NORTHSTAR REALTY FINANCE LIMITED PARTNERSHIP
 
First Amendment to the
Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership
 
This Amendment is made as of March 14, 2006, by NORTHSTAR REALTY FINANCE CORP.,
a Maryland corporation, as general partner (the “General Partner”), of NORTHSTAR
REALTY FINANCE LIMITED PARTNERSHIP, a Delaware limited partnership (the
“Partnership”), for the purpose of further amending the Agreement of Limited
Partnership of the Partnership dated October 19, 2004 (the “Partnership
Agreement”). All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Partnership Agreement.
 
WHEREAS, pursuant to Section 4.2 of the Partnership Agreement, the General
Partner is establishing an additional series of LTIP Units, to be referred to as
the “OPP Units” with the rights, preferences and privileges set forth in the
Partnership Unit Designation attached hereto, to certain persons who provide
services for the benefit of the Partnership (the “Grantees”).
 
NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the General Partner hereby amends the Partnership
Agreement as follows:
 
1.            Issuance of LTIP Units.
 
A.  Pursuant to Section 4.2 of the Partnership Agreement, the Partnership may
from time to time issue OPP Units to the Grantees in the respective amounts set
forth on Schedule A hereto. The holder of any OPP Units shall have the benefits
and obligations under the Partnership Agreement to which the holder of such a
Limited Partner Interest may be entitled or obliged under the Partnership
Agreement, as supplemented and amended by the rights, powers, privileges,
restrictions, qualifications and limitations specified in Exhibit B to the
Partnership Agreement as added by this Amendment.
 
B.  The admission of the Grantees as Additional Limited Partners of the
Partnership shall become effective as of the date of this Amendment, which shall
also be the date upon which the names of the Grantees are recorded on the books
and records of the Partnership, and Exhibit A to the Partnership Agreement is
amended to reflect such admission.
 
2.        Amendments to Partnership Agreement.
 
The General Partner, as general partner of the Partnership and as
attorney-in-fact for its Limited Partners, hereby amends the Partnership
Agreement as follows:
 
A.     Article I of the Partnership Agreement is amended by inserting the
following definitions in alphabetical order:
 

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“Liquidating Losses” has the meaning set forth in Section 6.3(b) hereof.
 
“LTIP Unit” means a Partnership Unit which is designated as an LTIP Unit, with
such further designation as the General Partner may assign to distinguish any
series of LTIP Units from other series, and which has the rights, preferences
and other privileges designated in Section 4.5 hereof, in any Partnership Unit
Designation establishing an additional series of LTIP Units and elsewhere in
this Agreement in respect of Holders of LTIP Units. The allocation of LTIP Units
among the Partners shall be set forth on Exhibit A, as may be amended from time
to time.
 
