----

----

----

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

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

----

----

| 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)                                |

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

----

----

----

----

| PART      I   |                                                                                                                         |   | 1   |
|---------------|------------------------------------------------------------------------------------------------------------------------------|--------|-----|
| Item      1.  | Business                                                                                                                     |   | 1   |
| Item 1A. | Risk      Factors                                                                                                            |   | 14  |
| Item      1B. | Unresolved      Staff Comments                                                                                               |   | 28  |
| Item      2.  | Properties                                                                                                                   |   | 28  |
| 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                                                                                                 |   | 32  |
| Item      7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        |   | 34  |
| Item      7A. | Quantitative      and Qualitative Disclosures about Market Risk                                                              |   | 49  |
| Item      8.  | Financial      Statements and Supplementary Data                                                                             |   | 54  |
| Item      9.  | Changes      in and Disagreements With Accountants on Accounting and Financial      Disclosure                               |   | 98  |
| Item 9A. | Controls      and Procedures                                                                                                 |   | 98  |
| Item      9B. | Other      Information                                                                                                       |   | 98  |
| PART      III |                                                                                                                         |   | 99  |
| Item      10. | Directors,      Executive Officers and Corporate Governance                                                                  |   | 99  |
| Item      11. | Executive      Compensation                                                                                                  |   | 99  |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     |   | 99  |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                                          |   | 99  |
| Item      14. | Principal      Accounting Fees and Services                                                                                  |   | 99  |
| PART      IV  |                                                                                                                         |   | 100 |
| Item      15. | Exhibits      and Financial Statement Schedules                                                                              |   | 100 |
| PART      V   |                                                                                                                         |   | 104 |
| SIGNATURES    |                                                                                                                         | 104    |

----

| Item      1.  | Business. |
|--------------------|-----------|

|                                                             |   | Investment(1)       |      |   |       |   |
|------------------------------------------------------------------|--------|---------------------|-----------|--------|------------|--------|
|                                                             |   | (in      thousands) |      |   | Percentage |   |
| Owned      properties                                            |   | $                   | 1,656,914 |   |       |   | 78.6 | % |
| Debt      investments                                            |   |                |      |   |       |   |   |   |
| Loans                                                            |   |                |      |   |       |   |   |   |
| Long-term      mortgage loans                                    |   |                | 250,164   |   |       |   | 11.9 | % |
| Corporate      credit notes                                      |   |                | 30,095    |   |       |   | 1.4 | % |
| Mezzanine      and other investments                             |   |                | 6,804     |   |       |   | 0.3 | % |
| Commercial      mortgage-backed and other real estate securities |   |                | 161,842   |   |       |   | 7.7 | % |
| Other                                                            |   |                | 1,863     |   |       |   | 0.1 | % |
| Total                                                            |   | $                   | 2,107,683 |   |       |   | 100.0 | % |

----

|   | · | 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, 2008, 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, 2008, our      portfolio had the following credit  characteristics: |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Credit Rating (1)      (2)                    |   | Investment(in      thousands) |      |   | Percentage |   |
|----------------------------------------------------|--------|-------------------------------|-----------|--------|------------|--------|
| Investment      grade rating of A- or A3 and above |   | $                             | 935,760   |   |       |   | 44.3 | % |
| Investment      grade rating of below A- or A3     |   |                          | 707,147   |   |       |   | 33.6 | % |
| Implied      investment grade rating               |   |                          | 256,416   |   |       |   | 12.2 | % |
| Non-investment      grade rating                   |   |                          | 199,952   |   |       |   | 9.5 | % |
| Unrated      (3)                                   |   |                          | 7,383     |   |       |   | 0.4 | % |
|                                               |   | $                             | 2,106,658 |   |       |   | 100.00 | % |

