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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**_______________**

**FORM      10-K**

**(Mark      One)**

| x | ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|---|-----------------------------------------------------------------------------------------------------------------------------------|

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

**CAPLEASE,      INC.**

| **Maryland**(State                or Other Jurisdiction ofIncorporation                or Organization)        | **52-2414533**(I.R.S.                Employer Identification No.) |
|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|
| **1065                Avenue of the Americas, New York, NY**(Address                of Principal Executive Offices) | **10018**(Zip                code)                                |

**(212)** **217-6300**

**Securities      registered pursuant to Section 12(b) of the Act:**

| **Title                of each Class**Common                Stock,                $0.01 par value             | **Name                of each exchange on which registered**New                York Stock Exchange |
|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| 8.125%                Series A Cumulative RedeemablePreferred Stock, $0.01                par value | New                York Stock Exchange                                                             |

**Securities      registered pursuant to Section 12(g) of the Act: None**

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

**DOCUMENTS      INCORPORATED BY REFERENCE**

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**TABLE      OF CONTENTS**

| PART                I.   |                                                                                                                                              | 1  |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|----|
| Item                1.   | Business.                                                                                                                                         | 1  |
| Item                1A.  | Risk                Factors.                                                                                                                      | 16 |
| Item                1B.  | Unresolved                Staff Comments.                                                                                                         | 29 |
| Item                2.   | Properties.                                                                                                                                       | 29 |
| Item                3.   | Legal                Proceedings.                                                                                                                 | 29 |
| Item                4.   | Submission                of Matters to a Vote of Security Holders.                                                                               | 29 |
| PART                II.  |                                                                                                                                              | 30 |
| Item                5.   | Market                for Registrant’s Common Equity, Related Stockholder Matters and Issuer                Purchases of Equity Securities. | 30 |
| Item                6.   | Selected                Financial Data.                                                                                                           | 33 |
| Item                7.   | Management’s                Discussion and Analysis of Financial Condition and Results of                Operations.                        | 35 |
| Item                7A.  | Quantitative                and Qualitative Disclosures about Market Risk.                                                                        | 46 |
| Item                8.   | Financial                Statements and Supplementary Data.                                                                                       | 50 |
| Item                9.   | Changes                in and Disagreements With Accountants on Accounting and Financial                Disclosure.                               | 91 |
| Item                9A.  | Controls                and Procedures.                                                                                                           | 91 |
| Item                9B.  | Other                Information.                                                                                                                 | 91 |
| PART                III. |                                                                                                                                              | 92 |
| Item                10.  | Directors,                Executive Officers and Corporate Governance.                                                                            | 92 |
| Item                11.  | Executive                Compensation.                                                                                                            | 92 |
| Item                12.  | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters.                     | 92 |
| Item                13.  | Certain                Relationships and Related Transactions, and Director                Independence.                                          | 92 |
| Item                14.  | Principal                Accounting Fees and Services.                                                                                            | 92 |
| PART                IV.  |                                                                                                                                              | 93 |
| Item                15.  | Exhibits                and Financial Statement Schedules.                                                                                        | 93 |
| PART                V.   |                                                                                                                                              | 97 |

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**PART      I.**

**Item      1.**
**Business**
**.**

**Explanatory      Note for Purposes of the “Safe Harbor Provisions” of Section 21E of the      Securities Exchange Act of 1934, as amended**

**Overview**

|                                                                         |   | Investment(1)                   |      |       |   |
|------------------------------------------------------------------------------|--------|---------------------------------|-----------|------------|--------|
|                                                                         |   | (in                  thousands) |      | Percentage |   |
| Owned                  properties                                            |   | $                               | 1,651,608 |       |   | 77.8 | % |
| Debt                  investments                                            |   |                            |      |       |   |   |   |
| Loans                                                                        |   |                            |      |       |   |   |   |
| Long-term                  mortgage loans                                    |   |                            | 230,478   |       |   | 10.9 | % |
| Corporate                  credit notes                                      |   |                            | 31,863    |       |   | 1.5 | % |
| Mezzanine                  and other investments                             |   |                            | 7,802     |       |   | 0.4 | % |
| Commercial                  mortgage-backed and other real estate securities |   |                            | 198,187   |       |   | 9.3 | % |
| Other                                                                        |   |                            | 2,576     |       |   | 0.1 | % |
| Total                                                                        |   | $                               | 2,122,515 |       |   | 100.0 | % |

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**Investment      Strategy**

|  | · | *Investing                in High Quality Cash Flows*.                We invest primarily in owned real properties and real estate loans                where                the underlying tenant is of high credit quality. As of December 31,                2007,                approximately 90%                of                our portfolio was invested in properties leased to investment grade                or                implied investment grade tenants and the weighted average underlying                tenant credit rating on our entire portfolio was A-. Further, our                top ten                tenant exposures, which comprise approximately 50%                of                our portfolio, were all rated investment grade or implied investment                grade                and had a weighted average credit rating of A+.                As of December 31, 2007, our portfolio had the following credit                characteristics: |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                  |   | **Investment**                        |      |           |   |
|------------------------------------------------------------------|--------|---------------------------------------|-----------|----------------|--------|
| **Credit                    Rating**(1)(2)                       |   | **(in                    thousands)** |      | **Percentage** |   |
| Investment                    grade rating of A- or A3 and above |   | $                                     | 886,976   |           |   | 41.8 | % |
| Investment                    grade rating of below A- or A3     |   |                                  | 762,021   |           |   | 35.9 | % |
| Implied                    investment grade rating               |   |                                  | 263,186   |           |   | 12.4 | % |
| Non-investment                    grade rating                   |   |                                  | 200,991   |           |   | 9.5 | % |
| Unrated                    (3)                                   |   |                                  | 8,316     |           |   | 0.4 | % |
|                                                             |   | $                                     | 2,121,490 |           |   | 100.00 | % |

| (1) | Reflects                tenant’s or lease guarantor’s actual or impled S&P rating or                equivalent rating if rated only by Moody’s, or in the case of our CMBS                securities, actual ratings of the securities. Table does not include                a                development property with a total investment of                $1,025. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Four                of                our owned real properties where our aggregate investment is $267,420                are leased to more than one tenant and, for purposes of determining                the                underlying tenant’s credit rating on these properties, we have considered                the credit rating of only our primary tenant. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | Includes                primarily our mezzanine and other investments as described under“Our                Portfolio—Loan Investments.” |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Long-Term                Assets Held for Investment*.                We invest in commercial real estate assets subject to long-term leases.                As                of December 31, 2007, the weighted average underlying tenant remaining                lease term on our portfolio was approximately 11 years. We intend                to hold                our assets for the long-term, capturing the stable cash flows that                will be                produced from the underlying high credit quality tenants. On a limited                and                opportunistic basis, we also continue to acquire and promptly resell                assets through our taxable REIT                subsidiary. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Flexible                Investment Approach*.                We have the expertise and ability to invest at all levels of the                capital                structure of net lease or other single tenant properties. Owned properties                comprise approximately 78%                of                our current portfolio, and our target is to maintain a portfolio                mix of                75% to 90% owned real estate, and 10% to 25% mortgage loans and other                debt                investments. For properties that we own, in addition to high quality                tenant credit quality, we also seek to invest in strong real estate                locations that will appreciate in value over time. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Stringent                Underwriting Process.*                We                maintain a comprehensive underwriting and due diligence process that                is                overseen by our investment committee, which consists of seven of                our key                employees, including the chief executive officer, president, chief                financial officer and chief investment officer. Our investment committee                formally reviews and approves each investment we make prior to funding.                We                also have an investment oversight committee of the Board of Directors                that                approves investments in excess of $50                million. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Finance                with Long-Term Fixed Rate Debt*.                We seek to borrow against, or finance, our assets with long-term                fixed                rate debt, effectively locking in the spread we expect to generate                on our                assets. Our financing strategy allows us to invest in a greater number                of                assets and enhance our asset returns. We expect our leverage to average                70% to 85% of our assets in portfolio. We believe this leverage level                is                appropriate given the high credit quality of the underlying tenants                and                the length and quality of the related                leases. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our      Competitive Strengths**

|  | · | *Established                Investment Capabilities.*                We                have an experienced in-house team of investment professionals that                source,                structure, underwrite and close our transactions. In addition, we                have                developed an extensive national network of property owners, investment                sale brokers, tenants, borrowers, mortgage brokers, lenders, institutional                investors and other market participants that helps us to identify                and                originate a variety of single tenant investment opportunities. During                2007, we made approximately $480.7                million of new investments. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | · | *Experienced                Senior Management Team*.                Our senior management team has worked together for more than 12 years.                Since our initial public offering in March 2004, we have purchased                more                than $1.5                billion of single tenant properties. Since 1996, we have originated                and                underwritten more than $4.0 billion in single tenant transactions,                involving more than 500 properties with more than 100 underlying                tenants. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Financing                Expertise.*                We                have substantial experience in financing single tenant assets. Our                expertise and deep contacts within the net lease financing market                enabled                us to obtain a $129.5 million non-recourse secured term loan outside                of                the structured finance markets in December 2007. We have developed                and                continue to enhance financing structures that enable us to efficiently                finance a portion of our owned properties through term loan and                securitization transactions. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | *Market                Expertise.*                We                have recognized expertise in the net lease marketplace. In February                2005,                we received a U.S. patent for our 10-year credit tenant loan product.                In                addition to serving as one of our loan products, we use this product                to                create additional leverage on many of our owned property investments.                We                have worked extensively with S&P and Moody’s to develop ratings                criteria for net lease financing, and continue to provide ongoing                advice                and assistance to these rating agencies on net lease financing issues.                We                also developed the specialized lease enhancement mechanisms that                are now                market standard for net lease lending                transactions. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our      Portfolio**

*Owned      Properties*

|  | · | included                in primary metropolitan markets such as Philadelphia, Washington                D.C.,                Chicago and New York/New Jersey; |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | fungible                asset type that will facilitate a re-let of the property if the tenant                does not renew; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------|

|  | · | barriers                to entry in the property’s market, such as zoning restrictions or limited                land for future development; and |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | core                facility of the tenant. |
|--|--------|---------------------------------------------|

|  | · | approximately                10.5                million rentable square feet with 99.9%                occupancy; |
|--|--------|--------------------------------------------------------------------------------------------------------------------|

|  | · | 62                properties in 26                states leased to 33                different tenants; |
|--|--------|---------------------------------------------------------------------------------------------------------|

|  | · | no                tenant represents more than five percent of our entire portfolio,                except                the United States Government at 10.3%                and Nestlé Holdings, Inc. at 9.3%; |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | 94%                investment grade or implied investment grade                tenants; |
|--|--------|-----------------------------------------------------------------------------------------|

|  | · | weighted                average tenant credit rating of A; |
|--|--------|------------------------------------------------------------|

|  | · | weighted                average remaining lease term of approximately 9                years; and |
|--|--------|---------------------------------------------------------------------------------------------------|

|  | · | well                diversified portfolio by property type, geography, tenant and tenant                industry. |
|--|--------|-------------------------------------------------------------------------------------------------------------------|

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|                                      |   |                           |   | **Weighted**                        |   |                  |   |                                  |      |
|-------------------------------------------|--------|--------------------------------|--------|-------------------------------------|--------|-----------------------|--------|---------------------------------------|-----------|
|                                      |   | **Number                  of** |   | **Average                  Credit** |   |                  |   |                                  |      |
| **Industry**                              |   | **Tenants**                    |   | **Rating****(1)**                   |   | **Investment****(2)** |   | **Percent                  of Total** |      |
| Insurance                                 |   |                           | 7      |                                |   | A                     |   | $                                     | 341,905   |   |   | 20.7 | % |
| Food                  & Beverage      |   |                           | 3      |                                |   | AA-                   |   |                                  | 258,723   |   |   | 15.7 | % |
| Government                                |   |                           | 2      |                                |   | AAA                   |   |                                  | 236,230   |   |   | 14.3 | % |
| Financial                                 |   |                           | 3      |                                |   | BBB-                  |   |                                  | 143,963   |   |   | 8.7 | % |
| Grocery                                   |   |                           | 2      |                                |   | BBB-                  |   |                                  | 108,986   |   |   | 6.6 | % |
| Retail                  Department Stores |   |                           | 1      |                                |   | A                     |   |                                  | 93,016    |   |   | 5.6 | % |
| Retail                  Jewelry           |   |                           | 1      |                                |   | A-                    |   |                                  | 77,640    |   |   | 4.7 | % |
| Engineering                               |   |                           | 1      |                                |   | BBB+                  |   |                                  | 56,747    |   |   | 3.4 | % |
| Building                  Materials       |   |                           | 1      |                                |   | A+                    |   |                                  | 52,874    |   |   | 3.2 | % |
| Telecommunications                        |   |                           | 1      |                                |   | BB                    |   |                                  | 52,071    |   |   | 3.2 | % |
| Healthcare                                |   |                           | 3      |                                |   | AA-                   |   |                                  | 49,084    |   |   | 3.0 | % |
| Communications                            |   |                           | 2      |                                |   | BBB+                  |   |                                  | 47,314    |   |   | 2.9 | % |
| Hotel                                     |   |                           | 1      |                                |   | BBB                   |   |                                  | 45,955    |   |   | 2.8 | % |
| Automotive                                |   |                           | 1      |                                |   | A-                    |   |                                  | 27,266    |   |   | 1.7 | % |
| Retail                  Drug              |   |                           | 2      |                                |   | A-                    |   |                                  | 21,720    |   |   | 1.3 | % |
| Publishing                                |   |                           | 1      |                                |   | BBB+                  |   |                                  | 20,837    |   |   | 1.3 | % |
| Telecommunication                         |   |                           | 1      |                                |   | A-                    |   |                                  | 16,250    |   |   | 1.0 | % |
| Total                                     |   |                           | 33     |                                |   | A                     |   | $                                     | 1,650,581 |   |   | 100.0 | % |

|  | (1) | Reflects                actual or implied S&P rating (or equivalent rating if rated only by                Moody’s) of tenant(s) or lease guarantor(s). |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | Does                not include our development property which is not currently occupied                by a                tenant. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------|

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|                          |   | **Number                  of** |   |           |   |                                  |   |
|-------------------------------|--------|--------------------------------|--------|----------------|--------|---------------------------------------|--------|
| **State**                     |   | **Properties**                 |   | **Investment** |   | **Percent                  of Total** |   |
| Pennsylvania                  |   |                           | 4      |           | $      | 205,937                               |   |   | 12.5 | % |
| California                    |   |                           | 7      |           |   | 201,644                               |   |   | 12.2 | % |
| New                  Jersey   |   |                           | 3      |           |   | 131,122                               |   |   | 7.9 | % |
| Maryland                      |   |                           | 4      |           |   | 127,724                               |   |   | 7.7 | % |
| Texas                         |   |                           | 5      |           |   | 109,982                               |   |   | 6.7 | % |
| Illinois                      |   |                           | 2      |           |   | 107,183                               |   |   | 6.5 | % |
| Virginia                      |   |                           | 3      |           |   | 90,049                                |   |   | 5.5 | % |
| Colorado                      |   |                           | 2      |           |   | 69,413                                |   |   | 4.2 | % |
| Indiana                       |   |                           | 2      |           |   | 58,915                                |   |   | 3.6 | % |
| Rhode                  Island |   |                           | 1      |           |   | 54,879                                |   |   | 3.3 | % |
| Kansas                        |   |                           | 3      |           |   | 54,143                                |   |   | 3.3 | % |
| Nebraska                      |   |                           | 2      |           |   | 52,071                                |   |   | 3.2 | % |
| Alabama                       |   |                           | 2      |           |   | 41,586                                |   |   | 2.5 | % |
| Washington                    |   |                           | 1      |           |   | 39,612                                |   |   | 2.4 | % |
| Connecticut                   |   |                           | 1      |           |   | 37,685                                |   |   | 2.3 | % |
| Georgia                       |   |                           | 4      |           |   | 36,348                                |   |   | 2.2 | % |
| Tennessee                     |   |                           | 3      |           |   | 34,169                                |   |   | 2.1 | % |
| Kentucky                      |   |                           | 5      |           |   | 33,614                                |   |   | 2.0 | % |
| Wisconsin                     |   |                           | 1      |           |   | 29,165                                |   |   | 1.8 | % |
| Florida                       |   |                           | 1      |           |   | 27,266                                |   |   | 1.7 | % |
| Other                         |   |                           | 6      |           |   | 109,101                               |   |   | 6.6 | % |
| Total                         |   |                           | 62     |           | $      | 1,651,608                             |   |   | 100.0 | % |

|                               |   |                                 |   | **Square                  Feet**    |   |                  |   |                                      |      |
|------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|-----------------------|--------|-------------------------------------------|-----------|
| **Year                  of Lease** |   | **Number                  of**       |   | **Subject                  to**     |   |                  |   | **Percent**                               |      |
| **Expiration**                     |   | **Expiring                  Leases** |   | **Expiring                  Lease** |   | **Investment****(1)** |   | **of                  Investment****(1)** |      |
| 2008                               |   |                                 | 6      |                                |   | 47,252                |   | $                                         | 13,456    |   |   | 0.8 | % |
| 2009                               |   |                                 | 7      |                                |   | 469,164               |   |                                      | 102,901   |   |   | 6.3 | % |
| 2010                               |   |                                 | 6      |                                |   | 455,347               |   |                                      | 63,988    |   |   | 3.9 | % |
| 2011                               |   |                                 | 2      |                                |   | 130,000               |   |                                      | 37,685    |   |   | 2.3 | % |
| 2012                               |   |                                 | 6      |                                |   | 2,598,887             |   |                                      | 213,444   |   |   | 13.0 | % |
| 2013                               |   |                                 | 12     |                                |   | 294,013               |   |                                      | 57,738    |   |   | 3.5 | % |
| 2014                               |   |                                 | 1      |                                |   | 88,420                |   |                                      | 14,101    |   |   | 0.9 | % |
| Thereafter                         |   |                                 | 43     |                                |   | 6,357,882             |   |                                      | 1,142,722 |   |   | 69.4 | % |

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|                                                            |   |         |                                                                                                      |                                     |   |                                       |   |                 |       |                                             |   | **(in                        thousands)**                                             |   |
|-----------------------------------------------------------------|--------|--------------|-----------------------------------------------------------------------------------------------------------|------------------------------------------|--------|--------------------------------------------|--------|----------------------|------------|--------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|
| **Tenant                        or Guarantor**                  |   | **Location** |                                                                                                      | **Property                        Type** |   | **Square****Feet**                         |   | **Purchase****Date** |       | **Lease****Maturity                        (1)** |   | **2008                          Estimated****Annual                        Rent (2)** |   | **Purchase****Price** |   | **Investment                        (3)** |   |
| Abbott                        Laboratories                      |   |         | 6480                        Busch Blvd, Columbus, OH                                                      |                                     |   | Office                                     |   |                 | 111,776    |                                             |   | 11/2004                                                                               |   |   | 10/2016 |   | $ | 893 |   | $ | 12,025 |   | $ | 12,065 |   |
| Abbott                        Laboratories                      |   |         | 1850                        Norman Drive North, Waukegan, IL                                              |                                     |   | Office                                     |   |                 | 131,341    |                                             |   | 8/2005                                                                                |   |   | 8/2017 |   |   | 1,405 |   |   | 20,325 |   |   | 20,362 |   |
| Aetna                        Life Insurance Company             |   |         | 1333                        - 1385 East Shaw Avenue, Fresno, CA                                           |                                     |   | Office                                     |   |                 | 122,605    |                                             |   | 10/2006                                                                               |   |   | 11/2016 |   |   | 1,667 |   |   | 24,255 |   |   | 24,858 |   |
| Allstate                        Insurance Company               |   |         | 401                        McCullough Drive, Charlotte, NC                                                |                                     |   | Office                                     |   |                 | 191,681    |                                             |   | 12/2005                                                                               |   |   | 12/2015 |   |   | 1,964 |   |   | 27,172 |   |   | 27,236 |   |
| Allstate                        Insurance Company               |   |         | 1819                        Electric Road (aka State Hw y. 419), Roanoke,                        VA       |                                     |   | Office                                     |   |                 | 165,808    |                                             |   | 12/2005                                                                               |   |   | 12/2015 |   |   | 2,090 |   |   | 28,928 |   |   | 28,935 |   |
| AmeriCredit                        Corp.                        |   |         | 4001                        Embarcadero Drive, Arlington, TX                                              |                                     |   | Office                                     |   |                 | 246,060    |                                             |   | 12/2006                                                                               |   |   | 8/2017 |   |   | 3,024 |   |   | 43,000 |   |   | 43,374 |   |
| AMVESCAP                        PLC                             |   |         | 4340,                        4346 & 4350 South Monaco St., Denver, CO                                 |                                     |   | Office                                     |   |                 | 263,770    |                                             |   | 3/2006                                                                                |   |   | 10/2016 |   |   | 5,020 |   |   | 69,300 |   |   | 69,413 |   |
| Aon                        Corporation (4)                      |   |         | 1000                        Milwaukee Ave, Glenview , IL                                                  |                                     |   | Office                                     |   |                 | 412,409    |                                             |   | 8/2004                                                                                |   |   | 4/2017 |   |   | 6,725 |   |   | 85,750 |   |   | 86,821 |   |
| Baxter                        International, Inc.               |   |         | 555                        North Daniels Way, Bloomington, IN                                             |                                     |   | Warehouse                                  |   |                 | 125,500    |                                             |   | 10/2004                                                                               |   |   | 9/2016 |   |   | 790 |   |   | 10,500 |   |   | 10,779 |   |
| Bunge                        North America, Inc.                |   |         | 6700                        Snowden Road, Fort Worth, TX                                                  |                                     |   | Industrial                                 |   |                 | 107,520    |                                             |   | 4/2007                                                                                |   |   | 4/2026 |   |   | 623 |   |   | 10,100 |   |   | 10,268 |   |
| Cadbury                        Schweppes Holdings (US)          |   |         | 945                        Route 10, Whippany, NJ                                                         |                                     |   | Office                                     |   |                 | 149,475    |                                             |   | 1/2005                                                                                |   |   | 3/2021 |   |   | 3,400 |   |   | 48,000 |   |   | 50,230 |   |
| Capital                        One Financial Corporation        |   |         | 3905                        N. Dallas Parkway, Plano, TX                                                  |                                     |   | Office                                     |   |                 | 159,000    |                                             |   | 6/2005                                                                                |   |   | 2/2015 |   |   | 1,982 |   |   | 27,900 |   |   | 31,175 |   |
| Choice                        Hotels International, Inc. (5)    |   |         | 10720,                        10750 & 10770 Columbia Pike, Silver                        Spring, MD   |                                     |   | Office                                     |   |                 | 223,912    |                                             |   | 11/2004                                                                               |   |   | 5/2013 |   |   | 4,972 |   |   | 43,500 |   |   | 45,955 |   |
| County                        of Yolo, California               |   |         | 25                        North Cottonwood Street, Woodland, CA                                           |                                     |   | Office                                     |   |                 | 63,000     |                                             |   | 1/2007                                                                                |   |   | 6/2023 |   |   | 1,023 |   |   | 16,400 |   |   | 16,857 |   |
| Crozer-Keystone                        Health System (6)        |   |         | 8                        Morton Avenue, Ridley, PA                                                        |                                     |   | Medical                        Office      |   |                 | 22,708     |                                             |   | 8/2004                                                                                |   |   | 4/2019 |   |   | 414 |   |   | 4,477 |   |   | 5,879 |   |
| CVS                        Corporation                          |   |         | 100                        Mazzeo Drive, Randolph, MA                                                     |                                     |   | Retail                                     |   |                 | 88,420     |                                             |   | 9/2004                                                                                |   |   | 1/2014 |   |   | 744 |   |   | 10,450 |   |   | 14,101 |   |
| Factory                        Mutual Insurance Company (7)     |   |         | 1301                        Atwood Avenue, Johnston, RI                                                   |                                     |   | Office                                     |   |                 | 345,842    |                                             |   | 4/2007                                                                                |   |   | 7/2009 |   |   | 9,373 |   |   | 55,443 |   |   | 54,879 |   |
| Farmers                        Group, Inc.                      |   |         | 3039-3041                        Cochran Street, Simi Valley, CA                                          |                                     |   | Office                                     |   |                 | 271,000    |                                             |   | 1/2007                                                                                |   |   | 1/2017 |   |   | 2,836 |   |   | 41,812 |   |   | 41,879 |   |
| Farmers                        New World Life Insurance Company |   |         | 3003                        77th Avenue Southeast, Mercer Island, WA                                      |                                     |   | Office                                     |   |                 | 155,200    |                                             |   | 12/2005                                                                               |   |   | 12/2020 |   |   | 2,458 |   |   | 39,550 |   |   | 39,612 |   |
| ITT                        Industries, Inc.                     |   |         | 12975                        Worldgate Drive, Herndon, VA                                                 |                                     |   | Office                                     |   |                 | 167,285    |                                             |   | 5/2005                                                                                |   |   | 3/2019 |   |   | 5,009 |   |   | 46,081 |   |   | 56,747 |   |
| Johnson                        Controls, Inc.                   |   |         | 6750                        Bryan Dairy Road, Largo, FL                                                   |                                     |   | Warehouse                                  |   |                 | 307,275    |                                             |   | 12/2006                                                                               |   |   | 8/2016 |   |   | 1,918 |   |   | 27,000 |   |   | 27,266 |   |
| Koninklijke                        Ahold, N.V.                  |   |         | 4001                        New Falls Road, Levittown, PA                                                 |                                     |   | Retail                                     |   |                 | 70,020     |                                             |   | 6/2006                                                                                |   |   | 4/2026 |   |   | 1,439 |   |   | 18,575 |   |   | 21,104 |   |
| Lowes                        Companies, Inc. (8)                |   |         | 26501                        Aliso Creek Rd., Aliso Viejo, CA                                             |                                     |   | Retail                                     |   |                 | 181,160    |                                             |   | 5/2005                                                                                |   |   | 8/2024 |   |   | 3,450 |   |   | 52,860 |   |   | 52,874 |   |
| N/A                        (Development Property)               |   |         | 2423                        Galena Avenue, Simi Valley, CA                                                |                                     |   | Undeveloped                        Land    |   |                 | N/A        |                                             |   | 5/2007                                                                                |   |   | N/A |   |   | - |   |   | 1,000 |   |   | 1,025 |   |
| Nestle                        Holdings, Inc. (9)                |   |         | 555                        Nestle Way, Breinigsville, PA                                                  |                                     |   | Warehouse                                  |   |                 | 1,045,150  |                                             |   | 4/2007                                                                                |   |   | 12/2012 |   |   | 6,301 |   |   | 74,215 |   |   | 85,938 |   |
| Nestle                        Holdings, Inc. (9)                |   |         | 2909                        Pleasant Center Road, Fort Wayne, IN                                          |                                     |   | Warehouse                                  |   |                 | 764,177    |                                             |   | 4/2007                                                                                |   |   | 12/2012 |   |   | 3,762 |   |   | 43,837 |   |   | 48,136 |   |
| Nestle                        Holdings, Inc. (9)                |   |         | 2                        Nestle Way, Lathrop, CA                                                          |                                     |   | Warehouse                                  |   |                 | 751,021    |                                             |   | 4/2007                                                                                |   |   | 12/2012 |   |   | 4,007 |   |   | 52,357 |   |   | 64,151 |   |
| Omnicom                        Group, Inc.                      |   |         | 1660                        North Westridge Circle, Irving, TX                                            |                                     |   | Office                                     |   |                 | 101,120    |                                             |   | 6/2005                                                                                |   |   | 5/2013 |   |   | 1,354 |   |   | 18,100 |   |   | 18,149 |   |
| Pearson                        Plc.                             |   |         | 3833                        Greenway and 2201 Noria Road, Lawrence,                        KS             |                                     |   | Office                                     |   |                 | 194,665    |                                             |   | 4/2006                                                                                |   |   | 4/2021 |   |   | 1,385 |   |   | 20,750 |   |   | 20,837 |   |
| Qwest                        Corporation (10)                   |   |         | 1299                        Farnam Street, Omaha, NE                                                      |                                     |   | Office                                     |   |                 | 291,820    |                                             |   | 4/2007                                                                                |   |   | 6/2010 |   |   | 4,452 |   |   | 30,097 |   |   | 36,969 |   |
| Qwest                        Corporation (11)                   |   |         | 9394                        West Dodge Road, Omaha, NE                                                    |                                     |   | Office                                     |   |                 | 127,825    |                                             |   | 4/2007                                                                                |   |   | 6/2010 |   |   | 1,718 |   |   | 10,785 |   |   | 15,102 |   |
| T-Mobile                        USA, Inc.                       |   |         | 695                        Grassmere Park, Nashville, TN                                                  |                                     |   | Office                                     |   |                 | 69,287     |                                             |   | 11/2006                                                                               |   |   | 1/2017 |   |   | 1,324 |   |   | 16,195 |   |   | 16,250 |   |
| The                        Kroger Co. (12)                      |   |         | Various                        locations in KY (five), GA (four), and                        TN (two)     |                                     |   | Retail                                     |   |                 | 685,135    |                                             |   | 4/2007                                                                                |   |   | 1/2022 |   |   | 4,766 |   |   | 64,037 |   |   | 87,882 |   |
| The                        Travelers Corporation                |   |         | 200                        Constitution Plaza, Hartford, CT                                               |                                     |   | Office                                     |   |                 | 130,000    |                                             |   | 4/2007                                                                                |   |   | 10/2011 |   |   | 6,044 |   |   | 33,628 |   |   | 37,685 |   |
| Tiffany                        & Co.                        |   |         | 15                        Sylvan Way, Parsippany, NJ                                                      |                                     |   | Office/Warehouse                           |   |                 | 367,740    |                                             |   | 9/2005                                                                                |   |   | 9/2025 |   |   | 4,613 |   |   | 75,000 |   |   | 77,640 |   |
| Time                        Warner Entertainment Company, L.P.  |   |         | 1320                        North Dr. Martin Luther King Jr. Drive, Milw                        aukee, WI |                                     |   | Office                                     |   |                 | 154,849    |                                             |   | 11/2006                                                                               |   |   | 12/2016 |   |   | 1,865 |   |   | 28,530 |   |   | 29,165 |   |
| TJX                        Companies, Inc.                      |   |         | 2760                        Red Lion Road, Philadelphia, PA                                               |                                     |   | Warehouse                                  |   |                 | 1,015,500  |                                             |   | 3/2006                                                                                |   |   | 6/2021 |   |   | 6,057 |   |   | 90,125 |   |   | 93,016 |   |
| United                        States Government (DEA)           |   |         | 1003                        17th Street North, Birmingham, AL                                             |                                     |   | GSA                        (US Government) |   |                 | 35,616     |                                             |   | 8/2005                                                                                |   |   | 12/2020 |   |   | 1,297 |   |   | 14,100 |   |   | 14,153 |   |
| United                        States Government (EPA)           |   |         | 300                        Minnesota Avenue, Kansas City, KS                                              |                                     |   | GSA                        (US Government) |   |                 | 71,979     |                                             |   | 8/2005                                                                                |   |   | 3/2023 |   |   | 2,602 |   |   | 29,250 |   |   | 33,306 |   |
| United                        States Government (FBI)           |   |         | 200                        McCarty Avenue, Albany, NY                                                     |                                     |   | GSA                        (US Government) |   |                 | 74,300     |                                             |   | 10/2006                                                                               |   |   | 9/2018 |   |   | 1,312 |   |   | 16,350 |   |   | 17,043 |   |
| United                        States Government (FBI)           |   |         | 1100                        18th Street, North, Birmingham, AL                                            |                                     |   | GSA                        (US Government) |   |                 | 96,278     |                                             |   | 8/2005                                                                                |   |   | 4/2020 |   |   | 2,715 |   |   | 23,500 |   |   | 27,433 |   |
| United                        States Government (NIH) (13)      |   |         | 6116                        Executive Bvd, N. Bethesda, MD                                                |                                     |   | GSA                        (US Government) |   |                 | 207,055    |                                             |   | 9/2005                                                                                |   |   | 5/2012 |   |   | 8,152 |   |   | 81,500 |   |   | 81,769 |   |
| United                        States Government (OSHA)          |   |         | 8660                        South Sandy Parkway, Sandy, UT                                                |                                     |   | GSA                        (US Government) |   |                 | 75,000     |                                             |   | 8/2005                                                                                |   |   | 1/2024 |   |   | 1,900 |   |   | 23,750 |   |   | 24,969 |   |
| United                        States Government (SSA)           |   |         | 1029                        Camino La Costa, Austin, TX                                                   |                                     |   | GSA                        (US Government) |   |                 | 23,311     |                                             |   | 8/2005                                                                                |   |   | 12/2015 |   |   | 710 |   |   | 6,900 |   |   | 7,016 |   |
| United                        States Government (VA)            |   |         | Lot                        37, Santiago De los Caballeros Avenue, Ponce,                        PR        |                                     |   | GSA                        (US Government) |   |                 | 56,500     |                                             |   | 11/2004                                                                               |   |   | 2/2015 |   |   | 1,300 |   |   | 13,600 |   |   | 13,683 |   |
| Walgreen                        Co.                             |   |         | 4601                        Westfield Avenue, Pennsauken, NJ                                              |                                     |   | Retail                        Drug         |   |                 | 18,500     |                                             |   | 11/2004                                                                               |   |   | 10/2016 |   |   | 297 |   |   | 3,089 |   |   | 3,252 |   |
| Walgreen                        Co.                             |   |         | 700                        Frederick Blvd, Portsmouth, VA                                                 |                                     |   | Retail                        Drug         |   |                 | 13,905     |                                             |   | 11/2004                                                                               |   |   | 7/2018 |   |   | 356 |   |   | 4,166 |   |   | 4,370 |   |
|                                                            |   |         |                                                                                                      |                                     |   |                                       |   |                 |       |                                             |   |                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                           |   |         |                                                                                                      |                                     |   |                                       |   |                 | 10,453,500 |                                             |   |                                                                                  |   |   |   |   | $ | 131,508 |   | $ | 1,538,264 |   | $ | 1,651,608 |   |

