THIRD AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF HERSHA HOSPITALITY LIMITED PARTNERSHIP

THIRD AMENDMENT

TO

AGREEMENT OF LIMITED PARTNERSHIP

OF

HERSHA HOSPITALITY LIMITED PARTNERSHIP

THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this “Third Amendment”) dated as of August 5, 2005, is entered into by HERSHA HOSPITALITY TRUST, a Maryland real estate investment trust, as general partner (the “General Partner”) of HERSHA HOSPITALITY LIMITED PARTNERSHIP, a limited partnership formed under the laws of the Commonwealth of Virginia (the “Partnership”), for itself and on behalf of the limited partners of the Partnership.

WHEREAS, the Amended and Restated Agreement of Limited Partnership of the Partnership was executed on January 26, 1999, a First Amendment thereto was executed on December 31, 1999, and a Second Amendment thereto was executed on April 21, 2003 (the “Partnership Agreement”); and

WHEREAS, Section 4.02(a) of the Partnership Agreement authorizes the General Partner to cause the Partnership to issue additional Partnership Units in one or more classes or series, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the General Partner, without the approval of the Limited Partners; and

WHEREAS, on August 5, 2005, the General Partner issued 2,400,000 shares of 8.00% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share (the “Series A Preferred Shares,” each a “Series A Preferred Share”) at a gross offering price of $25.00 per Series A Preferred Share and, in connection therewith, the General Partner, pursuant to Section 4.02(b) of the Agreement, is contributing the proceeds of such issuance to the Partnership and causing the Partnership to issue to the General Partner Series A Preferred Partnership Units (as hereinafter defined); and

WHEREAS, pursuant to the authority granted to the General Partner pursuant to Sections 4.02(a) and Article XI of the Partnership Agreement and as authorized by the resolutions of the General Partner dated July 14, 2005, the General Partner desires to amend the Partnership Agreement (i) to reclassify the existing Series A Preferred Partnership Units established by the Second Amendment to the Partnership Agreement on April 23, 2003, into a reclassified and redesignated class of Partnership Units, the Series A Preferred Partnership Units (as hereinafter defined), and to set forth the designations, rights, powers, preferences and duties of such Series A Preferred Partnership Units, (ii) to issue the Series A Preferred Partnership Units to the General Partner and (iii) to make certain other changes to the Partnership Agreement.

NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the General Partner hereby amends the Partnership Agreement as follows:

1.       The Partnership Agreement is hereby amended by the addition of a new annex thereto, entitled Annex A, in the form attached hereto, which sets forth the designations, allocations, preferences and other special rights, powers and duties of the Series A Preferred Partnership Units and which shall be attached to and made a part of the Agreement.

2.       Pursuant to Section 4.02(a) of the Partnership Agreement, effective as of August 5, 2005, the issuance date of the Series A Preferred Partnership Units by the General Partner, the Partnership hereby issues 2,400,000 Series A Preferred Partnership Units to the General Partner. The Series A Preferred Partnership Units have been created and are being issued in conjunction with the General Partner’s issuance of the Series A Preferred Shares, and as such, the Series A Preferred Partnership Units are intended to have designations, preferences and other rights, all such that the economic interests are substantially identical to the designations, preferences and other rights of the Series A Preferred Shares, and the terms of this Third Amendment, including without limitation the attached Annex A, shall be interpreted in a fashion consistent with this intent. In return for the issuance to the General Partner of the Series A Preferred Partnership Units, the General Partner has contributed to the Partnership the funds raised through its issuance of the Series A Preferred Partnership Units (the General Partner’s capital contribution shall be deemed to equal the amount of the gross proceeds of that share issuance ( i.e. , the net proceeds actually contributed, plus any underwriter’s discount or other expenses incurred, with any such discount or expense deemed to have been incurred by the General Partner on behalf of the Partnership)).

