The securitization of real estate debt has increased dramatically over the last 10 years. According to data from the Federal Reserve Board, 24% of all mortgage debt outstanding as of September 30, 2004 was securitized, versus 6% in 1993. New issuances of domestic CMBS in 2004 alone exceeded $93 billion according to Commercial Mortgage Alert.

Based on the most recent rating agency treatment for conduit transactions that included non-investment grade bond structures, the non-investment grade classes of CMBS have averaged approximately 3% to 6% of the total issuances. BBB rated classes averaged approximately 3% to 4% of the total issuances. Based on assumed annual issuance consistent with the average of the prior five years and taking into account conventional pricing parameters, it is estimated that the total size of the non-investment grade CMBS market is approximately $1 billion annually. No assurance can be made that non-investment grade components of CMBS will continue to be these sizes. It is expected that unleveraged yields on the non-investment grade CMBS investments generally will range from 300 to 900 basis points over the applicable index and that the unleveraged yields on the BBB rated classes generally will range from 75 to 150 basis points over the applicable index.

B-Notes share certain credit characteristics with subordinated CMBS, in that both reflect an interest in a first mortgage and are subject to more credit risk with respect to the underlying mortgage collateral than the corresponding senior securities or the A-Notes. As opposed to a typical CMBS secured by a large pool of mortgage loans, B-Notes typically are secured by a single property, and the associated credit risk is concentrated in that single property. B-Notes also share certain credit characteristics with second mortgages, in that both are subject to more credit risk with respect to the underlying mortgage collateral than the corresponding first mortgage or the A-Note. The B-Note market has grown substantially in recent years with the expansion of the securitization market.

The Company intends to invest in commercial mortgage backed securities, or CMBS, which are typically pass-through certificates created by the securitization of a single commercial mortgage loan or a pool of mortgage loans that are collateralized by commercial real estate properties.

The Company intends to originate and invest in mezzanine loans (including mezzanine construction loans) to owners of real properties that are encumbered by first lien mortgages, in which case its mezzanine loans generally will be secured by junior liens on the subject properties and/or by liens on the partnership or membership interests in, or stock of, the borrower.

The Company intends to invest in B-Notes generated directly from its banking relationships, or from structured transactions that may or may not have been rated by a recognized rating agency. The Company intends to acquire B-Notes in negotiated transactions with the originators on large single and portfolio private debt placements, as well as in the secondary market.

The Company may offer bridge loans to borrowers who are seeking short-term capital typically to be used in an acquisition of real estate. The bridge loans the Company expects to originate will predominantly be secured by first mortgage liens on the property and contemplate a takeout, using the proceeds of a conventional mortgage loan to repay its bridge loan.

The Company may make preferred equity investments in property-owning entities generally in situations where the borrower’s capital structure does not allow for secured mezzanine financing because of restrictions imposed by senior lenders or other debt covenants. These investments are unsecured.

The Company may also make loans to real estate-related operating companies, including REITs. These investments may take the form of secured debt, preferred stock and other hybrid instruments such as convertible debt.

The Company may invest in portfolios of mortgage loans in the form of mortgage loans or participations from various sellers, including life insurance companies, banks and other owners.

Total interest income for the period from inception (April 19, 2004) to September 30, 2004 was $8.0 million.

Management fees of $1.1 million for the period from inception (April 19, 2004) to September 30, 2004.

General and administrative expenses of $1.4 for the period from inception (April 19, 2004) to September 30, 2004 consisted primarily of fees for professional services of $0.3 million, due diligence expenses of $0.3 million, insurance premiums of $0.2 million and servicer fees of $0.1 million.