| (1) | Includes                lease maturity for our primary tenant. In the case of the United                States                Government (NIH) property, reflects the latest lease maturity on                our seven                leases with the tenant. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Reflects                scheduled base rent due for 2008 under our lease with the tenant                or                tenants. Does not reflect straight-line rent adjustments required                under                SFAS No. 13. Also does not include expense recoveries or above or                below                market rent amortization adjustments required by SFAS                No. 141. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes                carry value of any related intangible assets under SFAS No.                141. |
|-----|---------------------------------------------------------------------------------------------------------|

| (4) | As                of December 31, 2007, approximately 2% of the property was leased                to one                other tenant. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|

| (5) | As                of December 31, 2007, approximately 28% of the property was leased                to six                other tenants. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | We                own a leasehold interest in the land, or a ground lease, where an                affiliate of our tenant owns the underlying land and improvements                and has                leased them to us through 2032 with an option to extend through 2046.                Our                ground rent is prepaid through 2032. At the end of the ground lease,                unless extended, the land and improvements revert to the                landowner. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | We                own the improvements on the land and control the land through a ground                lease with an initial term expiring in July 2009. We can renew the                ground                lease for 10 successive five year periods (or, through July 2059).                The                annual ground rent is $114,774 during the initial term and the first                eight                renewal terms. The annual ground rent during the final two renewal                terms                is the greater of (i) $114,774 and (ii) the fair market                rent. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | As                of December 31, 2007, approximately 18% of the property was leased                to two                other tenants. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | With                respect to the three Nestlé properties, we own the improvements on the                land and control the land through an estate for years that expires                in                December 2012. Upon expiration of the estate for years, we have the                option                to lease each plot of land for five years plus 11 five-year renewal                options (or, a total of 60 years) at a fixed annual rent of $1,120,000                (total for all three properties) for the first 40 years and market                rent                thereafter. We also have the option to purchase the land upon expiration                of the estate for years in December 2012 and on the last day of the                primary term and each renewal term of the ground lease at fair market                value. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | We                own the improvements on the land and control the land through an                estate                for years that expires in June 2010. Upon expiration of the estate                for                years, we have the option to lease the relevant land for five years                plus                12 five-year renewal options (or, a total of 65 years), at a fixed                annual                rent of $262,800 for the first 40 years and market rent thereafter.                We                also have the option to purchase the relevant land upon expiration                of the                estate for years in June 2010 and on the last day of the primary                term and                each renewal term of the ground lease at fair market                value. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11) | We                own the improvements on the land and control the land through an                estate                for years that expires in June 2010. Upon expiration of the estate                for                years, we have the option to lease the relevant land for five years                plus                12 five-year renewal options (or, a total of 65 years), at a fixed                annual                rent of $116,800 for the first 40 years and market rent thereafter.                We                also have the option to purchase the relevant land upon expiration                of the                estate for years in June 2010 and on the last day of the primary                term and                each renewal term of the ground lease at fair market                value. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12) | With                respect to the 11 Kroger properties, we own the improvements on the                land                and control the land through an estate for years that expires in                January                2022. Upon expiration of the estate for years, we have the option                to lease                each plot of land for five years plus 11 five-year renewal options                (or, a                total of 60 years) at a fixed annual rent of $770,000 (total for                all 11                properties) for the first 35 years and market rent thereafter. We                also                have the option to purchase the land upon expiration of the estate                for                years in January 2022 and on the last day of the primary term and                each                renewal term of the ground lease at fair market                value. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (13) | As                of December 31, 2007, approximately 11% of the property was leased                to five                other tenants. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------|

----

*Loan      Investments*

*Long-Term      Mortgage Loans*

*Corporate      Credit Notes*

*Mezzanine      and Other Investments*

|  | · | weighted                average remaining lease term on the underlying leases of approximately                19                years; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|  | · | 87%                investment grade or implied investment grade underlying tenants; |
|--|--------|-------------------------------------------------------------------------------------|

|  | · | loan                investments on 65                properties in 26                states with 24                different underlying tenant obligors;                and |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | weighted                average underlying tenant credit rating of BBB+. |
|--|--------|--------------------------------------------------------------------------|

----

|                                                       |   |         |                                        |                                 |   |                               |   |       |    |                                    |   |                                 |   | *(in                    thousands)*  |    |                                     |   |
|------------------------------------------------------------|--------|--------------|---------------------------------------------|--------------------------------------|--------|------------------------------------|--------|------------|---------|-----------------------------------------|--------|--------------------------------------|--------|--------------------------------------|---------|------------------------------------------|--------|
| **Tenant                    or Guarantor**                 |   | **Location** |                                        | **Property                    Type** |   | **Square                    Feet** |   | **Coupon** |    | **Lease                    Expiration** |   | **Loan                    Maturity** |   | **Original****Principal****Balance** |    | **Principal                    Balance** |   | **Carry                    Value** |   | **Loan                    to Realty Value (1)** |   |
| **Long-Term                    Mortgage Loans**            |   |         |                                        |                                 |   |                               |   |       |    |                                    |   |                                 |   |                                 |    |                                     |   |   |   |   |   |
| Autozone,                    Inc.                          |   |         | Douglas                    and Valdosta, GA |                                 |   | Retail                             |   |       | 13,383  |                                    |   | 6.50                                 | %      |                                 | 4/2024  |                                     |   | 11/2022 |   | $ | 2,108 |   | $ | 1,899 |   | $ | 1,899 |   |   | 70 | % |
| Bank                    of America, N.A.                   |   |         | Glenview,                    IL             |                                 |   | Bank                    Branch     |   |       | 4,500   |                                    |   | 6.34                                 | %      |                                 | 12/2028 |                                     |   | 12/2028 |   |   | 4,317 |   |   | 4,317 |   |   | 4,317 |   |   | 76 | % |
| Bank                    of America, N.A.                   |   |         | Mt.                    Airy, MD             |                                 |   | Bank                    Branch     |   |       | 4,500   |                                    |   | 6.42                                 | %      |                                 | 12/2026 |                                     |   | 12/2026 |   |   | 3,469 |   |   | 3,419 |   |   | 3,419 |   |   | 77 | % |
| Best                    Buy Co., Inc.                      |   |         | Chicago,                    IL              |                                 |   | Retail                             |   |       | 45,720  |                                    |   | 6.40                                 | %      |                                 | 3/2025  |                                     |   | 3/2025 |   |   | 18,522 |   |   | 17,732 |   |   | 17,732 |   |   | 92 | % |
| City                    of Jasper, Texas                   |   |         | Jasper,                    TX               |                                 |   | Office                             |   |       | 12,750  |                                    |   | 7.00                                 | %      |                                 | 12/2024 |                                     |   | 11/2024 |   |   | 1,736 |   |   | 1,636 |   |   | 1,590 |   |   | 82 | % |
| CVS                    Corporation                         |   |         | Asheville,                    NC            |                                 |   | Retail                    Drug     |   |       | 10,880  |                                    |   | 6.53                                 | %      |                                 | 1/2026  |                                     |   | 1/2026 |   |   | 2,360 |   |   | 2,210 |   |   | 2,268 |   |   | 87 | % |
| CVS                    Corporation                         |   |         | Athol,                    MA                |                                 |   | Retail                    Drug     |   |       | 13,013  |                                    |   | 6.46                                 | %      |                                 | 1/2025  |                                     |   | 1/2025 |   |   | 1,502 |   |   | 1,381 |   |   | 1,381 |   |   | 73 | % |
| CVS                    Corporation                         |   |         | Bangor,                    PA               |                                 |   | Retail                    Drug     |   |       | 13,013  |                                    |   | 6.28                                 | %      |                                 | 1/2026  |                                     |   | 1/2026 |   |   | 2,521 |   |   | 2,287 |   |   | 2,249 |   |   | 82 | % |
| CVS                    Corporation                         |   |         | Bluefield,                    WV            |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 8.00                                 | %      |                                 | 1/2021  |                                     |   | 1/2021 |   |   | 1,439 |   |   | 1,241 |   |   | 1,347 |   |   | 73 | % |
| CVS                    Corporation                         |   |         | Evansville,                    IN           |                                 |   | Retail                    Drug     |   |       | 12,900  |                                    |   | 6.22                                 | %      |                                 | 1/2033  |                                     |   | 1/2033 |   |   | 3,351 |   |   | 3,329 |   |   | 3,329 |   |   | 76 | % |
| CVS                    Corporation                         |   |         | Greensboro,                    GA           |                                 |   | Retail                    Drug     |   |       | 11,970  |                                    |   | 6.52                                 | %      |                                 | 1/2030  |                                     |   | 1/2030 |   |   | 1,395 |   |   | 1,329 |   |   | 1,329 |   |   | 78 | % |
| CVS                    Corporation                         |   |         | Oak                    Ridge, NC            |                                 |   | Retail                    Drug     |   |       | 10,880  |                                    |   | 6.99                                 | %      |                                 | 1/2025  |                                     |   | 8/2024 |   |   | 3,243 |   |   | 3,027 |   |   | 3,027 |   |   | 78 | % |
| CVS                    Corporation                         |   |         | Shelby                    Twp., MI          |                                 |   | Retail                    Drug     |   |       | 11,970  |                                    |   | 5.98                                 | %      |                                 | 1/2031  |                                     |   | 1/2031 |   |   | 2,540 |   |   | 2,494 |   |   | 2,494 |   |   | 87 | % |
| CVS                    Corporation                         |   |         | Southington,                    CT          |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 8.26                                 | %      |                                 | 1/2020  |                                     |   | 1/2020 |   |   | 1,768 |   |   | 1,669 |   |   | 1,851 |   |   | 81 | % |
| CVS                    Corporation                         |   |         | Stow,                    OH                 |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 8.26                                 | %      |                                 | 1/2020  |                                     |   | 1/2020 |   |   | 2,407 |   |   | 2,247 |   |   | 2,490 |   |   | 79 | % |
| CVS                    Corporation                         |   |         | Sunbury,                    PA              |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 7.50                                 | %      |                                 | 1/2021  |                                     |   | 1/2021 |   |   | 1,829 |   |   | 1,545 |   |   | 1,509 |   |   | 74 | % |
| CVS                    Corporation                         |   |         | Washington,                    DC           |                                 |   | Retail                    Drug     |   |       | 7,920   |                                    |   | 8.10                                 | %      |                                 | 1/2023  |                                     |   | 1/2023 |   |   | 2,781 |   |   | 2,358 |   |   | 2,510 |   |   | 71 | % |
| CVS                    Corporation                         |   |         | Willimantic,                    CT          |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 8.26                                 | %      |                                 | 1/2023  |                                     |   | 1/2023 |   |   | 2,028 |   |   | 1,926 |   |   | 2,146 |   |   | 79 | % |
| Harris                    Bankcorp, Inc.                   |   |         | Chicago,                    IL              |                                 |   | Bank                    Branch     |   |       | 4,750   |                                    |   | 6.81                                 | %      |                                 | 8/2025  |                                     |   | 8/2025 |   |   | 4,467 |   |   | 4,287 |   |   | 4,287 |   |   | 70 | % |
| Home                    Depot USA, Inc.                    |   |         | Chelsea,                    MA              |                                 |   | Retail                             |   |       | 117,034 |                                    |   | 5.36                                 | %      |                                 | 1/2036  |                                     |   | 1/2031 |   |   | 8,501 |   |   | 8,251 |   |   | 8,251 |   |   | 90 | % |
| Home                    Depot USA, Inc.                    |   |         | Tullytown,                    PA            |                                 |   | Retail                             |   |       | 116,016 |                                    |   | 6.62                                 | %      |                                 | 1/2033  |                                     |   | 1/2033 |   |   | 8,447 |   |   | 8,406 |   |   | 8,406 |   |   | 98 | % |
| Kohls                    Corporation                       |   |         | Chicago,                    IL              |                                 |   | Retail                             |   |       | 133,000 |                                    |   | 6.69                                 | %      |                                 | 5/2030  |                                     |   | 5/2030 |   |   | 48,270 |   |   | 46,999 |   |   | 46,999 |   |   | 91 | % |
| Koninklijke                    Ahold, N.V.                 |   |         | Bensalem,                    PA             |                                 |   | Retail                             |   |       | 67,000  |                                    |   | 7.24                                 | %      |                                 | 5/2020  |                                     |   | 5/2020 |   |   | 3,153 |   |   | 2,907 |   |   | 2,960 |   |   | 22 | % |
| Koninklijke                    Ahold, N.V.                 |   |         | North                    Kingstown, RI      |                                 |   | Retail                             |   |       | 125,772 |                                    |   | 7.50                                 | %      |                                 | 11/2025 |                                     |   | 11/2025 |   |   | 6,794 |   |   | 6,444 |   |   | 6,425 |   |   | 71 | % |
| Koninklijke                    Ahold, N.V.                 |   |         | Tewksbury,                    MA            |                                 |   | Retail                             |   |       | 58,450  |                                    |   | 7.50                                 | %      |                                 | 1/2027  |                                     |   | 1/2027 |   |   | 6,625 |   |   | 6,341 |   |   | 6,336 |   |   | 72 | % |
| Koninklijke                    Ahold, N.V.                 |   |         | Upper                    Darby Township, PA |                                 |   | Retail                             |   |       | 54,800  |                                    |   | 7.29                                 | %      |                                 | 4/2024  |                                     |   | 4/2024 |   |   | 6,867 |   |   | 6,337 |   |   | 6,068 |   |   | 87 | % |
| Lowes                    Companies, Inc.                   |   |         | Framingham,                    MA           |                                 |   | Retail                             |   |       | 156,543 |                                    |   | 5.87                                 | %      |                                 | 10/2031 |                                     |   | 9/2031 |   |   | 27,864 |   |   | 27,604 |   |   | 27,604 |   |   | 84 | % |
| Lowes                    Companies, Inc.                   |   |         | Matamoras,                    PA            |                                 |   | Retail                             |   |       | 162,070 |                                    |   | 6.61                                 | %      |                                 | 5/2030  |                                     |   | 5/2030 |   |   | 7,208 |   |   | 7,077 |   |   | 7,077 |   |   | 94 | % |
| National                    City Bank                      |   |         | Chicago,                    IL              |                                 |   | Bank                    Branch     |   |       | 5,274   |                                    |   | 5.89                                 | %      |                                 | 12/2024 |                                     |   | 12/2024 |   |   | 3,114 |   |   | 2,940 |   |   | 3,015 |   |   | 74 | % |
| Neiman                    Marcus Group, Inc.               |   |         | Las                    Vegas, NV            |                                 |   | Retail                             |   |       | 167,000 |                                    |   | 6.06                                 | %      |                                 | 11/2022 |                                     |   | 11/2021 |   |   | 8,267 |   |   | 6,577 |   |   | 7,124 |   |   | 69 | % |
| United                    States Postal Service            |   |         | Scammon                    Bay, AK          |                                 |   | Post                    Office     |   |       | 2,080   |                                    |   | 7.05                                 | %      |                                 | 10/2021 |                                     |   | 10/2021 |   |   | 1,015 |   |   | 885 |   |   | 902 |   |   | 68 | % |
| University                    of Connecticut Health Center |   |         | Farmington,                    CT           |                                 |   | Medical                    Office  |   |       | 100,000 |                                    |   | 6.34                                 | %      |                                 | 11/2029 |                                     |   | 11/2024 |   |   | 22,800 |   |   | 20,869 |   |   | 21,606 |   |   | 84 | % |
| Walgreen                    Co.                            |   |         | Dallas,                    TX               |                                 |   | Retail                    Drug     |   |       | 14,550  |                                    |   | 6.46                                 | %      |                                 | 12/2029 |                                     |   | 12/2029 |   |   | 3,534 |   |   | 3,352 |   |   | 3,352 |   |   | 78 | % |
| Walgreen                    Co.                            |   |         | Montebello,                    CA           |                                 |   | Retail                    Drug     |   |       | 14,414  |                                    |   | 6.10                                 | %      |                                 | 3/2030  |                                     |   | 2/2030 |   |   | 4,680 |   |   | 4,456 |   |   | 4,456 |   |   | 66 | % |
| Walgreen                    Co.                            |   |         | Nacogdoches,                    TX          |                                 |   | Retail                    Drug     |   |       | 14,820  |                                    |   | 6.80                                 | %      |                                 | 9/2030  |                                     |   | 9/2030 |   |   | 3,649 |   |   | 3,566 |   |   | 3,566 |   |   | 70 | % |
| Walgreen                    Co.                            |   |         | Rosemead,                    CA             |                                 |   | Retail                    Drug     |   |       | 12,004  |                                    |   | 6.26                                 | %      |                                 | 12/2029 |                                     |   | 12/2029 |   |   | 5,334 |   |   | 5,156 |   |   | 5,157 |   |   | 72 | % |
|                                                       |   |         |                                        |                                 |   |                               |   |       |    |                                    |   |                                 |   |                                 |    |                                     |   |   |   |   | 239,905 |   |   | 228,500 |   |   | 230,478 |   |   |   |   |
|                                                       |   |         |                                        |                                 |   |                               |   |       |    |                                    |   |                                 |   |                                 |    |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Corporate                    Credit Notes**              |   |         |                                        |                                 |   |                               |   |       |    |                                    |   |                                 |   |                                 |    |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Albertsons,                    LLC                         |   |         | Los                    Angeles, CA          |                                 |   | Retail                    Drug     |   |       | 16,475  |                                    |   | 6.50                                 | %      |                                 | 7/2028  |                                     |   | 9/2013 |   |   | 437 |   |   | 288 |   |   | 265 |   |   | 80 | % |
| Albertsons,                    LLC                         |   |         | Norwalk,                    CA              |                                 |   | Retail                    Drug     |   |       | 14,696  |                                    |   | 6.33                                 | %      |                                 | 11/2028 |                                     |   | 12/2013 |   |   | 470 |   |   | 317 |   |   | 314 |   |   | 72 | % |
| Best                    Buy Co., Inc.                      |   |         | Olathe,                    KS               |                                 |   | Retail                             |   |       | 48,744  |                                    |   | 5.40                                 | %      |                                 | 1/2018  |                                     |   | 6/2013 |   |   | 1,779 |   |   | 1,171 |   |   | 1,131 |   |   | 77 | % |
| Best                    Buy Co., Inc.                      |   |         | Wichita                    Falls, TX        |                                 |   | Retail                             |   |       | 30,038  |                                    |   | 6.15                                 | %      |                                 | 1/2017  |                                     |   | 11/2012 |   |   | 743 |   |   | 436 |   |   | 419 |   |   | 73 | % |
| CVS                    Corporation                         |   |         | Clemmons,                    NC             |                                 |   | Retail                    Drug     |   |       | 10,880  |                                    |   | 5.54                                 | %      |                                 | 1/2022  |                                     |   | 1/2015 |   |   | 285 |   |   | 217 |   |   | 210 |   |   | 61 | % |
| CVS                    Corporation                         |   |         | Commerce,                    MI             |                                 |   | Retail                    Drug     |   |       | 10,880  |                                    |   | 5.85                                 | %      |                                 | 4/2025  |                                     |   | 5/2013 |   |   | 501 |   |   | 333 |   |   | 324 |   |   | 82 | % |
| CVS                    Corporation                         |   |         | Garwood,                    NJ              |                                 |   | Retail                    Drug     |   |       | 11,970  |                                    |   | 6.12                                 | %      |                                 | 6/2025  |                                     |   | 8/2013 |   |   | 879 |   |   | 564 |   |   | 550 |   |   | 80 | % |
| CVS                    Corporation                         |   |         | Kennett                    Square, PA       |                                 |   | Retail                    Drug     |   |       | 12,150  |                                    |   | 6.40                                 | %      |                                 | 1/2025  |                                     |   | 10/2012 |   |   | 857 |   |   | 483 |   |   | 470 |   |   | 82 | % |
| CVS                    Corporation                         |   |         | Knox,                    IN                 |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 7.60                                 | %      |                                 | 1/2024  |                                     |   | 12/2011 |   |   | 322 |   |   | 159 |   |   | 159 |   |   | 68 | % |
| CVS                    Corporation                         |   |         | Rockingham,                    NC           |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 6.12                                 | %      |                                 | 1/2025  |                                     |   | 10/2013 |   |   | 435 |   |   | 286 |   |   | 280 |   |   | 74 | % |
| CVS                    Corporation                         |   |         | Rutherford                    College, NC   |                                 |   | Retail                    Drug     |   |       | 10,125  |                                    |   | 6.12                                 | %      |                                 | 1/2025  |                                     |   | 10/2013 |   |   | 346 |   |   | 249 |   |   | 244 |   |   | 76 | % |
| Federal                    Express Corporation             |   |         | Bellingham,                    WA           |                                 |   | Warehouse                          |   |       | 30,313  |                                    |   | 5.78                                 | %      |                                 | 10/2018 |                                     |   | 3/2015 |   |   | 362 |   |   | 289 |   |   | 284 |   |   | 69 | % |
| FedEx                    Ground Package System, Inc.       |   |         | McCook,                    IL               |                                 |   | Warehouse                          |   |       | 159,699 |                                    |   | 5.89                                 | %      |                                 | 1/2019  |                                     |   | 2/2015 |   |   | 2,737 |   |   | 2,120 |   |   | 2,099 |   |   | 80 | % |
| FedEx                    Ground Package System, Inc.       |   |         | Reno,                    NV                 |                                 |   | Warehouse                          |   |       | 106,396 |                                    |   | 5.90                                 | %      |                                 | 9/2018  |                                     |   | 10/2014 |   |   | 1,374 |   |   | 1,025 |   |   | 1,017 |   |   | 75 | % |

----

| Hercules                    Incorporated                 |   |   | Wilmington,                    DE     |   |   | Office                         |   |   | 518,409 |   |   | 9.32   | %      |   | 5/2013  |   |   | 5/2013  |   |   | 20,000  |   |   | 19,900  |   |   | 19,900  |   |   | 81     | %      |
|----------------------------------------------------------|--------|--------|---------------------------------------|--------|--------|--------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
| Lowes                    Companies, Inc.                 |   |   | N.                    Windham, ME     |   |   | Retail                         |   |   | 138,134 |   |   | 5.28   | %      |   | 1/2026  |   |   | 9/2015  |   |   | 1,140   |   |   | 971     |   |   | 954     |   |   | 83     | %      |
| PerkinElmer,                    Inc.                     |   |   | Beltsville,                    MD     |   |   | Office/Industrial              |   |   | 65,862  |   |   | 7.35   | %      |   | 11/2021 |   |   | 12/2011 |   |   | 707     |   |   | 347     |   |   | 345     |   |   | 76     | %      |
| PerkinElmer,                    Inc.                     |   |   | Daytona                    Beach, FL  |   |   | Office/Industrial              |   |   | 34,196  |   |   | 7.35   | %      |   | 11/2021 |   |   | 12/2011 |   |   | 321     |   |   | 157     |   |   | 156     |   |   | 73     | %      |
| PerkinElmer,                    Inc.                     |   |   | Phelps,                    NY         |   |   | Office/Industrial              |   |   | 32,700  |   |   | 7.35   | %      |   | 11/2021 |   |   | 12/2011 |   |   | 299     |   |   | 147     |   |   | 144     |   |   | 79     | %      |
| PerkinElmer,                    Inc.                     |   |   | Warwick,                    RI        |   |   | Industrial                     |   |   | 95,720  |   |   | 7.68   | %      |   | 12/2021 |   |   | 1/2012  |   |   | 939     |   |   | 472     |   |   | 464     |   |   | 77     | %      |
| Staples,                    Inc.                         |   |   | Odessa,                    TX         |   |   | Retail                         |   |   | 23,942  |   |   | 6.41   | %      |   | 6/2015  |   |   | 9/2012  |   |   | 408     |   |   | 238     |   |   | 228     |   |   | 73     | %      |
| Walgreen                    Co.                          |   |   | Delray                    Beach, FL   |   |   | Retail                    Drug |   |   | 15,120  |   |   | 6.20   | %      |   | 1/2021  |   |   | 1/2013  |   |   | 595     |   |   | 349     |   |   | 347     |   |   | 72     | %      |
| Walgreen                    Co.                          |   |   | Jefferson                    City, TN |   |   | Retail                    Drug |   |   | 14,266  |   |   | 5.49   | %      |   | 3/2030  |   |   | 5/2015  |   |   | 786     |   |   | 623     |   |   | 623     |   |   | 87     | %      |
| Walgreen                    Co.                          |   |   | Riverside,                    CA      |   |   | Retail                    Drug |   |   | 12,804  |   |   | 6.10   | %      |   | 10/2028 |   |   | 12/2013 |   |   | 571     |   |   | 384     |   |   | 377     |   |   | 72     | %      |
| Walgreen                    Co.                          |   |   | Waterford,                    MI      |   |   | Retail                    Drug |   |   | 14,490  |   |   | 5.50   | %      |   | 1/2023  |   |   | 6/2013  |   |   | 953     |   |   | 589     |   |   | 559     |   |   | 78     | %      |
|                                                     |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   | 38,246  |   |   | 32,114  |   |   | 31,863  |   |   |   |   |
|                                                     |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |   |   |
| **Mezzanine                    and Other Investments**   |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |   |   |
| 84th                    Avenue Development, LLC          |   |   | Tinley                    Park, IL    |   |   | Retail                    Drug |   |   | N/A     |   |   | 10.00  | %      |   | N/A     |   |   | 3/2008  |   |   | 498     |   |   | 498     |   |   | 498     |   |   | N/A    |   |
| Eden                    Hylan Seaview LLC                |   |   | Staten                    Island, NY  |   |   | Retail                    Drug |   |   | N/A     |   |   | 10.00  | %      |   | N/A     |   |   | 1/2008  |   |   | 650     |   |   | 650     |   |   | 650     |   |   | N/A    |   |
| West                    End Mortgage Finance Fund I L.P. |   |   | Various                               |   |   | Other                          |   |   | N/A     |   |   | 10.00  | %      |   | N/A     |   |   | 9/2009  |   |   | 7,154   |   |   | 6,654   |   |   | 6,654   |   |   | N/A    |   |
|                                                     |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   | 8,302   |   |   | 7,802   |   |   | 7,802   |   |   |   |   |
|                                                     |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |   |   |
|                                                     |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |   |   |
| **Total**                                                |   |   |                                  |   |   |                           |   |   |    |   |   |   |   |   |    |   |   |    |   | $      | 286,453 |   | $      | 268,416 |   | $      | 270,143 |   |   |   |   |

|  | (1) | All                percentages have been rounded to the nearest whole percentage. Loan                to                realty value is the ratio of the principal balance of the loan as                of                December 31, 2007 to the appraised value of the real estate that                secures                the loan at the time of the loan. The current value of the real estate                may                be different. The loan to realty value for each corporate credit                note                includes the principal balance of the portion of the loan we have                sold. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Commercial      Mortgage-Backed and Other Real Estate Securities*

|                                                                         |   |                           |      |  **(in                  thousands)**  |   |                             |   |         |    |                                 |   |
|------------------------------------------------------------------------------|--------|--------------------------------|-----------|--------------------------------------------|--------|----------------------------------|--------|--------------|---------|--------------------------------------|--------|
| **Security                  Description**                                    |   | **CUSIP                  No.** |      |  **Face                  Amount (1)** |   | **Carry                  Value** |   | **Coupon**   |    |  **Yield                  (2)** |   | **Maturity                  Date** |   |
| **Investments                  in Commercial Mortgage Loan Securitizations** |   |                      |      |                                       |   |                             |   |    |    |                                 |   |
| BACM                  2006-4, Class H                                        |   |                           | 05950WAT5 |                                       | $      | 8,000                            |   | $            | 6,649   |                                 |   | 6.21 | % |   | 9.05 | % |   | Aug                  2016 |   |
| BSCMS                  1999 CLF1, Class E                                    |   |                           | 07383FCC0 |                                       |   | 3,326                            |   |         | 1,042   |                                 |   | 7.07 | % |   | 25.00 | % |   | Sep                  2025 |   |
| BSCMS                  1999 CLF1, Class F                                    |   |                           | 07383FCD8 |                                       |   | 251                              |   |         | -       |                                 |   | 7.06 | % |   | N/A |   |   | Sep                  2025 |   |
| CALFS                  1997-CTL1, Class D                                    |   |                           | 140281AF3 |                                       |   | 6,000                            |   |         | 5,026   |                                 |   | 6.16 | % |   | 9.34 | % |   | Mar                  2016 |   |
| CMLBC                  2001-CMLB-1, Class E                                  |   |                           | 201736AJ4 |                                       |   | 9,526                            |   |         | 9,665   |                                 |   | 7.94 | % |   | 7.86 | % |   | Jul                  2022 |   |
| CMLBC                  2001-CMLB-1, Class G                                  |   |                           | 201736AL9 |                                       |   | 9,526                            |   |         | 4,670   |                                 |   | 7.94 | % |   | 18.13 | % |   | Feb                  2023 |   |
| CMLBC                  2001-CMLB-1, Class H                                  |   |                           | 201736AM7 |                                       |   | 11,907                           |   |         | 3,972   |                                 |   | 6.25 | % |   | 21.15 | % |   | Mar                  2024 |   |
| CMLBC                  2001-CMLB-1, Class J                                  |   |                           | 201736AN5 |                                       |   | 6,383                            |   |         | 1,437   |                                 |   | 6.25 | % |   | 30.00 | % |   | Oct                  2025 |   |
| NLFC                  1999-LTL-1, Class E                                    |   |                           | 63859CCL5 |                                       |   | 11,081                           |   |         | 5,913   |                                 |   | 5.00 | % |   | 12.35 | % |   | Jan                  2022 |   |
| NLFC                  1999-LTL-1, Class X (IO)                               |   |                           | 63859CCG6 |                                       |   | 6,265                            |   |         | 7,070   |                                 |   | 0.50 | % |   | 7.60 | % |   | Jan                  2024 |   |
| WBCMT                  2004-C15 180D                                         |   |                           | 929766YG2 |                                       |   | 15,000                           |   |         | 14,708  |                                 |   | 5.58 | % |   | 6.55 | % |   | Nov                  2009 |   |
| WBCMT                  2004-C15 180E                                         |   |                           | 929766YH0 |                                       |   | 8,000                            |   |         | 7,777   |                                 |   | 5.58 | % |   | 7.05 | % |   | Nov                  2009 |   |
| WBCMT                  2006-C27, Class C                                     |   |                           | 92977QAK4 |                                       |   | 11,000                           |   |         | 10,452  |                                 |   | 5.89 | % |   | 6.70 | % |   | Aug                  2016 |   |
| BACMS                  2002-2, Class V-1 (7-Eleven, Inc.)                    |   |                           | 05947UJE9 |                                       |   | 466                              |   |         | 345     |                                 |   | 8.72 | % |   | 12.24 | % |   | Sep                  2019 |   |
| BACMS                  2002-2, Class V-2 (Sterling Jewelers)                 |   |                           | 05947UJF6 |                                       |   | 713                              |   |         | 512     |                                 |   | 8.68 | % |   | 12.29 | % |   | Jan                  2021 |   |
|                                                                         |   |                           |      |                                       |   | 107,444                          |   |         | 79,238  |                                 |   |   |   |   |   |   |   |   |   |
|                                                                         |   |                           |      |                                       |   |                             |   |         |    |                                 |   |   |   |   |   |   |   |   |   |
| **Investments                  in Certificated Loan Transactions**           |   |                           |      |                                       |   |                             |   |         |    |                                 |   |   |   |   |   |   |
| CVS                  Corporation                                             |   |                           | 126650BB5 |                                       |   | 19,118                           |   |         | 18,155  |                                 |   | 5.88 | % |   | 6.62 | % |   | Jan                  2028 |   |
| Koninklijke                  Ahold, N.V. 7.82% Jan 2020                      |   |                           | 008686AA5 |                                       |   | 8,932                            |   |         | 9,476   |                                 |   | 7.82 | % |   | 6.64 | % |   | Jan                  2020 |   |
| Koninklijke                  Ahold, N.V. 7.9% May 2026                       |   |                           | 52467@AL9 |                                       |   | 22,962                           |   |         | 24,611  |                                 |   | 7.90 | % |   | 7.06 | % |   | May                  2026 |   |
| Lucent                  6.70% due 9/1/2020                                   |   |                           | 72817#AA6 |                                       |   | 37,321                           |   |         | 36,355  |                                 |   | 6.70 | % |   | 7.10 | % |   | Sep                  2020 |   |
| Yahoo,                  Inc.                                                 |   |                           | 984332AC0 |                                       |   | 31,837                           |   |         | 30,353  |                                 |   | 6.65 | % |   | 7.34 | % |   | Aug                  2026 |   |
|                                                                         |   |                           |      |                                       |   | 120,170                          |   |         | 118,950 |                                 |   |   |   |   |   |   |   |   |   |
|                                                                         |   |                           |      |                                       |   |                             |   |         |    |                                 |   |   |   |   |   |   |   |   |   |
| **Total**                                                                    |   |                           |      |                                       | $      | 227,614                          |   | $            | 198,188 |                                 |   |   |   |   |   |   |   |   |   |

| (1) | Represents                face amount, or, in the case of the NLFC 1999-LTL-1, Class X (IO)                bond,                our cost basis.  |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Represents                the yield to maturity, computed using the effective interest method,                based                on our carry value. The yield on the BSCMS Class F security is                indeterminate as we have written off our entire carry value on the                security.   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Portfolio      Financing**

