the lien of the Security Instrument.

“Total Insurable Value” shall mean the sum of the full replacement cost of the Improvements of the Property inclusive of furniture, fixtures and equipment plus twelve (12) months of business interruption insurance.

“Trademarks” shall mean all trademarks, service marks, certification marks, collective marks, business names, corporate names, trade names, d/b/a’s, trade dress, designs, logos, slogans, and all other indicia of origin or quality, and general intangibles of like nature, whether registered or unregistered, and all goodwill of any business connected with the use thereof and symbolized thereby.

“Transaction Parties” shall mean each of Borrower, Guarantor and any other Affiliate of any of the foregoing that is a party to any Loan Document; provided, however, that (i) an Affiliate shall not include a person executing an Officer’s Certificate and not otherwise a party to any other Loan Document and (ii) each of Manager and Northstar Guarantor shall not be a Transaction Party.

“Transfer” shall mean to, directly or indirectly, sell, assign, convey, mortgage, transfer, pledge, hypothecate, encumber, grant a security interest in, lease, exchange or otherwise dispose of any ownership interest or grant any option or warrant with respect to, or where used as a noun, a direct or indirect sale, assignment, conveyance, transfer, pledge or other disposition of any ownership interest, by any means whatsoever whether voluntary, involuntary, by operation of law or otherwise.

“UCC or Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the State.

-31-

“Uniform System” shall mean the Uniform System of Accounts for Hotels, 9th Edition, International Association of Hospitality Accountants (1996), as from time to time amended or replaced by an updated edition.

“U.S. Government Obligations” shall mean any direct obligations of, or obligations guaranteed as to principal and interest by, the United States Government or any agency or instrumentality thereof, provided that such obligations are backed by the full faith and credit of the United States. Any such obligation must be limited to instruments that have a predetermined fixed dollar amount of principal due at maturity that cannot vary or change. If any such obligation is rated by S&P, it shall not have an “r” highlighter affixed to its rating. Interest must be fixed or tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with said index. U.S. Government Obligations include, but are not limited to: U.S. Treasury direct or fully guaranteed obligations, Farmers Home Administration certificates of beneficial ownership, General Services Administration participation certificates, U.S. Maritime Administration guaranteed Title XI financing, Small Business Administration guaranteed participation certificates or guaranteed pool certificates, U.S. Department of Housing and Urban Development local authority bonds, and Washington Metropolitan Area Transit Authority guaranteed transit bonds. In no event shall any such obligation have a maturity in excess of 365 days.

Section 1.2 Principles of Construction. All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. All accounting terms not specifically defined herein shall be construed in accordance with GAAP as modified by the Uniform System. When used herein, the term “financial statements” shall include the notes and schedules thereto. Unless otherwise specified herein or therein, all terms defined in this Agreement shall have the definitions given them in this Agreement when used in any other Loan Document or in any certificate or other document made or delivered pursuant thereto. All uses of the word “including” shall mean including, without limitation unless the context shall indicate otherwise. Unless otherwise specified, the words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

Section 1.3 GAAP. Unless otherwise indicated, all accounting terms, ratios and measurements shall be interpreted or determined in accordance with GAAP as in effect from time to time; provided that, all computations and all definitions (including accounting terms) used in determining DSCR and Debt Yield shall utilize GAAP and policies in conformity with those used to prepare the audited financial statements of the Property referred to in Section 2.4.18 for the fiscal year ended December 31, 2010.

-32-

ARTICLE II

General Terms

Section 2.1 Loan; Disbursement to Borrower.

2.1.1 Loan. (a) Term Loan. Subject to and upon the terms and conditions set forth herein, Lenders severally agree that they shall fund their respective Percentage Shares of the Term Loan, and Borrower hereby agrees to accept the Term Loan on the Closing Date.

(b) Delayed Draw Term Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make to Borrower, and Borrower may request, once during each calendar month during the Delayed Draw Term Loan Availability Period, that Delayed Draw Term Loans be made to Borrower in an aggregate principal amount up to but not exceeding such Lender’s Delayed Draw Term Loan Commitment; provided that (i) up to ten borrowings of Delayed Draw Term Loans under the Delayed Draw Term Loan Commitments shall be permitted hereunder, (ii) all borrowings of Delayed Draw Term Loans under the Delayed Draw Term Loan Commitments must be made on or prior to the last Business Day of the Delayed Draw Term Loan Availability Period and (iii) the borrowing of Delayed Draw Term Loans under the Delayed Draw Term Loan Commitments shall be in principal amounts not less than $1,000,000 or integral multiples of $100,000 in excess thereof. Notwithstanding any other provision of this Agreement, outstanding Delayed Draw Term Loan Commitments shall automatically terminate upon the earlier of (x) the funding of Delayed Draw Term Loans pursuant to this Section 2.1.1(b) (in which case, such Delayed Draw Term Loan Commitments shall terminate in an amount equal to the principal amount of any Delayed Draw Term Loans so funded) and (y) at 5:00 p.m., New York City time, on the last Business Day of the Delayed Draw Term Loan Availability Period (in which case, all then outstanding Delayed Draw Term Loan Commitments shall so terminate).

(c) Loans. Once funded, the Term Loans and the Delayed Draw Term Loans made pursuant to this Section 2.1.1 shall be treated uniformly as the Loan without regard to whether the Loan was funded on the Closing Date or pursuant to Delayed Draw Term Loan Commitments. Any amount borrowed under this Section 2.1.1 and subsequently repaid or prepaid may not be reborrowed. Subject to Section 2.3, all amounts owed hereunder with respect to the Loan shall be paid in full no later than the Maturity Date.

2.1.2 Disbursement to Borrower. (a) Each Lender shall make its Percentage Share of the Term Loan available to Administrative Agent, in same-day funds, on the Closing Date at the Contact Office, ABA 021-001-033 for Administrative Agent’s Account No. 99-401-268, Ref: Hudson Hotel, Attn: Tihana Mesic, no later than 11:00 a.m. (New York time) on the Closing Date. Borrower may request and receive only one borrowing hereunder in respect of the Term Loans. Borrower acknowledges and agrees that the full proceeds of the Term Loans have been disbursed by Lenders to Borrower on the Closing Date.

-33-

(b) Borrower shall deliver to Administrative Agent a fully executed Funding Notice no later than 11:00 a.m. (New York City time) at least ten (10) Business Days prior to the requested date of funding of any Delayed Draw Term Loan, which requested date of funding shall be a Business Day (the “Funding Date”). Except as otherwise provided herein, a Funding Notice for a Delayed Draw Term Loan shall be irrevocable and Borrower shall be bound to make a borrowing in accordance therewith. Promptly upon receipt by Administrative Agent of such Funding Notice, Administrative Agent shall notify each applicable Lender of the proposed borrowing. Each Lender shall make its Delayed Draw Term Loan available to Administrative Agent not later than 11:00 a.m. (New York City time) on the Funding Date, by wire transfer of same day funds in dollars, at the Contact Office, ABA 021-001-033 for Administrative Agent’s Account No. 99-401-268, Ref: Hudson Hotel, Attn: Tihana Mesic. Upon satisfaction of the applicable conditions precedent specified in Section 2.5, Administrative Agent shall cause an amount of same day funds in dollars equal to the proceeds of all such Delayed Draw Term Loans received by Administrative Agent from Lenders to be credited to the Borrower’s Account on the Funding Date.

2.1.3 The Notes, Security Instrument and Loan Documents. The Loan shall be evidenced by the Notes and secured by the Security Instrument, the Assignment of Leases, this Agreement and the other Loan Documents. In connection with the Loan, the Northstar Guarantor shall enter into the Northstar Guarantee and an original of the duly executed Northstar Guarantee shall be delivered to Administrative Agent.

2.1.4 Use of Proceeds. Borrower shall use the proceeds of the Loan (i) to (a) pay and discharge any loans relating to the Property existing on the Closing Date, (b) pay all past-due Taxes, Insurance Premiums and Other Charges, if any, in respect of the Property, (c) make initial deposits of the Reserve Funds required to be made on the Closing Date (if any are required under this Agreement), (d) pay costs and expenses incurred in connection with the closing of the Loan, and (ii) to the extent any proceeds remain after satisfying clauses (a) through (d) above, for such lawful purposes as Borrower shall designate.

2.1.5 Repayment of Principal and Interest.

(i) Subject to (i) the mandatory prepayment provisions of Section 2.3.3(i), (ii) the Loan extension provisions of Section 2.1.6 below, and (iii) any earlier acceleration of the Loan following an Event of Default, the Principal Amount, all unpaid accrued interest, all interest that would accrue on the Principal Amount through and including the Maturity Date, and all other fees and sums then payable hereunder or under the Loan Documents, including, without limitation the Prepayment Premium, if applicable (collectively, the “Maturity Date Payment”), shall be due and payable in full on the Maturity Date. Principal amounts of the Loan that are repaid or prepaid by Borrower may not be reborrowed.

-34-

(ii) All amounts advanced by Lenders pursuant to the Loan Documents, other than the Principal Amount, and other charges provided in the Loan Documents, shall be due and payable as provided in the Loan Documents. In the event any such advance or charge is not so repaid by Borrower, Administrative Agent may, at its option, first apply any payments received under the Notes to repay such advances, together with any interest thereon, or other charges as provided in the Loan Documents, together with any interest thereon, and the balance, if any, shall be applied in payment of any installment of interest or principal then due and payable.

2.1.6 Loan Extension.

(i) Provided that no Default or Event of Default shall have occurred and be continuing, Borrower shall have the option, to be exercised by giving written notice to Administrative Agent at least thirty (30) calendar days but not more than ninety (90) calendar days prior to the Initial Maturity Date, subject to the terms and conditions set forth in Section 2.1.6(iv), to extend the Initial Maturity Date for all (and not a portion) of the Loan by twelve (12) months to August 12, 2014 (the “First Extended Maturity Date”). The request by Borrower for the extension of the Initial Maturity Date shall constitute a representation and warranty by Borrower that no Default or Event of Default then exists and a covenant by Borrower that all of the conditions set forth in Section 2.1.6(iv) below shall be satisfied on the Initial Maturity Date. Within twenty-five (25) days after Administrative Agent’s receipt of Borrower’s written election, Administrative Agent shall provide to Borrower Administrative Agent’s good faith estimate of the DSCR as of the Initial Maturity Date, and the reduction of principal, if any, required to satisfy Section 2.1.6(iv)(C)

(ii) Provided that no Default or Event of Default shall have occurred and be continuing, Borrower shall have the option, to be exercised by giving written notice to Administrative Agent at least thirty (30) calendar days but not more than ninety (90) calendar days prior to the First Extended Maturity Date, subject to the terms and conditions set forth in Section 2.1.6(iv), to extend the First Extended Maturity Date for all (and not a portion) of the Loan by twelve (12) months to August 12, 2015 (the “Second Extended Maturity Date”). The request by Borrower for the extension of the Initial Maturity Date shall constitute a representation and warranty by Borrower that no Default or Event of Default then exists and a covenant by Borrower that all of the conditions set forth in Section 2.1.6(iv) below shall be satisfied on the First Extended Maturity Date. Within twenty-five (25) days after Administrative Agent’s receipt of Borrower’s written election, Administrative Agent shall provide to Borrower Administrative Agent’s good faith estimate of the DSCR as of the First Extended Maturity Date, and the reduction of principal, if any, required to satisfy Section 2.1.6(iv)(C)

(iii) Provided that no Default or Event of Default shall have occurred and be continuing, Borrower shall have the option, to be exercised by giving written notice to Administrative Agent at least thirty (30) calendar days but not more than ninety (90) calendar days prior to the Second Extended Maturity Date, subject to the terms and conditions set forth in Section 2.1.6(iv), to extend the Second Extended Maturity Date for all (and not a portion) of the Loan by twelve (12) months to August 12, 2016 (the “Final Extended Maturity Date”). The request by Borrower for the extension of the Second Extended Maturity Date shall constitute a representation and warranty by Borrower that no Default or Event of Default then exists and a covenant by Borrower that all of the conditions set forth in Section 2.1.6(iv) below shall be satisfied on the Second Extended Maturity Date. Within twenty-five (25) days after Administrative Agent’s receipt of Borrower’s written election, Administrative Agent shall provide to Borrower Administrative Agent’s good faith estimate of the Debt Yield Ratio and DSCR as of the Second Extended Maturity Date, and the reduction of principal, if any, required to satisfy Section 2.1.6(iv)(B) and/or Section 2.1.6(iv)(C).

-35-

(iv) The obligations of Administrative Agent and Lenders to extend the Initial Maturity Date as provided in Section 2.1.6(i) or the First Extended Maturity Date as provided in Section 2.1.6(ii) or the Second Extended Maturity Date as provided in Section 2.1.6(iii) shall be subject to the prior satisfaction of each of the following conditions precedent as determined by Administrative Agent: (A) on the Initial Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, as applicable, there shall exist no Default or Event of Default; (B) solely in connection with extending the Second Extended Maturity Date, the Debt Yield Ratio calculated on the Debt Yield Test for the Property shall be not be less than 13 percent (13%); (C)  on the Initial Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, as applicable, the DSCR for the immediately preceding twelve (12) calendar months for the Property shall be not less than 1.00x; (D) Borrower shall have paid to Administrative Agent on or prior to the Initial Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable, for the ratable benefit of Lenders, an extension fee equal to one-quarter of one percent (0.25%) of the outstanding Principal Amount on the Initial Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable (which fee Borrower hereby agrees shall be fully earned and nonrefundable under any circumstances when paid); (E) Borrower shall have delivered to Administrative Agent an Extension Interest Rate Cap Agreement with respect to the extension term duly executed by the appropriate Persons, (F) the representations and warranties made by the Transaction Parties in the Loan Documents shall be true and correct in all material respects on the Initial Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, as applicable (provided, however, that any factual matters disclosed in the Schedules referenced in Article 4 may be updated in accordance with clause (G) below); (G)  Borrower shall have delivered updates to Administrative Agent of all of the Schedules set forth in Article 4 hereof, and such updated Schedules shall not disclose any materially adverse facts or conditions not disclosed to Lenders as of the Closing Date which are not permitted by the Loan Documents, or which were not consented to by Lenders, with respect to the Collateral or the Transaction Parties; (H) Borrower shall have paid all reasonable out-of-pocket third party costs and expenses incurred by Administrative Agent and of which Administrative Agent has notified Borrower (including reasonable attorneys’ fees and expenses) in connection with such extension or as otherwise then due under this Agreement; and (I) Guarantor and each other Transaction Party shall have acknowledged and ratified that its obligations under the Recourse Guaranty, Environmental Indemnity and other Loan Documents (as applicable) remain in full force and effect, and continue to guaranty, evidence or secure (as applicable) the Obligations under the Loan Documents, as extended.

-36-

Section 2.2 Interest Rate and Yield-Related Provisions.

2.2.1 Interest Rate.

(a) Prior to the Maturity Date, during the period the Loan is accruing interest at the Applicable LIBO Rate, interest shall accrue on the Principal Amount (subject to the provisions of Sections 2.2.3, 2.2.4 and 2.2.10 below) at the Applicable LIBO Rate as set forth on an interest billing statement delivered by Administrative Agent to Borrower.

(b) Prior to the Maturity Date, during the period the Loan is accruing interest at the Applicable Base Rate, interest shall accrue on the Principal Amount at the Applicable Base Rate as set forth on an interest billing statement delivered by Administrative Agent to Borrower.

(c) From and after the Maturity Date or, at the request of the Required Lenders, from and after the occurrence and during the continuance of any Event of Default, interest shall accrue on the Principal Amount at the Default Rate.

(d) Except as expressly set forth in this Agreement to the contrary, interest shall accrue on all amounts advanced by Lenders pursuant to the Loan Documents (other than the Principal Amount, which shall accrue interest in accordance with clauses (a) above) at the Default Rate.

(e) The provisions of this Section 2.2.1 are subject in all events to the provisions of Section 2.2.4 of this Agreement.

2.2.2 Payment of Interest. Interest accrued on the Loan shall be paid by Borrower (i) on the day hereof through August 31, 2011, and (ii) thereafter, monthly, in arrears, on each Payment Date, as set forth in an interest billing statement delivered by Administrative Agent to Borrower (which delivery may be by facsimile or email transmission). All payments made by Borrower hereunder or under any of the Loan Documents shall be made on or before 11:00 a.m. New York City time. Any payments received after such time shall be credited to the next following Business Day. If any interest payment due under the Loan Documents is not paid by Borrower within three (3) days after the date on which it is due (or, if such third (3rd) day is not a Business Day, then the Business Day immediately preceding such day), Borrower shall pay to Administrative Agent upon demand an amount equal to the lesser of three percent (3%) of such unpaid sum or the Maximum Legal Rate (the “Late Payment Charge”) in order to defray the expense incurred by Lenders and Administrative Agent in handling and processing such delinquent payment and to compensate Lenders for the loss of the use of such delinquent payment. Any such amount shall be secured by this Agreement, the Security Instrument and the other Loan Documents to the extent permitted by applicable law. Borrower acknowledges and agrees that the three day grace period with respect to the applicability of the Late Payment Charge (i) shall only apply to Borrower’s first failure to make a monthly interest payment in any calendar year, (ii) shall not apply to Borrower’s failure to make the Maturity Date Payment and (iii) shall not constitute a payment grace period and shall in no way limit Administrative Agent’s rights under Article XVII.

-37-

2.2.3 Inability to Determine Rate. In the event that Administrative Agent shall have determined (which determination shall be conclusive and binding upon Borrower) that by reason of circumstances affecting the interbank market, adequate and reasonable means do not exist for ascertaining the LIBO Rate for any Interest Period that has not already commenced, Administrative Agent shall forthwith give telephonic notice of such determination to each Lender and to Borrower. If such notice is given, the outstanding principal balance of the Loan shall bear interest during each day of any affected Interest Period at the Applicable Base Rate. Administrative Agent shall withdraw such notice in the event that the circumstances giving rise thereto no longer pertain and that adequate and reasonable means exist for ascertaining the LIBO Rate for the relevant Interest Period, and, following withdrawal of such notice by Administrative Agent, the outstanding principal balance of the Loan shall bear interest at the Applicable LIBO Rate pursuant to Section 2.2.1 above.

2.2.4 Illegality. Notwithstanding any other provisions herein, if any law, regulation, treaty or directive issued by any Governmental Authority or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender to maintain the Loan based on the LIBO Rate as contemplated by this Agreement, the Loan shall automatically bear interest at the Applicable Base Rate at the end of then-current Interest Period or within such earlier period as may be required by law. In the event of a conversion to interest based on the Base Rate prior to the end of the then-current Interest Period, Borrower hereby agrees promptly to pay any Lender affected thereby, upon demand, the amounts required pursuant to Section 2.2.8 below, it being agreed and understood that such conversion shall constitute a prepayment for all purposes hereof. The provisions hereof shall survive the termination of this Agreement and payment of all other Obligations.

2.2.5 Funding. Each Lender shall be entitled to fund all or any portion of its Percentage Share of the Loan in any manner it may determine in its sole discretion, including, without limitation, in the Grand Cayman inter-bank market, the London inter-bank market and within the United States, but all calculations and transactions hereunder shall be conducted as though all Lenders actually fund the Loan through the purchase of offshore dollar deposits in the amount of such Lender’s Percentage Share of the Loan with a maturity corresponding to the applicable Interest Period.

2.2.6 Requirements of Law; Increased Costs.

(i) In the event that any applicable law, order, regulation, treaty or directive issued by any central bank or other governmental authority, agency or instrumentality or in the governmental or judicial interpretation or application thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) issued by any central bank or other governmental authority, agency or instrumentality, in each case enacted after the date hereof (or any change enacted after the date hereof):

(A) does or shall subject any Lender to any Taxes of any kind whatsoever with respect to this Agreement or the Loan, or change the basis of determining the Taxes imposed on payments to such Lender of principal, fee, interest or any other amount payable hereunder (except for Excluded Taxes);

-38-

(B) does or shall impose, modify or hold applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirements (other than Regulation D of the Board of Governors of the Federal Reserve System or other reserve requirements, in each case to the extent utilized in the determination of the Applicable LIBO Rate for such Loan) against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of interest payable on the Obligations; or

(C) does or shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining its Percentage Share of the Loan or to reduce any amount receivable in respect thereof or the rate of return on the capital of such Lender or any corporation controlling such Lender, then, in any such case, Borrower shall, without duplication of amounts payable pursuant to Section 2.2.9, promptly pay to such Lender, upon its written demand made through Administrative Agent, any additional amounts necessary to compensate such Lender for such additional cost or reduced amounts receivable or rate of return as determined by such Lender with respect to this Agreement or such Lender’s Percentage Share of the Loan, so long as such Lender requires substantially all obligors under other commitments of this type made available by such Lender to similarly so compensate such Lender.

(ii) If a Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.6, it shall promptly notify Borrower of the event by reason of which it has become so entitled. A certificate as to any additional amounts so claimed payable containing the calculation thereof in reasonable detail submitted by a Lender to Borrower, accompanied by a certification that such Lender has required substantially all obligors under other commitments of this type made available by such Lender to similarly so compensate such Lender, shall constitute prima facie evidence thereof.

(iii) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.2.6 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate or reimburse a Lender pursuant to this Article II for any increased costs or reductions in return in the event such Lender does not notify Borrower within two hundred and seventy (270) days of such Lender becoming aware of the circumstances; provided, further that if any of the circumstances giving rise to such increased costs or reductions in return are retroactive, then the two hundred and seventy (270) day period referred to in the preceding proviso shall be extended to include the period of retroactive effect. The provisions of this Section 2.2.6 shall survive the termination of this Agreement and payment of the Loan and all other Obligations.

-39-

2.2.7 Obligation of Lenders to Mitigate; Replacement of Lenders. Each Lender agrees that:

(i) As promptly as reasonably practicable after the officer of such Lender responsible for administering such Lender’s Percentage Share of the Loan becomes aware of any event or condition that would entitle such Lender to receive payments under Section 2.2.6 above or Section 2.2.9 below or to cease maintaining the Loan based on the LIBO Rate under Section 2.2.4 above, such Lender will use reasonable efforts (i) to maintain its Percentage Share of the Loan through another lending office of such Lender or (ii) take such other measures as such Lender may deem reasonable, if as a result thereof the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.2.6 above or pursuant to Section 2.2.9 below would be materially reduced or eliminated or the conditions rendering such Lender incapable of maintaining the Loan based on the LIBO Rate under Section 2.2.4 above no longer would be applicable, and if, as determined by such Lender in its sole discretion, the maintaining of such Lender’s Percentage Share of the Loan through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect the Loan or the interests of such Lender.

(ii) If (A) Borrower receives a notice pursuant to Section 2.2.6 above or pursuant to Section 2.2.9 below or a notice pursuant to Section 2.2.4 above stating that a Lender is unable to maintain the Loan based on the LIBO Rate (for reasons not generally applicable to the Required Lenders) or (B) If any Lender (a “Non-Consenting Lender”) does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of one hundred percent (100%) of Lenders and that has been approved by Required Lenders (each Lender delivering a notice pursuant to clause (A) and each Non-Consenting Lender, an “Affected Lender”), then so long as (i) no Event of Default shall have occurred and be continuing, (ii) Borrower has obtained a commitment from another Lender or an Eligible Assignee to purchase at par such Affected Lender’s Percentage Share of the Loan, Delayed Draw Term Loan Commitments and accrued interest and fees and to assume all obligations of the Affected Lender to be replaced under the Loan Documents and (iii) such Affected Lender to be replaced is unwilling to withdraw the notice delivered to Borrower or approve the proposed amendment, waiver, consent or release with respect to such Loan Document, as applicable, upon twenty (20) days’ prior written notice to such Affected Lender and Administrative Agent, Borrower may require, at Borrower’s expense, such Affected Lender to assign, without recourse, all of its Percentage Share of the Loan, Delayed Draw Term Loan Commitments and accrued interest and fees to such other Lender or Eligible Assignee pursuant to the provisions of Section 15.1 below. Upon any such assignment, the Affected Lender’s interest in the Loan and its rights hereunder (but not its liability in respect thereof or under the Loan Documents to the extent the same relate to the period prior to the effective date of the purchase) shall terminate on the date of purchase, and the Affected Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest to the purchaser or assignee thereof, including an appropriate Assignment and Acceptance Agreement, and shall pay to Administrative Agent an assignment fee as provided in Section 15.1. In the case of an Affected Lender, the sum required to be paid upon assignment of its Percentage Share of the Loan, Delayed Draw Term Loan Commitments and accrued interest and fees shall be (i) the purchase price equal to the outstanding principal of its Percentage Share of the Loan, accrued interest thereon and all accrued fees owing to such Affected Lender, all of which shall be paid by the Assignee, and (ii) all other amounts payable by Borrower to such Affected Lender hereunder (including amounts, if any, payable under Section 2.2.6 or Section 2.2.9), all of which shall be paid by Borrower.

-40-

2.2.8 Funding Indemnification. In addition to all other payment obligations hereunder, in the event the Loan is accruing interest at the Applicable LIBO Rate and is prepaid in full or in part prior to the last day of the applicable Interest Period, whether following a voluntary prepayment, a mandatory prepayment (other than a mandatory prepayment arising under Section 2.3.3(i) below when no Event of Default has occurred and is continuing) or otherwise, then Borrower shall promptly, and in any event within five (5) days of the request of any lender, pay to such Lender, through Administrative Agent, an additional sum compensating such Lender for losses, costs and expenses incurred by such Lender in connection with such prepayment. The loss to any Lender attributable to any such prepayment shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would have accrued on the principal amount so prepaid (the “Incremental Payment”) from the date of such payment to the last day of the then-current Interest Period if the interest rate payable on such deposit were equal to the Reserve Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest that such Lender would earn for such period on an amount equal to the Incremental Payment if such Lender were to invest such amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for dollar deposits from other banks in the eurodollar market at the commencement of such period. A determination of any Lender as to the amounts payable pursuant to this Section 2.2.8 shall be conclusive absent manifest error.

2.2.9 Taxes.

(i) Any and all payments by or on account of any obligation of Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.2.9) Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

-41-

(ii) In addition, Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(iii) Borrower shall indemnify Administrative Agent and each Lender, within ten (10) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.2.9) paid by Administrative Agent or such Lender, as the case may be, and any penalties, interest (except to the extent such penalties and/or interest arise as a result of a Lender’s unreasonable delay in dealing with any such Indemnified Tax or Other Taxes) and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by a Lender or by Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(iv) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority, Borrower shall deliver to Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Administrative Agent.

(v) Each Foreign Lender shall deliver to Borrower (with copies to Administrative Agent) on or before the date hereof (or in the case of a Foreign Lender who became a Lender by way of an assignment, on or before the date of the assignment) or at least five (5) Business Days prior to the first date for any payment herewith to such Lender, and from time to time as required for renewal under applicable law, such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including, without limitation, Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, and any other certificate or statement of exemption required by Section 871(h) or Section 881(c) of the Code or any subsequent version thereof, properly completed and duly executed by such Lender establishing that payments to such Lender hereunder are not subject to withholding or are subject to a reduced rate of withholding under the Code or applicable tax treaty (“Evidence of No Withholding”). Each Foreign Lender shall promptly notify Borrower and Administrative Agent of any change in its applicable lending office and upon written request of Borrower or Administrative Agent shall, prior to the immediately following due date of any payment by Borrower hereunder or under any other Loan Document, deliver Evidence of No Withholding to Borrower and Administrative Agent. Borrower shall be entitled to rely on such forms in their possession until receipt of any revised or successor form pursuant to this Section 2.2.9(v). If a Lender fails to provide Evidence of No Withholding as required pursuant to this Section 2.2.9(v), then (i) Borrower (or Administrative Agent) shall be entitled to deduct or withhold from payments to Administrative Agent or such Lender as a result of such failure, as required by law, and (ii) Borrower shall not be required to make payments of additional amounts with respect to such withheld Taxes pursuant to Section 2.2.9(i) to the extent such withholding is required solely by reason of the failure of such Lender to provide the necessary Evidence of No Withholding. Without limiting Borrower’s rights under the immediately preceding sentence, a Foreign Lender shall not be required to deliver any form or statement pursuant to Section 2.2.9(v) that such foreign Lender is not legally able to deliver.

-42-

(vi) If Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including additional amounts paid by Borrower pursuant to this Section), it shall pay to the applicable indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the applicable indemnifying party, upon the request of Administrative Agent or such Lender, agrees promptly to repay the amount paid over pursuant to this Section (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Administrative Agent or such Lender in the event Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (vi), in no event will Administrative Agent or such Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (vi) the payment of which would place Administrative Agent or such Lender in a less favorable net after-tax position than Administrative Agent or such Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require Administrative Agent or such Lender to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to Borrower or any other Person. Neither Administrative Agent nor any Lender shall be required to pay any amounts pursuant to this paragraph (vi) at any time that an Event of Default exists, provided that such amounts shall become due and payable at the time such Event of Default ceases to exist and no other Event of Default exists.

2.2.10 Post-Default/Maturity Date Interest. From and after the Maturity Date if the entire Principal Amount is not repaid on the Maturity Date, and at the request of the Required Lenders at any time after the occurrence and during the continuance of an Event of Default, interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest and other amounts due in respect of the Loan shall bear interest at a per annum rate equal to three percent (3.0%) above the Applicable Base Rate or the Applicable LIBO Rate, whichever mode is in effect at such time (the “Default Rate”). Interest at the Default Rate shall be computed from the date of imposition of such interest at the Default Rate until no Event of Default exists or the actual receipt and collection of the Indebtedness (or that portion thereof that is then due). To the extent permitted by applicable law, interest at the Default Rate shall be added to the Indebtedness, shall itself accrue interest at the same rate as the Loan and shall be secured by the Security Instrument. This paragraph shall not be construed as an agreement or privilege to extend the date of the payment of the Indebtedness, nor as a waiver of any other right or remedy accruing to Administrative Agent or Lenders by reason of the occurrence of any Event of Default, and Administrative Agent and each Lender retains its rights under the Notes to accelerate and to continue to demand payment of the Indebtedness upon the happening of any Event of Default.

-43-

2.2.11 Computations. All computations of interest and fees payable hereunder shall be based upon a year of 360 days for the actual number of days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year); provided, however, that interest accruing at the Applicable Base Rate shall be computed on the basis of a year of 365 or 366 days, as applicable, and the actual number of days elapsed.

2.2.12 Usury Savings. This Agreement and the Notes are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Principal Amount of the Loan at a rate which could subject Lenders to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Principal Amount due under the Notes at a rate in excess of the Maximum Legal Rate, then the Applicable LIBO Rate, the Applicable Base Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due under the Notes. All sums paid or agreed to be paid to Lenders for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

2.2.13 Survival. Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 2.2 shall survive the payment in full of principal and interest hereunder, and the termination of this Agreement.

Section 2.3 Payments.

2.3.1 Evidence of Indebtedness. The obligation of Borrower to repay the Loan shall be evidenced by notations on the books and records of Lenders. Such books and records shall constitute prima facie evidence thereof. Any failure to record the interest rate applicable thereto or any other information regarding the Obligations, or any error in doing so, shall not limit or otherwise affect the obligation of Borrower with respect to any of the Obligations. Borrower shall promptly execute and deliver to each Lender a Note evidencing such Lender’s Percentage Share of the Loan provided that at all times all Notes issued by Borrower shall be in the aggregate amount of the Principal Amount, as reduced by prior prepayment.

-44-

2.3.2 Nature and Place of Payments. All payments made on account of the Obligations shall be made by Borrower, without setoff or counterclaim, in lawful money of the United States of America in immediately available same day funds, free and clear of and without deduction for any Indemnified Taxes or Other Taxes, fees or other charges of any nature whatsoever imposed by any taxing authority and must be received by Administrative Agent by 2:00 p.m. (New York time) on the day of payment, it being expressly agreed and understood that if a payment is received after 2:00 p.m. (New York time) by Administrative Agent, such payment will be considered to have been made by Borrower on the next succeeding Business Day and interest thereon shall be payable by Borrower at the rate otherwise applicable thereto during such extension. All payments on account of the Obligations shall be made to Administrative Agent through the Contact Office. If any payment required to be made by Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at then applicable rate during such extension.

2.3.3 Prepayments.

(i) Borrower shall remit to Administrative Agent as a mandatory prepayment for application against the outstanding Principal Amount:

(a) The Proceeds of a Casualty or Condemnation of the Property, to the extent required to be applied to the prepayment of the Loan under Section 6.2.2.

(b) During any Cash Sweep Period, all sums required to be deposited in the Cash Sweep Reserve Account shall be applied as provided in Section 3.1.5.

(ii) If prior to the Restricted Prepayment Date, the Obligations in respect of the principal balance of the Loan are accelerated by reason of an Event of Default, then Lenders shall be entitled to receive, in addition to the unpaid principal and accrued interest and other sums due under the Loan Documents, an amount equal to the Prepayment Premium applicable to such principal so accelerated or paid.

(iii) Upon not less than five (5) Business Days’ prior written notice to Administrative Agent (which shall promptly provide telephonic notice of the receipt thereof to each of Lenders), Borrower may voluntarily prepay the principal amount outstanding under the Loan in whole or in part (without any release of collateral securing the Loan) subject to the following conditions: (A) any such prepayment of principal shall be accompanied by the payments required to be made under Section 2.3.3(iv) below; and (B) voluntary prepayments shall be in the minimum amount of $1,000,000 and integral multiples of $100,000 in excess thereof. Voluntary prepayments of principal pursuant to this Section 2.3.3(iii), shall not relieve Borrower from the obligation to make mandatory prepayments pursuant to Section 2.3.3(i).

-45-

(iv) Borrower acknowledges that (a) Lenders are making the Loan in consideration of the receipt by Lenders of all interest and other benefits intended to be conferred by the Loan Documents and (b) if payments of principal are made to Lenders prior to the Restricted Prepayment Date voluntarily or involuntarily as a result of the acceleration of the Loan after an Event of Default, Lenders will not receive all such interest and other benefits and may, in addition, incur costs. For these reasons, and to induce Lenders to make the Loan, Borrower agrees that all payments made voluntarily or involuntarily (other than due to a casualty or condemnation and other than by application of amounts on deposit in the Cash Sweep Reserve Account to the outstanding Principal Amount) or after the acceleration of the principal amount of the Loan on or prior to the Restricted Prepayment Date will be accompanied by the Prepayment Premium. Such Prepayment Premium shall be required whether payment is made by Borrower, by a Person on behalf of Borrower, or by the purchaser at any foreclosure sale, and may be included in any bid by Lenders at such sale. Borrower further acknowledges that (A) it is a knowledgeable real estate developer and/or investor; (B) it fully understands the effect of the provisions of this Section 2.3.3(iv), as well as the other provisions of the Loan Documents; (C) the making of the Loan by Lenders at the interest rate provided and other terms set forth in the Loan Documents are sufficient consideration for Borrower’s obligation to pay a Prepayment Premium (if required); and (D) Lenders would not make the Loan on the terms set forth herein without the inclusion of such provisions. Borrower also acknowledges that the provisions of this Agreement limiting the right of prepayment and providing for the payment of the Prepayment Premium and other charges specified herein were independently negotiated and bargained for, and constitute a specific material part of the consideration given by Borrower to Lenders for the making of the Loan.

(v) Borrower shall pay in connection with any prepayment hereunder, whether voluntary or mandatory, (a) all interest accrued but unpaid on that portion of the Loan to which such prepayment is applied (which interest, if such prepayment is made on a date other than a Payment Date, shall be deemed to have accrued on such portion of the Loan through the end of the Interest Period in which such prepayment occurs), (b) with respect to voluntary or involuntary prepayments prior to the Restricted Prepayment Date (other than due to a casualty or condemnation and other than by application of amounts on deposit in the Cash Sweep Reserve Account to the outstanding Principal Amount), the Prepayment Premium, (c) all amounts payable pursuant to Section 2.2.8 above, and (d) all costs and expenses of Administrative Agent and Lenders incurred in connection with the prepayment (including without limitation, any costs and expenses associated with a release of any Liens as well as reasonable attorneys’ fees and expenses), in each case concurrently with payment of any principal amounts.

2.3.4 Allocation of Payments Received.

(i) Prior to the occurrence of an Event of Default and acceleration of the Obligations, and unless otherwise expressly provided herein, all amounts received by Administrative Agent on account of the Obligations shall be disbursed by Administrative Agent to Lenders pro rata in accordance with their respective Percentage Shares, by wire transfer of like funds received on the date of receipt if received by Administrative Agent before 2:00 p.m. (New York time) or if received later, by 2:00 p.m. (New York time) on the next succeeding Business Day, without further interest payable by Administrative Agent.

-46-

(ii) Following the occurrence of an Event of Default and acceleration of the Obligations, all amounts received by Administrative Agent on account of the Obligations, shall be promptly disbursed by Administrative Agent as follows:

(A) First, to the payment of out-of-pocket third party expenses and fees incurred by Administrative Agent in the performance of its duties and the enforcement of the rights of Lenders under the Loan Documents, including, without limitation, all costs and expenses of collection, “workout”, reasonable attorneys’ fees, court costs and other amounts payable as provided in Section 14.7 below;

(B) Then, to Lenders, pro rata in accordance with their respective Percentage Shares, until interest accrued on the Loan has been paid in full;

(C) Then, to Lenders, pro rata in accordance with their respective Percentage Shares, until principal under the Loan has been paid in full;

(D) Then, to Lenders, pro rata to each Lender in accordance with the amount expressed in a percentage, which the amount of remaining Obligations owed to such Lender bears to all remaining Obligations held by all Lenders, until all other Obligations have been paid in full.

(iii) The order of priority set forth in Section 2.3.4(ii) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of Administrative Agent and the other Lenders as among themselves. The order of priority set forth in clauses (B) through (D) of Section 2.3.4(ii) may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by Borrower or any other Person. The order of priority set forth in clause (A) of Section 2.3.4(ii) may be changed only with the prior written consent of Administrative Agent.

2.3.5 Prepayments After Event of Default. If, following an Event of Default, Administrative Agent shall accelerate the Indebtedness and Borrower thereafter tenders payment of all or any part of the Indebtedness, or if all or any portion of the Indebtedness is recovered by Lenders after such Event of Default, (a) such payment may be made only on the next occurring Payment Date together with all unpaid interest thereon as calculated through the end of the Interest Period during which such Payment Date occurs (even if such period extends beyond such Payment Date and calculated as if such payment had not been made on such Payment Date), and all other fees and sums payable hereunder or under the Loan Documents, including without limitation, interest that has accrued at the Default Rate, any Late Payment Charges, and the payment of any Prepayment Premium, if any), and (b) such payment shall be deemed a voluntary prepayment by Borrower.

-47-

2.3.6 Release of Property. Administrative Agent shall, at the expense of Borrower, upon payment in full of the Principal Amount and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of this Agreement and the other Loan Documents, release the Lien of (i) this Agreement upon the Account Collateral and the Rate Cap Collateral and (ii) the Security Instrument on the Property or assign it, in whole or in part, to a new lender without recourse, representation or warranty of any kind. In such event, Borrower shall submit to Administrative Agent, on a date prior to the date of such release or assignment sufficient to provide a reasonable period for review thereof, a release of lien or assignment of lien, as applicable, for such property for execution by Administrative Agent. Such release or assignment, as applicable, shall be in a form appropriate in each jurisdiction in which the Property is located and satisfactory to Administrative Agent in its reasonable discretion. In addition, Borrower shall provide all other documentation Administrative Agent reasonably requires to be delivered by Borrower in connection with such release or assignment, as applicable. Borrower shall not be entitled to any release of the Lien on any Collateral as a result of any partial prepayment of the Loan.

2.3.7 Voluntary Commitment Reductions. Notwithstanding anything else contained in this Agreement, Borrower may reduce the Delayed Draw Term Loan Commitments, in whole or in part, at any time.

Section 2.4 Conditions Precedent to Closing. The obligation of Lenders to make the Term Loans to be funded on the Closing Date hereunder is subject to the fulfillment by, or on behalf of, Borrower or waiver by Administrative Agent of the following conditions precedent no later than the Closing Date; provided, however, that unless a condition precedent shall expressly survive the Closing Date pursuant to a separate agreement, by funding the Loan, Administrative Agent shall be deemed to have waived any such conditions not theretofore fulfilled or satisfied solely in connection with the funding of the Term Loans on the Closing Date:

2.4.1 Representations and Warranties; Compliance with Conditions. The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date, and no Default or Event of Default shall have occurred and be continuing; and Borrower shall be in compliance with all terms and conditions set forth in this Agreement and in each other Loan Document on its part to be observed or performed.

2.4.2 Delivery of Loan Documents; Title Policy; Reports; Leases.

(A) Loan Documents. Administrative Agent shall have received an original of each of this Agreement, the Notes and all of the other Loan Documents, in each case, duly executed (and to the extent required, acknowledged) and delivered on behalf of Borrower and any other parties thereto.

-48-

(B) Security Instrument, Assignment of Leases. Administrative Agent shall have received evidence that original counterparts of the Security Instrument and Assignment of Leases, in proper form for recordation, have been delivered to the Title Company for recording, so as effectively to create, in the reasonable judgment of Administrative Agent, upon such recording valid and enforceable first priority Liens upon the Property, in favor of Administrative Agent (or such other trustee as may be required or desired under local law), subject only to Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents.

(C) UCC Financing Statements. Administrative Agent shall have received evidence that the UCC financing statements relating to the Security Instrument and this Agreement have been delivered to the Title Company for filing in the applicable jurisdictions.

(D) Title Insurance. Administrative Agent shall have received a pro forma Title Policy or a Title Policy issued by the Title Company and dated as of the Closing Date, with reinsurance and direct access agreements acceptable to Administrative Agent. Such Title Policy shall (i) provide coverage in the amount of the Loan, (ii) insure Administrative Agent that the Security Instrument creates a valid, first priority Lien on the Property, free and clear of all exceptions from coverage other than Permitted Encumbrances and standard exceptions and exclusions from coverage (as modified by the terms of any endorsements), (iii) contain the endorsements and affirmative coverages set forth on Exhibit A (or such other endorsements and affirmative coverages approved by Administrative Agent) and such additional endorsements and affirmative coverages as Administrative Agent may reasonably request, and (iv) name Administrative Agent as the insured. The Title Policy shall be assignable. Administrative Agent also shall have received evidence that all premiums in respect of such Title Policy have been paid.

(E) Survey. Administrative Agent shall have received a current or recertified Survey for the Property, containing the survey certification substantially in the form attached hereto as Exhibit B or such other form as approved by Administrative Agent. Such Survey shall reflect the same legal description contained in the Title Policy referred to in clause (d) above. The surveyor’s seal shall be affixed to the Survey and the surveyor shall provide a certification for such Survey in form and substance acceptable to Administrative Agent.

(F) Insurance. Administrative Agent shall have received valid certificates of insurance for the policies of insurance required hereunder, satisfactory to Administrative Agent in its reasonable discretion, and evidence of the payment of all insurance premiums currently due and payable for the existing policy period.

(G) Environmental Reports. Administrative Agent shall have received an Environmental Report in respect of the Property satisfactory to Administrative Agent.

(H) Zoning. Administrative Agent shall have received a PZR Report.

(I) Certificate of Occupancy. Administrative Agent shall have received a copy of the valid certificates of occupancy for the Property or evidence acceptable to Administrative Agent that a certificate of occupancy is not required by applicable law.

(J) Encumbrances. Borrower shall have taken or caused to be taken such actions in such a manner so that Administrative Agent has a valid and perfected first Lien as of the Closing Date on the Property, subject only to Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents, and Administrative Agent shall have received satisfactory evidence thereof.

-49-

2.4.3 Related Documents. Each additional document not specifically referenced herein, but relating to the transactions contemplated herein, shall have been duly authorized, executed and delivered by all parties thereto and Administrative Agent shall have received and approved certified copies thereof.

2.4.4 Delivery of Organizational Documents. On or before the Closing Date, Borrower shall deliver, or cause to be delivered, to Administrative Agent copies certified by an Officer’s Certificate, of all organizational documentation related to Borrower, each other Transaction Party and Manager and certain of its Affiliates as have been requested by Administrative Agent and/or the formation, structure, existence, good standing and/or qualification to do business of Borrower, each other Transaction Party, Manager and such Affiliates, as Administrative Agent may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Administrative Agent. Each of the organizational documents of Borrower shall contain provisions having a substantive effect materially similar to that of the language set forth in Exhibit C or such other language as approved by Administrative Agent. Administrative Agent hereby approves the organizational documents of Borrower delivered to Administrative Agent on the date hereof.

2.4.5 Opinions of Borrower’s Counsel.

(A) Administrative Agent shall have received a Non-Consolidation Opinion substantially in compliance with the requirements set forth in Exhibit E or in such other form approved by Administrative Agent (the “Non-Consolidation Opinion”).

(B) Administrative Agent shall have received the Opinions of Counsel in such form as is approved by Administrative Agent.

(C) Administrative Agent shall have received from Counterparty the Counterparty Opinion substantially in compliance with the requirements set forth in Exhibit F or in such other form approved by Administrative Agent.

2.4.6 Budget. Borrower shall have delivered the Budget for the current Fiscal Year, which Budget shall be certified by an Officer’s Certificate and approved by Administrative Agent.

2.4.7 Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Agreement and other Loan Documents and all documents incidental thereto shall be satisfactory in form and substance to Administrative Agent, and Administrative Agent shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request.

-50-

2.4.8 Payments. All payments, deposits or escrows, if any, required to be made or established by Borrower under this Agreement, the Notes and the other Loan Documents on or before the Closing Date shall have been paid.

2.4.9 Interest Rate Cap Agreement. Administrative Agent shall have received an original Interest Rate Cap Agreement which shall be in form and substance satisfactory to Administrative Agent and an original counterpart of the Acknowledgment executed and delivered by the Counterparty.

2.4.10 Collection Account Agreement. Administrative Agent shall have received an executed copy of the Collection Account Agreement executed by each of Collection Bank and Operating Lessee.

2.4.11 Independent Director Certificate. Administrative Agent shall have received executed Independent Director certificates substantially in the form attached as Exhibit O.

2.4.12 Transaction Costs. Borrower shall have paid or reimbursed Administrative Agent for all title insurance premiums, recording and filing fees, costs of Environmental Reports, Physical Conditions Reports, appraisals and other reports, the reasonable fees and costs of Administrative Agent’s counsel and all other third party out-of-pocket expenses incurred by Administrative Agent in connection with the origination of the Loan.

2.4.13 Material Adverse Effect. No event or condition shall have occurred since the date of Borrower’s most recent financial statements previously delivered to Administrative Agent which has or could reasonably be expected to have a Material Adverse Effect. The Operating Revenues and Operating Expenses of the Property and all other features of the transaction shall be as represented to Administrative Agent without material adverse change. Neither Borrower nor any of its constituent Persons shall be the subject of any bankruptcy, reorganization, or insolvency proceeding.

2.4.14 Leases and Rent Roll. Administrative Agent shall have received copies of all Leases, certified as requested by Administrative Agent. Administrative Agent shall have received a certified rent roll of the Property dated within thirty (30) days prior to the Closing Date.

-51-

2.4.15 Tax Lot. Administrative Agent shall have received evidence that the Property constitutes one (1) or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to Administrative Agent.

2.4.16 Physical Conditions Report. Administrative Agent shall have received a Physical Conditions Report (or re-certified Physical Conditions Report) with respect to the Property, which report shall be satisfactory in form and substance to Administrative Agent.

2.4.17 Appraisal. Administrative Agent shall have received an Appraisal.

2.4.18 Financial Statements. Administrative Agent shall have received certified copies of financial statements with respect to the Property for the three most recent Fiscal Years, each in form and substance satisfactory to Administrative Agent.

2.4.19 Additional Deliveries. In addition, Administrative Agent shall receive, the following documents:

(A) Certified copies of the Operating Lease, the Bar Lease and the Condominium Declaration, each in form and substance to Administrative Agent.

(B) A certified copy of the Management Agreement which shall be satisfactory in form and substance to Administrative Agent.

2.4.20 Further Documents. Administrative Agent or its counsel shall have received such other and further approvals, opinions, documents and information as Administrative Agent or its counsel may have requested including the Loan Documents in form and substance satisfactory to Administrative Agent and its counsel.

-52-

Section 2.5 Delayed Draw Term Loan Conditions Precedent. The obligation of Lenders to make any Delayed Draw Term Loans during the Delayed Draw Term Loans Availability Period is subject to the satisfaction by or on behalf of Borrower of the following conditions precedent no later than the applicable Funding Date: (A) there shall exist no Default or Event of Default on such Funding Date or immediately after giving effect to the making of the Delayed Draw Term Loans on such Funding Date; (B) Borrower shall have delivered a Funding Notice no later than ten (10) Business Days prior to such Funding Date which shall set forth (i) a calculation of Net Operating Income for the immediately preceding 12 calendar months (which calculation shall be made by assuming Allocable Chain Expenses equal to 1.00% of Hotel Revenues for such period and a Management Fee equal to 3.00% of Hotel Revenues for such period), (ii) Borrower’s calculation of the then Delayed Draw Term Loan Available Amount, (iii) the principal amount of Delayed Draw Term Loans requested pursuant to such Funding Notice (which principal amount shall not exceed the Delayed Draw Term Loan Available Amount (it being agreed that the calculation of such Delayed Draw Term Loan Available Amount must be satisfactory to and approved by Administrative Agent)) and (iv) that the conditions precedent set forth in subclauses (C), (D) and (E) of this Section 2.5 have been satisfied; (C) the conditions precedent set forth in Section 2.4 shall be and remain satisfied; (D) the representations and warranties made by the Transaction Parties in the Loan Documents shall be true and correct in all material respects on such Funding Date (provided, however, that any factual matters disclosed in the Schedules referenced in Article 4 may be updated in accordance with clause (E) below); (E) Borrower shall have delivered updates to Administrative Agent of all of the Schedules set forth in Article 4 hereof, and such updated Schedules shall not disclose any materially adverse facts or conditions not disclosed to Lenders as of the Closing Date which are not permitted by the Loan Documents, or which were not consented to by Lenders, with respect to the Collateral or the Transaction Parties; (F) Borrower shall have paid all reasonable out-of-pocket third party costs and expenses incurred by Administrative Agent and of which Administrative Agent has notified Borrower (including reasonable attorneys’ fees and expenses) in connection with such Delayed Draw Term Loan or as otherwise then due under this Agreement; (G) Guarantor and each other Transaction Party shall have acknowledged and ratified that its obligations under the Recourse Guaranty, Environmental Indemnity and other Loan Documents (as applicable) remain in full force and effect, and continue to guaranty, evidence or secure (as applicable) the Obligations under the Loan Documents; (H) Sections 2.4.2(D) (with such Title Policy dated as of the Funding Date), 2.4.2(I), 2.4.2(J), 2.4.12 and 2.4.13 shall have been satisfied with respect to such Delayed Draw Term Loan; and (I) Administrative Agent or its counsel shall have received such other and further approvals, opinions, documents and information as Administrative Agent or its counsel may have requested including, without limitation, Modifications to the Loan Documents, new notes, a new mortgage and estoppel certificates, each in form and substance satisfactory to Administrative Agent and its counsel.

-53-

ARTICLE III

Cash Management

Section 3.1 Cash Management.

3.1.1 Establishment of Accounts. Borrower hereby confirms that pursuant to the Collection Account Agreement, Borrower has established with Collection Bank, in the name of Operating Lessee for the benefit of Administrative Agent, as secured party, a collection account (the “Collection Account”), which has been established as an interest-bearing deposit account. Following the Closing Date, Borrower will establish (i) in the name of Operating Lessee for the benefit of Administrative Agent, as secured party, the Hotel Operating Account, which will be an interest-bearing deposit account and (ii) in the name of Borrower for the benefit of Administrative Agent, as secured party, a holding account (the “Holding Account”), which will be a securities account. Each of the Collection Account, the Hotel Operating Account and the Holding Account and each sub-account of the Holding Account and the funds deposited therein and the securities and other assets credited thereto shall serve as security for the Obligations. Pursuant to the Collection Account Agreement, Borrower shall irrevocably instruct and authorize Collection Bank to disregard any and all orders for withdrawal from the Collection Account made by, or at the direction of, Borrower other than to transfer all amounts on deposit in the Collection Account on a daily basis to the Hotel Operating Account. Pursuant to the Hotel Operating Account Agreement, Hotel Operating Account Bank shall comply with instructions of Manager or Operating Lessee with respect to funds held in the Hotel Operating Account until such time as Hotel Operating Account Bank receives an instruction from Administrative Agent, in accordance with the Hotel Operating Account Agreement, directing the Hotel Operating Account Bank to cease to comply with the instructions of Manager or Operating Lessee with respect to such funds. Pursuant to the Holding Account Agreement, Borrower shall irrevocably instruct and authorize Cash Management Bank to disregard any and all orders for withdrawal from the Holding Account made by, or at the direction of, Borrower. Borrower agrees that, prior to the payment in full of the Obligations, the terms and conditions of the Hotel Operating Account Agreement, the Collection Account Agreement and the Holding Account Agreement shall not be amended or modified without the prior written consent of Administrative Agent (which consent Administrative Agent may grant or withhold in its sole discretion). In recognition of Administrative Agent’s security interest in the funds deposited into and the securities and other assets credited to the Collection Account, the Hotel Operating Account and the Holding Account, Borrower shall identify each of the Collection Account, the Hotel Operating Account and the Holding Account with the name of Administrative Agent, as secured party. The Collection Account shall be named as follows: “Hudson Hotel, New York, NY f/b/o Deutsche Bank Trust Company Americas, as Administrative Agent Collection Account”. The Hotel Operating Account shall be named as follows: “Hudson Hotel, New York, NY f/b/o Deutsche Bank Trust Company Americas, as Administrative Agent Hotel Operating Account”. The Holding Account shall be named as follows: “Hudson Hotel, New York, NY f/b/o Deutsche Bank Trust Company Americas, as Administrative Agent Holding Account”. The following sub-accounts shall be established in the Holding Account (each, a “Sub-Account” and, collectively, the “Sub-Accounts” and together with the Holding Account and the Collection Account, the “Collateral Accounts”), which (i) may be ledger or book entry sub-accounts and need not be actual sub-accounts, (ii) shall each be linked to the Holding Account, (iii) shall each be a “Securities Account” pursuant to Article 8 of the UCC and (iv) shall each be an account to which certain funds shall be allocated and from which disbursements shall be made pursuant to the terms of this Agreement:

(A) a sub-account for the retention of Account Collateral in respect of Impositions and Other Charges for the Property (the “Tax Reserve Account”);

-54-

(B) a sub-account for the retention of Account Collateral in respect of insurance premiums for the Property (the “Insurance Reserve Account”);

(C) a sub-account for the retention of Account Collateral in respect of Approved Operating Expenses after the occurrence and during the continuance of a Cash Sweep Period (the “Operating Expense Reserve Account”);

(D) a sub-account for the retention of Account Collateral in respect of current Debt Service on the Loan (the “Current Debt Service Reserve Account”);

(E) a sub-account for the retention of Account Collateral in respect of certain Proceeds as more fully set forth in Section 6.2 (the “Proceeds Reserve Account”);

(F) a sub-account for the retention of Account Collateral in respect of FF&E (the “FF&E Reserve Account”);

(G) a sub-account for the retention of Account Collateral in respect of reserves for the payment of Ground Rent (the “Ground Rent Reserve Account”);

(H) a sub-account for the retention of Account Collateral in respect of reserves relating to a Cash Sweep Period (the “Cash Sweep Reserve Account”); and

(I) a sub-account in respect of Required Repairs (the “Required Repairs Reserve Account”).

3.1.2 Pledge of Account Collateral. To secure the full and punctual payment and performance of the Obligations, Borrower hereby collaterally assigns, grants a security interest in and pledges to Administrative Agent, to the extent not prohibited by applicable law (and shall cause the other Transaction Parties to execute the Accommodation Security Documents with respect thereto), a first priority continuing security interest in and to the following property of Borrower whether now owned or existing or hereafter acquired or arising and regardless of where located (all of the same, collectively, the “Account Collateral”):

(A) the Collateral Accounts and the Hotel Operating Account and all cash, checks, drafts, securities entitlements, certificates, instruments and other property, including, without limitation, all deposits and/or wire transfers from time to time deposited or held in, credited to or made to the Collateral Accounts and the Hotel Operating Account;

(B) any and all amounts invested in Permitted Investments;

(C) all interest, dividends, cash, instruments, securities entitlements and other property from time to time received, receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing or purchased with funds from the Collateral Accounts and the Hotel Operating Account; and

-55-

(D) to the extent not covered by clauses (A), (B) or (C) above, all proceeds (as defined under the UCC) of any or all of the foregoing.

In addition to the rights and remedies herein set forth, Administrative Agent shall have all of the rights and remedies with respect to the Account Collateral available to a secured party at law or in equity, including, without limitation, the rights of a secured party under the UCC, as if such rights and remedies were fully set forth herein.

This Agreement shall constitute a security agreement for purposes of the Uniform Commercial Code and other applicable law.

3.1.3 Maintenance of Collateral Accounts.

(A) Borrower agrees that each of the Collection Account and the Hotel Operating Account is and shall be maintained (i) as a “deposit account” (as such term is defined in Section 9-102(a) of the UCC), (ii) in such a manner that Administrative Agent shall have control (within the meaning of Section 9-104(a) of the UCC) over the Collection Account and the Hotel Operating Account and (iii) such that neither Borrower nor Manager shall have any right of withdrawal from the Collection Account and, except as provided herein, no Account Collateral shall be released to Borrower or Manager from the Collection Account or the Hotel Operating Account. Without limiting Borrower’s obligations under the immediately preceding sentence, Borrower shall only establish and maintain the Collection Account with a financial institution that has executed an agreement substantially in the form of the Collection Account Agreement or in such other form acceptable to Administrative Agent in its sole discretion.

(B) Borrower agrees that each of the Holding Account and the Sub-Accounts is and shall be maintained (i) as a “securities account” (as such term is defined in Section 8-501(a) of the UCC), (ii) in such a manner that Administrative Agent shall have control (within the meaning of Section 8-106(d)(2) of the UCC) over the Holding Account and any Sub-Account, (iii) such that neither Borrower nor Manager shall have any right of withdrawal from the Holding Account or the Sub-Accounts and, except as provided herein, no Account Collateral shall be released to Borrower from the Holding Account or the Sub-Accounts, (iv) in such a manner that the Cash Management Bank shall agree to treat all property credited to the Holding Account or the Sub-Accounts as “financial assets” and (v) such that all securities or other property underlying any financial assets credited to the Collateral Accounts shall be registered in the name of Cash Management Bank, indorsed to Cash Management Bank or in blank or credited to another securities account maintained in the name of Cash Management Bank and in no case will any financial asset credited to any of the Collateral Accounts be registered in the name of Borrower or Manager, payable to the order of Borrower or Manager or specially indorsed to Borrower or Manager except to the extent the foregoing have been specially indorsed to Cash Management Bank or in blank.

-56-

(C) The Collateral Accounts and the Hotel Operating Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other banking or governmental authority, as may now or hereafter be in effect. Income and interest accruing on the Collateral Accounts and the Hotel Operating Account or any investments held in such accounts shall be periodically added to the principal amount of such accounts and shall be held, disbursed and applied in accordance with the provisions of this Agreement, the Holding Account Agreement, the Collection Account Agreement and the Hotel Operating Account Agreement. Borrower shall be the beneficial owner of the Collateral Accounts and the Hotel Operating Account for federal income tax purposes and shall report all income on the Collateral Accounts and the Hotel Operating Account.

3.1.4 Deposits into Sub-Accounts.

(a) On the date hereof, Borrower has deposited the following amounts into the Sub-Accounts:

(i) $0 into the Tax Reserve Account;

(ii) $0 into the Insurance Reserve Account;

(iii) $0 into the Operating Expense Reserve Account;

(iv) $0 into the Current Debt Service Reserve Account;

(v) $0 into the FF&E Reserve Account;

(vi) $0 into the Proceeds Reserve Account;

(vii) $0 into the Required Repairs Reserve Account;

(viii) $0 into the Ground Rent Reserve Account; and

(ix) $0 into the Cash Sweep Reserve Account.

3.1.5 Monthly Funding of Sub-Accounts.

(A) Borrower hereby irrevocably authorizes Administrative Agent to transfer (and, pursuant to the Holding Account Agreement shall irrevocably authorize Cash Management Bank to execute any corresponding instructions of Administrative Agent), and Administrative Agent shall transfer or make ledger or book entries (or cause Cash Management Bank to make the applicable transfer or ledger or book entries pursuant to disbursement instructions from Administrative Agent), from the Holding Account on the same Business Day on which Holding Account Bank receives any such instructions, or as soon thereafter as sufficient funds are in the Holding Account to make the applicable transfers or ledger or book entries, funds in the following amounts and in the following order of priority:

(i) at any such time that Manager does not reserve for or otherwise set aside and pay Impositions and Other Charges directly, funds in an amount equal to the Monthly Tax Reserve Amount and any other amounts required pursuant to Section 16.1 for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs and transfer the same to the Tax Reserve Account;

-57-

(ii) at any time when the insurance required to be maintained pursuant to this Agreement is provided under a blanket policy in accordance with Article VI hereof and the premiums in respect of such blanket policy are not paid or caused to be paid at least 3 months before such premiums become due and payable or at any time that Manager does not reserve for or otherwise set aside and pay, in no more than four (4) installments per year, premiums with respect to the Insurance Requirements, funds in an amount equal to the Monthly Insurance Reserve Amount for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs and transfer the same to the Insurance Reserve Account, or following an Insurance Reserve Trigger, funds sufficient (calculated on a monthly basis from the Insurance Reserve Trigger until the month in which the premium is due) to permit Administrative Agent to pay insurance premiums for the insurance required to be maintained pursuant to the terms of this Agreement and the Security Instrument on the respective due dates therefor (up to a maximum amount equal to the aggregate annual insurance premium required hereunder), and Administrative Agent shall so pay such funds to the insurance company having the right to receive such funds;

(iii) at any such time that Manager does not reserve for or otherwise set aside and pay Ground Rent, funds in an amount equal to the Monthly Ground Rent Reserve Amount and any other amounts required pursuant to Section 16.6 for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs and transfer the same to the Ground Rent Reserve Account;

(iv) during the continuance of a Cash Sweep Period, funds in an amount equal to the Approved Operating Expenses for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs, and transfer the same to the Operating Expense Reserve Account; provided, however, that to the extent that the Officer’s Certificate delivered to Administrative Agent on a monthly or quarterly basis by Borrower pursuant to Article XI certifies that actual Operating Expenses for such calendar month or quarter were either less than or greater than Approved Operating Expenses, and Administrative Agent receives such other evidence thereof reasonably satisfactory to Administrative Agent, then Administrative Agent may direct Cash Management Bank to increase or decrease the amount of the Approved Operating Expense transfer to be made for the month following the month in which such Officer’s Certificate was delivered, such adjustment to be in an amount determined by Administrative Agent to appropriately reflect such difference between actual Operating Expenses and Approved Operating Expenses;

(v) funds in an amount equal to the amount of Debt Service due on the Payment Date for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs and transfer the same to the Current Debt Service Reserve Account;

-58-

(vi) provided no Event of Default has occurred and is then continuing, during a Cash Sweep Period, funds in an amount set forth in a written notice from Borrower to Administrative Agent equal to the amount of the Management Fees and the Allocable Chain Expenses due to the Manager for the month in which the transfer from the Holding Account occurs and transfer the same to the Borrower’s Account;

(vii) funds in an amount equal to the amount of any sums previously withdrawn from the Cash Sweep Reserve Account and deposited into the Current Debt Service Reserve Account due to a shortfall therein, and transfer the same to the Cash Sweep Reserve Account, until such Cash Sweep Reserve Account has been replenished;

(viii) at any such time that Manager does not reserve or otherwise set aside for FF&E in accordance with the terms of the Management Agreement, funds in an amount equal to the Monthly FF&E Reserve Amount for the month in which the Payment Date immediately following the date of the transfer from the Holding Account occurs and transfer the same to the FF&E Reserve Account;

(ix) during any Cash Sweep Period, all remaining funds shall be transferred to the Cash Sweep Reserve Account (subject to Section 16.3);

(x) provided no Event of Default has occurred and is then continuing and subject to the provisions of Section 3.1.5(B), funds from the Cash Sweep Reserve Account sufficient to pay any shortfalls in the Current Debt Service Reserve Account for Debt Service due with respect to the Loan on each Payment Date, and Administrative Agent, on each Payment Date, shall apply such funds to the payment of the Debt Service shortfall payable on such Payment Date; and

(xi) provided no Cash Sweep Period or Event of Default has occurred and is then continuing and subject to the provisions of Section 3.1.5(B), funds in an amount equal to the balance (if any) remaining or deposited in the Holding Account after the foregoing deposits (such remainder being hereinafter referred to as “Excess Cash Flow”) and transfer the same to Borrower’s Account, free of any Lien or continuing security interest.

(B) If Administrative Agent shall determine in good faith that there will be insufficient amounts in the Holding Account to make any of the transfers pursuant to Section 3.1.5(A) on the date required hereunder, Administrative Agent shall provide notice to Borrower of such insufficiency (except that in no event shall Administrative Agent be required to notify Borrower of any deficiency in the Current Debt Service Reserve Account, such deficiency on any Payment Date being an Event of Default) and, within five (5) Business Days after receipt of said notice Borrower shall deposit into the Holding Account an amount equal to the shortfall of available funds in the Holding Account taking into account any funds which accumulate in the Holding Account during such five (5) day Business Day period. Upon the occurrence of an Event of Default due to a deficiency in the Current Debt Service Reserve Account on any Payment Date, Administrative Agent shall notify Borrower of said Event of Default within five (5) Business Days thereafter; provided, however, Administrative Agent’s failure to notify Borrower shall not be deemed a waiver of said Event of Default. Notwithstanding anything to the contrary contained in this Agreement or in the other Loan Documents, Borrower shall not be deemed to be in Default hereunder (and no Default Rate or Late Payment Charge shall be applicable) in the event (i) no other Default or Event of Default is then continuing; (ii) funds sufficient for a required transfer are held in an appropriate Sub-Account; (iii) Borrower is not contesting the application of such funds as determined by Administrative Agent; and (iv) Administrative Agent or Cash Management Bank fails to timely make any transfer from such Sub-Account as contemplated by this Agreement.

-59-

(C) Notwithstanding anything to the contrary contained herein or in the Security Instrument, but subject to Section 7.3, to the extent that Borrower shall fail to pay any mortgage recording tax, costs, expenses or other amounts pursuant to Section 19.14 of this Agreement within the time period set forth therein, Administrative Agent shall have the right, at any time, upon five (5) Business Days’ notice to Borrower, to withdraw from the Holding Account, an amount equal to such unpaid taxes, costs, expenses and/or other amounts and pay such amounts to the Person(s) entitled thereto.

3.1.6 Payments from Sub-Accounts. Borrower irrevocably authorizes Administrative Agent to make and, provided no Event of Default shall have occurred and be continuing, Administrative Agent hereby agrees to make, the following payments from the Sub- Accounts to the extent of the monies on deposit therefor:

(i) if notified (timely) by Borrower or otherwise determined by Administrative Agent that Manager will not pay Impositions or Other Charges, funds from the Tax Reserve Account to Administrative Agent sufficient to permit Administrative Agent to pay (or otherwise to Borrower to reimburse Borrower for its payment of) (A) Impositions and (B) Other Charges, on the respective due dates therefor, and Administrative Agent shall so pay such funds to the Governmental Authority or such other Person having the right to receive such funds (or shall reimburse Borrower upon confirmation of payment);

(ii) at any time when the insurance required to be maintained pursuant to this Agreement is provided under a blanket policy in accordance with Article VI hereof and the premiums in respect of such blanket policy are not paid or caused to be paid at least 3 months before such premiums become due and payable or at any time that Manager does not reserve for or otherwise set aside and pay, in no more than four (4) installments per year, premiums with respect to the Insurance Requirements and otherwise following an Insurance Reserve Trigger, funds from the Insurance Reserve Account to Administrative Agent sufficient to permit Administrative Agent to pay insurance premiums for the insurance required to be maintained pursuant to the terms of this Agreement and the Security Instrument, on the respective due dates therefor, and Administrative Agent shall so pay such funds to the insurance company having the right to receive such funds;

(iii) during the continuance of a Cash Sweep Period, and no more frequently than twice a month, funds from the Operating Expense Reserve Account in an amount equal to the Approved Operating Expenses for the month in which the transfer is made (subject to monthly or quarterly adjustment in accordance with Section 3.1.5), and transfer the same to Borrower’s Account and Borrower shall then pay such Approved Operating Expenses;

-60-

(iv) funds from the Current Debt Service Reserve Account to Administrative Agent sufficient to pay Debt Service on each Payment Date, and Administrative Agent, on each Payment Date, shall apply such funds to the payment of the Debt Service payable on such Payment Date;

(v) if notified (timely) by Borrower or otherwise determined by Administrative Agent that Manager will not reserve for FF&E as required under the Management Agreement, no more frequently than once in any calendar month, and provided Borrower shall have complied with the procedures set forth in Section 16.5, funds from the FF&E Reserve Account to Borrower’s Account to pay for FF&E and Borrower shall then pay such FF&E;

(vi) no more frequently than once in any calendar month, and provided Borrower shall have complied with the procedures set forth in Section 16.4, funds from the Required Repairs Reserve Account to Borrower’s Account to pay for Required Repairs and Borrower shall then pay such Required Repairs;

(vii) if notified (timely) by Borrower or otherwise determined by Administrative Agent that Manager will not pay Ground Rent, no more frequently than once in any calendar month, and provided Borrower shall have complied with the procedures set forth in Section 16.6, funds from the Ground Rent Reserve Account to Borrower’s Account to pay for ground rent and Borrower shall then pay such ground rent; and

(viii) in the event a Cash Sweep Period is then in effect, but no other Event of Default is continuing, funds in the Cash Sweep Reserve Account on each Payment Date shall be paid to Administrative Agent and shall be applied to the amortization of the Principal Amount outstanding on such Payment Date.

3.1.7 Cash Management Bank.

(A) Administrative Agent shall, at Borrower’s sole cost and expense, have the right to replace the Cash Management Bank with a financial institution reasonably satisfactory to Borrower (so long as no Event of Default has occurred and is continuing) in the event that (i) the Cash Management Bank fails, in any material respect, to comply with the Holding Account Agreement or (ii) the Cash Management Bank named herein is no longer the Cash Management Bank. Upon the occurrence and during the continuance of an Event of Default, Administrative Agent shall have the right at Borrower’s sole cost and expense to replace Cash Management Bank at any time, without notice to Borrower. Borrower shall cooperate with Administrative Agent in connection with the appointment of any replacement Cash Management Bank and the execution by the Cash Management Bank and Borrower of an Account Agreement and delivery of same to Administrative Agent.

-61-

(B) So long as no Event of Default shall have occurred and be continuing, Borrower shall have the right at its sole cost and expense to replace the Cash Management Bank with a financial institution that is approved by Administrative Agent, provided that such financial institution and Borrower shall execute and deliver to Administrative Agent an Account Agreement substantially similar to the Account Agreement executed as of the Closing Date.

3.1.8 Borrower’s Account Representations, Warranties and Covenants. Borrower represents, warrants and covenants that (i) as of the date hereof, Borrower has directed all Tenants under the Leases to mail all checks and wire all funds with respect to any payments due under such Leases directly to Manager, (ii) Borrower shall cause Manager to deposit all amounts collected by Manager pursuant to the Management Agreement directly into the Collection Account, (iii) Borrower shall pay or cause to be paid all Rents, Cash and Cash Equivalents or other items of Operating Revenues not otherwise collected by Manager within two Business Days after receipt thereof by Borrower or its Affiliates directly into the Collection Account and, until so deposited, any such amounts held by Borrower, Manager or their Affiliates shall be deemed to be Account Collateral and shall be held in trust by it for the benefit, and as the property, of Administrative Agent and shall not be commingled with any other funds or property of Borrower, Manager or their Affiliates, (iv) Borrower shall, and shall cause Manager to, deposit all amounts payable to Borrower pursuant to the Management Agreement or the Operating Lease directly into the Collection Account, (v) other than the Hotel Operating Account, there are no accounts other than the Collateral Accounts maintained by Borrower, Manager or their Affiliates with respect to the Property or the collection of Rents and credit card company receivables with respect to the Property and (vi) so long as the Obligations shall be outstanding, neither Borrower, Manager, nor any other Person shall open any other operating accounts with respect to the Property or the collection of Rents or credit card company receivables with respect to the Property, except for the Collateral Accounts and the Hotel Operating Account; provided that, Borrower and Manager shall not be prohibited from utilizing one or more separate accounts for the disbursement or retention of funds that have been transferred to Borrower’s Account pursuant to Section 3.1.5.

3.1.9 Hotel Operating Account. So long as no Cash Sweep Period or Event of Default has occurred and is continuing, all amounts in the Collection Account shall be transferred to the Hotel Operating Account on a daily basis and Borrower shall, and shall cause Manager to, pay Hotel Operating Expenses, Management Fees and Allocable Chain Expenses from funds on deposit in the Hotel Operating Account. Notwithstanding the foregoing, commencing September 2011, on the Business Day closest to the 25th day of each month, Borrower shall, and shall cause Manager to, transfer from the Hotel Operating Account funds in excess of the amount of funds set forth in a written notice from Borrower to Administrative Agent which are sufficient to cover all outstanding checks drawn against the Hotel Operating Account that have not yet cleared to the Holding Account. In no event shall funds be transferred directly from the Hotel Operating Account to the Borrower’s Account or any other account of the Borrower or its Affiliates. During the continuance of a Cash Sweep Period or Event of Default, all funds in the Collection Account at the direction of Administrative Agent will be transferred to the Holding Account.

-62-

3.1.10 Account Collateral and Remedies.

(A) Upon the occurrence and during the continuance of an Event of Default, without additional notice from Administrative Agent to Borrower, (i) Administrative Agent may, in addition to and not in limitation of Administrative Agent’s other rights, make any and all withdrawals from, and transfers between and among, the Collateral Accounts and the Hotel Operating Account as Administrative Agent shall determine in its sole and absolute discretion to pay any Obligations; (ii) all Excess Cash Flow shall be retained in the Holding Account or applicable Sub-Accounts pending further transfer and application in accordance with this Section 3.1.10, and (iii) Administrative Agent may liquidate and transfer any amounts then invested in Permitted Investments to the Collateral Accounts to which they relate or reinvest such amounts in other Permitted Investments as Administrative Agent may determine in its sole and absolute discretion is necessary to perfect or protect any security interest granted or purported to be granted hereby or to enable Administrative Agent to exercise and enforce Administrative Agent’s rights and remedies hereunder with respect to any Account Collateral or to preserve the value of the Account Collateral.