B.       Section 6.3(b) of the Partnership Agreement is amended by replacing the
existing text with the following:
 
E.     Special Allocations Regarding LTIP Units. Notwithstanding the provisions
of Section 6.2 above, but subject to the prior allocation of income, gain,
deduction and loss under paragraph (a) above and to the terms of any Partnership
Unit Designation in respect of any class of Partnership Interests ranking senior
to the LTIP Units with respect to return of capital or any preferential or
priority return, any Liquidating Gains shall first be allocated to the Holders
of LTIP Units until the Economic Capital Account Balances of such Holders, to
the extent attributable to their ownership of LTIP Units, are equal to (i) the
Partnership Common Unit Economic Balance, multiplied by (ii) the number of their
LTIP Units; provided that no such Liquidating Gains will be allocated with
respect to any particular LTIP Unit unless and to the extent that such
Liquidating Gains, when aggregated with other Liquidating Gains realized since
the issuance of such LTIP Unit, exceed Liquidating Losses realized since the
issuance of such LTIP Unit. Notwithstanding the provisions of Section 6.2 above,
but subject to the prior allocation of income, gain, deduction and loss under
paragraph (a) above and to the terms of any Partnership Unit Designation in
respect of any class of Partnership Interests ranking senior to the LTIP Units
with respect to return of capital or any preferential or priority return, in the
event that, due to distributions with respect to Common Units in which the LTIP
Units do not participate or otherwise, the Economic Capital Account Balance of
any present or former Holder of LTIP Units, to the extent attributable to the
Holder’s ownership of LTIP Units, exceeds the target balance specified above,
then Liquidating Losses shall be allocated to such Holder to the extent
necessary to reduce or eliminate the disparity. In the event that Liquidating
Gains or Liquidating Losses are allocated under this Section 6.3(b), Net Income
and Net Loss shall be recomputed without regard to the Liquidating Gains or
Liquidating Losses so allocated (subject to any prior allocation of Net Income
or Net Loss otherwise provided for). For this purpose, “Liquidating Gains” means
any net capital gain realized in connection with the actual or hypothetical sale
of all or substantially all of the assets of the Partnership, including but not
limited to net capital gain realized in connection with an adjustment to the
Gross Asset Value of Partnership Assets under paragraph (b) of the definition of
“Gross Asset Value.” Similarly, “Liquidating Losses” means any net capital loss
realized in connection with any such event. The “Economic Capital Account
Balances” of the Holders of LTIP Units 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 “Partnership Common Unit Economic
Balance” shall mean (i) the Capital Account balance of the General Partner, plus
the amount of the General Partner’s share of any Partner Minimum Gain or
Partnership Minimum Gain, in either case to the extent attributable to the
General Partner’s ownership of Partnership Common 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(b), divided by (ii) the
number of the General Partner’s Partnership Common Units. Any such allocations
shall be made among the holders of LTIP Units in proportion to the amounts
required to be allocated to each under this Section 6.3(b). The parties agree
that the intent of this Section 6.3(b) is to make the Capital Account balance
associated with each LTIP Unit economically equivalent to the Capital Account
balance associated with the General Partner’s Partnership Common Units (on a
per-unit basis), but only if and to the extent that the Partnership has
recognized cumulative net gains with respect to its assets since the issuance of
the relevant LTIP Unit.
 
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C.       Section 6.3(c) of the Partnership Agreement is hereby amended by
inserting the following new paragraph (viii), renumbering the existing paragraph
(viii) as paragraph (ix), and revising the first phrase of paragraph (ix) as
follows:
 
(viii) Forfeiture Allocations. Upon a forfeiture of any unvested Partnership
Interest by any Partner, gross items of income, gain, loss or deduction shall be
allocated to such Partner if and to the extent required by final Treasury
Regulations promulgated after January 1, 2006 to ensure that allocations made
with respect to all unvested Partnership Interests are recognized under Code
Section 704(b).
 
(ix) Curative Allocations. The allocations set forth in Sections 6.3(c)(i)
through (viii) above (the “Regulatory Allocations”) are intended [balance of
section unchanged]
 
D.       Section 10.2 of the Partnership Agreement is amended by designating the
existing text of Section 10.2 as paragraph (a), and by appending the following
new paragraph (b):
 
(b) To the extent provided for in Treasury Regulations, revenue rulings, revenue
procedures and/or other IRS guidance issued after the date hereof, the
Partnership is hereby authorized to, and at the direction of the General Partner
shall, elect a safe harbor under which the fair market value of any Partnership
Interests issued after the effective date of such Treasury Regulations (or other
guidance) will be treated as equal to the liquidation value of such Partnership
Interests (i.e., a value equal to the total amount that would be distributed
with respect to such interests if the Partnership sold all of its assets for
their fair market value immediately after the issuance of such Partnership
Interests, satisfied its liabilities (excluding any non-recourse liabilities to
the extent the balance of such liabilities exceeds the fair market value of the
assets that secure them) and distributed the net proceeds to the Partners under
the terms of this Agreement). In the event that the Partnership makes a safe
harbor election as described in the preceding sentence, each Partner hereby
agrees to comply with all safe harbor requirements with respect to transfers of
such Partnership Interests while the safe harbor election remains effective.
 
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E.     The Partnership Agreement is hereby amended by appending Exhibit B to
this Amendment as Exhibit B to the Partnership Agreement.
 

3.  
  Continuation of Partnership Agreement.

 
        The Partnership Agreement and this Amendment shall be read together and
shall have the same force and effect as if the provisions of the Partnership
Agreement and this Amendment (including Exhibit B hereto) were contained in one
document. Any provisions of the Partnership Agreement not amended by this
Amendment shall remain in full force and effect as provided in the Partnership
Agreement immediately prior to the date hereof.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Partnership Agreement as of the 14th day of March 2006.
 