----

|   | · | leverage                  of approximately 80.0%, which includes secured and unsecured                  debt; |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | $983.8                  million                  of total first mortgage debt at a weighted average coupon of 5.61%                  and a weighted average effective financing rate of 5.62%; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $268.2                  million of CDO debt at a weighted average effective financing rate                  of                  approximately 5.67%; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $232.9                  million of short-term warehouse debt at a weighted average effective                  financing rate of 6.21%; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $129.5                  million of other term debt at a coupon of 5.81% and an effective                  financing                  rate of 6.05%. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

**Hedging      Strategy**

----

**Co-Investment      Programs**

**Revenue      Concentrations in 2007**

**Asset      Pipeline**

*Owned      Property Pipeline.*

*Loan      Pipeline.*

**Investment      Network**

*Property      Acquisitions.*

----

*Loan      Origination.*

**Underwriting      Process**

|  | · | credit                and financial reviews of the tenant as well as an assessment of the                tenant’s business, the overall industry segment and the tenant’s market                position within the industry; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | lease                quality, including an analysis of the term, tenant termination and                abatement rights, landlord obligations and other lease provisions; |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | a                real estate fundamentals review and analysis;                and |
|--|--------|-----------------------------------------------------------------------------------|

|  | · | an                analysis of the risk adjusted returns on the investment. |
|--|--------|----------------------------------------------------------------------------|

----

|   | · | evaluates                      our current portfolio, including consideration of how the subject                      transaction affects asset diversity and credit concentrations                      in the                      tenant, industry or credit level; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | determines                      whether we can implement appropriate legal and financial structures,                      including our ability to control the asset in a variety of                      circumstances,                      such as an event of default by the tenant or the borrower,                      as                      applicable; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | evaluates                      the leveraged and unleveraged yield on the asset and how that                      yield                      compares to our target yields for that asset class and our                      analysis of the                      risk profile of the investment; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | determines                      our plans for financing and hedging the                      asset. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

**Asset          Management **

|   | · | meeting                      periodically with our tenants; |
|--------|--------|-------------------------------------------------------------|

|   | · | monitoring                      lease expirations and tenant space requirements; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | monitoring                      the financial condition and credit ratings of our tenants; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | performing                      physical inspections of our properties; |
|--------|--------|-------------------------------------------------------------------------|

|   | · | making                      periodic improvements to properties where required; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | monitoring                      portfolio concentrations (e.g., tenant, industry);                      and |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | monitoring                      real estate market conditions where we own                      properties. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

**Asset          Surveillance System**

|   | · | tracks                      the status of our investments and investment                      opportunities; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | links                      into a management program that includes the underlying asset                      origination                      or acquisition documents; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | loads                      expected asset cash flows from our underwriting files into                      the                      system; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | imports                      data from the system into our financial accounting                      system; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | monitors                      actual cash flows on each asset through servicer                      reports; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

----

|   | · | immediately                      identifies issues such as non-payment of rent and servicer                      advances of                      rent or debt service through servicer exception                      reports; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | automatically                      generates system e-mail notifications when the credit ratings                      of                      underlying tenants change; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | computes                      coverage and compliance tests for our CDO                      transactions. |
|--------|--------|------------------------------------------------------------------------------------------------------------|

**Closing          Process**

**Competition**

**Environmental          Matters**

----

**Employees**

**Available          Information**

**Item          1A.**
**Risk          Factors.**

*Set          forth below and elsewhere in this annual report on Form 10-K and in other          documents we file or furnish with the SEC are risks and uncertainties that          could          adversely affect our business and operations and cause actual results to          differ          materially from the results contemplated by any forward-looking statements          made          by us or on our behalf.*

***Risks          Related to Operations***

**The          market price of our stock may be adversely impacted by our pace of investment          activity.**

**We          conduct a significant part of our business with Wachovia Bank, N.A. and          its          affiliates, and their continued business with us is not          guaranteed.**

|   | · | Wachovia                      Bank and its affiliates provide us with short-term financing                      through a                      repurchase agreement and a revolving loan                      agreement. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      have obtained mortgage financing on our owned properties from                      Wachovia                      Bank in the past, and we expect to continue to do so in the                      future. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Affiliates                      of Wachovia Bank have performed investment banking services                      for us,                      including in connection with our initial public offering, our                      initial CDO                      transaction and our Series A preferred stock and each of our                      two follow-on                      common stock offerings. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Wachovia                      Bank acts as loan servicer of the assets financed under our                      repurchase                      facility. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      enter into derivative transactions from time to time with Wachovia                      Bank. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

----

**If          we lower our dividend, the market value of our common stock may          decline.**

***Risks          Related to Portfolio Assets***

**Single          tenant leases involve significant risks of tenant default.**

**An          adverse change in the financial condition of one or more tenants underlying          our          investments could have a material adverse impact on us.**

|   | · | The                      bankruptcy or insolvency of any of our tenants could result                      in that tenant                      ceasing to make rental payments, resulting in a reduction of                      our cash                      flows and losses to our company. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                      value of our investments is substantially driven by the credit                      quality of                      the underlying tenant or tenants, and an adverse change in                      the subject                      tenant’s financial condition or a decline in the credit rating of                      such                      tenant may result in a decline in the value of our investments                      and a                      charge to our Statement of                      Operations. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An                      adverse change in the financial condition of one or more of                      the tenants                      underlying our investments or a decline in the credit rating                      of one or                      more of the tenants underlying our investments could result                      in a margin                      call if the related asset is being financed on our short-term                      borrowing                      facilities, and could make it more difficult for us to arrange                      long-term                      financing for that asset, including by increasing our cost                      of                      financing. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      own the subordinate classes in our CDO financings and subordinate                      equity                      in any other term financings. If the underlying tenant on any                      asset                      financed in our CDO or other term financing fails to make rental                      payments,                      our cash flows may be redirected to the senior owners. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          are subject to tenant credit concentrations that make us more susceptible          to          adverse events with respect to certain tenants.**

|   | · | approximately                      $219.4 million, or 10.3%, of our assets represent investments                      in                      properties leased to the United States Government;                      and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $198.2 million, or 9.3%, of our assets represent investments                      in properties                      leased to, or leases guaranteed by, Nestlé Holdings,                      Inc. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          are subject to tenant industry concentrations that make us more susceptible          to          adverse events with respect to certain industries.**

|   | · | approximately                      $341.9 million, or 16.1%, of our assets represent investments                      in                      properties leased to, or leases guaranteed by, companies in                      the insurance                      industry (e.g., Aon Corporation, Allstate Insurance Company,                      Farmers New                      World Life Insurance Company, Aetna Life Insurance Company,                      Factory Mutual                      Insurance Company and Travelers Corporation); |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | approximately                      $258.7 million, or 12.2%, of our assets represent investments                      in                      properties leased to, or leases guaranteed by, companies in                      the food and                      beverage industry (e.g., Nestlé Holdings, Inc. and Cadbury Schweppes                      Holdings (US)); |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $164.9 million, or 7.8%, of our assets represent investments                      in properties                      leased to, or leases guaranteed by, companies in the retail                      grocery                      industry (e.g., The Kroger Co. and Koninklijke Ahold, N.V.); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $144.0 million, or 6.8%, of our assets represent investments                      in properties                      leased to, or leases guaranteed by, companies in the financial                      industry                      (e.g., Capital One Financial Corporation, AmeriCredit Corp.                      and AMVESCAP                      PLC); and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $140.0 million, or 6.6%, of our assets represent investments                      in properties                      leased to, or leases guaranteed by, companies in the retail                      department                      stores industry (e.g., TJX Companies, Inc. and Kohl’s                      Corporation). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          are subject to geographic concentrations that make us more susceptible          to          adverse events in these areas.**

|   | · | approximately                      $226.6 million, or 10.7%, of our assets represent investments                      in                      properties located in the Philadelphia, Pennsylvania metropolitan                      area; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $187.3 million, or 8.8%, of our assets represent investments                      in properties                      located in the Washington, D.C. metropolitan area; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $186.3 million, or 8.8%, of our assets represent investments                      in properties                      located in the Chicago, Illinois metropolitan area; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $151.6 million, or 7.1%, of our assets represent investments                      in properties                      located in the New York City and Northern New Jersey area; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $106.3 million, or 5.0%, of our assets represent investments                      in properties                      located in the Dallas/Fort Worth, Texas metropolitan area;                      and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately                      $105.3 million, or 5.0%, of our assets represent investments                      in properties                      located in the Southern California area. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our          investments in assets backed by below investment grade credits have a greater          risk of default.**

**Our          investments in assets where the underlying tenant does not have a publicly          available credit rating expose us to certain risks.**

----

**Our          investments may be subject to impairment charges.**

***Risks          Related to Ownership of Real Estate***

**Bankruptcy          laws will limit our remedies if a tenant becomes bankrupt and rejects our          lease.**

**Operating          expenses of our properties could reduce our cash flow and funds available          for          future dividends.**

**We          have greater exposure to operating costs when we invest in owned properties          leased to the United States Government. **

**We          may not be able to renew our leases or re-lease our          properties.**

**It          may be difficult for us to buy and sell real estate          quickly.**

----

**An          uninsured loss or a loss that exceeds the insurance policy limits on our          owned          properties could subject us to lost capital or revenue on those properties.          **

**Noncompliance          with environmental laws could adversely affect our financial condition          and          operating results.**

**Our          real estate investments are subject to risks particular to real          property.**

|   | · | civil                      unrest, acts of God, including earthquakes, floods and other                      natural                      disasters, which may result in uninsured losses, and acts of                      war or                      terrorism, including the consequences of the terrorist attacks,                      such as                      those that occurred on September 11, 2001; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | adverse                      changes in national and local economic and market conditions; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | the                      costs of complying or fines or damages as a result of non-compliance                      with                      the Americans with Disabilities                      Act; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | changes                      in governmental laws and regulations, fiscal policies and zoning                      ordinances and the related costs of compliance with laws and                      regulations,                      fiscal policies and ordinances; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                      ongoing need for capital improvements, particularly in older                      structures;                      and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | other                      circumstances beyond our                      control. |
|--------|--------|-----------------------------------------------------------------------------------|

***Risks          Related to Debt Assets***

**Our          investments in commercial mortgage-backed securities may be          subordinated.**

**We          have limited recourse in the event of a default on any of our mortgage          loans.**

----

**We          may experience losses on our mortgage loans.**

**Our          collateral rights under our corporate credit notes are          limited.**

**Our          mezzanine investments have a greater risk of loss than mortgage          loans.**

**We          may be subject to losses from the investments we make in franchise          loans.**

|   | · | Because                      our investments ultimately fund franchise loans, our ability                      to collect                      interest on and scheduled principal payments of our loans will                      be depend                      in part upon the financial health of the underlying franchisees’ business.                      We have very limited experience evaluating franchise loans                      and we do not                      re-underwrite the underlying franchise loans, but rely primarily                      on the                      underwriting efforts performed by or on behalf of our borrower. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Adverse                      events with respect to one or more of the YUM! Brands franchises,                      such as                      the E. coli outbreak associated with Taco Bell Stores in November/December                      2006, could adversely impact the underlying franchisee borrowers                      and hence                      our investment. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                      third party lender has a first priority lien in the underlying                      franchise                      loans, and therefore, our collateral is limited in the event                      of a default                      by our borrower as a result of non-payment by a                      franchisee. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Development          loans involve greater risk of loss than loans secured by income producing          properties.**

----

**We          may be required to repurchase assets that we have sold or to indemnify          holders          of the notes issued in our term financings. **

**Maintenance          of our Investment Company Act of 1940 exemption imposes limits on our          operations.**

***Risks          Related to Borrowings***

**Leveraging          our portfolio is an important component of our strategy and subjects us          to          increased risk of loss.**

|   | · | We                      rely on the cash flows from the assets financed to fund our                      debt service                      requirements. Therefore, in the event of a tenant default on                      its rent                      payments, our losses are expected to increase as we will need                      to fund our                      debt service requirements from other                      sources. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To                      the extent we have financed our assets under our variable rate                      short-term                      borrowing facilities, our debt service requirements will increase                      as                      short-term interest rates rise. Therefore, if short-term interest                      rates                      rise in excess of the yields on our assets financed, we will                      be subject to                      losses. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our                      lenders will have a first priority claim on the collateral                      we pledge and                      the right to foreclose on the collateral. Therefore, if we                      default on our                      debt service obligations, we would be at risk of losing the                      related                      collateral. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our                      short-term borrowing facilities are fully recourse lending                      arrangements.                      Therefore, if we default on these obligations, our lenders                      will have                      general recourse to our company’s assets, rather than limited recourse to                      just the assets financed. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Increases          in our cost of financing may cause our expected spreads on new assets to          erode.**

|   | · | a                      decline in the credit rating of the underlying                      tenant; |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | increases                      in long-term interest rates; |
|--------|--------|-------------------------------------------------------------|

|   | · | market                      dislocation events, such as the recent events affecting the                      general credit                      markets; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | ineffectiveness                      of our hedging strategies; |
|--------|--------|-----------------------------------------------------------------|

|   | · | weakening                      economic conditions; and |
|--------|--------|---------------------------------------------------------|

----

|   | · | United                      States military activity and terrorist                      activities. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

**We          may not be able to implement our long-term financing          strategy.**

|   | · | We                      may not be able to achieve our desired leverage level due to                      decreases in                      the market value of our assets, increases in interest rates                      and other                      factors. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      are subject to conditions in the mortgage, CDO and other long-term                      financing markets which are beyond our control, including the                      liquidity of                      these markets and maintenance of attractive credit                      spreads. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In                      the event of an adverse change in the financial condition of                      our                      underlying tenant, it may not be possible or it may be uneconomical                      for us                      to obtain long-term financing for the subject                      asset. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          may not be able to finance our investments on a long-term basis on attractive          terms, which may require us to seek more costly financing for our investments          or          to liquidate assets.**

**Our          use of debt financing could have a material adverse effect on our financial          condition.**

principal          and          interest payments          and the risk          that          we will be unable to refinance our existing indebtedness, or that the terms          of          such refinancing will not be as favorable as the terms of our existing          indebtedness. As          of          December 31, 2007, the scheduled principal payments on our long-term debt          over          the next five years and thereafter were as follows:

|                                                          |   | **Expected                          Maturity Dates**                                                                                |   |
|---------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                          |   | **2008**                                                                                                                            |   |  **2009** |   |  **2010** |   | **2011** |   | **2012** |   | **Thereafter** |   |
|                                                          |   | *(in                          thousands, notional amounts where appropriate,**otherwise                          carrying amounts)* |   |
| Mortgages                          on real estate investments |   | $                                                                                                                                   | 11,447 |   | $ | 13,371 |   | $ | 15,741 |   | $ | 36,433 |   | $ | 132,081 |   | $ | 774,697 |   |
| Collateralized                          debt obligations      |   |                                                                                                                                | (38    | ) |   | (41 | ) |   | 22,792 |   |   | 10,861 |   |   | 13,290 |   |   | 221,363 |   |
| Secured                          term loan                    |   |                                                                                                                                | 5,801  |   |   | 9,649 |   |   | 12,191 |   |   | 13,737 |   |   | 15,380 |   |   | 72,763 |   |
| Convertible                          senior notes             |   |                                                                                                                                | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 75,000 |   |
| Other                          long-term debt                 |   |                                                                                                                                | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 30,930 |   |

----

**Hedging          transactions may not effectively protect us against anticipated risks and          may          subject us to certain other risks and costs.**

|   | · | No                      hedging activity can completely insulate us from the risks                      associated with                      changes in interest rates and, therefore, our hedging strategy                      may not                      have the desired beneficial impact on our results of operations                      or                      financial condition. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | There                      will be various market risks which we do not intend or expect                      to hedge                      against, including changes in credit                      spreads. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Hedging                      transactions are entered into at the discretion of our management                      team and                      they may conclude that it is not in our company’s best interest to hedge                      the interest rate risks with respect to certain expected long-term                      financings. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our                      hedging strategy may serve to reduce the returns which we could                      possibly                      achieve if we did not utilize the                      hedge. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Because                      we intend to structure our hedging transactions in a manner                      that does not                      jeopardize our status as a REIT, we are limited in the type                      of hedging                      transactions that we may use. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Hedging                      costs increase as the period covered by the hedge increases                      and during                      periods of rising and volatile interest rates. We may increase                      our hedging                      activity and thus increase our hedging costs during periods                      when interest                      rates are volatile or rising. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our                      hedging transactions may not perform as expected, including                      during periods                      or market dislocation. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | If                      we do not obtain long-term financing in the time frame we designate                      at the                      time of the hedge transaction, our hedging strategy may not                      have the                      desired beneficial impact on our results of operations or financial                      condition. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          may fail to qualify for hedge accounting treatment.**

*Accounting          for*
*Derivative          Instruments and Hedging Activities*

**Our          existing short-term borrowing facilities may be unavailable to          us.**

**Our          short-term financings may expose us to interest rate risks and margin          calls.**

----

**Changes          in the accounting treatment of the convertible senior notes we issued in          October          2007 could decrease our earnings per share and, potentially, our stock          price**
**.**

**The          use of CDO financings with coverage tests may have a negative impact on          our          operating results and cash flows.**

***Risks          Related to Lease Enhancements***

**Our          lease enhancement mechanisms may fail.**

|   | · | casualty                      and condemnation insurance policies that protect us from any                      losses due to                      any rights the tenant may have to terminate the underlying                      net lease or                      abate rent as a result of a casualty or condemnation; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | borrower                      reserve funds that protect us from any losses due to any rights                      the tenant                      may have to terminate the underlying net lease or abate rent                      as a result                      of the failure of the property owner to maintain and repair                      the property                      or related common areas. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We          depend on our insurance carriers to provide and honor lease          enhancements.**

|   | · | a                      deterioration in our relationship with one or both of our carriers; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | a                      bankruptcy or other material adverse financial development                      with respect to                      one or both of our carriers; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                      dispute as to policy coverage with one or both of our                      carriers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

----

**We          may determine not to apply lease enhancement mechanisms that would otherwise          protect us. **

***Risks          Related to Business Strategy and Policies***

**We          face significant competition that could harm our business.**

**Our          network of independent mortgage brokers and investment sale brokers may          sell          investment opportunities to our competitors.**

**Joint          venture investments will expose us to certain risks.**

|   | · | We                      will not exercise sole decision-making authority regarding                      the joint                      venture’s business and assets and, thus, we may not be able to take                      actions that we believe are in our company’s best interests. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      may be required to accept liability for obligations of the                      joint venture                      (such as recourse carve-outs on mortgage loans) beyond our                      economic                      interest. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our                      returns on joint venture assets may be adversely affected if                      the assets                      are not held for the long-term, or a period of about ten                      years. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our          ability to grow our business will be limited by our ability to attract          debt or          equity financing, and we may have difficulty accessing capital on attractive          terms.**

----

**Future          offerings of debt and equity may adversely affect the market price of our          common          stock.**

**We          may not be able to maintain our pace of growth. **

**We          may fail to manage our anticipated growth.**

**The          concentration of our company’s common stock could have an adverse impact on the          value of your investment. **

|   | · | Trading                      volume in our stock may be limited, which will reduce the liquidity                      of                      your investment. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                      sale of a significant number of our shares in the open market                      by a                      significant stockholder or otherwise could adversely affect                      our stock                      price. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Although                      none of these investors on its own controls a majority of our                      common                      stock, these owners could determine to act together and given                      their                      significant concentration may be able to take actions that                      are not in your                      best interest. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our          board of directors may change our investment and operational policies without          stockholder consent.**

**The          federal income tax laws governing REITs are complex, and our failure to          qualify          as a REIT under the federal tax laws will result in adverse tax          consequences.**

----

**Our          ownership limitations may restrict or prevent you from engaging in certain          transfers of our stock.**

**Provisions          of our charter and Maryland law may limit the ability of a third-party          to          acquire control of our company.**

*Our          charter contains restrictions on stock ownership and transfer.*

*Our          board of directors may issue additional stock without stockholder          approval.*

*Other          provisions of our charter and bylaws may delay or prevent a transaction          or          change of control. *

**Increased          market interest rates may reduce the value of our stock.**

**The          market price of our stock may vary substantially.**

|   | · | actual                      or anticipated variations in our quarterly results of                      operations; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | · | the                      extent of institutional investor interest in our company, real                      estate                      generally or commercial real estate                      specifically; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the                      reputation of REITs generally and the attractiveness of their                      equity                      securities in comparison to other equity securities, including                      securities                      issued by other real estate companies, and fixed income                      securities; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | changes                      in expectations of future financial performance or changes                      in estimates of                      securities analysts; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | fluctuations                      in stock market prices and volumes;                      and |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | announcements                      by us or our competitors of acquisitions, investments or strategic                      alliances. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

----

**We          depend on our key personnel.**

**Item          1B.**
**Unresolved          Staff Comments.**

**Item          2.**
**Properties.**

**Item          3.**
**Legal          Proceedings.**

**Item          4.**
**Submission          of Matters to a Vote of Security Holders.**

----

**PART          II.**

**Item          5.**
**Market          for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases          of Equity Securities.**

**Market          Information and Holders of Record**

| **Fiscal                    Year** |   | **Low** |   | **High** |   |
|------------------------------------|--------|---------|--------|----------|--------|
| **2006**                           |   |    |   |     |   |
| First                    Quarter   |   | $       | 10.33  |     | $      | 11.73 |   |
| Second                    Quarter  |   |    | 9.90   |     |   | 12.13 |   |
| Third                    Quarter   |   |    | 10.25  |     |   | 11.58 |   |
| Fourth                    Quarter  |   |    | 10.71  |     |   | 12.21 |   |
|                               |   |    |   |     |   |   |   |
| **2007**                           |   |    |   |     |   |   |   |
| First                    Quarter   |   | $       | 10.16  |     | $      | 11.86 |   |
| Second                    Quarter  |   |    | 10.51  |     |   | 11.77 |   |
| Third                    Quarter   |   |    | 8.17   |     |   | 10.97 |   |
| Fourth                    Quarter  |   |    | 7.96   |     |   | 10.56 |   |

**Dividends**

| **Quarter                    Ended**  |   | **Dividend                    Payment Date** |                                | **Dividend                    per Share** |   |
|---------------------------------------|--------|----------------------------------------------|-------------------------------------|-------------------------------------------|--------|
| **2006**                              |   |                                         |                                |                                      |   |
| March                    31, 2006     |   |                                         | April                    17, 2006   |                                      | $      | 0.20 |   |
| June                    30, 2006      |   |                                         | July                    17, 2006    |                                      |   | 0.20 |   |
| September                    30, 2006 |   |                                         | October                    16, 2006 |                                      |   | 0.20 |   |
| December                    31, 2006  |   |                                         | January                    16, 2007 |                                      |   | 0.20 |   |
|                                  |   |                                         |                                |                                      |   |   |   |
| **2007**                              |   |                                         |                                |                                      |   |   |   |
| March                    31, 2007     |   |                                         | April                    16, 2007   |                                      | $      | 0.20 |   |
| June                    30, 2007      |   |                                         | July                    16, 2007    |                                      |   | 0.20 |   |
| September                    30, 2007 |   |                                         | October                    15, 2007 |                                      |   | 0.20 |   |
| December                    31, 2007  |   |                                         | January                    15, 2008 |                                      |   | 0.20 |   |

**Tax          Characteristics of 2007 Dividends**

| Total                      common dividend per share (tax basis) |   | $      | 0.80     |   |
|------------------------------------------------------------------|--------|--------|----------|--------|
|                                                             |   |   |     |   |
| Capital                      gain                                |   |   | 0.0000   | %      |
| Ordinary                      income                             |   |   | 0.0693   | %      |
| Return                      of capital                           |   |   | 99.9307  | %      |
|                                                             |   |   | 100.0000 | %      |

----

**Stock          Price Performance Graph**

|                                  |   | Base    |   |     |   |     |   |     |   |     |   |
|---------------------------------------|--------|---------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                  |   | Period  |   |     |   |     |   |     |   |     |   |
| Company                    / Index    |   | 3/19/04 |   | 12/31/04 |   | 12/31/05 |   | 12/31/06 |   | 12/31/07 |   |
| CapLease,                    Inc.     |   |    | 100    |     |   | 121.58   |   |     | 109.70 |     |   | 129.63 |   |   | 101.91 |   |
| S&P                    500 Index  |   |    | 100    |     |   | 110.65   |   |     | 116.09 |     |   | 134.42 |   |   | 141.80 |   |
| S&P                    REIT Index |   |    | 100    |     |   | 118.30   |   |     | 133.16 |     |   | 188.76 |   |   | 156.48 |   |

**Common          Stock Repurchases**

| Period                                        |   | Total                    Number of Shares/Units Purchased |      | Average                    Price Paid Per Share/Unit |   | Total                    Number of Shares/Units Purchased as Part of Publicly Announced                    Plans or                    Programs |   | Maximum                    Number of Shares That May Yet Be Purchased Under the Plans or                    Programs |      |
|-----------------------------------------------|--------|-----------------------------------------------------------|-----------|------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|-----------|
| October 1                    - 31, 2007  |   |                                                      | 1,524,390 |                                                 | $      | 9.84                                                                                                                                            |   |                                                                                                                 | 1,524,390 |   |   | 0 |   |
| November 1                    - 30, 2007 |   |                                                      | 0         |                                                 | $      | 0.00                                                                                                                                            |   |                                                                                                                 | 0         |   |   | 0 |   |
| December 1                    - 31, 2007 |   |                                                      | 0         |                                                 | $      | 0.00                                                                                                                                            |   |                                                                                                                 | 0         |   |   | 0 |   |
| Fourth                    Quarter 2007        |   |                                                      | 1,524,390 |                                                 | $      | 9.84                                                                                                                                            |   |                                                                                                                 | 1,524,390 |   |   | 0 |   |