(B) Borrower hereby irrevocably constitutes and appoints Administrative Agent as Borrower’s true and lawful attorney-in-fact, with full power of substitution, to do the following upon the occurrence and during the continuance of an Event of Default: execute, acknowledge and deliver any instruments and exercise and enforce every right, power, remedy, option and privilege of Borrower with respect to the Account Collateral, and do in the name, place and stead of Borrower, all such acts, things and deeds for and on behalf of and in the name of Borrower, which Borrower could or might do or which Administrative Agent may deem necessary or desirable to more fully vest in Administrative Agent the rights and remedies provided for herein and to accomplish the purposes of this Agreement. The foregoing powers of attorney are irrevocable and coupled with an interest. Upon the occurrence and during the continuance of an Event of Default, Administrative Agent may perform or cause performance of any such agreement, and any reasonable expenses of Administrative Agent incurred in connection therewith shall be paid by Borrower as provided in Section 5.1.16.

(C) Borrower hereby expressly waives, to the fullest extent permitted by law, presentment, demand, protest or any notice of any kind (except as expressly required under the Loan Documents) in connection with this Agreement or the Account Collateral. Borrower acknowledges and agrees that ten (10) Business Days’ prior written notice of the time and place of any public sale of the Account Collateral or any other intended disposition thereof shall be reasonable and sufficient notice to Borrower within the meaning of the UCC.

3.1.11 Transfers and Other Liens. Borrower agrees that it will not (i) sell or otherwise dispose of any of the Account Collateral except as may be expressly permitted under the Loan Documents, or (ii) create or permit to exist any Lien upon or with respect to all or any of the Account Collateral, except for the Lien granted to Administrative Agent under this Agreement.

-63-

3.1.12 Reasonable Care. Beyond the exercise of reasonable care in the custody thereof, Administrative Agent shall have no duty as to any Account Collateral in its possession or control as agent therefor or bailee thereof or any income thereon or the preservation of rights against any person or otherwise with respect thereto. Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Account Collateral in its possession if the Account Collateral is accorded treatment substantially equal to that which Administrative Agent accords its own property, it being understood that Administrative Agent shall not be liable or responsible for any loss or damage to any of the Account Collateral, or for any diminution in value thereof, by reason of the act or omission of Administrative Agent, its Affiliates, agents, employees or bailees, except to the extent that such loss or damage results from Administrative Agent’s gross negligence or willful misconduct. In no event shall Administrative Agent be liable either directly or indirectly for losses or delays resulting from any event which may be the basis of an Excusable Delay, computer malfunctions, interruption of communication facilities, labor difficulties or other causes beyond Administrative Agent’s reasonable control or for indirect, special or consequential damages except to the extent of Administrative Agent’s gross negligence or willful misconduct. Notwithstanding the foregoing, Borrower acknowledges and agrees that (i) Administrative Agent does not have custody of the Account Collateral, (ii) Cash Management Bank has custody of the Account Collateral, (iii) the initial Cash Management Bank was chosen by Borrower and (iv) Administrative Agent has no obligation or duty to supervise Cash Management Bank or to see to the safe custody of the Account Collateral.

3.1.13 Administrative Agent’s Liability.

(A) Administrative Agent shall be responsible for the performance only of such duties with respect to the Account Collateral as are specifically set forth in this Section 3.1 or elsewhere in the Loan Documents, and no other duty shall be implied from any provision hereof. Administrative Agent shall not be under any obligation or duty to perform any act with respect to the Account Collateral which would cause it to incur any expense or liability or to institute or defend any suit in respect hereof, or to advance any of its own monies. Borrower shall indemnify and hold Administrative Agent, its employees and officers harmless from and against any loss, cost or damage (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Administrative Agent in connection with the transactions contemplated hereby with respect to the Account Collateral (excluding losses on Permitted Investments) except as such may be caused by the gross negligence or willful misconduct of Administrative Agent, its employees, officers or agents.

(B) Administrative Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper, document or signature believed by it in good faith to be genuine, and, in so acting, it may be assumed that any person purporting to give any of the foregoing in connection with the provisions hereof has been duly authorized to do so. Administrative Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder and in good faith in accordance therewith.

-64-

3.1.14 Continuing Security Interest. This Agreement shall create a continuing security interest in the Account Collateral and shall remain in full force and effect until payment in full of the Indebtedness; provided, however, such security interest shall automatically terminate with respect to funds which were duly deposited into Borrower’s Account in accordance with the terms hereof. Upon payment in full of the Indebtedness, this security interest shall automatically terminate without further notice from any party and Borrower shall be entitled to the return, upon its request, of such of the Account Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and Administrative Agent shall execute such instruments and documents as may be reasonably requested by Borrower to evidence such termination and the release of the Account Collateral.

ARTICLE IV

Representations and Warranties

Section 4.1 Borrower Representations. Borrower represents and warrants as of the Closing Date that:

4.1.1 Organization. Each of Borrower (other than Operating Lessee) and Guarantor is a Delaware limited liability company, and each has been duly organized and is validly existing and in good standing pursuant to the laws of the State of Delaware with requisite power and authority to own its properties and to transact the businesses in which it is now engaged. Operating Lessee is a New York limited liability company, and has been duly organized and is validly existing and in good standing pursuant to the laws of the State of New York with requisite power and authority to own its properties and to transact the businesses in which it is now engaged. Each of Borrower and Guarantor has duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations. Each Transaction Party possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of Borrower is the use and ownership of the Property. The organizational structure of Borrower upon the closing is accurately depicted by the schematic diagram attached hereto as Exhibit H. Borrower shall not change its name, identity, corporate structure or jurisdiction of organization unless it shall have given Administrative Agent thirty (30) days prior written notice of any such change and shall have taken all steps reasonably requested by Administrative Agent to grant, perfect, protect and/or preserve the security interests granted hereunder and under the other Loan Documents to Administrative Agent.

4.1.2 Proceedings. Each of Borrower and each other Transaction Party, has full power to and has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by, or on behalf of, each of Borrower and each other Transaction Party, as applicable, and constitute legal, valid and binding obligations of Borrower and such Transaction Party, as applicable, enforceable against Borrower and such Transaction Party, as applicable, in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

-65-

4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower and each other Transaction Party, as applicable, will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of Borrower or such Transaction Party, pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement or other agreement or instrument to which Borrower or such Transaction Party, is a party or by which any of Borrower’s or such Transaction Party’s, property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority, and any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Borrower and such Transaction Party, of this Agreement or any other Loan Documents has been obtained and is in full force and effect.

4.1.4 Litigation. There are no lawsuits, administrative proceedings, arbitration proceedings, or other such legal proceedings that have been filed and served upon Borrower (or with respect to which Borrower has otherwise received proper notice) or, to the Best of Borrower’s Knowledge, otherwise pending or threatened against or affecting Borrower, Manager, or the Property whose outcome, if determined against Borrower, Manager or the Property, would have a Material Adverse Effect. To the Best of Borrower’s Knowledge, Schedule I includes each pending action against Borrower or otherwise affecting the Property that involves a claim or claims for (a) monetary damages exceeding $250,000, or (b) injunctive relief; or (c) or other equitable remedy that could have a Material Adverse Effect, excluding: (i) actions for monetary damages only that have been tendered to, and accepted without reservation of rights by, the liability insurance carrier for the Property, (ii) worker’s compensation claims, and (iii) any proceedings by employees working at the Property where the amount claimed in such proceeding is less than $250,000; to the Best of Borrower’s Knowledge, the aggregate amount of such claims described in subclause (iii) of this sentence is less than $1,000,000.

4.1.5 Agreements. Neither Borrower nor Manager is a party to any agreement or instrument or subject to any restriction which is reasonably likely to have a Material Adverse Effect. Neither Borrower nor Manager is in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party or by which Borrower or the Property is bound, which default is reasonably likely to have a Material Adverse Effect. Borrower has no financial obligation (contingent or otherwise) under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Property, (b) obligations under the Loan Documents, and (c) obligations disclosed in the financial statements delivered to Administrative Agent prior to the Closing Date.

-66-

4.1.6 Title(a). Borrower has (i) good, marketable and insurable (a) fee simple to the Owned Units and has an undivided interest in the Common Elements appurtenant thereto and (b) leasehold title to the Leasehold Units and to the undivided interest in the Common Elements appurtenant thereto and (ii) good and marketable title to the balance of the Property (not comprising real property) owned by it, in each case, free and clear of all Liens whatsoever except Permitted Encumbrances. The Security Instrument, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (i) a valid, first priority, perfected Lien on Borrower’s interest in the Property, subject only to Permitted Encumbrances, and (ii) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to the Permitted Encumbrances and in each case to the extent a Lien can be perfected by such recording and filings. There are no mechanics’, materialman’s or other similar Liens or claims which have been filed for work, labor or materials affecting the Property which are or may be Liens prior to, or equal or coordinate with, the Lien of the Security Instrument. None of the Permitted Encumbrances, individually or in the aggregate, (a) materially interfere with the benefits of the security intended to be provided by the Security Instrument and this Agreement, (b) materially and adversely affect the value of the Property, (c) impair the use or operations of the Property (as currently used), or (d) impair Borrower’s ability to pay its Obligations in a timely manner.

4.1.7 No Bankruptcy Filing. None of Borrower or any Transaction Party, is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of such entity’s assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against Borrower or any Transaction Party.

4.1.8 Full and Accurate Disclosure. To the Best of Borrower’s Knowledge, no statement of fact made by Borrower in this Agreement and, no statement of fact made by any other Transaction Party in any of the other Loan Documents, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed which has a Material Adverse Effect, or to the Best of Borrower’s Knowledge, could reasonably be expected to have a Material Adverse Effect.

4.1.9 All Property. The Property constitutes all of the real property, personal property, equipment and fixtures currently (i) owned or leased by Borrower or (ii) used in the operation of the business located on the Property, other than items owned by Manager or any Tenants (excluding items owned by Operating Lessee).

-67-

4.1.10 ERISA.

(A) Borrower does not maintain or contribute to and is not required to contribute to, an “employee benefit plan” as defined by Section 3(3) of ERISA, which is subject to Title IV of ERISA (other than a “multiemployer plan” as defined by Section 3(37) of ERISA), and Borrower (i) has no knowledge of any material liability which has been incurred or is expected to be incurred by Borrower which is reasonably likely to result in a Material Adverse Effect and is or remains unsatisfied for any taxes or penalties or unfunded contributions with respect to any “employee benefit plan” or any “plan,” within the meaning of Section 4975(e)(1) of the Internal Revenue Code or any other benefit plan (other than a “multiemployer plan”) maintained, contributed to, or required to be contributed to by Borrower or by any entity that is under common control with Borrower within the meaning Section 4001(a)(14) of ERISA (each, an “ERISA Affiliate”) (each, a “Plan”) or any plan that would be a Plan but for the fact that it is a multiemployer plan within the meaning of ERISA Section 3(37); and (ii) has made and shall continue to make when due all required contributions to all such Plans (other than Plans relating to ERISA Affiliates), if any, where the failure to so contribute is reasonably likely to result in a Material Adverse Effect. Each such Plan (other than Plans relating to ERISA Affiliates), if any, has been and will be administered in material compliance with its terms and the applicable provisions of ERISA, the Internal Revenue Code, and any other applicable federal or state law; and no action shall be taken or fail to be taken that would result in the disqualification or loss of tax-exempt status of any such Plan intended to be qualified and/or tax exempt; and

(B) With respect to any “multiemployer plan,” (i) Borrower has not, since September 26, 1980, made or suffered a “complete withdrawal” or a “partial withdrawal,” as such terms are respectively defined in Sections 4203 and 4205 of ERISA, (ii) Borrower has made and shall continue to make when due all required contributions to all such “multiemployer plans” and (iii) no ERISA Affiliate has, since September 26, 1980, made or suffered a “complete withdrawal” or a “partial withdrawal,” as such terms are respectively defined in Sections 4203 and 4205 of ERISA which withdrawal is reasonably expected to have a Material Adverse Effect.

(C) Borrower is not an employee benefit plan, as defined in Section 3(3) of ERISA, whether or not subject to Title I of ERISA, none of the assets of Borrower constitutes or will constitute plan assets of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 and transactions by or with Borrower are not subject to similar laws regulating investment of, and fiduciary obligations with respect to, plans similar to the provisions of Section 406 of ERISA or Section 4975 of the Code currently in effect (“Similar Laws”), which prohibit or otherwise restrict the transactions contemplated by this Agreement.

-68-

4.1.11 Compliance. Borrower and the Property and the use thereof comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect. To the Best of Borrower’s Knowledge, Borrower is not in default or in violation in any material respect of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by Borrower or Manager any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents.

4.1.12 Financial Information. All financial data including, without limitation, the statements of profit and loss and balance sheet, that have been delivered by or on behalf of Borrower to Administrative Agent in respect of the Property (i) are true, complete and correct in all material respects, (ii) fairly represent the financial condition of the Property as of the date of such reports in all material respects, and (iii) have been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein. Borrower does not have any material contingent liabilities, liabilities for delinquent taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and could reasonably be expected to have a Material Adverse Effect, except as referred to or reflected in said financial statements and operating statements. Since the date of such financial statements, there has been no material adverse change in the financial condition, operations or business of Borrower from that set forth in said financial statements.

4.1.13 Condemnation. No Condemnation has been commenced or, to the Best of Borrower’s Knowledge, is contemplated with respect to all or any portion of the Property.

4.1.14 Federal Reserve Regulations. None of the proceeds of the Loan will be used for the purpose of purchasing or carrying any “margin stock” as defined in Regulation U, Regulation X or Regulation T or for the purpose of reducing or retiring any Debt which was originally incurred to purchase or carry “margin stock” or for any other purpose which might constitute this transaction a “purpose credit” within the meaning of Regulation U or Regulation X. Borrower does not own any “margin stock.”

4.1.15 Utilities and Public Access. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the Property for its intended uses. To the Best of Borrower’s Knowledge, all utilities necessary to the existing use of the Property are located either in the public right-of-way abutting the Property (which are connected so as to serve the Property without passing over other property) or in recorded easements serving the Property. All roads necessary for the use of the Property for its current purposes have been completed and, if necessary, dedicated to public use.

-69-

4.1.16 Not a Foreign Person. Borrower is not a foreign person within the meaning of § 1445(f)(3) of the Code.

4.1.17 Separate Lots. The Property is comprised of one (1) or more contiguous parcels which constitute a separate tax lot or lots and does not constitute or include a portion of any other tax lot not a part of the Property.

4.1.18 Assessments. To the Best of Borrower’s Knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments.

4.1.19 Enforceability. The Loan Documents are not subject to any existing right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law)), and Borrower has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

4.1.20 No Prior Assignment. There are no prior sales, transfers or assignments of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding following the funding of the Loan, other than those being terminated or assigned to Administrative Agent concurrently herewith.

4.1.21 Insurance. Borrower has obtained and has delivered to Administrative Agent certified copies or certificates of all insurance policies required under this Agreement, reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. Borrower has not, and to the Best of Borrower’s Knowledge no Person has, done by act or omission anything which would impair the coverage of any such policy.

4.1.22 Use of Property. The Property is used exclusively for hotel purposes and other appurtenant and related uses and for the SRO Tenancies.

-70-

4.1.23 Certificate of Occupancy; Licenses. All material certifications, permits, licenses (including, without limitation, a license to serve alcohol on the Property) and approvals, including without limitation, certificates of completion and occupancy permits required of Borrower for the legal use, occupancy and operation of the Property for hotel purposes (collectively, the “Licenses”), have been obtained and are in full force and effect. Borrower shall keep and maintain all Licenses necessary for the operation of the Property for hotel purposes. The use being made of the Property is in conformity with the certificate of occupancy issued for the Property.

4.1.24 Flood Zone. None of the Improvements on the Property are located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards.

4.1.25 Physical Condition. To the Best of Borrower’s Knowledge, except as expressly disclosed in the Physical Conditions Report, the Property, including, without limitation, all buildings, Improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; to the Best of Borrower’s Knowledge there exists no structural or other material defects or damages in or to the Property, whether latent or otherwise, and Borrower has not received any written notice from any insurance company or bonding company of any defects or inadequacies in the Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

4.1.26 Boundaries. All of the Improvements lie wholly within the boundaries and building restriction lines of the Real Property, and no improvements on adjoining properties encroach upon the Real Property, and no easements or other encumbrances upon the Real Property encroach upon any of the Improvements, so as to have a material adverse effect on the value or marketability of the Real Property except those which are insured against by the Title Policy.

-71-

4.1.27 Leases(a). The Property is not subject to any Leases other than the Leases described in the certified rent roll delivered in connection with the origination of the Loan. Such certified rent roll is true, complete and correct in all material respects as of the date set forth therein. No Person has any possessory interest in the Property or right to occupy the same (other than typical short-term occupancy rights of hotel guests, occupancy agreements or other occupancy rights for groups of hotel guests for transitory periods of time and agreements for catering, business and similar special events or functions at the Property) except under and pursuant to the provisions of the Leases and the SRO Agreements. The current Leases are in full force and effect there are no material defaults thereunder by Borrower, and to the Best of Borrower’s Knowledge, there are no material defaults thereunder by any other either party (other than as expressly disclosed on the certified rent roll delivered to Administrative Agent or the Tenant estoppel certificates delivered to Administrative Agent in connection with the closing of the Loan) and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute material defaults thereunder. No Rent has been paid more than one (1) month in advance of its due date. There has been no prior sale, transfer or assignment, hypothecation or pledge by Borrower of any Lease or of the Rents received therein, which will be outstanding following the funding of the Loan, other than those being assigned to Administrative Agent concurrently herewith. No Tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the property of which the leased premises are a part. Attached hereto as Schedule V is a list of all SRO Units and the current rent payable with respect to each SRO Unit. There are no written agreements with respect to leasing any of the SRO Units and Borrower shall not enter into any written agreements with respect to leasing any SRO Unit other than any such written agreement that is (i) required by Legal Requirements, (ii) in respect of a termination of such SRO Unit in accordance with Legal Requirements or (iii) consented to by Administrative Agent, provided that in no event shall Borrower increase the number of SRO Units beyond those set forth in the list attached as Schedule V. Borrower and the Property are in compliance in all material respects with all Legal Requirements applicable to the SRO Units. Borrower will not enter into any additional agreements with respect to SRO Units. Borrower will promptly notify Administrative Agent of any vacancy of an SRO Unit. Upon request of Administrative Agent from time to time, Borrower shall provide Administrative Agent with a report relating to the SRO Units listing the occupancy status, current rent, copies of any material filings with the New York City Department of Housing Preservation and Development as respects each such unit, and evidence that Borrower is in compliance in all material respects with all Legal Requirements pertaining thereto. Prior to commencing any material alterations of any such SRO Units, Borrower shall make all required filings and take all actions required under applicable Legal Requirements and shall furnish Administrative Agent with evidence of such compliance.

4.1.28 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Property to Borrower have been paid and the granting and recording of the Accommodation Security Documents required to be filed in connection with the Loan. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including, without limitation, the Security Instrument, have been paid, and, under current Legal Requirements, the Security Instrument is enforceable against Borrower in accordance with its terms by Administrative Agent (or any subsequent holder thereof) subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

-72-

4.1.29 Single Purpose Entity/Separateness.

(A) Borrower hereby represents, warrants and covenants that each Borrower is and has been since the date of its respective formation, a Single Purpose Entity.

(B) All of the assumptions made in the Non-Consolidation Opinion, including, but not limited to, any exhibits attached thereto and any certificates delivered by Borrower or any other Transaction Party in connection with the issuance of the Non-Consolidation Opinion, are true and correct in all material respects and any assumptions made in any subsequent non-consolidation opinion delivered in connection with the Loan Documents (an “Additional Non-Consolidation Opinion”), including, but not limited to, any exhibits attached thereto, which shall be certified by Borrower or any other Transaction Party, as applicable, will be true and correct in all material respects on the date that any Additional Non-Consolidation Opinion is delivered. Each Transaction Party has complied with all of the assumptions made with respect to it in the Non-Consolidation Opinion. To the Best of Borrower’s Knowledge, each entity other than a Transaction Party with respect to which an assumption shall be made in any Additional Non-Consolidation Opinion will have complied and will comply with all of the assumptions made with respect to it in any Additional Non-Consolidation Opinion.

4.1.30 Management Agreement. As of the Closing Date, the Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. The Manager is an Affiliate of Borrower.

4.1.31 Illegal Activity. No portion of the Property has been or will be purchased with proceeds of any illegal activity.

4.1.32 Tax Filings. Borrower has filed (or has obtained effective extensions for filing) all federal, state and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower.

4.1.33 Solvency/Fraudulent Conveyance. Each Borrower and Guarantor (a) has not entered into the transaction contemplated by this Agreement or any Loan Document with the actual intent to hinder, delay, or defraud any creditor and (b) has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Immediately after giving effect to the Loan, each Borrower and Guarantor is Solvent.

-73-

4.1.34 Investment Company Act. Borrower is not (a) an investment company or a company Controlled by an investment company, within the meaning of the Investment Company Act of 1940, as amended, (b) a holding company or a subsidiary company of a holding company or an affiliate of either a holding company or a subsidiary company within the mean of the Public Utility Holding Company Act of 1935, as amended or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

4.1.35 Interest Rate Cap Agreement. The Interest Rate Cap Agreement is in full force and effect and enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors’ rights and subject as to enforceability to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

4.1.36 Labor. Except as described on Schedule II, no work stoppage, labor strike, slowdown or lockout is pending or threatened by employees and other laborers at the Property. Except as described on Schedule II, neither Borrower nor Manager (i) is involved in or, to the Best of Borrower’s Knowledge, threatened with any material labor dispute, material grievance or litigation relating to labor matters involving any employees and other laborers at the Property, including, without limitation, violation of any federal, state or local labor, safety or employment laws (domestic or foreign) and/or charges of unfair labor practices or discrimination complaints, (ii) has engaged with respect to the Property, in any unfair labor practices within the meaning of the National Labor Relations Act or the Railway Labor Act, or (iii) is a party to, or bound by, any existing collective bargaining agreement or union contract with respect to employees and other laborers at the Property.

4.1.37 Brokers. Borrower has not dealt with any broker or finder with respect to the loan transactions contemplated by the Loan Documents and Borrower has not done any acts, had any negotiations or conversations, or made any agreements or promises which will in any way create or give rise to any obligation or liability for the payment by either party of any brokerage fee, charge, commission or other compensation to any Person with respect to the transactions contemplated by the Loan Documents. Borrower covenants and agrees that it shall pay as and when due any and all brokerage fees, charges, commissions or other compensation or reimbursement due to any broker of Borrower with respect to the transactions contemplated by the Loan Documents. Borrower shall indemnify and hold harmless Administrative Agent, Lenders, and each other Indemnified Party from and against any loss, liability, cost or expense, including any judgments, attorneys’ fees, or costs of appeal, incurred by them and arising out of or relating to any claim for brokerage commissions or finder’s fees alleged to be due as a result of the agreements or actions of any Transaction Party. The provisions of this Section 4.1.38 shall survive the expiration and termination of this Agreement and the payment of the Indebtedness.

-74-

4.1.38 No Other Debt. Borrower has not borrowed or received debt financing that has not been heretofore repaid in full, other than the Permitted Debt.

4.1.39 Taxpayer Identification Number. Owner’s taxpayer identification number is 13-4035148. Bar Lessee’s taxpayer identification number is 03-0373311. Operating Lessee’s taxpayer identification number is 13-4130496.

4.1.40 Compliance with Anti-Terrorism, Embargo and Anti- Money Laundering Laws.

(a) Neither Borrower nor any owner of a direct or indirect ownership interest in Borrower (i) is listed on any Government Lists, (ii) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC or in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense, or (iv) is currently under investigation by any Governmental Authority for alleged criminal activity. For purposes hereof, the term “Patriot Act Offense” means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or (E) the Patriot Act. “Patriot Act Offense” also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense. For purposes hereof, the term “Government Lists” means (1) the Specially Designated Nationals and Blocked Persons Lists maintained by the Office of Foreign Assets Control (“OFAC”), (2) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Administrative Agent notified Borrower in writing is now included in “Government Lists”, or (3) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other Governmental Authority or pursuant to any Executive Order of the President of the United States of America that Administrative Agent notified Borrower in writing is now included in “Government Lists”.

(b) At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of Borrower shall to the Best Knowledge of Borrower constitute property of, or shall be beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder, with the result that the investment in Borrower (whether directly or indirectly), would be prohibited by law (each, an “Embargoed Person”), or the Loan made by Lenders would be in violation of law, (b) no Embargoed Person shall have any interest of any nature whatsoever in Borrower with the result that the investment in Borrower (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law, and (c) none of the funds of Borrower shall be derived from any unlawful activity with the result that the investment in Borrower (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law.

-75-

4.1.41 Knowledge Qualifications. Borrower represents that Richard Szymanski and Daniel Flannery are in a position to have meaningful knowledge with respect to the matters set forth in the Loan Documents which have been qualified to the knowledge of such Persons.

4.1.42 Leases. Borrower represents that it has heretofore delivered to Administrative Agent true and complete copies of all Leases and any and all amendments or modifications thereof.

4.1.43 Intentionally Omitted.

4.1.44 Intellectual Property. All the Intellectual Property used in, held for use in, or necessary for the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property by Borrower or Manager (including, without limitation the trademark “Hudson Hotel” and the reservations system at the Property) is owned or licensed by Manager or Affiliates of Manager and is used in connection with the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property by Borrower and Manager with the consent of the owners thereof consistent with past practices. As of the Closing Date, no Person other than Manager owns any Intellectual Property that is necessary for or used in the current use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property consistent with past practices except as may be licensed to Borrower or the Manager under the IP Licenses. Borrower is duly qualified under applicable law in each jurisdiction in which it is required to be qualified pursuant to applicable Legal Requirements in order to act as a licensor of the Intellectual Property and sublicensor to the extent they are permitted to do so under the IP License Agreements. Attached hereto as Schedule IX is a complete and accurate list of all of the registered and pending applications for registration, anywhere in the world, for all Intellectual Property owned by Borrower and all IP Licenses to which Borrower is a party (the “IP Schedule”). Except as set forth on Schedule I, there is no action or proceeding pending, or to the Best of Borrower’s Knowledge, threatened by or against Borrower or any Affiliate thereof: (x) alleging the infringement, dilution, misappropriation, or other violation of any Intellectual Property or (y) seeking to limit, cancel, or question the validity or enforceability of any IP Collateral (including, without limitation, the right to proceeds therefrom and the right to bring an action at law or in equity for any infringement, dilution, or violation of such Intellectual Property and to collect all damages, settlements, and proceeds relating to such Intellectual Property), or Borrower’s rights or interests therein, or use thereof. To the Best of Borrower’s Knowledge, no Person has interfered with, infringed upon, diluted, misappropriated, or otherwise come into conflict with any Intellectual Property of Borrower. Neither the Intellectual Property owned by Borrower nor Borrower’s use of the Intellectual Property is subject to any outstanding injunction, judgment, order, decree, ruling, or charge. Borrower, in its reasonable discretion, has made all filings and recordations in the United States and in all foreign jurisdictions, as applicable, necessary to adequately effect, reflect, and protect its ownership in, right to use, or its license of Intellectual Property used or held for the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property by Borrower or Manager. All Intellectual Property set forth on the IP Schedule, is subsisting, unexpired, has not been abandoned in any applicable jurisdiction, and is valid and enforceable and, to Borrower’s knowledge, the use of the IP Collateral in the manner in which it is currently used or planned to be used does not infringe, dilute, misappropriate, or otherwise violate the rights of any Person.

-76-

4.1.45 Ground Lease(a).

(a) Recording; Modification. A memorandum of each Ground Lease has been duly recorded. The Ground Lease permits the interest of Borrower to be encumbered by a mortgage. Except as set forth on Schedule VIII, there have not been amendments or modifications to the terms of the Ground Lease since its recordation, with the exception of written instruments which have been recorded. The Ground Lease may not be canceled, terminated, surrendered or amended without the prior written consent of Administrative Agent.

(b) No Liens. Except for the Permitted Encumbrances, Borrower’s interest in the Ground Lease is not subject to any Liens or encumbrances superior to, or of equal priority with, the Security Instrument other than the ground lessor’s related fee interest. Such Ground Lease is, and shall remain, prior to any mortgage or Lien upon the ground lessor’s related fee interest.

(c) Ground Lease Assignable. Borrower’s interest in the Ground Lease is assignable to Administrative Agent upon notice to, but without the consent of, the ground lessor (or, if any such consent is required, it has been obtained prior to the Closing Date). The Ground Lease is further assignable by Administrative Agent, its successors and assigns without the consent of the ground lessor.

(d) Default. As of the date hereof, the Ground Lease is in full force and effect and no default has occurred under the Ground Lease and, to the Best of Borrower’s Knowledge, there is no existing condition which, but for the passage of time and/or the giving of notice, could result in a default under the terms of the Ground Lease. All rents, additional rents and other sums due and payable under the Ground Lease have been paid in full. Neither Borrower nor the ground lessor under the Ground Lease has commenced any action or given or received any notice for the purpose of terminating the Ground Lease.

-77-

(e) Notice. The Ground Lease requires the ground lessor to give notice of any default by Borrower to Administrative Agent. The Ground Lease, or estoppel letters received by Administrative Agent from the ground lessor, further provides that notice of termination given under the Ground Lease is not effective against Administrative Agent unless a copy of the notice has been delivered to Administrative Agent in the manner described in the Ground Lease.

(f) Cure. Administrative Agent is permitted the opportunity (including, where necessary, sufficient time to gain possession of the interest of Borrower under the Ground Lease) to cure any default under the Ground Lease, after the receipt of notice of the default, before the ground lessor thereunder may terminate the Ground Lease.

(g) Term. The Ground Lease has a term which extends not less than twenty (20) years beyond the Final Extended Maturity Date.

(h) New Lease. The Ground Lease requires the ground lessor to enter into a new lease with Administrative Agent upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in a bankruptcy proceeding.

(i) Insurance Proceeds. Under the terms of the Ground Lease and the Security Instrument, taken together, any related insurance and condemnation proceeds will be applied either to the repair or restoration of all or part of the Property, with Administrative Agent having the right to hold and disburse the proceeds as the repair or restoration progresses, or to the payment of the Principal Amount together with any accrued interest thereon.

(j) Subleasing. The Ground Lease does not impose commercially unreasonable restrictions on subleasing.

4.1.46 Survival of Representations. Borrower agrees that all of the representations and warranties of Borrower set forth in Section 4.1 and elsewhere in this Agreement and in the other Loan Documents shall be deemed given and made as of the date of the funding of the Loan and survive for so long as any amount remains owing to Lenders under this Agreement or any of the other Loan Documents by Borrower or any Transaction Party unless a longer survival period is expressly stated in a Loan Document with respect to a specific representation or warranty, in which case, for such longer period. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be deemed to have been relied upon by Administrative Agent and Lenders notwithstanding any investigation heretofore or hereafter made by Administrative Agent or Lenders or on each of their behalf.

-78-

ARTICLE V

Borrower Covenants

Section 5.1 Affirmative Covenants. From the Closing Date and until payment and performance in full of all Obligations or the earlier release of the Lien of this Agreement and the other Accommodation Security Documents in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Administrative Agent to comply with and to cause Manager to comply with, the following covenants:

5.1.1 Performance by Borrower. Borrower shall observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, in accordance with the provisions of each Loan Document.

5.1.2 Existence; Compliance with Legal Requirements; Insurance. Subject to Borrower’s right of contest pursuant to Section 7.3, Borrower shall comply and cause the Property to be in compliance in all material respects with all Legal Requirements applicable to Borrower and the Property and the uses permitted upon the Property. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises necessary to comply in all material respects with all Legal Requirements applicable to it and the Property. There shall never be committed by Borrower, and Borrower shall not knowingly permit any other Person in occupancy of or involved with the operation or use of the Property to commit, any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, knowingly permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall at all times maintain, preserve and protect all material franchises and trade names and preserve all the remainder of its property used in the conduct of its business and shall keep the Property in good working order and repair, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto. Borrower shall keep the Property insured at all times to such extent and against such risks, and maintain liability and such other insurance, as set forth in this Agreement.

5.1.3 Litigation. Borrower shall give prompt written notice to Administrative Agent of any litigation or governmental proceedings pending or threatened in writing against Borrower which, if determined adversely to Borrower, could reasonably be expected to have a Material Adverse Effect.

5.1.4 Single Purpose Entity.

(A) Each Borrower is and shall remain a Single Purpose Entity.

-79-

(B) Each Borrower shall continue to maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions. None of the funds of any Borrower will be commingled with the funds of any other Affiliate.

(C) To the extent that any Borrower shares the same officers or other employees as any of its Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees.

(D) To the extent that any Borrower jointly contracts with any of its Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that any Borrower contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions between (or among) Borrower and any of their Affiliates shall be conducted on substantially the same terms (or on more favorable terms for Borrower) as would be conducted with third parties.

(E) To the extent that any Borrower or any of its Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses.

(F) Each Borrower shall conduct its affairs strictly in accordance with its organizational documents, and observe all necessary, appropriate and customary corporate, limited liability company or partnership formalities, as applicable, including, but not limited to, obtaining any and all consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, without limitation, payroll and intercompany transaction accounts.

(G) In addition, each Borrower shall: (i) maintain books and records separate from those of any other Person; (ii) maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets; (iii)  observe all corporate, partnership or limited liability company, as the case may be, formalities; (iv) hold itself out to creditors and the public as a legal entity separate and distinct from any other entity; (v) except to the extent such entity is treated as a “disregarded entity” for tax purposes and not required to file tax returns under applicable law or to the extent that it is required by Legal Requirements to file consolidated federal or unitary state tax returns (or any analogous combined state tax returns), prepare separate tax returns and financial statements, provided that each Borrower may be included in a consolidated financial statement of its Affiliates provided that appropriate notation shall be made on such consolidated financial statements to indicate the separateness of each Borrower and such Affiliates and to indicate that such Borrower’s assets and credit are not available to satisfy the debts and other obligations of such Affiliates or any other Person; (vi) except as permitted by the Loan Documents, transact all business with its Affiliates on an arm’s-length basis; (vii) conduct business in its name and, to the extent reasonably necessary for the operation of its business, use separate stationery, invoices and checks; (viii) not commingle its assets or funds with those of any other Person, other than as permitted by the Loan Documents; and (ix) not assume, guarantee or pay the debts or obligations of any other Person, other than as permitted by the Loan Documents.

-80-

5.1.5 Consents. If Borrower is a corporation, the board of directors of such Person may not take any action requiring the unanimous affirmative vote of 100% of the members of the board of directors unless all of the directors, including the Independent Directors, shall have participated in such vote if such vote relates to a Material Action (as such term is defined in Borrower’s organizational documents). If Borrower is a limited liability company, (a) if such Person is managed by a board of managers, the board of managers of such Person may not take any action requiring the unanimous affirmative vote of 100% of the members of the board of managers unless all of the managers, including the Independent Managers, shall have participated in such vote if such vote relates to a Material Action (as such term is defined in Borrower’s organizational documents), (b) if such Person is not managed by a board of managers, the members of such Person may not take any action requiring the affirmative vote of 100% of the members of such Person unless all of the members, including the Independent Members, shall have participated in such vote if such vote relates to a Material Action (as such term is defined in Borrower’s organizational documents). An affirmative vote of 100% of the directors, board of managers or members, as applicable, including without limitation the Independent Directors or Independent Members, as applicable, of Borrower shall be required to (i) file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings or to authorize Borrower to do so or (ii) file an involuntary bankruptcy petition against any Transaction Party, Manager, or any of their Affiliates. Furthermore, Borrower’s formation documents shall expressly state that for so long as the Loan is outstanding, Borrower shall not be permitted to (i) dissolve, liquidate, consolidate, merge or sell all or substantially all of Borrower’s assets other than in connection with the repayment of the Loan or as expressly permitted in Article VIII hereof or (ii) engage in any other business activity other than as permitted pursuant to Section 5.2.3 hereof and such restrictions shall not be modified or violated for so long as the Obligations are outstanding.

5.1.6 Access to Property. Borrower shall permit agents, representatives and employees of Administrative Agent and each Lender to inspect the Property or any part thereof during normal business hours on Business Days upon reasonable advance notice, subject to the rights of tenants and guests at the Property.

5.1.7 Notice of Default. Borrower shall promptly advise Administrative Agent (a) of any event or condition that has or is likely to have a Material Adverse Effect and (b) of the occurrence of any Default or Event of Default of which Borrower has knowledge.

5.1.8 Cooperate in Legal Proceedings. Borrower shall cooperate fully with Administrative Agent with respect to any proceedings before any court, board or other Governmental Authority which would reasonably be expected to affect in any material adverse way the rights of Administrative Agent or Lenders hereunder or under any of the other Loan Documents and, in connection therewith, permit Administrative Agent, at its election, to participate in any such proceedings which could reasonably be expected to have a Material Adverse Effect.

-81-

5.1.9 Perform Loan Documents. Borrower shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required, under the Loan Documents executed and delivered by, or applicable to, Borrower.

5.1.10 Insurance.

(A) Borrower shall cooperate with Administrative Agent in obtaining for Lenders the benefits of any Proceeds lawfully or equitably payable in connection with the Property, and Administrative Agent shall be reimbursed for any expenses incurred in connection therewith (including reasonable attorneys’ fees and disbursements) out of such Proceeds.

(B) Borrower shall comply with all Insurance Requirements and shall not bring or keep or permit to be brought or kept any article upon any of the Property or cause or permit any condition to exist thereon which would be prohibited by any Insurance Requirement, or would invalidate insurance coverage required hereunder to be maintained by Borrower on or with respect to any part of the Property pursuant to Section 6.1.

5.1.11 Further Assurances; Substitute Notes.

(A) Borrower shall execute and acknowledge (or cause to be executed and acknowledged) and deliver to Administrative Agent all documents, and take all actions, reasonably required by Administrative Agent from time to time to confirm the rights created or now or hereafter intended to be created under this Agreement and the other Loan Documents and any security interest created or purported to be created hereunder or thereunder, to protect and further the validity, priority and enforceability of this Agreement and the other Loan Documents, to subject to the Loan Documents any property of Borrower intended by the terms of any one or more of the Loan Documents to be encumbered by the Loan Documents, or otherwise to carry out the purposes of the Loan Documents and the transactions contemplated thereunder. Borrower agrees that it shall, upon request, reasonably cooperate with Administrative Agent in connection with any request by Administrative Agent to reallocate the LIBO Rate Spread among one or more Notes or to sever one or more Notes into two (2) or more separate substitute or component notes in an aggregate principal amount equal to the Principal Amount and to reapportion the Loan among such separate substitute notes, including, without limitation, by executing and delivering to Administrative Agent new substitute or component notes to replace the subject Notes, amendments to or replacements of existing Loan Documents to reflect such severance and/or Opinions of Counsel with respect to such substitute or component notes, amendments and/or replacements, provided that Borrower shall bear no costs or expenses in connection therewith (other than administrative costs and expenses of Borrower and legal fees of counsel to Borrower and each Transaction Party). Any such substitute or component notes may have varying principal amounts and economic terms, provided, however, that (i) the maturity date of any such substitute or component notes shall be the same as the scheduled Maturity Date of the Notes immediately prior to the issuance of such substitute notes, (ii) the substitute notes shall provide for amortization of the Principal Amount on a weighted average basis over a period not less than the amortization period provided under the Notes, if any, immediately prior to the issuance of the substitute notes, (iii) the weighted average LIBO Rate Spread for the term of the substitute notes shall not exceed the LIBO Rate Spread under the Notes immediately prior to the issuance of such substitute notes, (iv) the economics of the Loan, taken as a whole, shall not change in a manner which is adverse to Borrower and (v) Borrower shall not have (except to a de minimis extent) any more restrictive covenants than currently set forth in the Loan Documents. Upon the occurrence and during the continuance of an Event of Default, Administrative Agent may apply payment of all sums due under such substitute notes in such order and priority as Administrative Agent shall elect in its sole and absolute discretion.

-82-

(B) In addition, Borrower shall, at Borrower’s sole cost and expense:

(i) furnish to Administrative Agent, to the extent not otherwise already furnished to Administrative Agent and reasonably acceptable to Administrative Agent, all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents;

(ii) execute and deliver, from time to time, such further instruments (including, without limitation, delivery of any financing statements under the UCC) as may be reasonably requested by Administrative Agent to confirm the Lien of the Security Instrument;

(iii) execute and deliver to Administrative Agent such documents, instruments, certificates, assignments and other writings, and do such other acts necessary to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Obligations, as Administrative Agent may reasonably require; and

(iv) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the carrying out of the terms and conditions of this Agreement and the other Loan Documents, as Administrative Agent shall reasonably require from time to time.

5.1.12 Mortgage Taxes. Borrower shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Notes or the Liens created or secured by the Loan Documents, other than income, franchise and doing business taxes imposed on Administrative Agent or Lenders.

-83-

5.1.13 Operation. Borrower shall, and shall cause Manager to, (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Management Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Administrative Agent of any “event of default” under the Management Agreement of which it is aware; and (iii) enforce in a commercially reasonable manner the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Manager under the Management Agreement.

5.1.14 Business and Operations. Borrower shall continue to engage in the businesses presently conducted by it as and to the extent the same are necessary for the use, ownership, maintenance, management and operation of the Property. Borrower shall qualify to do business and shall remain in good standing under the laws of the State in which the Property is located and as and to the extent required for the ownership, maintenance, management and operation of the Property.

5.1.15 Title to the Property. Borrower shall warrant and defend (a) its title to the Property and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) and (b) the validity and priority of the Liens of the Loan Documents, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse Administrative Agent and Lenders for any losses, costs, damages or expenses (including reasonable attorneys’ fees and court costs) incurred by Administrative Agent and Lenders if an interest in the Property, other than as permitted hereunder, is claimed by another Person.

5.1.16 Costs of Enforcement. In the event (a) that this Agreement or any other Loan Document is foreclosed upon in whole or in part or that this Agreement or any other Loan Document is put into the hands of an attorney for collection, suit, action or foreclosure, (b) of the foreclosure of any security agreement prior to or subsequent to this Agreement in which proceeding Administrative Agent and/or Lenders are made a party, or a mortgage prior to or subsequent to the Security Instrument in which proceeding Administrative Agent and/or Lenders are made a party, or (c) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or any of its constituent Persons or an assignment by Borrower or any of its constituent Persons for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys’ fees and costs, incurred by Administrative Agent, Lenders or Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, together with all required service or use taxes.

-84-

5.1.17 Estoppel Certificates.

(A) From time to time but not more than four (4) times in any calendar year, upon thirty (30) days’ prior written request from Administrative Agent, Borrower shall execute, acknowledge and deliver to Administrative Agent, an Officer’s Certificate, stating that this Agreement and the other Loan Documents are unmodified and in full force and effect (or, if there have been modifications, that this Agreement and the other Loan Documents are in full force and effect as modified and setting forth such modifications), stating the amount of accrued and unpaid interest and the outstanding principal amount of the Notes and containing such other information, qualified to the Best of Borrower’s Knowledge, with respect to Borrower, the Property and the Loan as Administrative Agent shall reasonably request. The estoppel certificate shall also state either that no Default or Event of Default exists hereunder or, if any Default or Event of Default shall exist hereunder, specify such Default or Event of Default and the steps being taken to cure such Default or Event of Default. Notwithstanding the foregoing to the contrary, upon the occurrence and during the continuance of an Event of Default, Borrower shall from time to time upon thirty (30) days’ prior written request from Administrative Agent, execute, acknowledge and deliver to Administrative Agent, the foregoing Officer’s Certificate.

(B) Borrower shall use commercially reasonable efforts to deliver to Administrative Agent, within thirty (30) days of Administrative Agent’s request, tenant estoppel certificates from each Tenant under Material Leases in substantially the form and substance of the estoppel certificate set forth in Exhibit G; provided that Borrower shall not be required to deliver such certificates more frequently than one time in any calendar year; provided, however, that there shall be no limit on the number of times Borrower may be required to obtain such certificates if a Default or an Event of Default hereunder or under any of the Loan Documents has occurred and is continuing.

(C) Borrower shall use commercially reasonable efforts to deliver to Administrative Agent, within thirty (30) days of Administrative Agent’s request, an estoppel certificate from the ground lessor under a Ground Lease, in form and substance reasonably satisfactory to Administrative Agent; provided, that Borrower shall not be required to deliver such certificates more than three (3) times during the Term and not more frequently than once per calendar year with respect to each Ground Lease; provided, however, that there shall be no limit on the number of times Borrower may be required to obtain such certificates if a Default or an Event of Default hereunder or under any of the Loan Documents has occurred and is continuing.

(D) Borrower shall use commercially reasonable efforts to deliver to Administrative Agent, within thirty (30) days of Administrative Agent’s request, an estoppel certificate from the Condominium Board, in form and substance reasonably satisfactory to Administrative Agent; provided, that Borrower shall not be required to deliver such certificates more frequently than once per calendar year; provided, however, that there shall be no limit on the number of times Borrower may be required to obtain such certificates if a Default or an Event of Default hereunder or under any of the Loan Documents has occurred and is continuing.

5.1.18 Loan Proceeds. Borrower shall use the proceeds of the Loan only for the purposes set forth in Section 2.1.4.

-85-

5.1.19 No Joint Assessment. Borrower shall not suffer, permit or initiate the joint assessment of the Property (a) with any other real property constituting a tax lot separate from the Property and (b) which constitutes real property with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property.

5.1.20 No Further Encumbrances. Borrower shall do, or cause to be done, all things necessary to keep and protect the Property and all portions thereof unencumbered from any Liens, easements or agreements granting rights in or restricting the use or development of the Property, except for (a) Permitted Encumbrances and (b) Liens permitted pursuant to the Loan Documents.

5.1.21 Leases. Borrower shall promptly after receipt thereof deliver to Administrative Agent a copy of any notice received with respect to the Leases claiming that Borrower is in default in the performance or observance of any of the material terms, covenants or conditions of any of the Leases, if such default is reasonably likely to have a Material Adverse Effect.

5.1.22 Intentionally Omitted.

5.1.23 Intentionally Omitted.

5.1.24 FF&E. Borrower shall cause Manager to reserve for FF&E on a monthly basis in accordance with the Management Agreement not less than an amount equal to four percent (4%) of gross revenues with respect to the Property, provided however, this Section 5.1.24 shall not affect Borrower’s obligations hereunder to set aside reserves for FF&E.

5.1.25 IP Activities.

(a) Borrower agrees that it will not do any act, or omit to do any act (and will exercise commercially reasonable efforts to prevent its licensees from doing any act or omitting to do any act), whereby any IP Collateral may become invalidated, abandoned or dedicated to the public.

-86-

(b) Borrower (either through itself or its licensees or sublicensees) will, as to each Trademark included in the IP Collateral, reasonably maintain the quality of the products and services offered under such Trademark.

(c) If Borrower shall, at any time after the date hereof, obtain any additional Intellectual Property or IP Licenses, then the provisions of this Agreement shall automatically apply thereto and any such Intellectual Property and/or IP Licenses shall automatically constitute IP Collateral and shall be subject to the lien and security interest created by this Agreement or any other Loan Document without further action by any party.

(d) Borrower shall promptly notify Administrative Agent if it knows or has reason to know that any IP Collateral that is material to the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property may become abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, United States Copyright Office, or any court or similar office of any other country) regarding Borrower’s ownership of such IP Collateral or, its right to register or maintain the same.

(e) If Borrower knows that any IP Collateral, has been or is being misappropriated, diluted, infringed, or otherwise violated by a third party, then Borrower shall promptly notify Administrative Agent and shall use commercially reasonable efforts to protect its rights in such IP Collateral including, and, if consistent with its reasonable business judgment, to promptly sue for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation or dilution.

(f) Upon the occurrence and during the continuance of any Event of Default, Borrower shall use commercially reasonable efforts to obtain all requisite consents or approvals by the licensor of each IP License to effect the assignment of the relevant Borrower’s right, title, and interest thereunder to Administrative Agent.

(g) There shall be no Liens with respect to, or upon, or no restrictions on the transferability of the IP Collateral, other than the Permitted Encumbrances and as set forth in the IP Licenses.

5.1.26 Ground Lease.

(a) Borrower shall:

(i) pay all rents, additional rents and other sums required to be paid by Borrower, as tenant under and pursuant to the provisions of the Ground Lease, as and when such rent, additional rents and other sums are payable;

-87-

(ii) diligently perform and observe all of the other terms, covenants and conditions of the Ground Lease on the part of Borrower, as tenant thereunder, to be performed and observed, at least three (3) days prior to the expiration of any applicable grace period therein provided; and

(iii) promptly notify Administrative Agent of the receipt by Borrower of any written notice by the lessor under the Ground Lease to Borrower of any default by Borrower in the performance or observance of any of the material terms, covenants or conditions of the Ground Lease on the part of Borrower, as tenant thereunder, to be performed or observed, and deliver to Administrative Agent a true copy of each such notice.

(b) Borrower shall not, without the prior consent of Administrative Agent, surrender the leasehold estate created by the Ground Lease or terminate or cancel the Ground Lease or modify, change, supplement, alter or amend the Ground Lease, in any material respect, either orally or in writing, and Borrower hereby assigns to Administrative Agent, as further security for the payment and performance of the Obligations, all of the rights, privileges and prerogatives of Borrower, as tenant under the Ground Lease, to surrender the leasehold estate created by the Ground Lease or to terminate, cancel, modify, change, supplement, alter or amend the Ground Lease in any material respect, and any such surrender of the leasehold estate created by the Ground Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Ground Lease in any material respect without the prior consent of Administrative Agent shall be void and of no force and effect.

(c) If Borrower shall default in the performance or observance of any material term, covenant or condition of the Ground Lease on the part of Borrower, as tenant thereunder, to be performed or observed, then, without limiting the generality of the other provisions of the Security Instrument, this Agreement and the other Loan Documents, and without waiving or releasing Borrower from any of its Obligations, Administrative Agent shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the material terms, covenants and conditions of the Ground Lease on the part of Borrower, as tenant thereunder, to be performed or observed or to be promptly performed or observed on behalf of Borrower, to the end that the rights of Borrower in, to and under the Ground Lease shall be kept unimpaired as a result thereof and free from default, even though the existence of such event of default or the nature thereof be questioned or denied by Borrower or by any party on behalf of Borrower. If Administrative Agent shall make any payment or perform any act or take action in accordance with the preceding sentence, Administrative Agent will notify Borrower of the making of any such payment, the performance of any such act or the taking of any such action. In any such event, subject to the rights of Tenants, subtenants and other occupants under the Leases or of parties to any reciprocal easement agreement, Administrative Agent and any Person designated as Administrative Agent’s agent by Administrative Agent shall have, and are hereby granted, the right to enter upon the Property at any reasonable time, on reasonable notice (which may be given verbally) and from time to time for the purpose of taking any such action. Administrative Agent may pay and expend such sums of money as Administrative Agent reasonably deems necessary for any such purpose and upon so doing shall be subrogated to any and all rights of the landlord under the Ground Lease. Borrower hereby agrees to pay to Administrative Agent within five (5) days after demand, all such sums so paid and expended by Administrative Agent, together with interest thereon from the day of such payment at the Default Rate. All sums so paid and expended by Administrative Agent and the interest thereon shall be secured by the Security Instrument and the other Loan Documents.

-88-

(d) If the lessor under the Ground Lease shall deliver to Administrative Agent a copy of any notice of default sent by said lessor to Borrower, as tenant under the Ground Lease, such notice shall constitute full protection to Administrative Agent for any action taken or omitted to be taken by Administrative Agent, in good faith, in reliance thereon. Borrower shall exercise each individual option, if any, to extend or renew the term of the Ground Lease upon demand by Administrative Agent made at any time within one (1) year prior to the last day upon which any such option may be exercised, and if Borrower shall fail to do so, Borrower hereby expressly authorizes and appoints Administrative Agent its attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. Borrower will not subordinate or consent to the subordination of the Ground Lease to any mortgage, security deed, lease or other interest on or in the landlord’s interest in all or any part of the Property, unless, in each such case, the written consent of Administrative Agent shall have been first had and obtained.

5.1.27 Condominium Declaration.

(a) Borrower shall comply with all material terms, conditions and covenants of the Condominium Declaration and all by-laws, rules and regulations promulgated or otherwise existing with respect to the Condominium Regime (collectively, the “Condominium Rules”) as those are in force and effect.

(b) Borrower shall not, without Administrative Agent’s prior written consent (not to be unreasonably withheld), modify, amend, supplement or in any other manner change the terms, conditions and covenants of the Condominium Declaration or the Condominium Rules in any material respect, nor waive or consent to the waiver of any enforcement of the provisions thereof with respect to another unit owner.

(c) Borrower shall promptly deliver to Administrative Agent a true and full copy of each and every written notice of default or notice requiring the performance of any act by Borrower received by Borrower with respect to any obligation of Borrower under the provisions of the Condominium Declaration or the Condominium Rules.

(d) Borrower shall not, except with the prior written consent of Administrative Agent, (i) institute any action or proceeding for partition of the Condominium Regime; (ii) vote for or consent to any modification of, amendment to or relaxation in the enforcement of any provision of the Condominium Declaration or the Condominium Rules; (iii) in the event of damage to or destruction of the Property, vote in opposition to a motion to repair, restore, or rebuild; or (iv) notwithstanding anything contained in the Declaration or Condominium Rules to the contrary, subdivide any of the Condominium Units.

-89-

(e) In each and every case in which, under the provisions of the Condominium Declaration or the Condominium Rules, the consent or the vote of the owners of Condominium Units is required, Borrower shall not vote or give such consent so as to impair the lien of the Security Instrument or the security therefor without, in each and every case, the prior written consent of Administrative Agent.

(f) Borrower shall promptly pay, as the same become due and payable, all common charges or other payments for maintenance and reserve funds and all assessments as required by the Condominium Declaration or the Condominium Rules or any resolutions adopted pursuant thereto, and shall promptly upon demand deliver to Administrative Agent receipts for all such payments. In the event that Borrower fails to make such payments as the same become due and payable, Administrative Agent may from time to time at its option, but without any obligation to do so and only after five (5) Business Days’ written notice to Borrower of its intent to do so, make such payments, and the same shall be added to the debt secured by the Loan Documents, and shall bear interest until repaid at the Default Rate; provided, however, that the failure of Borrower to make any such payment or to exhibit such receipts shall, at the election of Administrative Agent constitute an Event of Default.

(g) In the event of the failure of Borrower to perform any of its obligations relating to the Property under the Condominium Declaration or Condominium Rules within a period of five (5) Business Days (unless the Condominium Board requires sooner performance) after notice from the Condominium Board or from Administrative Agent of such failure, or in the case of any such default which cannot with due diligence be cured or remedied within such period, if Borrower fails to proceed promptly after such notice to cure or remedy the same with due diligence, then in any such case, Administrative Agent may from time to time at its option, but without any obligation so to do, cure or remedy any such default of Borrower (Borrower hereby authorizing Administrative Agent to enter upon the Property as may be necessary for such purposes), and all sums expended by Administrative Agent for such purposes, including reasonable counsel fees, shall be added to the debt secured by the Loan Documents, shall become due and payable on demand and shall bear interest until repaid at the Default Rate and shall be added to the indebtedness secured by the Loan Documents; provided, however, that the failure of Borrower to cure or remedy such default within such five (5) Business Day period, or, in the case in which such cannot be kept or performed within such five (5) Business Day period, provided Borrower has commenced to cure such default and is diligently pursuing same to completion, such additional time as is needed to so complete, shall, at the election of Administrative Agent, not constitute an Event of Default.

(h) Subject to all Legal Requirements, the terms of the Condominium Declaration and the Condominium Rules, from and after the occurrence and during the continuance of an Event of Default, Administrative Agent shall have the right to require that any members (or representatives) of the Condominium Board or any other condominium or owners association created under the Condominium Regime and any officers thereof, that are in each case elected (or appointed) by Borrower tender their written resignation and Administrative Agent shall have the right to replace such members or representatives with persons elected or appointed by Administrative Agent. Further, Borrower shall cooperate with Administrative Agent in all respects to replace said members and officers elected or appointed by Borrower with members and officers of Administrative Agent’s choosing.

-90-

(i) Borrower shall, at the option of Administrative Agent exercisable at any time during the existence of an Event of Default hereunder, pay to Administrative Agent at the time of each payment of an installment of interest under the Notes, an additional amount sufficient to discharge the obligations under clause (f) when they become due. The determination of the amount so payable and of the fractional part thereof to be deposited with Administrative Agent, so that the aggregate of such deposits shall be sufficient for this purpose, shall be made by Administrative Agent in its sole discretion. Such amounts shall be held by Administrative Agent without interest and applied to the payment of the obligations in respect of which such amounts were deposited or, at Administrative Agent’s option, to the payment of said obligations in such order or priority as Administrative Agent shall determine, on or before the respective dates on which the same or any of them would become delinquent. If one month prior to the due date of any of the aforementioned obligations the amounts then on deposit therefor shall be insufficient for the payment of such obligation in full, Borrower shall, within five (5) Business Days after demand, deposit the amount of the deficiency with Administrative Agent. Nothing herein contained shall be deemed to affect any right or remedy of Administrative Agent under any provisions of this Agreement or any of the Loan Documents or of any statute or rule of law to pay any such amount and to add the amount so paid, together with interest at the Default Rate, to the Obligations secured by the Loan Documents.

5.1.28 Franchise Agreements.

As of the date hereof, no Franchise Agreement exists. Borrower shall not enter into any Franchise Agreement without first obtaining Administrative Agent’s prior written approval of such Franchise Agreement and the applicable Franchisor. As a condition to Administrative Agent’s approval of any proposed Franchise Agreement, the applicable Franchisor shall execute and deliver to Administrative Agent a franchisor “comfort letter” and estoppel in form and substance acceptable to Administrative Agent. In the event that a Franchise Agreement is entered into after the date hereof, Borrower shall, and shall cause Franchisor to, (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Franchise Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Administrative Agent of any “default” under the Franchise Agreement of which it is aware; (iii) promptly deliver to Administrative Agent a copy of each financial statement, business plan, capital expenditures plan, property improvement plan and any other notice, report and estimate received by it under the Franchise Agreement; and (iv) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Franchisor under the Franchise Agreement.

5.1.29 Compliance with Patriot Act. Borrower will use its good faith and commercially reasonable efforts to comply with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower and/or the Property, including those relating to money laundering and terrorism. Administrative Agent shall have the right to audit Borrower’s compliance with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower and/or the Property, including those relating to money laundering and terrorism. In the event that Borrower fails to comply with the Patriot Act or any such requirements of Governmental Authorities, then Administrative Agent may, at its option, cause Borrower to comply therewith and any and all costs and expenses incurred by Administrative Agent in connection therewith shall be secured by the Security Instrument and the other Loan Documents and shall be immediately due and payable.

-91-

5.1.30 Remediation. Within thirty (30) days after the Closing Date, Borrower shall undertake an engineering survey of the basement of the Property to identify any remediation necessary with respect to the water damage therein. Upon completion of such engineering survey, Borrower shall promptly (i) deliver such engineering survey to Administrative Agent and (ii) perform, or cause to be performed, any remediation required in connection with such water damage; provided, that Administrative Agent, in its sole discretion, may require that Borrower deposit an amount equal to the funds required to remediate such water damage into the Required Repairs Reserve Account prior to commencing any such remediation.

Section 5.2 Negative Covenants. From the Closing Date until payment and performance in full of all Obligations or the earlier release of the Lien of this Agreement or the Accommodation Security Documents in accordance with the terms of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Administrative Agent that it will not do, or permit to be done, directly or indirectly, any of the following:

5.2.1 Incur Debt; Transfer Property. Incur, create or assume any Debt other than Permitted Debt or Transfer all or any part of the Property or any interest therein, except as permitted in the Loan Documents.

5.2.2 Encumbrances. Incur, create or assume or permit the incurrence, creation or assumption of any Debt secured by an interest in Borrower and shall not Transfer or permit the Transfer of any interest in Borrower except as permitted pursuant to Article VIII.

5.2.3 Engage in Different Business. Engage, directly or indirectly, in any business other than that of entering into this Agreement and the other Loan Documents to which Borrower is a party and the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property and activities related thereto.

5.2.4 Make Advances. Make advances or make loans to any Person, or hold any investments, except as expressly permitted pursuant to the terms of this Agreement or any other Loan Document.

5.2.5 Partition. Partition or permit the partition of the Property, except as permitted hereunder.

-92-

5.2.6 Commingle. Commingle its assets with the assets of any of Borrower’s Affiliates.

5.2.7 Guarantee Obligations. Guarantee any obligations of any Person.

5.2.8 Transfer Assets. Transfer any asset other than in the Ordinary Course of Business or Transfer any interest in the Property except as may be permitted hereby or in the other Loan Documents.

5.2.9 Amend Organizational Documents. Modify any of its organizational documents without Administrative Agent’s consent, other than in connection with any Transfer permitted pursuant to Article VIII or to reflect any change in capital accounts, contributions, distributions, allocations or other provisions that do not and could not reasonably be expected to have a Material Adverse Effect and provided that each such Person remain a Single Purpose Entity.

5.2.10 Dissolve. Dissolve, wind-up, terminate, liquidate, merge with or consolidate into another Person, except following or simultaneously with a repayment of the Obligations in full.

5.2.11 Bankruptcy. (i) File a bankruptcy or insolvency petition or otherwise institute insolvency proceedings, (ii) dissolve, liquidate, consolidate, merge or sell all or substantially all of Borrower’s assets other than in connection with the repayment of the Obligations or (iii) file or solicit the filing of an involuntary bankruptcy petition against Borrower, Manager, any Transaction Party or any Affiliate of any such Person without obtaining the prior consent of all of the directors, managers, or members of Borrower, as applicable, including, without limitation, the Independent Directors, Independent Managers, or Independent Members, as applicable.

5.2.12 ERISA. Engage in any activity that would subject it to regulation under ERISA or qualify it as an “employee benefit plan” (within the meaning of Section 3(3) of ERISA) to which ERISA applies or permit any of Borrower’s assets to constitute plan assets within the meaning of 29 C.F.R. Section 2510.3-101.

5.2.13 Distributions. From and after the occurrence and during the continuance of an Event of Default, make any distributions to or for the benefit of any of Borrower’s shareholders, partners or members, as the case may be, or its or their Affiliates (provided, without limiting any of the terms of the Assignment of Management Agreement, Administrative Agent hereby agrees that payment of any Management Fees or Manager Reimbursable Expenses is not deemed a “distribution”).

-93-

5.2.14 Manager.

(A) Borrower covenants that the Property shall at all times be managed by an Acceptable Manager pursuant to an Acceptable Management Agreement. As of the date hereof, Manager is the sole manager of the Property.

(B) Notwithstanding any provision to the contrary contained herein or in the other Loan Documents, Borrower shall not Modify or waive any right under the Management Agreement (or permit any such action) without the prior written consent of Administrative Agent in its sole discretion, except as provided in the next sentence. Administrative Agent shall not unreasonably withhold, delay or condition its consent to non-material Modifications to the Management Agreement (and its review shall be solely limited to determine whether such Modification is material) provided that such Modification shall not affect the cash management procedures set forth in the Management Agreement, decrease the cash flow of the Property, adversely affect the marketability of the Property, change the definitions of “default” or “event of default,” change the definitions of “operating expense” or words of similar meaning, change the definitions of “owner’s distribution” or “owner’s equity” or “debt service amount” or words of similar meaning so as to reduce the payments due Borrower thereunder, change the timing of remittances to Borrower thereunder, increase or decrease reserve requirements, change the term of the Management Agreement or increase any management fees payable under the Management Agreement.

(C) Borrower may enter into a new Management Agreement with an Acceptable Manager upon delivery of an acceptable Non-Consolidation Opinion covering such replacement manager if such Person (i) is not covered by the Non-Consolidation Opinion or an Additional Non-Consolidation Opinion, and (ii) is an Affiliate of Borrower.

(D) Borrower hereby agrees that, subject to the terms of the Management Agreement and any non-disturbance provisions of the Assignment of Management Agreement, Administrative Agent shall have the right to terminate the Manager subsequent to (i) the occurrence of an Event of Default and the acceleration of the Loan, (ii) a monetary default or any other material default by Manager under the Management Agreement beyond any applicable notice and cure period, (iii) Manager becoming insolvent or a debtor in any bankruptcy or insolvency proceeding, or (iv) Manager engaging in gross negligence, fraud, willful misconduct or misappropriation of funds.

5.2.15 Franchise Fee and Management Fee. Borrower shall not, without the prior written consent of Administrative Agent (which may be withheld in its sole and absolute discretion) take or permit to be taken any action that would increase the percentage amount of the Management Fee, or add a new type of fee payable to Manager relating to the Property, including, without limitation, a Third Party Franchise Fee.

-94-

5.2.16 Operating Lease. Without the prior written consent of Administrative Agent, Borrower shall not surrender, terminate or Modify the Operating Lease.

5.2.17 Modify Account Agreement. Without the prior written consent of Administrative Agent, which shall not be unreasonably withheld, delayed or conditioned, Borrower shall not execute any modification to the Account Agreement.

5.2.18 Zoning Reclassification. Without the prior written consent of Administrative Agent, which shall not be unreasonably withheld, delayed or conditioned, Borrower shall not (a) initiate or consent to any zoning reclassification of any portion of the Property, (b) seek any variance under any existing zoning ordinance that would result in the use of the Property becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, or (c) allow any portion of the Property to be used in any manner that could result in the use of the Property becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation;

5.2.19 Debt Cancellation. Cancel or otherwise forgive or release any material claim or debt owed to it by any Person, except for adequate consideration or in the Ordinary Course of Business and except for termination of a Lease as permitted by Section 8.7;

5.2.20 Misapplication of Funds. Distribute any revenue from the Property or any Proceeds in violation of the provisions of this Agreement, fail to remit amounts to the Collection Accounts or Holding Account, as applicable, as required by Section 3.1, misappropriate any security deposit or portion thereof or apply the proceeds of the Loan in violation of Section 2.1.4; or

5.2.21 Single-Purpose Entity. Fail to be a Single-Purpose Entity or take or suffer any action or inaction the result of which would be to cause such Person to cease to be a Single-Purpose Entity.

-95-

5.2.22 Allocable Chain Expenses and Management Fees. Borrower’s obligation to pay (i) Allocable Chain Expenses and (ii) Management Fees under the Management Agreement shall not be increased above 0% and 3%, respectively, of Hotel Revenues for any calendar year unless Borrower delivers to Administrative Agent an Officer’s Certificate which sets forth a Debt Yield Ratio of 11.00% or more. Notwithstanding the foregoing, in no event shall the Allocable Chain Expenses payable by Borrower exceed 2.50% of Hotel Revenues for any calendar year.

ARTICLE VI

Insurance; Casualty; Condemnation; Restoration

Section 6.1 Insurance Coverage Requirements. Borrower shall, at its sole cost and expense, keep in full force and effect insurance coverage of the types and minimum limits as follows during the term of this Agreement for the mutual benefit of Borrower and Administrative Agent:

6.1.1 Property Insurance. Insurance insuring against loss or damage by standard perils included within the classification “All Risks (or special form) of Physical Loss”. Except as otherwise provided in Section 6.1.11, such insurance (i) shall be Replacement Cost Coverage in an amount equal to the full replacement cost of the Property or such lesser amounts approved by Administrative Agent in its reasonable discretion, and (ii) shall have deductibles no greater than $250,000 for insurance required hereunder. The policies of insurance carried in accordance with this paragraph shall be paid annually in advance, unless financed, and shall contain an “Agreed Amount Endorsement”;

6.1.2 Liability Insurance. Commercial general liability insurance, including broad form property damage, blanket contractual and personal injuries (including death resulting therefrom) coverages and containing minimum limits per occurrence of $1,000,000 with a $2,000,000 general aggregate for any policy year and including liquor liability coverage. In addition, at least $50,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for claims, including legal liability imposed upon Borrower and all related court costs and attorneys’ fees and disbursements;

6.1.3 Workers’ Compensation Insurance. Worker’s compensation insurance with respect to all employees of Borrower as and to the extent required by any Governmental Authority or Legal Requirement and employer’s liability coverage of at least $1,000,000 which is scheduled to the excess and/or umbrella liability insurance as referenced in Section 6.1.2 above;

-96-

6.1.4 Business Interruption Insurance. Business interruption insurance in an amount sufficient to avoid any co-insurance penalty and equal to the greater of (A) the estimated gross revenues (minus estimated variable costs which will no longer be incurred due to the business interruption) from the operation of the Property (including (x) the total payable under the Leases and all Rents and (y) the total of all other amounts to be received by Borrower or third parties that are the legal obligation of the Tenants), net of non-recurring expenses, for a period of up to the next succeeding eighteen (18) months (subject to adjustment for each such 18 month period) plus a twelve (12) month extended period of indemnity (if available at commercially reasonable rates), or (B) the projected Operating Expenses (including Debt Service) for the maintenance and operation of the Property for a period of up to the next succeeding eighteen (18) months plus a twelve (12) month extended period of indemnity as the same may be reduced or increased from time to time due to changes in such Operating Expenses. The amount of such insurance shall be (a) increased from time to time as and when the Rents increase or the estimates of (or the actual) gross revenue (minus estimated (or actual) variable costs which will no longer be incurred due to the business interruption) increases or (b) decreased from time to time to the extent Rents or the estimates of such gross revenue or variable costs decreases;

6.1.5 Builder’s All-Risk Insurance. During any period of repair or restoration, builder’s “all risk” insurance in amounts equal to not less than the full insurable value of the applicable Improvements and insuring against such risks (including fire and extended coverage and collapse of the Improvements to agreed limits) as Administrative Agent may request, in form and substance acceptable to Administrative Agent;

6.1.6 Boiler and Machinery Insurance. Insurance against loss or damage from explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in any of the Improvements and insurance against loss of occupancy or use arising from any breakdown, in such amounts as are generally available at reasonable premiums and are generally required by institutional lenders for properties comparable to the Property;

6.1.7 Flood Insurance. Flood insurance if any part of any structure or improvement comprising the Property is located in an area identified by the Federal Emergency Management Agency as an area federally designated a “100 year flood plain” and (a) flood insurance is generally available at reasonable premiums and in such amount as generally required by institutional lenders for similar properties or (b) if not so available from a private carrier, from the federal government at commercially reasonable premiums to the extent available;

-97-

6.1.8 Terrorism Insurance. Provided that insurance coverage (“Terrorism Insurance”) relating to the acts of terrorism is either (i) commercially available, or (ii) commonly obtained by owners of commercial properties in the same geographic area as the Property and which are similar to the Property, Borrower shall be required to carry Terrorism Insurance throughout the term of the Loan (including any extension terms) on a per occurrence basis in an amount equal to the Total Insurable Value (the “Required Terrorism Amount”), with a maximum deductible of two percent (2%) of the Required Terrorism Amount, unless a greater deductible is approved by Administrative Agent in writing in its reasonable discretion); provided, however; if Borrower maintains a Terrorism Insurance deductible of less than two percent (2%) of the Required Terrorism Amount, the Required Terrorism Amount may be reduced by the difference between (i) two percent (2%) of the Required Terrorism Amount and (ii) the actual amount of the Terrorism Insurance deductible. Notwithstanding the foregoing, Borrower shall at all times maintain Terrorism Insurance in an amount not less than that which can be purchased for a sum equal to $500,000, provided that Borrower shall not be obligated to purchase more than the Required Terrorism Amount. Administrative Agent agrees that Terrorism Insurance coverage may be provided under a blanket policy that is acceptable to Administrative Agent and that such coverage may cover foreign acts of terrorism and domestic acts of terrorism for the Required Terrorism Amount.

6.1.9 Demolition and Increased Construction Costs. Coverage to compensate for the undamaged portion of the full replacement cost of the Property plus coverage to compensate for the cost of demolition and increased cost of construction in an amount no less than $25,000,000;

6.1.10 Law and Ordinance Insurance. Law and ordinance insurance coverage in an amount no less than $25,000,000; and

6.1.11 Other Insurance. If the Property is in an area prone to hurricanes and windstorms, as reasonably determined by Administrative Agent, Borrower shall provide windstorm insurance (including coverage for wind driven water), including business interruption coverage for at least eighteen (18) months. Within thirty (30) days after the date hereof, Borrower shall cause Manager to procure a Fidelity Bond in an amount equal to not less than $2,000,000 with a maximum deductible of $250,000.

6.1.12 Ratings of Insurers. Borrower shall maintain insurance coverage with one or more domestic primary insurers reasonably acceptable to Administrative Agent, having claims-paying-ability and financial strength ratings by S&P of not less than “A-” (and its equivalent by the other Rating Agencies); provided, however, such rating requirements will deemed to be satisfied if (A) the required insurance is provided by a syndicate of five (5) or more insurers with (i) at least sixty percent (60%) of the total coverage under such policies provided by carriers having claims-paying-ability and financial strength ratings by S&P of not less than “A-” (and its equivalent by the other Rating Agencies), (ii) at least thirty percent (30%) of the total coverage under such policies provided by carriers having claims-paying-ability and financial strength ratings by S&P of not less than “BBB+” (and its equivalent by the other Rating Agencies) (without duplication with the carriers having ratings by S&P of not less than “A-” (and its equivalent by

-98-

the other Rating Agencies)), and (iii) the remaining ten percent (10%) of the total coverage under policies provided by carriers having an AM Best Rating of at least “A-VIII” (without duplication with the carriers having ratings by S&P of not less than “A-” or “BBB+” (and their equivalents by the other Rating Agencies)); or (B) the required insurance is provided by a syndicate of four (4) or fewer insurers with (i) at least seventy-five percent (75%) of the total coverage under such policies provided by carriers having claims-paying-ability and financial strength ratings by S&P of not less than “A-” (and its equivalent by the other Rating Agencies), (ii) at least fifteen percent (15%) of the total coverage under such policies provided by carriers having claims-paying-ability and financial strength ratings by S&P of not less than “BBB+” (and its equivalent by the other Rating Agencies) (without duplication with the carriers having ratings by S&P of not less than “A-” (and its equivalent by the other Rating Agencies)), and (iii) the remaining ten percent (10%)of the total coverage under policies under such policies provided by carriers having an AM Best Rating of at least “A-VIII (without duplication with the carriers having ratings by S&P of not less than “A-” or “BBB+” (and their equivalents by the other Rating Agencies)). All insurers providing insurance required by this Agreement shall be authorized to issue insurance in the applicable State, however, non-admitted issuers may be utilized if they meet or exceed the rating requirements of this clause.