       
GENERAL PARTNER
  NORTHSTAR REALTY FINANCE CORP.  
   
   
    By:   /s/ Mark E. Chertok  

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Name: Mark E. Chertok   Title:  Chief Financial Officer and Treasurer       
GRANTEES:         *Individual Counterpart Signature Pages Attached.

 
 
 
 

 
[Signature Page to Amendment to the Partnership Agreement]
 

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Schedule A to First Amendment to Partnership Agreement

Name and Address
Number of OPP Units
                   

 

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EXHIBIT B

NORTHSTAR REALTY FINANCE LIMITED PARTNERSHIP

PARTNERSHIP UNIT DESIGNATION - OPP UNITS

 The following are the terms of the OPP Units:
 
1.  LTIP Equivalence. Except as otherwise expressly provided in this Partnership
Unit Designation, 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
of the Agreement.
 

2.  
 Distributions.

 
A.  OPP Distributions. Commencing from the Distribution Participation Date (as
defined below) established for any OPP Units, Holders of such OPP Units shall be
entitled to receive, if, when and as authorized by the General Partner, 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, OPP Units issued on or before
the relevant quarterly period shall be treated as having been outstanding for
the full period. Prior to the Distribution Participation Date, OPP Units shall
be entitled to any distributions by the Partnership (i) in connection with an
Adjustment Event as provided in Section 4.5(b) of the Agreement, treating the
OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the
General Partner 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 Partnership in an
amount per unit equal to the amount of any such distributions payable on the
Partnership Common Units, provided that the amount of distributions to any
Holder of OPP Units under this clause (ii) shall not exceed the positive
balances of the Capital Account of the Holders of such OPP Units to the extent
attributable to the ownership of such OPP Units.
 
B.  Distribution Participation Date. The “Distribution Participation Date” for
each OPP Unit will be either (i) with respect to OPP Units granted pursuant to
the General Partner’s 2006 Outperformance Plan, as it may be amended or
supplemented from time to time or any successor plan under which additional OPP
Units may be issued (the “Plan”), the applicable Valuation Date (as defined in
the Award Agreement of each Person granted OPP Units under the Plan) or (ii)
with respect to other OPP Units, such date as may be specified in the Award
Agreement or other documentation pursuant to which such OPP Units are issued.
 
 

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3.
Allocations.

 
A.     Allocations of Net Income and Net Loss. Commencing with the portion of
the taxable year of the Partnership that begins on the Distribution
Participation Date established for any OPP Units, such OPP Units shall be
allocated Net Income and Net Loss under Section 6.2 in amounts per OPP Unit
equal to the amounts allocated per Partnership Common Unit (adjusted to the
extent required by any Regulatory Allocations or any curative allocations under
Section 6.3(c)(ix)). The General Partner is authorized in its discretion to
delay or accelerate the participation of the 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 Section 6.2 with respect to each OPP Unit in the
taxable year in which that OPP Unit’s Distribution Participation Date falls, to
(ii) the total amount distributed to that OPP Unit with respect to such period,
is more nearly equal to such ratio as computed for the Partnership Common Units
held by the General Partner.
 
B.     Special Allocations. 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(b).
 

4.
Voting Rights.

 
A.  Voting with LTIP Units. Except as otherwise provided herein, OPP Units and
Partners who hold OPP Units shall be treated as LTIP Units and LTIP Unitholders,
respectively, for all purposes of Section 14.4.
 
B.  Special Approval Rights. So long as any OPP Units remain outstanding, the
Partnership shall not, without the affirmative vote of the Partners who hold at
least a majority of the 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 Partnership Agreement applicable to OPP Units so as to materially and
adversely affect any right, privilege or voting power of the OPP Units or the
Partners who hold 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 OPP Units that is
required or reasonably desirable to implement the difference in the distribution
rights with respect to LTIP Units and 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;

 

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(ii)  
Any creation or issuance of any Partnership Units or of any class or series of
Partnership Interest, whether ranking senior to, junior to, or on a parity with
the 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

 

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

 
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