----

**Item          6.**
**Selected          Financial Data.**

|                                                                                |   | **Year                      ended December 31,**                |     |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|----------|
|                                                                                |   | **2007**                                                        |     | **2006** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                                                |   | *(in                      thousands, except per share amounts)* |     |
| ***Statement                      of Operations data***                             |   |                                                            |     |   |   |   |   |   |   |   |   |
| Revenues:                                                                           |   |                                                            |     |   |   |   |   |   |   |   |   |
| Rental                      revenue                                                 |   | $                                                               | 124,960  |   | $ | 78,477 |   | $ | 37,956 |   | $ | 4,287 |   | $ | — |   |
| Interest                      income from loans and securities                      |   |                                                            | 35,400   |   |   | 32,469 |   |   | 27,898 |   |   | 13,589 |   |   | 7,317 |   |
| Property                      expense recoveries                                    |   |                                                            | 11,215   |   |   | 8,828 |   |   | 6,272 |   |   | 1,608 |   |   | — |   |
| Gains                      on sale of mortgage loans and securities                 |   |                                                            | —  |   |   | 2,923 |   |   | 447 |   |   | 794 |   |   | 11,652 |   |
| Other                      revenue                                                  |   |                                                            | 583      |   |   | 1,903 |   |   | 479 |   |   | 726 |   |   | 151 |   |
| Total                      revenues                                                 |   |                                                            | 172,158  |   |   | 124,600 |   |   | 73,052 |   |   | 21,004 |   |   | 19,120 |   |
| Expenses:                                                                           |   |                                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                      expense                                               |   |                                                            | 97,036   |   |   | 63,212 |   |   | 31,398 |   |   | 2,768 |   |   | 1,220 |   |
| Interest                      expense to affiliates                                 |   |                                                            | —  |   |   | — |   |   | — |   |   | — |   |   | 838 |   |
| Property                      expenses                                              |   |                                                            | 18,912   |   |   | 15,889 |   |   | 10,441 |   |   | 1,761 |   |   | — |   |
| (Gain)                      loss on derivatives                                     |   |                                                            | (203     | ) |   | (413 | ) |   | (159 | ) |   | 724 |   |   | 3,129 |   |
| Loss                      on securities                                             |   |                                                            | 372      |   |   | 907 |   |   | 2,372 |   |   | 247 |   |   | — |   |
| General                      and administrative expenses                            |   |                                                            | 10,662   |   |   | 9,772 |   |   | 10,140 |   |   | 8,833 |   |   | 7,186 |   |
| General                      and administrative expenses - stock based compensation |   |                                                            | 1,621    |   |   | 2,621 |   |   | 2,235 |   |   | 3,825 |   |   | — |   |
| Depreciation                      and amortization expense on real property         |   |                                                            | 47,461   |   |   | 25,378 |   |   | 11,273 |   |   | 1,281 |   |   | — |   |
| Loan                      processing expenses                                       |   |                                                            | 306      |   |   | 268 |   |   | 283 |   |   | 196 |   |   | 114 |   |
| Total                      expenses                                                 |   |                                                            | 176,167  |   |   | 117,634 |   |   | 67,983 |   |   | 19,635 |   |   | 12,487 |   |
| Gain                      on extinguishment of debt                                 |   |                                                            | 1,363    |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Income                      (loss) before minority interest and taxes               |   |                                                            | (2,646   | ) |   | 6,966 |   |   | 5,069 |   |   | 1,369 |   |   | 6,633 |   |
| Minority                      interest in consolidated entities                     |   |                                                            | 33       |   |   | (17 | ) |   | 55 |   |   | — |   |   | — |   |
| Provision                      for income taxes                                     |   |                                                            | —  |   |   | — |   |   | — |   |   | 9 |   |   | — |   |
| Income                      (loss) from continuing operations                       |   |                                                            | (2,613   | ) |   | 6,949 |   |   | 5,124 |   |   | 1,360 |   |   | 6,633 |   |
| Income                      from discontinued operations                            |   |                                                            | 352      |   |   | 300 |   |   | 6 |   |   | — |   |   | — |   |
| Net                      income (loss)                                              |   |                                                            | (2,261   | ) |   | 7,249 |   |   | 5,130 |   |   | 1,360 |   |   | 6,633 |   |
| Dividends                      allocable to preferred shares                        |   |                                                            | (2,844   | ) |   | (2,844 | ) |   | (561 | ) |   | — |   |   | — |   |
| Net                      income (loss) allocable to common stockholders             |   | $                                                               | (5,105   | ) | $ | 4,405 |   | $ | 4,569 |   | $ | 1,360 |   | $ | 6,633 |   |
|                                                                                |   |                                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                      per share (pro forma for year 2003):                  |   |                                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                      income (loss) per common share, basic and diluted          |   | $                                                               | (0.13    | ) | $ | 0.14 |   | $ | 0.16 |   | $ | 0.06 |   | $ | 1.61 |   |
| Weighted                      average number of common shares outstanding, basic    |   |                                                            | 40,739   |   |   | 31,939 |   |   | 27,784 |   |   | 22,125 |   |   | 4,108 |   |
| Weighted                      average number of common shares outstanding, diluted  |   |                                                            | 40,739   |   |   | 31,941 |   |   | 27,784 |   |   | 22,125 |   |   | 4,108 |   |
| Dividends                      declared per common share                            |   | $                                                               | 0.80     |   | $ | 0.80 |   | $ | 0.74 |   | $ | 0.25 |   | $ | — |   |
| Dividends                      declared per preferred share                         |   | $                                                               | 2.03125  |   | $ | 2.03125 |   | $ | 0.48524 |   | $ | — |   | $ | — |   |
|                                                                                |   |                                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Other                      data***                                               |   |                                                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                      flows from operating activities                           |   | $                                                               | 30,945   |   | $ | 27,443 |   | $ | (17,111 | ) | $ | 10,973 |   | $ | (10,743 | ) |
| Cash                      flows from investing activities                           |   |                                                            | (309,062 | ) |   | (361,854 | ) |   | (675,408 | ) |   | (349,576 | ) |   | (69 | ) |
| Cash                      flows from financing activities                           |   |                                                            | 307,739  |   |   | 319,520 |   |   | 681,114 |   |   | 362,802 |   |   | 11,948 |   |

----

|                                                                                    |   | **As                    of December 31,** |      |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|
|                                                                                    |   | **2007**                                  |      | **2006** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                                                    |   | *(in                    thousands)*       |      |
| ***Balance                    sheet data***                                             |   |                                      |      |   |   |   |   |   |   |   |   |
| Real                    estate investments, net                                         |   | $                                         | 1,563,570 |   | $ | 1,115,001 |   | $ | 764,930 |   | $ | 194,541 |   | $ | — |   |
| Real                    estate investments consolidated under                    FIN 46 |   |                                      | —   |   |   | — |   |   | — |   |   | 48,000 |   |   | — |   |
| Loans                    held for investment                                            |   |                                      | 269,293   |   |   | 273,170 |   |   | 297,551 |   |   | 207,347 |   |   | — |   |
| Mortgage                    loans held for sale                                         |   |                                      | —   |   |   | — |   |   | — |   |   | — |   |   | 71,757 |   |
| Securities                    available for sale                                        |   |                                      | 198,187   |   |   | 183,066 |   |   | 137,409 |   |   | 87,756 |   |   | 40,054 |   |
| Cash                    and cash equivalents                                            |   |                                      | 34,047    |   |   | 4,425 |   |   | 19,316 |   |   | 30,721 |   |   | 6,522 |   |
| Structuring                    fees receivable                                          |   |                                      | 2,576     |   |   | 3,253 |   |   | 3,862 |   |   | 4,426 |   |   | 5,223 |   |
| Total                    assets                                                         |   |                                      | 2,158,269 |   |   | 1,644,300 |   |   | 1,286,488 |   |   | 581,702 |   |   | 125,773 |   |
| Mortgages                    on real estate investments                                 |   |                                      | 983,770   |   |   | 794,773 |   |   | 551,844 |   |   | 111,539 |   |   | — |   |
| Collateralized                    debt obligations                                      |   |                                      | 268,227   |   |   | 268,190 |   |   | 268,156 |   |   | — |   |   | — |   |
| Repurchase                    agreement obligations                                     |   |                                      | 232,869   |   |   | 195,485 |   |   | 129,965 |   |   | 133,831 |   |   | 88,087 |   |
| Secured                    term loan                                                    |   |                                      | 129,521   |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Convertible                    senior notes                                             |   |                                      | 75,000    |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Other                    long-term debt                                                 |   |                                      | 30,930    |   |   | 30,930 |   |   | 30,930 |   |   | — |   |   | — |   |
| Stockholders’                    equity/members’ capital                    |   |                                      | 349,659   |   |   | 307,656 |   |   | 270,031 |   |   | 253,264 |   |   | 34,045 |   |

----

**Item          7.**
**Management’s          Discussion and Analysis of Financial Condition and Results of          Operations.**

*The          following discussion should be read in conjunction with the consolidated          financial statements and the notes to those financial statements, included          elsewhere in this filing. *

**Name          Change**

**Overview**

**Summary          of Investment and Financing Activity in 2007**

|   | · | We                        added new investments of approximately $480.7 million, including                        the                        acquisition of 23 real properties for an aggregate purchase                        price of                        approximately $433.7 million. Most of our new investment                        activity took                        place in the first half of 2007, when market conditions were                        competitive,                        but reasonably stable. In April 2007, we acquired a portfolio                        18 real                        estate assets net leased to five different tenants for a                        purchase price of                        $364.4 million (the “EntreCap Portfolio”).                        The                        EntreCap Portfolio included assets leased to (or leases guaranteed                        by)                        Nestle Holdings, Inc., The Kroger Co., Factory Mutual Insurance                        Company,                        Qwest Corporation, and The Travelers                        Corporation. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                      financed our real property acquisitions with $196.4                      million of fixed rate mortgage debt (including $37.2                      million of debt assumed at its fair market value on the Travelers                      Corporation property in the EntreCap Portfolio). We also obtained                      $129.5                      million of 10-year term financing secured by approximately                      $163.1 million                      principal amount of collateral at a fixed interest coupon of                      5.81%                      annually and an effective financing rate of 6.05%                      annually. In connection with our acquisition of the EntreCap                      Portfolio, we                      borrowed $210.3 million under a bridge borrowing facility and                      assumed                      $125.7 million outstanding principal amount of mortgage debt,                      all of which                      was repaid in full during 2007. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Business          Environment**

|   | · | making                      it difficult for us to price and finance new investment opportunities                      on                      attractive terms. As a result of market conditions, we have                      not been                      adding new asset investments to our investment portfolio. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | causing                      a delay in the long-term financing of the mortgage assets financed                      under                      our repurchase agreement, which were scheduled to be financed                      through a                      CDO. We successfully financed a portion of this collateral                      in a 10 year                      term financing transaction in December 2007, and are continuing                      to discuss                      with several financial institutions a number of alternatives                      for                      refinancing the remainder of this collateral. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Application          of Critical Accounting Policies**

*Loan          Investments.*

*Purchase          Accounting for Acquisition of Real Estate.*

|   | · | acquired                    tangible assets, consisting of land, building and improvements;                    and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | · | identified                    intangible assets and liabilities, consisting of above-market                    and                    below-market leases, in-place leases and tenant                    relationships. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Securities          Available for Sale.*

*Accounting          for Certain Investments in Debt and Equity Securities*

*Impairment          on Owned Real Properties. *

*Derivative          Instruments and Other Risk Management Transactions.*

*Accounting          for Derivative Instruments and Hedging Activities*

----

*Stock          Based Compensation*

*Share-Based          Payment*

**Property          Acquisitions**

**Business          Segments**

|  | · | operating                    real estate (including our investments in owned real properties);                    and |
|--|--------|-----------------------------------------------------------------------------------------------------------------------|

|  | · | lending                    investments (including our loan investments as well as our investments                    in                    securities). |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |   | Corporate                      / |    |  Operating                        |   | Lending     |   |   |    |
|---------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------------|--------|-------------|--------|--------|---------|
|                                                          |   | Unallocated                      |    |  Real                      Estate |   | Investments |   | Total  |    |
| Total                      revenues                           |   | $                                | 602     |                                   | $      | 136,917     |   | $      | 34,640  |   | $ | 172,159 |   |
| Total                      expenses and minority interest     |   |                             | 16,111  |                                   |   | 135,603     |   |   | 24,421  |   |   | 176,135 |   |
| Gain                      on extinguishment of debt           |   |                             | -       |                                   |   | 1,363       |   |   | -       |   |   | 1,363 |   |
| Income                      (loss) from continuing operations |   |                             | (15,509 | )                                      |   | 2,677       |   |   | 10,219  |   |   | (2,613 | ) |
| Total                      assets                             |   |                             | 64,616  |                                   |   | 1,620,419   |   |   | 473,234 |   |   | 2,158,269 |   |

|                                                          |   | Corporate                      / |    |  Operating                        |   | Lending     |   |   |    |
|---------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------------|--------|-------------|--------|--------|---------|
|                                                          |   | Unallocated                      |    |  Real                      Estate |   | Investments |   | Total  |    |
| Total                      revenues                           |   | $                                | 811     |                                   | $      | 87,823      |   | $      | 35,966  |   | $ | 124,601 |   |
| Total                      expenses and minority interest     |   |                             | 14,901  |                                   |   | 82,680      |   |   | 20,070  |   |   | 117,651 |   |
| Income                      (loss) from continuing operations |   |                             | (14,090 | )                                      |   | 5,144       |   |   | 15,896  |   |   | 6,950 |   |
| Total                      assets                             |   |                             | 30,219  |                                   |   | 1,152,348   |   |   | 461,732 |   |   | 1,644,300 |   |

|                                                          |   | Corporate                      / |    |  Operating                        |   | Lending     |   |   |    |
|---------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------------|--------|-------------|--------|--------|---------|
|                                                          |   | Unallocated                      |    |  Real                      Estate |   | Investments |   | Total  |    |
| Total                      revenues                           |   | $                                | 1,090   |                                   | $      | 44,352      |   | $      | 27,609  |   | $ | 73,052 |   |
| Total                      expenses and minority interest     |   |                             | 12,493  |                                   |   | 39,254      |   |   | 16,181  |   |   | 67,928 |   |
| Income                      (loss) from continuing operations |   |                             | (11,402 | )                                      |   | 5,098       |   |   | 11,428  |   |   | 5,124 |   |
| Total                      assets                             |   |                             | 48,007  |                                   |   | 797,945     |   |   | 440,536 |   |   | 1,286,488 |   |

----

**Results          of Operations**

**Comparison          of Year Ended December 31, 2007 to the Year Ended December 31,          2006**

*Revenue.*

*Expenses.*

** **

----

*Gain          on extinguishment of debt.*

*Net          income (loss).*

**Comparison          of Year Ended December 31, 2006 to the Year Ended December 31, 2005**

*Revenue.*

*Expenses.*

----

** **

*Net          income.*

**Funds          from Operations**

----

|                                                                                                                 |   | Year                      ended December 31, |   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
| (in                      thousands, except per share amounts)                                                        |   | 2007                                         |   | 2006 |   | 2005 |   |
| Net                      income (loss) allocable to common stockholders                      Adjustments:            |   | $                                            | (5,105 | ) | $ | 4,405 |   | $ | 4,569 |   |
| Add:                      Minority interest-OP units                                                                 |   |                                         | (33    | ) |   | 17 |   |   | - |   |
| Add:                      Depreciation and amortization expense on real property                                     |   |                                         | 47,461 |   |   | 25,378 |   |   | 11,273 |   |
| Add:                      Depreciation and amortization expense on discontinued                      operations      |   |                                         | 43     |   |   | 73 |   |   | - |   |
| Funds                      from operations                                                                           |   | $                                            | 42,366 |   | $ | 29,873 |   | $ | 15,842 |   |
|                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |
| Weighted                      average number of common shares outstanding, diluted                                   |   |                                         | 40,739 |   |   | 31,941 |   |   | 27,784 |   |
| Weighted                      average number of OP units outstanding                                                 |   |                                         | 263    |   |   | 145 |   |   | - |   |
| Weighted                      average number of common shares and OP units outstanding,                      diluted |   |                                         | 41,002 |   |   | 32,086 |   |   | 27,784 |   |
|                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |
| Net                      income (loss) per common share, basic and diluted                                           |   | $                                            | (0.13  | ) | $ | 0.14 |   | $ | 0.16 |   |
| Funds                      from operations per share                                                                 |   | $                                            | 1.03   |   | $ | 0.93 |   | $ | 0.57 |   |
|                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |
| Gain                      on sale of mortgage loans and securities                                                   |   | $                                            | -      |   | $ | 2,923 |   | $ | 447 |   |
| Depreciation                      on real estate investments consolidated under FIN46                                |   | $                                            | -      |   | $ | - |   | $ | 935 |   |

**Liquidity          and Capital Resources**

*Short-Term          Liquidity and Financing.*

----

*Long-Term          Liquidity and Financing.*

*Long-Term          Mortgage Financings.*

----

*Term          Financings.*

**Statement          of Cash Flows**

----

**Risk          Management Transactions**

----

**Contractual          Obligations**

|                                                      |   |      |      | **Less                      than 1** |   |                                |   |                               |   |                                   |   |
|-----------------------------------------------------------|--------|-----------|-----------|--------------------------------------|--------|------------------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|
|                                                      |   | **Total** |      | **year**                             |   |  **2-3                      years** |   | **4-5                      years** |   | **After                      5 years** |   |
| Mortgages                      on real estate investments |   | $         | 983,770   |                                 | $      | 11,447                                   |   | $                                  | 29,112 |                                   | $      | 168,514 |   | $ | 774,697 |   |
| Collateralized                      debt obligations      |   |      | 268,227   |                                 |   | (38                                      | )      |                               | 22,751 |                                   |   | 24,151 |   |   | 221,363 |   |
| Secured                      term loan                    |   |      | 129,521   |                                 |   | 5,801                                    |   |                               | 21,840 |                                   |   | 29,117 |   |   | 72,763 |   |
| Convertible                      senior notes             |   |      | 75,000    |                                 |   | -                                        |   |                               | -      |                                   |   | - |   |   | 75,000 |   |
| Other                      long-term debt                 |   |      | 30,930    |                                 |   | -                                        |   |                               | -      |                                   |   | - |   |   | 30,930 |   |
| Operating                      leases                     |   |      | 4,273     |                                 |   | 736                                      |   |                               | 1,466  |                                   |   | 1,506 |   |   | 565 |   |
| Repurchase                      agreement obligations     |   |      | 232,869   |                                 |   | 232,869                                  |   |                               | -      |                                   |   | - |   |   | - |   |
|  Total                                               |   | $         | 1,724,590 |                                 | $      | 250,815                                  |   | $                                  | 75,169 |                                   | $      | 223,288 |   | $ | 1,175,318 |   |

**Off-Balance          Sheet Arrangements**

**Item          7A.**
**Quantitative          and Qualitative Disclosures about Market Risk.**

*Interest          Rate Exposure*

----

*Credit          Spread Curve Exposure*

|   | · | as                      credit spreads widen, our short-term borrowing costs may                      rise; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | increases                      in credit spreads can result in spread compression on investments                      we                      target and, thus, a slowing of our new investment                      pace; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increases                      in credit spreads can increase our anticipated cost to finance                      assets not                      yet long-term financed, causing our expected spread on these                      assets to be                      reduced; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increases                      in credit spreads can lower the value of our loans and securities                      as                      required yields on these assets                      increase. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Tenant          Credit Rating Exposure*

*Equity          Price Risk Exposure*

*Fair          Value*

----

|                                                                |   |                                     |    |                                     |   |           |   |           |    | **Weighted**                        |   |           |   |           |   |           |   |
|---------------------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------|--------|----------------|--------|----------------|---------|-------------------------------------|--------|----------------|--------|----------------|--------|----------------|--------|
|                                                                |   |                                     |    |                                     |   |           |   |           |    | **Average**                         |   |           |   |           |   |           |   |
|                                                                |   |                                     |    |                                     |   |           |   |           |    | **Effective**                       |   |           |   |           |   |           |   |
|                                                                |   |                                     |    |                                     |   |           |   |           |    | **Interest                      /** |   |           |   |           |   |           |   |
|                                                                |   |                                     |    |                                     |   |           |   |           |    | **Financing**                       |   | **Maturity**   |   |           |   |           |   |
|                                                                     |   | **Carrying                      Amount** |    | **Notional                      Amount** |   | **Rate**       |   | **Date**       |    | **Fair                      Value** |   |
|                                                                |   | **12/31/2007**                           |    | **12/31/2006**                           |   | **12/31/2007** |   | **12/31/2006** |    | **12/31/2007**                      |   | **12/31/2007** |   | **12/31/2007** |   | **12/31/2006** |   |
| **Assets:**                                                         |   |                                     |    |                                     |   |           |   |           |    |                                |   |           |   |           |   |           |   |
|  Loans                      held for investment (1)            |   | $                                        | 270,143 |                                     | $      | 274,085        |   | $              | 268,417 |                                | $      | 272,271        |   |           | 6.79   | %              |   | Various |   | $ | 267,735 |   | $ | 277,014 |   |
|  Securities                      available for sale (2)        |   |                                     | 198,187 |                                     |   | 183,066        |   |           | 227,614 |                                |   | 192,111        |   |           | 7.42   | %              |   | 2009-2028 |   |   | 198,187 |   |   | 183,066 |   |
|  Structuring                      fees receivable              |   |                                     | 2,576   |                                     |   | 3,253          |   |           | N/A     |                                |   | N/A            |   |           | 8.02   | %              |   | 2010-2020 |   |   | 2,576 |   |   | 3,253 |   |
|  Derivative                      assets (3)                    |   |                                     | -       |                                     |   | 2,333          |   |           | -       |                                |   | 127,529        |   |           | N/A    |           |   | N/A |   |   | - |   |   | 2,333 |   |
|                                                                |   |                                     |    |                                     |   |           |   |           |    |                                |   |           |   |           |   |           |   |   |   |   |   |   |   |   |   |
| **Liabilities**                                                     |   |                                     |    |                                     |   |           |   |           |    |                                |   |           |   |           |   |           |   |   |   |   |   |   |   |   |   |
|  Repurchase                      agreement obligations (4)     |   |                                     | 232,869 |                                     |   | 195,485        |   |           | 232,869 |                                |   | 195,485        |   |           | 6.21   | %              |   | Short-term |   |   | 232,869 |   |   | 195,485 |   |
|  Mortgages                      on real estate investments (5) |   |                                     | 983,770 |                                     |   | 794,773        |   |           | 976,237 |                                |   | 789,971        |   |           | 5.62   | %              |   | 2011-2024 |   |   | 923,611 |   |   | 784,802 |   |
|  Collateralized                      debt obligations (5)      |   |                                     | 268,227 |                                     |   | 268,190        |   |           | 268,500 |                                |   | 268,500        |   |           | 5.67   | %              |   | 2015 |   |   | 261,366 |   |   | 258,557 |   |
|  Secured                      term loan (5)                    |   |                                     | 129,521 |                                     |   | -              |   |           | 129,521 |                                |   | -              |   |           | 6.05   | %              |   | 2018 |   |   | 131,365 |   |   | - |   |
|  Convertible                      senior notes (6)             |   |                                     | 75,000  |                                     |   | -              |   |           | 75,000  |                                |   | -              |   |           | 8.24   | %              |   | 2012 |   |   | 63,322 |   |   | - |   |
|  Other                      long-term debt (7)                 |   |                                     | 30,930  |                                     |   | 30,930         |   |           | 30,930  |                                |   | 30,930         |   |           | 8.30   | %              |   | 2016 |   |   | 27,761 |   |   | 31,958 |   |
|  Derivative                      liabilities (3)               |   |                                     | 4,559   |                                     |   | 2,405          |   |           | 177,442 |                                |   | 104,190        |   |           | N/A    |           |   | N/A |   |   | 4,559 |   |   | 2,405 |   |

| (1) | This                      portfolio of loans bears interest at fixed rates. We have estimated                      the                      fair value of this portfolio of loans based on sales of loans                      with similar                      credit and structural characteristics where available, and                      management’s                      estimate of fair values where comparable sales information                      is not                      available. The maturity dates for the loans range from 2008                      through 2033. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Securities                      available for sale represent subordinate interests in securitizations                      (CMBS), as well as pass-through certificates representing our                      pro rata                      investments in a pool of mortgage loans. Structuring fees receivable                      represent cash flows receivable by us from the sale of loans                      to                      third-party purchasers. The notional values for the CMBS are                      shown at                      their respective face amounts. Fair value for the CMBS is based                      on                      third-party quotations, where obtainable, or our estimate of                      fair value,                      based on yields of comparably rated securities in the CMBS                      market. Fair                      value for the structuring fees receivable is shown at our amortized                      cost                      for these items. For the securities available for sale, we                      expect to                      receive monthly interest coupon payments, and contractual principal                      payments as scheduled. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | These                      instruments represent hedging and risk management transactions                      involving                      interest rate swaps. They have been valued by reference to                      market                      quotations. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Our                      repurchase agreement obligations bear interest at floating                      rates, and we                      believe that for similar financial instruments with comparable                      credit                      risks, the effective rates approximate market value. Accordingly,                      the                      carrying amounts outstanding are believed to approximate fair                      value. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | We                      estimate the fair value of mortgage notes on real estate investments,                      collateralized debt obligations and the secured term loan using                      a                      discounted cash flow analysis, based on our estimates of market                      interest                      rates. For mortgages where we have an early payment right,                      we also                      consider the prepayment amount to evaluate the fair value.                      The maturity                      date of the collateralized debt obligations reflects our expected                      maturity                      date in January 2015 and is used to compute the related fair                      value and                      weighted average effective interest                      rate. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | We                      estimate the fair value of our convertible senior notes using                      a discounted                      cash flow analysis, based upon management’s estimates of market interest                      rates, and indications of market yields, where available. The                      maturity                      date of our convertible senior notes reflects our expected                      maturity date                      in October 2012 when the note investors have the right to require                      us to                      repurchase their notes for cash and is used to compute the                      related fair                      value and weighted average effective interest                      rate. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | We                        estimate the fair value of our other long-term debt using                        a discounted                        cash flow analysis, based upon management’s estimates of market interest                        rates. The maturity date of our other long-term debt reflects                        our expected                        maturity date in January 2016 and is used to compute the                        related fair                        value and weighted average effective interest                        rate. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                      |   | **Expected                      Maturity Dates**                                                                            |    |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|---------|
|                                                      |   | **2008**                                                                                                                    |    |  **2009** |   |  **2010** |   | **2011** |   | **2012** |   | **Thereafter** |   |
|                                                      |   | *(in                      thousands, notional amounts where appropriate,**otherwise                      carrying amounts)* |    |
| Loans                      held for investment            |   | $                                                                                                                           | 7,195   |   | $ | 15,869 |   | $ | 11,483 |   | $ | 12,589 |   | $ | 13,220 |   | $ | 208,060 |   |
| Securities                      available for sale        |   |                                                                                                                        | 2,773   |   |   | 25,854 |   |   | 3,273 |   |   | 4,054 |   |   | 4,691 |   |   | 186,969 |   |
| Structuring                      fees receivable          |   |                                                                                                                        | 712     |   |   | 771 |   |   | 767 |   |   | 72 |   |   | 79 |   |   | 175 |   |
| Mortgages                      on real estate investments |   |                                                                                                                        | 11,447  |   |   | 13,371 |   |   | 15,741 |   |   | 36,433 |   |   | 132,081 |   |   | 774,697 |   |
| Repurchase                      agreement obligations     |   |                                                                                                                        | 232,869 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Collateralized                      debt obligations      |   |                                                                                                                        | (38     | ) |   | (41 | ) |   | 22,792 |   |   | 10,861 |   |   | 13,290 |   |   | 221,363 |   |
| Secured                      term loan                    |   |                                                                                                                        | 5,801   |   |   | 9,649 |   |   | 12,191 |   |   | 13,737 |   |   | 15,380 |   |   | 72,763 |   |
| Convertible                      senior notes             |   |                                                                                                                        | -       |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 75,000 |   |
| Other                      long-term debt                 |   |                                                                                                                        | -       |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 30,930 |   |
| Derivative                      liabilities               |   |                                                                                                                        | 4,559   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |

----

**MANAGEMENT’S          ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

|   | · | pertain                    to the maintenance of records that in reasonable detail accurately                    and                    fairly reflect the transactions and dispositions of assets of                    the Company; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide                    reasonable assurance that transactions are recorded as necessary                    to permit                    preparation of financial statements in accordance with accounting                    principles generally accepted in the United States, and that                    receipts and                    expenditures of the Company are being made only in accordance                    with                    authorizations of management and directors of the Company;                    and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide                    reasonable assurance regarding prevention or timely detection                    of                    unauthorized acquisition, use or disposition of the Company’s assets that                    could have a material effect on the financial                    statements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item          8.**
**Financial          Statements and Supplementary Data.**

**Index          to Financial Statements**

**and          Financial Statement Schedules**

|                                                                                                                                                        | Page      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                                                                                                                        | Reference |
|                                                                                                                                                        |      |   |
| Report                    of Independent Registered Public Accounting Firm                                                                                  | 51        |   |
|                                                                                                                                                        |      |   |
| Consolidated                    Balance Sheets as of December 31, 2007 and 2006                                                                             | 52        |   |
|                                                                                                                                                        |      |   |
| Consolidated                    Statements of Operations for the years ended December 31, 2007,                    2006 and                    2005         | 53        |   |
|                                                                                                                                                        |      |   |
| Consolidated                    Statements of Changes in Stockholders’ Equity for the years ended                    December 31, 2007, 2006 and 2005 | 54        |   |
|                                                                                                                                                        |      |   |
| Consolidated                    Statements of Cash Flows for the years ended December 31, 2007,                    2006 and                    2005         | 55        |   |
|                                                                                                                                                        |      |   |
| Notes                    to Consolidated Financial Statements                                                                                               | 57        |   |
|                                                                                                                                                        |      |   |
| Schedule                    III - Schedule of Real Estate and Accumulated Depreciation at                    December 31,                    2007           | 84        |   |
|                                                                                                                                                        |      |   |
| Schedule                    IV - Schedule of Loans Held for Investment at December 31,                    2007                                              | 87        |   |

----

----

Consolidated          Balance Sheets

|                                                                                                                                                                                                                                                                                                 |   | December                      31, |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|
| (Amounts                      in thousands, except share and per share amounts)                                                                                                                                                                                                                      |   | 2007                              |      | 2006 |   |
| **Assets**                                                                                                                                                                                                                                                                                           |   |                              |      |   |   |   |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| Real                      estate investments, net                                                                                                                                                                                                                                                    |   | $                                 | 1,563,570 |   | $ | 1,115,001 |   |
| Loans                      held for investment                                                                                                                                                                                                                                                       |   |                              | 269,293   |   |   | 273,170 |   |
| Securities                      available for sale                                                                                                                                                                                                                                                   |   |                              | 198,187   |   |   | 183,066 |   |
| Cash                      and cash equivalents                                                                                                                                                                                                                                                       |   |                              | 34,047    |   |   | 4,425 |   |
| Asset                      held for sale                                                                                                                                                                                                                                                             |   |                              | 5,413     |   |   | 2,942 |   |
| Structuring                      fees receivable                                                                                                                                                                                                                                                     |   |                              | 2,576     |   |   | 3,253 |   |
| Other                      assets                                                                                                                                                                                                                                                                    |   |                              | 85,183    |   |   | 62,443 |   |
| **Total                      Assets**                                                                                                                                                                                                                                                                |   | $                                 | 2,158,269 |   | $ | 1,644,300 |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| **Liabilities                      and Stockholders' Equity**                                                                                                                                                                                                                                        |   |                              |      |   |   |   |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| Mortgages                      on real estate investments                                                                                                                                                                                                                                            |   | $                                 | 983,770   |   | $ | 794,773 |   |
| Collateralized                      debt obligations                                                                                                                                                                                                                                                 |   |                              | 268,227   |   |   | 268,190 |   |
| Repurchase                      agreement obligations                                                                                                                                                                                                                                                |   |                              | 232,869   |   |   | 195,485 |   |
| Secured                      term loan                                                                                                                                                                                                                                                               |   |                              | 129,521   |   |   | – |   |
| Convertible                      senior notes                                                                                                                                                                                                                                                        |   |                              | 75,000    |   |   | – |   |
| Other                      long-term debt                                                                                                                                                                                                                                                            |   |                              | 30,930    |   |   | 30,930 |   |
| Intangible                      liabilities on real estate investments                                                                                                                                                                                                                               |   |                              | 51,811    |   |   | 19,693 |   |
| Accounts                      payable, accrued expenses and other liabilities                                                                                                                                                                                                                        |   |                              | 24,232    |   |   | 17,132 |   |
| Dividends                      and distributions payable                                                                                                                                                                                                                                             |   |                              | 9,634     |   |   | 7,582 |   |
| **Total                      Liabilities**                                                                                                                                                                                                                                                           |   |                              | 1,805,994 |   |   | 1,333,785 |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| Minority                      interest                                                                                                                                                                                                                                                               |   |                              | 2,616     |   |   | 2,859 |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| Commitments                      and contingencies                                                                                                                                                                                                                                                   |   |                              |      |   |   |   |   |
|                                                                                                                                                                                                                                                                                                 |   |                              |      |   |   |   |   |
| Stockholders'                      equity:                                                                                                                                                                                                                                                           |   |                              |      |   |   |   |   |
| Preferred                      stock, $0.01 par value, 100,000,000 shares authorized, Series                      A cumulative                      redeemable preferred, liquidation preference $25.00 per share,                      1,400,000                      shares issued and outstanding |   |                              | 33,657    |   |   | 33,657 |   |
| Common                      stock, $0.01 par value, 500,000,000 shares authorized, 44,350,330                      and                      34,091,829 shares issued and outstanding, respectively                                                                                                   |   |                              | 444       |   |   | 341 |   |
| Additional                      paid in capital                                                                                                                                                                                                                                                      |   |                              | 341,578   |   |   | 277,918 |   |
| Accumulated                      other comprehensive (loss)                                                                                                                                                                                                                                          |   |                              | (26,020   | ) |   | (4,260 | ) |
| **Total                      Stockholders' Equity**                                                                                                                                                                                                                                                  |   |                              | 349,659   |   |   | 307,656 |   |
| **Total                      Liabilities and Stockholders' Equity**                                                                                                                                                                                                                                  |   | $                                 | 2,158,269 |   | $ | 1,644,300 |   |