6.1.13 Form of Insurance Policies; Endorsements. The insurance policies (i) shall name Administrative Agent and its successors and/or assigns as their interest may appear as an additional insured or as a loss payee (except that in the case of general liability insurance, Administrative Agent shall be named an additional insured and not a loss payee); (ii) shall contain a Non-Contributory Standard Lender Clause and, except with respect to general liability insurance and workers’ compensation insurance, a Lender’s Loss Payable Endorsement, or their equivalents; (iii) shall include effective waivers by the insurer of all claims for insurance premiums against all loss payees, additional insureds and named insureds (other than Borrower) and all rights of subrogation against any loss payee, additional insured or named insured; (iv) except as otherwise provided above, shall be subject to a deductible, if any, not greater in any material respect than the deductible for such coverage on the date hereof; (v) shall contain such provisions as Administrative Agent deems reasonably necessary or desirable to protect its interest, including endorsements providing that neither Borrower, Administrative Agent nor any other party shall be a Contributor-insurer (except deductibles) under said Policies and that no material modification, reduction, cancellation or termination in amount of, or material change (other than an increase) in, coverage of any of the Policies shall be effective until at least thirty (30) days after receipt by each named insured, additional insured and loss payee of written notice thereof or ten (10) days after receipt of such notice with respect to nonpayment of premium; (vi) shall permit Administrative Agent to pay the premiums and continue any insurance upon failure of Borrower to pay premiums within a period of time that could result in policy cancellation, upon the insolvency of Borrower or through foreclosure or other transfer of title to the Property (it being understood that Borrower’s rights to coverage under such policies may not be assignable without the consent of the insurer); and (vii) shall provide that the insurance shall not be impaired or invalidated by virtue of (A) any act, failure to act, negligence of, or violation of declarations, warranties or conditions contained in such policy by Borrower, Administrative Agent or any other named insured, additional insured or loss payee, except for the willful misconduct of Administrative Agent knowingly in violation of the conditions of such policy, (B) the occupation, use, operation or maintenance of the Property for purposes more hazardous than permitted by the terms of the Policy, (C) any foreclosure or other proceeding or notice of sale relating to the Property, or (D) any change in the possession of the Property without a change in the identity of the holder of actual title to the Property (provided that with respect to items (C) and (D), any notice requirements of the applicable Policies are satisfied). Notwithstanding the foregoing, for purposes hereof, Administrative Agent hereby approves the existing insurance policies as of the Closing Date and any renewals thereof with the same insurance ratings and terms.

-99-

6.1.14 Premiums; Certificates; Renewals.

(A) Borrower shall pay or cause to be paid the premiums for such Policies (the “Insurance Premiums”) as the same become due and payable and shall furnish to Administrative Agent upon request the receipts for the payment of the Insurance Premiums or other evidence of such payment reasonably satisfactory to Administrative Agent (provided, however, that Borrower is not required to furnish such evidence of payment to Administrative Agent if such Insurance Premiums are to be paid by Administrative Agent pursuant to the terms of this Agreement). Within thirty (30) days after request by Administrative Agent, Borrower shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested in writing by Administrative Agent (except with respect to the Terrorism Insurance required hereunder), taking into consideration changes in liability laws, changes in prudent customs and practices, and the like for hotels similar to the Property. In the event Borrower satisfies the requirements under this Section 6.1.14 through the use of a Policy covering properties in addition to the Property, then (unless such policy is provided in substantially the same manner as it is as of the date hereof), Borrower shall provide evidence satisfactory to Administrative Agent that the Insurance Premiums for the Property are separately allocated under such Policy to the Property and that payment of such allocated amount (A) shall maintain the effectiveness of such Policy as to the Property and (B) shall otherwise provide the same protection as would a separate policy that complies with the terms of this Agreement as to the Property, notwithstanding the failure of payment of any other portion of the insurance premiums. If no such allocation is available, Administrative Agent shall have the right to increase the amount required to be deposited into the Insurance Reserve Account in an amount sufficient to purchase a nonblanket Policy covering the Property from insurance companies which qualify under this Agreement.

(B) Borrower shall deliver to Administrative Agent on or prior to the Closing Date certificates setting forth in reasonable detail the material terms (including any applicable notice requirements) of all Policies from the respective insurance companies (or their authorized agents) that issued the Policies, including that such Policies may not be cancelled or modified in any material respect without thirty (30) days’ prior notice to Administrative Agent, or ten (10) days’ notice with respect to nonpayment of premium. Borrower shall deliver to Administrative Agent, concurrently with each change in any Policy, a certificate with respect to such changed Policy certified by the insurance company issuing that Policy, in substantially the same form and containing substantially the same information as the certificates required to be delivered by Borrower pursuant to the first sentence of this clause (i) and stating that all premiums then due thereon have been paid to the applicable insurers and that the same are in full force and effect (or if such certificate and/or other information described in this clause (ii) shall not be obtainable by Borrower, Borrower may deliver an Officer’s Certificate to such effect in lieu thereof).

-100-

(C) Within one (1) Business Day prior to the expiration, termination or cancellation of any Policy, Borrower shall renew such policy or obtain a replacement policy or policies (or a binding commitment for such replacement policy or policies), which shall be effective no later than the date of the expiration, termination or cancellation of the previous policy, and shall deliver to Administrative Agent a certificate in respect of such policy or policies (A) containing the same information as the certificates required to be delivered by Borrower pursuant to clause (b) above, or a copy of the binding commitment for such policy or policies and (B) confirming that such policy complies with all requirements hereof.

(D) If Borrower does not furnish to Administrative Agent the certificates as required under clause (C) above, upon five (5) Business Days prior notice to the risk management contact for Borrower, Administrative Agent may procure, but shall not be obligated to procure, such replacement policy or policies and pay the Insurance Premiums therefor, and Borrower agrees to reimburse Administrative Agent for the cost of such Insurance Premiums promptly on demand. Notwithstanding the above, Administrative Agent, in its sole discretion and at its own expense, for the five (5) day specified cure period, may obtain such replacement policy or policies if Borrower does not timely furnish to Administrative Agent the certificates of insurance as required under clause (C) above.

(E) Concurrently, and upon request from the Administrative Agent, with the delivery of each replacement policy or a binding commitment for the same, Borrower shall deliver to Administrative Agent a report or attestation from a duly licensed or authorized insurance broker or from the insurer, setting forth the particulars as to all insurance obtained by Borrower pursuant to this Section 6.1 and then in effect and stating that all Insurance Premiums that are currently due have been paid to the applicable insurers, that such insurance policies are in full force and effect and that, in the opinion of such insurance broker or insurer, such insurance otherwise complies with the requirements of this Section 6.1 (or if such report shall not be available after Borrower shall have used reasonable efforts to provide the same, Borrower will deliver to Administrative Agent an Officer’s Certificate containing the information to be provided in such report).

6.1.15 Separate Insurance. Borrower shall not take out separate insurance contributing in the event of loss with that required to be maintained pursuant to this Section 6.1 unless such insurance complies with this Section 6.1.

-101-

6.1.16 Blanket Policies. The insurance coverage required under this Section 6.1 may be effected under a blanket policy or policies covering the Property and other properties and assets not constituting a part of the Property; provided that any such blanket policy shall specify, except in the case of public liability insurance, the portion of the total coverage of such policy that is allocated to the Property, and any sublimits in such blanket policy applicable to the Property, which amounts shall not be less than the amounts required pursuant to this Section 6.1 and which shall in any case comply in all other respects with the requirements of this Section 6.1. Upon Administrative Agent’s request, Borrower shall deliver to Administrative Agent an Officer’s Certificate setting forth (i) the number of properties covered by such policy, (ii) the location by city (if available, otherwise, county) and state of the properties, (iii) the average square footage of the properties (or the aggregate square footage), (iv) a brief description of the typical construction type included in the blanket policy and (v) such other information as Administrative Agent may reasonably request.

Section 6.2 Condemnation and Insurance Proceeds.

6.2.1 Right to Adjust.

(A) If the Property is damaged or destroyed, in whole or in part, by a Casualty, Borrower shall give prompt written notice thereof to Administrative Agent, generally describing the nature and extent of such Casualty. Following the occurrence of a Casualty, Borrower, regardless of whether proceeds are available, shall in a reasonably prompt manner proceed to restore, repair, replace or rebuild the Property to the extent practicable to be of at least equal value and of substantially the same character as prior to the Casualty, all in accordance with the terms hereof applicable to Alterations.

(B) Subject to clause (E) below, in the event of a Casualty where the loss does not exceed the Threshold Amount, Borrower may settle and adjust such claim; provided that such adjustment is carried out in a competent and timely manner. In such case, Borrower is hereby authorized to collect and receive for Administrative Agent any Proceeds.

(C) Subject to clause (E) below, in the event of a Casualty where the loss exceeds the Threshold Amount, Borrower may settle and adjust such claim only with the consent of Administrative Agent (which consent shall not be unreasonably withheld, delayed or conditioned) and Administrative Agent shall have the opportunity to participate, at Borrower’s cost, in any such adjustments.

(D) Except as provided in clause (B) and (E) hereof, the proceeds of any Policy shall be due and payable solely to Administrative Agent and held and applied in accordance with the terms hereof (or, if mistakenly paid to Borrower, shall be held in trust by Borrower for the benefit of Administrative Agent and shall be paid over to Administrative Agent by Borrower within two (2) Business Days of receipt).

(E) Notwithstanding any other provisions in this Section 6.2.1 or otherwise in this Agreement or the Loan Documents, Administrative Agent shall have the sole authority to adjust any claim with respect to a Casualty and to collect all Proceeds if an Event of Default shall have occurred and is continuing.

-102-

6.2.2 Right of Borrower to Apply to Restoration. In the event of (a) a Casualty that does not constitute a Material Casualty, or (b) a Condemnation that does not constitute a Material Condemnation, Administrative Agent shall permit the application of the Proceeds (after reimbursement of any expenses incurred by Administrative Agent) to reimburse or pay Borrower for the cost of restoring, repairing, replacing or rebuilding or otherwise curing title defects at the Property (the “Restoration”), in the manner required hereby, provided and on the condition that (1) no Event of Default shall have occurred and be continuing and (2) in the reasonable good faith judgment of Administrative Agent:

(i) the Property can, with diligent restoration, be returned to a condition at least equal to the condition that existed prior to the Casualty or Condemnation,

(ii) the Property, after such Restoration and stabilization, will adequately secure the Obligations,

(iii) the Restoration can be completed by the earliest to occur of:

(A) the 120^th day prior to the Maturity Date, and

(B) with respect to a Casualty, the expiration of the payment period on the rental loss or business interruption insurance coverage in respect of such Casualty; and

(iv) after receiving evidence satisfactory to Administrative Agent, during the period of the Restoration, the sum of (A) income derived from the Property, plus (B) projected proceeds of rental loss insurance or business interruption insurance, if any, payable together with such other monies as Borrower may irrevocably make available for the Restoration, will equal or exceed 100% of the sum of (x) Operating Expenses for such period and (y) the Debt Service for such period.

Notwithstanding the foregoing, if any of the conditions set forth in sub-clauses (1) and (2) of the proviso in this Section 6.2.2 is not satisfied within 90 days of such Casualty or Condemnation, whichever the case may be, then, unless Administrative Agent shall otherwise elect, at its sole option, the Proceeds shall be applied in the following order of priority: (A) first, to prepay the principal of the Loan without the payment of any Prepayment Premium; (B) second, to pay the amount of (1) all accrued and unpaid interest in respect of the Principal Amount of the Indebtedness so prepaid through the date which is the final day of the Interest Period in which such prepayment is made (including, if an Event of Default has occurred and is then continuing, interest owed at the Default Rate), and (2) all other sums (excluding any Prepayment Premium) then due and owing under the Loan Documents and (C) third, to reimburse Administrative Agent and Lenders for any fees and expenses of Administrative Agent and Lenders incurred in connection therewith (it being agreed that, upon satisfaction in full of the entitlements under clauses (A), (B) and (C) of this sentence, Borrower shall be entitled to receive a release of the Lien of the Security Instrument and the other Loan Documents with respect to the Property in accordance with and subject to the terms of Section 2.3.3 hereof and any surplus Proceeds shall be paid over to Borrower). Notwithstanding the foregoing, or anything else to the contrary contained herein, all Proceeds with respect to the insurance determined pursuant to Section 6.1.4 shall be deposited directly into the Collection Account and shall be disbursed in accordance with Article III.

-103-

6.2.3 Material Casualty or Condemnation and Administrative Agent’s Right to Apply Proceeds. In the event of a Material Casualty or a Material Condemnation, Administrative Agent shall permit the application of the Proceeds (after reimbursement of any expenses incurred by Administrative Agent) to reimburse or pay Borrower for the cost of the Restoration, in the manner required hereby, provided and on the condition that (1) no Event of Default shall have occurred and be continuing and (2) in the reasonable good faith judgment of Administrative Agent:

(i) the Property can, with diligent restoration, be returned to a condition at least equal to the condition that existed prior to the Material Casualty or the Material Condemnation,

(ii) the Property, after such Restoration and stabilization, will adequately secure the Obligations,

(iii) the Restoration can be completed by the earliest to occur of:

(A) the 60^th day prior to the Maturity Date, and

(B) with respect to a Material Casualty, the expiration of the payment period on the rental loss or business interruption insurance coverage in respect of such Material Casualty;

(iv) (1) with respect to a Material Casualty, less than twenty-five percent (25%) of the total floor area of the Improvements on the Property has been damaged, destroyed or rendered unusable as a result of such Material Casualty or (2) with respect to a Material Condemnation, less than ten percent (10%) of the land constituting the Property is taken, and such land is located along the perimeter or periphery of the Property, and no portion of the Improvements is located on such land;

(v) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such Material Casualty or Material Condemnation, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion;

(vi) any operating deficits, including all scheduled payments of principal and interest under the Loan, which will be incurred with respect to the Property as a result of the occurrence of any such Material Casualty or Material Condemnation, whichever the case may be, will be covered out of (1) the Proceeds, (2) the insurance coverage referred to in Section 6.2.3(iii)(B), if applicable, or (3) by other funds of Borrower;

(vii) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable Legal Requirements;

-104-

(viii) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable Legal Requirements;

(ix) such Casualty or Condemnation, as applicable, does not result in the loss of access to the Property or the related Improvements;

(x) such Casualty or Condemnation, as applicable, is for a loss in an aggregate amount equal to or less than $100,000,000;

(xi) pursuant to an Appraisal of the Property after such Material Casualty or Material Condemnation, whichever the case may be, the “as completed” appraised value of the Property following Restoration pursuant to such Appraisal shall be at least equal to or greater than two times the Principal Amount at such time;

(xii) Borrower shall deliver, or cause to be delivered, to Administrative Agent a signed detailed budget approved in writing by Borrower’s architect or engineer stating the entire cost of completing the Restoration, which budget shall be acceptable to Administrative Agent;

(xiii) the Proceeds together with any cash or cash equivalent deposited by Borrower with Administrative Agent are sufficient in Administrative Agent’s discretion to cover the cost of the Restoration; and

(xiv) after receiving evidence satisfactory to Administrative Agent, during the period of the Restoration, the sum of (A) income derived from the Property, plus (B) projected proceeds of rental loss insurance or business interruption insurance, if any, payable together with such other monies as Borrower may irrevocably make available for the Restoration, will equal or exceed 100% of the sum of (x) Operating Expenses for such period and (y) the Debt Service for such period.

Notwithstanding the foregoing, if any of the conditions set forth in sub-clauses (1) and (2) of the proviso in this Section 6.2.3 is not satisfied within 90 days of such Material Casualty or Material Condemnation, whichever the case may be, then, unless Administrative Agent shall otherwise elect, at its sole option, the Proceeds shall be applied in the following order of priority: (A) first, to prepay the principal of the Loan without the payment of any Prepayment Premium; (B) second, to pay the amount of (1) all accrued and unpaid interest in respect of the Principal Amount of the Indebtedness so prepaid through the date which is the final day of the Interest Period in which such prepayment is made (including, if an Event of Default has occurred and is then continuing, interest owed at the Default Rate), and (2) all other sums (excluding any Prepayment Premium) then due and owing under the Loan Documents and (C) third, to reimburse Administrative Agent and Lenders for any fees and expenses of Administrative Agent and Lenders incurred in connection therewith (it being agreed that, upon satisfaction in full of the entitlements under clauses (A), (B) and (C) of this sentence, Borrower shall be entitled to receive a release of the Lien of the Security Instrument and the other Loan Documents with respect to the Property in accordance with and subject to the terms of Section 2.3.3 hereof and any surplus Proceeds

-105-

shall be paid over to Borrower). Notwithstanding anything to the contrary contained herein, in the event of a Material Casualty or a Material Condemnation, where Borrower cannot restore, repair, replace or rebuild the Property to be of at least substantially equal value and of substantially the same character as prior to the Material Casualty or Material Condemnation or title defect because the Property is a legally non-conforming use or as a result of any other Legal Requirement, Borrower hereby agrees that Administrative Agent may apply the Proceeds payable in connection therewith in accordance with clauses (A), (B) and (C).

6.2.4 Manner of Restoration and Reimbursement. If Borrower is entitled pursuant to Sections 6.2.2 or 6.2.3 above to reimbursement out of Proceeds (and the conditions specified therein shall have been satisfied), such Proceeds shall be disbursed on a monthly basis upon Administrative Agent being furnished with (i) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Administrative Agent may reasonably require and approve, and (ii) all plans and specifications for such Restoration, such plans and specifications to be approved by Administrative Agent prior to commencement of any work (such approval not to be unreasonably withheld, delayed or conditioned). In addition, no payment made prior to the Final Completion of the Restoration (excluding punch-list items) shall exceed ninety percent (90%) of the aggregate value of the work performed from time to time; funds other than Proceeds shall be disbursed prior to disbursement of such Proceeds; and at all times, the undisbursed balance of such Proceeds remaining in the hands of Administrative Agent, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Administrative Agent by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Administrative Agent to pay for the cost of completion of the Restoration, free and clear of all Liens or claims for Lien. Prior to any disbursement, Administrative Agent shall have received evidence satisfactory to Administrative Agent in its good faith judgment of the estimated cost of completion of the Restoration (such estimate to be made by Borrower’s architect or contractor and approved by Administrative Agent), and Borrower shall have deposited with Administrative Agent Eligible Collateral in an amount equal to the excess (if any) of such estimated cost of completion over the net Proceeds.

6.2.5 Condemnation.

(A) Borrower shall promptly give Administrative Agent written notice of the actual commencement or written threat of commencement of any Condemnation and shall deliver to Administrative Agent copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether Proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the same to the extent practicable to be of at least equal value and of substantially the same character as prior to such Condemnation, all to be effected in accordance with the terms hereof applicable to Alterations.

-106-

(B) Administrative Agent is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any Proceeds in respect of a Condemnation and to make any compromise or settlement in connection with such Condemnation, subject to the provisions of this Section. Provided no Event of Default has occurred and is continuing, (x) in the event of a Condemnation where the loss does not exceed the Threshold Amount, Borrower may settle and compromise such Proceeds; provided that the same is effected in a competent and timely manner, and (y) in the event of a Condemnation, where the loss exceeds the Threshold Amount, Borrower may settle and compromise the Proceeds only with the consent of Administrative Agent (which consent shall not be unreasonably withheld, delayed or conditioned) and Administrative Agent shall have the opportunity to participate, at Borrower’s sole cost and expense, in any litigation and settlement discussions in respect thereof. Notwithstanding any Condemnation by any public or quasi-public authority (including any transfer made in lieu of or in anticipation of such a Condemnation), Borrower shall continue to pay the Indebtedness at the time and in the manner provided for in the Notes, this Agreement and the other Loan Documents, and the Indebtedness shall not be reduced unless and until any Proceeds shall have been actually received and applied by Administrative Agent to discharge the Indebtedness, pay required interest and pay any other required amounts, in each case, pursuant to the terms of Sections 6.2.2 or 6.2.3 above. Administrative Agent shall not be limited to the interest paid on the Proceeds by the condemning authority but shall be entitled to receive out of the Proceeds interest at the rate or rates provided in the Notes and this Agreement. Borrower shall cause any Proceeds that are payable to Borrower to be paid directly to Administrative Agent to be held and applied in accordance with the terms hereof.

ARTICLE VII

Impositions, Other Charges, Liens and Other Items

Section 7.1 Impositions and Other Charges. To the extent Manager does not reserve for or otherwise set aside and pay Impositions and Other Charges directly, and subject to the third sentence of this Section 7.1, Borrower shall pay all Impositions now or hereafter levied or assessed or imposed against the Property or any part thereof prior to the imposition of any interest, charges or expenses for the non-payment thereof and shall pay all Other Charges on or before the date they are due. Subject to Borrower’s right of contest set forth in Section 7.3, as set forth in the next two sentences and provided that there are sufficient funds available in the Tax Reserve Account, Administrative Agent, on behalf of Borrower, shall pay all Impositions and Other Charges, prior to the date such Impositions or Other Charges shall become delinquent or late charges may be imposed thereon, directly to the applicable taxing authority with respect thereto. Administrative Agent shall, or Administrative Agent shall direct the Cash Management Bank to, pay to the taxing authority such amounts to the extent funds in the Tax Reserve Account are sufficient to pay such Impositions. Nothing contained in this Agreement or the Security Instrument shall be construed to require Borrower to pay any tax, assessment, levy or charge imposed on Administrative Agent in the nature of a franchise, capital levy, estate, inheritance, succession, income or net revenue tax.

-107-

Section 7.2 No Liens. Subject to its right of contest set forth in Section 7.3, Borrower shall at all times keep, or cause to be kept, the Property free from all Liens (other than Permitted Encumbrances) and shall pay when due and payable (or bond over) all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in or permit the creation of a Lien on the Property or any portion thereof and shall in any event cause the prompt, full and unconditional discharge of all Liens imposed on or against the Property or any portion thereof within forty-five (45) days after receiving written notice of the filing (whether from Administrative Agent, the lien holder or any other Person) thereof. Borrower shall do or cause to be done, at the sole cost of Borrower, everything reasonably necessary to fully preserve the first priority of the Lien of the Security Instrument against the Property, subject to Permitted Encumbrances. Upon the occurrence and during the continuance of an Event of Default, with respect to Borrower’s Obligations as set forth in this Article VII, Administrative Agent may (but shall not be obligated to) make such payment or discharge such Lien, and Borrower shall reimburse Administrative Agent within three (3) Business Days following demand for all such advances pursuant to Section 19.14 (together with interest thereon at the Default Rate).

Section 7.3 Contest. Nothing contained herein shall be deemed to require Borrower to pay, or cause to be paid, any Imposition or to satisfy any Lien, or to comply with any Legal Requirement or Insurance Requirement, so long as Borrower is in good faith diligently contesting (including, without limitation, by instituting appropriate legal proceedings, when necessary) the validity, amount or application thereof, provided that in each case, at the time of the commencement of any such action or contest, and during the pendency of such action or contest (i) Borrower shall keep Administrative Agent informed of the status of such contest at reasonable intervals, (ii) if Borrower is not providing security as provided in clause (iii) below, adequate reserves with respect thereto are maintained on Borrower’s books in accordance with GAAP or in the Tax Reserve Account or Insurance Reserve Account, as applicable, (iii) such contest is maintained and prosecuted continuously and with diligence or the Imposition or Lien is fully bonded to the satisfaction of Administrative Agent, (iv) in the case of any Insurance Requirement, the failure of Borrower to comply therewith shall not impair the validity of any insurance required to be maintained by Borrower under Section 6.1 or the right to full payment of any claims thereunder, and (v) in the case of Impositions and Liens which are not bonded in excess of $500,000 individually, or in the aggregate, during such contest, Borrower, shall deposit with or deliver to Administrative Agent Cash and Cash Equivalents in an amount equal to 125% of (A) the amount of Borrower’s obligations being contested plus (B) any additional interest, charge, or penalty arising from such contest, or, if the obligations being contested are less than $500,000, may, in lieu of delivering such Cash or Cash Equivalents, deliver a guaranty of the payment of such amounts from the Guarantor in a form reasonably satisfactory to Administrative Agent. Notwithstanding the foregoing, the creation of any such reserves or the furnishing of any bond or other security, Borrower promptly shall comply with any contested Legal Requirement or Insurance Requirement or shall pay any contested Imposition or Lien, and compliance therewith or payment thereof shall not be deferred, if, at any time the Property or any portion thereof shall be, in Administrative Agent’s reasonable judgment, in imminent danger of being forfeited or lost or Administrative Agent is likely to be subject to civil or criminal damages as a result thereof. If such action or proceeding is terminated or discontinued adversely to Borrower, Borrower shall promptly deliver to Administrative Agent reasonable evidence of Borrower’s compliance with such contested Imposition, Lien, Legal Requirements or Insurance Requirements, as the case may be.

-108-

ARTICLE VIII

Transfers and Leases

Section 8.1 Restrictions on Transfers. Unless such action is permitted by the subsequent provisions of this Article VIII, Borrower shall not and shall not permit any Person to, without Administrative Agent’s prior written consent, in its absolute and sole discretion, to the Transfer or other matter in question, (i) Transfer any direct or indirect ownership interest in the Property, Borrower or Guarantor, (ii) permit or suffer any owner of a direct or indirect ownership interest in the Property, Borrower or Guarantor, to Transfer any such ownership interest, whether by transfer of stock or other ownership interest in any entity or otherwise or (iii) mortgage, hypothecate or otherwise encumber or grant a security interest in all or any part of the Property or any direct or indirect ownership interests in all or any part of the Property, Borrower or Guarantor. Notwithstanding any provision in this Article VIII to the contrary, nothing contained in this Article VIII shall be deemed to restrict or otherwise interfere with (i) the ability of the holders of direct or indirect ownership interests in Guarantor to Transfer such interests, whether in connection with an initial public offering of shares in Guarantor or any Person owning direct or indirect ownership interests therein, Transfers by direct or indirect investors in Guarantor or otherwise or (ii) the issuance, conversion, exchange, redemption or other Transfer of direct or indirect ownership interests in (x) Guarantor or (y) a Joint Venture Partner or any Person owning direct or indirect ownership interests therein.

Section 8.2 Sale of Equipment. Borrower may Transfer or dispose of Equipment which is being replaced or which is no longer necessary in connection with the operation of the Property free from the Lien of the Security Instrument; provided that such Transfer or disposal is in the Ordinary Course of Business, will not have a Material Adverse Effect on the value of the Property taken as a whole, will not materially impair the utility of the Property, and will not result in a reduction or abatement of, or right of offset against, the Rents payable under any Lease, in either case as a result thereof, and provided further that any new Equipment acquired by Borrower (and not so disposed of) shall be subject to the Lien of the Security Instrument. Administrative Agent shall, from time to time, upon receipt of an Officer’s Certificate requesting the same and confirming satisfaction of the conditions set forth above, execute a written instrument in form reasonably satisfactory to Administrative Agent to confirm that such Equipment which is to be, or has been, sold or disposed of is free from the Lien of the Security Instrument.

-109-

Section 8.3 Immaterial Transfers and Easements, etc.

(a) Borrower may, without the consent of Administrative Agent, (i) make immaterial Transfers of portions of the Property to Governmental Authorities for dedication or public use (subject to the provisions of Section 6.2), and (ii) grant easements, restrictions, covenants, reservations and rights of way in the Ordinary Course of Business for access, water and sewer lines, telephone and telegraph lines, electric lines or other utilities or for other similar purposes, provided that no such Transfer, conveyance or encumbrance set forth in the foregoing clauses (i) and (ii) shall materially impair the utility and operation of the Property or materially reduce the value of the Property or otherwise result in a Material Adverse Effect. In connection with any Transfer permitted pursuant to this Section 8.3, Administrative Agent shall execute and deliver any instrument reasonably necessary or appropriate, in the case of the Transfers referred to in clause (i) above, to release the portion of the Property affected by such Condemnation or such Transfer from the Lien of the Security Instrument or, in the case of clause (ii) above, to subordinate the Lien of the Security Instrument to such easements, restrictions, covenants, reservations and rights of way or other similar grants upon receipt by Administrative Agent of:

(A) thirty (30) days prior written notice thereof;

(B) a copy of the instrument or instruments of Transfer;

(C) an Officer’s Certificate stating (x) with respect to any Transfer, the consideration, if any, being paid for the Transfer and (y) that such Transfer does not materially impair the utility and operation of the Property, materially reduce the value of the Property or have a Material Adverse Effect; and

(D) reimbursement of all of Administrative Agent’s reasonable costs and expenses incurred in connection with such Transfer.

(b) Notwithstanding anything to the contrary contained in the Loan Documents, the following Transfers shall be permitted hereunder:

(i) a Lease, or any other Transfer of the Property or any portion thereof, entered into in accordance with the Loan Documents; and

(ii) Transfers in connection with a Permitted Encumbrance.

Section 8.4 Transfers of Interests in Borrower. Each holder of any direct or indirect ownership interest in Borrower shall have the right to transfer (but not pledge, hypothecate or encumber) its direct or indirect ownership interest in Borrower to any Person who is not a Disqualified Transferee without Administrative Agent’s consent if Section 8.6 is complied with and, after giving effect to such transfer:

(a) the Property will be directly owned by a Single Purpose Entity in compliance with the representations, warranties and covenants in Section 4.1.29 hereof (as if Borrower shall have remade all of such representations, warranties and covenants as of, and after giving effect to, the Transfer), and which shall have executed and delivered to Administrative Agent an assumption agreement in form and substance acceptable to Administrative Agent, evidencing the continuing agreement of Borrower to abide and be bound by all the terms, covenants and conditions set forth in this Agreement, the Notes, the Security Instrument and the other Loan Documents and all other outstanding obligations under the Loan, together with such legal opinions and title insurance endorsements as may be reasonably requested by Administrative Agent;

-110-

(b) an Acceptable Manager shall continue to act as Manager for the Property pursuant to the Management Agreement or an Acceptable Management Agreement; and

(c) Guarantor shall continue to own directly or indirectly at least fifty percent (50%) of the ownership interests in Borrower; provided that, (i) after giving effect to any such transfer, in no event shall any Person other than Guarantor or a Close Affiliate of Guarantor which is Controlled by Guarantor be the Manager of the Property and (ii) so long as Guarantor or a Close Affiliate of Guarantor which is Controlled by Guarantor has equal or greater voting and approval rights with respect to Management Control, Management Control may be exercisable jointly by Guarantor or a Close Affiliate of Guarantor together with one or more other Persons.

Section 8.5 Loan Assumption. Borrower shall not have the right to sell, assign, convey or otherwise transfer (i) legal or equitable title to any part of the Property or (ii) their respective interests in, to and under the Loan and the Loan Documents.

Section 8.6 Notice Required; Legal Opinions. Not less than five (5) Business Days prior to the closing of any transaction permitted under the provisions of Section 8.4 (other than a Transfer permitted under the last sentence of Section 8.1), Borrower shall deliver or cause to be delivered to Administrative Agent (A) an Officer’s Certificate describing the proposed transaction and stating that such transaction is permitted hereunder and under the other Loan Documents, together with any documents upon which such Officer’s Certificate is based, and (B) upon the reasonable request of Administrative Agent, legal opinion(s) of counsel to Borrower or the transferee selected by either of them (to the extent approved by Administrative Agent), in form and substance reasonably acceptable to Administrative Agent, confirming, among other things, that the assets of Borrower, and of its managing general partner or managing member, as applicable, will not be substantively consolidated with the assets of such owners or Controlling Persons of Borrower as Administrative Agent may specify, in the event of a bankruptcy or similar proceeding involving such owners or Controlling Persons.

Section 8.7 Leases.

8.7.1 New Leases and Lease Modifications. Except as otherwise provided in this Section 8.7, Borrower shall not (i) enter into any Lease other than on “market” terms and with “market” rental rates (in Borrower’s good faith judgment), or (ii) enter into any Material Lease (a “New Lease”), or (iii) consent to the assignment of any Material Lease (unless required to do so by the terms of such Material Lease) that releases the original Tenant from its obligations under the Material Lease, or (iv) Modify or terminate

-111-

any Material Lease (including, without limitation, accept a surrender of any portion of the Property subject to a Material Lease (unless otherwise permitted or required by law), allow a reduction in the term of any Material Lease or a reduction in the Rent payable under any Material Lease, change any renewal provisions of any Material Lease, materially increase the obligations of the landlord or materially decrease the obligations of any Tenant) or terminate any Material Lease) (any such action referred to in clauses (iii) and (iv) being referred to herein as a “Lease Modification”) without the prior written consent of Administrative Agent which consent, so long as no Event of Default is then continuing, shall not be unreasonably withheld, delayed or conditioned. Any New Lease or Lease Modification that requires Administrative Agent’s consent shall be delivered to Administrative Agent for approval not less than ten (10) Business Days prior to the effective date of such New Lease or Lease Modification.

8.7.2 Leasing Conditions. Subject to terms of this Section 8.7, provided no Event of Default shall have occurred and be continuing, Borrower may enter into a New Lease or Lease Modification, without Administrative Agent’s prior written consent, that satisfies each of the following conditions (as evidenced by an Officer’s Certificate delivered to Administrative Agent prior to entry into such New Lease or Lease Modification):

(A) with respect to a New Lease or Lease Modification, the premises demised thereunder is not more than 5,000 net rentable square feet of the Property;

(B) the term of such New Lease or Lease Modification, as applicable, does not exceed 120 months (inclusive of all extension and renewal options), provided that the initial term of such New Lease or Lease Modification is no longer than 60 months;

(C) the New Lease or Lease Modification provides for “market” rental rates and other terms and does not contain any terms which would adversely affect Administrative Agent’s rights under the Loan Documents or that would have a Material Adverse Effect;

(D) the New Lease or Lease Modification, as applicable, provides that the premises demised thereby cannot be used for any of the following uses: any pornographic or obscene purposes, any commercial sex establishment, any pornographic, obscene, nude or semi-nude performances, modeling, materials, activities or sexual conduct or any other use that has or could reasonably be expected to have a Material Adverse Effect;

(E) the New Lease or Lease Modification, as applicable, is not for the spaces at the Property known as: Hudson Bar, Hudson Library, Hudson Hall, Private Park or Sky Terrace.

(F) the Tenant under such New Lease or Lease Modification, as applicable, is not an Affiliate of Borrower;

-112-

(G) the New Lease or Lease Modification, as applicable, does not prevent Proceeds from being held and disbursed by Administrative Agent in accordance with the terms hereof and does not entitle any Tenant to receive and retain Proceeds except those that may be specifically awarded to it in condemnation proceedings because of the Condemnation of its trade fixtures and its leasehold improvements which have not become part of the Property and such business loss as Tenant may specifically and separately establish; and

(H) the New Lease or Lease Modification, as applicable satisfies the requirements of Section 8.7.7 and Section 8.7.8.

8.7.3 Delivery of New Lease or Lease Modification. Upon the execution of any New Lease or Lease Modification, as applicable, Borrower shall deliver to Administrative Agent an executed copy of the Lease.

8.7.4 Lease Amendments. Borrower agrees that it shall not have the right or power, as against Administrative Agent without its consent, to cancel, abridge, or otherwise Modify any Lease unless such modification complies with this Section 8.7.

8.7.5 Security Deposits. All security or other deposits of Tenants of the Property shall be treated as trust funds and shall, if required by law or the applicable Lease not be commingled with any other funds of Borrower, and such deposits shall be deposited, upon receipt of the same by Borrower in a separate trust account maintained by Borrower expressly for such purpose. Within ten (10) Business Days after written request by Administrative Agent, Borrower shall furnish to Administrative Agent reasonably satisfactory evidence of compliance with this Section 8.7.5, together with a statement of all lease securities deposited with Borrower by the Tenants and the location and account number of the account in which such security deposits are held.

8.7.6 No Default Under Leases. Borrower shall (i) promptly perform and observe all of the material terms, covenants and conditions required to be performed and observed by Borrower under the Leases; (ii) exercise, within ten (10) Business Days after a written request by Administrative Agent, any right to request from the Tenant under any Lease a certificate with respect to the status thereof and (iii) not collect any of the Rents, more than one (1) month in advance (except that Borrower may collect such security deposits and last month’s Rents as are permitted by Legal Requirements and are commercially reasonable in the prevailing market and collect other charges in accordance with the terms of each Lease).

8.7.7 Subordination. All Lease Modifications and New Leases entered into by Borrower after the date hereof shall by their express terms be subject and subordinate to this Agreement and the Security Instrument (through a subordination provision contained in such Lease or otherwise) and shall provide that the Person holding any rights thereunder shall attorn to Administrative Agent or any other Person succeeding to the interests of Administrative Agent upon the exercise of its remedies hereunder or any transfer in lieu thereof on the terms set forth in this Section 8.7.

-113-

8.7.8 Attornment. Each Lease Modification and New Lease entered into from and after the date hereof shall provide that in the event of the enforcement by Administrative Agent of any remedy under this Agreement or the Security Instrument, the Tenant under such Lease shall, at the option of Administrative Agent or of any other Person succeeding to the interest of Administrative Agent as a result of such enforcement, attorn to Administrative Agent or to such Person and shall recognize Administrative Agent or such successor in the interest as lessor under such Lease without change in the provisions thereof; provided, however, Administrative Agent or such successor in interest shall not be liable for or bound by (i) any payment of an installment of rent or additional rent made more than thirty (30) days before the due date of such installment, (ii) any act or omission of or default by Borrower under any such Lease (but Administrative Agent, or such successor, shall be subject to the continuing obligations of the landlord to the extent arising from and after such succession to the extent of Administrative Agent’s, or such successor’s, interest in the Property), (iii) any credits, claims, setoffs or defenses which any Tenant may have against Borrower, (iv) any obligation on Borrower’s part, pursuant to such Lease, to perform any tenant improvement work or (v) any obligation on Borrower’s part, pursuant to such Lease, to pay any sum of money to any Tenant. Each such New Lease shall also provide that, upon the reasonable request by Administrative Agent or such successor in interest, the Tenant shall execute and deliver an instrument or instruments confirming such attornment.

8.7.9 Non-Disturbance Agreements. Administrative Agent shall enter into, and, if required by applicable law to provide constructive notice or requested by a Tenant, record in the county where the subject Property is located, a subordination, attornment and non-disturbance agreement, in form and substance substantially similar to the form attached hereto as Exhibit K (a “Non-Disturbance Agreement”), with any Tenant (other than an Affiliate of Borrower) entering into a New Lease permitted hereunder or otherwise consented to by Administrative Agent within ten (10) Business Days after written request therefor by Borrower, provided that, such request is accompanied by an Officer’s Certificate stating that such Lease complies in all material respects with this Section 8.7. All reasonable third party costs and expenses incurred by Administrative Agent in connection with the negotiation, preparation, execution and delivery of any Non-Disturbance Agreement, including, without limitation, reasonable attorneys’ fees and disbursements, shall be paid by Borrower (in advance, if requested by Administrative Agent).

-114-

ARTICLE IX

Interest Rate Cap Agreement

Section 9.1 Interest Rate Cap Agreement. Borrower shall maintain the Interest Rate Cap Agreement with an Acceptable Counterparty in effect and having a term extending through the last day of the accrual period in which the applicable Maturity Date occurs, and an initial notional amount equal to the Principal Amount. The Interest Rate Cap Agreement shall have a strike rate equal to the LIBOR Cap Strike Rate. The notional amount of the Interest Rate Cap Agreement may be reduced from time to time in amounts equal to any prepayment of the principal of the Loan made in accordance with the Loan Documents, provided that the strike rate shall be equal to the LIBOR Cap Strike Rate.

Section 9.2 Pledge and Collateral Assignment. Borrower hereby pledges, assigns, transfers, delivers and grants a continuing first priority lien to Administrative Agent, as security for the payment and the performance of all Obligations, in, to and under all of Borrower’s right, title and interest whether now owned or hereafter acquired and whether now existing or hereafter arising (collectively, the “Rate Cap Collateral”): (i) in the Interest Rate Cap Agreement (as soon as such agreement is effective or when and if any replacement agreement becomes effective, any Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement); (ii) to receive any and all payments under the Interest Rate Cap Agreement (or, when and if any such agreement becomes effective, any Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement), whether as contractual obligations, damages or otherwise; and (iii) to all claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Interest Rate Cap Agreement (as soon as such agreement is effective or when and if any such agreement becomes effective, any Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement), in each case including all accessions and additions to, substitutions for and replacements, products and proceeds of any of the foregoing. Borrower shall deliver to Administrative Agent an executed counterpart of such Interest Rate Cap Agreement, Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement (which shall, by its terms, authorize the assignment to Administrative Agent and require that payments be made directly to Administrative Agent) and notify the Counterparty of such assignment (either in such Interest Rate Cap Agreement, Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement or by separate instrument). Borrower shall not, without obtaining the prior written consent of Administrative Agent, further pledge, transfer, deliver, assign or grant any security interest in the Interest Rate Cap Agreement (or, when and if any such agreement becomes effective, any Replacement Interest Rate Cap Agreement or Extension Interest Rate Cap Agreement), or permit any Lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements or any other notice or instrument as may be required under the UCC, as appropriate, except those naming Administrative Agent as the secured party, to be filed with respect thereto.

-115-

Section 9.3 Covenants.

(A) Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement to Borrower or Administrative Agent shall be deposited immediately into the Holding Account pursuant to Section 3.1. Borrower shall take all actions reasonably requested by Administrative Agent to enforce Borrower’s rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty thereunder and shall not waive or Modify any of its rights thereunder.

(B) Borrower shall defend Administrative Agent’s right, title and interest in and to the Rate Cap Collateral pledged by Borrower pursuant hereto or in which it has granted a security interest pursuant hereto against the claims and demands of all other Persons.

(C) In the event of (x) any downgrade, withdrawal or qualification (each, a “Downgrade”) of the rating of the Counterparty such that, thereafter, the Counterparty shall cease to be an Acceptable Counterparty and (y) the Counterparty shall fail to comply with the requirements contained in the Interest Rate Cap Agreement which are described in Exhibit I upon such occurrence, Borrower shall either (i) replace the Interest Rate Cap Agreement with a Replacement Interest Cap Agreement, (x) having a term extending through the end of the then current Interest Period in which the Maturity Date occurs, (y) in a notional amount at least equal to the Principal Amount of the Loan then outstanding, and (z) having a strike rate equal to the LIBOR Cap Strike Rate, or (ii) cause the Counterparty to deliver collateral or other credit enhancement to secure Borrower’s exposure under the Interest Rate Cap Agreement in such amount and pursuant to such terms as are acceptable to Administrative Agent, in its sole discretion; provided that Borrower acknowledges that a Downgrade of the Counterparty to A- or lower (or its equivalent by Moody’s and, if the counterparty is rated by Fitch, by Fitch), shall not be susceptible to a cure by the posting of collateral or other credit enhancement.

(D) In the event that Borrower fails to purchase and deliver to Administrative Agent the Interest Rate Cap Agreement as and when required hereunder, Administrative Agent may purchase the Interest Rate Cap Agreement and the cost incurred by Administrative Agent in purchasing the Interest Rate Cap Agreement shall be paid by Borrower to Administrative Agent with interest thereon at the Default Rate from the date such cost was incurred by Administrative Agent until such cost is paid by Borrower to Administrative Agent.

(E) Borrower shall not (i) without the prior written consent of Administrative Agent, Modify the terms of the Interest Rate Cap Agreement, (ii) without the prior written consent of Administrative Agent, except in accordance with the terms of the Interest Rate Cap Agreement, cause the termination of the Interest Rate Cap Agreement prior to its stated maturity date, (iii) without the prior written consent of Administrative Agent, except as aforesaid, waive or release any obligation of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) under the Interest Rate Cap Agreement, (iv) without the prior written consent of Administrative Agent, consent or agree to any act or omission to act on the part of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) which, without such consent or agreement, would constitute a default under the Interest Rate Cap Agreement, (v) fail to exercise promptly and diligently each and every material right which it may have under the Interest Rate Cap Agreement, (vi) take or intentionally omit to take any action or intentionally suffer or permit any action to be omitted or taken, the taking or omission of which would result in any right of offset against sums payable under the Interest Rate Cap Agreement or any defense by the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) to payment or (vii) fail to give prompt notice to Administrative Agent of any notice of default given by or to Borrower under or with respect to the Interest Rate Cap Agreement, together with a complete copy of such notice.

-116-

In connection with an Interest Rate Cap Agreement, Borrower shall obtain and deliver to Administrative Agent an Opinion of Counsel from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty upon which Administrative Agent and its successors and assigns may rely (the “Counterparty Opinion”), under New York law and, if the Counterparty is a non-U.S. entity, the applicable foreign law, substantially in compliance with the requirements set forth in Exhibit F or in such other form approved by Administrative Agent.

Section 9.4 Representations and Warranties. Borrower hereby covenants with, and represents and warrants to, Administrative Agent as follows:

(A) The Interest Rate Cap Agreement constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(B) The Rate Cap Collateral is free and clear of all claims or security interests of every nature whatsoever, except such as are created pursuant to this Agreement and the other Loan Documents, and Borrower has the right to pledge and grant a security interest in the same as herein provided without the consent of any other Person other than any such consent that has been obtained and is in full force and effect.

(C) The Rate Cap Collateral has been duly and validly pledged hereunder. All consents and approvals required to be obtained by Borrower for the consummation of the transactions contemplated by this Agreement have been obtained.

(D) Giving effect to the aforesaid grant and assignment to Administrative Agent, Administrative Agent has, as of the date of this Agreement, and as to Rate Cap Collateral acquired from time to time after such date, shall have, a valid, and upon proper filing, perfected and continuing first priority lien upon and security interest in the Rate Cap Collateral; provided that no representation or warranty is made with respect to the perfected status of the security interest of Administrative Agent in the proceeds of Rate Cap Collateral consisting of “cash proceeds” or “non-cash proceeds” as defined in the UCC except if, and to the extent, the provisions of Section 9-306 of the UCC shall be complied with.

(E) Except for financing statements filed or to be filed in favor of Administrative Agent as secured party, there are no financing statements under the UCC covering any or all of the Rate Cap Collateral and Borrower shall not, without the prior written consent of Administrative Agent, until payment in full of all of the Obligations, execute and file in any public office, any enforceable financing statement or statements covering any or all of the Rate Cap Collateral, except financing statements filed or to be filed in favor of Administrative Agent as secured party.

-117-

Section 9.5 Payments. If Borrower at any time shall be entitled to receive any payments with respect to the Interest Rate Cap Agreement, such amounts shall, immediately upon becoming payable to Borrower, be deposited by Counterparty into the Holding Account.

Section 9.6 Remedies. Subject to the provisions of the Interest Rate Cap Agreement, if an Event of Default shall occur and be continuing:

(A) Administrative Agent, without obligation to resort to any other security, right or remedy granted under any other agreement or instrument, shall have the right to, in addition to all rights, powers and remedies of a secured party pursuant to the UCC, at any time and from time to time, sell, resell, assign and deliver, in its sole discretion, any or all of the Rate Cap Collateral (in one or more parcels and at the same or different times) and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and in connection therewith Administrative Agent may grant options and may impose reasonable conditions such as requiring any purchaser to represent that any “securities” constituting any part of the Rate Cap Collateral are being purchased for investment only, Borrower hereby waiving and releasing any and all equity or right of redemption to the fullest extent permitted by the UCC or applicable law. If all or any of the Rate Cap Collateral is sold by Administrative Agent upon credit or for future delivery, Administrative Agent shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Administrative Agent may resell such Rate Cap Collateral. It is expressly agreed that Administrative Agent may exercise its rights with respect to less than all of the Rate Cap Collateral, leaving unexercised its rights with respect to the remainder of the Rate Cap Collateral, provided, however, that such partial exercise shall in no way restrict or jeopardize Administrative Agent’s right to exercise its rights with respect to all or any other portion of the Rate Cap Collateral at a later time or times.

(B) Administrative Agent may exercise, either by itself or by its nominee or designee, in the name of Borrower, all of Administrative Agent’s rights, powers and remedies in respect of the Rate Cap Collateral, hereunder and under law.

(C) Borrower hereby irrevocably, in the name of Borrower or otherwise, authorizes and empowers Administrative Agent and assigns and transfers unto Administrative Agent, and constitutes and appoints Administrative Agent its true and lawful attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, upon the occurrence and during the continuance of an Event of Default, (i) to exercise and enforce every right, power, remedy, authority,

-118-

option and privilege of Borrower under the Interest Rate Cap Agreement, including any power to subordinate or Modify the Interest Rate Cap Agreement (but not, unless an Event of Default exists and is continuing, the right to terminate or cancel the Interest Rate Cap Agreement), or to give any notices, or to take any action resulting in such subordination, termination, cancellation or modification and (ii) in order to more fully vest in Administrative Agent the rights and remedies provided for herein, to exercise all of the rights, remedies and powers granted to Administrative Agent in this Agreement, and Borrower further authorizes and empowers Administrative Agent, as Borrower’s attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, upon the occurrence and during the continuance of an Event of Default, to give any authorization, to furnish any information, to make any demands, to execute any instruments and to take any and all other action on behalf of and in the name of Borrower which in the opinion of Administrative Agent may be necessary or appropriate to be given, furnished, made, exercised or taken under the Interest Rate Cap Agreement, in order to comply therewith, to perform the conditions thereof or to prevent or remedy any default by Borrower thereunder or to enforce any of the rights of Borrower thereunder. These powers-of-attorney are irrevocable and coupled with an interest, and any similar or dissimilar powers heretofore given by Borrower in respect of the Rate Cap Collateral to any other Person are hereby revoked.

(D) Upon the occurrence and during the continuance of an Event of Default, Administrative Agent may, without notice to, or assent by, Borrower or any other Person (to the extent permitted by law), but without affecting any of the Obligations, in the name of Borrower or in the name of Administrative Agent, notify the Counterparty, or if applicable, any other counterparty to the Interest Rate Cap Agreement, to make payment and performance directly to Administrative Agent; extend the time of payment and performance of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any obligations owing to Borrower, or claims of Borrower, under the Interest Rate Cap Agreement; file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by Administrative Agent necessary or advisable for the purpose of collecting upon or enforcing the Interest Rate Cap Agreement; and execute any instrument and do all other things deemed necessary and proper by Administrative Agent to protect and preserve and realize upon the Rate Cap Collateral and the other rights contemplated hereby.

(E) Pursuant to the powers-of-attorney provided for above, Administrative Agent may take any action and exercise and execute any instrument which it may deem necessary or advisable to accomplish the purposes hereof; provided, however, that Administrative Agent shall not be permitted to take any action pursuant to said power-of-attorney that would conflict with any limitation on Administrative Agent’s rights with respect to the Rate Cap Collateral. Without limiting the generality of the foregoing, Administrative Agent, after the occurrence of an Event of Default, shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Borrower representing: (i) any payment of obligations owed pursuant to the Interest Rate Cap Agreement, (ii) interest accruing on any of the Rate Cap Collateral or (iii) any other payment or distribution payable in respect of the Rate Cap Collateral or any part thereof, and for and in the name, place and stead of Borrower, to execute endorsements, assignments or other instruments of conveyance or transfer in respect of any property which is or may become a part of the Rate Cap Collateral hereunder.

-119-

(F) Administrative Agent may exercise all of the rights and remedies of a secured party under the UCC.

(G) Without limiting any other provision of this Agreement or any of Borrower’s rights hereunder, and without waiving or releasing Borrower from any obligation or default hereunder, Administrative Agent shall have the right, but not the obligation, to perform any act or take any appropriate action, as it, in its reasonable judgment, may deem necessary to protect the security of this Agreement, to cure such Event of Default or to cause any term, covenant, condition or obligation required under this Agreement or the Interest Rate Cap Agreement to be performed or observed by Borrower to be promptly performed or observed on behalf of Borrower. All amounts advanced by, or on behalf of, Administrative Agent in exercising its rights under this Section 9.7(g) (including, but not limited to, reasonable legal expenses and disbursements incurred in connection therewith), together with interest thereon at the Default Rate from the date of each such advance, shall be payable by Borrower to Administrative Agent upon demand and shall be secured by this Agreement.

Section 9.7 Sales of Rate Cap Collateral. No demand, advertisement or notice, all of which are, to the fullest extent permitted by law, hereby expressly waived by Borrower, shall be required in connection with any sale or other disposition of all or any part of the Rate Cap Collateral, except that Administrative Agent shall give Borrower at least thirty (30) Business Days’ prior written notice of the time and place of any public sale or of the time when and the place where any private sale or other disposition is to be made, which notice Borrower hereby agrees is reasonable, all other demands, advertisements and notices being hereby waived. To the extent permitted by law, Administrative Agent shall not be obligated to make any sale of the Rate Cap Collateral if it shall determine not to do so, regardless of the fact that notice of sale may have been given, and Administrative Agent may without notice or publication adjourn any public or private sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Upon each private sale of the Rate Cap Collateral of a type customarily sold in a recognized market and upon each public sale, unless prohibited by any applicable statute which cannot be waived, Administrative Agent (or its nominee or designee) may purchase any or all of the Rate Cap Collateral being sold, free and discharged from any trusts, claims, equity or right of redemption of Borrower, all of which are hereby waived and released to the extent permitted by law, and may make payment therefor by credit against any of the Obligations in lieu of cash or any other obligations. In the case of all sales of the Rate Cap Collateral, public or private, Borrower shall pay all reasonable costs and expenses of every kind for sale or delivery, including brokers’ and attorneys’ fees and disbursements and any tax imposed thereon. However, the proceeds of sale of Rate Cap Collateral shall be available to cover such costs and expenses, and, after deducting such costs and expenses from the proceeds of sale, Administrative Agent shall apply any residue to the payment of the Obligations in the order of priority as set forth in Section 11 of the Security Instrument.

-120-

Section 9.8 Public Sales Not Possible. Borrower acknowledges that the terms of the Interest Rate Cap Agreement may prohibit public sales, that the Rate Cap Collateral may not be of the type appropriately sold at public sales, and that such sales may be prohibited by law. In light of these considerations, Borrower agrees that private sales of the Rate Cap Collateral shall not be deemed to have been made in a commercially unreasonably manner by mere virtue of having been made privately.

Section 9.9 Receipt of Sale Proceeds. Upon any sale of the Rate Cap Collateral by Administrative Agent hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt by Administrative Agent or the officer making the sale or the proceeds of such sale shall be a sufficient discharge to the purchaser or purchasers of the Rate Cap Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Administrative Agent or such officer or be answerable in any way for the misapplication or non- application thereof.

Section 9.10 Extension Interest Rate Cap Agreement. If Borrower exercises any of its options to extend the Maturity Date pursuant to Section 2.1.6, then, on or prior to the Maturity Date being extended, Borrower shall obtain or have in place an Extension Interest Rate Cap Agreement (i) having a term through the end of the Interest Period in which the extended Maturity Date occurs, (ii) in a notional amount at least equal to the Principal Amount of the Loan as of the Maturity Date being extended, and (iii) having a strike rate equal to an amount such that the maximum interest rate paid by Borrower after giving effect to payments made under such Extension Interest Rate Cap Agreement shall equal no more than the applicable LIBOR Cap Strike Rate.

Section 9.11 Filing of Financing Statements Authorized. Borrower hereby authorizes the filing of a form UCC-1 financing statement naming Borrower as debtors and Administrative Agent as secured party in any office (including the office of the Secretary of State of the State of Delaware) covering all property of Borrower (including, but not limited to, the Account Collateral and the Rate Cap Collateral, but excluding Excess Cash Flow).

ARTICLE X

Maintenance of Property; Alterations

Section 10.1 Maintenance of Property. Borrower shall keep and maintain, or cause to be kept and maintained, the Property and every part thereof in good condition and repair, subject to ordinary wear and tear, Excusable Delays, and the provisions of this Agreement with respect to damage or destruction caused by a Casualty or Condemnation, shall not permit or commit any waste, impairment, or deterioration of any portion of the Property in any material respect. Borrower further covenants to do all other acts which from the character or use of the Property may be reasonably necessary to protect the security hereof, the specific enumerations herein not excluding the general. Borrower shall not demolish any Improvement on the Property except as the same may be necessary in connection with an Alteration or a restoration in connection with a Condemnation or Casualty, or as otherwise permitted herein, in each case in accordance with the terms and conditions hereof.

-121-

Section 10.2 Alterations and Expansions. Borrower shall not perform or undertake or consent to or permit any other Person to perform or undertake any Alteration or Expansion, except in accordance with the following terms and conditions:

(A) The Alteration or Expansion shall be undertaken in accordance with the applicable provisions of this Agreement, the other Loan Documents, the Leases and all Legal Requirements.

(B) No Event of Default shall have occurred and be continuing or shall occur as a result of such action.

(C) A Material Alteration, to the extent architects are customarily used for alterations or expansions of those types, but including any structural change to any of the Property or the Improvements, shall be conducted under the supervision of an Independent Architect and shall not be undertaken until ten (10) Business Days after there shall have been filed with Administrative Agent, for information purposes only and not for approval by Administrative Agent, detailed plans and specifications and cost estimates therefor, prepared and approved in writing by such Independent Architect. Such plans and specifications may be revised at any time and from time to time, provided that revisions of such plans and specifications shall be filed with Administrative Agent, for information purposes only.

(D) The Alteration or Expansion may not in and of itself, either during the Alteration or Expansion or upon completion, be reasonably expected to have a Material Adverse Effect with respect to the Property or, if a Cash Sweep Period then exists, adversely affect the annual Net Operating Income by more than $500,000, taking into account the required escrows (or completion bond) provided under clause (h)(i) below; provided that if, as reasonably determined by Borrower in good faith, such Alteration or Expansion would reduce annual Net Operating Income by $500,000 or more and a Cash Sweep Period then exists, then in order to proceed with the Alteration or Expansion Borrower shall deliver to Administrative Agent Eligible Collateral in the amount that the projected reduction in Net Operating Income resulting from the Alteration or Expansion exceeds $500,000 as additional security for the Indebtedness, which Eligible Collateral shall be returned to Borrower after evidence of completion of the applicable Alteration or Expansion and no Event of Default has occurred and is continuing.

-122-

(E) All work done in connection with any Alteration or Expansion shall be performed with due diligence to Final Completion in a good and workmanlike manner, all materials used in connection with any Alteration or Expansion shall be not less than the standard of quality of the materials generally used at the Property as of the date hereof (or, if greater, the then-current customary quality in the sub-market in which the Property is located) and all work shall be performed and all materials used in accordance with all applicable Legal Requirements and Insurance Requirements.

(F) The cost of any Alteration or Expansion shall be promptly and fully paid for by Borrower, subject to the next succeeding sentence. No payment made prior to the Final Completion (excluding punch-list items) of an Alteration or Expansion or Restoration to any contractor, subcontractor, materialman, supplier, engineer, architect, project manager or other Person who renders services or furnishes materials in connection with such Alteration shall exceed ninety percent (90%) of the aggregate value of the work performed by such Person from time to time and materials furnished and incorporated into the Improvements.

(G) Intentionally Omitted.

(H) With respect to any Material Alteration:

(i) Borrower shall have delivered to Administrative Agent Eligible Collateral in an amount equal to at least the total estimated remaining unpaid costs of such Material Alteration which is in excess of the Threshold Amount, which Eligible Collateral shall be held by Administrative Agent as security for the Indebtedness and released to Borrower as such work progresses in accordance with Section 10.2(H)(iii); provided, however, in the event that any Material Alteration shall be made in conjunction with any Restoration with respect to which Borrower shall be entitled to withdraw Proceeds pursuant to Section 6.2 hereof (including any Proceeds remaining after completion of such Restoration), the amount of the Eligible Collateral to be furnished pursuant hereto need not exceed the aggregate cost of such Restoration and such Material Alteration (in either case, as estimated by the Independent Architect) less the sum of the amount of any Proceeds which Borrower is entitled to withdraw pursuant to Section 6.2 hereof and the Threshold Amount;

(ii) Prior to commencement of construction of such Material Alteration, Borrower shall deliver to Administrative Agent a schedule (with the concurrence of the Independent Architect) setting forth the projected stages of completion of such Alteration or Expansion and the corresponding amounts expected to be due and payable by or on behalf of Borrower in connection with such completion, such schedule to be updated quarterly by Borrower (and with the concurrence of the Independent Architect) during the performance of such Alteration or Expansion.

-123-

(iii) Any Eligible Collateral that a Borrower delivers to Administrative Agent pursuant hereto (and the proceeds of any such Eligible Collateral) shall be invested (to the extent such Eligible Collateral can be invested) by Administrative Agent in Permitted Investments for a period of time consistent with the date on which Borrower notifies Administrative Agent that Borrower expects to request a release of such Eligible Collateral in accordance with the next succeeding sentence. From time to time as the Material Alteration progresses, the amount of any Eligible Collateral so furnished may, upon the written request of Borrower to Administrative Agent, be withdrawn by Borrower and paid or otherwise applied by or returned to Borrower in an amount equal to the amount Borrower would be entitled to so withdraw if Section 6.2.4 were applicable, subject to the satisfaction of the conditions precedent to withdrawal of funds set forth in Section 6.2.4 hereof. In connection with the above-described quarterly update of the projected stages of completion of the Material Alteration (as concurred with by an Independent Architect), Borrower shall increase (or be permitted to decrease, as applicable) the Eligible Collateral then deposited with Administrative Agent as necessary to comply with Section 10.2(H)(i) hereof.

(iv) At any time after Final Completion of such Material Alterations, the whole balance of any Cash deposited with Administrative Agent pursuant to Section 10.2(H) hereof then remaining on deposit may be withdrawn by Borrower and shall be paid by Administrative Agent to Borrower, and any Eligible Collateral so deposited shall, to the extent it has not been called upon, reduced or theretofore released, be released by Administrative Agent to Borrower, within ten (10) days after receipt by Administrative Agent of an application for such withdrawal and/or release and satisfaction of each of the following conditions, as certified by an Officer’s Certificate that such statements are true, and as to the following clauses (A) and (B) of this clause also a certificate of the Independent Architect:

(A) such Material Alteration(s) shall have been completed in all material respects in accordance with any plans and specifications therefor previously filed with Administrative Agent under Section 10.2(C) hereof;

(B) that to the Best of Borrower’s Knowledge (x) such Material Alteration(s) has been completed in compliance with all Legal Requirements, and (y) to the extent required for the legal use or occupancy of the portion of the Property affected by such Alteration(s) or Expansion(s), the applicable Borrower has obtained a temporary or permanent certificate of occupancy (or similar certificate) or, if no such certificate is required, a statement to that effect;

(C) that to the Best of Borrower’s Knowledge, all amounts that a Borrower is or may become liable to pay in respect of such Material Alteration(s) through the date of the certification have been paid in full or adequately provided for and, to the extent that such are customary and reasonably obtainable by prudent property owners in the area where the applicable Property is located, that Lien waivers have been obtained from the general contractor and subcontractors performing such Alteration(s) or Expansion(s) or at its sole cost and expense, at the request of

-124-

Administrative Agent Borrower shall cause a nationally recognized title insurance company to deliver to Administrative Agent an endorsement to the Title Policy, updating such policy and insuring over such Liens without further exceptions to such policy other than Permitted Encumbrances, or shall, at its sole cost and expense, cause a reputable title insurance company to deliver a lender’s title insurance policy, in such form, in such amounts and with such endorsements as the Title Policy, which policy shall be dated the date of completion of the Material Alteration (or later) and shall contain no exceptions other than Permitted Encumbrances; provided, however, that if, for any reason, Borrower are unable to deliver the certification required by this clause (C) with respect to any costs or expenses relating to the Alteration(s) or Expansion(s), then, assuming Borrower are able to satisfy each of the other requirements set forth in clauses (A) and (B) above, Borrower shall be entitled to the release of the difference between the whole balance of such Eligible Collateral and the total of all costs and expenses to which Borrower are unable to certify; and

(D) that to the Best of Borrower’s Knowledge, no Event of Default has occurred and is continuing.

ARTICLE XI

Books and Records, Financial Statements, Reports and Other Information

Section 11.1 Books and Records. Borrower shall keep and maintain on a fiscal year basis proper books and records separate from any other Person, in which accurate and complete entries shall be made of all dealings or transactions of or in relation to the Notes, the Property and the business and affairs of Borrower relating to the Property which shall reflect all items of income and expense in connection with the operation on an individual basis of the Property and in connection with any services, equipment or furnishings provided in connection with the operation of the Property, in accordance with GAAP. Administrative Agent and its authorized representatives shall have the right at reasonable times and upon reasonable notice to examine the books and records of Borrower relating to the operation of the Property and to make such copies or extracts thereof as Administrative Agent may reasonably require.

Section 11.2 Financial Statements.

11.2.1 Monthly Reports. Borrower shall furnish to Administrative Agent, within thirty (30) days after the end of each calendar month, unaudited operating statements, aged accounts receivable reports, rent rolls, STAR Reports, PACE Reports and occupancy and ADR reports for the Property, in each case accompanied by an Officer’s Certificate certifying (i) with respect to the operating statements, that such statements are true, correct, accurate and complete and fairly present the results of the operations of

-125-

Borrower and the Property, (ii) with respect to the aged accounts receivable reports, rent rolls, occupancy and ADR reports, that such items are true, correct, accurate and complete and fairly present the results of the operations of Borrower and the Property, (iii) a calculation of the Debt Yield Ratio for the immediately preceding month and (iv) a cash flow statement and summary accounting of activity in the Hotel Operating Account for the immediately preceding month. Borrower will also provide Administrative Agent copies of all flash reports as to monthly revenues upon request.

11.2.2 Quarterly Reports. Borrower will furnish, or cause to be furnished, to Administrative Agent on or before the forty-fifth (45^th) day after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter), the following items, accompanied by an Officer’s Certificate, certifying that to the Best of Borrower’s Knowledge and the best of such officer’s knowledge, such items are true, correct, accurate and complete and fairly present the financial condition and results of the operations of Borrower and the Property in a manner consistent with GAAP to the extent applicable:

(A) quarterly and year to date financial statements prepared for such fiscal quarter with respect to Borrower, including a balance sheet and operating statement for such quarter for Borrower for such quarter;

(B) during a Cash Sweep Period, a comparison of the budgeted income and expenses and the actual income and expenses for such quarter for the Property, together with a detailed explanation of any variances of five percent (5%) or more between budgeted and actual amounts in the aggregate and on a line-item basis for such period and year to date; provided, however, that Borrower shall not be obligated to provide such detailed explanation for line items the actual amounts for such quarter of which are less than $100,000;

(C) occupancy levels at the Property for such period, including average daily room rates and the average revenue per available room;

(D) concurrently with the provision of such reports, Borrower shall also furnish a report of Operating Revenues and Operating Expenses (as well as a calculation of Net Operating Income based thereon) with respect to Borrower and the Property for the most recently completed quarter;

(E) a STAR Report and to the extent provided by Manager a PACE Report for the most recently completed quarter;

(F) a calculation of DSCR for the trailing four (4) Fiscal Quarters; and

(G) to the extent prepared by or on behalf of Borrower or provided by Manager, a report of aged accounts receivable relating to the Property as of the most recently completed quarter and a list of Security Deposits and the aggregate amount of all Security Deposits.

-126-

11.2.3 Annual Reports. Borrower shall furnish to Administrative Agent within ninety (90) days following the end of each Fiscal Year a complete copy of the annual financial statements of Borrower, audited by BDO USA LLP, a “Big Four” accounting firm or another independent certified public accounting firm acceptable to Administrative Agent in accordance with GAAP for such Fiscal Year and containing a balance sheet, a statement of operations and a statement of cash flows. The annual financial statements of Borrower shall be accompanied by (i) an Officer’s Certificate certifying that each such annual financial statement presents fairly, in all material respects, the financial condition and results of operation of the Property and has been prepared in accordance with GAAP and (ii) a management report, in form and substance reasonably satisfactory to Administrative Agent, discussing the reconciliation between the financial statements for such Fiscal Year and the most recent Budget. Together with Borrower’s annual financial statements, Borrower shall furnish to Administrative Agent (A) an Officer’s Certificate certifying as of the date thereof whether there exists a Default or Event of Default, and if such Default or Event of Default exists, the nature thereof, the period of time it has existed and the action then being taken to remedy the same; and (B) an annual report, for the most recently completed fiscal year, containing:

(1) Capital Expenditures (including for this purpose any and all additions to, and replacements of, FF&E,) made in respect of the Property, including separate line items with respect to any project costing in excess of $250,000;

(2) occupancy levels for the Property for such period; and

(3) average daily room rates at the Property for such period.

11.2.4 Leasing Reports. During any period when any Leases other than the Bar Lease and Operating Lease are in effect, not later than forty-five (45) days after the end of each fiscal quarter of Borrower’s operations, Borrower shall deliver to Administrative Agent a true and complete rent roll for the Property showing the percentage of gross leasable area of the Property, if any, leased as of the last day of the preceding calendar quarter, the current annual rent for the Property, the expiration date of each Lease, whether to Borrower’s knowledge any portion of the Property has been sublet, and if it has, the name of the subtenant, and such rent roll shall be accompanied by an Officer’s Certificate certifying that such rent roll is true, correct, accurate and complete in all material respects as of its date and stating whether Borrower, within the past three (3) months, has issued a notice of default with respect to any Lease which has not been cured and the nature of such default.

11.2.5 Manager Reports. Borrower shall deliver to Administrative Agent, within ten (10) Business Days of the receipt thereof by Borrower, a copy of all reports prepared by or on behalf of Manager, including, without limitation, pursuant to Sections 9(a) and 9(d) of the Management Agreement (including, without limitation, the annual Budget and profit-loss statements and any inspection reports).

-127-

11.2.6 Budget.

(A) Not later than November 1st of each Fiscal Year hereafter, Borrower shall prepare or cause to be prepared and deliver to Administrative Agent, for informational purposes only, a Budget in respect of the Property for the succeeding Fiscal Year, or if no such approved Budget then exists, the most up to date draft Budget. In all events, Borrower shall deliver to Administrative Agent, for informational purposes only, a Budget that has been approved under the Management Agreement in respect of the Property for the Fiscal Year by December 1^st of such Fiscal Year.

(B) If Borrower subsequently amends the Budget, Borrower shall promptly deliver the amended Budget to Administrative Agent.

(C) Notwithstanding the foregoing, any Budget in effect or submitted during a Cash Sweep Period, and in each case any material amendment thereto, shall be subject to Administrative Agent’s prior written approval, which approval shall not be unreasonably withheld, delayed or conditioned so long as no Event of Default is continuing. Until a proposed Budget is approved, the current Budget shall remain in effect. Borrower shall consult with Administrative Agent and shall afford Administrative Agent a reasonable opportunity to meet and confer with Borrower to discuss in reasonable detail such proposed revised Budget and general hotel operations, and Borrower shall obtain Manager’s approval of the resulting budget revisions as requested by Administrative Agent in its reasonable discretion.

11.2.7 IP Collateral. Borrower shall provide to Administrative Agent written notice of any Intellectual Property acquired for the use, ownership, management, leasing, renovation, financing, development, operation and maintenance of the Property after the date hereof, which is the subject of a registration or application (including IP Collateral which was theretofore unregistered and becomes the subject of a registration or application) or any material or exclusive IP Licenses, and deliver to Administrative Agent an IP Security Agreement and/or such other instrument in form and substance reasonably acceptable to Administrative Agent. Borrower shall provide such notice to Administrative Agent promptly upon the acquisition of such Intellectual Property or IP License. Borrower shall execute and deliver to Administrative Agent all filings necessary to protect and evidence Administrative Agent’s security interest in such Intellectual Property and IP Licenses. Further, Borrower authorizes Administrative Agent to modify this Agreement by amending the IP Schedule to include any applications or registration for IP Collateral (but the failure to do so modify such IP Schedule shall not be deemed to affect Administrative Agent’s security interest in or lien upon such IP Collateral).

11.2.8 Intentionally Omitted.

-128-

11.2.9 Other Information. Borrower shall, promptly after written request by Administrative Agent, furnish or cause to be furnished to Administrative Agent, in such manner and in such detail as may be reasonably requested by Administrative Agent, such additional information as may be reasonably requested by Administrative Agent with respect to the Property. The information required to be furnished by Borrower to Administrative Agent under this Section 11.2 shall be provided in both hard copy format and electronic format; provided that Borrower shall only be required to provide the information required under this Section 11.2.8 in electronic format if such information is so available in the ordinary course of the operations of Borrower and Manager and without significant expense.

ARTICLE XII

Environmental Matters

Section 12.1 Representations. Borrower hereby represents and warrants that except as set forth in the environmental reports and studies delivered to Administrative Agent (the “Environmental Reports”), (i) Borrower has not engaged in or knowingly permitted any operations or activities upon, or any use or occupancy of the Property, or any portion thereof, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials on, under, in or about the Property, or transported any Hazardous Materials to, from or across the Property, except in all cases in material compliance with Environmental Laws and only in the Ordinary Course of Business at the Property; (ii) to the Best of Borrower’s Knowledge, no tenant, occupant or user of the Property, or any other Person, has engaged in or permitted any operations or activities upon, or any use or occupancy of the Property, or any portion thereof, for the purpose of or in any material way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials on, in or about the Property, or transported any Hazardous Materials to, from or across the Property, except in all cases in material compliance with Environmental Laws and only in the course of the Ordinary Course of Business at the Property; (iii) to the Best of Borrower’s Knowledge, no Hazardous Materials are presently constructed, deposited, stored, or otherwise located on, under, in or about the Property except in material compliance with Environmental Laws; (iv) to the Best of Borrower’s Knowledge, no Hazardous Materials have migrated from the Property upon or beneath other properties which would reasonably be expected to result in material liability for Borrower or the Property; and (v) to the Best of Borrower’s Knowledge, no Hazardous Materials have migrated or threaten to migrate from other properties upon, about or beneath the Property which would reasonably be expected to result in material liability for Borrower or the Property.