3.       In order to reflect the issuance of the Series A Preferred Partnership Units, Exhibit A to the Partnership Agreement is hereby amended by adding to the end of such Exhibit A the following table:

4.       Section 8.05(c) of the Partnership Agreement is hereby amended by inserting the following new clause (v) and renumbering the existing clause “(v)” as clause “(vi)”: “(v) cause any person who operates Property on behalf of a “taxable REIT subsidiary” of the Company, as defined in Section 856(1) of the Code, which Property is a “qualified lodging facility” within the meaning of Section 856(d)(9)(D) of the Code that is leased to such taxable REIT subsidiary, to fail to qualify as an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the Code with respect to such taxable REIT subsidiary.”

5.       This Third Amendment shall replace the Second Amendment in its entirety.

6.       The foregoing recitals are incorporated in and are part of this Third Amendment.

7.       Except as specifically defined herein, all capitalized terms shall have the definitions provided in the Partnership Agreement. This Third Amendment has been authorized by the General Partner pursuant to Article XI of the Partnership Agreement and does not require execution by the Limited Partners. No other changes to the Partnership Agreement are authorized under this Third Amendment.

[Signature Page Follows]

IN WITNESS WHEREOF, this Third Amendment has been executed as of the date first above written.

ANNEX A

DESIGNATION OF THE SERIES A PREFERRED PARTNERSHIP UNITS

OF

HERSHA HOSPITALITY LIMITED PARTNERSHIP

1.       Designation and Number . A series of preferred partnership units, designated the “Series A Preferred Partnership Units” (the “Series A Preferred Partnership Units”), is hereby established. The number of Series A Preferred Partnership Units hereby authorized shall be 2,400,000. The terms of this Annex A to the Third Amendment replace in their entirety the terms of the Second Amendment previously designating the Series A Preferred Partnership Units on April 21, 2003.

2.       Rank . The Series A Preferred Partnership Units shall, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership, rank (a) senior to all classes or series of Partnership Units the terms of which do not specifically provide that such units rank on a parity with or senior to the Series A Preferred Partnership Units (the “Common Units”); (b) on a parity with all other Partnership Units issued by the Partnership the terms of which specifically provide that such Partnership Units rank on a parity with the Series A Preferred Partnership Units as to the payment of distributions and the distribution of assets in the event of any liquidation, dissolution or winding up; and (c) junior to (i) all indebtedness of the Partnership and (ii) Partnership Units issued by the Partnership the terms of which specifically provide that such Partnership Units rank senior to the Series A Preferred Partnership Units as to the payment of distributions and the distribution of assets in the event of any liquidation, dissolution or winding up.

a.        Holders of the then outstanding Series A Preferred Partnership Units shall be entitled to receive, when and as declared by the Partnership, out of funds legally available for the payment of distributions, cumulative cash distributions at the rate of 8.00% per year of the $25.00 liquidation preference (equivalent to a fixed annual amount of $2.00 per share). Distributions on the Series A Preferred Partnership Units are payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year and, if such day is not a business day, the next succeeding business day, commencing on October 15, 2005 (each, a “Distribution Payment Date”). The quarterly period between Distribution Payment Dates is referred to herein as a “distribution period” and the distribution which shall accrue in respect of any full distribution period shall be $0.50 regardless of the actual number of days in such full distribution period. The first distribution will be for less than a full quarter and will cover the period from August 5, 2005 to October 15, 2005. Such distribution and any distribution payable on the Series A Preferred Partnership Units for any partial distribution period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions will be payable to holders of record as they appear in the stock records of the Partnership at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or on such other date designated by the Partnership as the record date for the payment of distributions on the Series A Preferred Partnership Units that is not more than 30 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”).

b.        No distributions on Series A Preferred Partnership Units shall be declared by the Partnership or paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the Partnership, including any agreement relating to its indebtedness, (i) prohibits such declaration, payment or setting apart for payment of distributions or (ii) provides that such declaration, pay