----

|                                                                               |   | Year                      ended December 31, |    |
|------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| (Amounts                      in thousands, except per share amounts)              |   | 2007                                         |    | 2006 |   | 2005 |   |
| **Revenues:**                                                                      |   |                                         |    |   |   |   |   |
| Rental                      revenue                                                |   | $                                            | 124,960 |   | $ | 78,477 |   | $ | 37,956 |   |
| Interest                      income from loans and securities                     |   |                                         | 35,400  |   |   | 32,469 |   |   | 27,898 |   |
| Property                      expense recoveries                                   |   |                                         | 11,215  |   |   | 8,828 |   |   | 6,272 |   |
| Gains                      on sale of mortgage loans and securities                |   |                                         | – |   |   | 2,923 |   |   | 447 |   |
| Other                      revenue                                                 |   |                                         | 583     |   |   | 1,903 |   |   | 479 |   |
| **Total                      revenues**                                            |   |                                         | 172,158 |   |   | 124,600 |   |   | 73,052 |   |
| **Expenses:**                                                                      |   |                                         |    |   |   |   |   |   |   |   |
| Interest                      expense                                              |   |                                         | 97,036  |   |   | 63,212 |   |   | 31,398 |   |
| Property                      expenses                                             |   |                                         | 18,912  |   |   | 15,889 |   |   | 10,441 |   |
| Gain                      on derivatives                                           |   |                                         | (203    | ) |   | (413 | ) |   | (159 | ) |
| Loss                      on securities                                            |   |                                         | 372     |   |   | 907 |   |   | 2,372 |   |
| General                      and administrative expenses                           |   |                                         | 10,662  |   |   | 9,772 |   |   | 10,140 |   |
| General                      and administrative expenses-stock based compensation  |   |                                         | 1,621   |   |   | 2,621 |   |   | 2,235 |   |
| Depreciation                      and amortization expense on real property        |   |                                         | 47,461  |   |   | 25,378 |   |   | 11,273 |   |
| Loan                      processing expenses                                      |   |                                         | 306     |   |   | 268 |   |   | 283 |   |
| **Total                      expenses**                                            |   |                                         | 176,167 |   |   | 117,634 |   |   | 67,983 |   |
| Gain                      on extinguishment of debt                                |   |                                         | 1,363   |   |   | – |   |   | – |   |
| Income                      (loss) before minority interest and taxes              |   |                                         | (2,646  | ) |   | 6,966 |   |   | 5,069 |   |
| Minority                      interest in consolidated entities                    |   |                                         | 33      |   |   | (17 | ) |   | 55 |   |
| Income                      (loss) from continuing operations                      |   |                                         | (2,613  | ) |   | 6,949 |   |   | 5,124 |   |
| Income                      from discontinued operations                           |   |                                         | 352     |   |   | 300 |   |   | 6 |   |
| Net                      income (loss)                                             |   |                                         | (2,261  | ) |   | 7,249 |   |   | 5,130 |   |
| Dividends                      allocable to preferred shares                       |   |                                         | (2,844  | ) |   | (2,844 | ) |   | (561 | ) |
| **Net                      income (loss) allocable to common stockholders**        |   | $                                            | (5,105  | ) | $ | 4,405 |   | $ | 4,569 |   |
|                                                                               |   |                                         |    |   |   |   |   |   |   |   |
| Earnings                      per share:                                           |   |                                         |    |   |   |   |   |   |   |   |
| Net                      income (loss) per common share, basic and diluted         |   | $                                            | (0.13   | ) | $ | 0.14 |   | $ | 0.16 |   |
| Weighted                      average number of common shares outstanding, basic   |   |                                         | 40,739  |   |   | 31,939 |   |   | 27,784 |   |
| Weighted                      average number of common shares outstanding, diluted |   |                                         | 40,739  |   |   | 31,941 |   |   | 27,784 |   |
| Dividends                      declared per common share                           |   | $                                            | 0.80    |   | $ | 0.80 |   | $ | 0.74 |   |
| Dividends                      declared per preferred share                        |   | $                                            | 2.03    |   | $ | 2.03 |   | $ | 0.49 |   |

----

| *(Amounts                    in thousands)*                                                            |   | PreferredStock |    | CommonStockat                    Par |   | AdditionalPaid-InCapital |   | AccumulatedOtherComprehensiveIncome(Loss) |    | RetainedEarnings |   | Total   |   | ComprehensiveIncome                    (Loss) |    |
|--------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------------------------------------|--------|--------------------------|--------|-------------------------------------------|---------|------------------|--------|---------|--------|-----------------------------------------------|---------|
| Balance                    at December 31, 2004                                                        |   | $              | – |                                 | $      | 275                      |   | $                                         | 251,786 |             | $      | 1,203   |   | $                                             | – |   | $ | 253,263 |   |   |   |   |
| Issuance                    of preferred stock                                                         |   |           | 33,657  |                                 |   | –                  |   |                                      | – |             |   | – |   |                                          | – |   |   | 33,657 |   |   |   |   |
| Incentive                    stock plan compensation expense                                           |   |           | – |                                 |   | –                  |   |                                      | 2,235   |             |   | – |   |                                          | – |   |   | 2,235 |   |   |   |   |
| Incentive                    stock plan grants issued and forfeited                                    |   |           | – |                                 |   | 4                        |   |                                      | (4      | )                |   | – |   |                                          | – |   |   | – |   |   |   |   |
| Net                    income                                                                          |   |           | – |                                 |   | –                  |   |                                      | – |             |   | – |   |                                          | 5,130   |   |   | 5,130 |   | $ | 5,130 |   |
| Dividends                    declared - preferred                                                      |   |           | – |                                 |   | –                  |   |                                      | – |             |   | – |   |                                          | (680    | ) |   | (680 | ) |   |   |   |
| Dividends                    declared - common                                                         |   |           | – |                                 |   | –                  |   |                                      | (16,174 | )                |   | – |   |                                          | (4,450  | ) |   | (20,624 | ) |   |   |   |
| Unrealized                    change in value on securities available for sale                         |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (561    | )      |                                          | – |   |   | (561 | ) |   | (561 | ) |
| Unrealized                    change in value of derivatives                                           |   |           | – |                                 |   | –                  |   |                                      | – |             |   | 8,098   |   |                                          | – |   |   | 8,098 |   |   | 8,098 |   |
| Net                    realized losses on derivatives, net of amortization of                    $877  |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (10,488 | )      |                                          | – |   |   | (10,488 | ) |   | (10,488 | ) |
| Balance                    at December 31, 2005                                                        |   |           | 33,657  |                                 |   | 279                      |   |                                      | 237,843 |             |   | (1,748  | )      |                                          | – |   |   | 270,031 |   | $ | 2,179 |   |
| Incentive                    stock plan compensation expense                                           |   |           | – |                                 |   | –                  |   |                                      | 2,621   |             |   | – |   |                                          | – |   |   | 2,621 |   |   |   |   |
| Incentive                    stock plan grants issued and forfeited                                    |   |           | – |                                 |   | 3                        |   |                                      | (3      | )                |   | – |   |                                          | – |   |   | – |   |   |   |   |
| Net                    income                                                                          |   |           | – |                                 |   | –                  |   |                                      | – |             |   | – |   |                                          | 7,249   |   |   | 7,249 |   | $ | 7,249 |   |
| Issuance                    of common stock                                                            |   |           | – |                                 |   | 59                       |   |                                      | 59,074  |             |   | – |   |                                          | – |   |   | 59,133 |   |   |   |   |
| Dividends                    declared-preferred                                                        |   |           | – |                                 |   | –                  |   |                                      | – |             |   | – |   |                                          | (2,844  | ) |   | (2,844 | ) |   |   |   |
| Dividends                    declared-common                                                           |   |           | – |                                 |   | –                  |   |                                      | (21,617 | )                |   | – |   |                                          | (4,405  | ) |   | (26,022 | ) |   |   |   |
| Unrealized                    change in value of securities available for sale                         |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (2,956  | )      |                                          | – |   |   | (2,956 | ) |   | (2,956 | ) |
| Unrealized                    change in value of derivatives                                           |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (737    | )      |                                          | – |   |   | (737 | ) |   | (737 | ) |
| Net                    realized gains on derivatives, net of amortization of                    $1,173 |   |           | – |                                 |   | –                  |   |                                      | – |             |   | 1,181   |   |                                          | – |   |   | 1,181 |   |   | 1,181 |   |
| Balance                    at December 31, 2006                                                        |   |           | 33,657  |                                 |   | 341                      |   |                                      | 277,918 |             |   | (4,260  | )      |                                          | – |   |   | 307,656 |   | $ | 4,737 |   |
| Incentive                    stock plan compensation expense                                           |   |           | – |                                 |   | –                  |   |                                      | 1,621   |             |   | – |   |                                          | – |   |   | 1,621 |   |   |   |   |
| Incentive                    stock plan grants issued and forfeited                                    |   |           | – |                                 |   | 3                        |   |                                      | (3      | )                |   | – |   |                                          | – |   |   | – |   |   |   |   |
| Net                    income                                                                          |   |           | – |                                 |   | –                  |   |                                      | (2,261  | )                |   | – |   |                                          | – |   |   | (2,261 | ) | $ | (2,261 | ) |
| Issuance                    of common stock                                                            |   |           | – |                                 |   | 115                      |   |                                      | 116,104 |             |   | – |   |                                          | – |   |   | 116,219 |   |   |   |   |
| Repurchase                    of common stock                                                          |   |           | – |                                 |   | (15                      | )      |                                      | (14,985 | )                |   | – |   |                                          | – |   |   | (15,000 | ) |   |   |   |
| Dividends                    declared-preferred                                                        |   |           | – |                                 |   | –                  |   |                                      | (2,844  | )                |   | – |   |                                          | – |   |   | (2,844 | ) |   |   |   |
| Dividends                    declared-common                                                           |   |           | – |                                 |   | –                  |   |                                      | (33,972 | )                |   | – |   |                                          | – |   |   | (33,972 | ) |   |   |   |
| Unrealized                    change in value of securities available for sale                         |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (20,412 | )      |                                          | – |   |   | (20,412 | ) |   | (20,412 | ) |
| Unrealized                    change in value of derivatives                                           |   |           | – |                                 |   | –                  |   |                                      | – |             |   | (4,570  | )      |                                          | – |   |   | (4,570 | ) |   | (4,570 | ) |
| Net                    realized gains on derivatives, net of amortization of $991                      |   |           | – |                                 |   | –                  |   |                                      | – |             |   | 3,222   |   |                                          | – |   |   | 3,222 |   |   | 3,222 |   |
| Balance                    at December 31, 2007                                                        |   | $              | 33,657  |                                 | $      | 444                      |   | $                                         | 341,578 |             | $      | (26,020 | )      | $                                             | – |   | $ | 349,659 |   | $ | (24,021 | ) |

----

|                                                                                                                                                          |   | Year                      ended December 31, |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------|
| (Amounts                      in thousands)                                                                                                                   |   | 2007                                         |     | 2006 |   | 2005 |   |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |
| **Operating                      activities**                                                                                                                 |   |                                         |     |   |   |   |   |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |   |
| Net                      income (loss)                                                                                                                        |   | $                                            | (2,261   | ) | $ | 7,249 |   | $ | 5,130 |   |
| Adjustments                      to reconcile net income (loss) to cash provided by (used in)                      operating                      activities: |   |                                         |     |   |   |   |   |   |   |   |
| Depreciation                      and amortization                                                                                                            |   |                                         | 47,860   |   |   | 25,717 |   |   | 10,469 |   |
| Stock                      based compensation                                                                                                                 |   |                                         | 1,621    |   |   | 2,621 |   |   | 2,235 |   |
| Amortization                      of above and below market leases                                                                                            |   |                                         | 742      |   |   | (686 | ) |   | (583 | ) |
| Minority                      interest in consolidated entities                                                                                               |   |                                         | (33      | ) |   | 17 |   |   | – |   |
| Gain                      on extinguishment of debt                                                                                                           |   |                                         | (1,363   | ) |   | – |   |   | – |   |
| Gain                      on sale of loans and securities                                                                                                     |   |                                         | –  |   |   | (2,923 | ) |   | (447 | ) |
| Loss                      on securities available for sale                                                                                                    |   |                                         | 372      |   |   | 907 |   |   | 2,372 |   |
| Loss                      on sale of real estate properties                                                                                                   |   |                                         | 55       |   |   | – |   |   | – |   |
| Gain                      on derivatives                                                                                                                      |   |                                         | (203     | ) |   | (413 | ) |   | (159 | ) |
| Straight-lining                      of rents                                                                                                                 |   |                                         | (13,756  | ) |   | (8,822 | ) |   | (5,581 | ) |
| Amortization                      of discounts/premiums, and origination fees/costs, net                                                                      |   |                                         | (399     | ) |   | (526 | ) |   | (514 | ) |
| Amortization                      of debt issuance costs and fair market value of debt                      assumed                                           |   |                                         | 460      |   |   | 1,593 |   |   | 1,139 |   |
| Changes                      in operating assets and liabilities:                                                                                             |   |                                         |     |   |   |   |   |   |   |   |
| Structuring                      fees receivable                                                                                                              |   |                                         | 677      |   |   | 609 |   |   | 563 |   |
| Other                      assets                                                                                                                             |   |                                         | (7,821   | ) |   | 1,510 |   |   | (27,146 | ) |
| Accounts                      payable, accrued expenses and other liabilities                                                                                 |   |                                         | 4,892    |   |   | 2,275 |   |   | 8,271 |   |
| Deposits                      and escrows                                                                                                                     |   |                                         | 283      |   |   | (1,867 | ) |   | (8,501 | ) |
| Amounts                      due to servicer                                                                                                                  |   |                                         | (181     | ) |   | 182 |   |   | (4,359 | ) |
| Net                      cash provided by (used in) operating activities                                                                                      |   |                                         | 30,945   |   |   | 27,443 |   |   | (17,111 | ) |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |   |
| **Investing                      activities**                                                                                                                 |   |                                         |     |   |   |   |   |   |   |   |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |   |
| Proceeds                      from sale of loans                                                                                                              |   |                                         | –  |   |   | 78,645 |   |   | 12,131 |   |
| Additions                      to loans held for investment                                                                                                   |   |                                         | (9,107   | ) |   | (122,988 | ) |   | (115,852 | ) |
| Principal                      received from borrowers                                                                                                        |   |                                         | 12,961   |   |   | 69,196 |   |   | 20,372 |   |
| Origination                      costs on lending investments                                                                                                 |   |                                         | 22       |   |   | 201 |   |   | 362 |   |
| Purchase                      of securities available for sale                                                                                                |   |                                         | (37,919  | ) |   | (56,201 | ) |   | (66,168 | ) |
| Proceeds                      from sale of securities available for sale                                                                                      |   |                                         | –  |   |   | 7,939 |   |   | 5,787 |   |
| Principal                      amortization on securities available for sale                                                                                  |   |                                         | 2,415    |   |   | 1,518 |   |   | 1,541 |   |
| Proceeds                      from sale of real estate investments                                                                                            |   |                                         | 2,887    |   |   | – |   |   | – |   |
| Purchases                      of real estate investments                                                                                                     |   |                                         | (276,457 | ) |   | (329,751 | ) |   | (530,593 | ) |
| Real                      estate improvements, additions and construction in                      progress                                                    |   |                                         | (3,658   | ) |   | (8,188 | ) |   | (3,825 | ) |
| Deposits                      on potential equity investments                                                                                                 |   |                                         | (20,800  | ) |   | (16,445 | ) |   | (14,700 | ) |
| Return                      of deposits on potential equity investments                                                                                       |   |                                         | 21,800   |   |   | 16,045 |   |   | 16,600 |   |
| Purchase                      of other investments                                                                                                            |   |                                         | –  |   |   | – |   |   | (930 | ) |
| Investments                      in partially-owned entities                                                                                                  |   |                                         | (1,139   | ) |   | – |   |   | – |   |
| Purchases                      of furniture, fixtures, equipment and leasehold                      improvements                                              |   |                                         | (67      | ) |   | (1,825 | ) |   | (133 | ) |
| Net                      cash used in investing activities                                                                                                    |   |                                         | (309,062 | ) |   | (361,854 | ) |   | (675,408 | ) |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |   |
| **Financing                      activities**                                                                                                                 |   |                                         |     |   |   |   |   |   |   |   |
|                                                                                                                                                          |   |                                         |     |   |   |   |   |   |   |   |
| Borrowings                      under repurchase agreement obligations                                                                                        |   |                                         | 322,913  |   |   | 189,521 |   |   | 232,024 |   |
| Repayments                      of repurchase agreement obligations                                                                                           |   |                                         | (285,528 | ) |   | (124,001 | ) |   | (235,890 | ) |
| Borrowings                      under bridge-financing facility                                                                                               |   |                                         | 210,273  |   |   | – |   |   | – |   |
| Repayments                      under bridge-financing facility                                                                                               |   |                                         | (210,273 | ) |   | – |   |   | – |   |
| Borrowings                      from mortgages on real estate investments                                                                                     |   |                                         | 160,076  |   |   | 217,050 |   |   | 400,552 |   |
| Repayments                      of mortgages on real estate investments                                                                                       |   |                                         | (158,258 | ) |   | (2,368 | ) |   | (1,341 | ) |
| Borrowings                      from collateralized debt obligations                                                                                          |   |                                         | –  |   |   | – |   |   | 268,130 |   |
| Borrowings                      from other long-term debt obligations                                                                                         |   |                                         | –  |   |   | – |   |   | 30,930 |   |
| Borrowings                      from secured term loan                                                                                                        |   |                                         | 129,521  |   |   | – |   |   | – |   |
| Convertible                      senior notes issued                                                                                                          |   |                                         | 75,000   |   |   | – |   |   | – |   |
| Debt                      issuance costs                                                                                                                      |   |                                         | (4,662   | ) |   | (1,327 | ) |   | (7,050 | ) |
| Escrows                      held with mortgage lender                                                                                                        |   |                                         | –  |   |   | 8,695 |   |   | (9,507 | ) |
| Funds                      provided by (used in) hedging and risk management                      activities                                                  |   |                                         | 2,434    |   |   | 421 |   |   | (11,206 | ) |
| Common                      stock issued, net of offering costs                                                                                               |   |                                         | 116,219  |   |   | 59,133 |   |   | – |   |
| Common                      stock repurchased                                                                                                                 |   |                                         | (15,000  | ) |   | – |   |   | – |   |
| Preferred                      stock issued, net of offering costs                                                                                            |   |                                         | –  |   |   | – |   |   | 33,657 |   |
| Cash                      distributions to minority limited partners                                                                                          |   |                                         | (211     | ) |   | (105 | ) |   | – |   |
| Dividends                      paid on common and preferred stock                                                                                             |   |                                         | (34,765  | ) |   | (27,591 | ) |   | (19,174 | ) |
| Changes                      in amounts due from affiliates                                                                                                   |   |                                         | –  |   |   | 92 |   |   | (11 | ) |
| Net                      cash provided by financing activities                                                                                                |   |                                         | 307,739  |   |   | 319,520 |   |   | 681,114 |   |
| Net                      increase (decrease) in cash and cash equivalents                                                                                     |   |                                         | 29,622   |   |   | (14,891 | ) |   | (11,405 | ) |
| Cash                      and cash equivalents at beginning of period                                                                                         |   |                                         | 4,425    |   |   | 19,316 |   |   | 30,721 |   |
| **Cash                      and cash equivalents at end of period**                                                                                           |   | $                                            | 34,047   |   | $ | 4,425 |   | $ | 19,316 |   |

----

|                                                                                                                            |   | Year                      ended December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| (Amounts                      in thousands)                                                                                     |   | 2007                                         |    | 2006 |   | 2005 |   |
| **Supplemental                      disclosure of cash flow information**                                                       |   |                                         |    |   |   |   |   |
| Cash                      paid during the year for interest expense (excluding capitalized                      interest)       |   | $                                            | 93,103  |   | $ | 59,965 |   | $ | 24,159 |   |
| Cash                      paid for capitalized interest                                                                         |   |                                         | – |   |   | – |   |   | 1,589 |   |
| Cash                      paid during the year for income taxes                                                                 |   |                                         | – |   |   | – |   |   | 9 |   |
| Distributions                      declared but not paid                                                                        |   |                                         | 53      |   |   | 53 |   |   | – |   |
| Dividends                      declared but not paid                                                                            |   |                                         | 9,581   |   |   | 7,529 |   |   | 6,253 |   |
|                                                                                                                            |   |                                         |    |   |   |   |   |   |   |   |
| **Supplemental                      disclosure of noncash operating, investing and financing                      information** |   |                                         |    |   |   |   |   |   |   |   |
| Unrealized                      (loss) gain on cash flow hedges                                                                 |   | $                                            | (4,570  | ) | $ | (737 | ) | $ | 8,098 |   |
| Unrealized                      (loss) on available-for-sale securities                                                         |   |                                         | (20,412 | ) |   | (2,956 | ) |   | (561 | ) |
| Value                      of in-place leases and above-market leases acquired                                                  |   |                                         | 64,086  |   |   | 39,619 |   |   | 69,344 |   |
| Value                      of below-market leases acquired                                                                      |   |                                         | 34,326  |   |   | 6,465 |   |   | 8,102 |   |
| Securities                      reclassified to loans held for investment                                                       |   |                                         | – |   |   | – |   |   | 6,932 |   |
| Mortgage                      notes payable assumed on properties acquired                                                      |   |                                         | 189,996 |   |   | 28,623 |   |   | 41,276 |   |
| Operating                      partnership units issued in connection with an investment                                        |   |                                         | – |   |   | 3,000 |   |   | – |   |
| Real                      estate investments consolidated under FIN46                                                           |   |                                         | – |   |   | – |   |   | 81,500 |   |
| Real                      estate investments no longer consolidated under FIN46                                                 |   |                                         | – |   |   | – |   |   | 129,500 |   |
| Mortgage                      on real estate investments consolidated under FIN46                                               |   |                                         | – |   |   | – |   |   | 50,887 |   |
| Mortgage                      on real estate investments no longer consolidated under                      FIN46                |   |                                         | – |   |   | – |   |   | 55,702 |   |
| Depreciation                      on real estate investments consolidated under FIN46                                           |   |                                         | – |   |   | – |   |   | 935 |   |

----

**1.**
**Company          Name Change**

**2.**
**Organization**

**3.**
**Summary          of Significant Accounting Policies**

*Basis          of Presentation and Principles of Consolidation*

*Use          of Estimates*

*Risks          and Uncertainties*

----

*Loan          Investments*

*Purchase          Accounting for Acquisition of Real Estate*

|  | · | acquired                    tangible assets, consisting of land, building and improvements;                    and |
|--|--------|--------------------------------------------------------------------------------------------------------------------|

|  | · | identified                    intangible assets and liabilities, consisting of above-market                    and                    below-market leases, in-place leases and tenant                    relationships. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Capitalization          of Interest Cost*
*Accounting          for Costs and Initial Rental Operations of Real Estate          Projects.*

*Securities          Available for Sale*

*Accounting          for Certain Investments in Debt and Equity Securities,*

*Structuring          Fees Receivable*

*Deferred          Origination Fees and Costs*

*Accounting          for Nonrefundable Fees and Costs Associated with Originating or Acquiring          Loans          and Initial Direct Costs of Leases*

*Sale          of Commercial Mortgage Loans*

*Accounting          for Transfers and Servicing of Financial Assets and Extinguishments of          Liabilities.*

*Derivative          and Other Risk Management Transactions*

*Accounting          for Derivative Instruments and Hedging Activities*

----

*Cash          and Cash Equivalents*

*Revenue          Recognition*

*Accounting          for Leases*

*Accounting          for Transfers and Servicing of Financial Assets and Extinguishment of          Liabilities*

*Lease          Enhancement Mechanisms*

|  | · | casualty                    and condemnation insurance policies that protect the Company                    from any                    right the tenant may have to terminate the underlying net lease                    or abate                    rent as a result of a casualty or condemnation;                    and |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | with                    respect to a double net lease, borrower reserve funds that protect                    the                    Company from any rights the tenant may have to terminate the                    underlying                    net lease or abate rent as a result of the failure of the property                    owner                    to maintain and repair the property or related common                    areas. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Impairment          of Long-Lived Assets*

*Accounting          for the Impairment or Disposal of Long-Lived Assets,*

----

*Marketing          and Advertising Costs*

*Income          Taxes*

*Other          Comprehensive Income (Loss)*

*Reporting          Comprehensive Income*

*Earnings          per Share*

*Earnings          per Share*

|                                                                                                                       |   | December                      31, |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                       |   | 2007                              |   | 2006 |   | 2005 |   |
| Net                      income (loss) allocableto                      common stockholders                                |   | $                                 | (5,105 | ) | $ | 4,405 |   | $ | 4,569 |   |
| Weighted                      average number of common sharesoutstanding,                      basic                       |   |                              | 40,739 |   |   | 31,939 |   |   | 27,784 |   |
| Weighted                      average number of common sharesoutstanding,                      diluted                     |   |                              | 40,739 |   |   | 31,941 |   |   | 27,784 |   |
| Earnings                      (loss) per share, basic and diluted                                                          |   | $                                 | (0.13  | ) | $ | 0.14 |   | $ | 0.16 |   |
| Non-vested                      shares included in weighted averagenumber                      of shares outstanding above |   |                              | 693    |   |   | 588 |   |   | 496 |   |

*Recently          Issued Accounting Pronouncements*

*Accounting          for Uncertainty in Income Taxes, an Interpretation of FASB Statement No.          109*

----

*Fair          Value Measurements *
* *

*          The          Fair Value Option for Financial Assets and Financial          Liabilities*

*Business          Combinations*

*          Noncontrolling Interests in Consolidated Financial Statements - An Amendment          of          ARB No. 51 *

*Reclassifications*

**4.**
**Loans          Held for Investment**

|                                                |   | December                      31, |    |
|-----------------------------------------------------|--------|-----------------------------------|---------|
|                                                |   | 2007                              |    | 2006 |   |
| Principal                                           |   | $                                 | 268,417 |   | $ | 272,271 |   |
| Premium                                             |   |                              | 1,726   |   |   | 1,814 |   |
| Carrying                      amount of loans       |   |                              | 270,143 |   |   | 274,085 |   |
| Deferred                      origination fees, net |   |                              | (850    | ) |   | (915 | ) |
| Total                                               |   | $                                 | 269,293 |   | $ | 273,170 |   |

----

**5.**
**Real          Estate Investments**

|                                                                              |   | December                      31, |      |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                                              |   | 2007                              |      | 2006 |   |
| Real                      estate investments, at cost:                            |   |                              |      |   |   |
| Land                                                                              |   | $                                 | 190,771   |   | $ | 177,726 |   |
| Building                      and improvements                                    |   |                              | 1,275,381 |   |   | 852,495 |   |
| Intangible                      assets under SFAS 141                             |   |                              | 185,457   |   |   | 122,481 |   |
| Less:                      Accumulated depreciation and amortization              |   |                              | (88,039   | ) |   | (37,701 | ) |
| Real                      estate investments, net                            |   | $                                 | 1,563,570 |   | $ | 1,115,001 |   |
| Intangible                      liabilities on real estate investments:           |   |                              |      |   |   |   |   |
| Intangible                      liabilities under SFAS 141                        |   | $                                 | 55,999    |   | $ | 21,674 |   |
| Less:                      Accumulated amortization                               |   |                              | (4,188    | ) |   | (1,981 | ) |
| Intangible                      liabilities on real estate investments, net  |   | $                                 | 51,811    |   | $ | 19,693 |   |

|                                        |   | December                      31, |   |
|---------------------------------------------|--------|-----------------------------------|--------|
|                                        |   | 2007                              |   | 2006 |   |
| Accrued                      Rental Income  |   | $                                 | 28,782 |   | $ | 15,069 |   |
| Deferred                      Rental Income |   |                              | 116    |   |   | 160 |   |

----

|                                                                                                                         |   | December                      31, |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                         |   | 2007                              |   | 2006 |   | 2005 |   |
| Depreciation                      on real estate (included indepreciation                      and amortization expense)     |   | $                                 | 30,024 |   | $ | 17,452 |   | $ | 7,413 |   |
| Amortization                      of in-place leases (included indepreciation                      and amortization expense) |   |                              | 17,437 |   |   | 7,926 |   |   | 2,925 |   |
| Amortization                      of above-market leases (includedas                      a reduction of rental revenue)     |   |                              | 2,949  |   |   | 504 |   |   | 128 |   |
| Amortization                      of below-market leases (includedas                      a component of rental revenue)     |   |                              | 2,207  |   |   | 1,190 |   |   | 711 |   |

|       |   | IntangibleAssets |    | IntangibleLiabilities |   |
|------------|--------|------------------|---------|-----------------------|--------|
| 2008       |   | $                | 24,457  |                  | $      | 2,535 |   |
| 2009       |   |             | 22,637  |                  |   | 2,535 |   |
| 2010       |   |             | 20,091  |                  |   | 2,535 |   |
| 2011       |   |             | 19,378  |                  |   | 2,535 |   |
| 2012       |   |             | 14,961  |                  |   | 2,535 |   |
| Thereafter |   |             | 51,769  |                  |   | 39,136 |   |
|       |   | $                | 153,293 |                  | $      | 51,811 |   |

| **Tenant                      or Guarantor**          |   | **Number                      of Properties** |   | **Location** |   | **Property                      Type**                                                         |   | **Square                      Feet** |                                                    | **Lease                      Maturity** |   |
|-------------------------------------------------------|--------|-----------------------------------------------|--------|--------------|--------|------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------------------------------------------------------|-----------------------------------------|--------|
|                                                  |   |                                          |   |         |   |                                                                                           |   |                                 |                                                    |                                    |   |
| Nestlé                      Holdings, Inc.       |   |                                          | 3      |         |   | Breinigsville,                      Pennsylvania; Fort Wayne, Indiana; and Lathrop, California |   |                                 | Warehouse/                      Distribution Facilities |                                    |   | 2,560,351 |   |   | 12/2012 |   |
|                                                  |   |                                          |   |         |   |                                                                                           |   |                                 |                                                    |                                    |   |   |   |   |   |   |
| The                      Kroger Co.                   |   |                                          | 11     |         |   | Various                      locations in Kentucky (5), Georgia (4) and Tennessee (2)          |   |                                 | Retail                      Grocery Stores              |                                    |   | 685,135 |   |   | 1/2022 |   |
|                                                  |   |                                          |   |         |   |                                                                                           |   |                                 |                                                    |                                    |   |   |   |   |   |   |
| Factory                      Mutual Insurance Company |   |                                          | 1      |         |   | Johnston,                      Rhode Island                                                    |   |                                 | Office                      Building                    |                                    |   | 345,842 |   |   | 7/2009 |   |
|                                                  |   |                                          |   |         |   |                                                                                           |   |                                 |                                                    |                                    |   |   |   |   |   |   |
| Qwest                      Corporation                |   |                                          | 2      |         |   | Omaha,                      Nebraska                                                           |   |                                 | Office                      Buildings                   |                                    |   | 419,645 |   |   | 6/2010 |   |
|                                                  |   |                                          |   |         |   |                                                                                           |   |                                 |                                                    |                                    |   |   |   |   |   |   |
| The                      Travelers Corporation        |   |                                          | 1      |         |   | Hartford,                      Connecticut                                                     |   |                                 | Office                      Building                    |                                    |   | 130,000 |   |   | 10/2011 |   |