Section 12.2 Covenant; Compliance with Environmental Laws. Subject to Borrower’s right to contest under Section 7.3, Borrower covenants and agrees with Administrative Agent that it shall comply with all Environmental Laws. If at any time during the continuance of the Lien of the Security Instrument, a Governmental Authority having jurisdiction over the Property requires remedial action to correct the presence of Hazardous Materials in, around, or under the Property (an “Environmental Event”), Borrower shall

-129-

deliver prompt notice of the occurrence of such Environmental Event to Administrative Agent. Within thirty (30) days after Borrower has knowledge of the occurrence of an Environmental Event, Borrower shall deliver to Administrative Agent an Officer’s Certificate (an “Environmental Certificate”) explaining the Environmental Event in reasonable detail and setting forth the proposed remedial action. Borrower shall promptly provide Administrative Agent with copies of all notices from any Governmental Authority which allege or identify any actual or potential violation or noncompliance received by or prepared by or for Borrower in connection with any Environmental Law. For purposes of this paragraph, the term “notice” shall mean any summons, citation, directive, order, claim, pleading, letter, application, filing, report, findings, declarations or other materials provided by any Governmental Authority pertinent to compliance of the Property and Borrower with such Environmental Laws.

Section 12.3 Environmental Reports. Upon the occurrence and during the continuance of an Environmental Event with respect to the Property or an Event of Default, Administrative Agent shall have the right to direct Borrower to obtain consultants reasonably approved by Administrative Agent to perform a comprehensive environmental audit of the Property. Such audit shall be conducted by an environmental consultant chosen by Administrative Agent and may include a visual survey, a record review, an area reconnaissance assessing the presence of hazardous or toxic waste or substances, PCBs or storage tanks at the Property, an asbestos survey of the Property, which may include random sampling of the Improvements and air quality testing, and such further site assessments as Administrative Agent may reasonably require due to the results obtained from the foregoing. Borrower grants Administrative Agent, its agents, consultants and contractors the right to enter the Property as reasonable or appropriate for the circumstances for the purposes of performing such studies and the reasonable cost of such studies shall be due and payable by Borrower to Administrative Agent upon demand and shall be secured by the Lien of the Security Instrument. Administrative Agent shall not unreasonably interfere with, and Administrative Agent shall direct the environmental consultant to use its commercially reasonable efforts not to hinder, Borrower’s or any Tenant’s, other occupant’s or Manager’s operations upon the Property when conducting such audit, sampling or inspections. By undertaking any of the measures identified in and pursuant to this Section 12.3, Administrative Agent shall not be deemed to be exercising any control over the operations of Borrower or the handling of any environmental matter or hazardous wastes or substances of Borrower for purposes of incurring or being subject to liability therefor.

Section 12.4 Environmental Indemnification.

(A) Borrower shall protect, indemnify, save, defend, and hold harmless the Indemnified Parties from and against any and all Liabilities which any Indemnified Party may suffer, as a result of or with respect to: (a) any Environmental Claim relating to or arising from the Property; (b) the violation of any Environmental Law in connection with the Property; (c) any release, spill, or the presence of any Hazardous Materials affecting the Property; and (d) the presence at, in, on or under, or the release, escape, seepage, leakage, discharge or migration at or from, the Property of any Hazardous Materials, whether or not such condition was known or unknown to Borrower.

-130-

(B) Notwithstanding Section 12.4(A) above, or any other provision of this Agreement, Borrower shall not be liable for any Hazardous Materials first placed on or under the Property (or any portion thereof) after ownership and control of the Property has been transferred to a third party following foreclosure or conveyance in lieu of foreclosure (“Transfer of Ownership”); provided, however, that (i) the existence of any Hazardous Materials placed in, under, over, from or affecting the Property (or such portion thereof), which materials were present prior to Transfer of Ownership, shall remain subject to Borrower’s indemnification obligations; and (ii) Borrower shall have the burden of proving that such environmental condition occurred subsequent to Transfer of Ownership.

(C) If any such action or other proceeding shall be brought against Administrative Agent, upon written notice from Borrower to Administrative Agent (given reasonably promptly following Administrative Agent’s notice to Borrower of such action or proceeding), Borrower shall be entitled to assume the defense thereof, at Borrower’s expense, with counsel reasonably acceptable to Administrative Agent; provided, however, Administrative Agent may, at its own expense, retain separate counsel to participate in such defense, but such participation shall not be deemed to give Administrative Agent a right to control such defense, which right Borrower expressly retains. Notwithstanding the foregoing, each Indemnified Party shall have the right to employ separate counsel at Borrower’s expense if, in the reasonable opinion of legal counsel, a conflict or potential conflict exists between the Indemnified Party and Borrower that would make such separate representation advisable. Borrower shall have no obligation to indemnify an Indemnified Party for damage or loss resulting from such Indemnified Party’s gross negligence or willful misconduct.

Section 12.5 Recourse Nature of Certain Indemnifications. Notwithstanding anything to the contrary provided in this Agreement or in any other Loan Document, the indemnification provided in Section 12.4 shall be fully recourse to Borrower (but not its constituent members, except as provided in the Environmental Indemnity) and shall be independent of, and shall survive, the discharge of the Indebtedness, the release of the Lien created by the Security Instrument, and/or the conveyance of title to the Property to Administrative Agent or any purchaser or designee in connection with a foreclosure of the Security Instrument or conveyance in lieu of foreclosure.

-131-

ARTICLE XIII

Reserved

ARTICLE XIV

Administrative Agent

Section 14.1 Appointment. Each Lender hereby irrevocably designates and appoints Administrative Agent as the agent of such Lender under the Loan Documents and each such Lender hereby irrevocably authorizes Administrative Agent, as the agent for such Lender, to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Administrative Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Loan Documents, Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against Administrative Agent.

Section 14.2 Delegation of Duties. Administrative Agent may execute any of its duties under the Loan Documents by or through agents (“Agents”) or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

Section 14.3 Exculpatory Provisions. None of Administrative Agent, the other Agents, nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (1) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except for its or such Person’s own gross negligence or willful misconduct), or (2) responsible in any manner to any of Lenders for any recitals, statements, representations or warranties made by the Transaction Parties or any officer thereof contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent under or in connection with the Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or for any failure of the Transaction Parties to perform their obligations hereunder or thereunder. Administrative Agent and the other Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents or to inspect the properties, books or records of the Transaction Parties.

Section 14.4 Reliance by the Agents. Each of Administrative Agent and the Agents shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certification, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower), independent accountants and other experts selected by such Agent. As to Lenders: (1) Administrative Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it

-132-

shall first receive such advice or concurrence of one hundred percent (100%) of Lenders (or, if a provision of this Agreement expressly provides that a lesser number of Lenders may direct the action of Administrative Agent, such lesser number of Lenders) or it shall first be indemnified to its satisfaction by Lenders ratably in accordance with their respective Percentage Shares against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any action (except for liabilities and expenses resulting from Administrative Agent’s gross negligence or willful misconduct), and (2) Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of one hundred percent (100%) of Lenders (or, if a provision of this Agreement expressly provides that Administrative Agent shall be required to act or refrain from acting at the request of a lesser number of Lenders, such lesser number of Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders.

Section 14.5 Notice of Default. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless Administrative Agent has received notice from a Lender or Borrower referring to the Loan Documents, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that Administrative Agent receives such a notice and a Default has occurred, Administrative Agent shall promptly give notice thereof to Lenders. Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until Administrative Agent shall have received such directions, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of Lenders (except to the extent that this Agreement or the Recourse Guaranty expressly requires that such action be taken or not taken by Administrative Agent with the consent or upon the authorization of the Required Lenders or such other group of Lenders, in which case such action will be taken or not taken as directed by the Required Lenders or such other group of Lenders or Lenders).

Section 14.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that none of Administrative Agent, the other Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by Administrative Agent or the other Agents hereinafter taken, including any review of the affairs of the Transaction Parties, shall be deemed to constitute any representation or warranty by Administrative Agent or the other Agents to any Lender. Each Lender represents to Administrative Agent and the other Agents that it has, independently and without reliance upon Administrative Agent, the other Agents or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Transaction Parties and made its own decision to make its loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon Administrative Agent, the other Agents or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own

-133-

credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Transaction Parties. Except for notices, reports and other documents expressly required to be furnished to Lenders by Administrative Agent hereunder, Administrative Agent and the other Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Transaction Parties which may come into the possession of Administrative Agent or any other Agent or any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates.

Section 14.7 Indemnification; Reimbursement of Protective Advances.

14.7.1 Indemnification. Lenders agree to indemnify Administrative Agent and the other Agents in their respective capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), ratably according to the respective amounts of their Percentage Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Obligations) be imposed on, incurred by or asserted against Administrative Agent or the other Agents in any way relating to or arising out of the Loan Documents or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by Administrative Agent or the other Agents under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Administrative Agent’s or any other Agent’s gross negligence or willful misconduct, respectively. The provisions of this Section 14.7 shall survive the payment of the Obligations and the termination of this Agreement.

14.7.2 Reimbursement of Protective Advances. If Administrative Agent incurs any reasonable costs or expenses (including, without limitation, those for legal services) after the date of this Agreement and with respect to any actual or proposed Modification or waiver of any term of the Loan Documents or restructuring or refinancing thereof or with any effort to enforce or protect Lenders’ rights or interests with respect thereto (including any protective advances made in accordance with Section 8 of the Security Instrument), or otherwise with respect to the performance of its role as administrative agent under this Agreement, each in accordance with the terms of this Agreement, then, if such costs are not reimbursed by or on behalf of Borrower, Lenders shall reimburse Administrative Agent for their Percentage Share of such costs promptly after request therefor. If Administrative Agent recovers any amounts for which Administrative Agent has previously been reimbursed by Lenders hereunder, Administrative Agent shall promptly distribute to Lenders their Percentage Share thereof.

-134-

14.7.3 Lender Failure to Indemnify. In the event a Lender fails to reimburse Administrative Agent for its Percentage Share of costs pursuant to this Section 14.7 and such failure continues for a period of three (3) Business Days after notice from Administrative Agent, such Lender shall cease to be entitled to any voting, consent or approval rights hereunder or under any other Loan Document, until such time such Lender reimburses Administrative Agent for its Percentage Share of such costs.

Section 14.8 Agents in Their Individual Capacity. Administrative Agent, the other Agents and their affiliates may make loans to, accept deposits from and generally engage in any kind of business with any of the Transaction Parties or any of their respective Subsidiaries and Affiliates as though Administrative Agent and the other Agents were not, respectively, Administrative Agent, or an Agent hereunder. With respect to such loans made or renewed by them and any Note issued to them, Administrative Agent and the other Agents shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not Administrative Agent or an Agent, respectively, and the terms “Lender” and “Lenders” shall include Administrative Agent and each other Agent in its individual capacity.

Section 14.9 Successor Administrative Agent. Administrative Agent may resign as Administrative Agent under the Loan Documents upon thirty (30) days’ notice to Lenders and Borrower. If Administrative Agent shall resign, then Lenders shall appoint a successor agent or, if Lenders are unable to agree on the appointment of a successor agent, Administrative Agent shall appoint a successor agent for Lenders whereupon such successor agent shall succeed to the rights, powers and duties of Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon its appointment, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any of the Loan Documents or successors thereto; provided, however, that so long as no Event of Default has occurred and is continuing, the appointment of a successor Administrative Agent shall be subject to the consent of Borrower (such consent not to be unreasonably withheld, conditioned or delayed). After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of the Loan Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents.

Section 14.10 Limitations on Agents Liability. No Agent other than Administrative Agent shall, each in its capacity as an Agent, have any right, power, obligation, liability, responsibility or duty under this Agreement or the other Loan Documents.

-135-

Section 14.11 Approvals of Lenders. All communications from Administrative Agent to any Lender requesting such Lender’s determination, consent, approval or disapproval (a) shall be given in the form of a written notice to such Lender, and (b) shall be accompanied by a description of the matter or issue as to which such determination, approval, consent or disapproval is requested, or shall advise such Lender where information, if any, regarding such matter or issue may be inspected, or shall otherwise describe the matter or issue to be resolved. Unless a Lender shall give written notice to Administrative Agent that it specifically objects to the recommendation or determination of Administrative Agent (together with a reasonable written explanation of the reasons behind such objection) within ten (10) Business Days (or such lesser or greater period as may be specifically required under the express terms of the Loan Documents) of receipt of such communication, such Lender shall be deemed to have conclusively approved of or consented to such recommendation or determination.

ARTICLE XV

Assignments and Participations

Section 15.1 Assignments, Delegations and Pledges. With the prior written consent of Administrative Agent, such consent not to be unreasonably withheld or delayed, any Lender may at any time assign, delegate and pledge to one or more Eligible Assignees (provided that no written consent of Administrative Agent shall be required in connection with any assignment, delegation and pledge by a Lender to an Affiliate of such Lender or to another Lender or its Affiliate) (each such assignee, an “Assignee”, and each such pledgee, a “Pledgee”) all or any part of such Lender’s Percentage Share of the Loan, the Delayed Draw Term Loan Commitments and the other Obligations held by such Lender hereunder, in a minimum amount of $3,000,000, which minimum amount may be an aggregated amount in the event of simultaneous assignments to or by two or more funds under common management (or if such Lender’s Percentage Share of the Loan is less than $3,000,000, one hundred percent (100%) thereof); provided, however, that the Transaction Parties, Borrower and Administrative Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to Borrower and Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to Borrower and Administrative Agent an Assignment and Acceptance Agreement, (iii) the assignment shall have been recorded in the Register, and (iv) the parties to each assignment shall execute and deliver to Administrative Agent an Assignment Agreement via an electronic settlement system acceptable to Administrative Agent (or, if previously agreed with Administrative Agent, manually), and shall pay to Administrative Agent a processing and recordation fee of $3,500.

Section 15.2 Register; Effect of Assignment and Acceptance. Administrative Agent shall, on behalf of Borrower, maintain a copy of each Assignment and Acceptance Agreement delivered to it and a register (the “Register”) for the recordation of the names and addresses of Lenders and the principal amount of the Loan owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and Borrower, each Lender and Administrative Agent shall treat each person whose name is recorded in the Register as the owner of the Loans for all purposes of this Agreement. From and after the date that

-136-

Administrative Agent notifies the assignor Lender and Borrower that it has received an executed Assignment and Acceptance Agreement and payment of the above-referenced processing fee, and the assignment has been recorded in the Register: (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned to it pursuant to such Assignment and Acceptance Agreement, shall have the rights and obligations of a Lender under the Loan Documents, (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under the Loan Documents (but shall be entitled to indemnification as otherwise provided in this Agreement with respect to any events occurring prior to the assignment) and (iii) this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Percentage Shares resulting therefrom.

Section 15.3 Substitute Notes. After its receipt of notice by Administrative Agent that it has received an executed Assignment and Acceptance Agreement and payment of the processing fee (which notice shall also be sent by Administrative Agent to each Lender), Borrower shall, if requested in writing by the Assignee, execute and deliver within five (5) Business Days of receipt of such request to Administrative Agent, a new Note evidencing such Assignee’s Percentage Share of the Loan; provided that the obligation to deliver such Note shall be subject to receipt by Borrower of the existing Note which such new Note replaces (or, if not available, receipt of a lost note affidavit and indemnity from beneficiary of such existing Note in customary form reasonably satisfactory to Borrower).

Section 15.4 Participations. Any Lender may at any time sell to one or more commercial banks, insurance companies or other Persons not Affiliates of Borrower (a “Participant”) participating interests in the Loan and the other interests of that Lender (the “Originating Lender”) hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, and (iii) Borrower and Administrative Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender’s rights and obligations under this Agreement and the other Loan Documents. Any agreement or instrument pursuant to which an Originating Lender sells such a participation shall provide that such Originating Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement or the other Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of any provision of any Loan Document described in clauses (1), (2), (3), (4) or (5) of Section 19.5. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 2.2.5, 2.2.6, 2.2.8 and 2.2.9 (and subject to the burdens of Sections 2.2.7, 2.2.9(v) and this Article XV) as though it were also a Lender thereunder; provided, however, that (i) in no event shall

-137-

any such participation result in Borrower making payments in excess of those that would be owing to Originating Lender if no participation had taken place unless Borrower is notified of such participation and such participation is made with Borrower’s prior written consent, and (ii) if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, and Section 19.19 of this Agreement shall apply to such Participant as if it were a Lender party hereto.

Section 15.5 Security Interest in Favor of Federal Reserve Bank. Notwithstanding any other provision contained in this Agreement or any other Loan Document to the contrary, any Lender may assign all or any portion of its Percentage Share of the Loan held by it to any Federal Reserve Lender or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Lender, provided that any payment in respect of such assigned Percentage Share of the Loan made by Borrower to or for the account of the assigning and/or pledging Lender in accordance with the terms of this Agreement shall satisfy Borrower’s obligations hereunder in respect to such assigned Percentage Share of the Loan to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder.

Section 15.6 Redirection Notice. Upon Administrative Agent’s receipt of written notice (a “Redirection Notice”) by a Pledgee that the pledging Lender is in default, beyond applicable cure periods, under pledging Lender’s obligations to Pledgee pursuant to the applicable credit agreement between pledging Lender and Pledgee (which notice need not be joined in or confirmed by pledging Lender), and until such Redirection Notice is withdrawn or rescinded by Pledgee, Administrative Agent shall remit to Pledgee and not to pledging Lender, any payments that Administrative Agent would otherwise be obligated to pay to pledging Lender from time to time pursuant to this Agreement or any Loan Document. Each pledging Lender hereby unconditionally and absolutely releases Administrative Agent from any liability to pledging Lender on account of Administrative Agent’s compliance with any Redirection Notice believed by Administrative Agent to have been delivered by Pledgee.

Section 15.7 Syndication. Subject to Section 15.1 above, DBTCA or its affiliates may syndicate, securitize, sell, assign and/or participate the Loan and the other Obligations held by Lenders hereunder, in whole or in part (any such transaction, a “Loan Sale”), before or after the Closing Date, without any consent from Borrower or any other Transaction Party, and DBTCA (or its affiliates) shall manage all aspects of such Loan Sale, including the number and identity of the potential Lenders participating in the Loan Sale and the Loan amounts and compensation offered in connection therewith. Borrower agrees to take all actions as DBTCA (or its affiliates) may reasonably request to assist in any such Loan Sale, including: (i) making its senior management and representatives available to participate in informational meetings with potential Lenders, investors and/or Rating Agencies at such times and places as DBTCA (or its affiliates) may reasonably request; (ii) using its reasonable efforts to ensure that the Loan Sale efforts benefit from Borrower’s lending relationships; and (iii) providing DBTCA (or its affiliates) with all information reasonably deemed necessary by DBTCA to successfully complete the Loan Sale.

-138-

Section 15.8 Pfandbrief Appraisal. In connection with any assignment, pledge or transfer of a Lender’s interest in the Loan to a Pfandbrief, such Lender, at its own expense, may order an Appraisal, and Administrative Agent will reasonably cooperate, at such Lender’s expense, in coordinating the same with Borrower to the extent necessary to obtain such Appraisal.

ARTICLE XVI

Reserve Accounts

Section 16.1 Tax Reserve Account. In accordance with the time periods set forth in Section 3.1, and during any period when the Manager is not reserving for Impositions and Other Charges, Borrower shall deposit into the Tax Reserve Account an amount equal to (a) one-twelfth of the annual Impositions that Administrative Agent reasonably estimates, based on the most recent tax bill for the Property, will be payable during the next ensuing twelve (12) months in order to accumulate with Administrative Agent sufficient funds to pay all such Impositions at least twenty (20) days prior to the imposition of any interest, charges or expenses for the non-payment thereof and (b) one-twelfth of the annual Other Charges that Administrative Agent reasonably estimates will be payable during the next ensuing twelve (12) months (said monthly amounts in (a) and (b) above hereinafter called the “Monthly Tax Reserve Amount”, and the aggregate amount of funds held in the Tax Reserve Account being the “Tax Reserve Amount”). If applicable, the Monthly Tax Reserve Amount shall be paid by Borrower to Administrative Agent on each Payment Date. Administrative Agent will apply the Monthly Tax Reserve Amount to payments of Impositions and Other Charges required to be made by Borrower pursuant to Article V and Article VII and under the Security Instrument, subject to Borrower’s right to contest Impositions in accordance with Section 7.3. In making any payment relating to the Tax Reserve Account, Administrative Agent may do so according to any bill, statement or estimate procured from the appropriate public office, without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of funds in the Tax Reserve Account shall exceed the amounts due for Impositions and Other Charges pursuant to Article V and Article VII, Administrative Agent shall credit such excess against future payments to be made to the Tax Reserve Account. If at any time Administrative Agent reasonably determines that the Tax Reserve Amount is not or will not be sufficient to pay Impositions and Other Charges by the dates set forth above, Administrative Agent shall notify Borrower of such determination and Borrower shall increase its monthly payments to Administrative Agent by the amount that Administrative Agent reasonably estimates is sufficient to make up the deficiency at least thirty (30) days prior to the imposition of any interest, charges or expenses for the non-payment of the Impositions and Other Charges. Upon payment of the Impositions and Other Charges, Administrative Agent shall reassess the amount necessary to be deposited in the Tax Reserve Account for the succeeding period, which calculation shall take into account any excess amounts remaining in the Tax Reserve Account.

-139-

Section 16.2 Insurance Reserve Account. At any time when the insurance required to be maintained pursuant to this Agreement is provided under a blanket policy in accordance with Article VI hereof and the premiums in respect of such blanket policy are not paid or caused to be paid at least 3 months before such premiums become due and payable or at any time that Manager does not reserve for or otherwise set aside and pay, in no more than four (4) installments per year, premiums with respect to the Insurance Requirements or following an Insurance Reserve Trigger, Borrower will immediately pay to Administrative Agent for transfer by Administrative Agent to the Holding Account (or if Borrower fails to so pay Administrative Agent, Administrative Agent will transfer from the Holding Account) an amount (the “Insurance Reserve Amount”) equal to payments of insurance premiums required to be made by Borrower to pay (or to reimburse Borrower for) the insurance required pursuant to Article VI and under the Security Instrument. In addition, at any time when the insurance required to be maintained pursuant to this Agreement is provided under a blanket policy in accordance with Article VI hereof and the premiums in respect of such blanket policy are not paid or caused to be paid at least 3 months before such premiums become due and payable or at any time that Manager does not reserve for or otherwise set aside and pay, in no more than four (4) installments per year, premiums with respect to the Insurance Requirements, and otherwise following an Insurance Reserve Trigger, in accordance with the time periods set forth in Section 3.1, Borrower shall deposit into the Insurance Reserve Account an amount equal to one-twelfth of the insurance premiums that Administrative Agent reasonably estimates based on the most recent bill, will be payable for the renewal of the coverage afforded by the insurance policies upon the expiration thereof in order to accumulate with Administrative Agent sufficient funds to pay all such insurance premiums at least twenty (20) days prior to the expiration of the policies required to be maintained by Borrower pursuant to the terms hereof (said monthly amounts hereinafter called the “Monthly Insurance Reserve Amount”); provided, however, that immediately following an Insurance Reserve Trigger, Borrower will pay to Administrative Agent for transfer by Administrative Agent to the Insurance Reserve Account (or if Borrower fails to so pay Administrative Agent, Administrative Agent will transfer from the Holding Account) an amount equal to payments of insurance premiums required to be made by Borrower to pay (or to reimburse Borrower) for the insurance required pursuant to Article VI and under the Security Instrument. The Monthly Insurance Reserve Amount, if same is payable pursuant to this Section 16.2, shall be paid by Borrower to Administrative Agent on each Payment Date. Administrative Agent will apply the Monthly Insurance Reserve Amount to payments of insurance premiums required to be made by Borrower to pay for the insurance required pursuant to Article VI and under the Security Instrument. In making any payment relating to the Insurance Reserve Account, Administrative Agent may do so according to any bill, statement or estimate procured from the insurer or agent, without inquiry into the accuracy of such bill, statement or estimate or into the validity thereof. If at any time Administrative Agent reasonably determines that the Insurance Reserve Amount is not or will not be sufficient to pay insurance premiums (up to a maximum amount equal to the aggregate annual insurance premium required hereunder), Administrative Agent shall notify Borrower of such determination and Borrower shall increase the Insurance Reserve Amount by the amount that Administrative Agent reasonably estimates is sufficient to make up the deficiency at least thirty (30) days prior to expiration of the applicable insurance policies. Upon payment of such insurance premiums, Administrative Agent shall reassess the amount necessary to be deposited in the Insurance Reserve Account for the succeeding period, which calculation shall take into account any excess amounts remaining in the Insurance Reserve Account.

-140-

Section 16.3 Cash Sweep Reserve Account. During any Cash Sweep Period, certain monies shall be transferred in accordance with Section 3.1.1 hereof from the Holding Account into the Cash Sweep Reserve Account and retained by Administrative Agent as additional security for the Indebtedness and shall be applied or disbursed as provided in Section 3.1.5 and below. From and after the occurrence and continuation of an Event of Default, Administrative Agent shall have the right to apply any amounts then remaining in the Cash Sweep Reserve Accounts to repay the Indebtedness or any other amounts due hereunder or under the other Loan Documents in such order, manner and amount as Administrative Agent shall determine in its sole discretion. Provided no Default or Event of Default shall have occurred and be continuing, Administrative Agent shall instruct the Cash Management Bank to transfer to Borrower’s Account free and clear of all Liens, any amounts remaining in the Cash Sweep Reserve Account within ten (10) Business Days after Borrower provides Administrative Agent with evidence satisfactory to Administrative Agent indicating that the Cash Sweep Period has ended.

Section 16.4 Required Repairs Reserve Account. (a) Borrower shall perform the repairs and other work at the Property as set forth on Schedule VI (such repairs and other work hereinafter referred to as “Required Repairs”) and shall complete each of the Required Repairs on or before the respective deadline for each repair as set forth on Schedule VI. On the Closing Date, Borrower shall deposit with or on behalf of Administrative Agent the amount set forth on such Schedule VI as the estimated cost to complete the Required Repairs multiplied by 125% (the “Required Repairs Funds”), which Required Repairs Funds shall be transferred by the Cash Management Bank into the Required Repairs Reserve Account.

(b) Release of Required Repairs Funds. Provided no Event of Default is continuing, Administrative Agent shall direct the Cash Management Bank to disburse Required Repairs Funds to Borrower out of the Required Repairs Reserve Account, within twenty (20) days after the delivery by Borrower to Administrative Agent of a request therefor (but not more often than once per month), in increments of at least $10,000 (or a lesser amount if the total amount in the Required Repairs Reserve Account is less than $10,000, in which case only one disbursement of the amount remaining in the account shall be made), accompanied by the following items (which items shall be in form and substance satisfactory to Administrative Agent): (i) an Officer’s Certificate (A) stating that the Required Repairs (or relevant portion thereof) to be funded by the requested disbursement have been completed in a good and workmanlike manner and in accordance with all applicable Legal Requirements, (B) identifying each Person that supplied materials or labor in connection with the Required Repairs to be funded by the requested disbursement, (C) stating that each such Person has been paid in full or will be paid in full upon such disbursement, or if such payment is a progress payment, that such payment represents full

-141-

payment to such Person, less any applicable retention amount, for work completed through the date of the relevant invoice from such Person, (D) stating that the Required Repairs (or relevant portion thereof) to be funded have not been the subject of a previous disbursement, (E) stating that all previous disbursements of Required Repairs Funds have been used to pay the previously identified Required Repairs, and (F) stating that all outstanding trade payables (other than those to be paid from the requested disbursement or those constituting Permitted Indebtedness) have been paid in full other than any applicable retention amount, (ii) as to any completed Required Repair a copy of any license, permit or other approval by any Governmental Authority required, if any, in connection with the Required Repairs and not previously delivered to Administrative Agent, (iii) copies of appropriate lien waivers (or conditional lien waivers) or other evidence of payment satisfactory to Administrative Agent, (iv) at Administrative Agent’s option, for Required Repairs in excess of $25,000 a title search for the Property indicating that the Property is free from all Liens, claims and other encumbrances not previously approved by Administrative Agent, and (v) such other evidence as Administrative Agent shall reasonably request to demonstrate that the Required Repairs to be funded by the requested disbursement have been completed (or completed to the extent of the requested payment) and are paid for or will be paid upon such disbursement to Borrower. Upon Borrower’s completion of all Required Repairs in accordance with this Section 16.4, Administrative Agent shall direct the Cash Management Bank to release any remaining Required Repairs Funds, if any, in the Required Repairs Reserve Account to Borrower.

Section 16.5 FF&E Reserve Account. In accordance with Section 3.1, and during any period when Manager is not reserving for FF&E or FF&E is not otherwise reserved pursuant to the terms of the Management Agreement, upon the request of Borrower, Administrative Agent will, within ten (10) Business Days (or such shorter time as may be appropriate in Administrative Agent’s reasonable discretion during emergency situations identified to Administrative Agent by Borrower in writing) after the receipt of such request and the satisfaction of the other conditions set forth in this Section, cause disbursements to Borrower from the FF&E Reserve Account to pay or to reimburse Borrower or Manager for actual costs incurred in connection with capital expenditures relating to FF&E at the Property of the type customarily utilized in hotel properties in New York similar to the Property (to the extent such expenditures are permitted hereunder), provided that (A) Administrative Agent has received invoices evidencing that the costs for which such disbursements are requested are due and payable and are in respect of capital expenditures relating to FF&E at the property, (B) Borrower has applied any amounts previously received by it in accordance with this Section for the expenses to which specific draws made hereunder relate and received any Lien waivers or other releases which would customarily be obtained with respect to the work in question and (C) Administrative Agent has received an Officer’s Certificate confirming that the conditions in the foregoing clauses (A) and (B) have been satisfied and that the copies of invoices and evidence of Lien waivers (to the extent required above) attached to such Officer’s Certificate are true, complete and correct. Subject to the terms of the Assignment of Management Agreement, in no event shall Administrative Agent be obligated to disburse funds from the FF&E Reserve Account if a monetary Default or an Event of Default exists.

-142-

Section 16.6 Ground Rent Reserve Account. (a) During any period when the Manager is not reserving for Ground Rent, Borrower shall deposit with or on behalf of Administrative Agent, on each Monthly Payment Date, an amount equal to the Ground Rent that will be payable under the Ground Lease for the month immediately following the month in which such Payment Date occurs (said monthly amounts hereinafter called the “Monthly Ground Rent Reserve Amount”), which amounts shall be transferred into the Ground Rent Account. Such deposit may be increased from time to time by Administrative Agent in such amount as Administrative Agent shall deem to be necessary in its reasonable discretion to reflect any increases in the Ground Rent. Amounts deposited from time to time into the Ground Rent Account pursuant to this Section 16.6 are referred to herein as the “Ground Rent Funds”.

(b) Provided no Event of Default has occurred and is continuing, Administrative Agent shall direct the Cash Management Bank to apply Ground Rent Funds on deposit in the Ground Rent Account to payments of Ground Rent. Borrower shall furnish Administrative Agent with all bills, invoices and statements for the Ground Rent at least thirty (30) days prior to the date on which such Ground Rent first becomes payable. In making any payment relating to Ground Rent, Administrative Agent may do so according to any bill or statement given by or on behalf of the ground lessor without inquiry into the accuracy of such bill or statement or into the validity of any rent, additional rent or other charge thereof. If the amount of the Ground Rent Funds shall exceed the amounts due for Ground Rent, Administrative Agent shall credit such excess against future payments to be made to the Ground Rent Funds. Any Ground Rent Funds remaining after the Obligations have been paid in full shall be returned to Borrower.

ARTICLE XVII

Defaults

Section 17.1 Event of Default. Each of the following events shall constitute an event of default hereunder (an “Event of Default”):

(i) if (A) the Indebtedness is not paid in full on the Maturity Date (subject to the last sentence of Section 3.1.5(B)), (B) any Debt Service is not paid in full on the applicable Payment Date (subject to the last sentence of Section 3.1.5(B)), (C) any prepayment of principal due under this Agreement or the Notes is not paid when due, (D) the Prepayment Premium is not paid when due, (E) any deposit to the Holding Account or any of the other Collateral Accounts required to be made by or on behalf of Borrower or any of its Affiliates is not made on the required deposit date therefor; or (F) except as to any amount included in (A), (B), (C), (D), and/or (E) of this clause (i), any other amount payable pursuant to this Agreement, the Notes or any other Loan Document is not paid in full when due and payable in accordance with the provisions of the applicable Loan Document, with such failure as described in subclauses (C), (D), (E) and (F) continuing for five (5) Business Days after Administrative Agent delivers written notice thereof to Borrower;

-143-

(ii) subject to Borrower’s right to contest as set forth in Section 7.3, if any of the Impositions or Other Charges are not paid prior to the imposition of any interest, penalty, charge or expense for the non-payment thereof;

(iii) in the event Administrative Agent is not responsible for paying for insurance with the funds held in the Insurance Reserve Account, if the insurance policies required by Section 6.1 are not kept in full force and effect, or if certificates for any of such insurance policies are not delivered to Administrative Agent within ten (10) Business Days following Administrative Agent’s request therefor;

(iv) if, except as permitted pursuant to Article VIII, (a) any Transfer of any direct or indirect ownership interest in all or any portion of the Property, (b) any Transfer of any direct or indirect ownership interest in Borrower, any Transaction Party or other Person restricted by the terms of Article VIII, (c) any Lien or encumbrance on all or any portion of the Property or (d) any pledge, hypothecation, creation of a security interest in or other encumbrance of any direct or indirect ownership interests in Borrower, any Transaction Party, or other Person restricted by the terms of Article VIII;

(v) if any representation or warranty made by Borrower herein, any Transaction Party, or any Affiliate of Borrower in any Loan Document, or in any report, certificate (including, but not limited to, any certificate by Borrower delivered in connection with the issuance of the Non-Consolidation Opinion), financial statement or other instrument, agreement or document furnished to Administrative Agent shall have been false or misleading in any material respect as of the date the representation or warranty was made; provided, however, that if such representation or warranty which was false or misleading in any material respect is, by its nature, curable and is not reasonably likely to have a Material Adverse Effect, and such representation or warranty was not, to the Best of Borrower’s Knowledge, false or misleading in any material respect when made, then same shall not constitute an Event of Default unless Borrower has not cured same within ten (10) Business Days after receipt by Borrower of notice from Administrative Agent in writing of such breach;

(vi) if Borrower, Guarantor or any Transaction Party shall make an assignment for the benefit of creditors;

(vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Guarantor or any Transaction Party or if Borrower, Guarantor or any Transaction Party shall be adjudicated a 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, Guarantor or any Transaction Party, or if any proceeding for the dissolution or liquidation of Borrower, Guarantor or any Transaction Party shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Guarantor or any Transaction Party upon the same not being discharged, stayed or dismissed within ninety (90) days;

-144-

(viii) if Borrower, Guarantor or any Transaction Party, as applicable, Transfers its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;

(ix) with respect to any term, covenant or provision set forth in any Loan Document (other than the other subsections of this Section 17.1) which specifically contains a notice requirement or grace period, if Borrower, Guarantor or any Transaction Party shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period;

(x) if Borrower, having notified Administrative Agent of its election to extend the Maturity Date as set forth in Section 2.1.6, fails to deliver the Extension Interest Rate Cap Agreement to Administrative Agent prior to the first day of the extended term of the Loan and Borrower has not repaid the Loan pursuant to the terms of the Notes prior to such first day of the extended term;

(xi) if Borrower shall fail to comply with (a) any covenants set forth in Section 5.2 or (b) any covenants set forth in Section 5.1 or Article XI and in the case of this clause (b) only, such failure shall continue unremedied for a period of 10 days after Administrative Agent delivers written notice thereof to Borrower;

(xii) if Borrower or any of its Affiliates shall fail to deposit any sums required to be deposited in the Holding Account or any Sub-Accounts thereof pursuant to the requirements herein when due;

(xiii) if this Agreement or any other Loan Document or any Lien granted hereunder or thereunder, in whole or in part, shall terminate or shall cease to be effective or shall cease to be a legally valid, binding and enforceable obligation of Borrower or any Transaction Party, or any Lien securing the Indebtedness shall, in whole or in part, cease to be a perfected first priority Lien, subject to the Permitted Encumbrances (except in any of the foregoing cases in accordance with the terms hereof or under any other Loan Document or by reason of any affirmative act or omission of Administrative Agent);

(xiv) if the Management Agreement is terminated and an Acceptable Manager is not appointed as a replacement manager pursuant to the provisions of Section 5.2.14 within sixty (60) days after such termination;

(xv) if Borrower shall default beyond the expiration of any applicable cure period under any existing easement, covenant or restriction which affects the Property, the default of which shall have a Material Adverse Effect;

(xvi) if there exists any fact or circumstance that reasonably could be expected to result in the (a) imposition of a Lien or security interest under Section 412(n) of the Code or under ERISA or (b) the complete or partial withdrawal by Borrower or any ERISA Affiliate from any “multiemployer plan” that is reasonably expected to result in any material liability to Borrower; provided, however that the existence of such fact or circumstance under clause (xvii)(b) shall not constitute an Event of Default if such material withdrawal liability (x) in the case of a withdrawal by an ERISA Affiliate that is reasonably expected to cause a Material Adverse Effect or any withdrawal by Borrower, is paid within thirty (30) days after the date incurred or is contested in accordance with Section 7.3 hereof or (y) in the case of a withdrawal by an ERISA Affiliate that is not reasonably expected to cause a Material Adverse Effect, is paid within the period required under applicable ERISA statutes or is contested in accordance with Section 7.3 hereof;

-145-

(xvii) if Guarantor breaches any of the Financial Covenants (as defined in the Recourse Guaranty);

(xviii) if Borrower fails to apply any funds received by Borrower pursuant to Section 3.1.6 for the purpose such funds were transferred to Borrower; and

(xix) if Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or of any Loan Document not specified in subsections (i) to (xviii) above, for thirty (30) days after written notice from Administrative Agent; provided, however, that if such Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period and provided further that Borrower shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently proceeds to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days.

Section 17.2 Remedies.

(A) Unless waived in writing by Administrative Agent (with the consent of the Required Lenders or Lenders as otherwise provided in this Agreement), upon the occurrence and during the continuance of an Event of Default (other than an Event of Default described in clauses (a)(vi) or (vii) above) Administrative Agent may (and at the request of the Required Lenders shall), from time to time without notice or demand, exercise, on behalf of Lenders, all rights and remedies available to it under this Agreement and the other Loan Documents or at law or in equity, take such action that Administrative Agent deems advisable to protect and enforce its and Lenders rights against Borrower, the other Transaction Parties and the Property, including, without limitation, (i) declaring immediately due and payable the entire Principal Amount together with interest thereon and all other sums due by Borrower and the other Transaction Parties under the Loan Documents, (ii) collecting interest on the Principal Amount at the Default Rate whether or not the Loan has been accelerated, and (iii) enforcing or availing itself of any or all rights or remedies set forth in the Loan Documents against Borrower, the other Transaction Parties and the Property, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in subsections (a)(vi) or (a)(vii) above, the Indebtedness and all other obligations of Borrower and the other Transaction Parties 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. The foregoing provisions shall not be construed as a waiver by Administrative Agent of its right to pursue any other remedies available to it under this Agreement, the Security Instrument or any other Loan Document. Any payment hereunder may be enforced and recovered in whole or in part at such time by one or more of the remedies provided to Administrative Agent in the Loan Documents.

-146-

(B) Unless waived in writing by Administrative Agent, upon the occurrence and during the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Administrative Agent and Lenders against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Administrative Agent and Lenders at any time and from time to time, whether or not all or any of the Indebtedness shall be declared due and payable, and whether or not Administrative Agent shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Property. Any enforcement or remedial actions taken by Administrative Agent shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Administrative Agent may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Administrative Agent permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing (i) Administrative Agent shall not be subject to any one action or election of remedies law or rule and (ii) all liens and other rights, remedies or privileges provided to Administrative Agent shall remain in full force and effect until Administrative Agent has exhausted all of its remedies against the Property and the Security Instrument has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Indebtedness or the Indebtedness has been paid in full.

(C) Upon the occurrence and during the continuance of an Event of Default, with respect to the Account Collateral, Administrative Agent may:

(i) without notice to Borrower, except as required by law, and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Account Collateral against the Obligations, Operating Expenses and/or Capital Expenditures for the Property or any part thereof;

(ii) in Administrative Agent’s sole discretion, at any time and from time to time, exercise any and all rights and remedies available to it under this Agreement and/or as a secured party under the UCC;

(iii) demand, collect, take possession of or receipt for, settle, compromise, adjust, sue for, foreclose or realize upon the Account Collateral (or any portion thereof) as Administrative Agent may determine in its sole discretion; and

(iv) take all other actions provided in, or contemplated by, this Agreement.

-147-

(D) With respect to Borrower, the Account Collateral, the Rate Cap Collateral and the Property, nothing contained herein or in any other Loan Document shall be construed as requiring Administrative Agent to resort to the Property for the satisfaction of any of the Indebtedness, and Administrative Agent may seek satisfaction out of the Property or any part thereof, in its absolute discretion in respect of the Indebtedness. In addition, Administrative Agent shall have the right from time to time to partially foreclose the Security Instrument in any manner and for any amounts secured by this Agreement or the Security Instrument then due and payable as determined by Administrative Agent in its sole discretion including, without limitation, the following circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the payment of one or more scheduled payments of principal or interest, Administrative Agent may foreclose this Agreement and the Security Instrument to recover such delinquent payments, or (ii) in the event Administrative Agent elects to accelerate less than the entire outstanding principal balance of the Loan, Administrative Agent may foreclose this Agreement and the Security Instrument to recover so much of the principal balance of the Loan as Administrative Agent may accelerate and such other sums secured by this Agreement or the Security Instrument as Administrative Agent may elect. Notwithstanding one or more partial foreclosures, the Property shall remain subject to this Agreement and the Security Instrument to secure payment of sums secured by this Agreement and the Security Instrument and not previously recovered.

Section 17.3 Remedies Cumulative; Waivers. The rights, powers and remedies of Administrative Agent under this Agreement and the other Loan Documents shall be cumulative and not exclusive of any other right, power or remedy which Administrative Agent may have against Borrower or any other Person pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Administrative Agent’s rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Administrative Agent may determine in Administrative Agent’s sole discretion. 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 Default or Event of Default with respect to Borrower, Guarantor or any Transaction Party shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower, Guarantor or any Transaction Party or to impair any remedy, right or power consequent thereon.

Section 17.4 Costs of Collection. In the event that after an Event of Default: (i) the Notes or any of the other Loan Documents are placed in the hands of an attorney for collection or enforcement or are collected or enforced through any legal proceeding; (ii) an attorney is retained to represent Administrative Agent and/or Lenders in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under the Notes or any of the Loan Documents; or (iii) an attorney is retained to protect or enforce the lien or any of the terms of this Agreement, the Security Instrument or any of the other Loan Documents; then Borrower shall pay to Administrative Agent upon demand all reasonable attorney’s fees, costs and expenses actually incurred in connection therewith, including costs of appeal, together with interest on any judgment obtained by Administrative Agent at the Default Rate.

-148-

ARTICLE XVIII

Special Provisions

Section 18.1 Exculpation.

18.1.1 Exculpated Parties. The Loan (as it may be severed, resized, bifurcated or otherwise modified) and the Obligations shall be fully recourse to Borrower. Except as set forth in this Section 18.1, the Recourse Guaranty, and the Environmental Indemnity, no personal liability shall be asserted, sought or obtained by Administrative Agent or any of Lenders or enforceable against (i) any Affiliate of Borrower, (ii) any Person owning, directly or indirectly, any legal or beneficial interest in Borrower or any Affiliate of Borrower or (iii) any direct or indirect partner, member, principal, officer, Controlling Person, beneficiary, trustee, advisor, shareholder, employee, agent, manager, Affiliate or director of any Persons described in clauses (i) and (ii) above (collectively, the “Exculpated Parties”) and none of the Exculpated Parties shall have any personal liability (whether by suit deficiency judgment or otherwise) in respect of the Obligations, this Agreement, the Security Instrument, the Notes, the Property or any other Loan Document, or the making, issuance or transfer thereof, all such liability, if any, being expressly waived by Administrative Agent and Lenders. The foregoing limitation shall not in any way limit or affect Administrative Agent’s and Lenders’ right to any of the following and neither Administrative Agent nor any Lender shall be deemed to have waived any of the following:

(A) foreclosure of the lien of this Agreement and the Security Instrument and the other Loan Documents in accordance with the terms and provisions set forth herein and in the other Loan Documents;

(B) action against any other security at any time given to secure the payment of the Notes and the other Obligations;

(C) exercise of any other remedy set forth in this Agreement or in any other Loan Document which is not inconsistent with the terms of this Section 18.1;

(D) any right which Administrative Agent may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Indebtedness secured by this Agreement, the Security Instrument and the other Loan Documents or to require that all collateral shall continue to secure all of the Indebtedness owing to Lenders in accordance with the Loan Documents; or

(E) the liability of any given Exculpated Party with respect to any separate written guaranty or agreement given by any such Exculpated Party in connection with the Loan (including, without limitation, the Recourse Guaranty and the Environmental Indemnity).

-149-

18.1.2 Carveouts From Non-Recourse Limitations. Notwithstanding the foregoing or anything in this Agreement or any of the Loan Documents to the contrary, there shall at no time be any limitation on any Guarantor’s liability for, and Guarantor and Borrower shall be jointly and severally liable for, the payment, in accordance with the terms of this Agreement, the Notes, the Security Instrument and the other Loan Documents, to Administrative Agent and Lenders of the following (“Recourse Liabilities”):

(A) any Liabilities actually incurred by or on behalf of Administrative Agent or any Lender by reason of (i) the fraudulent acts of or intentional misrepresentations by Borrower or any Affiliate of Borrower (including, without limitation, transfers from the Hotel Operating Account made in violation of Section 3.1.9) or (ii) the failure of Borrower to have a valid and subsisting certificate of occupancy(s) for all or any portion of the Property if and to the extent such certificate of occupancy(s) is required to comply with all Legal Requirements;

(B) Proceeds which Borrower or any Affiliate of Borrower has actually received and to which Administrative Agent is entitled pursuant to the terms of this Agreement or any of the Loan Documents to the extent the same have not been applied toward payment of the Indebtedness, or used for the repair or replacement of the Property in accordance with the provisions of this Agreement;

(C) any security deposits and advance deposits which are not delivered to Administrative Agent upon a foreclosure of the Property or action in lieu thereof, except to the extent any such deposits were applied or refunded in accordance with the terms and conditions of any of the Leases, as applicable, prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof;

(D) any Liabilities actually incurred by or on behalf of Administrative Agent or any Lender by reason of all or any part of the Property, the Account Collateral, the IP Collateral or the Rate Cap Collateral being voluntarily encumbered by a Lien (other than (i) pursuant to this Agreement and the Security Instrument or (ii) any Lien resulting by reason of the insufficiency of Net Operating Income to pay trade payables or Impositions or to discharge worker’s, mechanics’, materialmen’s or similar Liens, except where such insufficiency of Net Operating Income is due to a breach of the Loan Documents by any of the Transaction Parties) in violation of the Loan Documents;

(E) after the occurrence and during the continuance of an Event of Default, any Rents, issues, profits and/or income collected by Borrower or any Affiliate of Borrower (other than Rents and credit card receivables sent to the applicable Deposit Account or paid directly to Administrative Agent pursuant to any notice of direction delivered to tenants of the Property or credit card companies) which are not applied to payment of the Obligations or used to pay normal and verifiable Operating Expenses of the Property or otherwise applied in a manner permitted under the Loan Documents, in each case, as a result of the acts of Borrower or any Affiliate of Borrower;

-150-

(F) any Liabilities actually incurred by or on behalf of Administrative Agent or any Lender by reason of physical damage to the Property from intentional waste or willful destruction (other than in connection with a permitted alteration) committed by Borrower or any Affiliate of Borrower;

(G) any actual loss, damage, cost or expense actually incurred by Administrative Agent or Lenders as a result of the removal or disposal of any collateral for the Loan during the continuation of an Event of Default other than in the Ordinary Course of Business;

(H) any actual loss, damage, cost or expense actually incurred by Administrative Agent or Lenders as a result of a violation of the provisions of Section 5.2.1 hereof, other than (i) de minimis violations of such provisions as a result of incurrence of trade payables or purchase money indebtedness in excess of the limitations thereon set forth in clauses (c) and (d) of the definition of Permitted Debt and (ii) any encumbrance resulting by reason of the insufficiency of Net Operating Income to pay trade payables or Impositions or to discharge worker’s, mechanics’, materialmen’s or similar Liens, except where such insufficiency of Net Operating Income is due to a breach of the Loan Documents by any of the Transaction Parties;

(I) any actual loss, damage, cost or expense actually incurred by or on behalf of Administrative Agent or any Lender as a result of any distribution in violation of the provisions of Section 5.2.13 hereof;

(J) any Liabilities incurred by or on behalf of Administrative Agent or any Lender by reason of the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity or in the Security Instrument concerning environmental laws, hazardous substances and asbestos and any indemnification of Administrative Agent or any of Lenders with respect thereto in either document;

(K) any Liabilities incurred by or on behalf of Administrative Agent or any Lender by reason of the failure of Borrower to comply with any of the provisions of Article XV;

(L) any Liabilities incurred by or on behalf of Administrative Agent or any Lender by reason of Borrower’s failure to obtain Administrative Agent’s prior written consent to any Transfer (other than a Transfer set forth in clause (N)(ii) below), as required by the Loan Agreement or the Security Instrument or any other violation of section 8.1 (other than any involuntary Transfer due to an encumbrance resulting by reason of the insufficiency of Net Operating Income to pay trade payables or Impositions or to discharge worker’s, mechanics’, materialmen’s or similar Liens, except where such insufficiency of Net Operating Income is due to a breach of the Loan Documents by any of the Transaction Parties);

-151-

(M) any Liabilities incurred by or on behalf of Administrative Agent or any of Lenders by reason of Borrower’s failure to perform any of its obligations with respect to the Condominium Board, the Condominium Declaration, the Condominium Rules or Condominium Regime as set forth in Section 5.1.27 or if for any reason the Property or the land subject to the Condominium Declaration is withdrawn from condominium ownership; or if by reason of damage or destruction of all or any portion of the Improvements the Condominium Board or the owners of the Condominium Units do not duly and promptly resolve to proceed with the repair or restoration of the Improvements; or if by reason of the failure of Borrower to perform any act, as for example notification to the Condominium Board under the Condominium Declaration or the Condominium Rules, Administrative Agent shall not be entitled to the protective provisions under the Condominium Declaration or the Condominium Rules.

(N) all of the Indebtedness and the Obligations in the event of: (i) Borrower fails to obtain Administrative Agent’s prior consent to any subordinate financing secured by the Property or other voluntary Lien encumbering the Property; (ii) Borrower fails to obtain Administrative Agent’s prior consent to any Transfer of the Property or any interest therein or any Transfer of any direct or indirect ownership interest in Borrower, in either case as required by the Security Instrument or this Agreement (other than any involuntary Transfer due to an encumbrance resulting by reason of the insufficiency of Net Operating Income to pay trade payables or Impositions or to discharge worker’s, mechanics’, materialmen’s or similar Liens, except where such insufficiency of Net Operating Income is due to a breach of the Loan Documents by any of the Transaction Parties); (iii) Borrower files a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (iv) Borrower is substantively consolidated with any other Person (other than any other Borrower or any subsidiary of any Borrower); unless such consolidation was involuntary and not consented to by Borrower or Guarantor; (v) the filing of an involuntary petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by any other Person in which Borrower colludes with or otherwise assists such Person, and/or Borrower solicits or causes to be solicited petitioning creditors for any involuntary petition against Borrower by any Person; (vi) Borrower files an answer consenting to, or otherwise acquiescing in, or joining in, any involuntary petition filed against it by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (vii) Borrower or any Affiliate, officer, director or representative controlled by Guarantor which controls Borrower consents to, or acquiesces in, or joins in, an application for the appointment of a custodian, receiver, trustee or examiner for Borrower or any portion of the Property; (viii) Borrower makes an assignment for the benefit of creditors or admits, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; or (ix) if Guarantor (or any Person comprising Guarantor), Borrower or any Affiliate of any of the foregoing, in connection with any enforcement action or exercise or assertion of any right or remedy by or on behalf of Administrative Agent under or in connection with the Recourse Guaranty, the Notes, the Security Instrument or any other Loan Document, seeks a defense, judicial intervention or injunctive or other equitable relief of any kind, or asserts in a pleading filed in connection with a judicial proceeding any defense against Administrative Agent or any right in connection with any security for the Loan (except for a defense raised, or judicial intervention or injunctive or other equitable relief sought, by Borrower, Guarantor or any Affiliate of any of the foregoing in good faith on the grounds that the Event of Default giving rise to such enforcement action or exercise or assertion of a right or remedy by Administrative Agent has not occurred or that Administrative Agent’s exercise of remedies is not in accordance with applicable law or the Loan Documents);

-152-

(O) any Liabilities which may at any time be imposed upon, incurred by or awarded against Administrative Agent or any Lender in the event (and arising out of such circumstances) that Borrower should raise any defense, counterclaim or allegation in any foreclosure action by Administrative Agent relative to the Property, the Account Collateral, the IP Collateral or the Rate Cap Collateral or any part thereof law (except for a defense raised, or judicial intervention or injunctive or other equitable relief sought, or a counterclaim or allegation asserted, by Borrower, Guarantor or any Affiliate of any of the foregoing in good faith on the grounds that the Event of Default giving rise to such foreclosure action has not occurred or that Administrative Agent’s exercise of remedies is not in accordance with Legal Requirements or the Loan Documents);

(P) any Liabilities incurred by or on behalf of Administrative Agent or any Lender by reason of Borrower or their respective general partners failing to be and have been since the date of its respective formation, a Single Purpose Entity (other than as a result of (i) Borrower’s failure to maintain adequate capital or be or remain solvent, (ii) Borrower’s failure to pay any liability or indebtedness as it becomes due, provided such liability or indebtedness is not prohibited pursuant to the terms of the Loan Documents or (iii) involuntary liabilities incurred by Borrower);

(Q) during the continuance of a Cash Sweep Period, any Liabilities incurred by or on behalf of Administrative Agent or any Lender by reason of Borrower’s failure to apply funds received by Borrower pursuant to Section 3.1.6(iii) for the purpose such funds were transferred to Borrower; and

(R) reasonable attorney’s fees and expenses incurred by Administrative Agent or any Lender in connection with any successful suit filed on account of any of the foregoing clauses (A) through (Q).

ARTICLE XIX

Miscellaneous

Section 19.1 Survival. This Agreement and all covenants, indemnifications, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Administrative Agent of the Loan and the execution and delivery to Administrative Agent of the Notes, and shall continue in full force and effect so long as all or any of the Indebtedness is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the successors and assigns of Administrative Agent. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder and under the other Loan Documents shall be joint and several.

-153-

Section 19.2 Administrative Agent’s Discretion. Whenever pursuant to this Agreement, Administrative Agent exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Administrative Agent, the decision of Administrative Agent to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Administrative Agent and shall be final and conclusive.

Section 19.3 Governing Law.

(A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDERS AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, WHICH STATE 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 AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK. 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 AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

(B) SUBJECT TO CLAUSE (E) OF THE FOLLOWING SENTENCE, ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER LOAN DOCUMENTS, OR ANY OF THE OBLIGATIONS, SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT OR ANY LOAN DOCUMENT, EACH TRANSACTION PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS (OTHER THAN WITH RESPECT TO ACTIONS BY ANY AGENT IN RESPECT OF RIGHTS UNDER ANY

-154-

SECURITY AGREEMENT GOVERNED BY LAWS OTHER THAN THE LAWS OF THE STATE OF NEW YORK OR WITH RESPECT TO ANY COLLATERAL SUBJECT THERETO); (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE TRANSACTION PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH THIS AGREEMENT; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE TRANSACTION PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES THAT ADMINISTRATIVE AGENT AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY TRANSACTION PARTY IN THE COURTS OF ANY OTHER JURISDICTION IN CONNECTION WITH THE EXERCISE OF ANY RIGHTS UNDER ANY ACCOMMODATION SECURITY DOCUMENT OR THE ENFORCEMENT OF ANY JUDGMENT.

(C) BORROWER DOES HEREBY DESIGNATE AND APPOINT:

CORPORATION SERVICE COMPANY
80 STATE STREET
ALBANY, NEW YORK 12207-2543

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 BOROUGH OF MANHATTAN, STATE OF NEW YORK, NEW YORK, 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 STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO ADMINISTRATIVE AGENT OF ANY CHANGED 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 NEW YORK, NEW YORK (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 NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

-155-

Section 19.4 No Assignment by Borrower. Except as otherwise expressly provided in Section 8.5 of this Agreement, none of the Transaction Parties may assign its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of Administrative Agent and the Required Lenders. Subject to the foregoing, all provisions contained in this Agreement and the other Loan Documents and in any document or agreement referred to herein or therein or relating hereto or thereto shall inure to the benefit of Administrative Agent and each Lender, their respective successors and assigns, and shall be binding upon each of the Transaction Parties and such Person’s successors and assigns.

Section 19.5 Modification. Neither this Agreement nor any other Loan Document may be Modified or waived unless such Modification or waiver is in writing and signed by Administrative Agent, the applicable Transaction Parties, Borrower and, except for the Modifications and waivers requiring consent of one hundred percent (100%) of Lenders, in each case as provided below, the Required Lenders. No such Modification or waiver shall, without the prior written consent of one hundred percent (100%) of Lenders: (1) reduce the principal of, or rate of interest on (other than a waiver of default interest), the Loan or fees payable hereunder, (2) except as expressly contemplated by Article XV, modify the Percentage Share of any Lender, (3) Modify the definition of “Required Lenders”, (4) extend or waive any scheduled payment date for any principal, interest or fees, (5) release Guarantor from its obligations under the Recourse Guaranty, release Borrower from its obligation to repay the Loan, or release the Property from the lien of the Security Instrument (in each case except for such releases as may be specifically authorized by or otherwise approved in accordance with this Agreement or the other Loan Documents), (6) Modify this Section 19.5, or (7) Modify any provision of the Loan Documents which by its terms requires the consent or approval of one hundred percent (100%) of Lenders. It is expressly agreed and understood that the election by the Required Lenders to accelerate amounts outstanding hereunder shall not constitute a Modification or waiver of any term or provision of this Agreement or any other Loan Document. No Modification of any provision of the Loan Documents relating to Administrative Agent shall be effective without the written consent of Administrative Agent.

Section 19.6 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Notes, or of any other Loan Document, or consent to any departure therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to or demand on Borrower shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances.

Section 19.7 Delay Not a Waiver. Neither any failure nor any delay on the part of Administrative Agent in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Notes or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Notes or any other Loan Document, Administrative Agent shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Notes or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount.

-156-

Section 19.8 Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested, (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery or (c) telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section):

If to Administrative Agent:

c/o Deutsche Bank Securities, Inc.
200 Crescent Court, Suite 550
Dallas, Texas 75201
Attn: Justin Shull
Telephone: (214) 740-7906
Telecopy: (214) 740-7910

with a copy to it at:

60 Wall Street
New York, New York 10005
Attn: George Reynolds
Telephone: (212) 250-2362
Telecopy: (212) 797-4496

If to Borrower:

475 Tenth Avenue
New York, New York 10018
Attn: Richard Szymanski
Telephone: (212) 277-4188
Telecopy: (212) 277-4270

With a copy to:

Hogan Lovells US LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Bruce Gilchrist, Esq.
Telephone: (202) 637-5686
Telecopy: (202) 637-5910

-157-

All notices, elections, requests and demands under this Agreement shall be effective and deemed received upon the earliest of (i) the actual receipt of the same by personal delivery or otherwise, (ii) one (1) Business Day after being deposited with a nationally recognized overnight courier service as required above, or (iii) on the day sent if sent by facsimile with confirmation on or before 5:00 p.m. New York time on any Business Day or on the next Business Day if so delivered after 5:00 p.m. New York time or on any day other than a Business Day. 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, election, request, or demand sent.

Section 19.9 TRIAL BY JURY. EACH OF BORROWER, ADMINISTRATIVE AGENT, EACH LENDER AND ALL PERSONS CLAIMING BY, THROUGH OR UNDER ANY OF THEM, HEREBY EXPRESSLY, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER OR RELATED TO THIS AGREEMENT, THE SECURITY INSTRUMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT, THE SECURITY INSTRUMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION IS NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND BORROWER HEREBY AGREES AND CONSENTS THAT AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT HERETO TO THE WAIVER OF ANY RIGHT TO TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT IT HAS CONSULTED WITH LEGAL COUNSEL REGARDING THE MEANING OF THIS WAIVER AND ACKNOWLEDGES THAT THIS WAIVER IS AN ESSENTIAL INDUCEMENT FOR THE MAKING OF THE LOAN. THIS WAIVER SHALL SURVIVE THE REPAYMENT OF THE LOAN.

Section 19.10 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

-158-

Section 19.11 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 19.12 Preferences. To the extent Borrower makes a payment or payments to Administrative Agent, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Administrative Agent.

Section 19.13 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Administrative Agent except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Administrative Agent to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Administrative Agent with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Administrative Agent to Borrower.

Section 19.14 Expenses; Indemnity; No Consequential Damages.

(A) Except as may be otherwise expressly set forth in the Loan Documents, Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Administrative Agent (and, where applicable, each Lender) for all reasonable and documented out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) (i) incurred by Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby; (ii) incurred by Administrative Agent in connection with Administrative Agent’s ongoing performance of and compliance with all agreements and conditions contained in this Agreement and the other Loan Documents on its to be performed or complied with after the Closing Date; (iii) incurred by Administrative Agent in connection with the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters as required herein or under the other Loan Documents; (iv) incurred by Administrative Agent in connection with securing Borrower’s compliance with any requests made pursuant to the provisions of this Agreement; (v) incurred by Administrative Agent or any Lender in connection with the filing

-159-

and recording fees and expenses, mortgage recording taxes, title insurance and reasonable fees and expenses of counsel for providing to Administrative Agent all required legal opinions, and other similar expenses incurred in creating and perfecting the Lien in favor of Administrative Agent for the benefit of Lenders pursuant to this Agreement and the other Loan Documents; (vi) incurred by Administrative Agent or any Lender in connection with enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents, the Property, or any other security given for the Loan; (vii) incurred by Administrative Agent or any Lender in connection with enforcing any obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to the Property or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a work-out or of any insolvency or bankruptcy proceedings and (viii) incurred by Administrative Agent in connection with procuring insurance policies pursuant to Section 6.1.11; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Administrative Agent; provided, further, that, the obligation to reimburse Lenders and Administrative Agent for the matters described in clause (vii) above shall be limited to (x) one law firm for Administrative Agent and (y) one other law firm retained by the Required Lenders, together with (in the case of (x) and (y), as applicable) one additional counsel in each applicable jurisdiction. Any cost and expenses due and payable to Administrative Agent or any Lender may be paid from any amounts in the Collateral Accounts or the Hotel Operating Account if same are not paid by Borrower within ten (10) Business Days after receipt of written notice from Administrative Agent.

(B) Borrower shall defend (subject to Administrative Agent’s, and in the case of any conflict of interest, the applicable Indemnified Party’s selection of counsel) indemnify and save harmless Administrative Agent, Lenders, and all of their respective officers, directors, stockholders, members, partners, employees, agents, successors and assigns thereof (collectively, the “Indemnified Parties”) from and against all Liabilities imposed upon or incurred by or asserted against the Indemnified Parties or the Property or any part of its interest therein as a result of a claim brought by any Person, including, without limitation, any Governmental Authority, other than Borrower and its Affiliates, by reason of the occurrence or existence of any of the following (to the extent Proceeds payable on account of the following shall be inadequate; it being understood that in no event will the Indemnified Parties be required to actually pay or incur any costs or expenses as a condition to the effectiveness of the foregoing indemnity: (1) ownership of Borrower’s interest in the Property, or any interest therein, or receipt of any Rents or other sum therefrom, (2) any accident, injury to or death of any persons or loss of or damage to property occurring on or about the Property or any Appurtenances (as defined in the Security Instrument) thereto, (3) any design, construction, operation, repair, maintenance, use, non-use or condition of the Property or any Appurtenances (as defined in the Security Instrument) thereto, including claims or penalties arising from violation of any Legal Requirement or Insurance Requirement, as well as any claim based on any patent or latent defect, whether or not discoverable by Administrative Agent, any claim the insurance as to which is inadequate, (4) any Default under this Agreement or any of the other Loan Documents or any failure on the part of Borrower to perform or comply with any of the terms of any Lease within the applicable notice or grace periods, (5) any performance of any labor or services or the furnishing of any materials or other property in respect of

-160-

the Property or any part thereof, (6) any negligence or tortious act or omission on the part of Borrower or any of their respective agents, contractors, servants, employees, sublessees, licensees or invitees, (7) any contest referred to in Section 7.3 hereof, or (8) any obligation or undertaking relating to the performance or discharge of any of the terms, covenants and conditions of the landlord contained in the Leases. Any amounts the Indemnified Parties are legally entitled to receive under this Section which are not paid within fifteen (15) Business Days after written demand therefor by the Indemnified Parties or Administrative Agent, shall bear interest from the date of demand at the Default Rate, and shall, together with such interest, be part of the Indebtedness and secured by the Security Instrument. In case any action, suit or proceeding is brought against the Indemnified Parties by reason of any such occurrence, Borrower shall, at Borrower’s expense resist and defend such action, suit or proceeding or will cause the same to be resisted and defended by counsel at Borrower’s reasonable expense for the insurer of the liability or by counsel designated by Borrower (unless reasonably disapproved by Administrative Agent promptly after Administrative Agent has been notified of such counsel); provided, however, that nothing herein shall compromise the right of Administrative Agent (or any Indemnified Party) to appoint its own counsel at Borrower’s expense for its defense with respect to any action which in its reasonable opinion presents a conflict or potential conflict between Administrative Agent (or any Indemnified Party) and Borrower that would make such separate representation advisable; provided further that if Administrative Agent (or any Indemnified Party) shall have appointed separate counsel pursuant to the foregoing, Borrower shall not be responsible for the expense of additional separate counsel of any Indemnified Party unless in the reasonable opinion of Administrative Agent (or such Indemnified Party) a conflict or potential conflict exists between such Indemnified Party and Administrative Agent (in which case the obligation of Borrower for such separate counsel shall be limited to one counsel representing all Lenders affected by such conflict or potential conflict). So long as Borrower is resisting and defending such action, suit or proceeding as provided above in a prudent and commercially reasonable manner, Administrative Agent and the Indemnified Parties shall not be entitled to settle such action, suit or proceeding without Borrower’s consent which shall not be unreasonably withheld, delayed or conditioned, and claim the benefit of this Section with respect to such action, suit or proceeding and Administrative Agent agrees that it will not settle any such action, suit or proceeding without the consent of Borrower; provided, however, that if Borrower is not diligently defending such action, suit or proceeding in a prudent and commercially reasonable manner as provided above, and Administrative Agent (or applicable Indemnified Party) has provided Borrower with thirty (30) days’ prior written notice, or shorter period if mandated by the requirements of applicable law, and opportunity to correct such determination, Administrative Agent (or applicable Indemnified Party) may settle such action, suit or proceeding and claim the benefit of this Section 19.14 with respect to settlement of such action, suit or proceeding. Any Indemnified Party will give Borrower prompt notice after such Indemnified Party obtains actual knowledge of any potential claim by such Indemnified Party for indemnification hereunder. The Indemnified Parties shall not settle or compromise any action, proceeding or claim as to which it is indemnified hereunder without notice to Borrower. Notwithstanding anything herein to the contrary, an indemnity for Environmental Claims or other environmental matters shall be governed solely by Section 12.4 hereof and the Environmental Indemnity and not by this Section 19.14.

-161-

(C) To the extent permitted by applicable law, no Transaction Party shall assert, and Borrower hereby waives, any claim against Administrative Agent, each Lender, each Agent, and their respective Affiliates, directors, employees, attorneys, agents or sub-agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Loan Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, the Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Borrower hereby waives, releases and agrees not to sue upon and shall cause each Transaction Party to waive, release and agree not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 19.15 Exhibits and Schedules Incorporated. The Exhibits and Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.

Section 19.16 Offsets, Counterclaims and Defenses. Any assignee of a Lender’s interest in and to this Agreement, the Notes and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim (other than a counterclaim which can only be asserted in the suit, action or proceeding brought by such assignee on this Agreement, the Notes, the Security Instrument or any Loan Document and cannot be maintained in a separate action) or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.

Section 19.17 Liability of Assignees of Lenders. No assignee of a Lender shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any other Loan Document or any amendment or amendments hereto made at any time or times, heretofore or hereafter, any different than the liability of Lenders hereunder. In addition, no assignee shall have at any time or times hereafter any personal liability, directly or indirectly, under or in connection with or secured by any agreement, lease, instrument, encumbrance, claim or right affecting or relating to the Property or to which the Property is now or hereafter subject any different than the liability of Lenders hereunder. The limitation of liability provided in this Section 19.17 is (i) in addition to, and not in limitation of, any limitation of liability applicable to the assignee provided by law or by any other contract, agreement or instrument, and (ii) shall not apply to any assignee’s gross negligence or willful misconduct.

-162-

Section 19.18 Sharing of Payments. If any Lender shall receive and retain any payment, whether by setoff, application of deposit balance or security, or otherwise, in respect of the Obligations in excess of such Lender’s Percentage Share thereof, then such Lender shall purchase from the other Lenders for cash and at face value and without recourse, such participation in the Obligations held by them as shall be necessary to cause such excess payment to be shared ratably as aforesaid with each of them; provided, that if such excess payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. Each Lender is hereby authorized by Borrower to exercise any and all rights of setoff, counterclaim or bankers’ lien against the full amount of the Obligations, whether or not held by such Lender. Each Lender hereby agrees to exercise any such rights first against the Obligations and only then to any other Indebtedness of Borrower to such Lender.

Section 19.19 Set-off. In addition to any rights and remedies of Lenders provided by law, if an Event of Default exists, each Lender is authorized at any time and from time to time, without prior notice to Borrower, any such notice being waived by Borrower to the fullest extent permitted by law, to set off and apply in favor of Lenders any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing to, such Lender to or for the credit or the account of Borrower against any and all Obligations owing to Lenders, now or hereafter existing, irrespective of whether or not Administrative Agent or such Lender shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to (i) notify Borrower and Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application and (ii) pay such amounts that are set-off to Administrative Agent for the ratable benefit of Lenders.

Section 19.20 No Joint Venture or Partnership; No Third Party Beneficiaries.

(A) Borrower and Administrative Agent intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lenders. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lenders or Administrative Agent nor to grant Administrative Agent any interest in the Property other than that of mortgagee or beneficiary on behalf of Lenders.

(B) This Agreement and the other Loan Documents are solely for the benefit of Administrative Agent, Lenders and Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Administrative Agent, Lenders 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 Lenders to make the Loan hereunder are imposed solely and exclusively for the benefit of Lenders and no other Person (other than Administrative Agent on behalf of Lenders) shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lenders will refuse to make the Loan in the absence of strict compliance with any or all thereof and no other Person (other than Administrative Agent on behalf of Lenders) 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 Administrative Agent if, in Administrative Agent’s sole discretion, Administrative Agent deems it advisable or desirable to do so.

-163-

Section 19.21 Confidentiality. Administrative Agent and each Lender shall assure that information about the Transaction Parties and their operations, affairs and financial condition, not generally disclosed to the public, which is furnished to Administrative Agent or any Lender pursuant to the provisions of this Agreement or any other Loan Document, is used only for the purposes of this Agreement and the other Loan Documents and shall not be divulged to any Person other than Administrative Agent, Lenders, and their respective agents who are actively and directly participating in the evaluation, administration or enforcement of the Loan Documents and other transactions between Administrative Agent or such Lender, as applicable, and the Transaction Parties, as applicable, but in any event Administrative Agent and Lenders may make disclosure: (a) to any of their respective affiliates (provided they shall agree to keep such information confidential in accordance with the terms of this Section 19.21); (b) as reasonably requested by any potential or actual Assignee, Participant or other transferee in connection with the contemplated transfer of any Loan, commitments or participations therein as permitted hereunder (provided they shall agree to keep such information confidential in accordance with the terms of this Section); (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or in connection with any legal proceedings or as otherwise required by Legal Requirements; (d) to Administrative Agent’s or such Lender’s independent auditors and other professional advisors (provided they shall be notified of the confidential nature of the information); (e) following the occurrence and during the continuance of a Default or an Event of Default, to any other Person in connection with the exercise by Administrative Agent or the Lenders of remedies hereunder or under any of the other Loan Documents; (f) upon the prior consent (which consent shall not be unreasonably withheld) of Borrower to any contractual counter-parties to any swap or similar hedging agreement or to any rating agency; and (g) to the extent such information (x) becomes publicly available other than as a result of a breach of this Section actually known to such Lender to be such a breach or (y) becomes available to Administrative Agent or any Lender on a nonconfidential basis from a source other than the Transaction Parties or any affiliate thereof. Notwithstanding the foregoing, Administrative Agent and each Lender may disclose any such confidential information, without notice to Borrower or any other Transaction Party, to Governmental Authorities in connection with any regulatory examination of Administrative Agent or such Lender or in accordance with the regulatory compliance policy of Administrative Agent or such Lender.

Section 19.22 Waiver of Marshalling of Assets. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower’s shareholders and others with interests in Borrower and of the Property, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Administrative Agent under the Loan Documents to a sale of the Property for the collection of the Indebtedness without any prior or different resort for collection or of the right of Administrative Agent to the payment of the Indebtedness out of the net proceeds of the Property in preference to every other claimant whatsoever.

-164-

Section 19.23 Waiver of Counterclaim and other Actions. Borrower hereby expressly and unconditionally waives, in connection with any suit, action or proceeding brought by Administrative Agent on this Agreement, the Notes, the Security Instrument or any Loan Document, any and every right it may have to (i) interpose any counterclaim therein (other than a counterclaim which can only be asserted in the suit, action or proceeding brought by Administrative Agent on this Agreement, the Notes, the Security Instrument or any Loan Document and cannot be maintained in a separate action) and (ii) have any such suit, action or proceeding consolidated with any other or separate suit, action or proceeding.