----

**6.**
**Asset          Held for Sale**

----

**7.**
**Securities          Available for Sale and Structuring Fees Receivable**

|                                                                                                          |   |                               |                          |                              |   |    |   |
|---------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------------------------|-----------------------------------|--------|---------|--------|
|                                                                                                          |   | Scheduled                          |                          | December                      31, |   |
|                                                                                                          |   | Maturity                      Date |                          | 2007                              |   | 2006    |   |
| BACM                      2006-4, Class H (rated BBB+) Face Amount                                            |   |                               | Aug                      2016 |                              | $      | 8,000   |   | $ | 8,000 |   |
| BSCMS                      1999 CLF1, Class E (rated CCC) Face Amount                                         |   |                               | Sep                      2025 |                              |   | 3,326   |   |   | 3,076 |   |
| BSCMS                      1999 CLF1, Class F (not rated) Face Amount                                         |   |                               | Sep                      2025 |                              |   | 251     |   |   | – |   |
| CALFS                      1997-CTL1, Class D (rated BBB-) Face Amount                                        |   |                               | Mar                      2016 |                              |   | 6,000   |   |   | 6,000 |   |
| CMLBC                      2001-CMLB-1, Class E (rated BBB+) Face Amount                                      |   |                               | Jul                      2022 |                              |   | 9,526   |   |   | 9,526 |   |
| CMLBC                      2001-CMLB-1, Class G (rated BB-) Face Amount                                       |   |                               | Feb                      2023 |                              |   | 9,526   |   |   | 9,526 |   |
| CMLBC                      2001-CMLB-1, Class H (rated B-) Face Amount                                        |   |                               | Mar                      2024 |                              |   | 11,907  |   |   | 11,907 |   |
| CMLBC                      2001-CMLB-1, Class J (rated D) Face Amount                                         |   |                               | Oct                      2025 |                              |   | 6,383   |   |   | 6,383 |   |
| NLFC                      1999-LTL-1, Class E (rated BB) Face Amount                                          |   |                               | Jan                      2022 |                              |   | 11,081  |   |   | 11,081 |   |
| NLFC                      1999-LTL-1, Class X (IO) (rated AAA) Carry Value                                    |   |                               | Jan                      2024 |                              |   | 6,265   |   |   | 7,597 |   |
| WBCMT                      2004-C15 180D (rated B+) Face Amount                                               |   |                               | Nov                      2009 |                              |   | 15,000  |   |   | 15,000 |   |
| WBCMT                      2004-C15 180E (rated B) Face Amount                                                |   |                               | Nov                      2009 |                              |   | 8,000   |   |   | 8,000 |   |
| WBCMT                      2006-C27, Class C (rated AA-) Face Amount                                          |   |                               | Aug                      2016 |                              |   | 11,000  |   |   | 11,000 |   |
| BACMS                      2002-2, Class V-1 (7-Eleven, Inc.) (rated A) Face Amount                           |   |                               | Sep                      2019 |                              |   | 466     |   |   | 428 |   |
| BACMS                      2002-2, Class V-2 (Sterling Jewelers) (not rated) Face                      Amount |   |                               | Jan                      2021 |                              |   | 713     |   |   | 655 |   |
| CVS                      Corporation (rated BBB+) Face Amount                                                 |   |                               | Jan                      2028 |                              |   | 19,118  |   |   | 19,603 |   |
| Koninklijke                      Ahold, N.V. 7.82% Jan 2020 (rated BBB-) Face Amount                          |   |                               | Jan                      2020 |                              |   | 8,932   |   |   | 8,980 |   |
| Koninklijke                      Ahold, N.V. 7.9% May 2026 (rated BBB-) Face Amount                           |   |                               | May                      2026 |                              |   | 22,962  |   |   | 23,395 |   |
| Lucent                      6.70% due 9/1/2020 (rated BB-) Face Amount                                        |   |                               | Sep                      2020 |                              |   | 37,321  |   |   | – |   |
| Yahoo,                      Inc. (rated BBB-) Face Amount                                                     |   |                               | Aug                      2026 |                              |   | 31,837  |   |   | 31,953 |   |
| Unearned                      Discount                                                                        |   |                               |                          |                              |   | (15,707 | )      |   | (15,736 | ) |
| Cost                      Basis                                                                               |   |                               |                          |                              |   | 211,907 |   |   | 176,374 |   |
| Net                      unrealized gain (loss) on securities available for sale                              |   |                               |                          |                              |   | (13,720 | )      |   | 6,692 |   |
| Total                                                                                                         |   |                               |                          |                              | $      | 198,187 |   | $ | 183,066 |   |

|  | · | an                    analysis of the impact of changes in credit                    spreads; |
|--|--------|-----------------------------------------------------------------------------------------------|

|  | · | subordination                    levels within the CMBS capital structure;                    and |
|--|--------|---------------------------------------------------------------------------------------------------|

|  | · | the                    ratings or changes in ratings of the security and underlying                    collateral. |
|--|--------|--------------------------------------------------------------------------------------------------------------------|

----

|                                                                    |   | December                      31, |    |
|-------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                    |   | 2007                              |    | 2006 |   |
| Unrealized                      gains on securities available for sale  |   | $                                 | 1,785   |   | $ | 7,582 |   |
| Unrealized                      losses on securities available for sale |   |                              | (15,505 | ) |   | (890 | ) |

|                                                                 |   | AggregateFair                      Value |    | AggregateUnrealizedLoss |   | Number                      of Securities |   |
|----------------------------------------------------------------------|--------|------------------------------------------|---------|-------------------------|--------|-------------------------------------------|--------|
| In                      unrealized loss position less than 12 months |   | $                                        | 109,619 |                    | $      | 14,451                                    |   |   | 10 |   |
| In                      unrealized loss position 12 or more months   |   |                                     | 25,932  |                    |   | 1,054                                     |   |   | 2 |   |

|                                    |   | 2006   |   | 2005   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|
| Proceeds                      from sale |   | $      | 7,939  |   | $      | 5,787 |   |
| Gain                      on sale       |   |   | 2,278  |   |   | 174 |   |

**8.**
**Fair          Value of Financial Instruments**

*Disclosure          about Fair Value of Financial Instruments, *

----

|                                                      |   | Carrying                      Amount |    | Notional                      Amount |   | Estimated                      Fair Value |   |
|-----------------------------------------------------------|--------|--------------------------------------|---------|--------------------------------------|--------|-------------------------------------------|--------|
|                                                      |   | 12/31/2007                           |    | 12/31/2006                           |   | 12/31/2007                                |   | 12/31/2006 |   | 12/31/2007 |   | 12/31/2006 |   |
| Assets:                                                   |   |                                 |    |                                 |   |                                      |   |   |   |   |   |   |   |
| Loans                      held for investment            |   | $                                    | 270,143 |                                 | $      | 274,085                                   |   | $ | 268,417 |   | $ | 272,271 |   | $ | 267,735 |   | $ | 277,014 |   |
| Securities                      available for sale        |   |                                 | 198,187 |                                 |   | 183,066                                   |   |   | 227,614 |   |   | 192,111 |   |   | 198,187 |   |   | 183,066 |   |
| Structuring                      fees receivable          |   |                                 | 2,576   |                                 |   | 3,253                                     |   |   | N/A |   |   | N/A |   |   | 2,576 |   |   | 3,253 |   |
| Derivative                      assets                    |   |                                 | – |                                 |   | 2,333                                     |   |   | – |   |   | 127,529 |   |   | – |   |   | 2,333 |   |
| Liabilities:                                              |   |                                 |    |                                 |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase                      agreement obligations     |   | $                                    | 232,869 |                                 | $      | 195,485                                   |   | $ | 232,869 |   | $ | 195,485 |   | $ | 232,869 |   | $ | 195,485 |   |
| Mortgages                      on real estate investments |   |                                 | 983,770 |                                 |   | 794,773                                   |   |   | 976,237 |   |   | 789,971 |   |   | 923,611 |   |   | 784,802 |   |
| Collateralized                      debt obligations      |   |                                 | 268,227 |                                 |   | 268,190                                   |   |   | 268,500 |   |   | 268,500 |   |   | 261,366 |   |   | 258,557 |   |
| Secured                      term loan                    |   |                                 | 129,521 |                                 |   | –                                   |   |   | 129,521 |   |   | – |   |   | 131,365 |   |   | - |   |
| Convertible                      senior notes             |   |                                 | 75,000  |                                 |   | –                                   |   |   | 75,000 |   |   | – |   |   | 63,322 |   |   | - |   |
| Other                      long-term debt                 |   |                                 | 30,930  |                                 |   | 30,930                                    |   |   | 30,930 |   |   | 30,930 |   |   | 27,761 |   |   | 31,958 |   |
| Derivative                      liabilities               |   |                                 | 4,559   |                                 |   | 2,405                                     |   |   | 177,442 |   |   | 104,190 |   |   | 4,559 |   |   | 2,405 |   |

*Loans          held for investment*

*Securities          available for sale*

*Structuring          fees receivable*

*Repurchase          agreement obligations*

*Mortgages          on real estate investments, collateralized debt obligations and secured          term          loan *

*Convertible          senior notes *

*Other          long-term debt*

*Derivative          assets and liabilities*

----

**9.**
**Other          Assets**

|                                                                             |   | December                      31, |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                             |   | 2007                              |   | 2006 |   |
| Receivables                      and accrued interest                            |   | $                                 | 9,524  |   | $ | 8,681 |   |
| Prepaid                      expenses and deposits                               |   |                              | 1,712  |   |   | 2,561 |   |
| Reserve                      accounts                                            |   |                              | 14,348 |   |   | 10,652 |   |
| Escrow                      held with mortgage lender                            |   |                              | 812    |   |   | 812 |   |
| Funds                      with CDO trustee pending distribution or reinvestment |   |                              | 11,910 |   |   | 9,734 |   |
| Restricted                      cash                                             |   |                              | 15     |   |   | - |   |
| Amounts                      held by servicer                                    |   |                              | 3,048  |   |   | 2,107 |   |
| Derivative                      assets                                           |   |                              | -      |   |   | 2,333 |   |
| Accrued                      rental income                                       |   |                              | 28,782 |   |   | 15,069 |   |
| Debt                      issuance costs, net                                    |   |                              | 11,316 |   |   | 7,541 |   |
| Investment                      in partially-owned entities                      |   |                              | 1,139  |   |   | - |   |
| Investment                      in statutory trust                               |   |                              | 930    |   |   | 930 |   |
| Other                                                                            |   |                              | 1,647  |   |   | 2,023 |   |
| Total                                                                            |   | $                                 | 85,183 |   | $ | 62,443 |   |

**10.**
**Joint          Venture Investments**

**11.**
**Repurchase          Agreement, Revolver and Real Property Acquisition Facility**

----

|                                                                    |   | Dec                      31, 2007 |    | Dec                      31, 2006 |   |
|-------------------------------------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|
| *Collateral                      carry value*                           |   |                              |    |                              |   |
| Loans                      held for investment                          |   | $                                 | 67,255  |                              | $      | 104,183 |   |
| Intercompany                      mortgage loans on CapLease properties |   |                              | 167,544 |                              |   | 67,621 |   |
| Securities                      available for sale                      |   |                              | 59,464  |                              |   | 82,037 |   |
| Total                                                                   |   | $                                 | 294,263 |                              | $      | 253,841 |   |
|                                                                    |   |                              |    |                              |   |   |   |
| *Borrowings*                                                            |   |                              |    |                              |   |   |   |
| Loans                      held for investment                          |   | $                                 | 56,888  |                              | $      | 76,526 |   |
| Intercompany                      mortgage loans on CapLease properties |   |                              | 132,572 |                              |   | 56,550 |   |
| Securities                      available for sale                      |   |                              | 43,409  |                              |   | 62,409 |   |
| Total                                                                   |   | $                                 | 232,869 |                              | $      | 195,485 |   |

|                                                             |   | Dec                      31, 2007 |   | Dec                      31, 2006 |   | Dec                      31, 2005 |   |
|------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
| Wachovia                      repurchase agreements - loans      |   |                              | 6.28   | %                                 |   | 6.03                              | %      |   | 4.13 | % |
| Wachovia                      repurchase agreements - securities |   |                              | 6.32   | %                                 |   | 5.79                              | %      |   | 4.12 | % |

**12.**
**Bridge          Facility**

----

**13.**
**Risk          Management Transactions**

*Accounting          for Derivative Instruments and Hedging Activities*

----

|                                     |   | December                      31, 2007 |    | December                      31, 2006 |   |
|------------------------------------------|--------|----------------------------------------|---------|----------------------------------------|--------|
| *Description*                            |   | Notional                      Amount   |    | Fair                      value        |   | Notional                      Amount |   | Fair                      value |   |
| Interest                      rate swaps |   | $                                      | 177,442 |                                   | $      | (4,559 | ) | $ | 231,719 |   | $ | (72 | ) |

|                                                      |   | December                      31, |    |
|-----------------------------------------------------------|--------|-----------------------------------|---------|
|                                                      |   | 2007                              |    | 2006 |   |
| Future                      borrowings (principal amount) |   | $                                 | 177,442 |   | $ | 231,719 |   |

**14.**
**Long-Term          Debt**

|  | · | mortgage                    notes on real estate investments; |
|--|--------|---------------------------------------------------------------|

|  | · | collateralized                    debt obligations; |
|--|--------|-----------------------------------------------------|

|  | · | a                    secured term loan; |
|--|--------|-----------------------------------------|

|  | · | convertible                    senior notes; and |
|--|--------|--------------------------------------------------|

|  | · | debt                    related to trust preferred                    securities. |
|--|--------|-----------------------------------------------------------------------------------|

----

*Mortgages          Notes on Real Estate Investments*

|                                                                                                                    |   | Dec                        31, 2007 |    | Dec                        31, 2006 |   |    |   | EffectiveFinancing                 |    |   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------------|--------|---------|--------|------------------------------------|---------|--------|--------|
| Property                        Level Debt - Fixed Rate                                                                 |   | Face                                |    | Carry                        Value  |   | Face    |   | Carry                        Value |    | Coupon |   | Rate                        (1) |   | Maturity |   |
|                                                                                                                    |   |                                |    |                                |   |    |   |                               |    |   |   |   |   |   |   |
| The                        Travelers Corporation, Hartford, CT                                                          |   | $                                   | 19,406  |                                | $      | 20,944  |   | $                                  | -       |   | $      | - |   |   | 9.80 | % |   | 5.53 | % |   | Sep                        2011 |   |
| The                        Travelers Corporation, Hartford, CT                                                          |   |                                | 12,511  |                                |   | 14,046  |   |                               | -       |   |   | - |   |   | 10.76 | % |   | 7.67 | % |   | Oct                        2011 |   |
| Nestle                        Holdings, Inc., Breinigsville, PA; Fort Wayne, IN; and Lathrop,                        CA |   |                                | 117,000 |                                |   | 117,000 |   |                               | -       |   |   | - |   |   | 6.32 | % |   | 5.65 | % |   | Aug                        2012 |   |
| Choice                        Hotels International, Inc., Silver Spring, MD                                             |   |                                | 30,937  |                                |   | 30,937  |   |                               | 31,653  |   |   | 31,653 |   |   | 5.30 | % |   | 5.34 | % |   | May                        2013 |   |
| Omnicom                        Group, Inc., Irving, TX                                                                  |   |                                | 13,575  |                                |   | 13,575  |   |                               | 13,575  |   |   | 13,575 |   |   | 5.24 | % |   | 5.30 | % |   | May                        2013 |   |
| Capital                        One Financial Corporation, Plano, TX                                                     |   |                                | 20,866  |                                |   | 20,866  |   |                               | 20,925  |   |   | 20,925 |   |   | 5.24 | % |   | 5.29 | % |   | May                        2013 |   |
| Aon                        Corporation, Glenview, IL                                                                    |   |                                | 64,708  |                                |   | 64,708  |   |                               | 64,800  |   |   | 64,800 |   |   | 5.23 | % |   | 5.75 | % |   | Nov                        2014 |   |
| Cadbury                        Schweppes Holdings (US), Whippany, NJ                                                    |   |                                | 35,065  |                                |   | 35,065  |   |                               | 35,614  |   |   | 35,614 |   |   | 5.26 | % |   | 5.34 | % |   | Mar                        2015 |   |
| ITT                        Industries, Inc., Herndon, VA                                                                |   |                                | 41,591  |                                |   | 41,591  |   |                               | 41,700  |   |   | 41,700 |   |   | 5.33 | % |   | 5.40 | % |   | Jun                        2015 |   |
| Lowes                        Companies, Inc., Aliso Viejo, CA                                                           |   |                                | 42,125  |                                |   | 42,125  |   |                               | 42,125  |   |   | 42,125 |   |   | 5.10 | % |   | 5.37 | % |   | Jul                        2015 |   |
| Abbott                        Laboratories, Waukegan, IL                                                                |   |                                | 15,224  |                                |   | 15,224  |   |                               | 15,244  |   |   | 15,244 |   |   | 5.11 | % |   | 5.16 | % |   | Aug                        2015 |   |
| United                        States Government (FBI), Birmingham, AL                                                   |   |                                | 18,800  |                                |   | 18,800  |   |                               | 18,800  |   |   | 18,800 |   |   | 5.23 | % |   | 5.31 | % |   | Sep                        2015 |   |
| United                        States Government (NIH), N. Bethesda, MD                                                  |   |                                | 63,632  |                                |   | 63,632  |   |                               | 64,883  |   |   | 64,883 |   |   | 5.32 | % |   | 5.56 | % |   | Sep                        2015 |   |
| United                        States Government (SSA), Austin, TX                                                       |   |                                | 5,391   |                                |   | 5,391   |   |                               | 5,391   |   |   | 5,391 |   |   | 5.23 | % |   | 5.46 | % |   | Sep                        2015 |   |
| United                        States Government (DEA), Birmingham, AL                                                   |   |                                | 11,280  |                                |   | 11,280  |   |                               | 11,280  |   |   | 11,280 |   |   | 5.23 | % |   | 5.42 | % |   | Sep                        2015 |   |
| Tiffany                        & Co., Parsippany, NJ                                                                |   |                                | 58,400  |                                |   | 58,400  |   |                               | 58,400  |   |   | 58,400 |   |   | 5.33 | % |   | 5.34 | % |   | Oct                        2015 |   |
| Allstate                        Insurance Company, Charlotte, NC                                                        |   |                                | 20,209  |                                |   | 20,209  |   |                               | 20,209  |   |   | 20,209 |   |   | 5.68 | % |   | 5.71 | % |   | Jan                        2016 |   |
| Allstate                        Insurance Company, Roanoke, VA                                                          |   |                                | 21,516  |                                |   | 21,516  |   |                               | 21,516  |   |   | 21,516 |   |   | 5.68 | % |   | 5.76 | % |   | Jan                        2016 |   |
| Farmers                        New World Life Insurance Company, Mercer Island, WA                                      |   |                                | 30,200  |                                |   | 30,200  |   |                               | 30,200  |   |   | 30,200 |   |   | 5.69 | % |   | 5.72 | % |   | Jan                        2016 |   |
| TJX                        Companies, Inc., Philadelphia, PA                                                            |   |                                | 71,273  |                                |   | 71,273  |   |                               | 71,625  |   |   | 71,625 |   |   | 5.57 | % |   | 5.59 | % |   | Mar                        2016 |   |
| United                        States Government (VA), Ponce, PR                                                         |   |                                | 6,386   |                                |   | 6,642   |   |                               | 6,869   |   |   | 7,172 |   |   | 7.30 | % |   | 6.41 | % |   | Apr                        2016 |   |
| Pearson                        Plc., Lawrence, KS                                                                       |   |                                | 16,025  |                                |   | 16,025  |   |                               | 16,025  |   |   | 16,025 |   |   | 5.84 | % |   | 5.95 | % |   | May                        2016 |   |
| Koninklijke                        Ahold, N.V., Levittown, PA                                                           |   |                                | 14,621  |                                |   | 14,621  |   |                               | 14,794  |   |   | 14,794 |   |   | 6.05 | % |   | 6.11 | % |   | Jul                        2016 |   |
| AMVESCAP                        PLC, Denver, CO                                                                         |   |                                | 43,700  |                                |   | 43,700  |   |                               | 43,700  |   |   | 43,700 |   |   | 6.03 | % |   | 6.08 | % |   | Jul                        2016 |   |
| Walgreen                        Co., Pennsauken, NJ                                                                     |   |                                | 1,783   |                                |   | 1,901   |   |                               | 1,919   |   |   | 2,059 |   |   | 7.65 | % |   | 6.04 | % |   | Oct                        2016 |   |
| United                        States Government (FBI), Albany, NY                                                       |   |                                | 10,137  |                                |   | 10,137  |   |                               | 10,137  |   |   | 10,137 |   |   | 5.50 | % |   | 5.68 | % |   | Nov                        2016 |   |
| Aetna                        Life Insurance Company, Fresno, CA                                                         |   |                                | 16,043  |                                |   | 16,043  |   |                               | 16,043  |   |   | 16,043 |   |   | 5.63 | % |   | 5.68 | % |   | Dec                        2016 |   |
| T-Mobile                        USA, Inc., Nashville, TN                                                                |   |                                | 10,885  |                                |   | 10,885  |   |                               | 10,885  |   |   | 10,885 |   |   | 5.59 | % |   | 5.69 | % |   | Dec                        2016 |   |
| Time                        Warner Entertainment Company, L.P., Milwaukee, WI                                           |   |                                | 17,500  |                                |   | 17,500  |   |                               | 17,500  |   |   | 17,500 |   |   | 5.55 | % |   | 5.59 | % |   | Dec                        2016 |   |
| Farmers                        Group, Inc., Simi Valley, CA                                                             |   |                                | 25,620  |                                |   | 25,620  |   |                               | -       |   |   | - |   |   | 5.81 | % |   | 5.85 | % |   | Jan                        2017 |   |
| Johnson                        Controls, Inc., Largo, FL                                                                |   |                                | 16,200  |                                |   | 16,200  |   |                               | 16,200  |   |   | 16,200 |   |   | 5.48 | % |   | 5.52 | % |   | Jan                        2017 |   |
| County                        of Yolo, California, Woodland, CA                                                         |   |                                | 10,332  |                                |   | 10,332  |   |                               | -       |   |   | - |   |   | 5.68 | % |   | 5.75 | % |   | Feb                        2017 |   |
| Bunge                        North America, Inc., Fort Worth, TX                                                        |   |                                | 6,262   |                                |   | 6,262   |   |                               | -       |   |   | - |   |   | 5.45 | % |   | 5.55 | % |   | May                        2017 |   |
| AmeriCredit                        Corp., Arlington, TX                                                                 |   |                                | 28,586  |                                |   | 28,234  |   |                               | 29,005  |   |   | 28,623 |   |   | 5.28 | % |   | 5.51 | % |   | Sep                        2017 |   |
| Walgreen                        Co., Portsmouth, VA                                                                     |   |                                | 3,068   |                                |   | 3,249   |   |                               | 3,190   |   |   | 3,391 |   |   | 7.20 | % |   | 6.18 | % |   | Jul                        2018 |   |
| United                        States Government (EPA), Kansas City, KS                                                  |   |                                | 20,775  |                                |   | 24,082  |   |                               | 21,095  |   |   | 24,626 |   |   | 7.57 | % |   | 5.74 | % |   | Oct                        2022 |   |
| United                        States Government (OSHA), Sandy, UT                                                       |   |                                | 14,605  |                                |   | 15,555  |   |                               | 14,669  |   |   | 15,678 |   |   | 6.28 | % |   | 5.52 | % |   | Jan                        2024 |   |
| Total                                                                                                                   |   | $                                   | 976,237 |                                | $      | 983,770 |   | $                                  | 789,971 |   | $      | 794,773 |   |   |   |   |   |   |   |   |   |   |

| (1) | The                    effective financing rate is the Company’s approximate borrowing cost,                    including the effect of hedge gains or losses and other deferred                    financing                    costs associated with the related                    borrowing. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Collateralized          Debt Obligations*

|                                                                    |   | Carry                      Value |    |
|-------------------------------------------------------------------------|--------|----------------------------------|---------|
| Loans                      held for investment                          |   | $                                | 158,938 |   |
| Intercompany                      mortgage loans on CapLease properties |   |                             | 43,985  |   |
| Securities                      available for sale                      |   |                             | 77,111  |   |
| Total                                                                   |   | $                                | 280,034 |   |

*Secured          Term Loan*

|                                                                    |   | Carry                      Value |    |
|-------------------------------------------------------------------------|--------|----------------------------------|---------|
| Loans                      held for investment                          |   | $                                | 44,405  |   |
| Intercompany                      mortgage loans on CapLease properties |   |                             | 56,346  |   |
| Securities                      available for sale                      |   |                             | 60,083  |   |
| Total                                                                   |   | $                                | 160,834 |   |

*Convertible          Senior Notes*

----

*Trust          Preferred Securities*

*Consolidation          of Variable Interest Entities*

----

|       |   | ScheduledAmortization |    | BalloonPayments |   | Total     |   |
|------------|--------|-----------------------|---------|-----------------|--------|-----------|--------|
| 2008       |   | $                     | 17,210  |            | $      | –   |   | $ | 17,210 |   |
| 2009       |   |                  | 22,979  |            |   | –   |   |   | 22,979 |   |
| 2010       |   |                  | 50,724  |            |   | –   |   |   | 50,724 |   |
| 2011       |   |                  | 42,171  |            |   | 18,861    |   |   | 61,032 |   |
| 2012       |   |                  | 43,750  |            |   | 117,000   |   |   | 160,750 |   |
| Thereafter |   |                  | 165,579 |            |   | 1,009,174 |   |   | 1,174,753 |   |
|       |   | $                     | 342,413 |            | $      | 1,145,035 |   | $ | 1,487,448 |   |

**15.**
**Related          Party Transactions**

**16.**
**Commitments          and Contingencies**

----

| 2008       |   | $      | 736   |   |
|------------|--------|--------|-------|--------|
| 2009       |   |   | 734   |   |
| 2010       |   |   | 732   |   |
| 2011       |   |   | 753   |   |
| 2012       |   |   | 753   |   |
| Thereafter |   |   | 565   |   |
|       |   | $      | 4,273 |   |

**17.**
**Minority          Interests**

**18.**
**Stockholders’          Equity**

*Stock          Issuances*

----

*Dividends*

----

| Quarter                      Ended |   | RecordDate |       | PaymentDate |   | DividendPer                      Share |   | TotalAmount |   |
|------------------------------------|--------|------------|------------|-------------|--------|----------------------------------------|--------|-------------|--------|
| 12/31/2004                         |   |       | 12/31/2004 |        |   | 1/14/2005                              |   | $           | 0.15   |   | $ | 4,124 |   |
| 3/31/2005                          |   |       | 3/31/2005  |        |   | 4/15/2005                              |   |        | 0.18   |   |   | 5,018 |   |
| 6/30/2005                          |   |       | 6/30/2005  |        |   | 7/15/2005                              |   |        | 0.18   |   |   | 5,016 |   |
| 9/30/2005                          |   |       | 9/30/2005  |        |   | 10/17/2005                             |   |        | 0.18   |   |   | 5,016 |   |
| 12/31/2005                         |   |       | 12/30/2005 |        |   | 1/17/2006                              |   |        | 0.20   |   |   | 5,574 |   |
| 3/31/2006                          |   |       | 3/31/2006  |        |   | 4/17/2006                              |   |        | 0.20   |   |   | 5,636 |   |
| 6/30/2006                          |   |       | 6/30/2006  |        |   | 7/17/2006                              |   |        | 0.20   |   |   | 6,783 |   |
| 9/30/2006                          |   |       | 9/29/2006  |        |   | 10/16/2006                             |   |        | 0.20   |   |   | 6,785 |   |
| 12/31/2006                         |   |       | 12/29/2006 |        |   | 1/16/2007                              |   |        | 0.20   |   |   | 6,818 |   |
| 3/31/2007                          |   |       | 3/30/2007  |        |   | 4/16/2007                              |   |        | 0.20   |   |   | 6,883 |   |
| 6/30/2007                          |   |       | 6/29/2007  |        |   | 7/16/2007                              |   |        | 0.20   |   |   | 9,046 |   |
| 9/30/2007                          |   |       | 9/28/2007  |        |   | 10/15/2007                             |   |        | 0.20   |   |   | 9,175 |   |
| 12/31/2007                         |   |       | 12/31/2007 |        |   | 1/15/2008                              |   |        | 0.20   |   |   | 8,870 |   |

| Quarter                      Ended |   | RecordDate |       | PaymentDate |   | DividendPer                      Share |   | TotalAmount |      |
|------------------------------------|--------|------------|------------|-------------|--------|----------------------------------------|--------|-------------|-----------|
| 12/31/2005                         |   |       | 12/30/2005 |        |   | 1/17/2006                              |   | $           | 0.4852400 |   | $ | 679 |   |
| 3/31/2006                          |   |       | 3/31/2006  |        |   | 4/17/2006                              |   |        | 0.5078125 |   |   | 711 |   |
| 6/30/2006                          |   |       | 6/30/2006  |        |   | 7/17/2006                              |   |        | 0.5078125 |   |   | 711 |   |
| 9/30/2006                          |   |       | 9/29/2006  |        |   | 10/16/2006                             |   |        | 0.5078125 |   |   | 711 |   |
| 12/31/2006                         |   |       | 12/29/2006 |        |   | 1/16/2007                              |   |        | 0.5078125 |   |   | 711 |   |
| 3/31/2007                          |   |       | 3/30/2007  |        |   | 4/16/2007                              |   |        | 0.5078125 |   |   | 711 |   |
| 6/30/2007                          |   |       | 6/30/2007  |        |   | 6/16/2007                              |   |        | 0.5078125 |   |   | 711 |   |
| 9/30/2007                          |   |       | 9/28/2007  |        |   | 10/15/2007                             |   |        | 0.5078125 |   |   | 711 |   |
| 12/31/2007                         |   |       | 12/28/2007 |        |   | 1/15/2008                              |   |        | 0.5078125 |   |   | 711 |   |

**19.**
**Stock          Based Compensation**

*Share-Based          Payment*

----

|                                                                   |   | Number                      of Shares |      |
|------------------------------------------------------------------------|--------|---------------------------------------|-----------|
| Stock                      Awards at January 1, 2006                   |   |                                  | 760,546   |   |
| Granted                      During the Year Ended December 31, 2006   |   |                                  | 332,450   |  (1)                      (2) |
| Forfeited                      During the Year Ended December 31, 2006 |   |                                  | (11,001   | ) |
| Stock                      Awards at January 1, 2007                   |   |                                  | 1,081,995 |   |
| Granted                      During the Period Ended December 31, 2007 |   |                                  | 315,250   |  (3) |
| Stock                      Awards at December 31, 2007                 |   |                                  | 1,397,245 |   |

|   | (1) | Includes                    6,000 shares CapLease issued in January 2007 upon satisfaction                    of a                    service condition that was established in September 2006. Under                    prevailing                    accounting guidance, the grant date occurred upon establishment                    of the                    service condition. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Shares                    are scheduled to vest between March 2007 and March 2011, but                    will                    generally be forfeited if the recipient either terminates his                    employment                    with the Company or ceases to be a member of CapLease’s Board of Directors                    at any time prior to the vesting date. Vesting of an aggregate                    of 133,500                    shares is also subject to satisfaction of objective and subjective                    performance criteria, to be determined by CapLease’s Compensation                    Committee. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Shares                    are scheduled to vest between March 2008 and March 2012, but                    will                    generally be forfeited if the recipient either terminates his                    employment                    with the Company or ceases to be a member of CapLease’s Board of Directors                    at any time prior to the vesting date. Vesting of an aggregate                    of 156,750                    shares is also subject to satisfaction of objective and subjective                    performance criteria, to be determined by CapLease’s Compensation                    Committee. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | Shares                      Awarded Under Plan |     | Shares                      Priced Under SFAS 123 and 123R |   | Weighted                      Average Fair Value |   |
|-----------------------------------------------------|--------|------------------------------------------------|----------|------------------------------------------------------------|--------|--------------------------------------------------|--------|
| Nonvested                      at January 1, 2006   |   |                                           | 495,647  |                                                       |   | 371,203                                          |   | $ | 10.83 |   |
| Current                      period awards          |   |                                           | 332,450  |                                                       |   | 243,450                                          |   |   | 11.07 |   |
| Prior                      period awards            |   |                                           | N/A      |                                                       |   | 62,222                                           |   |   | 10.66 |   |
| Vested                                              |   |                                           | (228,983 | )                                                          |   | (228,983                                         | )      |   | 10.72 |   |
| Forfeited                                           |   |                                           | (11,001  | )                                                          |   | (11,001                                          | )      |   | 11.02 |   |
| Nonvested                      at January 1, 2007   |   |                                           | 588,113  |                                                       |   | 436,891                                          |   |   | 10.99 |   |
| Current                      period awards          |   |                                           | 315,250  |                                                       |   | 189,850                                          |   |   | 10.91 |   |
| Prior                      period awards            |   |                                           | N/A      |                                                       |   | 30,771                                           |   |   | 10.91 |   |
| Vested                                              |   |                                           | (210,781 | )                                                          |   | (210,781                                         | )      |   | 10.97 |   |
| Nonvested                      at December 31, 2007 |   |                                           | 692,582  |                                                       |   | 446,731                                          |   |   | 10.99 |   |