Section 19.24 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Administrative Agent or Lenders or any parent, subsidiary or Affiliate of Administrative Agent or Lenders. Administrative Agent shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Administrative Agent or any Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Administrative Agent’s exercise of any such rights or remedies. Borrower acknowledges that Lenders engage in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates.

Section 19.25 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents and unless specifically set forth in a writing contemporaneous herewith the terms, conditions and provisions of any and all such prior agreements do not survive execution of this Agreement.

-165-

Section 19.26 Reinstatement. This Agreement and the security interests created herein shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations hereunder, or any part thereof, is, pursuant to bankruptcy, insolvency or other applicable laws, rescinded or reduced in amount, or must otherwise be restored or returned by Administrative Agent or any Lender. In the event that any payment or any part thereof is so rescinded, reduced, restored or returned, such Obligations and the security interests created herein shall continue to be effective or be reinstated (except to the extent the related collateral has been sold to a bona fide purchaser for value) and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

Section 19.27 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

Section 19.28 Nature of Borrower Obligations. Notwithstanding anything to the contrary contained elsewhere in this Agreement, it is understood and agreed by the various parties to this Agreement that:

(a) all Obligations to repay principal of, interest on, and all other amounts with respect to, the Loan and all other Obligations pursuant to this Agreement and each other Loan Document (including, without limitation, all fees, indemnities, Taxes and other Obligations in connection therewith) shall constitute the joint and several obligations of each Borrower;

(b) The obligations of each Borrower with respect to its respective Obligations are independent of the obligations of each other Borrower, and a separate action or actions may be brought and prosecuted against each Borrower, whether or not any other Borrower or any Guarantor is joined in any such action or actions. Each Borrower waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by any Borrower or other circumstance which operates to toll any statute of limitations as to any Borrower shall, to the fullest extent permitted by law, operate to toll the statute of limitations as to each Borrower. (c) Each Borrower authorizes Administrative Agent and Lenders without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to:

(i) exercise or refrain from exercising any rights against any other Borrower or any other Transaction Party or others or otherwise act or refrain from acting;

(ii) release or substitute any other Borrower, endorsers, Guarantors or other obligors;

-166-

(iii) settle or compromise any of the Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of any Borrower to its creditors other than Lenders;

(iv) apply any sums paid by any other Borrower or any other Transaction Party, howsoever realized to any liability or liabilities of such other Borrower or other Person regardless of what liability or liabilities of such other Borrower or other Transaction Party remain unpaid; and/or

(v) consent to or waive any breach of, or act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise, by any other Borrower or any other Transaction Party.

(d) It is not necessary for Administrative Agent or any Lender to inquire into the capacity or powers of any Borrower or any of its Affiliates or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall constitute the joint and several obligations of the respective Borrower hereunder.

(e) No Borrower shall have any rights of contribution or subrogation with respect to any other Borrower as a result of payments made by it hereunder, in each case unless and until all of the Obligations have been paid in full in cash.

(f) Each Borrower waives any right to require Administrative Agent or Lenders to (i) proceed against any other Borrower or any other Person, (ii) proceed against or exhaust any security held from any Borrower or any other Person or (iii) pursue any other remedy in Administrative Agent’s or Lenders’ power whatsoever. Each Borrower waives any defense based on or arising out of suretyship or any impairment of security held from any Borrower or any other party or on or arising out of any defense of any other Borrower or any other party other than payment in full in cash of the its Obligations, including, without limitation, any defense based on or arising out of the disability of any other Borrower or any other party, or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Borrower, in each case other than as a result of the payment in full in cash of the Obligations.

(g) Notwithstanding anything herein or in any other Loan Document to the contrary, each Borrower’s joint and several liability for the Obligations shall be limited to the greater of (i) the amount for which it is Primarily Liable and (ii) such Borrower’s Allocable Amount (as defined in Section 13.17(h)). “Primarily Liable” for any Borrower, means liability in amount equal to the proceeds of the Loans which were made available to such Borrower. The “Allocable Amount” for any Borrower at any time shall be the maximum amount that could be recovered from such Borrower at such time under the Loan Documents without rendering such payment voidable under Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.

-167-

(h) If any Borrower makes a payment of any Obligations greater than that for which it is Primarily Liable, it shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, each other Borrower in an amount equal to the lesser of (i) the payment in excess of the amount for which it is Primarily Liable and (ii) the Allocable Amount which after giving effect to any Obligations of each other Borrower would not result in such contribution claim being a fraudulent transfer.

(i) If any Borrower makes a payment of any Obligations (other than amounts for which such Borrower is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower’s Allocable Amount bore to the total Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. The “Allocable Amount” for any Borrower shall be the maximum amount that could then be recovered from such Borrower without rendering such payment voidable under Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.

(j) Nothing contained in this Section 19.28 shall limit the liability of any Borrower to pay the Loan and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder.

(k) Each Borrower has requested that Administrative Agent and Lenders make this credit facility available to Borrower on a combined basis, in order to finance Borrower’s business most efficiently and economically. Borrower’s business is a mutual and collective enterprise, and Borrower believes that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease the administration of their relationship with Administrative Agent and Lenders, all to the mutual advantage of Borrower. Each Borrower acknowledges and agrees that Administrative Agent’s and Lender’s willingness to extend credit to Borrower and to administer the Collateral on a combined basis, as set forth herein, is done solely as an accommodation to Borrower at its request.

(l) Each Borrower (including, without limitation, Operating Lessee in connection with the Leaseco Intercompany Loan) hereby subordinates any claims, including any rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other Borrower, howsoever arising, to full and final payment in full, in cash, of all Obligations.

(m) Each Borrower hereby restates and makes the waivers made by Guarantor in the Recourse Guaranty. Such waivers are hereby incorporated by reference as if fully set forth herein (and as if applicable to each Borrower) and shall be effective for all purposes under the Loan Documents (including, without limitation, in the event that any Borrower is deemed to be a surety or guarantor of the Obligations (by virtue of Borrower being co-obligors and jointly and severally liable hereunder, by virtue of each Borrower encumbering its interest in the Collateral for the benefit or debts of the other Borrower in connection herewith or otherwise)).

[REMAINDER OF PAGE INTENTIONALLY BLANK]

-168-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

BORROWER:
HENRY HUDSON HOLDINGS LLC,
	a Delaware limited liability company,
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary
HUDSON LEASECO LLC,
	a New York limited liability company
By:	Hudson Managing Member LLC,
	its managing member
By:	Henry Hudson Holdings LLC,
	its managing member
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

Signature Page — Loan and Security Agreement

58th STREET BAR COMPANY LLC,
	a Delaware limited liability company
By:	Hudson Pledgor LLC,
	its managing member
By:	Henry Hudson Holdings LLC
	its managing member
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

Signature Page — Loan and Security Agreement

ADMINISTRATIVE AGENT:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as
Administrative Agent
By:	/s/ George R. Reynolds
	Name:	George R. Reynolds
	Title:	Director
By:	/s/ Alexander B. V. Johnson
	Name:	Alexander B. V. Johnson
	Title:	Managing Director

Signature Page — Loan and Security Agreement

LENDERS:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Lender
By:	/s/ George R. Reynolds
	Name:	George R. Reynolds
	Title:	Director
By:	/s/ Alexander B. V. Johnson
	Name:	Alexander B. V. Johnson
	Title:	Managing Director

Signature Page — Loan and Security Agreement

EXHIBITS

Exhibit A	—	Title Insurance Requirements
Exhibit B	—	Survey Requirements
Exhibit C	—	Single Purpose Entity Provisions
Exhibit D	—	Intentionally Omitted
Exhibit E	—	Non-Consolidation Opinion Requirements
Exhibit F	—	Counterparty Opinion Requirements
Exhibit G	—	Form of Tenant Estoppel Letter
Exhibit H	—	Borrower Organizational Structure
Exhibit I	—	Interest Rate Cap Agreement Requirements
Exhibit J	—	Form of Assignment and Acceptance Agreement
Exhibit K	—	Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit L	—	Form of Note
Exhibit M	—	Counterparty Acknowledgment
Exhibit N	—	Form of Funding Notice
Exhibit O	—	Form of Independent Director Certificate
Exhibit P	—	Form of IP Security Agreement

EXHIBIT A

TITLE INSURANCE REQUIREMENTS, ENDORSEMENTS
AND AFFIRMATIVE COVERAGES

1. General. Borrower and/or its counsel is responsible for ordering or updating any title insurance work. Administrative Agent requires a lender’s title insurance policy insuring “Deutsche Bank Trust Company Americas, as Administrative Agent. The approved title underwriters, type and amount of insurance and required endorsements are described below. The list of endorsements is subject to review by Administrative Agent’s counsel, local counsel and additional specific coverages may be required after review of the related title commitment.

2. Title Insurer. The Title Company or Title Companies must be approved by Administrative Agent and licensed to do business in the jurisdiction in which the Property is located.

3. Primary Title Insurance Requirements.

(a) Amount of Coverage: $115,000,000.00.

(b) Effective Date: The later of the date of recording of the Security Instrument or the date of funding of the Loan. Borrower shall be required to provide a customary “gap” indemnity in order to enable the Title Company to provide “gap” coverage.

(c) Insured: “Deutsche Bank Trust Company Americas, as Administrative Agent on behalf of the Lenders (party to that certain Loan and Security Agreement, dated as of August  _____, 2011, as may be amended or otherwise modified from time to time) and its successors and assigns”.

(d) Legal Description: Metes and bounds description to be provided which must conform to that shown on the Survey, the Security Instrument and any other Loan Documents that require a legal description of the Property. A lot and block description shall be acceptable in place of a metes and bounds description in exceptional cases.

(e) Policy Form: An ALTA (or equivalent) lender’s policy of title insurance in form and substance acceptable to Administrative Agent. Without limiting Administrative Agent’s right to require specific coverages, endorsements or other title work, the Title Policy shall (i) be in the 1970 ALTA (as amended 84) form or, if not available, ALTA 1992 form (deleting arbitration and creditor rights exclusions) or, if not available, the form commonly used in the state where the Property is located, (ii) to the extent available, include the “extended coverage” provisions described in paragraph 5 below, (iii) include all applicable endorsements described in paragraph 6 below, and (iv) include Schedule B exceptions in a form and to the extent acceptable to Administrative Agent’s counsel.

5. Extended Coverage Requirements. The Title Policy shall:

(a) not contain any exception for filed or unfilled mechanic, materialmen or similar liens;

Exhibit A
Page 2

(b) limit any general exception for real estate taxes and other charges to real estate or other similar taxes or assessments that are not yet due and payable or delinquent and are not a current lien on the Property;

(c) limit any general exception for the rights of persons in possession to the rights of specified tenants, as tenants only with no right or option to purchase, set forth on the rent roll for the Property and attached to the Title Policy; and

(d) not contain any general exception as to matters that an accurate Survey of the Property would disclose, but may contain specific exceptions to matters disclosed on the Survey to be delivered on the Closing Date, subject to review by Administrative Agent’s counsel.

6. Required Endorsements. The following endorsements are required, to the extent available in the jurisdiction in which the Property is located:

• Restrictions, Encroachments, Minerals Endorsement ALTA Form 9 or equivalent.

• (If not available, the Title Policy must insure by way of affirmative coverage statements that there are no encroachments by any of the improvements onto easements, rights of way or other exceptions to streets or adjacent property, or insure against loss or damage resulting therefrom.)

• Environmental Protection Lien Endorsement.

• (The Title Policy may make an exception only for specific state statutes that provide for potential subsequent liens that could take priority over the lien securing the Loan.)

• Direct Access to Public Road Endorsement.

• Usury Endorsement.

• Land Same As Survey/Legal Description Endorsement.

• Subdivision Endorsement.

• Doing Business Endorsement.

• Deletion of Arbitration Endorsement.

• Separate Tax Lot Endorsement.

• Street Address Endorsement.

• Contiguity Endorsement.

• Variable Rate Endorsement.

• Mortgage Tax Endorsement.

Exhibit A
Page 3

• Mortgage Recording Tax Endorsement.

• Mortgage Assignment Endorsement.

• Any of the following endorsements customary in the state in which the Property is located or as required by the nature of the transaction:

First Loss / Last Dollar Endorsement
Non-Imputation Endorsement
Blanket Un-located Easements Endorsement
Closure Endorsement

EXHIBIT B

DEUTSCHE BANK TRUST COMPANY AMERICAS, AS ADMINISTRATIVE
AGENT FOR THE LENDERS
SURVEY REQUIREMENTS

The survey shall contain the following:

• The legal description of the Property;

• The courses and measured distances of the exterior boundary lines of the Property and the identification of owners of abutting parcels;

• The total acreage of the Property to the nearest tenth of an acre;

• The location of any existing improvements, the dimensions thereof at the ground surface level and their relationship to the facing exterior property lines, streets and set-back lines of the Property;

• The location, lines and widths of adjoining publicly dedicated and accepted streets showing the number and location of existing curb cuts, driveways, and fences;

• The location and dimensions of encroachments, if any, upon the Property;

• The location of all set-back lines, restrictions of record, other restrictions established by zoning or building code ordinance, utilities, easements, rights-of-way and other matters affecting title to the Property which are to be shown in Schedule B-2 of the Title Policy identifying each by reference to its recording data, where applicable;

• Evidence that adequate means of ingress and egress to and from the Property exist and that the Property does not serve any adjoining property for ingress, egress or any other purpose;

• If the Property is described as being on a recorded map or plat, a legend relating the survey to such map or plat;

• The street address of the Property;

• Parking areas at the Property and, if striped, the striping and type (e.g., handicapped, motorcycle, regular, etc.) and number of parking spaces at the Property;

• A statement as to whether the Property is located in a special flood or mudslide hazard area as determined by a review of a stated and identified Flood Hazard Boundary Map published by the Federal Insurance Administration of the U.S. Department of Housing and Urban Development;

• A vicinity map showing the property in reference to nearby highways or major street intersections;

Exhibit B
Page 2

• The exterior dimensions of all buildings at ground level and the square footage of the exterior footprint of all buildings, or gross floor area of all buildings, at ground level;

• The location of utilities serving or existing on the property as evidenced by on-site observation or as determined by records provided by client, utility companies and other appropriate sources (with reference as to the source of information) (for example)

• railroad tracks and sidings;

• manholes, catch basins, valve vaults or other surface indications of subterranean uses;

• wire and cables (including their function) crossing the surveyed premises, all poles on or within ten feet of the surveyed premises, and the dimensions of all crosswires or overhangs affecting the surveyed premises; and

• utility company installations on the surveyed premises.

• A certification to DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent, [NAME OF BORROWING ENTITY] and [INSERT NAME OF TITLE COMPANY], and each of their respective successors and assigns.

EXHIBIT C

SPECIAL PURPOSE ENTITY PROVISIONS

Each of Owner, Bar Lessee and Operating Lessee hereby represents and warrants to, and covenants with, the Lenders and Administrative Agent that at all times on and after the date hereof and until such time as the Obligations shall be paid and performed in full:

(a) (i) Owner’s sole purpose will be to (i) acquire, own, hold, maintain, manage, operate, improve, develop, finance, refinance, pledge, encumber, mortgage, sell, exchange, lease, dispose of and otherwise deal with the Property together with such other lawful activities as may be incident, necessary or advisable in connection with the ownership of the Property, (ii) own, hold and maintain 100% of the limited liability company interests in each of Hudson Pledgor LLC and Hudson Managing Member LLC together with such other activities as may be incident, necessary or advisable in connection with the ownership of such interests, (iii) own, hold and maintain all of the issued and outstanding stock of Hudson Residual Interests Inc., a Delaware corporation (“Hudson Residual”) together with such other activities as may be incident, necessary or advisable in connection with the ownership of such stock, (iv) borrow funds in the amount of the Loan from the Lenders, (v) give security for the Loan or for any other indebtedness to the extent not expressly prohibited by the Loan Agreement; and (vi) engage in any lawful act or activity and to exercise any powers permitted to limited liability companies organized under the laws of the State of Delaware that are related or incidental to or necessary, convenient or advisable for the accomplishment of the above-mentioned purposes.

(ii) 58^th Street Bar Operating Agreement provides that its sole purpose is to (i) acquire, own, hold, maintain, manage, operate, improve, develop, finance, refinance, pledge, encumber, mortgage, sell, exchange, lease, dispose of and otherwise deal with the leasehold interest in the restaurant and bar space at the Property known as “The Hudson Hall”, “The Hudson Bar”, the “Library Bar” and “Park Terrace” to be used for a first class bar/lounge, with waiter and/or waitress service, for banquets and for operation to support said uses (the “Hotel Restaurant and Bar”), together with such other lawful activities as may be incident, necessary or advisable in connection with the foregoing, (ii) borrow funds in the amount of the Loan from the Lenders, (iii) give security for the Loan or for any other indebtedness to the extent not expressly prohibited by the Loan Agreement; and (iv) engage in any lawful act or activity and to exercise any powers permitted to limited liability companies organized under the laws of the State of Delaware that are related or incidental to or necessary, convenient or advisable for the accomplishment of the above-mentioned purposes.

(iii) Operating Lessee’s sole purpose will be to (i) acquire, own, hold, maintain, manage, operate, improve, develop, finance, refinance, pledge, encumber, mortgage, sell, exchange, lease, dispose of and otherwise deal with the Property, together with such other lawful activities as may be incident, necessary or advisable in connection with the ownership of the Property, (ii) borrow funds in the amount of the Loan from the Lenders, (iii) give security for the Loan or for any other indebtedness to the extent not expressly prohibited by the Loan Agreement; and (iv) engage in any lawful act or activity and to exercise any powers permitted to limited liability companies organized under the laws of the State of New York that are related or incidental to or necessary, convenient or advisable for the accomplishment of the above-mentioned purposes.

Exhibit C
Page 2

(b) (i) (A) Owner will not own any asset or property other than the Property and incidental personal property necessary for the ownership of the Property, 100% of the limited liability company interests in each of Hudson Pledgor and Hudson Managing Member and all of the issued and outstanding stock of Hudson Residual; (B) Operating Lessee will not own any asset or property other than the leasehold interest in the Property and incidental personal property necessary for the ownership of the leasehold interest in the Property; and (C) 58^th Street Bar will not own any asset or property other than the leasehold interest in the Hotel Restaurant and Bar and incidental personal property necessary for the ownership of the leasehold interest in the Restaurant and Bar.

(ii) (A) Owner will not engage in any business other than the ownership of the Property, ownership of 100% of the limited liability company interests in each of Hudson Pledgor and Hudson Managing Member and ownership of all of the issued and outstanding stock of Hudson Residual; (B) Operating Lessee will not engage in any business other than the ownership of a leasehold interest in and operation and management of the Property; and (C) 58th Street Bar will not engage in any business other than the ownership of a leasehold interest in and operation and management of the Hotel Restaurant and Bar;

(c) Each Borrower has not and will not enter into any contract or agreement with any Affiliate of Borrower, except upon terms and conditions that are intrinsically fair, commercially reasonable, and no less favorable to it than would be available on an arms-length basis with third parties other than any such party.

(d) Each Borrower will not incur any Debt other than Permitted Debt.

(e) Each Borrower has not made and will not make any loans or advances to any third party (including any Affiliate or constituent party), and has not and shall not acquire obligations or securities of its Affiliates other than co-Borrower or Managing Member.

(f) Each Borrower has been, is, and intends to remain solvent and each Borrower has paid and will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets except pursuant to the Loan Documents; provided that the foregoing shall not require any direct or indirect member, partner or shareholder of any Borrower to make any additional capital contributions to such Borrower.

(g) Each Borrower has done or caused to be done, and will do, all things necessary to observe organizational formalities and preserve its existence, and each Borrower has not, will not (i) terminate or fail to comply with the provisions of its organizational documents, or (ii) unless Administrative Agent has consented, amend, modify or otherwise change its operating agreement or other organizational documents, except as provided under this Agreement or under its organizational documents.

Exhibit C
Page 3

(h) Except to the extent that any Borrower is (i) required to file consolidated tax returns by law; or (ii) treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law, (1) each Borrower has maintained and will maintain all of its books, records, financial statements and bank accounts separate from those of its Affiliates and any other Person; (2) each Borrower’s assets will not be listed as assets on the financial statement of any other Person; it being understood that each Borrower’s assets may be included in a consolidated financial statement of its Affiliates provided that (i) appropriate notation shall be made on such consolidated financial statements to indicate the separateness of such Borrower and such Affiliates and to indicate that such Borrower’s assets and credit are not available to satisfy the debts and other obligations of such Affiliates or any other Person, and (ii) such assets shall be listed on such Borrower’s own separate balance sheet; and (3) such Borrower will file its own tax returns (to the extent such Borrower is required to file any tax returns) and will not file a consolidated federal income tax return with any other Person. Each Borrower shall maintain its books, records, resolutions and agreements in accordance with this Agreement.

(i) Each Borrower has been, will be, and at all times has held and will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any Affiliate of such Borrower or any constituent party of such Borrower (recognizing that each Borrower (other than Operating Lessee) may be treated as a “disregarded entity” for tax purposes and is not required to file tax returns for tax purposes under applicable law)), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its Affiliates as a division or department or part of the other and shall, to the extent reasonably necessary for the operation of its business, maintain and utilize separate stationery, invoices and checks bearing its own name.

(j) Each Borrower has maintained and intends to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided that the foregoing shall not require any direct or indirect member, partner or shareholder of any Borrower to make any additional capital contributions to any Borrower.

(k) To the fullest extent permitted by applicable law, neither any Borrower nor any constituent party of any Borrower has sought or will seek or effect the liquidation, dissolution, winding up, consolidation or merger, in whole or in part, of such Borrower.

(l) Each Borrower has not and will not commingle the funds and other assets of Borrower with those of any Affiliate or constituent party or any other Person other than a co-Borrower, and has held and will hold all of its assets in its own name.

(m) Each Borrower has and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any Affiliate or constituent party or any other Person except pursuant to the Loan Agreement.

(n) Except as permitted or contemplated under the Loan Documents, each Borrower will not assume or guarantee or become obligated for the debts of any other Person and does not and will not hold itself out to be responsible for or have its credit available to satisfy the debts or obligations of any other Person .

Exhibit C
Page 4

(o) (i) The organizational documents of each of Owner, Bar Lessee and Managing Member (as hereinafter defined) (each an “SPC Party”) shall provide that the business and affairs of such SPC Party shall be (A) managed by or under the direction of a board of one or more directors designated by such SPC Party’s sole member (a “Sole Member”) or (B) a committee of managers designated by such Sole Member (a “Committee”) or (C) by such Sole Member, and at all times there shall be at least two (2) duly appointed Independent Directors or Independent Managers. The organizational documents of Operating Lessee shall provide that the business and affairs of Operating Lessee shall be managed solely by its managing member , Hudson Managing Member LLC, a Delaware limited liability company (“Managing Member”).

(p) The organizational documents of each Borrower shall also provide an express acknowledgment that Administrative Agent and Lenders are intended third-party beneficiaries of the “special purpose” provisions of such organizational documents.

(q) The organizational documents of each SPC Party shall provide that the board of directors, the Committee or Sole Member (as applicable) of such SPC Party shall not take any action which, under the terms of any certificate of formation, limited liability company operating agreement or any voting trust agreement, requires an unanimous vote of the board of directors (or the Committee as applicable) of such SPC Party unless at the time of such action there shall be (A) at least two (2) members of the board of directors (or the Committee as applicable) who are Independent Directors or Independent Managers, as applicable (and such Independent Directors or Independent Managers, as applicable, have participated in such vote) or (B) if there is no board of directors or Committee, then such Independent Managers shall have participated in such vote. The organizational documents of the each such SPC Party shall provide that such SPC Party will not and each such SPC Party agrees that it will not, without the unanimous written consent of its board of directors, its Committee or its Sole Member (as applicable), including, or together with, the Independent Directors or Independent Managers (as applicable) (i) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, (ii) seek or consent to the appointment of a receiver, liquidator or any similar official of such SPC Party or a substantial part of its business, (iii) take any action that might cause such entity to become insolvent, (iv) make an assignment for the benefit of creditors, (v) admit in writing its inability to pay debts generally as they become due, or (vi) take any action in furtherance of the foregoing. Each SPC Party shall not take any of the foregoing actions without the unanimous written consent of its board of directors, its Committee or its Sole Member, as applicable, including (or together with) all Independent Directors or Independent Managers, as applicable. In addition, the organizational documents of each such SPC Party shall provide that, when voting with respect to any matters set forth in the immediately preceding sentence of this clause (q), the Independent Directors or Independent Managers (as applicable) shall consider only the interests of such SPC Party, including its creditors. Without limiting the generality of the foregoing, such documents shall expressly provide that, to the greatest extent permitted by law, except for duties to such SPC Party (including duties to SPC Party’s creditors as set forth in the immediately preceding sentence), such Independent Directors or Independent Managers (as applicable) shall not owe any fiduciary duties to, and shall not consider, in acting or otherwise voting on any matter for which their approval is required, the interests of (i) the members of such Borrower, (ii) Affiliates of such SPC Party, or (iii) any group of Affiliates of which such SPC Party is a part); provided, however, the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing.

Exhibit C
Page 5

(r) The organizational documents of each of SPC Party shall provide that upon the occurrence of any event that causes a Sole Member to cease to be a member of such SPC Party (other than (i) upon an assignment by a Sole Member of all of its limited liability company interest in such SPC Party and the admission of the transferee, if permitted pursuant to the organizational documents of such SPC Party and the Loan Documents, or (ii) the resignation of a Sole Member and the admission of an additional member of such SPC Party, if permitted pursuant to the organizational documents of such SPC Party and the Loan Documents), each of the persons acting as an Independent Director or Independent Manager (as applicable) of such SPC Party shall, without any action of any Person and simultaneously with Sole Member ceasing to be a member of such SPC Party, automatically be admitted as members of such SPC Party (in each case, individually, a “Special Member” and collectively, the “Special Members”) and shall preserve and continue the existence of such SPC Party without dissolution. The organizational documents of each such SPC Party shall further provide that for so long as any portion of the Obligations is outstanding, no Special Member may resign or transfer its rights as Special Member unless (i) a successor Special Member has been admitted to such SPC Party as a Special Member, and (ii) such successor Special Member has also accepted its appointment as an Independent Director or Independent Manager (as applicable).

(s) The organizational documents of each of SPC Party shall provide that, as long as any portion of the Obligations remains outstanding, except as expressly permitted pursuant to the terms of this Agreement the Sole Member may not resign, except as provided under the Basic Documents. The organizational documents of Operating Lessee shall provide that, as long as any portion of the Obligations remains outstanding, except as expressly permitted pursuant to the terms of this Agreement Managing Member may not resign, except as provided under the Loan Documents.

(t) (i) The organizational documents of each Borrower and Managing Member shall provide that,: (i) each such Borrower and Managing Member shall be dissolved, and its affairs shall be wound up, only upon the first to occur of the following: (A) subject to last subject sentence of this Section (t), the termination of the legal existence of the last remaining member of such Borrower or Managing Member or the occurrence of any other event which terminates the continued membership of the last remaining member of such Borrower or Managing Member in such Borrower or Managing Member, as applicable, unless the business of such Borrower or Managing Member, as applicable, is continued in a manner permitted by its operating agreement or the Delaware Limited Liability Company Act (the “Act”), or (B) the entry of a decree of judicial dissolution under Section 18-802 of the Act; (ii) the bankruptcy of a Sole Member or a Special Member shall not cause such Sole Member or Special Member, respectively, to cease to be a member of the applicable SPC Party and upon the occurrence of such an event, the business of such SPC Party shall continue without dissolution; (iii) in the event of the dissolution of such Borrower or Managing Member, such Borrower or Managing Member shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of such Borrower or Managing Member in an orderly manner), and the assets of such Borrower or Managing Member shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act; and (iv) to the fullest extent permitted by law, each of each Sole Member, and the Special Members and Managing Member, as applicable shall irrevocably waive any right or power that they might have to cause the applicable Borrower or Managing Member or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of

Exhibit C
Page 6

the assets of such Borrower or Managing Member to compel any sale of all or any portion of the assets of such Borrower or Managing Member pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of such Borrower or Managing Member . Upon the occurrence of any event that causes the last remaining member of a Borrower or Managing Member to cease to be a member of such Borrower or Managing Member or that causes a Sole Member to cease to be a member of the applicable SPC CParty (other than (A) upon an assignment by a Sole Member of all of its limited liability company interest in such SPC Party and the admission of the transferee, if permitted pursuant to the organizational documents of such SPC Party and the Loan Documents, or (B) the resignation of a Sole Member and the admission of an additional member of such Borrower, if permitted pursuant to the organizational documents of such SPC Party and the Loan Documents), to the fullest extent permitted by law, the personal representative (as defined in the Act) of such last remaining member shall be authorized to, and shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of such member in an SPC Party, agree in writing (I) to continue the existence of such SPC Party, and (II) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of such SPC Party, effective as of the occurrence of the event that terminated the continued membership of such member in such SPC Party.

(u) Each Borrower shall conduct its business so that the assumptions made with respect to such Borrower in the Insolvency Opinion shall be true and correct in all respects. In connection with the foregoing, each Borrower hereby covenants and agrees that it will comply with or cause the compliance with, (i) all of the facts and assumptions (whether regarding such Borrower or any other Person) set forth in the Insolvency Opinion, (ii) all of the representations, warranties and covenants on this Exhibit C, and (iii) all of the organizational documents of such Borrower.

(v) Each Borrower has not permitted and will not permit any Affiliate or constituent party independent access to its bank accounts except for Manager.

(w) Each Borrower has paid and shall pay its own liabilities and expenses, including the salaries of its own employees (if any) from its own funds, and has maintained and shall maintain a sufficient number of employees (if any) in light of its contemplated business operations; provided that the foregoing shall not require direct or indirect any member, partner or shareholder of any Borrower to make any additional capital contributions to such Borrower.

(x) Each Borrower has compensated and shall compensate each of its consultants and agents from its funds for services provided to it and pay from its own assets all obligations of any kind incurred; provided that the foregoing shall not require any direct or indirect member, partner or shareholder of and Borrower to make any additional capital contributions to such Borrower.

(y) Each Borrower has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including shared office space.

(z) Except in connection with the Loan, each Borrower will not pledge its assets for the benefit of any other Person.

Exhibit C
Page 7

(aa) Each Borrower has and will have no obligation to indemnify its officers, directors, members or Special Members, as the case may be, or has such an obligation that is fully subordinated to the Obligations and will not constitute a claim against it if cash flow in excess of the amount required to pay the Obligations is insufficient to pay such obligation.

(bb) Each Borrower has not, does not, and will not have any of its obligations guaranteed by any Affiliate (other than from the Guarantor with respect to the Loan and any co-borrower under the Loan).

As used herein:

“Cause” shall mean, with respect to an Independent Director or Independent Manager, (i) acts or omissions by such Independent Director or Independent Manager, as applicable, that constitute willful disregard of, or gross negligence with respect to, such Independent Director’s or Independent Manager’s, as applicable, duties, (ii) such Independent Director or Independent Manager, as applicable, has engaged in or has been charged with or has been indicted or convicted for any crime or crimes of fraud or other acts constituting a crime under any law applicable to such Independent Director or Independent Manager, as applicable, (iii) such Independent Director or Independent Manager, as applicable, has breached its fiduciary duties of loyalty and care as and to the extent of such duties in accordance with the terms of the Borrower’s organizational documents, (iv) there is a material increase in the fees charged by such Independent Director or Independent Manager, as applicable, or a material change to such Independent Director’s or Independent Manager’s, as applicable, terms of service, (v) such Independent Director or Independent Manager, as applicable, is unable to perform his or her duties as Independent Director or Independent Manager, as applicable, due to death, disability or incapacity, or (vi) such Independent Director or Independent Manager, as applicable, no longer meets the definition of Independent Director or Independent Manager, as applicable.

EXHIBIT D

INTENTIONALLY OMITTED

EXHIBIT E

NON-CONSOLIDATION OPINION REQUIREMENTS

1. The Nonconsolidation Opinion shall be delivered on the Closing Date.

2. The Nonconsolidation Opinion shall be given by a professional law firm selected by Borrower and reasonably acceptable to Administrative Agent.

3. The Nonconsolidation Opinion shall be in form and substance acceptable to Administrative Agent and shall be given in relation to both Borrower and any other SPE Entity relevant to the Loan. The Nonconsolidation Opinion shall identify each entity (a “Relevant Entity”) which owns more than a 49% direct or indirect interest in either Borrower and/or such SPE Entity.

4. The Nonconsolidation Opinion shall state that, in the event that any Relevant Entity were to be a debtor in a case under the Bankruptcy Code, it is counsel’s opinion that, under present reported decisional authority and statutes applicable to federal bankruptcy cases, in a properly presented and argued case, a court would not, in the proper exercise of its equitable discretion, disregard the separate existence of Borrower or any SPE Entity so as to order substantive consolidation under the Bankruptcy Code of the assets and liabilities of such Relevant Entity with the assets and liabilities of either Borrower or any SPE Entity and treat such assets and liabilities as though either Borrower and such Relevant Entity or any SPE Entity and such Relevant Entity were one entity.

5. The Nonconsolidation Opinion shall be addressed to Administrative Agent, Lenders and their respective successors and assigns and shall state that it may be relied upon by any assignee of Lenders’ interests in the Loan.

DELAWARE BANKRUPTCY OPINIONS

As a general rule, the following opinions are required with respect to any single-member Delaware limited liability companies (having independent members/managers) in the organizational structure:

1.	An opinion of Delaware counsel that federal bankruptcy court would hold that Delaware law, and not federal law, governs the determination of what persons or entities have authority to file a voluntary bankruptcy petition on behalf of the limited liability company.
2.	Opinions of Delaware counsel as follows:

a. The limited liability company agreement constitutes a legal, valid and binding agreement of its member, and is enforceable against such member, in accordance with its terms.

Exhibit E
Page 2

b. In order for a voluntary bankruptcy petition to be filed on behalf of the Company, the unanimous consent of all of the independent managers/members is required and the provision requiring such unanimous consent in the limited liability company agreement constitutes a legal, valid and binding agreement of the member, enforceable against the member, in accordance with its terms.

c. The bankruptcy or dissolution of the limited liability company’s sole member will not, by itself, cause the limited liability company to be dissolved or its affairs to be wound up.

d. A judgment creditor of the member may not satisfy its claims against the member by asserting a claim against the assets of the limited liability company.

e. The limited liability company is a separate legal entity, and shall continue as such until the cancellation of the limited liability company certificate.

EXHIBIT F

COUNTERPARTY OPINION REQUIREMENTS

1. The Counterparty Opinion shall be delivered on the Closing Date.

2. The Counterparty Opinion may be given by a professional law firm selected by Counterparty and reasonably acceptable to Administrative Agent or by in-house counsel for Counterparty.

3. The Counterparty Opinion shall be in form and substance acceptable to Administrative Agent and shall contain the following opinions:

(a) Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under the Interest Rate Cap Agreement and the Acknowledgment.

(b) The execution and delivery of the Interest Rate Cap Agreement and the Acknowledgment by Counterparty, and any other agreement which Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property.

(c) All consents, authorizations and approvals required for the execution and delivery by Counterparty of the Interest Rate Cap Agreement, the Acknowledgment and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance.

(d) The Interest Rate Cap Agreement, the Acknowledgment and any other agreement which Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by Counterparty and constitutes the legal, valid and binding obligation of Counterparty, enforceable against Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

Exhibit F
Page 2

4. If a Interest Rate Cap Guaranty is delivered in connection with the Interest Rate Cap Agreement, the Counterparty Opinion shall contain the following additional opinions:

(a) Interest Rate Cap Guarantor is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Guaranty.

(b) The execution and delivery of the Interest Rate Cap Guaranty by Interest Rate Cap Guarantor, and any other agreement which Interest Rate Cap Guarantor has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property.

(c) All consents, authorizations and approvals required for the execution and delivery by Interest Rate Cap Guarantor of the Interest Rate Cap Guaranty, and any other agreement which Interest Rate Cap Guarantor has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance.

(d) The Interest Rate Cap Guaranty, and any other agreement which Interest Rate Cap Guarantor has executed and delivered pursuant thereto, has been duly executed and delivered by Interest Rate Cap Guarantor and constitutes the legal, valid and binding obligation of Interest Rate Cap Guarantor, enforceable against Interest Rate Cap Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

Exhibit F
Page 3

5. Depending on the nature of the transaction, the Counterparty Opinion shall contain such additional opinions on such other matters relating to the Interest Rate Cap Agreement, the Interest Rate Cap Guaranty and/or the Acknowledgment as Administrative Agent or Lenders shall reasonably require, including, without limitation, the following additional opinions if the Counterparty or Interest Rate Cap Guarantor is a foreign entity:

(a) Jurisdiction where Counterparty and/or Interest Rate Cap Guarantor, as applicable, is located will respect and give effect to the choice of law provisions of the Interest Rate Cap Agreement and the Acknowledgment.

(b) A judgment obtained in the courts of the State of New York is enforceable in the jurisdiction where Counterparty and/or Interest Rate Cap Guarantor, as applicable, is located.

6. The Counterparty Opinion shall be addressed to Administrative Agent, Lenders and their respective successors and assigns and shall state that it may be relied upon by any assignee of Lenders’ interests in the Loan.

EXHIBIT G

FORM OF TENANT ESTOPPEL LETTER

                    , 20_____

Deutsche Bank Trust Company Americas, as Administrative Agent on behalf of the Lenders

[                    ]

[                    ]

Re:

Ladies and Gentlemen:

It is our understanding that you have made a loan to [                    ], a [                    ], the landlord, or successor-in-interest to the landlord under our lease, as evidenced by a loan agreement and secured by a mortgage on the captioned premises and you have required this certification by the undersigned.

The undersigned, as tenant under that certain lease made with                     , as landlord, dated                      [, which lease has been modified or amended as follows (list all modifications or amendments or, if none, so indicate)                     ] (the “Lease”), hereby ratifies the Lease and certifies that:

1. the undersigned entered into occupancy of the premises described in the Lease on or about                     ;

2. the lease commencement date was                     ;

3. the square footage of the premises described in the Lease is                     ;

4. the fixed rental in the monthly amount of $                     was payable from                     ;

5. the percentage rental payable monthly is $                    ;

6. there are no rent abatements or free rent periods now or in the future [other than                     ];

7. the amount of the current monthly expense reimbursements due under the Lease is equal to $                     ;

8. the Lease is in full force and effect and, except as indicated above, has not been assigned, modified, supplemented or amended in any way and the undersigned has no notice of any assignment, pledge or hypothecation by the landlord of the Lease or of the rentals thereunder except to you;

Exhibit G
Page 2

9. a true and complete copy of the Lease (including all amendments, modifications, supplements, side letters, surrender, space reduction or rent abatement agreements applicable to such Lease) is attached hereto as Exhibit A;

10. the Lease represents the entire agreement between the parties with respect to the above space in the above-mentioned building;

11. the term of the Lease [, as currently extended by means of the exercise of certain options contained therein,] expires on                     ;

12. all construction and other obligations of a material nature to be performed by the landlord under the Lease have been satisfied, except as follows: (if none, so indicate);

13. any payments by the landlord to the undersigned for tenant improvements which are required under the Lease have been made;

14. on this date there are no existing defenses or offsets which the undersigned has against the enforcement of the Lease by the Landlord and the undersigned has no knowledge of any event which with the giving of notice, the passage of time or both would constitute a default under said Lease;

15. the undersigned is not entitled to any offsets, abatements, deductions or otherwise against the rent payable under the Lease from and after the date hereof, except as follows: (if none, so indicate);

16. no rental (including expense reimbursements), other than for the current month, has been paid in advance;

17. the amount of the security deposit presently held under the Lease is $                     (if none, so indicate);

18. the rentals (including expense reimbursements) under the Lease have been paid through the month of                     .

This estoppel certificate is binding upon the undersigned and its successors and assigns and may be relied upon by you and your successors and assigns.

Very truly yours,                                                              [INSERT NAME OF TENANT]
By:
	Title:

EXHIBIT A
to Form of Tenant Estoppel Letter

LEASE

EXHIBIT H

BORROWER ORGANIZATIONAL STRUCTURE

[Provided Separately]

EXHIBIT I

INTEREST RATE CAP AGREEMENT REQUIREMENTS

• The form of cap agreement should be the 1992 ISDA Agreement (Multicurrency Cross Border or Local Currency Single Jurisdiction) subject to the 2000 Definitions.

• Once the cap premium is paid by Borrower, it cannot default. (Paragraph 4 of the May 1989 ISDA Addendum to Schedule to Interest Rate and Currency Exchange Agreement or similar language must be incorporated by reference).

• “Cross Default” provision of Section 5(a)(vi) of the ISDA Master Agreement will not apply.

• Grace and cure periods in Section 5 of the ISDA Master Agreement will either (i) not apply or (ii) if applicable, any grace or cure periods must expire in time to ensure the availability of cap payments by cap provider on a timely basis for distribution to the holders of the rated securities.

• “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the ISDA Master Agreement will not apply.

• “Automatic Early Termination” provision in Section 6(a) of the ISDA Master Agreement will not apply.

• Termination Events under Sections 5(b)(ii) and 5(b)(iii) of the ISDA Master Agreement either (i) will only constitute termination events exercisable by Borrower against cap provider or (ii) if exercisable by both parties, at the time of any event triggering a termination event under Sections 5(b)(ii) and/or 5(b)(iii), cap provider must either (a) transfer the cap to a replacement cap provider acceptable to Administrative Agent at cap provider’s sole cost and expense, or (b) continue to perform its obligations under the cap agreement including, without limitation, the obligation to unconditionally “gross up” in the event that a withholding tax is imposed on payments being made by the cap provider.

• Borrower shall be precluded from payment of any out of pocket expenses required under Section 11 of the ISDA Master Agreement and incurred by cap provider related to the enforcement and protection of cap provider’s rights under the cap agreement.

• Market Quotation and Second Method will be used for the purpose of computing amounts payable on early termination with a provision for loss if Market Quotation is not available.

• The parties shall be deemed to have no Affiliates for purposes of the ISDA Master Agreement.

• “Specified Entities” will not apply for purposes of Sections 5(a)(v), 5(a)(vi), 5(a)(vii) and 5(b)(iv) of the ISDA Master Agreement.

• Transaction will be governed by New York law.

• For the purposes of Section 6(e) of the ISDA Master Agreement, set off and counterclaim will not apply and all payments by cap provider shall be made without set off or counterclaim.

• The definition of LIBOR will be USD LIBOR BBA and must match the definition of LIBOR in the loan agreement.

Exhibit I
Page 2

• The definition of Business Day must match the definition of Business Day in the loan agreement.

• LIBOR must be determined on the LIBOR Determination Date.

• Payments must be made by the cap provider on or prior to the applicable Payment Date in respect of a period corresponding to the applicable Interest Period.

• The Termination Date of the cap must be no earlier than the last day of the Interest Period in which the Maturity Date under the loan agreement occurs.

• The Day Count Fraction in the cap must match that contained in the loan agreement.

• The Notional Amount in the cap must [equal $135,000,000][match the principal amount of the loan as of the date of the loan agreement].

• US Dollars are selected as the Termination Currency under the cap.

• Section 2(c)(ii) of the ISDA Master Agreement will apply to the Transaction.

• Cap provider and Borrower will represent that it is not a multi branch party.

• Cap provider will covenant that it will not petition Borrower into bankruptcy (or join in any such petition) for 365 days after all outstanding rated securities have been paid in full.

• If the ISDA Master Agreement (Multicurrency Cross Border)(“Cross Border Agreement”) is utilized, additional scheduled items and provisions to address “indemnifiable taxes” and other related issues present in cross border transactions must be incorporated:

• Section 2(d)(i)(4) of the Cross Border Agreement must be amended to require the cap provider to unconditionally “gross up” in the event that a withholding tax is imposed on payments being made by the cap provider.

• The definition of “indemnifiable tax” must cover any and all withholding tax.

• Section 2(d)(i)(4) of the Cross Border Agreement will be deleted such that cap provider is not excused from having to “gross up” due to Borrower’s breach of a tax representation or failure to notify cap provider of a breach of a tax representation and (ii) Borrower makes no tax representations in the cap agreement or schedule.

• Section 2(d)(ii) of the Cross Border Agreement must be amended to provide that there is no obligation by Borrower to make payments to the cap provider for any payments made by the cap provider without deduction for taxes (for which there is no obligation to gross up).

• Section 4(e) of the Cross Border Agreement must be amended to provide that there are no payment obligations by Borrower to cap provider for any indemnification resulting from stamp registration or other documentary tax levied by Borrower’s taxing authority on the cap provider.

EXHIBIT J

FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT¹

This Assignment and Acceptance Agreement (this “Assignment”) is dated as of the Effective Date set forth below and is entered into by and between the Assignor identified in item 1 below (the “Assignor”) and [the] [each] Assignee identified in item [2] [3] below ([the] [each an] “Assignee”). [It is understood and agreed that the rights and obligations of such Assignee hereunder are several and not joint]. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Loan Agreement, receipt of a copy of which is hereby acknowledged by [the] [each] Assignee. The Standard Terms and Conditions set forth in Annex 1 hereto (the “Standard Terms and Conditions”) are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to [the] [each] Assignee, and [the] [each] Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations under the Loan Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor’s outstanding rights and obligations under Loan Agreement (including with respect to any outstanding amounts) (the “Assigned Interest”). [Such] [Each] sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment, without representation or warranty by the Assignor.

1.	Assignor:	_____
2.	Assignee:	_____
3.	Loan Agreement:	Loan and Security Agreement, dated as of August  _____  2011 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”) among HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company (“Owner”), 58th STREET BAR COMPANY LLC, a Delaware limited liability company (“Bar Lessee”), and HUDSON LEASECO LLC, a New York limited liability company (“Operating Lessee”; Operating Lessee, Bar Lessee and Owner, together with their respective successors and assigns, collectively “Borrower”), the various financial institutions as are or may become parties thereto, and Deutsche Bank Trust Company Americas, as Administrative Agent.

¹ This form of Lender Assignment Agreement should be used by Lenders for an assignment to a single Assignee or to funds managed by the same or related investment managers.

Exhibit J
Page 2

3. Assigned Interest:
Percentage interest assigned:		%
Aggregate outstanding principal amount of the Loan assigned:	$
Outstanding Delayed Draw Term Loan Commitments assigned:	$
Principal amount of Note payable to Assignee:	$
Principal amount of Note payable to Assignor:	$
Effective Date (if other than date of acceptance by Lender):

                      _____  ,                     
Payment Instructions:

Attention:

Reference:

Address for Notices:

Relationship Contact:                            

Exhibit J
Page 3

The terms set forth in this Assignment are hereby agreed to:

ASSIGNOR		ASSIGNEE2
[NAME OF ASSIGNOR]		[NAME OF ASSIGNEE]
By:		By:
	Name:		Name:
	Title:		Title:

[Consented to and]³ Accepted:
DEUTSCHE BANK TRUST COMPANY AMERICAS,

as Administrative Agent

By:
	Name:
	Title:
By:
	Name:
	Title:

2	Add additional signature blocks, as needed, if this Form is being used by funds managed by the same or related investment managers.
3	Insert only if assignment is being made to an Eligible Assignee that is not an existing Lender, an Affiliate of an existing Lender or an Approved Fund.

Exhibit J
Page 4

HENRY HUDSON HOLDINGS LLC

58^th STREET BAR COMPANY LLC
AND HUDSON LEASECO LLC

LOAN AGREEMENT

STANDARD TERMS AND CONDITIONS
FOR
LENDER ASSIGNMENT AGREEMENT

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with any Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement, any other Loan Document or any other instrument or document delivered pursuant thereto, other than this Assignment, or any collateral thereunder, (iii) the financial condition of the Borrower or any of its Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower or any of its Affiliates or any other Person of any of their respective obligations under any Loan Documents.

1.2 Assignee. [The] [Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) it meets all requirements of an Eligible Assignee under the Loan Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Loan Agreement and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Loan Agreement, together with copies of such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase the Assigned Interest on the basis of which it has made such analysis and decision and (v) attached to this Assignment is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by [the] [each] Assignee; (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender; and (c) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto.

Exhibit J
Page 5

2. Payment. From and after the Effective Date, the Administrative Agent shall make all payment in respect to the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to [the] [each] Assignee for amounts which have accrued from and after the Effective Date.

3. Effect of Assignment. Upon the delivery of a full executed original hereof to the Administrative Agent, as of the Effective Date, (i) [the][each] Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment, have the rights and obligations of a Lender thereunder and under the other Loan Documents and (ii) the Assignor shall, to the extent provided in this Assignment, relinquish its rights and be released from its obligations under the Loan Agreement and the other Loan Documents.

4. General Provisions. This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment by telecopy shall be effective as delivery of a manually executed counterpart of the Assignment. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

* * * *

EXHIBIT K

FORM OF SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

                    ,
Tenant

AND

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent on behalf of
the Lenders

County:	[          ]
Section:	[          ]
Block:	[          ]
Lot:	[          ]
Premises:
Dated: as of                     , _____

Record and return by mail to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: Leila Rachlin, Esq.
1111779-2203

Exhibit K
Page 2

SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT

THIS AGREEMENT made as of this  _____  day of                     , 20_____, between DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent on behalf of the Lenders, a New York banking corporation, having an address at 31 West 52nd Street, New York, New York 10019 (together with its successor and/or assigns, hereinafter called “Administrative Agent”), and                     , a                     , having an address at                      (hereinafter called “Tenant”).

W I T N E S S E T H :

WHEREAS, by a lease (the “Original Lease”) dated                     , 20_____  between                      (hereinafter called “Landlord”), as landlord, and Tenant, as tenant, as amended by lease amendment[s] dated                     , 20_____, [                    , 20_____ and                     , 20_____] (the Original Lease, as so amended, is hereinafter the “Lease”), a memorandum of which Lease was dated                      and was recorded in                      in Reel                     , Page                     , [add recording data for memoranda of amendments, if applicable], Landlord leased to Tenant certain premises located in                     (the “Premises”) on the property described in Schedule “A” annexed hereto and made a part hereof (the “Property”); and

WHEREAS, pursuant to the Loan and Security Agreement, dated as of August [_____], 2011, (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and among Henry Hudson Holdings LLC, 58th Street Bar Company LLC, Hudson Leaseco LLC, the lenders party thereto from time to time (collectively, “Lenders”) and Administrative Agent, Lenders have made a loan to Landlord, which loan is secured by, among other things, a mortgage (which mortgage, and all amendments, renewals, increases, modifications, replacements, substitutions, extensions, spreaders and consolidations thereof and all re-advances thereunder and addictions thereto, is referred to as the “Security Instrument”) encumbering the Property; and

WHEREAS, Administrative Agent and Tenant desire to confirm their understanding and agreement with respect to the Lease and the Security Instrument.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Administrative Agent and Tenant hereby agree and covenant as follows:

1. The Lease, and all of the terms, covenants, provisions and conditions thereof (including, without limitation, any right of first refusal, right of first offer, option or any similar right with respect to the sale or purchase of the Property, or any portion thereof) is, shall be and shall at all times remain and continue to be subject and subordinate in all respects to the lien, terms, covenants, provisions and conditions of the Security Instrument and to all advances and re-advances made thereunder and all sums secured thereby. This provision shall be self-operative but Tenant shall execute and deliver any additional instruments which Administrative Agent or Lenders may reasonably require to effect such subordination.

Exhibit K
Page 3

2. So long as (i) Tenant is not in default (beyond any period given in the Lease to Tenant to cure such default) in the payment of rent, percentage rent or additional rent or in the performance or observance of any of the other terms, covenants, provisions or conditions of the Lease on Tenant’s part to be performed or observed, (ii) Tenant is not in default under this Agreement and (iii) the Lease is in full force and effect: (a) Tenant’s possession of the Premises and Tenant’s rights and privileges under the Lease, or any extensions or renewals thereof which may be effected in accordance with any option therefor which is contained in the Lease, shall not be diminished or interfered with by Administrative Agent or Lenders, and Tenant’s occupancy of the Premises shall not be disturbed by Administrative Agent or Lenders for any reason whatsoever during the term of the Lease or any such extensions or renewals thereof and (b) neither Administrative Agent nor Lenders will join Tenant as a party defendant in any action or proceeding to foreclose the Security Instrument or to enforce any rights or remedies of Administrative Agent or Lenders under the Security Instrument which would cut-off, destroy, terminate or extinguish the Lease or Tenant’s interest and estate under the Lease (except to the extent required so that Tenant’s right to receive or set-off any monies or obligations owed or to be performed by any of Lenders’ predecessors-in-interest shall not be enforceable thereafter against Administrative Agent, Lenders or any of Lenders’ successors-in-interest). Notwithstanding the foregoing provisions of this paragraph, if it would be procedurally disadvantageous for Administrative Agent or Lenders not to name or join Tenant as a party in a foreclosure proceeding with respect to the Security Instrument, Administrative Agent or Lenders may so name or join Tenant without in any way diminishing or otherwise affecting the rights and privileges granted to, or inuring to the benefit of, Tenant under this Agreement.

3. (A) After notice is given by Administrative Agent that the Security Instrument is in default and that the rentals under the Lease should be paid to Lenders, Tenant will attorn to Lenders and pay to Lenders, or pay in accordance with the directions of Administrative Agent, all rentals and other monies due and to become due to Landlord under the Lease or otherwise in respect of the Premises. Such payments shall be made regardless of any right of set-off, counterclaim or other defense which Tenant may have against Landlord, whether as the tenant under the Lease or otherwise.

(B) In addition, if Administrative Agent (or its nominee or designee) shall succeed to the rights of Landlord under the Lease through possession or foreclosure action, delivery of a deed or otherwise, or another person purchases the Property or the portion thereof containing the Premises upon or following foreclosure of the Security Instrument or in connection with any bankruptcy case commenced by or against Landlord, then at the request of Administrative Agent (or its nominee or designee) or such purchaser (Administrative Agent, its nominees and designees, and such purchaser, and their respective successors and assigns, each being a “Successor-Landlord”), Tenant shall attorn to and recognize Successor-Landlord as Tenant’s landlord under the Lease and shall promptly execute and deliver any instrument that Successor-Landlord may reasonably request to evidence such attornment. Upon such attornment, the Lease shall continue in full force and effect as, or as if it were, a direct lease between Successor-Landlord and Tenant upon all terms, conditions and covenants as are set forth in the Lease. If the Lease shall have terminated by operation of law or otherwise as a result of or in connection with a bankruptcy case commenced by or against Landlord or a foreclosure action or proceeding or delivery of a deed in lieu, upon request of Successor-Landlord, Tenant shall promptly execute and deliver a direct lease with Successor-Landlord which direct lease shall be on substantially the same terms and conditions as the Lease (subject, however, to the provisions of clauses (i)-(v) of this paragraph 3(B)) and shall be effective as of the day the Lease shall have terminated as aforesaid. Notwithstanding the continuation of the Lease, the attornment of Tenant thereunder or the execution of a direct lease between Successor-Landlord and Tenant as aforesaid, Successor-Landlord shall not:

Exhibit K
Page 4

(i) be liable for any previous act or omission of Landlord under the Lease;

(ii) be subject to any off-set, defense or counterclaim which shall have theretofore accrued to Tenant against Landlord;

(iii) be bound by any modification of the Lease or by any previous prepayment of rent or additional rent made more than one (1) month prior to the date same was due which Tenant might have paid to Landlord, unless such modification or prepayment shall have been expressly approved in writing by Lender or was permitted under the terms of the Loan Agreement with the consent of Lender;

(iv) be liable for any security deposited under the Lease unless such security has been physically delivered to Administrative Agent or Successor-Landlord; and

(v) be liable or obligated to comply with or fulfill any of the obligations of the Landlord under the Lease or any agreement relating thereto with respect to the construction of, or payment for, improvements on or above the Premises (or any portion thereof), leasehold improvements, tenant work letters and/or similar items.

4. Tenant agrees that without the prior written consent of Administrative Agent, it shall not (a) amend, modify, terminate or cancel the Lease or any extensions or renewals thereof except to the extent permitted under the Loan Agreement without the consent of Lender, (b) tender a surrender of the Lease, (c) make a prepayment of any rent or additional rent more than one (1) month in advance of the due date thereof, or (d) subordinate or permit the subordination of the Lease to any lien subordinate to the Security Instrument. Any such purported action without such consent shall be void as against the holder of the Security Instrument.

5. (A) Tenant shall promptly notify Administrative Agent of any default by Landlord under the Lease and of any act or omission of Landlord which would give Tenant the right to cancel or terminate the Lease or to claim a partial or total eviction.

(B) In the event of a default by Landlord under the Lease which would give Tenant the right, immediately or after the lapse of a period of time, to cancel or terminate the Lease or to claim a partial or total eviction, or in the event of any other act or omission of Landlord which would give Tenant the right to cancel or terminate the Lease, Tenant shall not exercise such right (i) until Tenant has given written notice of such default, act or omission to Administrative Agent and (ii) unless Administrative Agent has failed, within sixty (60) days after Administrative Agent receives such notice, to cure or remedy the default, act or omission or, if such default, act or omission shall be one which is not reasonably capable of being remedied by Administrative Agent within such sixty (60) day period, until a reasonable period for remedying such default, act or omission shall have elapsed following the giving of such notice and following the time when Administrative Agent shall have become entitled under the Security Instrument to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under the Lease or otherwise, after similar notice, to effect such remedy), provided that Administrative Agent shall with due diligence give Tenant written notice of its intention to and shall commence and continue to, remedy such default, act or omission. If Administrative Agent cannot reasonably remedy a default, act or omission of Landlord until after Administrative Agent obtains possession of the Premises, Tenant may not terminate or cancel the Lease or claim a partial or total eviction by reason of such default, act or omission until the expiration of a reasonable period necessary for the remedy after Administrative Agent secures possession of the Premises. To the extent Administrative Agent incurs any expenses or other costs in curing or remedying such default, act or omission, including, without limitation, attorneys’ fees and disbursements, Administrative Agent shall be subrogated to Tenant’s rights against Landlord.

Exhibit K
Page 5

(C) Notwithstanding the foregoing, Administrative Agent shall have no obligation hereunder to remedy such default, act or omission.

6. To the extent that the Lease shall entitle Tenant to notice of the existence of any mortgage and the identity of any mortgagee or any ground lessor, this Agreement shall constitute such notice to Tenant with respect to the Security Instrument and Administrative Agent.

7. Upon and after the occurrence of a default under the Security Instrument, which is not cured after any applicable notice and/or cure periods, Administrative Agent, for the benefit of Lenders, shall be entitled, but not obligated, to exercise the claims, rights, powers, privileges and remedies of Landlord under the Lease and shall be further entitled to the benefits of, and to receive and enforce performance of, all of the covenants to be performed by Tenant under the Lease as though Administrative Agent were named therein as Landlord.

8. Anything herein or in the Lease to the contrary notwithstanding, in the event that a Successor-Landlord shall acquire title to the Property or the portion thereof containing the Premises, Successor-Landlord shall have no obligation, nor incur any liability, beyond Successor-Landlord’s then interest, if any, in the Property, and Tenant shall look exclusively to such interest, if any, of Successor-Landlord in the Property for the payment and discharge of any obligations imposed upon Successor-Landlord hereunder or under the Lease, and Successor-Landlord is hereby released or relieved of any other liability hereunder and under the Lease. Tenant agrees that, with respect to any money judgment which may be obtained or secured by Tenant against Successor-Landlord, Tenant shall look solely to the estate or interest owned by Successor-Landlord in the Property, and Tenant will not collect or attempt to collect any such judgement out of any other assets of Successor-Landlord.

9. Intentionally omitted.

10. If the Lease provides that Tenant is entitled to expansion space, Successor-Landlord shall have no obligation nor any liability for failure to provide such expansion space if a prior landlord (including, without limitation, Landlord), by reason of a lease or leases entered into by such prior landlord with other tenants of the Property, has precluded the availability of such expansion space.

Exhibit K
Page 6

11. Except as specifically provided in this Agreement, neither Administrative Agent nor Lenders shall, by virtue of this Agreement, the Security Instrument or any other instrument to which Administrative Agent or Lenders may be a party, be or become subject to any liability or obligation to Tenant under the Lease or otherwise.

12. (A) Tenant acknowledges and agrees that this Agreement satisfies and complies in all respects with the provisions of Article  _____  of the Lease and that this Agreement supersedes (but only to the extent inconsistent with) the provisions of such Article and any other provision of the Lease relating to the priority or subordination of the Lease and the interests or estates created thereby to the Security Instrument.

(B) Tenant agrees to enter into a subordination, non-disturbance and attornment agreement in a form substantially similar to this Agreement with any person which shall succeed Administrative Agent with respect to it interests in the Property, or any portion thereof, provided such agreement is substantially similar to this Agreement. Tenant does herewith irrevocably appoint and constitute Administrative Agent as its true and lawful attorney-in-fact in its name, place and stead to execute such subordination, non-disturbance and attornment agreement, without any obligation on the part of Administrative Agent to do so. This power, being coupled with an interest, shall be irrevocable as long as the Indebtedness secured by the Security Instrument remains unpaid. Administrative Agent agrees not to exercise its rights under the preceding two sentences if Tenant promptly enters into the subordination, non-disturbance and attornment agreement as required pursuant to the first sentence of this subparagraph (B).

13. (A) Any notice required or permitted to be given by Tenant to Landlord shall be simultaneously given also to Administrative Agent, and any right to Tenant dependent upon notice shall take effect only after notice is so given. Performance by Administrative Agent shall satisfy any conditions of the Lease requiring performance by Landlord, and Administrative Agent shall have a reasonable time to complete such performance as provided in Paragraph 5 hereof.

(B) All notices or other communications required or permitted to be given to Tenant or to Administrative Agent pursuant to the provisions of this Agreement shall be in writing and shall be deemed given only if mailed by United States registered mail, postage prepaid, or if sent by nationally recognized overnight delivery service (such as Federal Express or United States Postal Service Express Mail), addressed as follows: to Tenant, at the address first set forth above, Attention:                     ; to Administrative Agent, at the address first set forth above, Attention:                      and General Counsel or to such other address or number as such party may hereafter designate by notice delivered in accordance herewith. All such notices shall be deemed given three (3) business days after delivery to the United States Post office registry clerk if given by registered mail, or on the next business day after delivery to an overnight delivery courier.

Exhibit K
Page 7

14. This Agreement may be modified only by an agreement in writing signed by the parties hereto, or their respective successors-in-interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their respective successors and assigns. The term “Administrative Agent” shall mean the then holder of the Security Instrument. The term “Landlord” shall mean the then holder of the landlord’s interest in the Lease. The term “person” shall mean an individual, joint venture, corporation, partnership, trust, limited liability company, unincorporated association or other entity. All references herein to the Lease shall mean the Lease as modified by this Agreement and to any amendments or modifications to the Lease which are consented to in writing by Administrative Agent. Any inconsistency between the Lease and the provisions of this Agreement shall be resolved, to the extent of such inconsistency, in favor of this Agreement.

15. Intentionally omitted.

16. Intentionally omitted.

17. BOTH TENANT AND ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

18. This Agreement shall be governed by and construed in accordance with the laws of New York.

* * *

Exhibit K
Page 8

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent on behalf of the Lenders, a New York banking corporation
By:
	Name:
	Title:

By:
	Name:
	Title:

[TENANT]
By:
	Name:
	Title:

AGREED AND CONSENTED TO: LANDLORD: [                                        ]
By:
	Name:
	Title:

Exhibit K
Page 9

STATE OF NEW YORK	)
	) ss.
COUNTY OF NEW YORK	)

On the                      day of                      in the year 20_____  before me, the undersigned, a notary public in and for said state, personally appeared                                         , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

	Notary Public
[Notary Seal]	My commission expires:

STATE OF NEW YORK	)
	) ss.
COUNTY OF NEW YORK	)

On the                      day of                      in the year 20_____  before me, the undersigned, a notary public in and for said state, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

	Notary Public
[Notary Seal]	My commission expires:

Exhibit K
Page 10

STATE OF NEW YORK	)
	) ss.
COUNTY OF NEW YORK	)

On the                      day of                      in the year 20_____  before me, the undersigned, a notary public in and for said state, personally appeared                                         , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

	Notary Public
[Notary Seal]	My commission expires:

STATE OF NEW YORK	)
	) ss.
COUNTY OF NEW YORK	)

On the                      day of                      in the year 20_____  before me, the undersigned, a notary public in and for said state, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

	Notary Public
[Notary Seal]	My commission expires:

SCHEDULE A
to Exhibit K

LEGAL DESCRIPTION OF PROPERTY

EXHIBIT L

FORM OF NOTE

[Attached]

AMENDED, RESTATED AND CONSOLIDATED
PROMISSORY NOTE

$115,000,000.00	New York, New York
	August 12, 2011

This AMENDED, RESTATED AND CONSOLIDATED PROMISSORY NOTE, dated as of August 12, 2011 (this “Note”), is made by HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company, HUDSON LEASECO LLC, a New York limited liability company, 58^th STREET BAR COMPANY LLC, a Delaware limited liability company, jointly and severally as maker, having an address at c/o Morgans Hotel Group, 475 Tenth Avenue, New York, New York 10018 (collectively, “Borrower”), and given to DEUTSCHE BANK TRUST COMPANY AMERICAS, having an address at 60 Wall Street, New York, New York 10005 (together with its successors and/or assigns, “Lender”).

WHEREAS, Lender is the present owner and holder of, and Borrower is the current obligor under, those certain notes listed on Schedule I attached hereto and made a part hereof (collectively, the “Existing Notes”). There is now owing under the Existing Notes the outstanding principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00).

WHEREAS, Borrower confirms that the aggregate principal amount now owing on the Existing Notes is ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00) and that there are no defenses, set-offs or counterclaims against payment of said amount.

WHEREAS, Borrower and Lender wish to consolidate, amend and restate in their entirety the Existing Notes upon the terms and conditions set forth herein.

WHEREAS, Borrower and Lender intend these Recitals to be a material part of this Note.

NOW, THEREFORE, in consideration of the making of the Loan by Lender and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the Borrower hereby agrees as follows:

A. The terms, covenants and provisions of the Existing Notes are hereby consolidated, amended and restated in their entirety to be one single consolidated, amended and restated promissory note in the principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00) payable with interest thereon at the rate of interest and on all of the other terms, covenants and conditions contained herein and in that certain Loan and Security Agreement, dated as of the date hereof among Borrower, the lenders party thereto from time to time, and Deutsche Bank Trust Company Americas, as administrative agent (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Loan Agreement”). All capitalized terms not defined herein shall have the respective meanings set forth in the Loan Agreement.

B. The terms, provisions and covenants of this Note shall supersede (and constitute a complete restatement of) the Existing Notes and this Note shall evidence a single indebtedness in the principal amount of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00).

C. Borrower agrees to pay the indebtedness evidenced by this Note and further agrees to comply with and observe all of the terms, covenants and conditions of this Note and the Loan Agreement.

D. Neither this Note nor anything contained herein shall be construed as a substitution or novation of the indebtedness evidenced by the Existing Notes, or of the Existing Notes, which shall remain in full force and effect, as hereby consolidated, amended and restated in their entirety.

FOR VALUE RECEIVED Borrower, hereby unconditionally promises to pay to the order of Lender, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of ONE HUNDRED FIFTEEN MILLION AND 00/100 DOLLARS ($115,000,000.00) in lawful money of the United States of America, with interest thereon to be computed from the date of this Note at the interest rate set forth in the Loan Agreement, and to be paid in accordance with the terms of this Note and the Loan Agreement.

PAYMENT TERMS

Borrower agrees to pay the principal sum of this Note and interest on the unpaid principal sum of this Note and all other amounts due under the Loan Agreement and the other Loan Documents from time to time outstanding, at the rates and at the times specified in the Loan Agreement, and the outstanding balance of the principal sum of this Note and all accrued and unpaid interest thereon and all other amounts due under the Loan Agreement and the other Loan Documents shall be due and payable on the Maturity Date.

DEFAULT AND ACCELERATION

The Debt shall without notice become immediately due and payable at the option of Lender upon the happening of any Event of Default in accordance with the terms of the Loan Agreement.

LOAN DOCUMENTS

This Note is secured by the Security Instrument and the other Loan Documents. All of the terms, covenants and conditions contained in the Loan Agreement and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event of a conflict or inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement shall govern.

SAVINGS CLAUSE

Notwithstanding anything to the contrary contained herein, (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 to constitute interest, the interest contracted for, charged or received by Lender shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, 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 Maximum Legal Rate, any such excess shall be deemed to have been applied toward the 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.

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(ies) against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

WAIVERS

Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby jointly and severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or 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 or the other Loan Documents made by agreement between Lender and 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 Debt under this Note, the Loan Agreement or the other Loan Documents. 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, the Loan Agreement or the other Loan Documents. If Borrower is a partnership or limited liability company, the agreements herein contained shall remain in force and be applicable, notwithstanding any changes in the individuals or entities comprising the partnership or limited liability company, and the term “Borrower,” as used herein, shall include any alternate or successor partnership or limited liability company, but any predecessor partnership or limited liability company and its partners or members shall not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein shall remain in full force and be applicable, notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term “Borrower,” as used herein, shall include any alternative or successor corporation, but any predecessor corporation shall not be relieved of liability hereunder. (Nothing in the foregoing two sentences shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation which may be set forth in the Loan Agreement, the Security Instrument or any other Loan Document.)

TRANSFER

Upon the transfer of this Note by Lender, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Loan Documents, or any part thereof, to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.

EXCULPATION

The provisions of Section 18.1 of the Loan Agreement are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein.

GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS

THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THIS NOTE WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE 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 STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (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 STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

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 CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, 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 HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER AGREES THAT SERVICE OF PROCESS UPON BORROWER AT THE ADDRESS FOR BORROWER SET FORTH HEREIN 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 STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGE IN THE ADDRESS FOR BORROWER SET FORTH HEREIN, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE AN AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE AN AUTHORIZED AGENT IF BORROWER CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION.

WAIVER OF JURY TRIAL

BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND FOREVER WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST, WITH REGARD TO THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER LOAN DOCUMENTS, 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 BORROWER 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 IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

SUCCESSORS AND ASSIGNS

This Note shall be binding upon, and shall inure to the benefit of, Borrower and Lender and their respective successors and permitted assigns. Lender shall have the right to assign or transfer its rights under this Note in connection with any assignment of the Loan and the Loan Documents. Any assignee or transferee of Lender shall be entitled to all the benefits afforded to Lender under this Note. Borrower shall not have the right to assign or transfer its rights or obligations under this Note without the prior written consent of Lender, as provided in the Loan Agreement, and any attempted assignment without such consent shall be null and void.

NOTICES

All notices or other written communications hereunder shall be delivered in accordance with Section 19.8 of the Loan Agreement.

[NO FURTHER TEXT ON THIS PAGE]

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

HENRY HUDSON HOLDINGS LLC,
a Delaware limited liability company,
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:
HUDSON LEASECO LLC,
a New York limited liability company
By:	Hudson Managing Member LLC, its managing member
By:	Henry Hudson Holdings LLC, its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

58th STREET BAR COMPANY LLC,
a Delaware limited liability company
By:	Hudson Pledgor LLC, its managing member
By:	Henry Hudson Holdings LLC its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

STATE OF NEW YORK	)
	) ss.:
COUNTY OF NEW YORK	)

On this  _____  day of August, 2011, before me, a Notary Public in and for said State, personally appeared  _____, before me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Notary Public

LENDER’S ACKNOWLEDGMENT AND CONSENT

Lender is executing this Amended, Restated and Consolidated Promissory Note to signify its consent to the consolidation, amendment and restatement of the Existing Notes as set forth above. Nothing herein shall, or shall be deemed to, obligate Lender for repayment of any amount evidenced by this Note.

DEUTSCHE BANK TRUST COMPANY AMERICAS
By:
	Name:
	Title:
By:
	Name:
	Title:

STATE OF NEW YORK	)
	) ss.:
COUNTY OF NEW YORK	)

On the  _____  day of  _____  in the year 2011 before me, the undersigned, personally appeared _____, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me the he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

[SEAL]

SCHEDULE I

EXISTING NOTES

EXHIBIT M

COUNTERPARTY ACKNOWLEDGMENT

[Attached]

Exhibit M
Page 1

INTEREST RATE PROTECTION AGREEMENT
ACKNOWLEDGEMENT

SMBC CAPITAL MARKETS, INC., having an address at 277 Park Avenue, 5th Floor, New York, New York 10172 (“Rate Cap Provider”), by executing this acknowledgement in the space provided below, hereby acknowledges that it has been advised that the interest of HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company, HUDSON LEASECO LLC, a New York limited liability company, 58^th STREET BAR COMPANY LLC, a Delaware limited liability company, jointly and severally as maker, having an address at c/o Morgans Hotel Group, 475 Tenth Avenue, New York, New York 10018 (collectively, “Borrower”), in and to the interest rate cap agreement (a copy of which is attached hereto as Exhibit A) entered into between Rate Cap Provider and Borrower (the “Rate Cap Agreement”) has been pledged and assigned to DEUTSCHE BANK TRUST COMPANY AMERICAS, as administrative agent, having an address at 60 Wall Street, New York, NY 10005 (together with its successors and/or assigns, “Administrative Agent”) pursuant to the Loan and Security Agreement, dated as of August 12, 2011, among Borrower, the lenders party thereto and Administrative Agent. Rate Cap Provider hereby unconditionally consents to such pledge and assignment, and certifies to Administrative Agent that as of the date hereof (i) the Rate Cap Agreement is unmodified and in full force and effect, and (ii) all payments now or hereafter required to be made by Borrower pursuant to the Rate Cap Agreement have been paid in full and Borrower is not in default thereunder. Rate Cap Provider agrees that it shall not modify, amend or terminate the Rate Cap Agreement without Administrative Agent’s prior written consent.

Rate Cap Provider hereby agrees that Rate Cap Provider shall deliver to Administrative Agent a copy of any notice of default given to Borrower under the Rate Cap Agreement and that all payments made under the Rate Cap Agreement shall be made to the following account (or at such other address as Administrative Agent shall hereafter notify Rate Cap Provider):

Name:	Hudson Hotel, New York, NY f/b/o DeutscheBank Trust Company Americas, as Administrative Agent Collection Account
Bank:	JP Morgan Chase 270 Park Avenue New York, New York
Account No.:	114-917779
ABA No,	021000021

In consideration of the foregoing agreement by Rate Cap Provider, Borrower agrees that (i) Rate Cap Provider shall be entitled to conclusively rely (without any independent investigation) on Administrative Agent’s statement that Administrative Agent is entitled to payment under the Rate Cap Agreement, and (ii) Rate Cap Provider shall be held harmless and shall be fully indemnified by Borrower, from and against any and all claims, other than those ultimately determined to be founded on gross negligence or willful misconduct of Rate Cap Provider, and from and against any damages, penalties, judgments, liabilities, losses or expenses (including reasonable attorneys’ fees and disbursements) incurred by Rate Cap Provider as a result of the assertion of any claim, by any person or entity, arising out of, or otherwise related to, any action taken or omitted to be taken by Rate Cap Provider in reliance upon any such notice provided by the Administrative Agent.