**20.**
**Other          Comprehensive Income**

----

*Reporting          Comprehensive Income*

|                                                              |   | December                      31, |    |
|-------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                              |   | 2007                              |    | 2006 |   |
| Net                      unrealized (losses) gains on securities  |   | $                                 | (13,720 | ) | $ | 6,692 |   |
| Net                      unrealized (losses) gains on derivatives |   |                              | (4,522  | ) |   | 48 |   |
| Net                      realized losses on derivatives           |   |                              | (7,778  | ) |   | (11,000 | ) |
| Accumulated                      other comprehensive loss         |   | $                                 | (26,020 | ) | $ | (4,260 | ) |

**21.**
**Rental          Income**

| 2008       |   | $      | 131,508   |   |
|------------|--------|--------|-----------|--------|
| 2009       |   |   | 128,976   |   |
| 2010       |   |   | 114,063   |   |
| 2011       |   |   | 113,875   |   |
| 2012       |   |   | 115,865   |   |
| Thereafter |   |   | 629,402   |   |
|       |   | $      | 1,233,689 |   |

**22.**
**Concentration          Risks**

**23.**
**401(k)          Plan**

**24.**
**Pro          Forma Condensed Consolidated Statements of Operations          (Unaudited)**

----

|                                                                                                           |   | For                      the twelve monthsended                      December 31, |    |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|---------|
|                                                                                                           |   | 2007                                                                              |    | 2006 |   |
| Total                      revenues                                                                            |   | $                                                                                 | 184,181 |   | $ | 186,688 |   |
| Income                      from continuing operations                                                         |   |                                                                              | 1,942   |   |   | 18,555 |   |
| Income                      per basic and diluted common share from                      continuing operations |   |                                                                              | 0.05    |   |   | 0.58 |   |
| Net                      income (loss) allocable to common stockholders                                        |   |                                                                              | (550    | ) |   | 16,153 |   |
| Net                      income (loss) per basic and diluted common share                            |   |                                                                              | (0.01   | ) |   | 0.51 |   |

**25.**
**Segment          Reporting**

*Disclosures          about Segments of an Enterprise and Related Information*

|                                                          |   | Corporate                      /Unallocated |    | OperatingReal                      Estate |   | LendingInvestments |   | Total  |    |
|---------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|--------------------|--------|--------|---------|
| Total                      revenues                           |   | $                                           | 602     |                                      | $      | 136,917            |   | $      | 34,640  |   | $ | 172,159 |   |
| Total                      expenses and minority interest     |   |                                        | 16,111  |                                      |   | 135,603            |   |   | 24,421  |   |   | 176,135 |   |
| Gain                      on extinguishment of debt           |   |                                        | – |                                      |   | 1,363              |   |   | – |   |   | 1,363 |   |
| Income                      (loss) from continuing operations |   |                                        | (15,509 | )                                         |   | 2,677              |   |   | 10,219  |   |   | (2,613 | ) |
| Total                      assets                             |   |                                        | 64,616  |                                      |   | 1,620,419          |   |   | 473,234 |   |   | 2,158,269 |   |

|                                                          |   | Corporate                      /Unallocated |    | OperatingReal                      Estate |   | LendingInvestments |   | Total  |    |
|---------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|--------------------|--------|--------|---------|
| Total                      revenues                           |   | $                                           | 811     |                                      | $      | 87,823             |   | $      | 35,966  |   | $ | 124,601 |   |
| Total                      expenses and minority interest     |   |                                        | 14,901  |                                      |   | 82,680             |   |   | 20,070  |   |   | 117,651 |   |
| Income                      (loss) from continuing operations |   |                                        | (14,090 | )                                         |   | 5,144              |   |   | 15,896  |   |   | 6,950 |   |
| Total                      assets                             |   |                                        | 30,219  |                                      |   | 1,152,348          |   |   | 461,732 |   |   | 1,644,300 |   |

|                                                          |   | Corporate                      /Unallocated |    | OperatingReal                      Estate |   | LendingInvestments |   | Total  |    |
|---------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|--------------------|--------|--------|---------|
| Total                      revenues                           |   | $                                           | 1,090   |                                      | $      | 44,352             |   | $      | 27,609  |   | $ | 73,052 |   |
| Total                      expenses and minority interest     |   |                                        | 12,493  |                                      |   | 39,254             |   |   | 16,181  |   |   | 67,928 |   |
| Income                      (loss) from continuing operations |   |                                        | (11,402 | )                                         |   | 5,098              |   |   | 11,428  |   |   | 5,124 |   |
| Total                      assets                             |   |                                        | 48,007  |                                      |   | 797,945            |   |   | 440,536 |   |   | 1,286,488 |   |

----

**26.**
**Quarterly          Financial Information (Unaudited)**

|                              |   | Revenue |   | Net                      income (loss) applicable to common shares |   | Basic                      and diluted income (loss) per common share |   |
|-----------------------------------|--------|---------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
| 2007                              |   |    |   |                                                               |   |                                                                  |   |
| December                      31  |   | $       | 46,773 |                                                               | $      | (904                                                                  | )      | $ | (0.02 | ) |
| September                      30 |   |    | 46,602 |                                                               |   | (105                                                                  | )      |   | (0.00 | ) |
| June                      30      |   |    | 43,620 |                                                               |   | (4,003                                                                | )      |   | (0.10 | ) |
| March                      31     |   |    | 35,164 |                                                               |   | (93                                                                   | )      |   | (0.00 | ) |
| 2006                              |   |    |   |                                                               |   |                                                                  |   |   |   |   |
| December                      31  |   |    | 35,125 |                                                               |   | 1,244                                                                 |   |   | 0.04 |   |
| September                      30 |   |    | 30,873 |                                                               |   | 776                                                                   |   |   | 0.02 |   |
| June                      30      |   |    | 30,255 |                                                               |   | 744                                                                   |   |   | 0.02 |   |
| March                      31     |   |    | 28,348 |                                                               |   | 1,641                                                                 |   |   | 0.06 |   |

**27.**
**Variable          Interest Entities**

*Consolidation          of Variable Interest Entities*

|  | · | the                    equity investment at risk is not sufficient to permit the entity                    to                    finance its activities without additional subordinated financial                    support                    from other parties; |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | equity                    holders either (a) lack direct or indirect ability to make decisions                    about                    the entity, (b) are not obligated to absorb expected losses of                    the entity                    or (c) do not have the right to receive expected residual returns                    of the                    entity if they occur; or |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | equity                    holders have voting rights that are not proportionate to their                    economic                    interests, and the activities of the entity involve or are conducted                    on                    behalf of an investor with a disproportionately small voting                    interest. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                               |   |             |   | **Initial                        Cost** |   | **Cost                        Capitalized Subsequent to Acquisition** |   | **Gross                        Amount at Which****Carried                        at Close of Period** |   |                                                 |   |     |   |                                                 |   |      |   |
|----------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------------------------------|--------|-----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|----------|--------|------------------------------------------------------|--------|-----------|--------|
| **Description**                                                                                    |   | **Encumbrances** |   | **Land**                                |   | **Building                        and Improvements**                  |   | **Land**                                                                                              |   | **Building                        and Improvements** |   | **Land** |   | **Building                        and Improvements** |   | **Total** |   | **Accumulated                        Depreciation** |   | **Date                        of Construction** |   | **Date                        Acquired** |   | **Life                        on Which****Depreciation****is                        Computed** |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Abbott                        Laboratories, Columbus, OH                                           |   | $                | 7,339  |                                    | $      | 1,025                                                                 |   | $                                                                                                     | 10,066 |                                                 | $      | -        |   | $                                                    | -      |      | $      | 1,025 |   | $ | 10,066 |   | $ | 11,091 |   | $ | 794 |   |   | 1980,                        renovated in 2003-2004 |   |   | 11/5/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Abbott                        Laboratories, Waukegan, IL                                           |   |             | 17,368 |                                    |   | 2,500                                                                 |   |                                                                                                  | 15,430 |                                                 |   | -        |   |                                                 | -      |      |   | 2,500 |   |   | 15,430 |   |   | 17,930 |   |   | 924 |   |   | 2000 |   |   | 8/9/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aetna                        Life Insurance Company, Fresno, CA                                    |   |             | 20,224 |                                    |   | 3,000                                                                 |   |                                                                                                  | 19,462 |                                                 |   | -        |   |                                                 | 19     |      |   | 3,000 |   |   | 19,481 |   |   | 22,481 |   |   | 883 |   |   | 1                        story office 1969, 2 story office 1984, 2 story parking 1997,                        interior                        renovated in 2000 & 2007 |   |   | 10/19/2006 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allstate                        Insurance Company, Charlotte, NC                                   |   |             | 24,111 |                                    |   | 7,100                                                                 |   |                                                                                                  | 14,594 |                                                 |   | -        |   |                                                 | -      |      |   | 7,100 |   |   | 14,594 |   |   | 21,694 |   |   | 740 |   |   | 1973,                        renovated in the 1990s |   |   | 12/21/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allstate                        Insurance Company, Roanoke, VA                                     |   |             | 25,670 |                                    |   | 3,200                                                                 |   |                                                                                                  | 20,930 |                                                 |   | -        |   |                                                 | -      |      |   | 3,200 |   |   | 20,930 |   |   | 24,130 |   |   | 1,062 |   |   | 1969/70,                        with an addition in 1981 |   |   | 12/21/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AmeriCredit                        Corp., Arlington, TX                                            |   |             | 28,234 |                                    |   | 5,820                                                                 |   |                                                                                                  | 32,219 |                                                 |   | -        |   |                                                 | -      |      |   | 5,820 |   |   | 32,219 |   |   | 38,039 |   |   | 814 |   |   | 1999 |   |   | 12/28/2006 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AMVESCAP                        PLC, Denver, CO                                                    |   |             | 57,912 |                                    |   | 7,200                                                                 |   |                                                                                                  | 55,395 |                                                 |   | -        |   |                                                 | -      |      |   | 7,200 |   |   | 55,395 |   |   | 62,595 |   |   | 2,465 |   |   | 2001 |   |   | 3/23/2006 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aon                        Corporation, Glenview, IL                                               |   |             | 71,650 |                                    |   | 11,000                                                                |   |                                                                                                  | 68,639 |                                                 |   | -        |   |                                                 | -      |      |   | 11,000 |   |   | 68,639 |   |   | 79,639 |   |   | 5,777 |   |   | 1976,                        renovated in 1999-2001 |   |   | 8/19/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Baxter                        International, Inc., Bloomington, IN                                 |   |             | 6,261  |                                    |   | 1,200                                                                 |   |                                                                                                  | 9,181  |                                                 |   | -        |   |                                                 | -      |      |   | 1,200 |   |   | 9,181 |   |   | 10,381 |   |   | 738 |   |   | 1996,                        renovation and warehouse addition in 2004 |   |   | 10/13/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bunge                        North America, Inc., Fort Worth, TX                                   |   |             | 8,696  |                                    |   | 650                                                                   |   |                                                                                                  | 8,880  |                                                 |   | -        |   |                                                 | -      |      |   | 650 |   |   | 8,880 |   |   | 9,530 |   |   | 155 |   |   | 2005 |   |   | 4/19/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cadbury                        Schweppes Holdings (US), Whippany,                        NJ        |   |             | 38,226 |                                    |   | 6,300                                                                 |   |                                                                                                  | 38,994 |                                                 |   | -        |   |                                                 | 1,231  |      |   | 6,300 |   |   | 40,224 |   |   | 46,524 |   |   | 2,513 |   |   | 2005 |   |   | 1/6/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital                        One Financial Corporation, Plano, TX                                |   |             | 23,099 |                                    |   | 6,670                                                                 |   |                                                                                                  | 18,816 |                                                 |   | -        |   |                                                 | -      |      |   | 6,670 |   |   | 18,816 |   |   | 25,486 |   |   | 1,188 |   |   | 1999,                        renovated in 2005 |   |   | 6/23/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Choice                        Hotels International, Inc., Silver                        Spring, MD |   |             | 30,937 |                                    |   | 5,500                                                                 |   |                                                                                                  | 37,114 |                                                 |   | -        |   |                                                 | 34     |      |   | 5,500 |   |   | 37,148 |   |   | 42,648 |   |   | 2,863 |   |   | Building                        10720 - 1981, 10750 - 1971, 10770 - 1986 |   |   | 11/23/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| County                        of Yolo, California, Woodland, CA                                    |   |             | 13,101 |                                    |   | 2,300                                                                 |   |                                                                                                  | 12,850 |                                                 |   | -        |   |                                                 | -      |      |   | 2,300 |   |   | 12,850 |   |   | 15,150 |   |   | 296 |   |   | 2001 |   |   | 1/30/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crozer-Keystone                        Health System, Ridley, PA                                   |   |             | 3,920  |                                    |   | -                                                                     |   |                                                                                                  | 5,015  |                                                 |   | -        |   |                                                 | 864    |      |   | - |   |   | 5,879 |   |   | 5,879 |   |   | 473 |   |   | 1977,                        renovated in 2004 |   |   | 8/9/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CVS                        Corporation, Randolph, MA                                               |   |             | 8,717  |                                    |   | 6,300                                                                 |   |                                                                                                  | 7,801  |                                                 |   | -        |   |                                                 | -      |      |   | 6,300 |   |   | 7,801 |   |   | 14,101 |   |   | 635 |   |   | 1965,                        renovated in the 1980's and 1993 |   |   | 9/29/2004 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Factory                        Mutual Insurance Company, Johnston, RI                              |   |             | -      |                                    |   | -                                                                     |   |                                                                                                  | 44,909 |                                                 |   | -        |   |                                                 | -      |      |   | - |   |   | 44,909 |   |   | 44,909 |   |   | 1,262 |   |   | 1973 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Farmers                        Group, Inc., Simi Valley, CA                                        |   |             | 34,980 |                                    |   | 10,620                                                                |   |                                                                                                  | 28,127 |                                                 |   | -        |   |                                                 | -      |      |   | 10,620 |   |   | 28,127 |   |   | 38,747 |   |   | 645 |   |   | Office                        240M SF 1982, Training Facility (w/office) 21M SF 1999 & Warehouse 10M                        SF 1982 |   |   | 1/31/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Farmers                        New World Life Insurance Company, Mercer Island, WA                 |   |             | 32,781 |                                    |   | 24,000                                                                |   |                                                                                                  | 10,035 |                                                 |   | -        |   |                                                 | -      |      |   | 24,000 |   |   | 10,035 |   |   | 34,035 |   |   | 508 |   |   | 1982 |   |   | 12/22/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ITT                        Industries, Inc., Herndon, VA                                           |   |             | 47,000 |                                    |   | 5,300                                                                 |   |                                                                                                  | 40,221 |                                                 |   | -        |   |                                                 | 9,528  |      |   | 5,300 |   |   | 49,749 |   |   | 55,049 |   |   | 2,924 |   |   | 1999,                        interior renovated in 2005-2006 |   |   | 5/23/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Johnson                        Controls, Inc., Largo, FL                                           |   |             | 22,805 |                                    |   | 4,600                                                                 |   |                                                                                                  | 18,168 |                                                 |   | -        |   |                                                 | -      |      |   | 4,600 |   |   | 18,168 |   |   | 22,768 |   |   | 753 |   |   | 1963                        & mid 1970's to 1995 |   |   | 12/12/2006 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Koninklijke                        Ahold, N.V., Levittown, PA                                      |   |             | 16,178 |                                    |   | 4,000                                                                 |   |                                                                                                  | 15,789 |                                                 |   | -        |   |                                                 | -      |      |   | 4,000 |   |   | 15,789 |   |   | 19,789 |   |   | 612 |   |   | 2006 |   |   | 6/13/2006 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lowes                        Companies, Inc., Aliso Viejo, CA                                      |   |             | 44,956 |                                    |   | 26,600                                                                |   |                                                                                                  | 20,831 |                                                 |   | -        |   |                                                 | -      |      |   | 26,600 |   |   | 20,831 |   |   | 47,431 |   |   | 1,356 |   |   | 1965,                        renovated in 2004-2005 |   |   | 5/31/2005 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| N/A                        (Development Property), Simi Valley, CA                                 |   |             | -      |                                    |   | 1,025                                                                 |   |                                                                                                  | -      |                                                 |   | -        |   |                                                 | -      |      |   | 1,025 |   |   | - |   |   | 1,025 |   |   | - |   |   |   |   |   | 5/24/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle                        Holdings, Inc., Breinigsville, PA                                    |   |             | -      |                                    |   | -                                                                     |   |                                                                                                  | 77,439 |                                                 |   | -        |   |                                                 | -      |      |   | - |   |   | 77,439 |   |   | 77,439 |   |   | 1,361 |   |   | 1994 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle                        Holdings, Inc., Fort Wayne, IN                                       |   |             | -      |                                    |   | -                                                                     |   |                                                                                                  | 37,313 |                                                 |   | -        |   |                                                 | -      |      |   | - |   |   | 37,313 |   |   | 37,313 |   |   | 656 |   |   | 1994 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                               |   |             |   |                                    |   |                                                                  |   |                                                                                                  |   |                                                 |   |     |   |                                                 |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle                        Holdings, Inc., Lathrop, CA                                          |   |             | -      |                                    |   | -                                                                     |   |                                                                                                  | 57,483 |                                                 |   | -        |   |                                                 | -      |      |   | - |   |   | 57,483 |   |   | 57,483 |   |   | 1,010 |   |   | 1994 |   |   | 4/18/2007 |   |   | Various |   |

----

|                                                                                                                      |   |        |      | **Initial                          Cost** |   |  **Cost                          Capitalized Subsequent to Acquisition** |   | **Gross                          Amount at Which****Carried                          at Close of Period** |      |                                              |   |    |   |                                              |   |    |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------------|-----------|-------------------------------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------|--------|--------------|--------|--------------------------------------------------------|--------|--------------|--------|
| **Description**                                                                                                           |   | **Encumbrances** |      | **Land**                                  |   | **Building                          and Improvements**                        |   | **Land**                                                                                                  |      | **Building                          and Improvements** |   | **Land**     |   | **Building                          and Improvements** |   | **Total**    |   | **Accumulated                          Depreciation** |   |  **Date                          of Construction** |   | **Date                          Acquired** |   | **Life                          on Which****Depreciation****is                          Computed** |   |
|                                                                                                                      |   |             |      |                                      |   |                                                                          |   |                                                                                                      |      |                                                   |   |         |   |                                                   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Omnicom                          Group, Inc., Irving, TX                                                                  |   |             | 14,581    |                                      |   | 2,620                                                                         |   |                                                                                                      | 11,800    |                                                   |   | -            |   |                                                   | -      |         |   | 2,620 |   |   | 11,800 |   |   | 14,420 |   |   | 745 |   |   | 1997 |   |   | 6/23/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Pearson                          Plc., Lawrence, KS                                                                       |   |             | 17,454    |                                      |   | 1,140                                                                         |   |                                                                                                      | 16,557    |                                                   |   | -            |   |                                                   | -      |         |   | 1,140 |   |   | 16,557 |   |   | 17,697 |   |   | 712 |   |   | 1997 |   |   | 4/12/2006 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Qwest                          Corporation, Omaha, NE                                                                     |   |             | 19,298    |                                      |   | -                                                                             |   |                                                                                                      | 36,969    |                                                   |   | -            |   |                                                   | -      |         |   | - |   |   | 36,969 |   |   | 36,969 |   |   | 650 |   |   | 1991 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Qwest                          Corporation, Omaha, NE                                                                     |   |             | 3,953     |                                      |   | -                                                                             |   |                                                                                                      | 15,102    |                                                   |   | -            |   |                                                   | -      |         |   | - |   |   | 15,102 |   |   | 15,102 |   |   | 303 |   |   | 1985 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| T-Mobile                          USA, Inc., Nashville, TN                                                                |   |             | 10,885    |                                      |   | 2,450                                                                         |   |                                                                                                      | 11,774    |                                                   |   | -            |   |                                                   | -      |         |   | 2,450 |   |   | 11,774 |   |   | 14,224 |   |   | 333 |   |   | 2002 |   |   | 11/14/2006 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| The                          Kroger Co., Various locations in                          KY (five), GA (four), and TN (two) |   |             | 58,770    |                                      |   | -                                                                             |   |                                                                                                      | 84,702    |                                                   |   | -            |   |                                                   | -      |         |   | - |   |   | 84,702 |   |   | 84,702 |   |   | 1,488 |   |   | Various,                          1994-1996 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| The                          Travelers Corporation, Hartford, CT                                                          |   |             | 20,944    |                                      |   | -                                                                             |   |                                                                                                      | 18,317    |                                                   |   | -            |   |                                                   | -      |         |   | - |   |   | 18,317 |   |   | 18,317 |   |   | 368 |   |   | 1986 |   |   | 4/18/2007 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Tiffany                          & Co., Parsippany, NJ                                                                |   |             | 62,011    |                                      |   | 7,400                                                                         |   |                                                                                                      | 62,150    |                                                   |   | -            |   |                                                   | 47     |         |   | 7,400 |   |   | 62,197 |   |   | 69,597 |   |   | 3,511 |   |   | Office                          & Warehouse - 1997, Warehouse Mezzanine - 2000, Garage -                          2001, East                          Wing Office - 2002 |   |   | 9/28/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Time                          Warner Entertainment Company, L.P., Milwaukee, WI                                           |   |             | 24,276    |                                      |   | 2,300                                                                         |   |                                                                                                      | 22,299    |                                                   |   | -            |   |                                                   | -      |         |   | 2,300 |   |   | 22,299 |   |   | 24,599 |   |   | 609 |   |   | 1903,                          renovated in 2001 |   |   | 11/28/2006 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| TJX                          Companies, Inc., Philadelphia, PA                                                            |   |             | 79,627    |                                      |   | 6,100                                                                         |   |                                                                                                      | 79,734    |                                                   |   | -            |   |                                                   | -      |         |   | 6,100 |   |   | 79,734 |   |   | 85,834 |   |   | 3,606 |   |   | 2001 |   |   | 3/10/2006 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (DEA), Birmingham,                          AL                          |   |             | 12,369    |                                      |   | 1,000                                                                         |   |                                                                                                      | 11,643    |                                                   |   | -            |   |                                                   | 258    |         |   | 1,000 |   |   | 11,900 |   |   | 12,900 |   |   | 609 |   |   | 2005 |   |   | 8/11/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (EPA), Kansas                          City, KS                         |   |             | 26,018    |                                      |   | 250                                                                           |   |                                                                                                      | 29,476    |                                                   |   | -            |   |                                                   | -      |         |   | 250 |   |   | 29,476 |   |   | 29,726 |   |   | 1,755 |   |   | 2003 |   |   | 8/11/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (FBI), Albany, NY                                                       |   |             | 14,141    |                                      |   | 3,000                                                                         |   |                                                                                                      | 12,794    |                                                   |   | -            |   |                                                   | -      |         |   | 3,000 |   |   | 12,794 |   |   | 15,794 |   |   | 379 |   |   | 1998 |   |   | 10/25/2006 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (FBI), Birmingham,                          AL                          |   |             | 20,494    |                                      |   | 2,200                                                                         |   |                                                                                                      | 20,171    |                                                   |   | -            |   |                                                   | 3,237  |         |   | 2,200 |   |   | 23,408 |   |   | 25,608 |   |   | 1,212 |   |   | 2005 |   |   | 8/11/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (NIH), N.                          Bethesda, MD                         |   |             | 63,632    |                                      |   | 10,350                                                                        |   |                                                                                                      | 61,537    |                                                   |   | -            |   |                                                   | -      |         |   | 10,350 |   |   | 61,537 |   |   | 71,887 |   |   | 3,554 |   |   | 1989 |   |   | 9/9/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (OSHA), Sandy, UT                                                       |   |             | 19,182    |                                      |   | 1,750                                                                         |   |                                                                                                      | 18,484    |                                                   |   | -            |   |                                                   | -      |         |   | 1,750 |   |   | 18,484 |   |   | 20,234 |   |   | 1,104 |   |   | 2004 |   |   | 8/11/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (SSA), Austin, TX                                                       |   |             | 6,032     |                                      |   | 1,100                                                                         |   |                                                                                                      | 4,373     |                                                   |   | -            |   |                                                   | 138    |         |   | 1,100 |   |   | 4,511 |   |   | 5,611 |   |   | 229 |   |   | 2005 |   |   | 8/11/2005 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| United                          States Government (VA), Ponce, PR                                                         |   |             | 6,642     |                                      |   | 2,120                                                                         |   |                                                                                                      | 10,252    |                                                   |   | -            |   |                                                   | -      |         |   | 2,120 |   |   | 10,252 |   |   | 12,372 |   |   | 812 |   |   | 2000 |   |   | 11/1/2004 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Walgreen                          Co., Pennsauken, NJ                                                                     |   |             | 1,901     |                                      |   | 463                                                                           |   |                                                                                                      | 2,629     |                                                   |   | -            |   |                                                   | -      |         |   | 463 |   |   | 2,629 |   |   | 3,092 |   |   | 208 |   |   | 1996 |   |   | 11/1/2004 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Walgreen                          Co., Portsmouth, VA                                                                     |   |             | 3,250     |                                      |   | 618                                                                           |   |                                                                                                      | 3,561     |                                                   |   | -            |   |                                                   | (1     | )            |   | 618 |   |   | 3,563 |   |   | 4,181 |   |   | 281 |   |   | 1998 |   |   | 11/1/2004 |   |   | Various |   |
|                                                                                                                      |   |             |           |                                      |   |                                                                               |   |                                                                                                      |           |                                                   |   |              |   |                                                   |        |         |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                                                      |   | $                | 1,069,625 |                                      | $      | 190,771                                                                       |   | $                                                                                                         | 1,260,025 |                                                   | $      | -            |   | $                                                      | 15,355 |         | $      | 190,771 |   | $ | 1,275,381 |   | $ | 1,466,152 |   | $ | 55,875 |   |   |  |   |   |  |   |   |  |   |

----

| CapLease,                          Inc. and Subsidiaries                   |
|----------------------------------------------------------------------------|
| Real                          Estate and Accumulated Depreciation          |
| December                          31, 2007                                 |
| (amounts                          in thousands)                            |
|                                                                       |
| Schedule                          III—(Continued)                    |
|                                                                       |   |   |   |   |   |
| Balance-January                          1, 2005                           |   |   |   |   | $ | 182,305 |   |
|  Property                          acquisitions                       |   |   | 508,597 |   |   |   |   |
|  Costs                          capitalized subsequent to acquisition |   |   | 2,912 |   |   |   |   |
| Balance-December                          31, 2005                         |   |   |   |   | $ | 693,814 |   |
|  Property                          acquisitions                       |   |   | 328,220 |   |   |   |   |
|  Costs                          capitalized subsequent to acquisition |   |   | 8,187 |   |   |   |   |
| Balance-December                          31, 2006                         |   |   |   |   | $ | 1,030,221 |   |
|  Property                          acquisitions                       |   |   | 432,762 |   |   |   |   |
|  Costs                          capitalized subsequent to acquisition |   |   | 3,169 |   |   |   |   |
| Balance-December                          31, 2007                         |   |   |   |   | $ | 1,466,152 |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
| **Accumulated                          depreciation**                      |   |   |   |   |   |   |   |
| Balance-January                          1, 2005                           |   |   |   |   | $ | 1,281 |   |
| Additions                          during the year:                   |   |   |   |   |   |   |   |
|  Depreciation                          on property                    |   |   | 7,118 |   |   |   |   |
| Balance-December                          31, 2005                         |   |   |   |   | $ | 8,399 |   |
| Additions                          during the year:                   |   |   |   |   |   |   |   |
|  Depreciation                          on property                    |   |   | 17,482 |   |   |   |   |
| Balance-December                          31, 2006                         |   |   |   |   | $ | 25,881 |   |
| Additions                          during the year:                   |   |   |   |   |   |   |   |
|  Depreciation                          on property                    |   |   | 29,994 |   |   |   |   |
| Balance-December                          31, 2007                         |   |   |   |   | $ | 55,875 |   |