Exhibit M
Page 2

All notices shall be delivered to Administrative Agent at the following address (or at such other address as Administrative Agent shall hereafter notify Rate Cap Provider):

do Deutsche Bank Securities, Inc.
200 Crescent Court, Suite 550
Dallas, Texas 75201
Attn: Justin Shull
Telephone: (214) 740-7906
Telecopy: (214) 740-7910

with a copy to it at:

60 Wall Street
New York, New York 10005
Attn: George Reynolds
Telephone: (212) 250-2362
Telecopy: (212) 797-4496

Notwithstanding anything to the contrary contained in the Rate Cap Agreement, Rate Cap Provider hereby further agrees that Administrative Agent shall have the right to assign its right, title and interest in the Rate Cap Agreement and hereunder, provided that Administrative Agent gives Rate Cap Provider notice of any such assignment.

[The rest of this page is left blank intentionally]

Exhibit M
Page 3

The terms and conditions of this Acknowledgement and Agreement shall bind Rate Cap Provider and its successors and assigns and shall inure to the benefit of Administrative Agent and its successors and assigns.

Dated as of: August       2011

SMBC CAPITAL MARKETS, INC.
By:
	Name:
	Title:
By:
	Name:
	Title:

Exhibit M
Page 4

CONSENTED TO BY:
HENRY HUDSON HOLDINGS LLC,
a Delaware limited liability company,
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

Exhibit M
Page 5

HUDSON LEASECO LLC,
a Delaware New York limited liability company
By:	Hudson Managing Member LLC, its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:
58th STREET BAR COMPANY LLC,
a Delaware limited liability company
By:	Hudson Managing Member LLC, its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

Exhibit M
Page 6

EXHIBIT A

RATE CAP AGREEMENT

[Attached Hereto]

Exhibit N
Page 1

EXHIBIT N

FORM OF FUNDING NOTICE

Reference is made to the Loan and Security Agreement, dated as of August  _____  2011 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”) among HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company (“Owner”), 58^th STREET BAR COMPANY LLC, a Delaware limited liability company (“Bar Lessee”), and HUDSON LEASECO LLC, a New York limited liability company (“Operating Lessee”; Operating Lessee, Bar Lessee and Owner, together with their respective successors and assigns, collectively “Borrower”), the lenders party thereto from time to time (“Lenders”), and Deutsche Bank Trust Company Americas, as Administrative Agent. Capitalized terms used but not defined herein have the meanings assigned in the Loan Agreement.

Pursuant to Section 2.1.1 of the Loan Agreement, Borrower desires that Lenders make the following Loans to the Borrower in accordance with the applicable terms and conditions of the Loan Agreement on [mm/dd/yy] (the “Credit Date”):

1. Term Loans On the Closing Date	$	[___,___,___
2. Delayed Draw Term Loans	$	[___,___,___

Borrower hereby certifies that:

(a) as of the Credit Date, the representations and warranties contained in each of the Loan Documents are true and correct in all material respects (or, to the extent a representation and warranty contains a materiality or Material Adverse Effect qualification, in all respects) on and as of such Credit Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties are true and correct in all material respects (or, to the extent a representation and warranty contains a materiality or Material Adverse Effect qualification, in all respects) on and as of such earlier date; and

(b) as of the Credit Date, no event has occurred and is continuing or would result from the consummation of the borrowing contemplated hereby that would constitute an Event of Default or a Default [.] [and]

(c) [DELAYED DRAW TERM LOANS ONLY] as of the Credit Date, attached as Schedule 1 is the Net Operating Income calculated pursuant to Section 2.5(B) and a calculation of the Delayed Draw Term Loan Available Amount which is $[_____]. In addition, Borrower certifies to Administrative Agent and Lenders that all conditions to the making of the requested Delayed Draw Term Loans contained in Section 2.5 of the Loan Agreement will have been satisfied at the time such Delayed Draw Term Loans are made.

1

Exhibit N
Page 2

[SIGNATURE PAGE FOLLOWS]

2

Date: __________, 20__

HENRY HUDSON HOLDINGS LLC
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:
58th STREET BAR COMPANY LLC
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

3

Exhibit N
Page 4

HUDSON LEASECO LLC
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

4

Exhibit N
Page 5

SCHEDULE 1

[Calculation of Net Operating Income and Delayed Draw Term Loan Availability Amount]

5

EXHIBIT O

CERTIFICATE OF INDEPENDENT MANAGER/MEMBER/DIRECTOR

Management Agreement

August __, 2011

For good and valuable consideration, each of the undersigned Persons, who have been designated as members of [_____], a [_____] limited liability company (the “Company”), in accordance with the Amended and Restated Operating Agreement of the Company, dated as of August  _____, 2011 as it may be amended or restated from time to time (the “LLC Agreement”), hereby agree as follows:

1. Each of the undersigned accepts such Person’s rights and authority as a Member under the LLC Agreement and agrees to perform and discharge such Person’s duties and obligations as a Member under the LLC Agreement, and further agrees that such rights, authorities, duties and obligations under the LLC Agreement shall continue until such Person’s successor as a Member is designated or until such Person’s resignation or removal as a Member in accordance with the LLC Agreement. Each of the undersigned agrees and acknowledges that it has been designated as a “manager” of the Company within the meaning of the [New York Limited Liability Company Law].

2. So long as any Obligation is outstanding, each of the undersigned agrees, solely in its capacity as a creditor of the Company on account of any indemnification or other payment owing to the undersigned by the Company, not to acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company.

3. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF [NEW YORK], AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

Capitalized terms used and not otherwise defined herein have the meanings set forth in the LLC Agreement.

This Management Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Management Agreement and all of which together shall constitute one and the same instrument.

Exhibit O
Page 2

IN WITNESS WHEREOF, the undersigned have executed this Management Agreement as of the day and year first above written.

INDEPENDENT MANAGER:
By:
	Name:
	Title:
By:
	Name:
	Title:

Exhibit P
Page 1

EXHIBIT P

FORM OF IP SECURITY AGREEMENT

INTELLECTUAL PROPERTY SECURITY AGREEMENT

This INTELLECTUAL PROPERTY SECURITY AGREEMENT (this Agreement), dated as of [_____], is entered into by HENRY HUDSON HOLDINGS LLC (“Owner”), a Delaware limited liability company, 58th STREET BAR COMPANY LLC, a Delaware limited liability company (“Bar Lessee”), and HUDSON LEASECO LLC, a New York limited liability company (“Operating Lessee” and together with Owner and Bar Lessee, “Assignors”), each having an office at 475 Tenth Avenue, New York, New York 10018, to DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent for the benefit of the Lenders, a New York banking corporation, having an address at 60 Wall Street, 10th Floor, New York, New York 10005 (together with its successors and assigns, “Assignee”). Capitalized terms not otherwise defined herein have the meanings set forth in the Loan and Security Agreement, dated August  _____, 2011, among Assignors and Assignee (together with all amendments, replacements and supplements, the “Loan Agreement”) or that certain Amended, Restated and Consolidated Mortgage, Assignment of Leases and Rents, Hotel Revenue and Security Agreement, dated the date hereof, executed and delivered by Assignors to Assignee (together with all amendments, replacements and supplements, the “Mortgage”), as applicable.

WHEREAS, Owner is the owner of (i) the real property commonly known as the Hudson Hotel and located in New York, such ownership interest being comprised of a fee simple and leasehold, as applicable, interest in the Land and (ii) title to the improvements located thereon (collectively, the “Hotel”);

WHEREAS, Assignors own Intellectual Property and IP Licenses (each as defined herein) related to the Hotel;

WHEREAS, pursuant to the Loan Agreement, Lenders have agreed to make loans (collectively, the “Loan”) subject to the terms and conditions of the Loan Agreement and as evidenced by a Note (together with all amendments, replacements and supplements, the “Note”), dated the date hereof, made by Assignors, as maker; and

WHEREAS, Assignors will derive substantial benefits from the extension of the Loan to Assignors and are willing to execute this Agreement in order to induce Lenders to extend the Loan.

NOW, THEREFORE, in consideration of the Loan to Assignors evidenced by the Note and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignors and the Assignee hereby agree as follows:

Exhibit P
Page 2

1. Grant of Security Interest.

Assignors hereby grant, sell, transfer, set over, assign and convey a security interest in and pledge to Assignee, in trust with the power of sale and right of entry, in trust and possession, for the benefit and use of Assignee and its successors and assigns forever, all of Assignors’ estate, right, title and interest now owned or hereafter acquired in, to and under any and all the property described in the following granting clauses (all of which being hereinafter referred to as the “IP Collateral”):

(i) all intellectual property worldwide relating to the ownership or operation of the Land (“Intellectual Property”), including all:

(a) trademarks, service marks, certification marks, collective marks, business names set forth on Schedule I, corporate names, trade names, d/b/a’s, the trademarks set forth on Schedule II, and general intangibles of like nature, whether registered or unregistered, and all goodwill of any business connected with the use thereof and symbolized thereby;

(b) patents issued by the United States or the equivalent thereof in any other country, industrial designs, and applications for any of the foregoing, including any continuations, divisionals, continuations in part, renewals, extensions and reissues, and the inventions disclosed or claimed therein;

(c) copyrights in published and unpublished works of authorship, whether registered or unregistered in the United States or any other country, whether as author, assignee, or transferee (including, without limitation, copyrights in databases and other compilations of information, computer software and systems (including reservations and other Hotel systems), middleware, user interface, source code, object code, and the like, and user manuals and other training documentation related thereto), all derivative works, renewals, extensions, restorations, and reversions thereof;

(d) Domain Names, including, without limitation, the Domain Names set forth on Schedule III;

(e) trade secrets, proprietary confidential information and operational systems, including confidential know-how, processes, schematics, concepts, ideas, inventions, business methods and processes, marketing plans, research and development, formulae, drawings, prototypes, models, designs, customer and supplier information and lists, databases and other compilations of information, historical guest lists, mailing lists, computer software and systems (including reservations and other Hotel systems), middleware, user interface, source code, object code, algorithms, and the like, and user manuals and other training documentation related thereto, and other nonpublic, confidential, or proprietary information;

(f) any registrations, applications for registration or issuance, recordings, reissues, renewals, divisions, continuations, and extensions relating to any or all of the foregoing;

(g) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including, without limitation, damages, claims and payments for past, present or future infringements or other violations thereof relating to any or all of the foregoing; and

2

Exhibit P
Page 3

(h) rights to sue for past, present and future infringements and other violations thereof relating to any of the foregoing.

(ii) all licenses of Intellectual Property and covenants not to sue with respect to Intellectual Property (including, without limitation those licenses set forth on Schedule IV), which relate to, are derived from, or are used in connection with the Property or the use, occupancy, enjoyment, or maintenance thereof or the conduct of any business or activities thereon, regardless of whether such agreements and covenants are contained within an agreement that also covers other matters, such as development, consulting services or distribution of products, and regardless of whether Assignors is a licensor or licensee, under any such agreement, together with any and all (i) amendments, renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future breaches or violations thereof, and (iii) the right to sue for past, present and future breaches or violations thereof (IP Licenses).

(iii) all of Assignors’ right, title, and interest in all proceeds, both cash and noncash, of the foregoing.

Notwithstanding anything to the contrary contained in this Section 1, Assignors do not grant, sell, transfer, set over, assign or convey a security interest in or pledge to Assignee any of the items set forth on Schedule V attached hereto [Schedule V will include all Hudson/Morgans marks/domain names owned by Morgans Group LLC].

2. Release of IP Collateral.

Assignee shall, at the reasonable expense of Assignors, upon payment in full of the Principal Amount and interest on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and the Loan Agreement, release the Lien of this Agreement upon the IP Collateral or assign it, in whole or in part, to a new lender. In such event, Assignors shall submit to Assignee, on a date prior to the date of such release or assignment sufficient to provide a reasonable period for review thereof, a release of lien or assignment of lien, as applicable, for such property for execution by Assignee. Such release or assignment, as applicable, shall be in a form appropriate in each jurisdiction in which the IP Collateral is located and satisfactory to Assignee in its reasonable discretion. In addition, Assignors shall provide all other documentation Assignee reasonably requires to be delivered by Assignors in connection with such release or assignment, as applicable.

3. Remedies.

(A) The grant of security set forth herein is issued in conjunction and concurrently with the grant of security interest set forth in the Mortgage. The remedies set forth in Article VII of the Mortgage are incorporated herein by reference and apply with respect to the IP Collateral, to the extent applicable to the Intellectual Property and IP Licenses, as if restated herein in full.

3

Exhibit P
Page 4

(B) For the purpose of enabling the Assignee to exercise rights and remedies hereunder at such time as Assignee hereby shall be lawfully entitled to exercise such rights and remedies, Assignors hereby grant Assignee an irrevocable, non-exclusive license (with right to sublicense) and, to the extent permitted under IP Licenses granting Assignors rights in Intellectual Property, right to further sublicense (in each case, exercisable without payment of royalties or other compensation to Assignors) to make, have made, use, sell, copy, distribute, perform, make derivative works, publish, and exploit in any other manner for which an authorization from the owner of such Intellectual Property would be required under applicable law, with right to sublicense, any of the IP Collateral, wherever the same may be located; provided that: (i) such license shall be subject to the exclusive rights of any licensee of the IP Collateral under a license granted prior to such Event of Default, to the extent such license is a Permitted Encumbrance, (ii) Assignors shall have such rights of quality control and inspection which are reasonably necessary under applicable law to maintain the validity and enforceability of any Trademarks included in the IP Collateral and (iii) any sublicenses duly granted by Assignee under this license grant shall survive in accordance with their terms, as direct licenses of Assignors but any revenue thereunder payable to Assignee, notwithstanding the subsequent cure of any Event of Default that gave rise to the exercise of the Assignee’s rights and remedies.

4. After-Acquired IP Collateral.

Assignors shall provide to Assignee written notice of any Intellectual Property acquired by Assignors after the date hereof, which is the subject of a registration or application (including IP Collateral which was theretofore unregistered and becomes the subject of a registration or application) or of any material or exclusive IP Licenses, and deliver to Assignee an IP Security Agreement and/or such other instrument in form and substance reasonably acceptable to Assignee. Assignors shall provide such notice to Assignee no later than the end of the calendar quarter in which Assignors’ acquisition of such Intellectual Property or IP License occurred. Assignors shall execute and deliver to Assignee all filings necessary to protect and evidence Assignee’s security interest in such IP Collateral. Further, Assignors authorize Assignee to modify the Loan Agreement by amending the IP Schedule to include any additional IP Collateral (but the failure to do so modify such IP Schedule shall not be deemed to affect Assignee’s security interest in or Lien upon such IP Collateral).

5. Governing Law.

THIS AGREEMENT AND THE RIGHTS AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK.

4

Exhibit P
Page 5

6. Conflict Resolution.

The security interests granted to Assignee herein are granted in furtherance and addition to, and not in limitation of, the security interests granted to Assignee pursuant to the Mortgage. In the event of an irrevocable conflict between the terms of this Agreement, the Mortgage, or the Loan Agreement, the following priority of Agreements shall prevail: first, the Loan Agreement; second, Mortgage; and third, this Agreement.

7. Counterparts.

This Agreement may be executed in one or more counterparts, each of which, shall be deemed to be an original, and all of which together shall constitute one and the same instrument.

8. Further Assurances.

Assignors hereby authorizes Assignee to file, from time to time, at Assignors’ sole cost and expense, such UCC financing statements, naming the Assignors as debtor(s) and the Assignee as secured party in all applicable recording offices of each applicable jurisdiction (including the office of the Secretary of State of the State of Delaware) as Assignee deems required to perfect and maintain the first priority security interest of Assignee in the IP Collateral. In addition, Assignors shall, at Assignors’ sole cost and expense, execute, acknowledge, record, register, file and/or deliver to Assignee such other instruments, agreements, certificates and documents as Assignee may from time to time reasonably request to better assure transfer and confirm into Assignee the rights now or hereafter intended to be granted to Assignee under this Agreement or other Loan Documents, and shall fully cooperate with Assignee and perform all additional acts which are necessary to effect the purposes of the foregoing.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

5

Exhibit P
Page 6

IN WITNESS WHEREOF, Assignors and Assignee have caused this INTELLECTUAL PROPERTY SECURITY AGREEMENT to be duly executed and delivered by their respective officers duly authorized as of the date first above written.

ASSIGNORS:
HENRY HUDSON HOLDINGS LLC,
a Delaware limited liability company,
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:
HUDSON LEASECO LLC,
a Delaware limited liability company
By:	Hudson Managing Member LLC, its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

6

Exhibit P
Page 7

58th STREET BAR COMPANY LLC,
a Delaware limited liability company
By:	Hudson Managing Member LLC, its managing member
By:	Henry Hudson Senior Mezz LLC, its managing member
By:	Morgans Group LLC, its managing member
By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

7

Exhibit P
Page 8

ASSIGNEE:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as
Administrative Agent, a New York banking corporation
By:
	Name:
	Title:
By:
	Name:
	Title:

8

Exhibit P
Page 9

[FOR ASSIGNORS ONLY]

ACKNOWLEDGMENT

STATE OF NEW YORK	)
COUNTY OF NEW YORK	)

On the  _____  day of  _____, in the year 2011, before me, the undersigned, a Notary Public in and for said state, personally appeared  _____, the  _____  of HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that she executed the same in her capacity, and that by her signature on the instrument, the individual, or the entity upon behalf of which the individual acted, executed the instrument.

Signature:
	Name:

[Notary Seal] My commission expires:

STATE OF NEW YORK	)
COUNTY OF NEW YORK	)

On the  _____  day of  _____, in the year 2011, before me, the undersigned, a Notary Public in and for said state, personally appeared  _____, the  _____  of HUDSON LEASECO LLC, a New York limited liability company, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that she executed the same in her capacity, and that by her signature on the instrument, the individual, or the entity upon behalf of which the individual acted, executed the instrument.

Signature:
	Name:

[Notary Seal] My commission expires:

9

Exhibit P
Page 10

STATE OF NEW YORK	)
COUNTY OF NEW YORK	)

On the  _____  day of  _____, in the year 2011, before me, the undersigned, a Notary Public in and for said state, personally appeared  _____, the  _____  of 58th STREET BAR COMPANY LLC, a Delaware limited liability company, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that she executed the same in her capacity, and that by her signature on the instrument, the individual, or the entity upon behalf of which the individual acted, executed the instrument.

Signature:
	Name:

[Notary Seal] My commission expires:

10

SCHEDULE I
to
IP SECURITY AGREEMENT

FICTITIOUS BUSINESS NAMES

SCHEDULE II
to
IP SECURITY AGREEMENT

TRADEMARKS

SCHEDULE III
to
IP SECURITY AGREEMENT

DOMAIN NAMES

SCHEDULE IV
to
IP SECURITY AGREEMENT

LICENSES

SCHEDULE V
to
IP SECURITY AGREEMENT

EXCLUDED ITEMS

(SEE ATTACHED)

SCHEDULE I

LITIGATION

1.	Thomas Pavese v. Hudson Hotel, et al. (N.Y. Sup. Ct. Docket No. 1116550-08)
2.	Morgans Hotel Group et al., v. John Doe Co. d/b/a Hudson Terrace, et al. (10-cv-5335- 1(MW (S.D.N.Y.))
3.	Mr. Philippe Starck has initiated arbitration proceedings in the London Court of International Arbitration regarding an exclusive service agreement that he entered into with Residual Hotel Interest LLC (formerly known as Morgans Hotel Group LLC) in February 1998 regarding the design of certain hotels now owned by us. We are not a party to these proceedings at this time. To our knowledge, they have not continued to pursue this arbitration.

SCHEDULE H

LABOR MATTERS

1. Agreement dated February 2011 by and between the New York Hotel & Motel Trades Council, AFL-CIO and Morgans Hotel Group

2. Voluntary Settlement Agreement dated November 11, 2010 by and between the New York Hotel & Motel Trades Council, AFL-CIO and the Hudson Hotel

3. Agreement dated October 2010 by and between the New York Hotel & Motel Trades Council, AFL-CIO and Hudson Hotel

4. Agreement dated September 2010 by and between the Morgans Hotel Group Management, LLC, d/b/a Hudson Hotel on its own behalf and on behalf of the Hudson Hotel and the New York Hotel & Motel Trades Council, AFL-CIO

5. Agreement by and between the Morgans Hotel Group, on behalf of the Hudson Hotel and the New York Hotel & Motel Trades Council, AFL-CIO (May 2010)

6. Agreement dated May 10, 2010 by and between the New York Hotel & Motel Trades Council, AFL-CIO and the Hudson Hotel.

7. Settlement Agreement dated February 9, 2010 by and between the New York Hotel & Motel Trades Council, AFL-CIO and the Hudson Hotel

8. Agreement dated September 2010 by and between Hudson Hotel and the New York Hotel & Motel Trades Council, AFL-CIO

9. Agreement dated January 2008 by and between the New York Hotel & Motel Trades Council, AFL-CIO and the Hudson Hotel.

10. Agreement dated April 25, 2008 be and between the Hudson Hotel and the New York Hotel & Motel Trades Council, AFL-CIO

11. Collective Bargaining Agreement, for the period of July 1, 2006 through June 30, 2012, by and between Hotel Association of New York City, Inc. and the New York Hotel & Motel Trades Council, AFL-CIO

12. Letter Agreement dated May 28, 2004 between International Union of Operating Engineers Local Union No. 94, 94A, 94B

13. Concessionaire Agreement by and between the New York Hotel and Motel Trades Council, AFL-CIO and Ian Schrager Hotels, Inc. dated November 9, 2000

SCHEDULE III

RENT ROLL

						CURRENT		MISC.
PROPERTY/			BASE	ADDITIONAL	PERCENTAGE	LEASE		TENANT
LANDLORD	TENANT	SPACE	RENT	RENT	RENT	EXPIRATION	EXTENSION	RIGHTS
Henry Hudson Holdings LLC 356 W 58th street NY 11377	Hudson Leaseco LLC	Whole building including 10th floor and ground floor retail space.	$45,000,000 + CPI Adjuster annually	Tenant to pay all taxes and assessments.	N/A	December 318, 2035	N/A	N/A
Henry Hudson Holdings LLC 356 W 58th street NY 11377	58th Street Bar Company LLC	Bars (including Hudson Bar, Hudson Hall Library Bar and Private Park)	$1,200.00 annually.	N/A	N/A	Ten year anniversary of date of Lease.	Tenant has two options to extend for additional five year terms.	N/A

SCHEDULE IV

INTENTIONALLY OMITTED

SCHEDULE V

SRO TENANCIES

1169	$	501.11	Monthly	2032	$	124.35	weekly	2150	$	96.82	Weekly
1443	$	372.44	Monthly	2034	$	429.60	Monthly	2155	$	83.47	Weekly
1516	$	96.81	Weekly	2039	$	402.57	Monthly	2157	$	419.47	Monthly
1546	$	418.79	Monthly	2040	$	570.66	Monthly	2205	$	484.88	Monthly
1632	$	112.18	Weekly	2045	$	502.26	Monthly	2206	$	538.19	Monthly
1722	$	277.36	Monthly	2046	$	416.47	Monthly	2207	$	419.46	Monthly
1753	$	490.18	Monthly	2050	$	96.81	Weekly	2211	$	404.88	Monthly
1756	$	536.28	Monthly	2102	$	88.31	Weekly	2212	$	415.32	Monthly
1812	$	419.48	Monthly	2103	$	393.02	Monthly	2214	$	609.62	Monthly
1839	$	375.26	Monthly	2106	$	419.95	Monthly	2227	$	242.58	Monthly
1846	$	86.81	Weekly	2107	$	130.62	Weekly	2229	$	484.88	Monthly
1856	$	501.11	Monthly	2112	$	419.45	Monthly	2231	$	484.34	Monthly
1916	$	396.69	Monthly	2114	$	543.12	Monthly	2232	$	454.74	Monthly
2005	$	431.53	Monthly	2115	$	90.71	Weekly	2235	$	90.71	Weekly
2007	$	416.47	Monthly	2117	$	393.02	Monthly	2236	$	96.81	Weekly
2016	$	544.04	Monthly	2127	$	453.41	Monthly	2239	$	402.57	Monthly
2017	$	96.81	Monthly	2133	$	701.67	Monthly	2240	$	419.96	Monthly
2022	$	356.36	Monthly	2134	$	467.48	Monthly	2244	$	506.89	Monthly
2023	$	393.02	Monthly	2135	$	183.00	Monthly	2245	$	919.72	Monthly
2025	$	419.46	Monthly	2138	$	484.88	Monthly	2252	$	97.40	Weekly
2027	$	416.47	Monthly	2139	$	340.37	Monthly	2255	$	475.23	Monthly
2030	$	89.57	Weekly	2145	$	255.34	Monthly	2253	$	457.06	Monthly
2031	$	422.27	Monthly	2146	$	69.73	Weekly	2257	$	90.71	Weekly

SCHEDULE VI

REQUIRED REPAIRS

None.

SCHEDULE VII

PERCENTAGE SHARE AND DELAYED DRAW TERM LOAN COMMITMENTS

I. Percentage Share:

100% to DEUTSCHE BANK TRUST COMPANY AMERICAS, as Lender

II. Delayed Draw Term Loan Commitments:

$20,000,000.00 to DEUTSCHE BANK TRUST COMPANY AMERICAS, as Lender

SCHEDULE VIII

GROUND LEASE

1.	Store Unit — Lease dated January 1, 1999 between Adrienne Schatz (a/Ida Adrienne Wechsler), an individual and Cheryl Hirsch, an individual, collectively, as landlord, and Henry Hudson Holdings LLC, as tenant (as the same may be amended or modified from time to time in accordance with the terms hereof)
2.	Tenth Floor Unit — Lease dated February 11, 1999 between Irving Schatz, as landlord, and Henry Hudson Holdings, LLC, successor-in-interest to Ian Schrager Hotels LLC, as tenant (as the same may be amended or modified from time to time in accordance with the terms hereof)

SCHEDULE IX

IP SCHEDULE

1. Hotel Management Agreement, dated as of June 23, 2011, by and between Hudson Leaseco LLC, a New York limited liability company and Morgans Hotel Group Management LLC, a Delaware limited liability company (as the same may be amended or modified from time to time in accordance with the terms hereof)

EX-10.4

Exhibit 10.4

Execution Version

HENRY HUDSON HOLDINGS LLC, HUDSON LEASECO LLC

and 58^th STREET BAR COMPANY LLC, collectively, as mortgagor

(Mortgagor)

to

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as Administrative Agent for the benefit of the Lenders, as mortgagee

(Mortgagee)

AMENDED, RESTATED AND CONSOLIDATED
MORTGAGE, ASSIGNMENT OF
LEASES AND RENTS, HOTEL REVENUE AND
SECURITY AGREEMENT

Dated: as of August 12, 2011

Location: 353 West 57th Street, New York, New York 10019

County: New York

Block 1048 Tax Lots 1701, 1702, 1704 and 1706

PREPARED BY AND UPON
RECORDATION RETURN TO:

White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: Leila Rachlin, Esq.
1111779-2203

AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT OF
LEASES AND RENTS, HOTEL REVENUE AND SECURITY AGREEMENT

THIS AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, HOTEL REVENUE AND SECURITY AGREEMENT (this “Mortgage”) is made as of this 12th day of August, 2011, by HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company (“Owner”), HUDSON LEASECO LLC, a New York limited liability company (“Operating Lessee”), 58^th STREET BAR COMPANY LLC, a Delaware limited liability company (“Bar Lessee”; and collectively with Owner and Operating Lessee, “Mortgagor”), having an address at c/o Morgans Hotel Group, 475 Tenth Avenue, New York, New York 10018, jointly and severally as mortgagor, for the benefit of DEUTSCHE BANK TRUST COMPANY AMERICAS (“DBTCA”), as Administrative Agent (as defined below) for the benefit of the Lenders (as defined below) having an address at 60 Wall Street, New York, New York 10005, as mortgagee (together with its successors and/or assigns, “Mortgagee”).

W I T N E S S E T H :

A. Owner is the owner of the real property commonly known as the Hudson Hotel located in the City, County and State of New York, such ownership interest being comprised of (collectively, the “Owner Property”):

(i) a fee simple interest in those certain units designated as (a) Unit 1 (the “EBC Unit”) and (b) Unit 2 (the “Modified Hotel Unit” and collectively with the EBC Unit, the “Owned Condominium Units”) of the condominium regime set forth on Exhibit A hereto of the “353 West 57^th Street Condominium”, a Condominium in the City, County and State of New York, (the “Condominium Regime”), according to the Amended and Restated Declaration of Condominium, recorded in Reel 2913, Page 1753 in the Office of the City Register of New York County, New York (the “Register’s Office”), as amended by the Amendment to Amended and Restated Declaration, recorded in Reel 2979, Page 2159 in the Register’s Office (the “Condominium Declaration”); and

(ii) a leasehold estate in those certain units designated as:

(a) Unit 4 (the “Store Unit”) pursuant to that certain Lease dated January 1, 1999 between Adrienne Schatz (a/k/a Adrienne Wechsler), an individual, and Cheryl Hirsch, an individual (collectively, the “Store Lease Landlord”), as lessor, and Owner, as lessee, which Lease is evidenced by a Memorandum of Lease, dated September 30, 1999, by and between Store Lease Landlord and Owner and recorded on October 21, 1999 in the Register’s Office in Reel 2979, Page 2172 and which lease was amended pursuant to that certain Amendment of Lease, dated as of September 30, 1999, by and between Store Lease Landlord and Owner as further amended pursuant to that certain Amendment of Lease, dated as of August 13, 2004, by and between Store Lease Landlord and Owner (as amended, the “Store Ground Lease”); and

(b) Unit 6 (the “10^th Floor Unit”; and collectively with the Store Unit, the “Leasehold Units”) pursuant to that certain Lease, dated as of February 11, 1999 by and between Irving Schatz (the “10^th Floor Landlord”; and collectively with the Store Lease Landlord, “Ground Lessor”), as lessor, and Ian Schrager Hotels LLC (f/k/a West 57^th LLC) (“ISH”), as lessee, a memorandum of which is titled Amended and Restated Memorandum of Lease, by and between 10^th Floor Landlord and ISH, dated as of February 12, 1999 and recorded on March 23, 1999 in the Register’s Office in Reel 2841, Page 1872, assigned by ISH to Owner pursuant to that certain Assignment and Assumption of Lease dated February 12, 1999 and recorded on March 23, 1999 in the Register’s Office in Reel 2841, Page 1882 and amended pursuant to that certain Amendment of Lease dated August 13, 2004 (the “10^th Floor Ground Lease”; and collectively with the Store Ground Lease, the “Ground Lease”), which 10^th Floor Ground Lease amends, restates and supersedes in all respects that certain Net Lease (the “Original 10^th Floor Ground Lease”), dated August 11, 1988 between 10^th Floor Landlord and Educational Broadcasting Corporation, a New York not-for-profit corporation (“EBC”), which Original 10^th Floor Ground Lease is evidenced by a memorandum of lease, dated September 1, 1988, by and between 10^th Floor Landlord and EBC and recorded on September 30, 1998 in the Register’s Office in Reel 1472, Page 883, as assigned from EBC to ISH pursuant to that certain Assignment and Assumption of Lease, dated as of February 12, 1999 and effective as of November 30, 1997 and recorded on March 23, 1999 in the Register’s Office in Reel 2841, Page 1861;

B. Operating Lessee (i) is the operating lessee of the Property pursuant to that certain Lease dated August 28, 2000, between Owner, as lessor, and Operating Lessee, as lessee, (the “Operating Lease”), (ii) owns assets related to the Condominium Units (as defined herein) (including, without limitation, leased inventory and equipment, Leases, fixtures and furniture, contracts, permits, trademarks, intangibles, contracts, vouchers and web site materials) (collectively, the “Operating Lessee Assets”) and (iii) has certain rights related to the Operating Lessee Assets (collectively, the “Operating Lessee Rights”; Operating Lessee Assets and the Operating Lessee Rights are collectively referred to herein as the “Operating Lessee Property”);

C. Bar Lessee (i) is the operator of the food and beverage operations at the Property and the lessee of the restaurant and bar space at the property known as “The Hudson Hall”, “The Hudson Bar”, “The Library Bar” and “The Private Park” pursuant to that certain Lease dated August 12, 2011 between Owner and Bar Lessee (the “Bar Lease”), (ii) owns assets related to the Property (including, without limitation, leased inventory and equipment, Leases, fixtures and furniture, contracts, permits, trademarks, intangibles, contracts, vouchers and web site materials) (collectively, the “F&B Assets”) and (iii) has certain rights related to the F&B Assets (collectively, the “F&B Rights”; and collectively with the F&B Assets, the “Bar Lessee Property”; and collectively with the Owner Property and the Operating Lessee Property, the “Borrower Property”);

D. Each of Owner, Operating Lessee and Bar Lessee are Affiliates under common ownership and will derive substantial benefits from the Lenders making the Loan to each of them;

-2-

E. Mortgagor, by that certain Amended, Restated and Consolidated Promissory Note, dated the date hereof between Mortgagor and Lenders is indebted to Lenders in the principal sum of up to ONE HUNDRED FIFTEEN MILLION and No/100 Dollars ($115,000,000.00) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Note”), together with interest from the date thereof at the rate set forth in the Note and the Loan Agreement (defined below) with principal and interest to be payable in accordance with the terms and conditions provided in the Note and in the Loan Agreement. Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Loan and Security Agreement, dated as of the date hereof, among Mortgagor, the lenders party thereto from time to time (the “Lenders”) and Deutsche Bank Trust Company Americas, as administrative agent (the “Administrative Agent”) (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Loan Agreement”). Notwithstanding anything to the contrary contained in this Mortgage, the term “Obligations” shall not include any Delayed Draw Term Loans or any Obligations related thereto;

F. Mortgagee has acquired by assignment those certain mortgages listed on Exhibit B attached hereto and made a part hereof (collectively, the “Existing Mortgages”) affecting the Property (defined below) and the notes secured thereby (collectively, the “Existing Notes”), on which Existing Mortgages and Existing Notes there is currently outstanding an aggregate principal amount of ONE HUNDRED FIFTEEN MILLION and No/100 Dollars ($115,000,000.00);

G. The Existing Notes have been modified, amended, consolidated, extended, restated and superseded in their entirety into a single note in the principal amount of ONE HUNDRED FIFTEEN MILLION and No/100 Dollars ($115,000,000.00), which amount represents the aggregate outstanding principal balance on the date hereof under the Existing Notes, all on the terms and provisions provided in the Note;

H. Mortgagee and Mortgagor have agreed to consolidate, coordinate and spread the liens of the Existing Mortgages to create a single, consolidated, first priority lien on the Property securing the Note and to amend, modify and restate in their entirety the terms of the Existing Mortgages in the manner hereinafter set forth;

I. Mortgagor desires to secure the payment of the outstanding principal amount of the Note, together with all interest accrued and unpaid thereon and all other sums (including, without limitation, as additional interest, the Prepayment Premium) due to Mortgagee in respect of the Note (collectively, the “Debt”) and the performance of all of Mortgagor’s obligations under the Note, the Loan Agreement and the other Loan Documents;

J. This Mortgage is given pursuant to the Loan Agreement, and payment, fulfillment, and performance by Mortgagor of the Obligations, including payment of the Debt, are secured hereby, and each and every term and provision of the Loan Agreement and the Note, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties therein, are hereby incorporated by reference herein as though set forth in full and shall be considered a part of this Mortgage;

-3-

K. Mortgagor and Mortgagee intend these Recitals to be a part of this Mortgage.

NOW THEREFORE, in consideration of the making of the Loan by Mortgagee, the covenants, agreements, representations and warranties set forth in this Mortgage and other valuable and good consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed:

I. Single Lien. The liens of the Existing Mortgages are hereby consolidated, coordinated and spread so that together they shall constitute in law but one mortgage, a single first priority lien and interest on the Property in the amount of the Note, securing the Obligations, including payment of the Debt, with the same intent and like effect as if one first mortgage covering the Property had been executed and delivered by Mortgagor to Mortgagee to secure the Existing Notes and the payment and performance of all other Obligations.

II. Modification and Restatement. From and after the date hereof, the terms, covenants and provisions of the Existing Mortgages are hereby modified, amended and restated in their entirety as provided herein, and the Existing Mortgages as modified, amended and restated are hereby ratified and confirmed in all respects by Mortgagor.

III. Spreading of Mortgage. This Mortgage and the lien hereof is hereby spread to cover those portions of the Property not already covered thereby.

IV. Estoppel. This Mortgage is a valid first lien in the amount of the Debt payable as set forth in the Loan Agreement and the Note, and there are no offsets, counterclaims or defenses to this Mortgage or to the Debt secured hereby.

V. Mortgage. The Existing Mortgages as consolidated, amended, modified, coordinated and spread by this Mortgage are hereinafter collectively referred to and described as this “Mortgage” and, except as modified hereby, shall remain in full force and effect and, as modified hereby, are ratified and confirmed in all respects by Mortgagor. In the event of any conflict in the Existing Mortgages as heretofore in effect and this Mortgage, the terms of this Mortgage shall govern and control. This Mortgage is given pursuant to the Loan Agreement, and payment, fulfillment and performance by Mortgagor of all of the Obligations, including payment of the Debt, are secured hereby, and each and every term and provision of the Loan Agreement and the other Loan Documents, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties therein, are hereby incorporated by reference herein as though set forth in full and shall be considered a part of this Mortgage.

VI. Mortgagor Representation. Mortgagor represents and warrants that the indebtedness evidenced by the Existing Notes, as consolidated, constitutes a single indebtedness in the principal amount of ONE HUNDRED FIFTEEN MILLION and No/100 Dollars ($115,000,000.00) evidenced by the Note and that the Existing Mortgages as hereby consolidated, amended, modified, coordinated and spread constitute a single valid first priority lien upon the Property, fully securing the Note and other Obligations, including payment of the Debt. Mortgagor further represents and warrants that there are no offsets, counterclaims or defenses against the Debt, this Mortgage (including, without limitation, the Existing Mortgages), or the Note (including, without limitation, the Existing Notes).

-4-

VII. No Novation. Neither this Mortgage nor anything contained herein shall be construed as a substitution or novation of the indebtedness evidenced by the existing notes, or of the existing mortgages, which shall remain in full force and effect, as hereby confirmed, modified, consolidated, restated and superseded.

NOW, THEREFORE, in consideration of the making of the Loan by Mortgagee and the covenants, agreements, representations and warranties set forth in this Mortgage, it is agreed:

ARTICLE I

Grants of Security

Section 1.01 Property Mortgaged. Mortgagor does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Mortgagee and its successors and assigns, WITH POWER OF SALE, all right, title, interest and estate of Mortgagor now owned, or hereafter acquired, in and to the following (collectively, the “Property”):

(a) Land. The Borrower Property, including but not limited to, the Owned Condominium Units and the Leasehold Units (collectively, the “Condominium Units”), together with appurtenant undivided percentage interests in and to the Common Elements as defined in the Condominium Declaration), and all other rights, titles and hereditaments attributable to the Condominium Units, all as more particularly described on Exhibit A attached hereto and incorporated herein by this reference (collectively, the “Land”);

(b) Additional Land. All additional lands, estates and development rights hereafter acquired by Mortgagor for use in connection with the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Mortgage, and all rights of Mortgagor as a declarant or unit owner under the Condominium Declaration or association applicable to all or any portion of the Land;

(c) Improvements. The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land, including, without limitation, any such structures, buildings and improvements constituting the Condominium Units (collectively, the “Improvements”);

(d) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Mortgagor of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto;

-5-

(e) Equipment. All “equipment,” as such term is defined in Article 9 of the Uniform Commercial Code (as hereinafter defined), now owned or hereafter acquired by Mortgagor, which is used at or in connection with the Improvements or the Land or is located thereon or therein (including, but not limited to, all machinery, equipment, furnishings, and electronic data-processing and other office equipment now owned or hereafter acquired by Mortgagor and any and all additions, substitutions and replacements of any of the foregoing), together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto (collectively, the “Equipment”). Notwithstanding the foregoing, Equipment shall not include any property belonging to Tenants under Leases except to the extent that Mortgagor shall have any right or interest therein;

(f) Fixtures. All Equipment now owned, or the ownership of which is hereafter acquired, by Mortgagor which is so related to the Land and Improvements forming part of the Property that it is deemed fixtures or real property under the law of the particular state in which the Equipment is located, including, without limitation, all building or construction materials intended for construction, reconstruction, alteration or repair of or installation on the Property, construction equipment, appliances, machinery, plant equipment, fittings, apparatuses, fixtures and other items now or hereafter attached to, installed in or used in connection with (temporarily or permanently) any of the Improvements or the Land, including, but not limited to, engines, devices for the operation of pumps, pipes, plumbing, cleaning, call and sprinkler systems, fire extinguishing apparatuses and equipment, heating, ventilating, plumbing, laundry, incinerating, electrical, air conditioning and air cooling equipment and systems, gas and electric machinery, appurtenances and equipment, pollution control equipment, security systems, disposals, dishwashers, refrigerators and ranges, recreational equipment and facilities of all kinds, and water, gas, electrical, storm and sanitary sewer facilities, utility lines and equipment (whether owned individually or jointly with others, and, if owned jointly, to the extent of Mortgagor’s interest therein) and all other utilities whether or not situated in easements, all water tanks, water supply, water power sites, fuel stations, fuel tanks, fuel supply, and all other structures, together with all accessions, appurtenances, additions, replacements, betterments and substitutions for any of the foregoing and the proceeds thereof (collectively, the “Fixtures”). Notwithstanding the foregoing, “Fixtures” shall not include any property which Tenants are entitled to remove pursuant to Leases except to the extent that Mortgagor shall have any right or interest therein;

(g) Personal Property. All furniture, furnishings, objects of art, machinery, goods, tools, supplies, appliances, general intangibles, contract rights, accounts, accounts receivable, franchises, licenses, certificates and permits, and all other personal property of any kind or character whatsoever (as defined in and subject to the provisions of the Uniform Commercial Code), other than Fixtures, which are now or hereafter owned by Mortgagor and which are located within or about the Land and the Improvements, together with all accessories, replacements and substitutions thereto or therefor and the proceeds thereof (collectively, the “Personal Property”), and the right, title and interest of Mortgagor in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the State of New York (as amended from time to time, the “Uniform Commercial Code”), superior in lien to the lien of this Mortgage, and all proceeds and products of any of the above;

-6-

(h) Leases and Rents. The Operating Lease, the Bar Lease and all other leases, subleases or subsubleases, lettings, licenses, concessions or other agreements (whether written or oral) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of the Land and the Improvements, and every modification, amendment or other agreement relating to such leases, subleases, subsubleases, or other agreements entered into in connection with such leases, subleases, subsubleases, or other agreements and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, heretofore or hereafter entered into, whether before or after the filing by or against Mortgagor of any petition for relief under 11 U.S.C. §101 et seq., as the same may be amended from time to time (the “Bankruptcy Code”) (collectively, the “Leases”), and all right, title and interest of Mortgagor, its successors and assigns, therein and thereunder, including, without limitation, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements, whether paid or accruing before or after the filing by or against Mortgagor of any petition for relief under the Bankruptcy Code (collectively, the “Rents”), and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment and performance of the Obligations, including the payment of the Debt;

(i) Hotel Revenue. All revenues, income, rents, issues, profits, termination or surrender fees, penalties and other amounts arising from the use or enjoyment of all or any portion of the Property, including, without limitation, the rental or surrender of any office space, retail space, parking space, halls, stores, and offices of every kind, the rental or licensing of signs, sign space or advertising space, all membership fees and dues, and all rentals, revenues, receipts, income, accounts, accounts receivable, cancellation fees, penalties, credit card receipts and other receivables relating to or arising from rentals, rent equivalent income, income and profits from guest rooms, meeting rooms, conference and banquet rooms, food and beverage facilities, health clubs, spas, vending machines, parking facilities, telephone and television systems, guest laundry, the provision or sale of other goods and services, and any other items of revenue, receipts, membership fees and dues and other income (collectively, “Hotel Revenue”);

(j) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such right), or for a change of grade, or for any other injury to or decrease in the value of the Property;

-7-

(k) Insurance Proceeds. All proceeds in respect of the Property under any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments or settlements made in lieu thereof, for damage to the Property;

(l) Tax Certiorari. All refunds, rebates or credits in connection with any reduction in Taxes or Other Charges charged against the Property as a result of tax certiorari proceedings or any other applications or proceedings for reduction;

(m) Rights. The right, in the name and on behalf of Mortgagor, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Mortgagee in the Property;

(n) Agreements. All (i) agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof and all right, title and interest of Mortgagor therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Mortgagor thereunder and further including, without limitation, that certain Supplemental Management Agreement dated as of August 28, 2000 between Operating Lessee and Hudson Managing Member LLC (together with all amendments, modifications, supplements, assignments or restatements); (ii) Licenses (including, to the extent permitted by law, any licenses held by any Borrower or any of their affiliates permitting the sale of liquor at any of the Property the transfer and/or assignment of which is permitted by law without filing or other qualification), warranties, guaranties, building permits and government approvals relating to or required for the construction, completion, occupancy and operation of the Property; (iii) plans and specifications for the construction of the Improvements, including, without limitation, installations of curbs, sidewalks, gutters, landscaping, utility connections and all fixtures and equipment necessary for the construction, operation and occupancy of the Improvements; and (iv) such other contracts and agreements (other than the Leases) from time to time executed by a Borrower relating to the ownership, leasing, construction, maintenance, operation, occupancy or sale of the Property, together with all rights of Borrower to compel performance of the terms of such contracts and agreements;

(o) Intellectual Property. All tradenames, trademarks, servicemarks, logos, copyrights, goodwill, URLs or other online media, books and records and all other general intangibles relating to or used in connection with the operation of the Property;

-8-

(p) Accounts. All (i) accounts receivable (including, without limitation, any account, fees, charges or other payments arising from the use and occupancy of hotel rooms and/or other hotel or public facilities at the Property), (ii) credit card receivables, and (iii) reserves, escrows and deposit accounts maintained by Mortgagor with respect to the Property, including, without limitation, all accounts established or maintained pursuant to the Loan Agreement, the Clearing Account Agreement or any other Loan Document, together with all deposits or wire transfers made to such accounts, and all cash, checks, drafts, certificates, securities, investment property, financial assets, instruments and other property held therein from time to time, and all proceeds, products, distributions, dividends and/or substitutions thereon and thereof;

(q) Uniform Commercial Code Property. All documents, instruments, chattel paper and general intangibles, as the foregoing terms are defined in the Uniform Commercial Code, and general intangibles relating to the Property and all credit card receivables and escrows, in any case which now or hereafter relate to, are derived from, or are used in connection with the Property;

(r) Minerals. All minerals, crops, timber, trees, shrubs, flowers and landscaping features now or hereafter located on, under or above Land;

(s) Interest Rate Cap Agreement. The Interest Rate Cap Agreement and all income and proceeds thereof;

(t) Rights Appurtenant to Ground Lease. Owner’s right, title and interest in all appurtenances in respect of or otherwise relating to the Ground Lease, including, but not limited to, renewal options and expansion rights, and all the estate and rights of Owner of, in and to (i) all modifications, extensions and renewals of the Ground Lease and all rights to renew or extend the term of the Ground Lease, (ii) all credits to and deposits of Owner under the Ground Lease, (iii) all other options, privileges and rights granted and demised to Owner under the Ground Lease, (iv) all the right or privilege of Owner to terminate, cancel, abridge, surrender, merge, modify or amend the Ground Lease and (v) any and all possessory rights of Owner and other rights and/or privileges of possession, including, without limitation, Owner’s right to elect to remain in possession of the Land and Improvements and the leasehold estate created by the Ground Lease pursuant to Section 365(h)(1) of the Bankruptcy Code;

(u) Rights on Rejection of Ground Lease. All of Owner’s claims and rights to damages and any other remedies in connection with or arising from the rejection of the Ground Lease by Ground Lessor or any trustee, custodian or receiver pursuant to the Bankruptcy Code in the event that there shall be filed by or against Ground Lessor any petition, action or proceeding under the Bankruptcy Code or under any other similar federal or state law now or hereafter in effect;

(v) without limiting the generality of the provisions of any other Granting Clause, all of Borrower’s rights, title, interest, privileges and franchises in and to the following, now owned or hereafter acquired by Borrower to the extent assignable (collectively, “Operating Assets”):

(1) bookings for the use of guest rooms, banquet facilities, meeting rooms at the Land and/or the Improvements;

-9-

(2) all contracts respecting utility services for, and the maintenance, operations, or equipping of, the Property, including guaranties and warranties relating thereto;

(3) the Management Agreement (as such term is defined in the Loan Agreement);

(4) all contract rights, leases and sub-leases (whether with respect to real property, personal property or both real and personal property), concessions, trademarks, trade names, service marks, logos, copyrights, warranties and other items of intangible personal property, and any and all good will associated with the same relating to the ownership or operation of the Land and/or the Improvements, including, without limitation, (i) telephone and other communication numbers, (ii) all software licensing agreements as are required to operate computer software systems at the Land and/or the Improvements and books and records relating to the software programs, and (iii) lessee’s interest under leases of Tangible Personal Property (as hereinafter defined);

(5) all contracts, purchase orders, requisitions and agreements entered into by or on behalf of Borrower or which have been assigned to Borrower, for the design, construction, and furnishing of the Land and/or the Improvements, including, without limitation, architect’s agreements, engineering agreements, construction contracts, consulting agreements and agreements or purchase orders for all items of Tangible Personal Property and any payment or performance bonds in favor of Borrower (and all warranties and guarantees thereunder and warranties and guarantees of any subcontractor and bonds issued in connection with the work to be performed by any subcontractor);

(6) the following personal property (the “Tangible Personal Property”) now or hereafter acquired by Borrower (directly or by way of lease) which is located on, or to be located on, or which is in use or held in reserve storage for future use in connection with the operation of the Land and/or the Improvements, which are on hand or on order whether stored on-site or off-site:

(a) all furniture, furnishings, equipment, machinery, apparatus, appliances, fixtures and fittings and other articles of tangible personal property;

(b) all china, glassware, linens, kitchen utensils, silverware and uniforms;

(c) all consumables and operating supplies of every kind and nature, including, without limitation, accounting supplies, guest supplies, forms, printed materials, brochures, stationery, food and beverage stock, bar supplies, laundry supplies and purchase orders;

-10-

(d) all upholstery material, carpets and rugs, beds, bureaus, chiffonniers, chairs, chests, desks, bookcases, tables, curtains, hangings, pictures, divans, couches, ornaments, bars, bar fixtures, safes, stoves, ranges, refrigerators, radios, televisions, clocks, electrical equipment, lamps, mirrors, heating and lighting fixtures and equipment, ice machines, air conditioning machines, fire prevention and extinguishing apparatus, laundry machines, and all similar and related articles used in bedrooms, sitting rooms, bathrooms, boudoirs, halls, closets, kitchens, dining rooms, offices, lobbies, basements and cellars in the Land and/or the Improvements; and

(e) all cars, limousines, vans, buses, trucks and other vehicles owned or leased by Borrower for use in connection with the operation of the Land and/or the Improvements, together with all equipment, parts and supplies used to service, repair, maintain and equip the foregoing;

(7) all drawings, designs, plans and specifications prepared by architects, engineers, interior designers, landscape designers and any other professionals or consultants for the design, development, construction and/or improvement of the Land and/or the Improvements or for any other development of the Land, as amended from time to time;

(8) any administrative and judicial proceedings initiated by Borrower, or in which Borrower has intervened, concerning the Land and/or the Improvements and agreements, if any, which are the subject matter of such proceedings;

(9) any customer lists utilized by Borrower, including lists of transient guests, restaurant and bar patrons;

(10) the Management Agreement; and

(11) all of the good will in connection with the assets listed in this Granting Clause (w) and in connection with the operation of the Land and/or the Improvements;

provided that, except as otherwise set forth herein and in the other Loan Documents, the assignment made by this Granting Clause (v) shall not impair or diminish any right, privilege or obligation of Borrower with respect to the Operating Assets, nor shall any such obligation be imposed on Lender;

(w) Proceeds. All proceeds of any of the foregoing, including, without limitation, proceeds of insurance and condemnation awards, whether in cash or in liquidation or other claims, or otherwise; and

(x) Other Rights. Any and all other rights of Mortgagor in and to the items set forth in Subsections (a) through (w) above.

-11-

AND, without limiting any of the other provisions of this Mortgage, to the extent permitted by applicable law, Mortgagor expressly grants to Mortgagee, as secured party, a security interest in the portion of the Property which is or may be subject to the provisions of the Uniform Commercial Code which are applicable to secured transactions; it being understood and agreed that the Improvements and Fixtures are part and parcel of the Land (the Land, the Improvements and the Fixtures collectively referred to as the “Real Property”) appropriated to the use thereof and, whether affixed or annexed to the Land or not, shall for the purposes of this Mortgage be deemed conclusively to be real estate and mortgaged hereby.

Notwithstanding the foregoing or anything else herein to the contrary, Mortgagor is not granting to Mortgagee a lien on or security interest in (i) any permit, lease, license, contract, instrument or other agreement held by Mortgagor that prohibits or requires the consent of any Person other than Mortgagor or any Affiliate as a condition to the creation by Mortgagor of a Lien thereon, or any permit, lease, license contract or other agreement held by Mortgagor to the extent that any Legal Requirement prohibits the creation of a Lien thereon, but only, in each case, to the extent, and for so long as, such prohibition or consent requirement is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other Legal Requirement, (ii) any “intent to use” trademark applications for which a statement of use has not been filed (but only until such statement is filed) and (iii) equipment owned by Mortgagor that is subject to a purchase money Lien or a capital lease to the extent permitted under the Loan Agreement if the contract or other agreement in which such Lien is granted (or in the documentation providing such capital lease) prohibits or requires the consent of any Person other than Mortgagor or any Affiliate as a condition to the creation of any other Lien on such equipment (the foregoing (i), (ii) and (iii) “Excluded Property”); provided, however, in each case, the Excluded Property shall not include any proceeds (as defined in the UCC), substitutions or replacements of the Excluded Property (unless such proceeds, substitutions or replacements would otherwise constitute Excluded Property).

Section 1.02 Assignment of Rents. Mortgagor hereby absolutely and unconditionally assigns to Mortgagee all of Mortgagor’s right, title and interest in and to all current and future Leases, Rents and Hotel Revenue; it being intended by Mortgagor that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of the Assignment of Leases, the Loan Agreement, and Section 7.01(i) of this Mortgage, Mortgagee grants to Mortgagor a revocable license to collect, receive, use and enjoy the Rents and Hotel Revenue. Mortgagor shall hold the Rents and Hotel Revenue, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums.

Section 1.03 Security Agreement. This Mortgage is both a real property mortgage and a “security agreement” within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Mortgagor in the Property. By executing and delivering this Mortgage, Mortgagor hereby grants to Mortgagee, as security for the Obligations, a security interest in the Fixtures, the Equipment, the Personal Property and the other property constituting the Property to the full extent that the Fixtures, the Equipment, the Personal Property and such other property may be subject to the Uniform Commercial Code (said portion of the Property so subject to the Uniform Commercial Code being called the “Collateral”). If an Event of Default shall occur and be continuing, Mortgagee, in addition to any other rights and

-12-

remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Mortgagee may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Mortgagee after the occurrence and during the continuance of an Event of Default, Mortgagor shall, at its expense, assemble the Collateral and make it available to Mortgagee at a convenient place (at the Land if tangible property) reasonably acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses, including reasonable attorneys’ fees and costs, incurred or paid by Mortgagee in protecting its interest in the Collateral and in enforcing its rights hereunder with respect to the Collateral after the occurrence and during the continuance of an Event of Default. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Collateral sent to Mortgagor in accordance with the provisions hereof at least ten (10) Business Days prior to such action, shall, except as otherwise provided by applicable law, constitute reasonable notice to Mortgagor. The proceeds of any disposition of the Collateral, or any part thereof, may, except as otherwise required by applicable law, be applied by Mortgagee to the payment of the Debt in such priority and proportions as Mortgagee in its discretion shall deem proper. The principal place of business of Mortgagor (Debtor) is as set forth on page one hereof and the address of Mortgagee (Secured Party) is as set forth on page one hereof.

Section 1.04 Fixture Filing. Certain of the Property is or will become “fixtures” (as that term is defined in the Uniform Commercial Code) on the Land, described or referred to in this Mortgage, and this Mortgage, upon being filed for record in the real estate records of the city or county wherein such fixtures are situated, shall operate also as a financing statement naming Mortgagor as the Debtor and Mortgagee as the Secured Party filed as a fixture filing in accordance with the applicable provisions of said Uniform Commercial Code upon such of the Property that is or may become fixtures.

CONDITIONS TO GRANT

TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Mortgagee and its successors and assigns, forever;

PROVIDED, HOWEVER, these presents are upon the express condition that, if Mortgagor shall well and truly pay and perform the Obligations (including the payment of the Debt) at the time and in the manner provided in this Mortgage, the Note, the Loan Agreement and the other Loan Documents, and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, the Loan Agreement and the other Loan Documents, these presents and the estate hereby granted shall cease, terminate and be void; provided, however, that Mortgagor’s obligation to indemnify and hold harmless Mortgagee pursuant to the provisions hereof shall survive any such payment or release.

-13-

ARTICLE II

Debt and Obligations Secured

Section 2.01 Obligations. This Mortgage and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the Obligations, including, but not limited to, payment of the Debt.

Section 2.02 Variable Interest Rate. The Loan secured by this Mortgage is a variable interest rate loan, as more particularly set forth in the Loan Agreement.

Section 2.03 Loan Payment. Provided no Event of Default exists, this Mortgage will be satisfied and discharged of record by Mortgagee prior to the Maturity Date only in accordance with the terms and provisions set forth in the Loan Agreement.

ARTICLE III

Mortgagor Covenants

Mortgagor covenants and agrees that throughout the term of the Loan:

Section 3.01 Payment of Debt. Mortgagor will pay the Debt at the time and in the manner provided in the Loan Agreement, the Note and this Mortgage.

Section 3.02 Incorporation by Reference. All the covenants, conditions and agreements contained in (a) the Loan Agreement, (b) the Note, and (c) all and any of the other Loan Documents, are hereby made a part of this Mortgage to the same extent and with the same force as if fully set forth herein. Without limiting the generality of the foregoing, Mortgagor (i) agrees to insure, repair, maintain and restore damage to the Property, pay Taxes and Other Charges, and comply with Legal Requirements, in accordance with the Loan Agreement, and (ii) agrees that the insurance Proceeds and condemnation awards shall be settled, held, applied and/or disbursed in accordance with the Loan Agreement.

Section 3.03 Performance of Other Agreements. Mortgagor shall observe and perform each and every term, covenant and provision to be observed or performed by Mortgagor pursuant to the Loan Agreement, any other Loan Document and any other agreement or recorded instrument affecting or pertaining to the Property, and any amendments, modifications or changes thereto.

-14-

ARTICLE IV

Obligations and Reliances

Section 4.01 Relationship of Mortgagor and Mortgagee. The relationship between Mortgagor and Mortgagee is solely that of debtor and creditor, and Mortgagee has no fiduciary or other special relationship with Mortgagor, and no term or condition of any of the Loan Agreement, the Note, this Mortgage or the other Loan Documents shall be construed so as to deem the relationship between Mortgagor and Mortgagee to be other than that of debtor and creditor.

Section 4.02 No Reliance on Mortgagee. The general partners, members, principals and (if Mortgagor is a trust) beneficial owners of Mortgagor, as applicable, are experienced in the ownership and operation of properties similar to the Property, and Mortgagor and Mortgagee are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Mortgagor is not relying on Mortgagee’s expertise, business acumen or advice in connection with the Property.

Section 4.03 No Mortgagee Obligations. (a) Notwithstanding the provisions of Subsections 1.01(h) and (m) or Section 1.02, Mortgagee is not undertaking the performance of (i) any obligations under the Leases, or (ii) any obligations with respect to any other agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses or other documents.

(b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Mortgagee pursuant to this Mortgage, the Loan Agreement, the Note or the other Loan Documents, including, without limitation, any officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, Mortgagee shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Mortgagee.

Section 4.04 Reliance. Mortgagor recognizes and acknowledges that in accepting the Loan Agreement, the Note, this Mortgage and the other Loan Documents, Mortgagee and the Lenders are expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article 4 of the Loan Agreement without any obligation to investigate the Property or any other matter and notwithstanding any investigation of the Property by Mortgagee; that such reliance existed on the part of Mortgagee prior to the date hereof; that the warranties and representations are a material inducement to the Lenders in making the Loan; and that the Lenders would not be willing to make the Loan and accept this Mortgage in the absence of the warranties and representations as set forth in Article 4 of the Loan Agreement.

-15-

ARTICLE V

Further Assurances

Section 5.01 Recording of Mortgage, Etc. Mortgagor forthwith upon the execution and delivery of this Mortgage and thereafter, from time to time, will cause this Mortgage and any of the other Loan Documents creating a Lien or security interest or evidencing the Lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the Lien or security interest hereof upon, and the interest of Mortgagee in, the Property. Mortgagor will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Mortgage, the other Loan Documents, any note, deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of any of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Mortgage, any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of any of the foregoing documents, except where prohibited by law so to do.

Section 5.02 Further Acts, Etc. Mortgagor will, at the cost of Mortgagor, and without expense to Mortgagee, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances as Mortgagee shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Mortgagee the property and rights hereby mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage or for filing, registering or recording this Mortgage, or for complying with all Legal Requirements. Mortgagor, on demand, will execute and deliver, and in the event it shall fail to so execute and deliver, hereby authorizes Mortgagee to execute in the name of Mortgagor or without the signature of Mortgagor to the extent Mortgagee may lawfully do so, one or more financing statements to evidence more effectively the security interest of Mortgagee in the Property. Mortgagor grants to Mortgagee an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Mortgagee at law and in equity, including, without limitation, such rights and remedies available to Mortgagee pursuant to this Section 5.02.

-16-

Section 5.03 Changes in Tax, Debt, Credit and Documentary Stamp Laws. (a) If any law is enacted or adopted or amended after the date of this Mortgage which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Mortgagee’s interest in the Property, Mortgagor will pay the tax, with interest and penalties thereon, if any. If Mortgagee is advised by counsel chosen by it that the payment of tax by Mortgagor would be unlawful or taxable to Mortgagee or unenforceable or provide the basis for a defense of usury, then Mortgagee shall have the option by written notice of not less than one hundred twenty (120) days to declare the Debt immediately due and payable.

(b) Mortgagor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Mortgage or the Debt. If such claim, credit or deduction shall be required by law, Mortgagee shall have the option, by written notice of not less than one hundred twenty (120) days, to declare the Debt immediately due and payable.

(c) If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Mortgage, or any of the other Loan Documents or shall impose any other tax or charge on the same, Mortgagor will pay for the same, with interest and penalties thereon, if any.

ARTICLE VI

Due On Sale/Encumbrance

Section 6.01 Mortgagee Reliance. Mortgagor acknowledges that Mortgagee and the Lenders have examined and relied on the experience of Mortgagor and its general partners, members, principals and (if Mortgagor is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely on Mortgagor’s ownership of the Property as a means of maintaining the value of the Property as security for the payment and performance of the Obligations, including the payment of the Debt. Mortgagor acknowledges that Mortgagee and the Lenders have a valid interest in maintaining the value of the Property so as to ensure that, should an Event of Default with respect to the payment and/or performance of the Obligations, including the payment of the Debt, Mortgagee and the Lenders can recover the Debt by a sale of the Property in accordance with Section 7.01 hereof.

Section 6.02 No Transfer. Mortgagor shall not permit or suffer any Transfer to occur except in accordance with the terms of the Loan Agreement.

-17-

ARTICLE VII

Rights and Remedies Upon Default

Section 7.01 Remedies. Upon the occurrence and during the continuance of any Event of Default, Mortgagor agrees that Mortgagee may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Mortgagor and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Mortgagee may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Mortgagee:

(a) declare the entire unpaid Debt to be immediately due and payable;

(b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Mortgage under any applicable provision of law, in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner;

(c) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Mortgage for the portion of the Debt then due and payable, subject to the continuing lien and security interest of this Mortgage for the balance of the Obligations not then due, unimpaired and without loss of priority;

(d) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of Mortgagor therein and rights of redemption thereof, pursuant to power of sale or otherwise, at one or more sales, as an entirety or in parcels, at such time and place, upon such terms and after such notice thereof, all as may be required or permitted by law; and, without limiting the foregoing;

(e) (i) In connection with any sale or sales hereunder, Mortgagee shall be entitled to elect to treat any of the Property which consists of (x) a right in action, or (y) property that can be severed from the Real Property covered hereby, or (z) any improvements (without causing structural damage thereto), as if the same were personal property, and dispose of the same in accordance with applicable law, separate and apart from the sale of the Real Property. Where the Property consists of Real Property, Personal Property, Equipment or Fixtures, whether or not such Personal Property or Equipment is located on or within the Real Property, Mortgagee shall be entitled to elect to exercise its rights and remedies against any or all of the Real Property, Personal Property, Equipment and Fixtures in such order and manner as is now or hereafter permitted by applicable law;

(ii) Mortgagee shall be entitled to elect to proceed against any or all of the Real Property, Personal Property, Equipment and Fixtures in any manner permitted under applicable law; and if Mortgagee so elects pursuant to applicable law, the power of sale herein granted shall be exercisable with respect to all or any of the Real Property, Personal Property, Equipment and Fixtures covered hereby, as designated by Mortgagee and Mortgagee is hereby authorized and empowered to conduct any such sale of any Real Property, Personal Property, Equipment and Fixtures in accordance with the procedures applicable to Real Property;

-18-

(iii) Should Mortgagee elect to sell any portion of the Property which is Real Property or which is Personal Property, Equipment or Fixtures that the Mortgagee has elected under applicable law to sell together with Real Property in accordance with the laws governing a sale of the Real Property, Mortgagee shall give such notice of the occurrence of an Event of Default, if any, and its election to sell such Property, each as may then be required by law. Thereafter, upon the expiration of such time and the giving of such notice of sale as may then be required by law, subject to the terms hereof and of the other Loan Documents, and without the necessity of any demand on Mortgagor, Mortgagee at the time and place specified in the notice of sale, shall sell such Real Property or part thereof at public auction to the highest bidder for cash or upon credit in lawful money of the United States. Mortgagee may from time to time postpone any sale hereunder by public announcement thereof at the time and place noticed for any such sale; and

(iv) If the Property consists of several lots, parcels or items of property, Mortgagee shall, subject to applicable law, (A) designate the order in which such lots, parcels or items shall be offered for sale or sold, or (B) elect to sell such lots, parcels or items through a single sale, or through two or more successive sales, or in any other manner Mortgagee designates. Any Person, including Mortgagor or Mortgagee, may purchase at any sale hereunder. Should Mortgagee desire that more than one sale or other disposition of the Property be conducted, Mortgagee shall, subject to applicable law, cause such sales or dispositions to be conducted simultaneously, or successively, on the same day, or at such different days or times and in such order as Mortgagee may designate, and no such sale shall terminate or otherwise affect the Lien of this Mortgage on any part of the Property not sold until all the Obligations have been satisfied in full. In the event Mortgagee elects to dispose of the Property through more than one sale, except as otherwise provided by applicable law, Mortgagor agrees to pay the costs and expenses of each such sale and of any judicial proceedings wherein such sale may be made;

(f) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note, in the Loan Agreement or in the other Loan Documents;

(g) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Mortgage or the other Loan Documents;

(h) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of Mortgagor, any guarantor or indemnitor with respect to the Loan or any Person otherwise liable for the payment of the Debt or any part thereof;

-19-

(i) the license granted to Mortgagor under Section 1.02 hereof shall automatically be revoked and Mortgagee may enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess Mortgagor and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Mortgagor and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Mortgagor agrees to surrender possession of the Property and of such books, records and accounts to Mortgagee upon demand, and thereupon Mortgagee may (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (ii) complete any construction on the Property in such manner and form as Mortgagee deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Property; (iv) exercise all rights and powers of Mortgagor with respect to the Property, whether in the name of Mortgagor or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants and demand, sue for, collect and receive all Rents and Hotel Revenue of the Property and every part thereof; and (v) apply the receipts from the Property to the payment and performance of the Obligations (including, without limitation, the payment of the Debt), in such order, priority and proportions as Mortgagee shall deem appropriate in its sole discretion after deducting therefrom all expenses (including reasonable attorneys’ fees and costs) incurred in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Other Charges, Insurance Premiums and other expenses in connection with the Property, as well as just and reasonable compensation for the services of Mortgagee, its counsel, agents and employees;

(j) exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Fixtures, the Equipment and/or the Personal Property, or any part thereof, and to take such other measures as Mortgagee may deem necessary for the care, protection and preservation of the Fixtures, the Equipment and the Personal Property, and (ii) request Mortgagor, at its sole cost and expense, to assemble the Fixtures, the Equipment and/or the Personal Property and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Fixtures, the Equipment and/or the Personal Property sent to Mortgagor in accordance with the provisions hereof at least ten (10) days prior to such action, shall constitute commercially reasonable notice to Mortgagor;

(k) apply any sums then deposited or held in escrow or otherwise by or on behalf of Mortgagee in accordance with the terms of the Loan Agreement, this Mortgage or any other Loan Document to the payment of the following items in any order in its sole discretion:

(i) Taxes and Other Charges;

-20-

(ii) Insurance premiums;

(iii) Interest on the unpaid principal balance of the Note;

(iv) Amortization of the unpaid principal balance of the Note; and/or

(v) All other sums payable pursuant to the Note, the Loan Agreement, this Mortgage and the other Loan Documents, including, without limitation, the Prepayment Premium, if applicable, and advances made by Mortgagee pursuant to the terms of this Mortgage; and/or

(l) pursue such other remedies as may be available at law or in equity.

In the event of a sale, by foreclosure, power of sale or otherwise, of less than all of Property, this Mortgage shall continue as a Lien and security interest on the remaining portion of the Property unimpaired and without loss of priority.

Section 7.02 Application of Proceeds. The purchase money proceeds and avails of any disposition of the Property or any part thereof, or any other sums collected by Mortgagee pursuant to the Note, this Mortgage or the other Loan Documents, may be applied by Mortgagee to the payment of the Obligations in such priority and proportions as Mortgagee in its discretion shall deem proper, to the extent consistent with law. Any excess proceeds after payment in full of the Obligations shall be delivered to Mortgagee.

Section 7.03 Right to Cure Defaults. During the continuance of any Event of Default, Mortgagee may, but without any obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any obligation hereunder, perform the obligations in Default in such manner and to such extent as Mortgagee may deem necessary to protect the security hereof. Mortgagee is authorized to enter upon the Property for such purposes or appear in, defend or bring any action or proceeding to protect its interest in the Property or to foreclose this Mortgage or collect the Debt, and the cost and expense thereof (including reasonable attorneys’ fees and disbursements to the extent permitted by law), with interest thereon at the Default Rate for the period after notice from Mortgagee that such cost or expense was incurred to the date of payment to Mortgagee, shall constitute a portion of the Debt, shall be secured by this Mortgage and the other Loan Documents and shall be due and payable to Mortgagee upon demand.

Section 7.04 Other Rights, Etc. (a) The failure of Mortgagee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Mortgage. Mortgagor shall not be relieved of Mortgagor’s obligations hereunder by reason of (i) the failure of Mortgagee to comply with any request of Mortgagor or any guarantor or indemnitor with respect to the Loan to take any action to foreclose this Mortgage or otherwise enforce any of the provisions hereof or of the Note or the other Loan Documents, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any Person liable for the Obligations or any portion thereof, or (iii) any agreement or stipulation by Mortgagee extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Mortgage or the other Loan Documents, except to the extent of such agreement or stipulation.

-21-

(b) It is agreed that the risk of loss or damage to the Property is on Mortgagor, and Mortgagee shall have no liability whatsoever for any decline in value of the Property, for failure to maintain insurance policies, or for failure to determine whether insurance in force is adequate as to the amount of risks insured. Possession by Mortgagee shall not be deemed an election of judicial relief, if any such possession is requested or obtained, with respect to any Property or collateral not in Mortgagee’s possession.

(c) Mortgagee may resort for the payment and performance of the Obligations (including, but not limited to, the payment of the Debt) to any other security held by Mortgagee in such order and manner as Mortgagee, in its discretion, may elect. Mortgagee may take action to recover the Debt, or any portion thereof, or to enforce the other Obligations or any covenant hereof, without prejudice to the right of Mortgagee thereafter to foreclose this Mortgage. The rights of Mortgagee under this Mortgage shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Mortgagee shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity.

Section 7.05 Right to Release Any Portion of the Property. Mortgagee may release any portion of the Property for such consideration as Mortgagee may require without, as to the remainder of the Property, in any way impairing or affecting the Lien or priority of this Mortgage, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the Obligations shall have been reduced by the actual monetary consideration, if any, received by Mortgagee for such release, and Mortgagee may accept by assignment, pledge or otherwise any other property in place thereof as Mortgagee may require without being accountable for so doing to any other lienholder. This Mortgage shall continue as a Lien and security interest in the remaining portion of the Property.

Section 7.06 Violation of Laws. If the Property is not in full compliance with all Legal Requirements, Mortgagee may impose additional requirements upon Mortgagor in connection herewith, including, without limitation, monetary reserves or financial equivalents.

Section 7.07 Right of Entry. Upon reasonable notice (which may be given verbally) to Mortgagor, Mortgagee and its agents shall have the right to enter and inspect the Property at all reasonable times.