----

| **Description**                                     |   | **Location** |                                            | **Interest                        Rate** |   | **Final****Maturity****Date** |   | **Periodic                        Payment Terms** |                            | **Prior                        Liens** |   | **Face                        Amount of Mortgages**                                                                                                            |   | **Carrying                        Amount of Mortgages (1)** |   | **Principal                        Amount of Loans Subject to Delinquent Principal or                        Interest** |   |
|-----------------------------------------------------|--------|--------------|-------------------------------------------------|------------------------------------------|--------|-------------------------------|--------|---------------------------------------------------|---------------------------------|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
| **Long-Term                        Mortgage Loans** |   |         |                                            |                                     |   |                          |   |                                              |                            |                                   |   |                                                                                                                                                           |   |                                                        |   |
| Autozone,                        Inc.               |   |         | Douglas                        and Valdosta, GA |                                     |   | 6.50                          | %      |                                              | Nov                        2022 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    | $      | 1,899 |   | $ | 1,899 |   |   |   |   |
| Bank                        of America, N.A.        |   |         | Mt.                        Airy, MD             |                                     |   | 6.42                          | %      |                                              | Dec                        2026 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 3,419 |   |   | 3,419 |   |   |   |   |
| Bank                        of America, N.A.        |   |         | Glenview,                        IL             |                                     |   | 6.34                          | %      |                                              | Dec                        2028 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 4,317 |   |   | 4,317 |   |   |   |   |
| Best                        Buy Co., Inc.           |   |         | Chicago,                        IL              |                                     |   | 6.40                          | %      |                                              | Mar                        2025 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 17,732 |   |   | 17,732 |   |   |   |   |
| City                        of Jasper, Texas        |   |         | Jasper,                        TX               |                                     |   | 7.00                          | %      |                                              | Nov                        2024 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,636 |   |   | 1,590 |   |   |   |   |
| CVS                        Corporation              |   |         | Asheville,                        NC            |                                     |   | 6.53                          | %      |                                              | Jan                        2026 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,210 |   |   | 2,268 |   |   |   |   |
| CVS                        Corporation              |   |         | Oak                        Ridge, NC            |                                     |   | 6.99                          | %      |                                              | Aug                        2024 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 3,027 |   |   | 3,027 |   |   |   |   |
| CVS                        Corporation              |   |         | Bangor,                        PA               |                                     |   | 6.28                          | %      |                                              | Jan                        2026 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 2,287 |   |   | 2,249 |   |   |   |   |
| CVS                        Corporation              |   |         | Athol,                        MA                |                                     |   | 6.46                          | %      |                                              | Jan                        2025 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,381 |   |   | 1,381 |   |   |   |   |
| CVS                        Corporation              |   |         | Washington,                        DC           |                                     |   | 8.10                          | %      |                                              | Jan                        2023 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 2,358 |   |   | 2,510 |   |   |   |   |
| CVS                        Corporation              |   |         | Bluefield,                        WV            |                                     |   | 8.00                          | %      |                                              | Jan                        2021 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,241 |   |   | 1,347 |   |   |   |   |
| CVS                        Corporation              |   |         | Sunbury,                        PA              |                                     |   | 7.50                          | %      |                                              | Jan                        2021 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,545 |   |   | 1,509 |   |   |   |   |
| CVS                        Corporation              |   |         | Southington,                        CT          |                                     |   | 8.26                          | %      |                                              | Jan                        2020 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,669 |   |   | 1,851 |   |   |   |   |
| CVS                        Corporation              |   |         | Willimantic,                        CT          |                                     |   | 8.26                          | %      |                                              | Jan                        2023 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,926 |   |   | 2,146 |   |   |   |   |
| CVS                        Corporation              |   |         | Stow,                        OH                 |                                     |   | 8.26                          | %      |                                              | Jan                        2020 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,247 |   |   | 2,490 |   |   |   |   |
| CVS                        Corporation              |   |         | Greensboro,                        GA           |                                     |   | 6.52                          | %      |                                              | Jan                        2030 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 1,329 |   |   | 1,329 |   |   |   |   |
| CVS                        Corporation              |   |         | Evansville,                        IN           |                                     |   | 6.22                          | %      |                                              | Jan                        2033 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 3,329 |   |   | 3,329 |   |   |   |   |
| CVS                        Corporation              |   |         | Shelby                        Twp., MI          |                                     |   | 5.98                          | %      |                                              | Jan                        2031 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,494 |   |   | 2,494 |   |   |   |   |
| Harris                        Bankcorp, Inc.        |   |         | Chicago,                        IL              |                                     |   | 6.81                          | %      |                                              | Aug                        2025 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 4,287 |   |   | 4,287 |   |   |   |   |
| Home                        Depot USA, Inc.         |   |         | Chelsea,                        MA              |                                     |   | 5.36                          | %      |                                              | Jan                        2031 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 8,251 |   |   | 8,251 |   |   |   |   |
| Home                        Depot USA, Inc.         |   |         | Tullytown,                        PA            |                                     |   | 6.62                          | %      |                                              | Jan                        2033 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 8,406 |   |   | 8,406 |   |   |   |   |
| Kohls                        Corporation            |   |         | Chicago,                        IL              |                                     |   | 6.69                          | %      |                                              | May                        2030 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 46,999 |   |   | 46,999 |   |   |   |   |
| Koninklijke                        Ahold, N.V.      |   |         | Bensalem,                        PA             |                                     |   | 7.24                          | %      |                                              | May                        2020 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,907 |   |   | 2,960 |   |   |   |   |
| Koninklijke                        Ahold, N.V.      |   |         | North                        Kingstown, RI      |                                     |   | 7.50                          | %      |                                              | Nov                        2025 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 6,444 |   |   | 6,425 |   |   |   |   |
| Koninklijke                        Ahold, N.V.      |   |         | Tewksbury,                        MA            |                                     |   | 7.50                          | %      |                                              | Jan                        2027 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 6,341 |   |   | 6,336 |   |   |   |   |
| Koninklijke                        Ahold, N.V.      |   |         | Upper                        Darby Township, PA |                                     |   | 7.29                          | %      |                                              | Apr                        2024 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 6,337 |   |   | 6,068 |   |   |   |   |

----

| **Description**                                                |   | **Location** |                                          | **Interest                        Rate** |   | **Final****Maturity****Date** |   | **Periodic                        Payment Terms** |                            | **Prior                        Liens** |   | **Face                        Amount of Mortgages**                                                                                                            |   | **Carrying                        Amount of Mortgages (1)** |   | **Principal                        Amount of Loans Subject to Delinquent Principal or                        Interest** |   |
|----------------------------------------------------------------|--------|--------------|-----------------------------------------------|------------------------------------------|--------|-------------------------------|--------|---------------------------------------------------|---------------------------------|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
| Lowes                        Companies, Inc.                   |   |         | Framingham,                        MA         |                                     |   | 5.87                          | %      |                                              | Sep                        2031 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 27,604 |   |   | 27,604 |   |   |   |   |
| Lowes                        Companies, Inc.                   |   |         | Matamoras,                        PA          |                                     |   | 6.61                          | %      |                                              | May                        2030 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 7,077 |   |   | 7,077 |   |   |   |   |
| National                        City Bank                      |   |         | Chicago,                        IL            |                                     |   | 5.89                          | %      |                                              | Dec                        2024 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,940 |   |   | 3,015 |   |   |   |   |
| Neiman                        Marcus Group, Inc.               |   |         | Las                        Vegas, NV          |                                     |   | 6.06                          | %      |                                              | Nov                        2021 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 6,577 |   |   | 7,124 |   |   |   |   |
| United                        States Postal Service            |   |         | Scammon                        Bay, AK        |                                     |   | 7.05                          | %      |                                              | Oct                        2021 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 885 |   |   | 902 |   |   |   |   |
| University                        of Connecticut Health Center |   |         | Farmington,                        CT         |                                     |   | 6.34                          | %      |                                              | Nov                        2024 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 20,869 |   |   | 21,606 |   |   |   |   |
| Walgreen                        Co.                            |   |         | Nacogdoches,                        TX        |                                     |   | 6.80                          | %      |                                              | Sep                        2030 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 3,566 |   |   | 3,566 |   |   |   |   |
| Walgreen                        Co.                            |   |         | Rosemead,                        CA           |                                     |   | 6.26                          | %      |                                              | Dec                        2029 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 5,155 |   |   | 5,155 |   |   |   |   |
| Walgreen                        Co.                            |   |         | Montebello,                        CA         |                                     |   | 6.10                          | %      |                                              | Feb                        2030 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 4,456 |   |   | 4,456 |   |   |   |   |
| Walgreen                        Co.                            |   |         | Dallas,                        TX             |                                     |   | 6.46                          | %      |                                              | Dec                        2029 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 3,353 |   |   | 3,354 |   |   |     |   |
|                                                           |   |         |                                          |                                     |   |                          |   |                                              |                            |                                   |   |                                                                                                                                                           |   |                                                        |   |                                                                                                                    |   | 228,500 |   |   | 230,478 |   |   |   |   |
|                                                           |   |         |                                          |                                     |   |                          |   |                                              |                            |                                   |   |                                                                                                                                                           |   |                                                        |   |                                                                                                                    |   |   |   |   |   |   |   |   |   |
| **Corporate                        Credit Notes**              |   |         |                                          |                                     |   |                          |   |                                              |                            |                                   |   |                                                                                                                                                           |   |                                                        |   |                                                                                                                    |   |   |   |   |   |   |
| Albertsons,                        LLC                         |   |         | Los                        Angeles, CA        |                                     |   | 6.50                          | %      |                                              | Sep                        2013 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 288 |   |   | 265 |   |   |   |   |
| Albertsons,                        LLC                         |   |         | Norwalk,                        CA            |                                     |   | 6.33                          | %      |                                              | Dec                        2013 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 317 |   |   | 314 |   |   |   |   |
| Best                        Buy Co., Inc.                      |   |         | Olathe,                        KS             |                                     |   | 5.40                          | %      |                                              | Jun                        2013 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,171 |   |   | 1,131 |   |   |   |   |
| Best                        Buy Co., Inc.                      |   |         | Wichita                        Falls, TX      |                                     |   | 6.15                          | %      |                                              | Nov                        2012 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 436 |   |   | 419 |   |   |   |   |
| CVS                        Corporation                         |   |         | Garwood,                        NJ            |                                     |   | 6.12                          | %      |                                              | Aug                        2013 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 564 |   |   | 550 |   |   |   |   |
| CVS                        Corporation                         |   |         | Kennett                        Square, PA     |                                     |   | 6.40                          | %      |                                              | Oct                        2012 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 483 |   |   | 470 |   |   |   |   |
| CVS                        Corporation                         |   |         | Commerce,                        MI           |                                     |   | 5.85                          | %      |                                              | May                        2013 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 333 |   |   | 324 |   |   |   |   |
| CVS                        Corporation                         |   |         | Rutherford                        College, NC |                                     |   | 6.12                          | %      |                                              | Oct                        2013 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 249 |   |   | 244 |   |   |   |   |
| CVS                        Corporation                         |   |         | Clemmons,                        NC           |                                     |   | 5.54                          | %      |                                              | Jan                        2015 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 217 |   |   | 210 |   |   |   |   |
| CVS                        Corporation                         |   |         | Rockingham,                        NC         |                                     |   | 6.12                          | %      |                                              | Oct                        2013 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 286 |   |   | 280 |   |   |   |   |
| CVS                        Corporation                         |   |         | Knox,                        IN               |                                     |   | 7.60                          | %      |                                              | Dec                        2011 |                                   |   | Principal                        and Interest are payable monthly at a level amount, over                        the life to                        maturity   |   |                                                        | N/A    |                                                                                                                    |   | 159 |   |   | 159 |   |   |   |   |
| Federal                        Express Corporation             |   |         | Bellingham,                        WA         |                                     |   | 5.78                          | %      |                                              | Mar                        2015 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 289 |   |   | 284 |   |   |   |   |
| FedEx                        Ground Package System, Inc.       |   |         | Reno,                        NV               |                                     |   | 5.90                          | %      |                                              | Oct                        2014 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 1,025 |   |   | 1,017 |   |   |   |   |
| FedEx                        Ground Package System, Inc.       |   |         | McCook,                        IL             |                                     |   | 5.89                          | %      |                                              | Feb                        2015 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 2,120 |   |   | 2,099 |   |   |   |   |
| Hercules                        Incorporated                   |   |         | Wilmington,                        DE         |                                     |   | 9.32                          | %      |                                              | May                        2013 |                                   |   | Principal                        and Interest are payable monthly at a varying amount, over                        the life to                        maturity |   |                                                        | N/A    |                                                                                                                    |   | 19,900 |   |   | 19,900 |   |   |   |   |

----

| **Description**                                            |   | **Location** |                                    | **Interest                      Rate** |   | **Final****Maturity****Date** |   | **Periodic                      Payment Terms** |                          | **Prior                      Liens** |   | **Face                      Amount of Mortgages**                                                                                                        |   | **Carrying                      Amount of Mortgages (1)** |   | **Principal                      Amount of Loans Subject to Delinquent Principal or                      Interest** |   |
|------------------------------------------------------------|--------|--------------|-----------------------------------------|----------------------------------------|--------|-------------------------------|--------|-------------------------------------------------|-------------------------------|--------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|
| Lowes                      Companies, Inc.                 |   |         | Framingham,                      MA     |                                   |   | 5.87                          | %      |                                            | Sep                      2031 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | N/A    |                                                                                                                |   | 27,604 |   |   | 27,604 |   |   |   |   |
| Lowes                      Companies, Inc.                 |   |         | Matamoras,                      PA      |                                   |   | 6.61                          | %      |                                            | May                      2030 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | N/A    |                                                                                                                |   | 7,077 |   |   | 7,077 |   |   |   |   |
| Lowes                      Companies, Inc.                 |   |         | N.                      Windham, ME     |                                   |   | 5.28                          | %      |                                            | Sep                      2015 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | N/A    |                                                                                                                |   | 971 |   |   | 954 |   |   |   |   |
| PerkinElmer,                      Inc.                     |   |         | Warwick,                      RI        |                                   |   | 7.68                          | %      |                                            | Jan                      2012 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 472 |   |   | 464 |   |   |   |   |
| PerkinElmer,                      Inc.                     |   |         | Beltsville,                      MD     |                                   |   | 7.35                          | %      |                                            | Dec                      2011 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 347 |   |   | 345 |   |   |   |   |
| PerkinElmer,                      Inc.                     |   |         | Daytona                      Beach, FL  |                                   |   | 7.35                          | %      |                                            | Dec                      2011 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 157 |   |   | 156 |   |   |   |   |
| PerkinElmer,                      Inc.                     |   |         | Phelps,                      NY         |                                   |   | 7.35                          | %      |                                            | Dec                      2011 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 147 |   |   | 144 |   |   |   |   |
| Staples,                      Inc.                         |   |         | Odessa,                      TX         |                                   |   | 6.41                          | %      |                                            | Sep                      2012 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | N/A    |                                                                                                                |   | 238 |   |   | 228 |   |   |   |   |
| Walgreen                      Co.                          |   |         | Delray                      Beach, FL   |                                   |   | 6.20                          | %      |                                            | Jan                      2013 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 349 |   |   | 347 |   |   |   |   |
| Walgreen                      Co.                          |   |         | Waterford,                      MI      |                                   |   | 5.50                          | %      |                                            | Jun                      2013 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 589 |   |   | 559 |   |   |   |   |
| Walgreen                      Co.                          |   |         | Riverside,                      CA      |                                   |   | 6.10                          | %      |                                            | Dec                      2013 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 384 |   |   | 377 |   |   |   |   |
| Walgreen                      Co.                          |   |         | Jefferson                      City, TN |                                   |   | 5.49                          | %      |                                            | May                      2015 |                                 |   | Principal                      and Interest are payable monthly at a level amount, over the                      life to                      maturity   |   |                                                      | N/A    |                                                                                                                |   | 623 |   |   | 623 |   |   |      |   |
|                                                       |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   |                                                      |   |                                                                                                                |   | 32,114 |   |   | 31,863 |   |   |   |   |
|                                                       |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   |                                                      |   |                                                                                                                |   |   |   |   |   |   |   |   |   |
| **Mezzanine                      and Other Investments**   |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   |                                                      |   |                                                                                                                |   |   |   |   |   |   |
| 84th                      Avenue Development, LLC          |   |         | Tinley                      Park, IL    |                                   |   | 10.00                         | %      |                                            | Mar                      2008 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | 2,695  |                                                                                                                |   | 498 |   |   | 498 |   |   |   |   |
| Eden                      Hylan Seaview LLC                |   |         | Staten                      Island, NY  |                                   |   | 10.00                         | %      |                                            | Jan                      2008 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | 2,804  |                                                                                                                |   | 650 |   |   | 650 |   |   |   |   |
| West                      End Mortgage Finance Fund I L.P. |   |         | Various                                 |                                   |   | 10.00                         | %      |                                            | Sep                      2009 |                                 |   | Principal                      and Interest are payable monthly at a varying amount, over                      the life to                      maturity |   |                                                      | N/A    |                                                                                                                |   | 6,654 |   |   | 6,654 |   |   |     |   |
|                                                       |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   |                                                      | 5,499  |                                                                                                                |   | 7,802 |   |   | 7,802 |   |   |   |   |
|                                                       |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   |                                                      |   |                                                                                                                |   |   |   |   |   |   |   |   |   |
| Total                                                      |   |         |                                    |                                   |   |                          |   |                                            |                          |                                 |   |                                                                                                                                                     |   | $                                                         | 5,499  |                                                                                                                | $      | 268,416 |   | $ | 270,143 |   |   |       |   |

----

| CapLease,                      Inc. and Subsidiaries       |
|------------------------------------------------------------|
|                                                       |
| Schedule                      of Loans Held for Investment |
| December                      31, 2007                     |
| (amounts                      in thousands)                |
|                                                       |
| Schedule                      IV—(Continued)         |

|                                                                                        |   |   |    |   |   |
|---------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| Balance-December                      31, 2004                                              |   |   |    |   | $      | 207,893 |   |
| Additions                      during the year:                                        |   |   |    |   |   |   |   |
|  New                      loan                      investments                        |   |   | 115,852 |   |   |   |   |
|  Securities                      reclassified to loan                      investments |   |   | 6,932   |   |   |   |   |
| Deductions                      during the year:                                       |   |   |    |   |   |   |   |
|  Principal                      received                                               |   |   | (20,372 | )      |   |   |   |
|  Amortization                      of unearned discounts and premiums                  |   |   | (70     | )      |   |   |   |
|  Loans                      sold                                                       |   |   | (11,858 | )      |   |   |   |
| Balance-December                      31, 2005                                              |   |   |    |   | $      | 298,377 |   |
| Additions                      during the year:                                        |   |   |    |   |   |   |   |
|  New                      loan                      investments                        |   |   | 122,988 |   |   |   |   |
| Deductions                      during the year:                                       |   |   |    |   |   |   |   |
|  Principal                      received                                               |   |   | (69,196 | )      |   |   |   |
|  Amortization                      of unearned discounts and premiums                  |   |   | (84     | )      |   |   |   |
|  Loans                      sold                                                       |   |   | (78,000 | )      |   |   |   |
| Balance-December                      31, 2006                                              |   |   |    |   | $      | 274,085 |   |
| Additions                      during the year:                                        |   |   |    |   |   |   |   |
|  New                      loan                      investments                        |   |   | 9,107   |   |   |   |   |
| Deductions                      during the year:                                       |   |   |    |   |   |   |   |
|  Principal                      received                                               |   |   | (12,961 | )      |   |   |   |
|  Amortization                      of unearned discounts and premiums                  |   |   | (88     | )      |   |   |   |
| Balance-December                      31, 2007                                              |   |   |    |   | $      | 270,143 |   |

----

**Item          9.**
**Changes          in and Disagreements With Accountants on Accounting and Financial          Disclosure.**

**Item          9A.**
**Controls          and Procedures.**

*Evaluation          of Disclosure Controls and Procedures*

*Changes          in Internal Controls*

*Management’s          Report on Internal Control over Financial Reporting*

**Item          9B.**
**Other          Information.**

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**PART          III.**

**Item          10.**
**Directors,          Executive Officers and Corporate Governance.**

**Item          11.**
**Executive          Compensation.**

**Item          12.**
**Security          Ownership of Certain Beneficial Owners and Management and Related Stockholder          Matters.**

**Item          13.**
**Certain          Relationships and Related Transactions, and Director          Independence.**

**Item          14.**
**Principal          Accounting Fees and Services.**

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**PART          IV.**

**Item          15.**
**Exhibits          and Financial Statement Schedules.**

**(a)          and (c)**

----

**(b)          Exhibits**

| **Exhibit****No.** | **Description**                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1(1)             | Articles                    of Amendment and Restatement of the registrant                                                                                                                                                                                                                                                                                                                             |
| 3.2(2)             | Articles                    of Amendment to Articles of Incorporation of the                    registrant                                                                                                                                                                                                                                                                                             |
| 3.3(3)             | Articles                    Supplementary Establishing the Rights and Preferences of the                    8.125% Series                    A Cumulative Redeemable Preferred Stock of the                    registrant                                                                                                                                                                              |
| 3.4(1)             | Amended                    and Restated Bylaws of the registrant                                                                                                                                                                                                                                                                                                                                       |
| 3.5(2)             | First                    Amendment to Amended and Restated Bylaws of the                    registrant                                                                                                                                                                                                                                                                                                 |
| 4.1(1)             | Form                    of Certificate evidencing the Common Stock, par value $0.01 per                    share, of                    the registrant                                                                                                                                                                                                                                                 |
| 4.2(4)             | Junior                    Subordinated Indenture between Caplease, LP and JPMorgan Chase                    Bank,                    National Association, as trustee, dated December 13,                    2005                                                                                                                                                                                      |
| 4.3(4)             | Amended                    and Restated Trust Agreement among Caplease, LP, JPMorgan Chase                    Bank,                    National Association, Chase Bank USA, National Association and                    the                    Administrative Trustees named therein, dated December 13,                    2005                                                                      |
| 4.4(5)             | Indenture                    among the registrant, Caplease, LP, Caplease Debt Funding, LP,                    Caplease                    Services Corp., Caplease Credit LLC, and Deutsche Bank Trust                    Company                    Americas, as trustee (including for of 7.50% Convertible Senior                    Note due                    2027) dated as of October 9, 2007 |
| 4.5(6)             | First                    Amended and Restated Limited Partnership Agreement of Caplease,                    LP dated                    June 13, 2006                                                                                                                                                                                                                                                  |
| 10.1(7)            | Master                    Repurchase Agreement, dated September 22, 2004 between the registrant,                    Wachovia Bank, National Association, Caplease, LP and Certain                    Special-Purpose Entity Subsidiaries thereof                                                                                                                                                       |
| 10.2(15)           | Amendment                    No. 1 to Master Repurchase Agreement, dated as of August 16,                    2005, by and                    between Caplease, LP, the registrant, Caplease Services Corp.                    and Wachovia                    Bank, National Association                                                                                                               |
| 10.3(21)           | Amendment                    No. 9 to Master Repurchase Agreement, dated as of August 24,                    2007, by and                    between Caplease, LP, the registrant, Caplease Services Corp.,                    Caplease                    Debt Funding, LP and Wachovia Bank, National                    Association                                                                 |
| 10.4(8)            | Promissory                    Note (Note A), dated October 28, 2004, of CLF 1000 Milwaukee                    Avenue LLC in                    favor of Wachovia Bank, National Association                                                                                                                                                                                                            |
| 10.5(9)            | Promissory                    Note, dated December 9, 2004, of the registrant in favor of Wachovia                    Bank,                    National Association                                                                                                                                                                                                                                    |
| 10.6(12)           | Promissory                    Note, dated February 25, 2005, of CLF Parsippany LLC in favor                    of Wachovia                    Bank, National Association                                                                                                                                                                                                                               |
| 10.7(14)           | Indenture,                    dated as of March 10, 2005, by and among Caplease CDO 2005-1,                    Ltd.,                    Caplease CDO 2005-1 Corp., Caplease Investment Management, LLC                    and LaSalle                    Bank National Association                                                                                                                     |
| 10.8(15)           | Sales                    Agreement, dated as of August 15, 2005, between Cantor Fitzgerald&                    Co. and the registrant                                                                                                                                                                                                                                                              |
| 10.9(15)           | Sales                    Agreement, dated as of August 15, 2005, between Brinson Patrick                    Securities                    Corporation and the registrant                                                                                                                                                                                                                               |
| 10.10(16)          | Promissory                    Note, dated August 16, 2005, of CLF FBI Birmingham LLC in favor                    of                    Wachovia Bank, National Association                                                                                                                                                                                                                             |
| 10.11(16)          | Promissory                    Note, dated August 16, 2005, of CLF DEA Birmingham LLC in favor                    of                    Wachovia Bank, National Association                                                                                                                                                                                                                             |
| 10.12(16)          | Promissory                    Note, dated August 16, 2005, of CLF SSA Austin, LP in favor of                    Wachovia                    Bank, National Association                                                                                                                                                                                                                                 |
| 10.13(16)          | Trust                    Indenture dated as of February 1, 2001 between Unified Government                    of                    Wyandotte County, Kansas City, Kansas, as issuer, and Security                    Bank of                    Kansas City, as trustee                                                                                                                               |
| 10.14(16)          | Lease                    dated as of February 1, 2001 between Unified Government of Wyandotte                    County, Kansas City, Kansas and Kansas EPA Laboratory,                    LLC                                                                                                                                                                                                         |
| 10.15(16)          | Trust                    Indenture dated as of December 1, 2002 between Utah Tech Center,                    LLC, as                    issuer, and Security Bank of Kansas City, as trustee                                                                                                                                                                                                           |
| 10.16(16)          | Promissory                    Note, dated as of September 9, 2005, of Caplease Credit LLC in                    favor of                    Wachovia Bank, National Association                                                                                                                                                                                                                        |

----

| **Exhibit****No.** | **Description**                                                                                                                                                                                                                                                                                                   |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                                                                                                                                              |
| 10.17(16)          | Promissory                    Note, dated as of September 28, 2005, of CLF Sylvan Way LLC in                    favor of                    Wachovia Bank, National Association                                                                                                                                   |
| 10.18(4)           | Parent                    Guarantee Agreement between the registrant and JPMorgan Chase                    Bank,                    National Association, as guarantee trustee, dated December 13,                    2005                                                                                        |
| 10.19(17)          | Promissory                    Note, dated as of December 21, 2005, of CLF McCullough Drive                    Charlotte LLC                    and CLF Electric Road Roanoke LLC in favor of LaSalle Bank National                    Association                                                                 |
| 10.20(19)          | Membership                    Interests Purchase Agreement dated as of March 14, 2007 between                    EntreCap                    Financial LLC and Caplease, LP                                                                                                                                       |
| 10.21(22)          | Registration                    Rights Agreement, dated as of October 9, 2007, between the registrant                    and                    Deutsche Bank Securities Inc., as representative of the several                    initial                    purchasers of the convertible senior notes due 2027 |
| 10.22(20)          | Revolving                    Loan Agreement, dated as of July 17, 2007, by and among the registrant,                    PREFCO II Limited Partnership and Wachovia Bank, National                    Association                                                                                                  |
| 10.23(21)          | Amendment                    No. 1 to Revolving Loan Agreement, dated as of August 24, 2007,                    by and                    among the registrant, PREFCO II Limited Partnership and Wachovia                    Bank,                    National Association                                       |
| *10.24(10)         | Amended                    and Restated 2004 Stock Incentive Plan of the registrant (Effective                    June                    14, 2006)                                                                                                                                                               |
| *10.25(11)         | Form                    of Non-Employee Director Restricted Stock Award                    Agreement                                                                                                                                                                                                              |
| *10.26(18)         | Form                    of Executive Officer Restricted Stock Agreement                                                                                                                                                                                                                                           |
| *10.27(13)         | Form                    of Employment Agreement between each of Paul H. McDowell, William                    R.                    Pollert, Shawn P. Seale and Robert C. Blanz, and the                    registrant                                                                                             |
| *10.28(24)         | Amendment                    No. 1 to the Employment Agreement dated as of March 24, 2004                    between                    Robert C. Blanz and the registrant, dated February 13,                    2007                                                                                            |
| *10.29(18)         | Employment                    Agreement, dated as of February 13, 2007, between Paul Hughes                    and the                    registrant                                                                                                                                                              |
| *10.30(23)         | Summary                    of Compensation for the Chief Executive Officer and each of the                    Named                    Executive Officers for Fiscal 2008                                                                                                                                         |
| 12.1               | Computation                    of Ratio of Earnings to Fixed Charges and Earnings to Combined                    Fixed                    Charges and Preferred Stock Dividends                                                                                                                                   |
| 21.1               | List                    of Subsidiaries                                                                                                                                                                                                                                                                           |
| 23.1               | Consent                    of McGladrey & Pullen LLP                                                                                                                                                                                                                                                          |
| 31.1               | Certification                    of the Chief Executive Officer required by Rule 13a-14(a)/15d-14(a)                    of the                    Securities Exchange Act of 1934, as amended as adopted pursuant                    to Section                    302 of the Sarbanes-Oxley Act of 2002          |
| 31.2               | Certification                    of the Chief Financial Officer required by Rule 13a-14(a)/15d-14(a)                    of the                    Securities Exchange Act of 1934, as amended as adopted pursuant                    to Section                    302 of the Sarbanes-Oxley Act of 2002          |
| 32.1               | Certification                    of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as                    adopted                    pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002                                                                                         |
| 32.2               | Certification                    of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as                    adopted                    pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002                                                                                         |

----

| **Exhibit****No.** | **Description**                                                                                                                                                                                                                                                                                                                     |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                                                                                                                                                                |
| *                  | Denotes                      compensatory plans or arrangement or management contracts required                      to be                      filed as exhibits to this Annual Report on Form 10-K.                                                                                                                               |
| (1)                | Incorporated                      by reference from the registrant’s Amendment No. 4 to Registration                      Statement on Form S-11 filed with the Securities and Exchange                      Commission                      on March 8, 2004 (File No. 333-110644).                                          |
| (2)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on July 31,                      2007.                                                                                                                 |
| (3)                | Incorporated                      by reference from the registrant’s Registration                      Statement on Form 8-A filed with the Securities and Exchange                      Commission on                      October 17, 2005.                                                                                 |
| (4)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on December 19,                      2005.                                                                                                             |
| (5)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on October 9,                      2007.                                                                                                               |
| (6)                | Incorporated                      by reference from the registrant’s Registration                      Statement on Form S-3 filed with the Securities and Exchange                      Commission on                      January 14, 2008 (File No. 333-148649).                                                           |
| (7)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on September 24,                      2004.                                                                                                            |
| (8)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on November 3,                      2004.                                                                                                              |
| (9)                | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on December 15,                      2004.                                                                                                             |
| (10)               | Incorporated                      by reference from the registrant’s Definitive Proxy Statement filed with                      the Securities and Exchange Commission on April 17,                      2006.                                                                                                                |
| (11)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on June 19,                      2006.                                                                                                                 |
| (12)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K/A filed with                      the Securities and Exchange Commission on March 3,                      2005.                                                                                                               |
| (13)               | Incorporated                      by reference from the registrant’s Annual Report on Form 10-K filed with                      the Securities and Exchange Commission on March 30,                      2005.                                                                                                                |
| (14)               | Incorporated                      by reference from the registrant’s Quarterly Report on Form 10-Q filed                      with the Securities and Exchange Commission on May 16,                      2005.                                                                                                               |
| (15)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on August 17,                      2005.                                                                                                               |
| (16)               | Incorporated                      by reference from the registrant’s Quarterly Report on Form 10-Q filed                      with the Securities and Exchange Commission on November 14,                      2005.                                                                                                          |
| (17)               | Incorporated                      by reference from the registrant’s Annual Report on Form 10-K filed with                      the Securities and Exchange Commission on March 16, 2006.                                                                                                                                     |
| (18)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on February 20,                      2007.                                                                                                             |
| (19)               | Incorporated                      by reference from the registrant’s Quarterly Report on Form 10-Q filed                      with the Securities and Exchange Commission on May 10,                      2007.                                                                                                               |
| (20)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on July 20,                      2007.                                                                                                                 |
| (21)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on August 29,                      2007.                                                                                                               |
| (22)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on October 9,                      2007.                                                                                                               |
| (23)               | Incorporated                      by reference from the registrant’s Current Report on Form 8-K filed with                      the Securities and Exchange Commission on February 15,                      2008.                                                                                                             |
| (24)               | This                      exhibit was originally furnished with a Form 8-K filed on February                      20,                      2007, and is being re-furnished with this Form 10-K to correct                      a                      typographical error in the previously furnished                      exhibit. |

----

**PART          V.**

**SIGNATURES**

|                                   |   | **CAPLEASE,                    INC.**                                                                                      |
|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|
|                                   |   | *Registrant*                                                                                                               |
|                                   |   |                                                                                                                       |
| Date:                    March 4, 2008 |   | /s/ Paul                    H. McDowell                                                                               |
|                                   |   | Paul                    H. McDowellChairman                    of the Board and Chief Executive                    Officer |

| Signature                                        | Title                                                                                                                           | Date                             |
|--------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                             |                                                                                                                            |                             |
| /s/ Paul                    H. McDowell     | Chairman                    of the Board and Chief Executive Officer(Principal                    Executive Officer)            | March                    4, 2008 |
| Paul                    H. McDowell              |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ William                    R. Pollert   | President                    and Director                                                                                       | March                    4, 2008 |
| William                    R. Pollert            |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ Shawn                    P. Seale       | Senior                    Vice President, Chief Financial Officer and Treasurer(Principal                    Financial Officer) | March                    4, 2008 |
| Shawn                    P. Seale                |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ John                    E. Warch        | Senior                    Vice President and Chief Accounting Officer(Principal                    Accounting Officer)          | March                    4, 2008 |
| John                    E. Warch                 |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ Michael                    E. Gagliardi | Director                                                                                                                        | March                    4, 2008 |
| Michael                    E. Gagliardi          |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ Stanley                    Kreitman     | Director                                                                                                                        | March                    4, 2008 |
| Stanley                    Kreitman              |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ Jeffrey                    F. Rogatz    | Director                                                                                                                        | March                    4, 2008 |
| Jeffrey                    F. Rogatz             |                                                                                                                            |
|                                             |                                                                                                                            |                             |
| /s/ Howard                    A. Silver     | Director                                                                                                                        | March                    4, 2008 |
| Howard                    A. Silver              |                                                                                                                            |

----