-22-

ARTICLE VIII

Indemnification

Section 8.01 Mortgage and/or Intangible Tax. Mortgagor shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Liabilities imposed upon or incurred by or asserted against any Indemnified Party and directly or indirectly arising out of or in any way relating to any mortgage, recording, stamp, intangible or other similar taxes required to be paid by any Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of this Mortgage or any of the Loan Documents (but excluding any income, franchise or other similar taxes).

Section 8.02 Duty to Defend; Attorneys’ Fees and Other Fees and Expenses. Upon written request by any Indemnified Party, Mortgagor shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by engaging attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, if the defendants in any such claim or proceeding include both Mortgagor and any Indemnified Party and Mortgagor and such Indemnified Party shall have reasonably concluded that there are any legal defenses available to it and/or other Indemnified Parties that are different from or in addition to those available to Mortgagor, such Indemnified Party shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Party. Upon demand, Mortgagor shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of the reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith.

ARTICLE IX

Waivers

Section 9.01 Waiver of Counterclaim. To the extent permitted by applicable law, Mortgagor hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Mortgagee arising out of or in any way connected with this Mortgage, the Loan Agreement, the Note, any of the other Loan Documents or the Obligations.

Section 9.02 Marshalling and Other Matters. To the extent permitted by applicable law, Mortgagor hereby waives the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, to the extent permitted by applicable law, Mortgagor hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and on behalf of each and every Person acquiring any interest in or title to the Property subsequent to the date of this Mortgage.

-23-

Section 9.03 Waiver of Notice. To the extent permitted by applicable law, Mortgagor shall not be entitled to any notices of any nature whatsoever from Mortgagee, except with respect to matters for which this Mortgage or the Loan Documents specifically and expressly provide for the giving of notice by Mortgagee to Mortgagor, and except with respect to matters for which Mortgagee is required by applicable law to give notice, and Mortgagor hereby expressly waives the right to receive any notice from Mortgagee with respect to any matter for which this Mortgage does not specifically and expressly provide for the giving of notice by Mortgagee to Mortgagor.

Section 9.04 Waiver of Statute of Limitations. To the extent permitted by applicable law, Mortgagor hereby expressly waives and releases its right to plead any statute of limitations as a defense to the payment and performance of the Obligations (including, without limitation, the payment of the Debt).

Section 9.05 Waiver of Jury Trial. MORTGAGOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND FOREVER WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST, WITH REGARD TO THE NOTE, THIS MORTGAGE, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS, 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 MORTGAGOR AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY MORTGAGOR.

Section 9.06 Survival. The indemnifications made pursuant to Article 8 herein and the representations and warranties, covenants, and other obligations arising under the Environmental Indemnity, shall continue in full force and effect and shall survive and shall in no way be impaired by (a) any satisfaction, release or other termination of this Mortgage or any other Loan Document, (b) any assignment or other transfer of all or any portion of this Mortgage or any other Loan Document or Mortgagee’s interest in the Property (but, in such case, such indemnifications shall benefit both the Indemnified Parties and any such assignee or transferee), (c) any exercise of Mortgagee’s rights and remedies pursuant hereto, including, but not limited to, foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any rights and remedies pursuant to the Loan Agreement, the Note or any of the other Loan Documents, any transfer of all or any portion of the Property (whether by Mortgagor or by Mortgagee following foreclosure or acceptance of a deed in lieu of foreclosure or at any other time), (d) any amendment to this Mortgage, the Loan Agreement, the Note or any other Loan Document, and/or (e) any act or omission that might otherwise be construed as a release or discharge of Mortgagor from the Obligations or any portion thereof.

-24-

ARTICLE X

Exculpation

The provisions of Section 18.1 of the Loan Agreement are hereby incorporated by reference into this Mortgage to the same extent and with the same force as if fully set forth herein.

ARTICLE XI

Notices

All notices or other written communications hereunder shall be delivered in accordance with Section 19.8 of the Loan Agreement.

ARTICLE XII

Applicable Law

Section 12.01 Governing Law; Jurisdiction; Service of Process. THIS MORTGAGE AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK. 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 AGREEMENT AND THE NOTE, AND THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

Section 12.02 Usury Laws. Notwithstanding anything to the contrary, (a) all agreements and communications between Mortgagor and Mortgagee are hereby and shall automatically be limited so that, after taking into account all amounts deemed to constitute interest, the interest contracted for, charged or received by Mortgagee shall never exceed the Maximum Legal Rate, (b) in calculating whether any interest exceeds the Maximum Legal Rate, all such interest shall be amortized, prorated, allocated and spread over the full amount and term of all principal indebtedness of Mortgagor to Mortgagee, and (c) if through any contingency or event, Mortgagee receives or is deemed to receive interest in excess of the Maximum Legal Rate, any such excess shall be deemed to have been applied toward payment of the principal of any and all then outstanding indebtedness of Mortgagor to Mortgagee, or if there is no such indebtedness, shall immediately be returned to Mortgagor.

-25-

ARTICLE XIII

Definitions

Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Mortgage may be used interchangeably in the singular or plural form and the word “Mortgagor” shall mean “each Mortgagor and any subsequent owner or owners of the Property or any part thereof or any interest therein,” the word “Mortgagee” shall mean “Mortgagee and any subsequent Administrative Agent,” the word “Note” shall mean “the Note and any other evidence of indebtedness secured by this Mortgage,” the word “Property” shall include any portion of the Property and any interest therein, and the phrases “attorneys’ fees”, “legal fees” and “counsel fees” shall include any and all attorneys’, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels, incurred or paid by Mortgagee in protecting its interest in the Property, the Leases, Rents and/or Hotel Revenue and/or in enforcing its rights hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms.

ARTICLE XIV

Miscellaneous Provisions

Section 14.01 No Oral Change. This Mortgage, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Mortgagor or Mortgagee, but only by an agreement in writing signed by the party(ies) against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

Section 14.02 Successors and Assigns. This Mortgage shall be binding upon, and shall inure to the benefit of, Mortgagor and Mortgagee and their respective successors and permitted assigns, as set forth in the Loan Agreement.

Section 14.03 Inapplicable Provisions. If any provision of this Mortgage is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Mortgage, such provision shall be fully severable and this Mortgage shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Mortgage, and the remaining provisions of this Mortgage 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 Mortgage, unless such continued effectiveness of this Mortgage, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

-26-

Section 14.04 Headings, Etc. The headings and captions of the various Sections of this Mortgage are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

Section 14.05 Subrogation. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Mortgagee shall be subrogated to all of the rights, claims, liens, titles and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles and interests, if any, are not waived, but rather are continued in full force and effect in favor of Mortgagee and are merged with the Lien and security interest created herein as cumulative security for the payment, performance and discharge of the Obligations (including, but not limited to, the payment of the Debt).

Section 14.06 Intentionally Omitted.

Section 14.07 Limitation on Mortgagee’s Responsibility. No provision of this Mortgage shall operate to place any obligation or liability for the control, care, management or repair of the Property upon Mortgagee, nor shall it operate to make Mortgagee responsible or liable for any waste committed on the Property by the Tenants or any other Person, or for any dangerous or defective condition of the Property, or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any Tenant, licensee, employee or stranger. Nothing herein contained shall be construed as constituting Mortgagee a “mortgagee in possession.”

Section 14.08 Recitals. The recitals hereof are a part hereof, form a basis for this Mortgage and shall be considered prima facie evidence of the facts and documents referred to therein.

ARTICLE XV

Ground Lease Provisions

Section 15.01 Ground Lease. (a) The provisions of Sections 4.1.45 and 5.1.26 of the Loan Agreement are hereby incorporated by reference into this Mortgage to the same extent and with the same force as if fully set forth herein.

-27-

(b) If the Ground Lease is rejected in any case, proceeding or other action commenced by or against the lessor under the Ground Lease (or any person or party constituting or having an interest in the Ground Lease) under the Bankruptcy Code or any comparable federal or state statute or law, (i) Mortgagor, immediately after obtaining notice thereof, shall give notice thereof to Mortgagee, (ii) Mortgagor, without the prior written consent of Mortgagee, shall not elect to treat the Ground Lease as terminated pursuant to Section 365(h)(1)(A)(i) of the Bankruptcy Code or any comparable federal or state statute or law, and any election by Mortgagor made without such consent shall be void and (iii) the Mortgage and all the liens, terms, covenants and conditions of the Mortgage shall extend to and cover Mortgagor’s possessory rights under Section 365(h) of the Bankruptcy Code and to any claim for damages due to lessor’s rejection of the Ground Lease. In addition, Mortgagor hereby assigns to Mortgagee Mortgagor’s rights to remain in possession of the premises demised under the Ground Lease and to offset rents under the Ground Lease under Section 365(h)(1)(A)(ii) of the Bankruptcy Code in the event any case, proceeding or other action is commenced by or against the lessor under the Ground Lease under the Bankruptcy Code or any comparable federal or state statute or law.

(c) It is hereby agreed that the fee title and the leasehold estate in the property demised by the Ground Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of said estates in either the Ground Lessor, Mortgagor or a third party, whether by purchase or otherwise and Mortgagee shall continue to have and enjoy all of the rights and privileges of the Mortgagee as to the separate estates. If Mortgagor acquires the fee title, the interest of the Ground Lessor or any other estate, title or interest in the property demised by the Ground Lease, or any part thereof, the lien of this Mortgage shall attach to, cover and be a lien upon such acquired estate, title or interest and same shall thereupon be and become a part of the Property with the same force and effect as if specifically encumbered herein. Mortgagor agrees to execute all instruments and documents which Mortgagee may reasonably require to ratify, confirm and further evidence Mortgagee’s lien on the acquired estate, title or interest and to provide such endorsements to the Mortgagee’s title policy issued in connection with the Loan insuring that this Mortgage creates a first prior security interest on the Mortgagor’s fee interest in the Property; provided, however, that if Mortgagor elects to merge the fee simple estate in the Property with the leasehold estate in the Property, Mortgagee shall not unreasonably withhold, condition or delay its consent thereto. Furthermore, Mortgagor hereby appoints Mortgagee its true and lawful attorney-in-fact to execute and deliver all such instruments and documents in the name and on behalf of Mortgagor in the event that Mortgagor fails to do same. This power, being coupled with an interest, shall be irrevocable as long as the Obligations remain unpaid.

(d) Intentionally Omitted.

(e) No release or forbearance of any of Mortgagor’s obligations under the Ground Lease, pursuant to the Ground Lease or otherwise, shall release Mortgagor from any of its obligations under this Mortgage or the other Loan Documents.

(f) Mortgagor shall give Mortgagee immediate notice of the commencement of any arbitration or appraisal proceeding to which Mortgagor is a party or of which Mortgagor has been otherwise notified concerning the provisions of the Ground Lease. Mortgagee shall have the right to intervene and participate in any such proceeding if such proceeding, if adversely determined, would be reasonably expected to have a material adverse effect on Mortgagor or the Property and Mortgagor shall confer with Mortgagee and its attorneys and experts and cooperate with them to the extent which Mortgagee deems reasonably necessary for the protection of Mortgagee. Upon the request of Mortgagee, Mortgagor will exercise all rights of arbitration conferred upon it by the Ground Lease. If at any time such proceeding shall have commenced, Mortgagor shall be in default in the performance or observance of any covenant, condition or other requirement of the Ground Lease on the part of Mortgagor to be performed or observed or an Event of Default shall have occurred and be continuing, Mortgagee shall have, and is hereby granted, the right to designate and appoint on behalf of Mortgagor, the arbitrator or arbitrators, or appraiser, in such proceeding.

-28-

ARTICLE XVI

State-Specific Provisions

Section 16.01 Principles of Construction. In the event of any inconsistencies between the terms and conditions of this Article 16 and the other terms and conditions of this Mortgage, the terms and conditions of this Article 16 shall control and be binding.

Section 16.02 Property Encumbered. Mortgagor represents that this Mortgage does not encumber property principally improved or to be improved by one or more structures containing in the aggregate not more than six residential dwelling units.

Section 16.03 Lien Law. Pursuant to Section 13 of the lien law of New York, Mortgagor shall receive the advances secured hereby and shall hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of any improvement and shall apply such advances first to the payment of the cost of any such improvements on the Property before using any part of the total of the same for any other purpose.

Section 16.04 Real Property Law. (a) Mortgagee shall have all of the rights as against lessees of the Property as set forth in Section 291-f of the Real Property Law of the State of New York.

(b) The provisions of subsection 4 of the New York Real Property Law covering the insurance of buildings against loss by fire and the application of Insurance Proceeds shall not apply to this Mortgage. In the event of any conflict, inconsistency or ambiguity between the provisions of this Article 16 hereof and the provisions of subsection 4 of Section 254 of the New York Real Property Law covering the insurance of buildings against loss by fire and the application of Insurance Proceeds, the provisions of this Article 16 shall control.

-29-

(c) The clauses and covenants contained in this Mortgage that are construed by Section 254 of the New York Real Property Law shall be construed as provided in those sections (except as otherwise provided in this Mortgage). The additional clauses and covenants contained in this Mortgage shall afford rights supplemental to and not exclusive of the rights conferred by the clauses and covenants construed by Section 254 and shall not impair, modify, alter or defeat such rights (except as otherwise provided in this Mortgage), notwithstanding that such additional clauses and covenants may relate to the same subject matter or provide for different or additional rights in the same or similar contingencies as the clauses and covenants construed by Section 254. The right of Mortgagee arising under the clauses and covenants contained in this Mortgage shall be separate, distinct and cumulative and none of them shall be in exclusion of the others. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision, anything herein or otherwise to the contrary notwithstanding. In the event of any inconsistencies between the provisions of Section 254 and the provisions of this Mortgage, the provisions of this Mortgage shall prevail.

Section 16.05 Maximum Secured Amount. Notwithstanding anything contained herein to the contrary, the maximum amount of indebtedness secured by this Mortgage (solely insofar as this Mortgage is an encumbrance on real property and fixtures) at execution or which under any contingency may become secured hereby at any time hereafter is the principal sum of $115,000,000.00 plus interest thereon plus as additional interest, any premium, fee or other payment due under the Loan Documents in connection with any prepayment or repayment of such principal sum, plus amounts expended by the Mortgagee after a declaration of an Event of Default hereunder to maintain the lien of this Mortgage or to protect the Property secured by this Mortgage, including, without limitation, amounts in respect of insurance premiums, real estate taxes, litigation expenses to prosecute or defend the rights, remedies and lien of this Mortgage or title to the Property secured hereby, and any costs, charges or amounts to which the Mortgagee becomes subrogated upon payment, whether under recognized principles of law or equity or under express statutory authority, together with interest on all the foregoing amounts at the Default Rate (as defined in the Loan Agreement). Anything in this Section 16.05 to the contrary notwithstanding, all of the Obligations shall be secured pursuant to the security agreement set forth in this Mortgage.

Section 16.06 Transfer Taxes. (a) In the event of any sale or transfer of the Property, or any part thereof, following a foreclosure of this Mortgage or by deed in lieu of any such foreclosure, Mortgagor shall timely and duly complete, execute and deliver to Mortgagee all forms and supporting documentation required by any taxing authority to estimate and fix any tax payable by reason of such sale or transfer or recording of the deed evidencing such sale or transfer, including any New York State Real Estate Transfer Tax payable pursuant to Article 31 of the New York Tax Law (individually, a “Transfer Tax” and collectively, the “Transfer Taxes”).

-30-

(b) Mortgagor shall pay the Transfer Taxes that may hereafter become due and payable with respect to any sale or transfer of the Property described in Section 16.06(a), and if Mortgagor is in default of such payment, Mortgagee may pay the same plus any and all reasonable out-of-pocket expenses incurred by Mortgagee in connection therewith including, without limitation, interest, penalties and reasonable attorneys’ fees. Any such costs paid by Mortgagee shall promptly be reimbursed by Mortgagor.

(c) The provisions of this Section 16.06 shall survive any transfer and the delivery of the deed affecting such transfer. Nothing in this Section 16.06 shall be deemed to grant to Mortgagor any greater rights to sell, assign or otherwise transfer the Property nor to deprive Mortgagee of any right to refuse to consent to any transaction referred to in this Section 16.06 than, in either case, are expressly set forth in the Loan Documents.

[NO FURTHER TEXT ON THIS PAGE]

-31-

IN WITNESS WHEREOF, this Amended, Restated and Consolidated Mortgage, Assignment of Leases and Rents and Security Agreement has been executed by Mortgagor as of the day and year first above written.

HENRY HUDSON HOLDINGS LLC, a Delaware limited liability company,
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary
HUDSON LEASECO LLC, a New York limited liability company
By:	Hudson Managing Member LLC,
	its managing member
By:	Henry Hudson Holdings LLC,
	its managing member
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary

-32-

58th STREET BAR COMPANY LLC, a Delaware limited liability company
By:	Hudson Pledgor LLC,
	its managing member
By:	Henry Hudson Holdings LLC
	its managing member
By:	Henry Hudson Senior Mezz LLC,
	its managing member
By:	Morgans Group LLC,
	its managing member
By:	Morgans Hotel Group Co.,
	its managing member
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary

-33-

ACKNOWLEDGMENT

STATE OF NEW YORK	)		Henry Hudson Holdings LLC Henry Leaseco LLC
	)	ss.:
COUNTY OF NEW YORK	)

On this 10^th day of August, 2011, before me, a Notary Public in and for said State, personally appeared Richard Szymanski, before me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Grace Chen  Notary Public

     [seal]

-34-

LENDER’S ACKNOWLEDGMENT AND CONSENT

Mortgagee is executing this Amended, Restated And Consolidated Mortgage, Assignment of Leases and Rents and Security Agreement to signify its consent to the consolidation, amendment and restatement of the Existing Mortgages as set forth above. Nothing herein shall, or shall be deemed to, obligate Mortgagee for payment of any amount evidenced by the Note or secured by this Mortgage.

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent
By:	/s/ George R. Reynolds
	Name:	George R. Reynolds
	Title:	Director
By:	/s/ Alexander B. V. Johnson
	Name:	Alexander B. V. Johnson
	Title:	Managing Director

STATE OF NEW YORK	)
	)	ss:
COUNTY OF NEW YORK	)

On the 11^th day of August in the year 2011 before me, the undersigned, personally appeared George R. Reynolds and Alexander B. V. Johnson, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me the he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

June Politano Notary Public

     [SEAL]

-35-

EXHIBIT A

LEGAL DESCRIPTION

UNIT 1 A/K/A EBC UNIT, LOT 1701

THE CONDOMINIUM UNIT (HEREINAFTER REFERRED TO AS THE “UNIT”) KNOWN AS UNIT 1, ALSO KNOWN AS EBC UNIT, IN THE BUILDING (HEREINAFTER REFERRED TO AS THE “BUILDING”) KNOWN AS 353 WEST 57TH STREET CONDOMINIUM AND BY THE STREET NUMBER 353 WEST 57TH STREET, NEW YORK, NEW YORK, SAID UNIT BEING DESIGNATED AND DESCRIBED IN A CERTAIN DECLARATION DATED APRIL 11, 1985 MADE BY IRVING SCHATZ PURSUANT TO ARTICLE 9-B OF THE REAL PROPERTY LAW OF THE STATE OF NEW YORK ESTABLISHING A PLAN FOR CONDOMINIUM OWNERSHIP OF THE BUILDING AND THE LAND (HEREINAFTER REFERRED TO AS THE “LAND”) UPON WHICH THE BUILDING IS SITUATE (WHICH LAND IS MORE PARTICULARLY DESCRIBED ON EXHIBIT A), WHICH DECLARATION WAS RECORDED IN THE NEW YORK COUNTY OFFICE OF THE REGISTER OF THE CITY OF NEW YORK (THE “CITY REGISTER’S OFFICE”) ON APRIL 24, 1985 IN REEL 902 PAGE 1 AND AMENDED BY FIRST AMENDMENT TO DECLARATION DATED JANUARY 29, 1993 AND RECORDED MAY 11, 1993 IN REEL 1969 PAGE 2286, FURTHER AMENDED BY AMENDED AND RESTATED DECLARATION MADE BY HENRY HUDSON HOLDINGS LLC, IRVING SCHATZ, ADRIENNE WECHSLER AND CHERYL HIRSCH DATED AS OF FEBRUARY 12, 1999 AND RECORDED JULY 16, 1999 IN REEL 2913 PAGE 1753 AND AMENDMENT TO AMENDED AND RESTATED DECLARATION DATED AS OF SEPTEMBER 30, 1999, RECORDED OCTOBER 27, 1999 IN REEL 2979 PAGE 2159 (WHICH DECLARATION, AS AMENDED, IS HEREINAFTER REFERRED TO AS THE “DECLARATION”). SAID UNIT IS ALSO DESIGNATED AS TAX LOT 1701 IN BLOCK 1048 OF SECTION 4 OF THE BOROUGH OF MANHATTAN ON THE TAX MAP OF THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK AND ON THE FLOOR PLANS OF THE BUILDING, CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON MARCH 27, 1985 AND FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON APRIL 22, 1985 AS CONDOMINIUM PLAN NO. 208 AND ALSO FILED IN THE NEW YORK COUNTY REGISTER’S OFFICE ON APRIL 24, 1985 AS CONDOMINIUM MAP NO. 4326, AS AMENDED BY AMENDED FLOOR PLANS CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON DECEMBER 14, 1992, WHICH AMENDED FLOOR PLANS WERE FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON MAY 5, 1993 AS CONDOMINIUM PLAN NO. 208A AND ALSO FILED IN THE NEW YORK COUNTY REGISTER’S OFFICE ON MAY 11, 1993 AS CONDOMINIUM MAP NO. 5192.

TOGETHER WITH AN UNDIVIDED 44.05105% INTEREST IN THE COMMON ELEMENTS (AS SUCH TERM IS DEFINED IN THE DECLARATION).

UNIT 2 A/K/A MODIFIED HOTEL UNIT, LOT 1702

THE CONDOMINIUM UNIT (HEREINAFTER REFERRED TO AS THE “UNIT”) KNOWN AS UNIT 2, ALSO KNOWN AS MODIFIED HOTEL UNIT, IN THE BUILDING (HEREINAFTER REFERRED TO AS THE “BUILDING”) KNOWN AS 353 WEST 57TH STREET CONDOMINIUM AND BY THE STREET NUMBER 353 WEST 57TH STREET, NEW YORK, NEW YORK, SAID UNIT BEING DESIGNATED AND DESCRIBED IN A CERTAIN DECLARATION DATED APRIL 11, 1985 MADE BY IRVING SCHATZ PURSUANT TO ARTICLE 9-B OF THE REAL PROPERTY LAW OF THE STATE OF NEW YORK ESTABLISHING A PLAN FOR CONDOMINIUM OWNERSHIP OF THE BUILDING AND THE LAND (HEREINAFTER REFERRED TO AS THE “LAND”) UPON WHICH THE BUILDING IS SITUATE (WHICH LAND IS MORE PARTICULARLY DESCRIBED ON EXHIBIT A), WHICH DECLARATION WAS RECORDED IN THE NEW YORK COUNTY OFFICE OF THE REGISTER OF THE CITY OF NEW YORK (THE “CITY REGISTER’S OFFICE”) ON APRIL 24, 1985 IN REEL 902 PAGE 1 AND AMENDED BY FIRST AMENDMENT TO DECLARATION DATED JANUARY 29, 1993 AND RECORDED MAY 11, 1993 IN REEL 1969 PAGE 2286, FURTHER AMENDED BY AMENDED AND RESTATED DECLARATION MADE BY HENRY HUDSON HOLDINGS LLC, IRVING SCHATZ, ADRIENNE WECHSLER

AND CHERYL HIRSCH DATED AS OF FEBRUARY 12, 1999 AND RECORDED JULY 16, 1999 IN REEL 2913 PAGE 1753 AND AMENDMENT TO AMENDED AND RESTATED DECLARATION DATED AS OF SEPTEMBER 30, 1999 AND RECORDED OCTOBER 27, 1999 IN REEL 2979 PAGE 2159 WHICH DECLARATION, AS AMENDED, IS HEREINAFTER REFERRED TO AS THE “DECLARATION”). SAID UNIT IS ALSO DESIGNATED AS TAX LOT 1702 IN BLOCK 1048 OF SECTION 4 OF THE BOROUGH OF MANHATTAN ON THE TAX MAP OF THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK AND ON THE FLOOR PLANS OF THE BUILDING, CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON MARCH 27, 1985 AND FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON APRIL 22, 1985 AS CONDOMINIUM MAP NO. 4326, AS AMENDED BY AMENDED FLOOR PLANS CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON DECEMBER 14, 1992, WHICH AMENDED FLOOR PLANS WERE FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON MAY 5, 1993 AS CONDOMINIUM PLAN NO. 208A AND ALSO FILED IN THE NEW YORK COUNTY REGISTER’S OFFICE ON MAY 11, 1993 AS CONDOMINIUM MAP NO. 5192.

TOGETHER WITH AN UNDIVIDED 46.94011% INTEREST IN THE COMMON ELEMENTS (AS SUCH TERM IS DEFINED IN THE DECLARATION).

UNIT 4 A/K/A STORE UNIT, LOT 1704

TERMS, COVENANTS AND CONDITIONS OF LEASE MADE BY AND BETWEEN ADRIENNE SCHATZ, ALSO KNOWN AS ADRIENNE WECHSLER, AND CHERYL HIRSCH, AS LANDLORD, AND HENRY HUDSON HOLDINGS LLC, AS TENANT, DATED AS OF JANUARY 1, 1999 AS REFERENCED IN MEMORANDUM OF LEASE AS OF SEPTEMBER 30, 1999, AND RECORDED OCTOBER 27, 1999 IN REEL 2979 PAGE 2172 (THE “UNIT 1704 LEASE”), AS AMENDED PURSUANT TO AMENDMENT TO LEASE BY AND BETWEEN ADRIENNE SCHATZ, ALSO KNOWN AS ADRIENNE WECHSLER AND CHERYL HIRSCH, TOGETHER AS LANDLORD AND HENRY HUDSON HOLDINGS LLC, AS TENANT, DATED AS OF SEPTEMBER 30, 1999.

THE LEASEHOLD ESTATE INSURED HEREIN COVERS PREMISES MORE PARTICULARLY BOUNDED AND DESCRIBED AS FOLLOWS:

THE CONDOMINIUM UNIT (HEREINAFTER REFERRED TO AS THE “UNIT”) KNOWN AS UNIT 4, ALSO KNOWN AS STORE UNIT IN THE BUILDING (HEREINAFTER REFERRED TO AS THE “BUILDING”) KNOWN AS 353 WEST 57TH STREET CONDOMINIUM AND BY THE STREET NUMBER 353 WEST 57TH STREET, NEW YORK, NEW YORK, SAID UNIT BEING DESIGNATED AND DESCRIBED IN A CERTAIN DECLARATION DATED APRIL 11, 1985 MADE BY IRVING SCHATZ PURSUANT TO ARTICLE 9-B OF THE REAL PROPERTY LAW OF THE STATE OF NEW YORK ESTABLISHING A PLAN FOR CONDOMINIUM OWNERSHIP OF THE BUILDING AND THE LAND (HEREINAFTER REFERRED TO AS THE “LAND”) UPON WHICH THE BUILDING IS SITUATE (WHICH LAND IS MORE PARTICULARLY DESCRIBED ON EXHIBIT A), WHICH DECLARATION WAS RECORDED IN THE NEW YORK COUNTY OFFICE OF THE REGISTER OF THE CITY OF NEW YORK (THE “CITY REGISTER’S OFFICE”) ON APRIL 24, 1985 IN REEL 902 PAGE 1 AND AMENDED BY FIRST AMENDMENT TO DECLARATION DATED JANUARY 29, 1993 AND RECORDED MAY 11, 1993 IN REEL 1969 PAGE 2286, FURTHER AMENDED BY AMENDED AND RESTATED DECLARATION MADE BY HENRY HUDSON HOLDINGS LLC, IRVING SCHATZ, ADRIENNE WECHSLER AND CHERYL HIRSCH DATED AS OF FEBRUARY 12, 1999, RECORDED JULY 16, 1999 IN REEL 2913 PAGE 1753 AND AMENDMENT TO AMENDED AND RESTATED DECLARATION DATED AS OF SEPTEMBER 30, 1999 AND RECORDED OCTOBER 27, 1999 IN REEL 2979 PAGE 2159 WHICH DECLARATION, AS AMENDED, IS HEREINAFTER REFERRED TO AS THE “DECLARATION”). SAID UNIT IS ALSO DESIGNATED AS TAX LOT 1704 IN BLOCK 1048 OF SECTION 4 OF THE BOROUGH OF MANHATTAN ON THE TAX MAP OF THE REAL PROPERTY ASSESSMENT

DEPARTMENT OF THE CITY OF NEW YORK AND ON THE FLOOR PLANS OF THE BUILDING, CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON MARCH 27, 1985 AND FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON APRIL 22, 1985 AS CONDOMINIUM MAP NO. 4326, AS AMENDED BY AMENDED FLOOR PLANS CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS,

ON DECEMBER 14, 1992, WHICH AMENDED FLOOR PLANS WERE FILED IN THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON MAY 5, 1993 AS CONDOMINIUM PLAN NO. 208A AND ALSO FILED IN THE NEW YORK COUNTY REGISTER’S OFFICE ON MAY 11, 1993 AS CONDOMINIUM MAP NO. 5192.

TOGETHER WITH AN UNDIVIDED 0.34577% INTEREST IN THE COMMON ELEMENTS (AS SUCH TERM IS DEFINED IN THE DECLARATION).

UNIT 6 A/K/A TENTH FLOOR UNIT, LOT 1706

TERMS, COVENANTS AND CONDITIONS OF AMENDED AND RESTATED LEASE (OF UNIT LOT 1706) MADE BY AND BETWEEN IRVING SCHATZ, AS LANDLORD, AND IAN SCHRAGER HOTELS LLC, AS TENANT, DATED AS OF FEBRUARY 11, 1999, AS REFERENCED IN AMENDED AND RESTATED MEMORANDUM OF LEASE DATED AS OF FEBRUARY 12, 1999, AND RECORDED MARCH 23, 1999 IN REEL 2841 PAGE 1872 (THE “UNIT LOT 1706 LEASE”), WHICH LEASE AMENDS, RESTATES AND SUPERSEDES A PRIOR LEASE MADE BY AND BETWEEN IRVING SCHATZ, AS LESSOR, AND EDUCATIONAL BROADCASTING CORPORATION, AS LESSEE, DATED AUGUST 11, 1988, AS REFERENCED IN MEMORANDUM OF LEASE DATED SEPTEMBER 1, 1988, AND RECORDED SEPTEMBER 30, 1988 IN REEL 1472 PAGE 883, AS ASSIGNED OF RECORD.

ASSIGNMENT AND ASSUMPTION OF LEASE MADE BY AND BETWEEN IAN SCHRAGER HOTELS LLC (F/K/A WEST 57TH LLC), AS ASSIGNOR, AND HENRY HUDSON HOLDINGS LLC, AS ASSIGNEE, DATED AS OF FEBRUARY 12, 1999 AND RECORDED MARCH 23, 1999 IN REEL 2841 PAGE 1882.

THE LEASEHOLD ESTATE INSURED HEREIN COVERS PREMISES MORE PARTICULARLY BOUNDED AND DESCRIBED AS FOLLOWS:

THE CONDOMINIUM UNIT (HEREINAFTER REFERRED TO AS THE “UNIT”) KNOWN AS UNIT 6, ALSO KNOWN AS TENTH FLOOR UNIT IN THE BUILDING (HEREINAFTER REFERRED TO AS THE “BUILDING”) KNOWN AS 353 WEST 57TH STREET CONDOMINIUM AND BY THE STREET NUMBER 353 WEST 57TH STREET, NEW YORK, NEW YORK, SAID UNIT BEING DESIGNATED AND

DESCRIBED IN A CERTAIN DECLARATION DATED APRIL 11, 1985 MADE BY IRVING SCHATZ PURSUANT TO ARTICLE 9-B OF THE REAL PROPERTY LAW OF THE STATE OF NEW YORK ESTABLISHING A PLAN FOR CONDOMINIUM OWNERSHIP OF THE BUILDING AND THE LAND (HEREINAFTER REFERRED TO AS THE “LAND”) UPON WHICH THE BUILDING IS SITUATE (WHICH LAND IS MORE PARTICULARLY DESCRIBED ON EXHIBIT A), WHICH DECLARATION WAS RECORDED IN THE NEW YORK COUNTY OFFICE OF THE REGISTER OF THE CITY OF NEW YORK (THE “CITY REGISTER’S OFFICE”) ON APRIL 24, 1985 IN REEL 902 PAGE 1 AND AMENDED BY FIRST AMENDMENT TO DECLARATION DATED JANUARY 29, 1993 AND RECORDED MAY 11, 1993 IN REEL 1969 PAGE 2286, FURTHER AMENDED BY AMENDED AND RESTATED DECLARATION MADE BY HENRY HUDSON HOLDINGS LLC, IRVING SCHATZ, ADRIENNE WECHSLER AND CHERYL HIRSCH DATED AS OF FEBRUARY 12, 1999 AND RECORDED JULY 16, 1999 IN REEL 2913 PAGE 1753 AND AMENDMENT TO AMENDED AND RESTATED DECLARATION DATED AS OF SEPTEMBER 30, 1999, RECORDED OCTOBER 27, 1999 IN REEL 2979 PAGE 2159 WHICH DECLARATION, AS AMENDED, IS HEREINAFTER REFERRED TO AS THE “DECLARATION)”. SAID UNIT IS ALSO DESIGNATED AS TAX LOT 1706 IN BLOCK 1048 OF SECTION 4 OF THE BOROUGH OF MANHATTAN ON THE TAX MAP OF THE REAL PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK AND ON THE FLOOR PLANS OF THE BUILDING, CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON MARCH 27, 1985 AND FILED IN THE REAL

PROPERTY ASSESSMENT DEPARTMENT OF THE CITY OF NEW YORK ON APRIL 22, 1985 AS CONDOMINIUM MAP NO. 4326, AS AMENDED BY AMENDED FLOOR PLANS CERTIFIED BY BUTLER ROGERS BASKETT, ARCHITECTS, ON DECEMBER 14, 1992, WHICH AMENDED FLOOR PLANS WERE FILED IN THE REAL PROPERTY ASSESSMENT

DEPARTMENT OF THE CITY OF NEW YORK ON MAY 5, 1993 AS CONDOMINIUM PLAN NO. 208A AND ALSO FILED IN THE NEW YORK COUNTY REGISTER’S OFFICE ON MAY 11, 1993 AS CONDOMINIUM MAP NO. 5192.

TOGETHER WITH AN UNDIVIDED 3.89067% INTEREST IN THE COMMON ELEMENTS (AS SUCH TERM IS DEFINED IN THE DECLARATION).

ALL THAT CERTAIN PLOT, PIECE OR PARCEL OF LAND, SITUATE, LYING AND BEING IN THE BOROUGH OF MANHATTAN, CITY, COUNTY AND STATE OF NEW YORK, BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE NORTHERLY SIDE OF 57TH STREET, DISTANT 20 FEET EASTERLY FROM THE CORNER FORMED BY THE

INTERSECTION OF THE EASTERLY SIDE OF NINTH AVENUE WITH THE NORTHERLY SIDE OF 57TH STREET;

RUNNING THENCE EASTERLY ALONG THE SAID NORTHERLY SIDE OF 57TH STREET, 155 FEET;

THENCE NORTHERLY PARALLEL WITH NINTH AVENUE, 200 FEET 10 INCHES TO THE SOUTHERLY SIDE OF 58TH STREET;

THENCE WESTERLY ALONG THE SAID SOUTHERLY SIDE OF 58TH STREET, 135 FEET TO A POINT DISTANT 40 FEET EASTERLY FROM THE CORNER FORMED BY THE INTERSECTION OF THE SOUTHERLY SIDE OF 58TH STREET WITH THE EASTERLY SIDE OF NINTH AVENUE;

THENCE SOUTHERLY PARALLEL WITH NINTH AVENUE AND PART OF THE DISTANCE THROUGH A PARTY WALL, 100 FEET 10 INCHES;

THENCE WESTERLY PARALLEL MORE OR LESS WITH 58TH STREET, 20 FEET; AND

THENCE SOUTHERLY AND PART OF THE WAY THROUGH ANOTHER PARTY WALL, 100 FEET TO THE NORTHERLY SIDE OF 57TH STREET, THE POINT OR PLACE OF BEGINNING.

EXHIBIT B

SCHEDULE OF EXISTING MORTGAGES

[Attached]

MORTGAGE SCHEDULE

MORTGAGE ‘A’

SUBSTITUTE MORTGAGE made by SALISBURY DEVELOPMENT N.V. to ROYALTON OPERATING CORP. in the amount of $1,750,000.00, dated 11/5/1982 and recorded 11/15/1982 in Reel 649 page 1626. (Mortgage Tax Paid: Exempt)

ASSIGNMENT OF MORTGAGE made by ROYALTON OPERATING CORP. to MULTI COMMERCIAL BANK, dated 11/5/1982 and recorded 11/15/1982 in Reel 649 page 1630. Assigns Mortgage ‘A’.

ASSIGNMENT OF MORTGAGE made by MULTI COMMERCIAL BANK to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, dated 1/11/1984 and recorded 3/9/1984 in Reel 772 page 304. Assigns Mortgage ‘A’.

FOR CONSOLIDATION SEE MORTGAGE

‘C’ MORTGAGE ‘B’

MORTGAGE made by SALISBURY DEVELOPMENT N.Y. to SHENK REALTY CONSTRUCTION COMPANY in the amount of $2,235,000.00, dated 11/5/1979 and recorded 11/9/1979 in Reel 501 page 1797. (Mortgage Tax Paid: $33,525.00)

ASSIGNMENT OF MORTGAGE made by SHENK REALTY CONSTRUCTION COMPANY to SADIE HAMERLING, HENRY SHENK AND S. BARRY SHENK, dated 4/25/1980 and recorded 4/26/1980 in Reel 518 page 1117.

ASSIGNMENT OF MORTGAGE made by SADIE HAMERLING, HENRY SHENK AND S. BARRY SHENK to ROYALTON OPERATING CORP., dated 10/26/1982 and recorded 11/15/1982 in Reel 649 page 1619.

EXTENSION AGREEMENT made by and between ROYALTON OPERATING CORP. and SALISBURY DEVELOPMENT N.Y., dated 11/5/1982 and recorded 11/15/1982 in Reel 649 page 1621.

SUBORDINATION AGREEMENT made by and between ROYALTON OPERATING CORP. and MULTI COMMERCIAL BANK, dated II/5/1982 and recorded 11/15/1982 in Reel 649 page 1632. Subordinates Mortgage ‘B’ to Mortgage ‘A’.

ASSIGNMENT OF MORTGAGE made by ROYALTON OPERATING CORP. to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, dated 2/22/1984 and recorded 4/9/1984 in Reel 772 page 307.

FOR CONSOLIDATION SEE MORTGAGE

‘C’ MORTGAGE ‘C’

MORTGAGE made by SALISBURY DEVELOPMENT, N.Y. to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION in the amount of $1,245,791.86, dated 2/22/1984 and recorded 3/9/1984 in Reel 772 page 313. (Mortgage Tax Paid: $28,030.50)

CONSOLIDATION AND EXTENSION AGREEMENT made by and between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and SALISBURY DEVELOPMENT N.Y., dated 2/22/1984 and recorded 4/9/1984 in Reel 772 page 318. Consolidates Mortgages ‘A’, ‘B’ and ‘C’ to form a single lien in the amount of $3,000,000.00.

ASSIGNMENT OF MORTGAGE made by BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION to THE GREATER NEW YORK SAVINGS BANK, dated 11/19/1985 and recorded 12/13/1985 in Reel 996 page 1585. Assigns Mortgages ‘A’, ‘B’ and ‘C’, as consolidated.

FOR FURTHER CONSOLIDATION SEE MORTGAGE

‘D’ MORTGAGE ‘D’

MORTGAGE made by 44Th HOTEL ASSOCIATES to THE GREATER NEW YORK SAVINGS BANK in the amount of $4,500,000.00, dated 11/19/1985 and recorded 12/13/1985 in Reel 996 page 1573. (Mortgage Tax Paid: $101,250.00) Mortgage ‘D’ by its terms is consolidated with Mortgages ‘A’, ‘B’, and ‘C’ to form a single lien in the amount of $7,500,000.00.

FOR CONSOLIDATION SEE MORTGAGE

‘E’ MORTGAGE ‘E’

MORTGAGE made by 44TH HOTEL ASSOCIATES to THE GREATER NEW YORK SAVINGS BANK in the amount of $6,830,000.00, dated 11/7/1986 and recorded 11/14/1986 in Reel 1143 page 487. (Mortgage Tax Paid: $153,675.00) Mortgage ‘E’ by its terms is consolidated with Mortgages ‘A’ through ‘D’ to form a single lien in the amount of $14,330,000.00.

MODIFICATION AGREEMENT made by and between THE GREATER NEW YORK SAVINGS BANK and 44TH HOTEL ASSOCIATES, dated 7/9/1987 and recorded 7/16/1987 in Reel 1260 page 2102. Modifies Mortgages ‘A’ through ‘E’, as consolidated.

FOR FURTHER CONSOLIDATION SEE MORTGAGE

‘K’ MORTGAGE ‘F’

MORTGAGE made by 44TH HOTEL ASSOCIATES to THE GREATER NEW YORK SAVINGS BANK in the amount of $16,630,000.00, dated 7/9/1987 and recorded 7/16/1987 in Reel 1260 page 2110. (Mortgage Tax Paid: $374,175.00)

2

FOR CONSOLIDATION SEE MORTGAGE

‘K’ MORTGAGE ‘G’

MORTGAGE made by 44TH HOTEL ASSOCIATES to THE GREATER NEW YORK SAVINGS BANK in the amount of $40,000,00, dated 7/9/1987 and recorded 7/16/1987 in Reel 1260 page 2139. (Mortgage Tax Paid: $900.00)

ASSIGNMENT OF MORTGAGE made by THE GREATER NEW YORK SAVINGS BANK to THE BANK OF TOKYO TRUST COMPANY, dated 9/30/1988 and recorded 10/13/1988 in Reel 1478 page 845. Assigns Mortgages ‘A’ through ‘G’, as consolidated.

FOR CONSOLIDATION SEE MORTGAGE

‘K’ MORTGAGE ‘II’

MORTGAGE made by 44TH HOTEL ASSOCIATES to NATIONAL WESTMINSTER BANK USA in the amount of $9,304,156.84, dated 6/28/1988 and recorded 7/15/1988 in Reel 1431 page 1287. (Mortgage Tax Paid: $209,344.50)

FOR CONSOLIDATION SEE MORTGAGE ‘J’

MORTGAGE ‘I’

MORTGAGE made by 44Th HOTEL ASSOCIATES to NATIONAL WESTMINSTER BANK USA in the amount of $471,000.00, dated 6/28/1988 and recorded 7/15/1988 in Reel 1431 page 1310. (Mortgage Tax Paid: $10,597.50)

FOR CONSOLIDATION SEE MORTGAGE ‘K’

MORTGAGE ‘J’

MORTGAGE made by 44TH HOTEL ASSOCIATES to NATIONAL WESTMINSTER BANK USA in the amount of $4,224,843.16, dated 6/28/1988 and recorded 7/15/1988 in Reel 1431 page 1333. (Mortgage Tax Paid: $95,058.00)

ASSIGNMENT OF MORTGAGE made by NATIONAL WESTMINSTER BANK USA to THE BANK OF TOKYO TRUST COMPANY, dated 9/30/1988 and recorded 10/13/1988 in Reel 1478 page 858. Assigns Mortgages ‘H’, ‘I’ and ‘J’.

FOR CONSOLIDATION SEE MORTGAGE ‘K’

MORTGAGE ‘K’

MORTGAGE made by 441H HOTEL ASSOCIATES to THE BANK OF TOKYO TRUST COMPANY in the amount of $1,000,000.00, dated 9/29/1988 and recorded 10/13/1988 in Reel 1478 page 864. (Mortgage Tax Paid: $22,500.00)

CONSOLIDATION AGREEMENT made by and between 44TH HOTEL ASSOCIATES and THE BANK OF TOKYO TRUST COMPANY, dated 9/29/1988 and recorded 10/21/1988 in Reel 1482 page 1833. Consolidates Mortgages ‘A’ through ‘K’ to form a single lien in the amount of $46,000,000.00.

ASSIGNMENT OF MORTGAGE made by THE BANK OF TOKYO TRUST COMPANY to CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL CORP., dated 3/28/1996 and recorded 4/11/1996 in Reel 2312 Page 1842. Assigns Mortgages ‘A’ through ‘K’, as consolidated.

RESTATED MORTGAGE made by ROYALTON, LLC and CS FIRST BOSTON MORTGAGE CAPITAL CORP., dated 3/23/1996 and recorded 4/11/1996 in Reel 2312 page 1850.

ASSIGNMENT OF MORTGAGE made by CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL CORP. to THE CHASE MANHATTAN BANK, AS TRUSTEE, dated 4/25/1997 and recorded 6/10/1997 in Reel 2464 Page 610. Assigns Mortgages ‘A’ through ‘K’, as consolidated.

ASSIGNMENT OF MORTGAGE made by THE CHASE MANHATTAN BANK, AS TRUSTEE to DEUTSCHE BANK, AG, dated 7/27/1998 and recorded 8/26/1998 in Reel 2689 Page 153. Assigns Mortgages ‘A’ through ‘K’, as consolidated.

FOR FURTHER CONSOLIDATION SEE MORTGAGE

‘L’ MORTGAGE ‘L’

MORTGAGE made by MORGANS HOLDINGS LLC and ROYALTON, LLC to DEUTSCHE BANK AG in the amount of $60,000,000, dated as of 7/28/1998 and recorded 8/28/1998 in Reel 2692 page 1178. (Mortgage Tax Paid: $1,650,000.00) Mortgage ‘L’ by its terms is consolidated with mortgages ‘A’ through ‘K’ to form a single lien in the amount of $90,000,000. These mortgages were spread to cover Block 867 Lot 20 and Block 1259 Lot 11 on the Tax Map of the City of New York, County of New York, said premises known as 237-239 Madison Avenue, and 44-45 West 44th Street, a/lc/a 47 West 43rd Street, New York, NY, other premises not made a part hereof,

3

ASSIGNMENT OF MORTGAGE made by DEUTSCHE BANK AG to DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION, dated as of 10/15/1998 and recorded 2/19/1999 in Reel 2821 Page 1598. Assigns Mortgages ‘N through ‘L’ as consolidated.

ASSIGNMENT OF MORTGAGE made by DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION to LASALLE NATIONAL BANK, AS TRUSTEE, FOR THE REGISTERED HOLDERS OF DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2, dated 10/15/1998 and recorded 2/19/1999 in Reel 2821 Page 1610. Assigns Mortgages ‘A’ through ‘L’, as consolidated.

ASSIGNMENT OF MORTGAGE made by LASALLE BANK NATIONAL ASSOCIATION (FORMERLY LASALLE NATIONAL BANK), AS TRUSTEE, FOR THE REGISTERED HOLDERS OF DEUTSCHE MORTGAGE & ASSET RECEIVING CORPORATION, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2 to GERMAN AMERICAN CAPITAL CORPORATION, dated 9/15/1999 and recorded 12/30/1999 in Reel 3021 Page 1717. Assigns Mortgages ‘A’ through ‘L’, as consolidated.

ASSIGNMENT OF MORTGAGE made by GERMAN AMERICAN CAPITAL CORPORATION to LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE REGISTERED HOLDERS OF COMM 2000-FL2 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES COMM 2000-FL2, dated as of 7/17/2000 and recorded 8/7/2000 in Reel 3141 Page 900. Assigns Mortgages ‘A’ through’, as consolidated.

FIRST AMENDMENT TO MORTGAGE made by and between ROYALTON, LLC and MORGANS HOLDINGS LLC, AS MORTGAGOR, and LASALLE BANK NATIONAL ASSOCIATION, a national banking association, AS TRUSTEE, FOR THE REGISTERED HOLDERS OF COMM 2000-FL2 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES COMM 2000-FL2, AS MORTGAGEE, dated 5/20/2004 and recorded 7/4/2004 as CRFN 2004000392159. (Originally affected Block 867 Lot 20 and Block 1259 Lot 11, other premises not made a part thereof)

ASSIGNMENT OF MORTGAGE made by LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE REGISTERED HOLDERS OF COMM 2000-FL2 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES COMM 2000-FL2 to GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., dated 8/13/2004 and recorded 5/11/2005 as CFRN 2005000272695. Assigns Mortgages ‘A’ through ‘L’, as consolidated, assigned and amended.

FOR FURTHER CONSOLIDATION SEE MORTGAGE ‘0’

MORTGAGE ‘M’ (Originally affected Block 1397 Lot 49 premises known as 813-817 Lexington Avenue, New York, NY, other premises not made apart hereof)

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND FIXTURE FILING B made by BARBIZON HOLDINGS LLC to BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS in the amount of $8,081,191.98, dated as of 5/30/2001 and recorded 6/26/2001 in the New York County Register’s Office in Reel 3311 page 98. (Mortgage Tax Paid: Exempt)

This mortgage was part of mortgage originally in the amount of $71,200,000.00 which mortgage was, dated as of 5/20/1998 and recorded 8/14/1998 in Reel 2669 page 1861 (Mortgage Tax Paid: $1,958,000.00) against Block 1397 Lot 49, other premises not made a part hereof and which mortgage was split and severed into two mortgages in the amounts of $62,400,000 (Substitute Mortgage A) which mortgage was, dated as of 5/30/2001 and recorded 6/26/2001 in Reel 3311 page 57 and $8,081,191.98 (Substitute Mortgage ‘B’, shown as Mortgage ‘M’ and Mortgage ‘U’ herein) by MASTER SEVERANCE AGREEMENT by and between BARBIZON HOLDINGS LLC, MORTGAGOR. and BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, dated as of 6/29/1998 by and between CREDIT SUISSE FIRST BOSTON

4

STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS, MORTGAGEE, dated as of 5/30/2001 and recorded 6/26/2001 in Reel 3311 page 43, in the New York County Register’s Office.

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between BARBIZON HOLDINGS LLC, MORTGAGOR, BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, IN THE AMOUNT OF $8,081,19L98 MADE BY AND BETWEEN CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS, MORTGAGEE and CANARSIE HOLDINGS, LLC, dated as of 5/30/2001 and recorded 6/28/2001 in the Kings County Registers Office in Reel 5200 page 132. Spreads Mortgage ‘M’ to cover Block 8273 Lot 1273 Kings County premises known as 108-16 Flatlands 9th Street, Unit 17, Brooklyn, NY, other premises not made a part hereof.

PARTIAL RELEASE OF SUBSTITUTE MORTGAGE made by and between BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF 6/29/1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-PI CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS, dated as of 5/30/2001 and recorded 7/13/2001 in Reel 3321 page 2051. Mortgage ‘M’ was released as against Block 1397 Lot 49 in New York County, other premises not made a part hereof.

ASSIGNMENT OF MORTGAGE made by BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF 6/29/1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS to NORTHSTAR HOSPITALITY, LLC, dated as of 5/30/2001 and recorded 6/28/2001 in Reel 5200 Page 143. Assigns Mortgage ‘M’.

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between CANARSIE HOLDINGS, LLC, MORTGAGOR, NORTHSTAR HOSPITALITY LLC, MORTGAGEE and MORGANS HOLDINGS LLC, ROYALTON, LLC AND HENRY HUDSON HOLDINGS LLC, OWNER, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272702. Spreads the lien of Mortgage ‘M’ to additionally encumber the Hudson Hotel Property, Morgans Hotel Property and Royalton Hotel Property, premises and more.

RELEASE OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272701 in Kings County Register’s Office. Releases land located in Kings County from the lien of Mortgage ‘M’, other premises not made a part hereof.

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2006000272704. Assigns Mortgage ‘M’.

FOR CONSOLIDATION SEE MORTGAGE ‘0’

MORTGAGE ‘N’ (Originally affected Block 8273 Lot 1273 Kings County premises known as 108-16 Flatlands 9th Street, Unit 17, Brooklyn, NYother premises not made a part hereof)

SUBSTITUTE MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING B made by CANARSIE HOLDINGS, LLC to NORTHSTAR HOSPITALITY LLC in the amount of $4,924,221.77, dated as of 9/4/2001 and recorded 9/13/2001 in the Kings County Register’s Office in Reel 5280 page 1319 (Mortgage Tax Paid: $0).

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between CANARSIE HOLDINGS, LLC, MORTGAGOR, NORTHSTAR HOSPITALITY LLC, MORTGAGEE and MORGANS HOLDINGS LLC, ROYALTON, LLC and HENRY HUDSON HOLDINGS LLC, OWNER, dated as of 6/13/2004 and recorded 5/11/2005 as CRFN 2005000272703. Spreads the lien of Mortgage ‘N’ to additionally encumber the Hudson Hotel Property, Morgans Hotel Property and Royalton Hotel Property, premises and more.

5

RELEASE OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272700 in the Kings County Register’s Office. Releases land located in Kings County from the lien of Mortgage ‘N’, other premises not made a part hereof.

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272706. Assigns Mortgage ‘N’.

FOR CONSOLIDATION SEE MORTGAGE

‘0’ MORTGAGE ‘0’

MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT made by MORGANS HOLDINGS LLC and ROYALTON, LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. in the amount of $10,345,561.97, dated 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272705. (Mortgage Tax Paid: $ 284,504.00)

AMENDMENT, RESTATEMENT AND CONSOLIDATION OF FEE AND LEASEHOLD MORTGAGES, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT made by and between MORGANS HOLDINGS LLC, ROYALTON, LLC and HENRY HUDSON HOLDINGS LLC and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., dated 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272708. Consolidates Mortgages ‘A’ through ‘0’ were consolidated to form a single lien in the amount of $240,000,000.00.

MORTGAGE ‘P’

SUBSTITUTE MORTGAGE (JUNIOR MORTGAGE) made by HENRY HUDSON HOLDINGS LLC to NORTHSTAR HOSPITALITY LLC in the amount of $7,607,906.73, dated as of 2/12/1999 and recorded 3/23/1999 in Reel 2841 page 1937. This mortgage is a second priority second mortgage pursuant to a Mortgage Modification and Splitter Agreement (Mortgage Tax Paid: $0).

MORTGAGE MODIFICATION, SPREADER AND SPLITTER AGREEMENT made by and between HENRY HUDSON HOLDINGS LLC, AS MORTGAGOR and NORTHSTAR HOSPITALITY LLC, AS MORTGAGEE, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 1965. Spreads the lien of Mortgage ‘A’ to additionally encumber Unit Lot 1702, the Unit Lot 1704 Lease and the Unit Lot 1706 Lease and severs the lien of Mortgage recorded in Reel 2841 page 1937 into two (2) separate liens as follows:

a. Lien in the amount of $4,457,906.73 evidenced by Substitute (Senior) Mortgage made by HENRY HUDSON HOLDINGS LLC to NORTHSTAR HOSPITALITY LLC, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 1978 (Mortgage ‘Al’) (Mortgage Tax Paid: $0).

b. Lien in the amount of $3,150,000.00 evidenced by Substitute (Junior) Mortgage made by HENRY HUDSON HOLDINGS LLC to NORTHSTAR HOSPITALITY LLC, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 1994 (Mortgage ‘A2’) (Mortgage Tax Paid: $0).

c. Said Mortgage ‘Al’, was assigned by NORTHSTAR HOSPITALITY LLC to CORUS BANK, N.A., dated 1/25/2000 and recorded 2/17/2000 in Reel 3050 Page 1989.

d. Said Mortgage ‘A2’, was assigned by NORTHSTAR HOSPITALITY LLC to STARWOOD FINANCIAL TRUST, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 Page 2005.

MORTGAGE ‘Q’

GAP MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by HENRY HUDSON HOLDINGS LLC to CORUS BANK, N.A., INDIVIDUALLY AND AS AGENT FOR ITSELF AND CO-LENDERS, INDIVIDUALLY AND AS AGENT in the amount of $50,091,093.27, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 2010 (Mortgage Tax Paid: $1,377,505.25).

6

CONSOLIDATED, AMENDED AND RESTATED HARD COST MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASES AND RENTS made by and between HENRY HUDSON HOLDINGS LLC and CORUS BANK, N,A., INDIVIDUALLY AND AS AGENT, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 2052. Consolidates the lien of Mortgages AI’ and ‘Q’ into a single lien in the amount of $54,549,000.00 and amends the terms of Mortgages ‘Al’ and ‘Q’, as consolidated and amended, encumbering Unit Lots 1701 and 1702, the Unit Lot 1704 Lease and the Unit Lot 1706 Lease.

ASSIGNMENT OF MORTGAGE made by CORUS BANK, N.A. FOR ITSELF AND CO-LENDERS to ISTAR FINANCE SUB V LLC, dated 10/24/2003 and recorded 12/22/2003 as CRFN 2003000521647. Assigns Mortgages ‘Al’ and ‘Q’, as consolidated and amended.

FIRST AMENDMENT TO CONSOLIDATED, AMENDED AND RESTATED HARD COST MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS MEMORANDUM OF AMENDMENTS TO LOAN made by and between HENRY HUDSON HOLDINGS LLC and ISTAR FINANCE SUB V LLC, dated as of 10/24/2003 and recorded 3/30/2004 as CRFN 2004000189129.

FOR FURTHER CONSOLIDATION SEE MORTGAGE

‘W’ MORTGAGE’W

SOFT COST MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by HENRY HUDSON HOLDINGS LLC to CORUS BANK, N.A., INDIVIDUALLY AND AS AGENT in the amount of $25,451,000,00, dated as of 1/25/2000 and recorded 2/17/2000 in Reel 3050 page 2125 (Mortgage Tax Paid: $699,902.50).

ASSIGNMENT OF MORTGAGE made by CORUS BANK, N.A. FOR ITSELF AND CO-LENDERS to ISTAR FINANCE SUB V LLC, dated 10/24/2003 and recorded 12/22/2003 as CRFN 2003000521649. Assigns Mortgage ‘R’

FIRST AMENDMENT TO SOFT COST MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by HENRY HUDSON HOLDINGS LLC and ISTAR FINANCE SUB V LLC, dated as of 10/24/2003 and recorded 3/30/2004 as CRFN 2004000189130.

ASSIGNMENT OF CONSOLIDATED, AMENDED AND RESTATED HARD COST MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS AND ASSIGNMENT OF SOFT COST MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by SFT I, INC., SUCCESSOR IN INTEREST TO ISTAR FINANCE SUB V LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272697 in the New York County Register’s Office. Assigns Mortgages ‘Al’, ‘Q’, as consolidated and amended, and ‘R’.

MORTGAGE ‘S’

SUBSTITUTE MORTGAGE (SENIOR MORTGAGE) made by HENRY HUDSON HOLDINGS LLC to NORTHSTAR HOSPITALITY LLC in the amount of $2,642,093.27, dated as of 2/12/1999 and recorded 3/23/1999 in Reel 2841 page 1928 (Mortgage Tax Paid: $0).

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to FREMONT INVESTMENT & LOAN, dated as of 2/12/1999 and recorded 3/23/1999 in Reel 2841 page 1946. Assigns Mortgage ‘S’.

FOR CONSOLIDATION SEE MORTGAGE

‘T’ MORTGAGE ‘T’

7

MORTGAGE AND SECURITY AGREEMENT made by THE ST. LUKE’S-ROOSEVELT HOSPITAL CENTER to IRVING SCHATZ in the amount of $25,169,000.00, dated as of 6/23/1993 and recorded 7/26/1993 in Reel 1992 page 604 (Mortgage Tax Paid: Exempt).

ASSIGNMENT OF MORTGAGE made by IRVING SCHATZ to NAPIS FUNDING LLC, dated as of 8/21/1997 and recorded 12/30/1997 in Reel 2526 page 2145. Assigns Mortgage T.

ASSIGNMENT OF MORTGAGE made by NAPIS FUNDING LLC to NORTHSTAR HOSPITALITY LLC, dated as of 2/12/1999 (effective as of 2/13/1998), and recorded 3/23/1999 in Reel 2841 page 1901. Assigns Mortgage’.

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to FREMONT INVESTMENT & LOAN, dated as of 2/12/1999 (effective as of 2/13/1998), recorded 3/23/1999 in Reel 2841 page 1909. Assigns Mortgage ‘T’.

CONSOLIDATED, AMENDED AND RESTATED MORTGAGE, LEASEHOLD MORTGAGE, SPREADER AGREEMENT AND FIXTURE FILING made by and between HENRY HUDSON HOLDINGS LLC, AS MORTGAGOR and FREMONT INVESTMENT & LOAN, AS MORTGAGEE, dated as of 2/12/1999 and recorded 3/23/1999 in Reel 2841 page 1954. Consolidates the liens of Mortgage ‘S’ and ‘T’ into a single lien in the principal sum of $26,850,000.00. Spreads the lien of Mortgages ‘S’ and ‘T’, as consolidated, to additionally encumber Unit Lot 1701 and the Unit Lot 1706 Lease and amends and restates the terms of Mortgages ‘S’ andT, as consolidated.

ASSIGNMENT OF MORTGAGE made by FREMONT INVESTMENT & LOAN to STARWOOD FINANCIAL INC., dated 12/15/1999 and recorded 1/18/2000 in Reel 3032 page 1960, Assigns Mortgages ‘S’ and’’’, as consolidated.

AMENDED AND RESTATED MORTGAGE, LEASEHOLD MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by and between HENRY HUDSON HOLDINGS LLC, MORTGAGOR and STARWOOD FINANCIAL INC., MORTGAGEE, dated as of 12/22/1999 and recorded 1/18/2000 in Reel 3032 page 1970. Amends and restates the terms of Mortgages ‘S’ and ‘T’, as consolidated, and spreads the lien thereof to additionally encumber the Unit Lot 1704 Lease.

AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, LEASEHOLD MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by and between HENRY HUDSON HOLDINGS LLC, MORTGAGOR and STARWOOD FINANCIAL INC., MORTGAGEE, dated as of 1/25/2000 and recorded 3/17/2000 in Reel 3050 page 2194. Consolidates the liens of Mortgages ‘A2’, ‘S’ and ‘T into a single lien in the principal sum of $300,000,000.00 and amends and restates the terms of Mortgages ‘A2’, ‘S’ and P. as consolidated, encumbering Unit Lots 1701 and 1702, the Unit Lot 1704 Lease and the Unit Lot 1706 Lease.

SUBORDINATION AND INTERCREDITOR AGREEMENT made by and between HENRY HUDSON HOLDINGS LLC, MORTGAGOR, CORUS BANK, N.A., INDIVIDUALLY AND AS AGENT, SENIOR MORTGAGEE, and STARWOOD FINANCIAL, INC., JUNIOR MORTGAGEE, dated as of 1/25/2000 recorded 2/17/2000 in Reel 3050 page 2242. Inter alia, subordinates mortgages ‘A2’ , ‘S’ and as consolidated, to Mortgages ‘Al’ and ‘Q’ , as consolidated, and Mortgage ‘R’.

ASSIGNMENT AND ASSUMPTION OF MORTGAGE made by iSTAR FINANCIAL INC., FORMERLY KNOWN AS STARWOOD FINANCIAL INC., SUCCESSOR BY MERGER TO STARWOOD FINANCIAL TRUST, to SFI I, LLC, dated as of 2/11/2003, but effective as of 1/31/2000, and recorded 6/12/2004 as CRFN 2004000298920. Assigns Mortgage ‘A2’, ‘S’ and ‘T’, as consolidated.

ASSIGNMENT OF AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, LEASEHOLD MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS made by SFI I, LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272696 in the New York County Register’s Office. Assigns Mortgages ‘A2’, ‘S’ and T, as consolidated.

8

FOR FURTHER CONSOLIDATION SEE MORTGAGE ‘W’

MORTGAGE ‘U’ (Originally affected Block 1397 Lot 49, other premises not made a part hereof)

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND FIXTURE FILING B made by BARBIZON HOLDINGS LLC to BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS in the amount of $8,081,191.98, dated as of 5/30/2001 and recorded 6/26/2001 in the New York County Register’s Office in Reel 3311 page 98 (Mortgage Tax Paid: $0).

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between BARBIZON HOLDINGS LLC, AS MORTGAGOR, BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS, AS MORTGAGEE and CANARSIE HOLDINGS LLC, AS OWNER, dated as of 5/30/2001 and recorded 9/13/2001 in the Kings County Register’s Office in Reel 5200 page 132. Modifies and spreads Mortgage ‘U’ to encumber Kings County premises, not made a part hereof.

PARTIAL RELEASE OF SUBSTIUTE MORTGAGE (B) made by BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS dated as of 5/30/2001 and recorded 7/13/2001 in Reel 3321 page 2051. Releases Block 1397 Lot 49, other premises not made a part hereof from Mortgage ‘U’.

ASSIGNMENT OF MORTGAGE made by BANKERS TRUST COMPANY, AS CUSTODIAN UNDER THAT CERTAIN SERVICING AND CUSTODIAL AGREEMENT, DATED AS OF JUNE 29, 1998, BY AND AMONG CREDIT SUISSE FIRST BOSTON STRUCTURED LOAN PARTICIPATIONS, SERIES 1998-P1 CORPORATION AND BANKERS TRUST COMPANY, AMONG OTHERS to NORTHSTAR HOSPITALITY LLC, dated as of 6/29/1998 and recorded 6/28/2001 in Reel 5200 page 143. Assigns Mortgage ‘LP.

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between CANARSIE HOLDINGS, LLC, MORTGAGOR, NORTHSTAR HOSPITALITY LLC, MORTGAGEE and MORGANS HOLDINGS LLC, ROYALTON, LLC and HENRY HUDSON HOLDINGS LLC, OWNER, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272702 in the New York County Register’s Office, Spreads the lien of Mortgage ‘U’ to additionally encumber The Hudson Hotel Property, Morgans Hotel Property and Royalton Hotel Property, premises and more.

RELEASE OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272701 in the Kings County Register’s Office. Releases land located in Kings County from the lien of Mortgage ‘U’, other premises not made a part hereof.

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272704 in the New York County Register’s Office. Assigns Mortgage ‘U’, other premises not made a part hereof.

FOR CONSOLIDATION SEE MORTGAGE ‘W’

MORTGAGE ‘V’ (Originally affected land in Kings County, not made a part hereof)

SUBSTITUTE MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING B made by CANARSIE HOLDINGS, LLC to NORTHSTAR HOSPITALITY LLC in the amount of $4,924,221.77, dated as of 9/4/2001 and recorded 9/13/2001 in the Kings County Register’s Office in Reel 5280 page 1319 (Mortgage Tax Paid: $0).

9

MORTGAGE MODIFICATION, SPREADER AND LOAN ASSUMPTION AGREEMENT made by and between CANARSIE HOLDINGS, LLC, MORTGAGOR, NORTHSTAR HOSPITALITY LLC, MORTGAGEE, and MORGANS HOLDINGS LLC, ROYALTON, LLC and HENRY HUDSON HOLDINGS LLC, OWNER, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272703 in the New York County Register’s Office. Spreads the lien of Mortgage ‘V’ to additionally encumber “The Hudson Hotel Property”, “Morgans Hotel Property” and “Royalton Hotel Property”, premises and more.

RELEASE OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC, dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272700 in the Kings County Register’s Office. Releases land located in Kings County from the lien of Mortgage ‘V’.

ASSIGNMENT OF MORTGAGE made by NORTHSTAR HOSPITALITY LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS INC., dated as of 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272706 in the New York County Register’s Office. Assigns Mortgage ‘V’.

FOR CONSOLIDATION SEE MORTGAGE

‘W’ MORTGAGE ‘W’

FEE AND LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT made by HENRY HUDSON HOLDINGS LLC to GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. in the amount of $24,000,000.00, dated 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272707 in the New York County Register’s Office (Mortgage Tax Paid: $660,000.00).

AMENDMENT, RESTATEMENT AND CONSOLIDATION OF FEE AND LEASEHOLD MORTGAGES, ASSIGNMENT OR LEASES AND RENTS AND SECURITY AGREEMENT made by and between MORGANS HOLDINGS LLC, ROYALTON, LLC and HENRY HUDSON HOLDINGS LLC and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., dated 8/13/2004 and recorded 5/11/2005 as CRFN 2005000272708. Consolidates Mortgages ‘A’ through ‘W’ to form a single consolidated lien in the principal sum of $240,000,000.00.

ASSIGNMENT OF MORTGAGE made by GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. to LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF GREENWICH CAPITAL COMMERCIAL FUNDING CORP. COMMERCIAL MORTGAGE TRUST 2004-FL2, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004-FL2, dated 11/23/2004 and recorded 8/11/2005 as CRFN 2005000452154. Assigns Mortgages ‘A’ through ‘W’, as consolidated.

ASSIGNMENT OF MORTGAGE made by LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF GREENWICH CAPITAL COMMERCIAL FUNDING CORP. COMMERCIAL MORTGAGE TRUST 2004-FL2, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004- FL2 to WACHOVIA BANK, NATIONAL ASSOCIATION, dated 6/29/2005 and recorded 8/11/2005 as CRFN 2005000452155. Assigns Mortgages ‘A’ through ‘W’, as consolidated.

FOR FURTHER CONSOLIDATION SEE MORTGAGE

‘X’ MORTGAGE ‘X’

GAP MORTGAGE made by ROYALTON, LLC, MORGANS HOLDINGS LLC AND HENRY HUDSON HOLDINGS LLC to WACHOVIA BANK, NATIONAL ASSOCIATION in the amount of $72,346,409.16, dated 6/9/2005 and recorded 8/11/2005 as CRFN 2005000452156. (Mortgage Tax Paid: $ 2,025,699.20)

CONSOLIDATION AND MODIFICATION OF MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND FIXTURE FILING made by and between ROYALTON, LLC, HENRY HUDSON HOLDINGS LLC, MORGANS HOLDINGS LLC and WACHOVIA BANK, NATIONAL ASSOCIATION, dated 6/9/2005 and recorded 8/11/2005 as CRFN 2005000452157. Consolidates Mortgages ‘A’ through ‘X’ inclusive to form a single lien in the amount of $310,449,191.79. Said consolidated mortgage encumbers the “Henry Hudson Hotel”, the “Morgans Hotel” and “Royalton Hotel” premises and more.

10

ASSIGNMENT OF CONSOLIDATION AND MODIFICATION OF MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING made by WACHOVIA BANK, NATIONAL ASSOCIATION to WELLS FARGO BANK, N.A., AS TRUSTEE FOR THE HOLDERS OF WACHOVIA BANK COMMERCIAL MORTGAGE TRUST, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-WHALE 6, dated 10/6/2006 and recorded 12/11/06 as CRFN 2006000679009. Assigns Mortgages ‘A’ through ‘X’, as consolidated.

ASSIGNMENT OF MORTGAGE made by WELLS FARGO BANK, N.A., AS TRUSTEE FOR THE HOLDERS OF WACHOVIA BANK COMMERCIAL MORTGAGE TRUST, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-WHALE 6 to WACHOVIA BANK, NATIONAL ASSOCIATION, dated 10/6/2006 and recorded 12/11/06 as CRFN 2006000679011. Assigns Mortgages ‘A’ through ‘X’, as consolidated.

NOTE AND MORTGAGE SEVERANCE AGREEMENT made by and between WACHOVIA BANK, NATIONAL ASSOCIATION and ROYALTON, LLC, HENRY HUDSON HOLDINGS LLC and MORGANS HOLDINGS LLC, dated as of 10/6/2006 and recorded 12/11/2006 as CRFN 2006000679013. Severs Mortgages ‘A’ through ‘X’, as consolidated and assigned, into three separate liens:

1) in the amount of $217,000,000.00 (evidenced by Amended and Restated Replacement Mortgage A);

2) in the amount of $1,400,000.00 (evidenced by Amended and Restated Replacement Mortgage B and subsequently released from the subject premises); and

3) in the amount of $1,400,000,00 (evidenced by Amended and Restated Replacement Mortgage C and subsequently released from the subject premises).

MORTGAGE (ORIGINALLY AFFECTED HUDSON HOTEL, MORGANS HOTEL AND ROYALTON HOTEL)

AMENDED AND RESTATED REPLACEMENT MORTGAGE A made by HENRY HUDSON HOLDINGS LLC, MORGANS HOLDINGS LLC and ROYALTON LLC to WACHOVIA BANK, NATIONAL ASSOCIATION in the amount of $217,000,000.00 dated 10/6/2006, recorded 12/11/2006 as CRFN 2006000679014. (Mortgage Tax Paid: $0)

PARTIAL RELEASE OF AMENDED AND RESTATED REPLACEMENT MORTGAGE A made by and between HENRY HUDSON HOLDINGS LLC, MORGANS HOLDINGS LLC and ROYALTON LLC and WACHOVIA BANK, NATIONAL ASSOCIATION dated 10/6/2006, recorded 12/11/2006, as CRFN 2006000679017. Releases Royalton Hotel and Morgans Hotel, Block 867 Lot 20 and Block 1259 Lot 11, from Mortgage above.

AGREEMENT OF CONSOLIDATION AND MODIFICATION OF MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING made by and between HENRY HUDSON HOLDINGS LLC and WACHOVIA BANK, NATIONAL ASSOCIATION dated as of 10/6/2006, recorded 12/11/2006, as CRFN 2006000679020. Modifies, extends and spreads Mortgage over those portions of the premises not already covered thereby, and amends and restates same, amount outstanding is $217,000,000.00.

ASSIGNMENT OF MORTGAGE made by WACHOVIA BANK, NATIONAL ASSOCIATION to LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF WACHOVIA BANK COMMERICIAL MORTGAGE TRUST, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-WHALE 8, solely to the extent set forth in the applicable Partition Agreement, the applicable Non-Trust Portion Holder dated as of 6/27/2007, recorded 11/27/2007 as CRFN 2007000587889. Assigns Mortgage(s) above.

11

MODIFICATION OF AGREEMENT OF CONSOLIDATION AND MODIFICATION OF MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING made by and between HENRY HUDSON HOLDINGS LLC and BANK OF AMERICA, NATIONAL ASSOCIATION, as successor by merger to LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF WACHOVIA BANK COMMERICIAL MORTGAGE TRUST, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-WHALE 8, dated as of 9/30/2010, recorded 10/14/2010 as CRFN 2010000344286. Modifies Agreement of Consolidation and Modification of Mortgage, Security Agreement, Assignment of Rents and Fixture Filing recorded 12/11/2006 as CRFN 2006000679020.

12

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Gross, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended September 30, 2011;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael J. Gross Michael J. Gross

Chief Executive Officer

Date: November 9, 2011

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Szymanski, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended September 30, 2011;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard Szymanski Richard Szymanski

Chief Financial Officer

Date: November 9, 2011

EX-32.1

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael J. Gross, as Chief Executive Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/ Michael J. Gross Michael J. Gross

Chief Executive Officer

Date: November 9, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Szymanski, as Chief Financial Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/ Richard Szymanski Richard Szymanski

Chief Financial Officer

Date: November 9, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
LIABILITIES AND STOCKHOLDERS' DEFICIT
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, liquidation preference per share	$ 1,000	$ 1,000
Preferred stock, shares authorized	75,000	75,000
Preferred stock, shares issued	75,000	75,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	36,277,495	36,277,495
Treasury stock, shares	5,555,654	5,985,045

XML

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Rooms	$ 26,432	$ 35,100	$ 90,951	$ 99,443
Food and beverage	15,575	16,017	49,216	51,062
Other hotel	1,271	2,077	5,020	6,730
Total hotel revenues	43,278	53,194	145,187	157,235
Management fees and other income	3,408	4,547	10,112	14,079
Total revenues	46,686	57,741	155,299	171,314
Operating Costs and Expenses:
Rooms	8,263	11,061	29,122	31,377
Food and beverage	13,664	14,426	41,901	42,526
Other departmental	870	1,322	3,117	3,834
Hotel selling, general and administrative	9,951	12,275	33,301	35,523
Property taxes, insurance and other	4,247	3,650	12,136	12,461
Total hotel operating expenses	36,995	42,734	119,577	125,721
Corporate expenses, including stock compensation of $1.4 million, $2.3 million, $7.4 million, and $8.9 million, respectively	7,037	8,045	25,920	27,270
Depreciation and amortization	4,833	8,173	17,405	23,529
Restructuring, development and disposal costs	2,125	1,064	10,518	2,930
Impairment loss on receivables from unconsolidated joint ventures		5,499		5,499
Total operating costs and expenses	50,990	65,515	173,420	184,949
Operating loss	(4,304)	(7,774)	(18,121)	(13,635)
Interest expense, net	8,775	8,319	27,783	33,058
Equity in loss of unconsolidated joint ventures	12,794	1,435	23,187	9,437
Gain on asset sales	(1,101)		(1,721)
Other non-operating expenses	616	20,299	2,885	35,491
Loss before income tax expense	(25,388)	(37,827)	(70,255)	(91,621)
Income tax expense	230	420	523	994
Net loss from continuing operations	(25,618)	(38,247)	(70,778)	(92,615)
(Loss) income from discontinued operations, net of taxes		(281)	485	16,474
Net loss	(25,618)	(38,528)	(70,293)	(76,141)
Net loss attributable to noncontrolling interest	799	1,451	2,007	2,033
Net loss attributable to Morgans Hotel Group	(24,819)	(37,077)	(68,286)	(74,108)
Preferred stock dividends and accretion	2,285	2,164	6,701	6,357
Net loss attributable to common stockholders	(27,104)	(39,241)	(74,987)	(80,465)
Other comprehensive loss:
Unrealized (loss) gain on valuation of swap/cap agreements, net of tax	(12)	1,055	(7)	11,058
Share of unrealized loss on valuation of swap agreements from unconsolidated joint venture, net of tax	(1,444)	(1,274)	(423)	(1,274)
Realized loss on settlement of swap/cap agreements, net of tax		(830)		(5,971)
Foreign currency translation gain (loss), net of tax	52	(179)	(57)	77
Comprehensive loss	$ (28,508)	$ (40,469)	$ (75,474)	$ (76,575)
(Loss) income per share:
Basic and diluted continuing operations	$ (0.89)	$ (1.29)	$ (2.41)	$ (3.18)
Basic and diluted discontinued operations	$ 0.00	$ (0.01)	$ 0.02	$ 0.54
Basic and diluted attributable to common stockholders	$ (0.89)	$ (1.30)	$ (2.39)	$ (2.64)
Weighted average number of common shares outstanding:
Basic and diluted	30,617	30,162	31,359	30,470

XML

Document and Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Nov. 08, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	Morgans Hotel Group Co.
Entity Central Index Key	0001342126
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 153,512,756
Entity Common Stock, Shares Outstanding		30,731,457

XML

Debt and Capital Lease Obligations

9 Months Ended

Sep. 30, 2011

Debt and Capital Lease Obligations [Abstract]

Debt and Capital Lease Obligations

6. Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

	As of		As of
	Sept. 30,		December 31,		Interest rate at
Description	2011		2010		September 30, 2011
Notes secured by Hudson (a)	$	115,000	$	201,162	5.00% (LIBOR + 4.00%, LIBOR floor of 1.00%)
Notes secured by equity interests in Henry Hudson Holdings (a)		—		26,500	(a)
Clift debt (b)		86,484		85,033	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes, face value of $172.5 million (d)		165,576		163,869	2.38%
Revolving credit facility (e)		10,000		26,008	5.00% (LIBOR + 4.00%, LIBOR floor of 1.00%)
Capital lease obligations (f)		6,107		6,107	(f)
Debt and capital lease obligation	$	433,267	$	558,779
Mortgage debt secured by assets held for sale — Mondrian Los Angeles (a)	$	—	$	103,496
Notes secured by property held for non-sale disposition (g)	$	—	$	10,500

(a) Mortgage Agreements

Hudson Mortgage and Mezzanine Loan

On October 6, 2006, a subsidiary of the Company, Henry Hudson Holdings LLC (“Hudson Holdings”), entered into a non-recourse mortgage financing secured by Hudson (the “Hudson Mortgage”), and another subsidiary entered into a mezzanine loan related to Hudson, secured by a pledge of the Company’s equity interests in Hudson Holdings.

Until amended as described below, the Hudson Mortgage bore interest at 30-day LIBOR plus 0.97%. The Company had entered into an interest rate swap on the Hudson Mortgage and the mezzanine loan on Hudson which effectively fixed the 30-day LIBOR rate at approximately 5.0%. This interest rate swap expired on July 15, 2010. The Company subsequently entered into a short-term interest rate cap on the Hudson Mortgage that expired on September 12, 2010.

On October 1, 2010, Hudson Holdings entered into a modification agreement of the Hudson Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders (the “Amended Hudson Mortgage”). This modification agreement and related agreements extended the Hudson Mortgage until October 15, 2011. In connection with the Amended Hudson Mortgage, on October 1, 2010, Hudson Holdings paid down a total of $16 million on its outstanding loan balances.

The interest rate on the Amended Hudson Mortgage was also amended to 30-day LIBOR plus 1.03%. The interest rate on the Hudson mezzanine loan continued to bear interest at 30-day LIBOR plus 2.98%. The Company entered into interest rate caps expiring October 15, 2011 in connection with the Amended Hudson Mortgage, which effectively capped the 30-day LIBOR rate at 5.3% on the Amended Hudson Mortgage and effectively capped the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

The Amended Hudson Mortgage required the Company’s subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower was also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves were deposited into restricted cash accounts and released as certain conditions were met. In addition, all excess cash was required to be funded into a curtailment reserve account. The subsidiary borrower was not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

On August 12, 2011, certain of the Company’s subsidiaries entered into a new mortgage financing with Deutsche Bank Trust Company Americas and the other institutions party thereto from time to time, as lenders, consisting of two mortgage loans, each secured by Hudson and treated as a single loan once disbursed, in the following amounts: (1) a $115.0 million mortgage loan that was funded at closing, and (2) a $20.0 million delayed draw term loan, which will be available to be drawn over a 15-month period, subject to achieving a debt yield ratio of at least 9.5% (based on net operating income for the prior 12 months) after giving effect to each additional draw (collectively, the “ Hudson 2011 Mortgage Loan”).

Proceeds from the Hudson 2011 Mortgage Loan, cash on hand and cash held in escrow were applied to repay $201.2 million of outstanding mortgage debt under the Amended Hudson Mortgage, repay $26.5 million of outstanding indebtedness under the Hudson mezzanine loan, and pay fees and expenses in connection with the financing.

The Hudson 2011 Mortgage Loan bears interest at a reserve adjusted blended rate of 30-day LIBOR (with a minimum of 1.0%) plus 400 basis points. The Company maintains an interest rate cap for the amount of the Hudson 2011 Mortgage Loan that will cap the LIBOR rate on the debt under the Hudson 2011 Mortgage Loan at approximately 3.0% through the maturity date of the loan.

The Hudson 2011 Mortgage Loan matures on August 12, 2013. The Company has three one-year extension options that will permit it to extend the maturity date of the Hudson 2011 Mortgage Loan to August 12, 2016 if certain conditions are satisfied at each respective extension date. The first two extension options require, among other things, the borrowers to maintain a debt service coverage ratio of at least 1-to-1 for the 12 months prior to the applicable extension dates. The third extension option requires, among other things, the borrowers to achieve a debt yield ratio of at least 13.0% (based on net operating income for the prior 12 months).

The Hudson 2011 Mortgage Loan provides that, in the event the debt yield ratio falls below certain defined thresholds, all cash from the property is deposited into accounts controlled by the lenders from which debt service, operating expenses and management fees are paid and from which other reserve accounts may be funded. Any excess amounts are retained by the lenders until the debt yield ratio exceeds the required thresholds for two consecutive calendar quarters. Furthermore, if the Hudson manager is not reserving sufficient funds for property tax, ground rent, insurance premiums, and capital expenditures in accordance with the hotel management agreement, then the Company’s subsidiary borrowers would be required to fund the reserve account for such purposes. The Company’s subsidiary borrowers are not permitted to have any indebtedness other than certain permitted indebtedness customary in such transactions, including ordinary trade payables, purchase money indebtedness and capital lease obligations, subject to limits.

The Hudson 2011 Mortgage Loan may be prepaid, in whole or in part, subject to payment of a prepayment penalty for any prepayment prior to August 12, 2013. There is no prepayment premium after August 12, 2013.

The Hudson 2011 Mortgage Loan contains restrictions on the ability of the borrowers to incur additional debt or liens on their assets and on the transfer of direct or indirect interests in Hudson and the owner of Hudson and other affirmative and negative covenants and events of default customary for single asset mortgage loans. The Hudson 2011 Mortgage Loan is fully recourse to our subsidiaries that are the borrowers under the loan. The loan is nonrecourse to us, Morgans Group and our other subsidiaries, except for certain standard nonrecourse carveouts. Morgans Group has provided a customary environmental indemnity and nonrecourse carveout guaranty under which it would have liability with respect to the Hudson 2011 Mortgage Loan if certain events occur with respect to the borrowers, including voluntary bankruptcy filings, collusive involuntary bankruptcy filings, and violations of the restrictions on transfers, incurrence of additional debt, or encumbrances of the property of the borrowers. The nonrecourse carveout guaranty requires Morgans Group to maintain a net worth of at least $100 million (based on the estimated market value of our net assets) and liquidity of at least $20 million.

Mondrian Los Angeles Mortgage

On October 6, 2006, a subsidiary of the Company, Mondrian Holdings LLC (“Mondrian Holdings”), entered into a non-recourse mortgage financing secured by Mondrian Los Angeles (the “Mondrian Mortgage”).

On October 1, 2010, Mondrian Holdings entered into a modification agreement of its Mondrian Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. This modification agreement and related agreements amended and extended the Mondrian Mortgage (the “Amended Mondrian Mortgage”) until October 15, 2011. In connection with the Amended Mondrian Mortgage, on October 1, 2010, Mondrian Holdings paid down a total of $17 million on its outstanding mortgage loan balance.

The interest rate on the Amended Mondrian Mortgage was also amended to 30-day LIBOR plus 1.64%. The Company entered into an interest rate cap which expired on October 15, 2011 in connection with the Amended Mondrian Mortgage which effectively capped the 30-day LIBOR rate at 4.25%.

On May 3, 2011, the Company completed the sale of Mondrian Los Angeles for $137.0 million to Wolverines Owner LLC, an affiliate of Pebblebrook. The Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage.

(b) Clift Debt

In October 2004, Clift Holdings LLC (“Clift Holdings”), a subsidiary of the Company, sold the Clift hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, the Company is required to fund operating shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing.

Due to the amount of the payments stated in the lease, which increase periodically, and the economic environment in which the hotel operates, Clift Holdings, had not been operating Clift at a profit and Morgans Group had been funding cash shortfalls sustained at Clift in order to enable Clift Holdings to make lease payments from time to time. On March 1, 2010, however, the Company discontinued subsidizing the lease payments and Clift Holdings stopped making the scheduled monthly payments. On May 4, 2010, the owners filed a lawsuit against Clift Holdings, which the court dismissed on June 1, 2010. On June 8, 2010, the owners filed a new lawsuit and on June 17, 2010, the Company and Clift Holdings filed an affirmative lawsuit against the owners.

On September 17, 2010, the Company, Clift Holdings and another subsidiary of the Company, 495 Geary, LLC, entered into a settlement and release agreement with Hasina, LLC, Tarstone Hotels, LLC, Kalpana, LLC, Rigg Hotel, LLC, and JRIA, LLC (collectively, the “Lessors”), and Tarsadia Hotels (the “Settlement and Release Agreement”). The Settlement and Release Agreement, among other things, effectively provided for the settlement of all outstanding litigation claims and disputes among the parties relating to defaulted lease payments due with respect to the ground lease for the Clift and reduced the lease payments due to Lessors for the period March 1, 2010 through February 29, 2012. Clift Holdings and the Lessors also entered into an amendment to the lease, dated September 17, 2010 (“Lease Amendment”), to memorialize, among other things, the reduced annual lease payments of $4.97 million from March 1, 2010 to February 29, 2012. Effective March 1, 2012, the annual rent will be as stated in the lease agreement, which currently provides for base annual rent of approximately $6.0 million per year through October 2014 increasing thereafter, at 5-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum of 20% at October 2014, and at each payment date thereafter, the maximum increase is 20% and the minimum is 10%. The lease is non-recourse to the Company.

Morgans Group also entered into an agreement, dated September 17, 2010 (the “Limited Guaranty,” together with the Settlement and Release Agreement and Lease Amendment, the “Clift Settlement Agreements”), whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the Lessors in the event of certain “bad boy” type acts.

(c) Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Notes. The terms of the Trust Notes are substantially the same as preferred securities issued by the Trust. The Trust Notes and the preferred securities have a fixed interest rate of 8.68% per annum during the first 10 years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The Trust Notes are redeemable by the Trust, at the Company’s option, after five years at par. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of preferred securities.

Prior to the amendment described below, the Trust Notes agreement required that the Company not fall below a fixed charge coverage ratio, defined generally as consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), excluding Clift’s EBITDA, over consolidated interest expense, excluding Clift’s interest expense, of 1.4 to 1.0 for four consecutive quarters. On November 2, 2009, the Company amended the Trust Notes agreement to permanently eliminate this financial covenant. The Company paid a one-time fee of $2.0 million in exchange for the permanent removal of the covenant.

The Company has identified that the Trust is a variable interest entity under ASC 810-10. Based on management’s analysis, the Company is not the primary beneficiary under the trust. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

(d) October 2007 Convertible Notes Offering

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”) in a private offering. Net proceeds from the offering were approximately $166.8 million.

The Convertible Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by the Company’s operating company, Morgans Group. The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances and upon the occurrence of specified events.

Interest on the Convertible Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2008, and the Convertible Notes mature on October 15, 2014, unless previously repurchased by the Company or converted in accordance with their terms prior to such date. The initial conversion rate for each $1,000 principal amount of Convertible Notes is 37.1903 shares of the Company’s common stock, representing an initial conversion price of approximately $26.89 per share of common stock. The initial conversion rate is subject to adjustment under certain circumstances. The maximum conversion rate for each $1,000 principal amount of Convertible Notes is 45.5580 shares of the Company’s common stock representing a maximum conversion price of approximately $21.95 per share of common stock.

The Company follows ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), which clarifies the accounting for convertible notes payable. ASC 470-20 requires the proceeds from the issuance of convertible notes to be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the debt is expected to be outstanding as additional interest expense. The equity component, recorded as additional paid-in capital, was determined to be $9.0 million, which represents the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million as of the date of issuance of the Convertible Notes.

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions with respect to the Company’s common stock (the “Call Options”) with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. (collectively, the “Hedge Providers”). The Call Options are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which the Company will receive shares of the Company’s common stock from the Hedge Providers equal to the number of shares issuable to the holders of the Convertible Notes upon conversion. The Company paid approximately $58.2 million for the Call Options.

In connection with the sale of the Convertible Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The Company received approximately $34.1 million from the issuance of the Warrants.

The Company recorded the purchase of the Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of additional paid-in capital and the proceeds from the Warrants as an addition to additional paid-in capital in accordance with ASC 815-30, Derivatives and Hedging, Cash Flow Hedges.

In February 2008, the Company filed a registration statement with the Securities and Exchange Commission to cover the resale of shares of the Company’s common stock that may be issued from time to time upon the conversion of the Convertible Notes.

(e) Revolving Credit Facility

On October 6, 2006, the Company and certain of its subsidiaries entered into a revolving credit facility with Wachovia Bank, National Association, as Administrative Agent, and the other lenders party thereto, which was amended on August 5, 2009, (the “Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by the mortgages on Morgans, Royalton and Delano South Beach.

The Amended Revolving Credit Facility bore interest at a fluctuating rate measured by reference to, at the Company’s election, either LIBOR (subject to a LIBOR floor of 1%) or a base rate, plus a borrowing margin. LIBOR loans had a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum.

On May 23, 2011, in connection with the sale of Royalton and Morgans, the Company used a portion of the sales proceeds to retire all outstanding debt under the Amended Revolving Credit Facility. These hotels, along with Delano South Beach, were collateral for the Amended Revolving Credit Facility, which terminated with the sale of the properties securing the facility.

On July 28, 2011, the Company and certain of its subsidiaries (collectively, the “Borrowers”), including Beach Hotel Associates LLC (the “Florida Borrower”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

The Delano Credit Agreement provides commitments for a $100.0 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable.

As of September 30, 2011, the Company had $10.0 million outstanding under the Delano Credit Agreement and an additional $10.0 million letter of credit outstanding related to the Company’s key money investment in the 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. In August 2011, the Company entered into a hotel management and residential licensing agreement related to this project.

The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by the Company and a subsidiary of the Company. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by the Company and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that the Company and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter. As of September 30, 2011, the Company’s fixed charge coverage ratio under the Delano Credit Agreement was 1.59x.

The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

(f) Capital Lease Obligations

The Company has leased two condominium units at Hudson from unrelated third-parties, which are reflected as capital leases. One of the leases requires the Company to make annual payments, currently $582,180 (subject to increases due to increases in the Consumer Price Index) from acquisition through November 2096. This lease also allows the Company to purchase the unit at fair market value after November 2015.

The second lease requires the Company to make annual payments, currently $328,128 (subject to increases due to increases in the Consumer Price Index) through December 2098. The Company has allocated both of the leases’ payments between the land and building based on their estimated fair values. The portion of the payments allocated to building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%, which is based on the Company’s incremental borrowing rate at the time the lease agreement was executed. The capital lease obligations related to the units amounted to approximately $6.1 million as of September 30, 2011 and December 31, 2010. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

(g) Notes secured by property held for non sale disposition

An indirect subsidiary of the Company had issued a $10.0 million interest only non-recourse promissory note to the seller of the property across from the Delano South Beach which was due on January 24, 2011 and secured by the property. Additionally, a separate indirect subsidiary of the Company had issued a $0.5 million interest only non-recourse promissory note to an affiliate of the seller which was also due on January 24, 2011 and secured with a pledge of the equity interests in the Company’s subsidiary that owned the property. In January 2011, the Company’s indirect subsidiary transferred its interests in the property across the street from Delano South Beach to SU Gale Properties, LLC (the “Gale Transaction”). As a result of the Gale Transaction, the Company was released from the $10.5 million of non-recourse mortgage and mezzanine indebtedness.

XML

Litigation

9 Months Ended

Sep. 30, 2011

Litigation [Abstract]

Litigation

11. Litigation

Petra Litigation Regarding Scottsdale Mezzanine Loan

On April 7, 2010, Petra CRE CDO 2007-1, LTD, a Cayman Islands Exempt Company (“Petra”), filed a complaint against Morgans Group LLC in the Supreme Court of the State of New York County of New York in connection with an approximately $14.0 million non-recourse mezzanine loan made on December 1, 2006 by Greenwich Capital Financial Products Company LLC (the “Original Lender”) to Mondrian Scottsdale Mezz Holding Company LLC, a wholly-owned subsidiary of Morgans Group LLC. The mezzanine loan relates to the Scottsdale, Arizona property previously owned by the Company. In connection with the mezzanine loan, Morgans Group LLC entered into a so-called “bad boy” guaranty providing for recourse liability under the mezzanine loan in certain limited circumstances. Pursuant to an assignment by the Original Lender, Petra is the holder of an interest in the mezzanine loan. The complaint alleged that the foreclosure of the Scottsdale property by a senior lender on March 16, 2010 constitutes an impermissible transfer of the property that triggered recourse liability of Morgans Group LLC pursuant to the guaranty. Petra demanded damages of approximately $15.9 million plus costs and expenses.

The Company believes that a foreclosure based on a payment default does not create one of the limited circumstances under which Morgans Group would have recourse liability under the guaranty. On May 27, 2010, the Company answered Petra’s complaint, denying any obligation to make payment under the guaranty. On July 9, 2010, Petra moved for summary judgment on the ground that the loan documents unambiguously establish Morgans Group’s obligation under the guaranty. The Company opposed Petra’s motion for summary judgment, and cross-moved for summary judgment in favor of the Company on grounds that the guaranty was not triggered by a foreclosure resulting from a payment default. On December 20, 2010, the court granted the Company’s motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in the Company’s favor and the dismissal of Petra’s complaint. Petra then petitioned the New York Court of Appeals for permission to appeal further and the Company opposed that petition. On September 22, 2011, the Court of Appeals denied Petra’s request for leave to appeal.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations on its current investment or on investments that may be made in the future.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method, if the Company can exercise significant influence.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Effective January 1, 2010, the Financial Accounting Standards Board (“FASB”) amended the guidance in ASC 810-10, for determining whether an entity is a variable interest entity and requiring the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity. Under this guidance, an entity would be required to consolidate a variable interest entity if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the variable interest entity or the right to receive benefits from the variable interest entity that could be significant to the variable interest entity. Adoption of this guidance on January 1, 2010 did not have a material impact on the consolidated financial statements.

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable. Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense. Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement.

The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless the Company has continuing involvement, such as through a management agreement, after the sale.

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on a portion of its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of hotel properties or an interest therein. When the Company sells a wholly-owned hotel subject to a long-term management contract, the pretax gain is deferred and is recognized over the life of the contract. In such instances, the Company establishes a deferred tax asset on the deferred gain and recognizes the related tax benefit through the tax provision. In May 2011, the Company used a portion of its tax net operating loss carryforwards to offset the gains on the sale of Royalton, Morgans and Mondrian Los Angeles.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three and nine months ended September 30, 2011 and 2010, were computed using the Company’s effective tax rate.

Derivative Instruments and Hedging Activities

In accordance with ASC 815-10, Derivatives and Hedging (“ASC 815-10”) the Company records all derivatives on the balance sheet at fair value and provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts relating to interest payments on the Company’s borrowings. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive loss (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as a component of interest expense. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

As of September 30, 2011 and December 31, 2010, the estimated fair market value of the Company’s cash flow hedges is immaterial.

In connection with the London Sale Agreement, defined below in footnote 4, on November 2, 2011, Walton, on behalf of itself and the Company, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

Credit-risk-related Contingent Features

The Company has entered into agreements with each of its derivative counterparties in connection with the interest rate caps and hedging instruments related to the Convertible Notes, as defined and discussed in note 6, providing that in the event the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company has entered into warrant agreements with Yucaipa, as discussed in note 8, providing Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (collectively, the “Investors”) with consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2011 and December 31, 2010, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements.

In connection with the issuance of 75,000 of the Company’s Series A Preferred Securities to the Investors, as discussed in note 8, the Company also issued warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share to the Investors. Until October 15, 2010, the $6.00 exercise price of the warrants was subject to certain reductions if the Company had issued shares of common stock below $6.00 per share. The exercise price adjustments were not triggered prior to the expiration of such right on October 15, 2010. The fair value for each warrant granted was estimated at the date of grant using the Black-Scholes option pricing model, an allowable valuation method under ASC 718-10, Compensation, Stock Based Compensation (“ASC 718-10”). The estimated fair value per warrant was $1.96 on October 15, 2009.

Although the Company has determined that the majority of the inputs used to value the outstanding warrants fall within Level 1 of the fair value hierarchy, the Black-Scholes model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the warrant liability was classified as a Level 3 fair value measure. On October 15, 2010, this liability was reclassified into equity, per ASC 815-10-15, Derivatives and Hedging, Embedded Derivatives (“ASC 815-10-15”).

In connection with its Outperformance Award Program, as discussed in note 7, the Company issued OPP LTIP Units (as defined in note 7) which were initially fair valued on the date of grant, and on September 30, 2011, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. As the Company has the ability to settle the vested OPP LTIP Units with cash, these awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value.

Although the Company has determined that the majority of the inputs used to value the OPP LTIP Units fall within Level 1 of the fair value hierarchy, the Monte Carlo simulation model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the OPP LTIP Unit liability was classified as a Level 3 fair value measure.

During the three and nine months ended September 30, 2011, the Company recognized non-cash impairment charges of $1.6 million and $4.0 million, respectively, related to the Company’s investment in Mondrian SoHo, through equity in loss from joint ventures. The Company’s estimated fair value relating to this impairment assessment was based primarily upon Level 3 measurements, including a discounted cash flow analysis to estimate the fair value of the assets taking into account the assets expected cash flow, holding period and estimated proceeds from the disposition of assets, as well as market and economic conditions.

Fair Value of Financial Instruments

As mentioned below and in accordance with ASC 825-10, Financial Instruments, and ASC 270-10, Presentation, Interim Reporting, the Company provides quarterly fair value disclosures for financial instruments. Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of September 30, 2011 and December 31, 2010 due to the short-term maturity of these items or variable market interest rates.

The fair market value of the Company’s $222.6 million of fixed rate debt, excluding capitalized lease obligations and including the Convertible Notes at face value, as of September 30, 2011 and December 31, 2010 was approximately $205.7 million and $248.6 million, respectively, using market interest rates.

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. For awards under the Company’s Outperformance Award Program, discussed in note 7, long-term incentive awards, the total compensation expense is based on the estimated fair value using the Monte Carlo pricing model. Compensation expense is recorded ratably over the vesting period, if any. Stock compensation expense recognized for the three months ended September 30, 2011 and 2010 was $1.4 million and $2.3 million, respectively. Stock compensation expense recognized for the nine months ended September 30, 2011 and 2010 was $7.4 million and $8.9 million, respectively.

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity (deficit) in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of operations and comprehensive loss.

The membership units in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $8.4 million and $10.6 million as of September 30, 2011 and December 31, 2010, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the limited members’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the limited members’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period.

Additionally, less than $0.3 million was recorded as noncontrolling interest as of December 31, 2010, which represents the Company’s joint venture partner’s interest in food and beverage ventures at certain of the Company’s hotels.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation, including discontinued operations, discussed in note 9, and assets held for sale, discussed in note 12.

New Accounting Pronouncements

Accounting Standards Update No. 2011-04 — “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No. 2011-04”) generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. The Company does not believe ASU 2011-04 will have a material impact on its financial statements.

Accounting Standards Update No. 2011-05 — “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”) amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company believes the adoption of this update may provide additional detail on the consolidated financial statements when applicable, but will not have any other impact on the Company’s financial statements.

Accounting Standards Update No. 2011-08 — “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU No. 2011-08”) amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If this is the case, companies will need to perform a more detailed two-step goodwill impairment test which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. ASU No. 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not believe the adoption of this update will have a material impact on its financial statements.

XML

Preferred Securities and Warrants

9 Months Ended

Sep. 30, 2011

Preferred Securities and Warrants [Abstract]

Preferred Securities and Warrants

8. Preferred Securities and Warrants

On October 15, 2009, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Investors. Under the Securities Purchase Agreement, the Company issued and sold to the Investors (i) 75,000 shares of the Company’s Series A Preferred Securities, $1,000 liquidation preference per share (the “Series A Preferred Securities”), and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share.

The Series A Preferred Securities have an 8% dividend rate for the first five years, a 10% dividend rate for years six and seven, and a 20% dividend rate thereafter. The Company has the option to accrue any and all dividend payments, and as of September 30, 2011, the Company had undeclared and unpaid dividends of $12.8 million. The Company has the option to redeem any or all of the Series A Preferred Securities at par at any time. The Series A Preferred Securities have limited voting rights and only vote on the authorization to issue senior preferred securities, amendments to their certificate of designations, amendments to the Company’s charter that adversely affect the Series A Preferred Securities and certain change in control transactions.

As discussed in note 2, the warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. Until October 15, 2010, the Investors had certain rights to purchase their pro rata share of any equity or debt securities offered or sold by the Company. In addition, the $6.00 exercise price of the warrants was subject to certain reductions if, any time prior to October 15, 2010, the Company issued shares of common stock below $6.00 per share. Per ASC 815-40-15, as the strike price was adjustable until the first anniversary of issuance, the warrants were not considered indexed to the Company’s stock until that date. Therefore, through October 15, 2010, the Company accounted for the warrants as liabilities at fair value. On October 15, 2010, the Investors rights under this warrant exercise price adjustment expired, at which time the warrants met the scope exception in ASC 815-10-15 and are accounted for as equity instruments indexed to the Company’s stock. At October 15, 2010, the warrants were reclassified to equity and will no longer be adjusted periodically to fair value.

The exercise price and number of shares subject to the warrants are both subject to anti-dilution adjustments.

Under the Securities Purchase Agreement, the Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock, including (subject to certain exceptions and limitations):

• the sale of substantially all of the Company’s assets to a third party;

• the acquisition by the Company of a third party where the equity investment by the Company is $100 million or greater;

• the acquisition of the Company by a third party; or

• any change in the size of the Company’s Board of Directors to a number below 7 or above 9.

Subject to certain exceptions, the Investors may not transfer any Series A Preferred Securities, warrants or common stock until October 15, 2012. The Investors are also subject to certain standstill arrangements as long as they beneficially own over 15% of the Company’s common stock.

In connection with the investment by the Investors, the Company paid to the Investors a commitment fee of $2.4 million and reimbursed the Investors for $600,000 of expenses.

The Company calculated the fair value of the Series A Preferred Securities at its net present value by discounting dividend payments expected to be paid on the shares over a 7-year period using a 17.3% rate. The Company determined that the market discount rate of 17.3% was reasonable based on the Company’s best estimate of what similar securities would most likely yield when issued by entities comparable to the Company.

The initial carrying value of the Series A Preferred Securities was recorded at its net present value less costs to issue on the date of issuance. The carrying value will be periodically adjusted for accretion of the discount. As of September 30, 2011, the value of the Series A Preferred Securities was $53.3 million, which includes accretion of $5.3 million.

The Company calculated the estimated fair value of the warrants using the Black-Scholes valuation model, as discussed in note 2.

The Company and Yucaipa American Alliance Fund II, LLC, an affiliate of the Investors (the “Fund Manager”), also entered into a Real Estate Fund Formation Agreement (the “Fund Formation Agreement”) on October 15, 2009 pursuant to which the Company and the Fund Manager agreed to use their good faith efforts to endeavor to raise a private investment fund (the “Fund”). The purpose of the Fund was to invest in hotel real estate projects located in North America. The Company was to be offered the opportunity to manage the hotels owned by the Fund under long-term management agreements. In connection with the Fund Formation Agreement, the Company issued to the Fund Manager 5,000,000 contingent warrants to purchase the Company’s common stock at an exercise price of $6.00 per share with a 7-1/2 year term.

The Fund Formation Agreement terminated by its terms on January 30, 2011 due to the failure to close a fund with $100 million of aggregate capital commitments by that date, and the 5,000,000 contingent warrants issued to the Fund Manager were forfeited in their entirety on October 15, 2011 due to the failure to close a fund with $250 million of aggregate capital commitments by that date.

For so long as the Investors collectively own or have the right to purchase through exercise of the warrants (assuming a cash rather than a cashless exercise) 875,000 shares of the Company’s common stock, the Company has agreed to use its reasonable best efforts to cause its Board of Directors to nominate and recommend to the Company’s stockholders the election of a person nominated by the Investors as a director of the Company and to use its reasonable best efforts to ensure that the Investors’ nominee is elected to the Company’s Board of Directors at each such meeting. If that nominee is not elected by the Company’s stockholders, the Investors have certain observer rights and, in certain circumstances, the dividend rate on the Series A Preferred Securities increases by 4% during any time that an Investors’ nominee is not a member of the Company’s Board of Directors. Effective October 15, 2009, the Investors nominated and the Company’s Board of Directors elected Michael Gross as a member of the Company’s Board of Directors. Effective March 20, 2011 when Mr. Gross was appointed Chief Executive Officer of the Company, the Investors’ nominated, and the Company’s Board of Directors elected, Ron Burkle as a member of the Company’s Board of Directors.

On April 21, 2010, the Company entered into a Waiver Agreement (the “Waiver Agreement”) with the Investors. The Waiver Agreement allowed the purchase by the Investors of up to $88 million in aggregate principal amount of the Convertible Notes within six months of April 21, 2010 and subject to the limitations and conditions set forth therein. From April 21, 2010 to July 21, 2010, the Investors purchased $88 million of the Convertible Notes. Pursuant to the Waiver Agreement, in the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock exceeds the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first refusal for the purchase of the same from the Investors. In the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock is equal to or less than the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first offer to purchase the same from the Investors.

XML

Discontinued Operations

9 Months Ended

Sep. 30, 2011

Discontinued Operations [Abstract]

Discontinued Operations

9. Discontinued Operations

In May 2006, the Company obtained a $40.0 million non-recourse mortgage and mezzanine financing on Mondrian Scottsdale, which accrued interest at LIBOR plus 2.3%, and for which Morgans Group had provided a standard non-recourse carve-out guaranty. In June 2009, the non-recourse mortgage and mezzanine loans matured and the Company discontinued subsidizing the debt service. The lender foreclosed on the property and terminated the Company’s management agreement related to the property with an effective termination date of March 16, 2010.

The Company has reclassified the individual assets and liabilities to the appropriate discontinued operations line items on its December 31, 2010 balance sheet. Additionally, the Company reclassified the hotels results of operations and cash flows to discontinued operations on the Company’s statements of operations and comprehensive loss and cash flows.

Additionally, in January 2011, an indirect subsidiary of the Company transferred its interests in the property across the street from Delano South Beach to SU Gale Properties, LLC. As a result of this transaction, the Company was released from $10.5 million of non-recourse mortgage and mezzanine indebtedness previously consolidated on the Company’s balance sheet. The property across the street from Delano South Beach was a development property.

The following sets forth the discontinued operations of Mondrian Scottsdale and the property across the street from Delano South Beach for the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three Months		Three Months			Nine Months			Nine Months
	Ended		Ended			Ended			Ended
	Sept. 30, 2011		Sept. 30, 2010			Sept. 30, 2011			Sept. 30, 2010
Operating revenues	$	—	$	—		$	—		$	1,594
Operating expenses		—		(175	)		(35	)		(2,105	)
Interest expense		—		(291	)		—			(1,026	)
Depreciation and amortization expense		—		—			—			(268	)
Income tax benefit (expense)		—		185			(323	)		459
Gain on disposal		—		—			843			17,820
(Loss) income from discontinued operations	$	—	$	(281	)	$	485		$	16,474

XML

Omnibus Stock Incentive Plan

9 Months Ended

Sep. 30, 2011

Omnibus Stock Incentive Plan [Abstract]

Omnibus Stock Incentive Plan

7. Omnibus Stock Incentive Plan

RSUs, LTIPs and Stock Options

On February 9, 2006, the Board of Directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (the “2006 Stock Incentive Plan”). An aggregate of 3,500,000 shares of common stock of the Company were reserved and authorized for issuance under the 2006 Stock Incentive Plan, subject to equitable adjustment upon the occurrence of certain corporate events. On April 23, 2007, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 22, 2007, the stockholders approved, the Company’s 2007 Omnibus Incentive Plan (the “2007 Incentive Plan”), which amended and restated the 2006 Stock Incentive Plan and increased the number of shares reserved for issuance under the plan by up to 3,250,000 shares to a total of 6,750,000 shares. On April 10, 2008, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 20, 2008, the stockholders approved, an Amended and Restated 2007 Omnibus Incentive Plan (the “Restated 2007 Incentive Plan”) which, among other things, increased the number of shares reserved for issuance under the plan by up to 1,860,000 shares to a total of 8,610,000 shares. On November 30, 2009, the Board of Directors of the Company adopted, and at a special meeting of stockholders of the Company held on January 28, 2010, the Company’s stockholders approved, an amendment to the Restated 2007 Incentive Plan (the “Amended 2007 Incentive Plan”) to increase the number of shares reserved for issuance under the plan by 3,000,000 shares to 11,610,000 shares.

The Amended 2007 Incentive Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock units (“RSUs”) and other equity-based awards, including membership units in Morgans Group which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the Amended 2007 Incentive Plan included directors, officers and employees of the Company. Awards other than options and stock appreciation rights reduce the shares available for grant by 1.7 shares for each share subject to such an award.

During the third quarter of 2011, the Company granted newly hired employees an aggregate of 42,360 RSUs. A summary of stock-based incentive awards as of September 30, 2011 is as follows (in units, or shares, as applicable):

	Restricted Stock
	Units			LTIP Units			Stock Options
Outstanding as of January 1, 2011		805,334			2,271,437			1,506,337
Granted during 2011		379,280			300,000			1,300,000
Distributed/exercised during 2011		(286,309	)		(219,053	)		—
Forfeited during 2011		(168,142	)		—			(481,597	)
Outstanding as of September 30, 2011		730,163			2,352,384			2,324,470
Vested as of September 30, 2011		221,029			2,043,532			1,024,740

As of September 30, 2011 and December 31, 2010, there were approximately $10.3 million and $6.8 million, respectively, of total unrecognized compensation costs related to unvested RSUs, LTIP Units and options. As of September 30, 2011, the weighted-average period over which this unrecognized compensation expense will be recorded is approximately 1.3 years.

Total stock compensation expense related to RSUs, LTIPs and options, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was $1.3 million and $2.3 million for the three months ended September 30, 2011 and 2010, respectively, and $7.0 million and $8.9 million for the nine months ended September 30, 2011 and 2010, respectively.

Outperformance Award Program

In connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which is a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to shareholders over a three-year period.

Pursuant to the Outperformance Award Program, each of the Company’s newly hired senior managers, Messrs. Hamamoto, Gross, Flannery and Gery, will receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to shareholders (including stock price appreciation plus dividends) increases by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014 (or a prorated hurdle rate over a shorter period in the case of certain changes of control), of a new series of outperformance long-term incentive units (the “OPP LTIP Units,” as described below), subject to vesting and the achievement of certain performance targets.

The total return to shareholders will be calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to shareholders will be $8.87, the closing price of the Company’s common shares on March 18, 2011. The Participation Percentages granted to Messrs. Hamamoto, Gross, Flannery and Gery are 35%, 35%, 10% and 10%, respectively.

Each of the current participants’ Awards vests on March 20, 2014 (or earlier in the event of certain changes of control) (the “Final Valuation Date”), contingent upon each participant’s continued employment, except for certain accelerated vesting events described below.

The aggregate dollar amount available to all participants is equal to 10% of the amount by which the Company’s March 20, 2014 valuation exceeds 130% (subject to proration in the case of certain changes of control) of the Company’s March 20, 2011 valuation (the “Total Outperformance Pool”) and the dollar amount payable to each participant (the “Participation Amount”) is equal to such participant’s Participating Percentage in the Total Outperformance Pool. Following the Final Valuation Date, the participant will either forfeit existing OPP LTIP Units or receive additional OPP LTIP Units so that the value of the vested OPP LTIP Units of the participant are equivalent to the participant’s Participation Amount.

Participants will forfeit any unvested Awards upon termination of employment; provided, however, that in the event a participant’s employment terminates because of death or disability, or employment is terminated by the Company without Cause or by the participant for Good Reason, as such terms are defined in the participant’s employment agreements, the participant will not forfeit the Award and will receive, following the Final Valuation Date, a Participation Amount reflecting his partial service. If the Final Valuation Date is accelerated by reason of certain change of control transactions, each participant whose Award has not previously been forfeited will receive a Participation Amount upon the change of control reflecting the amount of time since the effective date of the program, which was March 20, 2011.

OPP LTIP Units represent a special class of membership interest in the operating company, Morgans Group, which are structured as profits interests for federal income tax purposes. Conditioned upon minimum allocations to the capital accounts of the OPP LTIP Units for federal income tax purposes, each vested OPP LTIP Unit may be converted, at the election of the holder, into one Class A Unit in Morgans Group upon the receipt of shareholder approval for the shares of common stock underlying the OPP LTIP Units.

During the six-month period following the Final Valuation Date, Morgans Group may redeem some or all of the vested OPP LTIP Units (or Class A Units into which they were converted) at a price equal to the common share price (based on a 30-day average) on the Final Valuation Date. From and after the one-year anniversary of the Final Valuation Date, for a period of six months, participants will have the right to cause Morgans Group to redeem some or all of the vested OPP LTIP Units at a price equal to the greater of the common share price at the Final Valuation Date (determined as described above) or the then current common share price (calculated as determined in Morgans Group’s limited liability company agreement). Thereafter, beginning 18 months after the Final Valuation Date, each of these OPP LTIP Units (or Class A Units into which they were converted) is redeemable at the election of the holder for: (1) cash equal to the then fair market value of one share of the Company’s common stock, or (2) at the option of the Company, one share of common stock, in the event the Company then has shares available for that purpose under its shareholder-approved equity incentive plans. Participants are entitled to receive distributions on their vested OPP LTIP Units if any distributions are paid on the Company’s common stock following the Final Valuation Date.

The OPP LTIP Units were valued at approximately $7.3 million on the date of grant utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest.

As the Company has the ability to settle the vested OPP LTIP Units with cash, these Awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value. As of September 30, 2011, the fair value of the OPP LTIP Units were approximately $2.4 million and compensation expense relating to these OPP LTIP Units is being recorded over the vesting period. The fair value of the OPP LTIP Units were estimated on the date of grant using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 1.46%; and no dividend payments over the measurement period. The fair value of the OPP LTIP Units were estimated on September 30, 2011 using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 0.69%; and no dividend payments over the measurement period.

Total stock compensation expense related to the OPP LTIP Units, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was less than $0.1 million for the three months ended September 30, 2011 and $0.4 million for the nine months ended September 30, 2011.

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net loss	$ (70,293)	$ (76,141)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities (including discontinued operations):
Depreciation	15,850	21,992
Amortization of other costs	1,555	1,537
Amortization of deferred financing costs	7,784	4,343
Amortization of discount on convertible notes	1,708	1,708
Amortization of deferred gain on asset sales	(1,721)
Stock-based compensation	7,384	8,892
Accretion of interest on capital lease obligation	1,451	3,317
Equity in loss of unconsolidated joint ventures	23,187	9,437
Impairment loss on receivable from unconsolidated joint venture		5,499
Gain on disposal of property held for non-sale disposition		(17,766)
Impairment and loss on disposal of assets	1,182
Change in value of warrants		32,902
Change in value of interest rate caps and swaps, net	35	26
Changes in assets and liabilities:
Accounts receivable, net	33	(2,133)
Related party receivables	(1,348)	(289)
Restricted cash	20,234	(18,718)
Prepaid expenses and other assets	2,533	2,031
Accounts payable and accrued liabilities	2,430	(330)
Other liabilities		(150)
Discontinued operations	(843)	1,053
Net cash provided by (used in) operating activities	11,161	(22,790)
Cash flows from investing activities:
Additions to property and equipment	(7,861)	(10,602)
Deposits to capital improvement escrows, net	1,091	716
Distributions from unconsolidated joint ventures	1,622	206
Proceeds from asset sales, net	267,162
Proceeds from sale of joint venture, net	2,500
Purchase of interest in food and beverage joint ventures, net of cash acquired	(19,291)
Investments in and settlement related to unconsolidated joint ventures	(9,479)	(4,340)
Net cash provided by (used in) investing activities	235,744	(14,020)
Cash flows from financing activities:
Proceeds from debt	193,992
Payments on debt and capital lease obligations	(426,159)
Debt issuance costs	(5,744)	(167)
Cash paid in connection with vesting of stock based awards	(588)	(772)
Cost of issuance of preferred stock		(246)
Distributions to holders of noncontrolling interests in consolidated subsidiaries	(827)	(1,019)
Net cash used in financing activities	(239,326)	(2,204)
Net increase (decrease) in cash and cash equivalents	7,579	(39,014)
Cash and cash equivalents, beginning of period	5,250	68,956
Cash and cash equivalents, end of period	12,829	29,942
Supplemental disclosure of cash flow information:
Cash paid for interest	18,568	27,703
Cash paid for taxes	784	19
Acquisition of interest in unconsolidated joint ventures:
Furniture, fixture and equipment	(706)
Other assets and liabilities, net	2,999
Distributions and losses in excess of investment in unconsolidated joint ventures	(1,587)
Cash included in purchase of interest in food and beverage joint ventures	$ 706

XML

Income (Loss) Per Share

9 Months Ended

Sep. 30, 2011

Income (Loss) Per Share [Abstract]

Income (Loss) Per Share

3. Income (Loss) Per Share

The Company applies the two-class method as required by ASC 260-10, Earnings per Share (“ASC 260-10”). ASC 260-10 requires the net income per share for each class of stock (common stock and preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

Basic earnings (loss) per share is calculated based on the weighted average number of common stock outstanding during the period. Diluted earnings (loss) per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares and options granted under the Company’s stock incentive plan and membership units in Morgans Group, which may be exchanged for shares of the Company’s common stock under certain circumstances. The 954,065 Morgans Group membership units (which may be converted to cash, or at the Company’s option, common stock) held by third parties at September 30, 2011, warrants issued to the Investors, unvested restricted stock units, LTIP Units (as defined in note 7), stock options, and OPP LTIP Units and shares issuable upon conversion of outstanding Convertible Notes (as defined in note 6) have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share.

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data):

	Three Months			Three Months
	Ended			Ended
	Sept. 30, 2011			Sept. 30, 2010
Numerator:
Net loss from continuing operations	$	(25,618	)	$	(38,247	)
Net loss from discontinued operations		—			(281	)
Net loss		(25,618	)		(38,528	)
Net loss attributable to noncontrolling interest		799			1,451
Net loss attributable to Morgans Hotel Group Co.		(24,819	)		(37,077	)
Less: preferred stock dividends and accretion		2,285			2,164
Net loss attributable to common shareholders	$	(27,104	)	$	(39,241	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		30,617			30,162
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		30,617			30,162
Basic and diluted loss from continuing operations per share	$	(0.89	)	$	(1.29	)
Basic and diluted loss from discontinued operations per share	$	0.00		$	(0.01	)
Basic and diluted loss available to common stockholders per common share	$	(0.89	)	$	(1.30	)

	Nine Months			Nine Months
	Ended			Ended
	Sept. 30, 2011			Sept. 30, 2010
Numerator:
Net loss from continuing operations	$	(70,778	)	$	(92,615	)
Net income from discontinued operations		485			16,474
Net loss		(70,293	)		(76,141	)
Net loss attributable to noncontrolling interest		2,007			2,033
Net loss attributable to Morgans Hotel Group Co.		(68,286	)		(74,108	)
Less: preferred stock dividends and accretion		6,701			6,357
Net loss attributable to common shareholders	$	(74,987	)	$	(80,465	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		31,359			30,470
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		31,359			30,470
Basic and diluted loss from continuing operations per share	$	(2.41	)	$	(3.18	)
Basic and diluted income from discontinued operations per share	$	0.02		$	0.54
Basic and diluted loss available to common stockholders per common share	$	(2.39	)	$	(2.64	)

XML

Investments in and Advances to Unconsolidated Joint Ventures

9 Months Ended

Sep. 30, 2011

Investments in and Advances to Unconsolidated Joint Ventures [Abstract]

Investments in and Advances to Unconsolidated Joint Ventures

4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in earnings (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

	As of		As of
	Sept. 30,		December 31,
Investment	2011		2010
Mondrian South Beach	$	3,313	$	5,817
Morgans Hotel Group Europe Ltd.		—		1,366
Mondrian SoHo		—		—
Ames		—		10,709
Mondrian South Beach food and beverage — MC South Beach (1)		1,592		—
Other		158		2,558
Total investments in and advances to unconsolidated joint ventures	$	5,063	$	20,450

	As of			As of
	Sept. 30,			December 31,
Investment	2011			2010
Restaurant Venture — SC London (2)	$	—		$	(1,509	)
Morgans Hotel Group Europe Ltd.		(272	)		—
Hard Rock Hotel & Casino (3)		—			—
Total losses from and distributions in excess of investment in unconsolidated joint ventures	$	(272	)	$	(1,509	)

(1)	Following the CGM Transaction, the Company’s ownership interest in this food and beverage joint venture is less than 100%, and based on the Company’s evaluation, this venture does not meet the requirements of a variable interest entity. Accordingly, this joint venture is accounted for using the equity method.
(2)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. In connection with the CGM Transaction, the Company owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(3)	Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement (discussed below).

Equity in income (loss) of unconsolidated joint ventures

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
Investment	Sept. 30, 2011			Sept. 30, 2010			Sept. 30, 2011			Sept. 30, 2010
Morgans Hotel Group Europe Ltd.	$	499		$	1041		$	1,392		$	2,540
Restaurant Venture — SC London (1)		—			(136	)		(510	)		(584	)
Mondrian South Beach		(1,025	)		(1,576	)		(2,503	)		(1,808	)
Mondrian South Beach food and beverage — MC South Beach (2)		(108	)		—			(108	)		—
Ames		(10,597	)		(86	)		(11,062	)		(577	)
Mondrian SoHo		(1,565	)		(680	)		(4,026	)		(9,015	)
Hard Rock Hotel & Casino (3)		—			—			(6,376	)		—
Other		2			2			6			7
Total equity in loss from unconsolidated joint ventures	$	(12,794	)	$	(1,435	)	$	(23,187	)	$	(9,437	)

(1)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. As a result of the CGM Transaction, the Company now owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(2)	Following the CGM Transaction, the Company’s ownership interest in this food and beverage joint venture is less than 100%, and based on the Company’s evaluation, this venture does not meet the requirements of a variable interest entity. Accordingly, this joint venture is accounted for using the equity method.
(3)	Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement (discussed below). Reflects the period operated in 2011.

Morgans Hotel Group Europe Limited

As of September 30, 2011, the Company owned interests in two hotels in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel, through a 50/50 joint venture known as Morgans Hotel Group Europe Limited (“Morgans Europe”) with Walton MG London Investors V, L.L.C (“Walton”).

Under the joint venture agreement with Walton, the Company owns indirectly a 50% equity interest in Morgans Europe and has an equal representation on the Morgans Europe board of directors. In the event the parties cannot agree on certain specified decisions, such as approving hotel budgets or acquiring a new hotel property, or beginning any time after February 9, 2010, either party has the right to buy all the shares of the other party in the joint venture or, if its offer is rejected, require the other party to buy all of its shares at the same offered price per share in cash.

Under a management agreement with Morgans Europe, the Company earns management fees and a reimbursement for allocable chain service and technical service expenses. The Company is also entitled to an incentive management fee and a capital incentive fee. The Company did not earn any incentive fees during the three and nine months ended September 30, 2011 and 2010.

On July 15, 2010, the joint venture refinanced in full its then outstanding £99.3 million mortgage debt with a new £100 million loan maturing in July 2015 that is non-recourse to the Company and is secured by Sanderson and St Martins Lane. The joint venture also entered into a swap agreement that effectively fixes the interest rate at 5.22% for the term of the loan, a reduction in interest rate of approximately 105 basis points, as compared to the previous mortgage loan. As of September 30, 2011, Morgans Europe had outstanding mortgage debt of £99.3 million, or approximately $154.8 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011.

Net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. The Company accounts for this investment under the equity method of accounting.

On October 7, 2011, subsidiaries of the Company and Walton entered into an agreement (the “London Sale Agreement”) to sell their respective equity interests in the joint venture for an aggregate of £192 million (or approximately $300.0 million at the exchange rate of 1.56 US dollars to GBP at September 30, 2011) to Capital Hills Hotels Limited. On closing of the transaction, the Company will continue to operate the hotels under long-term management agreements that, including extension options, extend the term of the existing management agreements to 2041 from 2027. The transaction is expected to close in the fourth quarter of 2011 and is subject to satisfaction of customary closing conditions. The Company expects to receive net proceeds of approximately $70 million, depending on foreign currency exchange rates and working capital adjustments, after the joint venture applies a portion of the proceeds from the sale to retire the £99.5 million of outstanding mortgage debt secured by the hotels and after payment of closing costs. The joint venture partners have received a £10 million security deposit, which is non-refundable except in the event of a default by the seller.

On November 2, 2011, Walton, on behalf of itself and the Company, entered into a foreign currency forward contract to effectively fix the currency conversion rate on half of the expected net sales proceeds at an exchange rate of 1.592 US dollars to GBP.

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture to renovate and convert an apartment building on Biscayne Bay in South Beach Miami into a condominium hotel, Mondrian South Beach, which opened in December 2008. The Company operates Mondrian South Beach under a long-term management contract.

The joint venture acquired the existing building and land for a gross purchase price of $110.0 million. An initial equity investment of $15.0 million from each of the 50/50 joint venture partners was funded at closing, and subsequently each member also contributed $8.0 million of additional equity. The Company and an affiliate of its joint venture partner provided additional mezzanine financing of approximately $22.5 million in total to the joint venture to fund completion of the construction in 2008. Additionally, the joint venture initially received non-recourse mortgage loan financing of approximately $124.0 million at a rate of LIBOR plus 300 basis points. A portion of this mortgage debt was paid down, prior to the amendments discussed below, with proceeds obtained from condominium sales. In April 2008, the Mondrian South Beach joint venture obtained a mezzanine loan from the mortgage lenders of $28.0 million bearing interest at LIBOR, based on the rate set date, plus 600 basis points. The $28.0 million mezzanine loan provided by the lender and the $22.5 million mezzanine loan provided by the joint venture partners were both amended when the loan matured in April 2010, as discussed below.

In April 2010, the joint venture amended the non-recourse financing secured by the property and extended the maturity date for up to seven years through extension options until April 2017, subject to certain conditions. Among other things, the amendment allows the joint venture to accrue all interest for a period of two years and a portion thereafter and provides the joint venture the ability to provide seller financing to qualified condominium buyers with up to 80% of the condominium purchase price. Each of the joint venture partners provided an additional $2.75 million to the joint venture resulting in total mezzanine financing provided by the partners of $28.0 million. The amendment also provides that this $28.0 million mezzanine financing invested in the property be elevated in the capital structure to become, in effect, on par with the lender’s mezzanine debt so that the joint venture receives at least 50% of all returns in excess of the first mortgage.

Morgans Group and affiliates of its joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of September 30, 2011, there are remaining payables outstanding to vendors of approximately $1.1 million. The Company believes that payment under these guaranties is not probable and the fair value of the guarantee is not material.

The Company and affiliates of its joint venture partner also have an agreement to purchase approximately $14 million each of condominium units under certain conditions, including an event of default. In the event of a default under the mortgage or mezzanine loan, the joint venture partners are obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the mezzanine loan, or the then outstanding principal balance of the mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. The Company has not recognized a liability related to the construction completion or the condominium purchase guarantees.

The joint venture is in the process of selling units as condominiums, subject to market conditions, and unit buyers will have the opportunity to place their units into the hotel’s rental program. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Management determined that the Company is not the primary beneficiary of this variable interest entity as the Company does not have a controlling financial interest in the entity. The Company’s maximum exposure to losses as a result of its involvement in the Mondrian South Beach variable interest entity is limited to its current investment, outstanding management fee receivable and advances in the form of mezzanine financing. The Company is not committed to providing financial support to this variable interest entity, other than as contractually required and all future funding is expected to be provided by the joint venture partners in accordance with their respective percentage interests in the form of capital contributions or mezzanine financing, or by third parties.

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Company initially contributed $5.0 million for a 20% equity interest in the joint venture and subsequently loaned an additional $4.3 million to the venture. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010.

Based on the decline in market conditions following the inception of the joint venture and more recently, the need for additional funding to complete the hotel, the Company wrote down its investment in Mondrian SoHo to zero in June 2010 and recorded an impairment charge through equity in loss of unconsolidated joint ventures.

On July 31, 2010, the lender amended the debt financing on the property to provide for, among other things, extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater.

In addition to new funds provided by the lender, Cape Advisors Inc. made cash and other contributions to the joint venture, and the Company agreed to provide up to $3.2 million of additional funds to be treated as a loan with priority over the equity, to complete the project. The Company has contributed the full amount of this priority loan, as well as additional funds of $1.1, all of which were considered impaired and recorded as impairment charges through equity in loss of unconsolidated joint ventures during the periods funds were contributed. As of September 30, 2011, the Company’s investment balance in the joint venture was zero.

The joint venture believes the hotel has achieved the required 1:1 coverage ratio as of September 30, 2011 and subject to other customary conditions, the maturity of this debt can be extended to November 2012. The joint venture has additional extension options available in 2012 subject to similar conditions, including a minimum debt service coverage test calculated, as defined, based on ratios of net operating income to debt service for the twelve months ended September 30, 2012 of 1.1:1.0 or greater.

Certain affiliates of the Company’s joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct.

The Mondrian SoHo opened in February 2011 and has 270 guest rooms, a restaurant, bar and other facilities. The Company has a 10-year management contract with two 10-year extension options to operate the hotel.

As of December 31, 2010, the Mondrian SoHo joint venture was determined to be a variable interest entity, but the Company was not its primary beneficiary and, therefore, consolidation of this joint venture is not required. In February 2011, when Mondrian SoHo opened, the Company determined that the joint venture was an operating business. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting.

Ames

On June 17, 2008, the Company, Normandy Real Estate Partners, and Ames Hotel Partners entered into a joint venture agreement as part of the development of the Ames hotel in Boston. Ames opened on November 19, 2009 and has 114 guest rooms, a restaurant, bar and other facilities. The Company manages Ames under a 15-year management contract.

The Company has contributed approximately $11.8 million in equity through September 30, 2011 for an approximately 31% interest in the joint venture. The joint venture obtained a loan for $46.5 million secured by the hotel, which was outstanding as of September 30, 2011. The project also qualified for federal and state historic rehabilitation tax credits which were sold for approximately $16.9 million.

In September 2011, the joint venture partners funded their pro rata shares of the debt service reserve account, of which the Company’s contribution was $0.3 million, and exercised the one remaining extension option available on the mortgage debt. As a result, the mortgage debt secured by Ames will mature on October 9, 2012.

Based on current economic conditions and the upcoming mortgage debt maturity, the joint venture concluded that the hotel was impaired as of September 30, 2011, and recorded a $49.9 million impairment charge. The Company wrote down its investment in Ames to zero and recorded an impairment charge through equity in loss of unconsolidated joint ventures of $10.6 million.

Shore Club

The Company operates Shore Club under a management contract and owned a minority ownership interest of approximately 7% at September 30, 2011. On September 15, 2009, the joint venture that owns Shore Club received a notice of default on behalf of the special servicer for the lender on the joint venture’s mortgage loan for failure to make its September monthly payment and for failure to maintain its debt service coverage ratio, as required by the loan documents. On October 7, 2009, the joint venture received a second letter on behalf of the special servicer for the lender accelerating the payment of all outstanding principal, accrued interest, and all other amounts due on the mortgage loan. The lender also demanded that the joint venture transfer all rents and revenues directly to the lender to satisfy the joint venture’s debt. In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. The Company continues to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances the Company will continue to operate the hotel once foreclosure proceedings are complete.

MC South Beach and SC Sunset

On June 20, 2011, the Company completed the CGM Transaction, pursuant to which subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20.0 million. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassess its food and beverage strategy.

The Company’s ownership interest in one of the food and beverage ventures covered by the CGM Transaction, MC South Beach LLC (“MC South Beach”) at Mondrian South Beach, is less than 100%, and was reevaluated in accordance with ASC 810-10. The Company concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in the joint venture is accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing.

At the closing of the CGM Transaction, the Company’s ownership interest in another food and beverage venture covered by the CGM Transaction, Sunset Restaurant LLC (“SC Sunset”) at Mondrian Los Angeles, was also less than 100%, and was reevaluated at the time in accordance with ASC 810-10. The Company initially concluded that this venture did not meet the requirements of a variable interest entity and accordingly, this investment in joint venture was accounted for using the equity method. Subsequently, on August 5, 2011, an affiliate of Pebblebrook, the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

Hard Rock Hotel & Casino

Formation and Hard Rock Credit Facility

On February 2, 2007, the Company and Morgans Group (together, the “Morgans Parties”), an affiliate of DLJ Merchant Banking Partners (“DLJMB”), and certain other DLJMB affiliates (such affiliates, together with DLJMB, collectively the “DLJMB Parties”) completed the acquisition of the Hard Rock Hotel & Casino (“Hard Rock”). The acquisition was completed through a joint venture entity, Hard Rock Hotel Holdings, LLC, funded one-third, or approximately $57.5 million, by the Morgans Parties, and two-thirds, or approximately $115.0 million, by the DLJMB Parties. In connection with the joint venture’s acquisition of the Hard Rock, certain subsidiaries of the joint venture entered into a debt financing comprised of a senior mortgage loan and three mezzanine loans, which provided for a $760.0 million acquisition loan that was used to fund the acquisition, of which $110.0 million was subsequently repaid according to the terms of the loan, and a construction loan of up to $620.0 million, which was fully drawn for the expansion project at the Hard Rock. Morgans Group provided a standard non-recourse, carve-out guaranty for each of the mortgage and mezzanine loans.

Following the formation of Hard Rock Hotel Holdings, LLC, additional cash contributions were made by both the DLJMB Parties and the Morgans Parties, including disproportionate cash contributions by the DLJMB Parties. Prior to the Hard Rock settlement, discussed below, the DLJMB Parties had contributed an aggregate of $424.8 million in cash and the Morgans Parties had contributed an aggregate of $75.8 million in cash. In 2009, the Company wrote down the Company’s investment in Hard Rock to zero.

Hard Rock Settlement Agreement

On January 28, 2011, subsidiaries of Hard Rock Hotel Holdings, LLC received a notice of acceleration from the NRFC HRH Holdings, LLC (the “Second Mezzanine Lender”) pursuant to the First Amended and Restated Second Mezzanine Loan Agreement, dated as of December 24, 2009 (the “Second Mezzanine Loan Agreement”), between such subsidiaries and the Second Mezzanine Lender, declaring all unpaid principal and accrued interest under the Second Mezzanine Loan Agreement immediately due and payable.

On February 6, 2011, subsidiaries of Hard Rock Hotel Holdings, LLC, Vegas HR Private Limited (the “Mortgage Lender”), Brookfield Financial, LLC-Series B (the “First Mezzanine Lender), the Second Mezzanine Lender, Morgans Group, certain affiliates of DLJMB, and certain other related parties entered into a Standstill and Forbearance Agreement.

On March 1, 2011, Hard Rock Hotel Holdings, LLC, the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Morgans Parties and certain affiliates of DLJMB, as well as Hard Rock Mezz Holdings LLC (the “Third Mezzanine Lender”) and other interested parties entered into a comprehensive settlement to resolve the disputes among them and all matters relating to the Hard Rock and related loans and guaranties. The settlement provided, among other things, for the following:

• release of the non-recourse carve-out guaranties provided by the Company with respect to the loans made by the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender and the Third Mezzanine Lender to the direct and indirect owners of the Hard Rock;

• termination of the management agreement pursuant to which the Company’s subsidiary managed the Hard Rock;

• the transfer by Hard Rock Hotel Holdings, LLC to an affiliate of the First Mezzanine Lender of 100% of the indirect equity interests in the Hard Rock; and

• certain payments to or for the benefit of the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Third Mezzanine Lender and the Company. The Company’s net payment was approximately $3.7 million.

As a result of the settlement and completion of certain gaming de-registration procedures, the Company is no longer subject to Nevada gaming regulations.

XML

Deferred Gain on Assets Sold

9 Months Ended

Sep. 30, 2011

Deferred Gain on Assets Sold [Abstract]

Deferred Gain on Assets Sold

12. Deferred Gain on Assets Sold

On May 3, 2011, pursuant to a purchase and sale agreement, Mondrian Holdings sold Mondrian Los Angeles for $137.0 million to Pebblebrook. The Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage. Net proceeds, after the repayment of debt and closing costs, were approximately $40 million. The Company continues to operate the hotel under a 20-year management agreement with one 10-year extension option.

On May 23, 2011, pursuant to purchase and sale agreements, Royalton LLC, a subsidiary of the Company, sold Royalton for $88.2 million to Royalton 44 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated, and Morgans Holdings LLC, a subsidiary of the Company, sold Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated. The Company applied a portion of the proceeds from the sale to retire the outstanding balance on the Amended Revolving Credit Facility. Net proceeds, after the repayment of debt and closing costs, were approximately $93 million. The Company continues to operate the hotels under a 15-year management agreement with one 10-year extension option.

The Company has reclassified the individual assets and liabilities of Mondrian Los Angeles, Royalton and Morgans to assets held for sale on its December 31, 2010 balance sheet.

The Company recorded deferred gains of approximately $11.3 million, $12.6 million and $56.1 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles. As the Company has significant continuing involvement through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. For the three months ended September 30, 2011, the Company recorded a gain of $1.1 million. For the nine months ended September 30, 2011, the Company recorded a gain of $1.7 million.

The Company’s hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of September 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions.

XML

Other Liabilities

9 Months Ended

Sep. 30, 2011

Other Liabilities [Abstract]

Other Liabilities

5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of		As of
	Sept. 30,		December 31,
	2011		2010
OPP Liability (note 7)	$	425	$	—
Designer fee payable		13,866		13,866
	$	14,291	$	13,866

OPP Liability

As discussed further in note 7, the estimated fair value of the OPP LTIP Units liability was approximately $0.4 million at September 30, 2011.

Designer Fee Payable

As of September 30, 2011 and December 31, 2010, included in other liabilities was $13.9 million, which is related to a potential claim for a fee payable to a designer. The Former Parent had an exclusive service agreement with a hotel designer, pursuant to which the designer has initiated various claims related to the agreement. Although the Company is not a party to the agreement, it may have certain contractual obligations or liabilities to the Former Parent in connection with the agreement. According to the agreement, the designer was owed a base fee for each designed hotel, plus 1% of Gross Revenues, as defined in the agreement, for a 10-year period from the opening of each hotel. In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. A liability amount has been estimated and recorded in these consolidated financial statements before considering any defenses and/or counter-claims that may be available to the Company or the Former Parent in connection with any claim brought by the designer. The Company believes the probability of losses associated with this claim in excess of the liability that is accrued of $13.9 million is remote and cannot reasonably estimate of range of such additional losses, if any, at this time. The estimated costs of the design services were capitalized as a component of the applicable hotel and amortized over the five-year estimated life of the related design elements.

XML

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parenthetical) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Operating Costs and Expenses:
Stock compensation	$ 1.4	$ 2.3	$ 7.4	$ 8.9

XML

Organization and Formation Transaction

9 Months Ended

Sep. 30, 2011

Organization and Formation Transaction [Abstract]

Organization and Formation Transaction

1. Organization and Formation Transaction

Morgans Hotel Group Co. (the “Company”) was incorporated on October 19, 2005 as a Delaware corporation to complete an initial public offering (“IPO”) that was part of the formation and structuring transactions described below. The Company operates, owns, acquires and redevelops hotel properties.

The Morgans Hotel Group Co. predecessor (the “Predecessor”) comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC (“Morgans Group”), the Company’s operating company. At the time of the formation and structuring transactions, the Former Parent was owned approximately 85% by NorthStar Hospitality, LLC, a subsidiary of NorthStar Capital Investment Corp., and approximately 15% by RSA Associates, L.P.

In connection with the IPO, the Former Parent contributed the subsidiaries and ownership interests in nine operating hotels in the United States and the United Kingdom to Morgans Group in exchange for membership units. Simultaneously, Morgans Group issued additional membership units to the Predecessor in exchange for cash raised by the Company from the IPO. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group in return for 1,000,000 membership units in Morgans Group exchangeable for shares of the Company’s common stock. The Company is the managing member of Morgans Group, and has full management control. On April 24, 2008, 45,935 outstanding membership units in Morgans Group were exchanged for 45,935 shares of the Company’s common stock. As of September 30, 2011, 954,065 membership units in Morgans Group remain outstanding.

On February 17, 2006, the Company completed its IPO. The Company issued 15,000,000 shares of common stock at $20 per share resulting in net proceeds of approximately $272.5 million, after underwriters’ discounts and offering expenses.

The Company has one reportable operating segment; it operates, owns, acquires and redevelops boutique hotels.

Operating Hotels

The Company’s operating hotels as of September 30, 2011 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Hudson	New York, NY		834		(1	)
Morgans	New York, NY		114		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		270		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		328		(5	)
Shore Club	Miami Beach, FL		309		(6	)
Mondrian Los Angeles	Los Angeles, CA		237		(7	)
Clift	San Francisco, CA		372		(8	)
Ames	Boston, MA		114		(9	)
Sanderson	London, England		150		(10	)
St Martins Lane	London, England		204		(10	)
Hotel Las Palapas	Playa del Carmen, Mexico		75		(11	)

(1)	The Company owns 100% of Hudson, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building.
(2)	Operated under a management contract; wholly-owned until May 23, 2011, when the hotel was sold to a third-party.
(3)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at September 30, 2011 based on cash contributions. See note 4.
(4)	Wholly-owned hotel.
(5)	Owned through a 50/50 unconsolidated joint venture. See note 4.
(6)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 7% as of September 30, 2011. See note 4.
(7)	Operated under a management contract; wholly-owned until May 3, 2011, when the hotel was sold to a third-party.
(8)	The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.
(9)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31% at September 30, 2011 based on cash contributions. See note 4.
(10)	Owned through a 50/50 unconsolidated joint venture. In October 2011, the Company entered into a definitive agreement to sell its equity interests in the joint venture. The transaction is expected to close in the fourth quarter of 2011. See note 4.
(11)	Operated under a management contract.

Restaurant Joint Venture

Prior to June 20, 2011, the food and beverage operations of certain of the hotels were operated under 50/50 joint ventures with a third party restaurant operator, China Grill Management Inc. (“CGM”). The joint ventures operated, and CGM managed, certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. The food and beverage joint ventures at hotels the Company owned were consolidated, as the Company believed that it was the primary beneficiary of these entities. The Company’s partner’s share of the results of operations of these food and beverage joint ventures were recorded as noncontrolling interests in the accompanying consolidated financial statements. The food and beverage joint ventures at hotels in which the Company had a joint venture ownership interest were accounted for using the equity method, as the Company did not believe it exercised control over significant asset decisions such as buying, selling or financing, and the Company was not the primary beneficiary of the entities.

On June 20, 2011, pursuant to an omnibus agreement, subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million (the “CGM Transaction”). CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassesses its food and beverage strategy.

As a result of the CGM Transaction, the Company owns 100% of the former food and beverage joint venture entities located at Morgans, Delano South Beach, Sanderson and St Martins Lane, all of which are consolidated in the Company’s consolidated financial statements. Prior to the completion of the CGM Transaction, the Company accounted for the food and beverage entities located at Sanderson and St Martins Lane using the equity method of accounting. See note 4.

The Company’s resulting ownership interests in the remaining two of these food and beverage ventures, covered by the CGM Transaction, relating to the food and beverage operations at Mondrian Los Angeles and Mondrian South Beach, was less than 100%, and were reevaluated in accordance with ASC 810-10, Consolidation (“ASC 810-10”). The Company concluded that these two ventures did not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures were accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing. See note 4. Prior to the completion of the CGM Transaction, the Company consolidated the Mondrian Los Angeles food and beverage entity, as it exercised control and was the primary beneficiary of the venture.

On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

10. Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures. These fees totaled approximately $3.4 million and $4.5 million for the three months ended September 30, 2011 and 2010, respectively, and $10.1 million and $14.1 million for the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011 and December 31, 2010, the Company had receivables from these affiliates of approximately $5.2 million and $3.8 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

XML

Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Property and equipment, net	$ 283,811	$ 291,078
Goodwill	54,057	53,691
Investments in and advances to unconsolidated joint ventures	5,063	20,450
Assets held for sale, net	0	194,964
Investment in property held for non-sale disposition, net	0	9,775
Cash and cash equivalents	12,829	5,250
Restricted cash	7,148	28,783
Accounts receivable, net	8,250	6,018
Related party receivables	5,186	3,830
Prepaid expenses and other assets	7,202	7,007
Deferred tax asset, net	81,421	80,144
Other, net	15,834	13,786
Total assets	480,801	714,776
LIABILITIES AND STOCKHOLDERS' DEFICIT
Debt and capital lease obligations	433,267	558,779
Mortgage debt of property held for non-sale disposition	0	10,500
Accounts payable and accrued liabilities	32,353	23,604
Debt obligation, accounts payable and accrued liabilities of assets held for sale	0	107,161
Accounts payable and accrued liabilities of property held for non-sale disposition	0	1,162
Distributions and losses in excess of investment in unconsolidated joint ventures	272	1,509
Deferred gain on asset sales	77,792	0
Other liabilities	14,291	13,866
Total liabilities	557,975	716,581
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at September 30, 2011 and December 31, 2010, respectively	53,319	51,118
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at September 30, 2011 and December 31, 2010, respectively	363	363
Additional paid-in capital	289,971	297,554
Treasury stock, at cost, 5,555,654 and 5,985,045 shares of common stock at September 30, 2011 and December 31, 2010, respectively	(89,155)	(92,688)
Accumulated comprehensive loss	(3,683)	(3,194)
Accumulated deficit	(336,360)	(265,874)
Total Morgans Hotel Group Co. stockholders' deficit	(85,545)	(12,721)
Noncontrolling interest	8,371	10,916
Total deficit	(77,174)	(1,805)
Total liabilities and stockholders' deficit	$ 480,801	$ 714,776