| (1) | Reflects      the tenant’s or lease guarantor’s actual or implied 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 $268,156      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 primarytenant. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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, 2008, the      weighted average underlying tenant remaining lease term on our portfolio      was approximately 10 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 may also continue to acquire and promptly resell      assets through our taxable REIT subsidiary.  During 2009, we may      selectively sell assets in order to enable us to continue to reduce our      debt and strengthen our liquidityposition. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Flexible Investment      Approach.  We have the expertise and ability to invest at      all levels the capital structure of net lease and other single tenant      properties.  Owned properties comprise approximately 79% 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 and all portfolio      divestitures.  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.  As a result of market conditions, the focus of our      portfolio activity during 2008 was reducing our debt and strengthening our      balance sheet.  During 2008, we retired $64.2 million of      principal on our debt, including $43.6 million of borrowings to      Wachovia Bank.  We expect the focus of our portfolio activity      during 2009 to be continued repayment and/or repurchase of our      debt. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Experienced Senior Management      Team.  Our senior management team has worked together for      more than 14 years.  Over this period, we have built and      maintain today a strong credit philosophy and underwriting      discipline.  Since our initial public offering in March 2004, we      have purchased $1.7 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.  We have developed and continue to enhance      financing structures that have enabled us to efficiently finance a portion      of our owned properties through term loan and securitization      transactions.  These financing structures enable us to enhance      the returns on our portfolio without reducing credit quality in search of      yield. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 finance a portion of      our owned property investments.  We developed the specialized      lease enhancement mechanisms that are utilized in net lease lending      transactions. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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      10.6 million rentable square feet with 99.8%  occupancy; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | 63      properties in 26 states leased to 34 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      9.4%; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | · | weighted      average remaining lease term of approximately 8 years;  and |
|--------|--------|---------------------------------------------------------------------------|

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

----

| Industry                      |   | Number      of Tenants |   |   | Weighted AverageCredit Rating      (1) |   |   | Investment      (2)(in      thousands) |   |      | Percent      of Total |   |
|-------------------------------|--------|-----------------------------|--------|--------|--------------------------------------------------|--------|--------|----------------------------------------|--------|-----------|-----------------------|--------|
| Insurance                     |   |                        | 7      |   |                                             | A+     |   |                                   | $      | 343,175   |                  |   |   | 20.7 | % |
| Food      & Beverage      |   |                        | 4      |   |                                             | A+     |   |                                   |   | 264,255   |                  |   |   | 16.0 | % |
| Government                    |   |                        | 2      |   |                                             | AAA    |   |                                   |   | 233,904   |                  |   |   | 14.1 | % |
| Financial                     |   |                        | 3      |   |                                             | BBB-   |   |                                   |   | 144,346   |                  |   |   | 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 | % |
| Telecommunications            |   |                        | 2      |   |                                             | BB+    |   |                                   |   | 68,322    |                  |   |   | 4.1 | % |
| Engineering                   |   |                        | 1      |   |                                             | BBB+   |   |                                   |   | 56,747    |                  |   |   | 3.4 | % |
| Building      Materials       |   |                        | 1      |   |                                             | A+     |   |                                   |   | 52,874    |                  |   |   | 3.2 | % |
| Healthcare                    |   |                        | 3      |   |                                             | AA-    |   |                                   |   | 49,084    |                  |   |   | 3.0 | % |
| Communications                |   |                        | 2      |   |                                             | BBB+   |   |                                   |   | 47,465    |                  |   |   | 2.9 | % |
| Hotel                         |   |                        | 1      |   |                                             | BBB    |   |                                   |   | 46,250    |                  |   |   | 2.8 | % |
| Automotive                    |   |                        | 1      |   |                                             | A-     |   |                                   |   | 27,266    |                  |   |   | 1.6 | % |
| Retail      Drug              |   |                        | 2      |   |                                             | A-     |   |                                   |   | 21,720    |                  |   |   | 1.3 | % |
| Publishing                    |   |                        | 1      |   |                                             | BBB+   |   |                                   |   | 20,837    |                  |   |   | 1.3 | % |
| Total                         |   |                        | 34     |   |                                             | A      |   |                                   | $      | 1,655,887 |                  |   |   | 100.0 | % |

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

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

----

| State             |   | Number      ofProperties |   |   | Investment(in      thousands) |   |      | Percent      of Total |   |
|-------------------|--------|--------------------------|--------|--------|-------------------------------|--------|-----------|-----------------------|--------|
| Pennsylvania      |   |                     | 5      |   |                          | $      | 211,468   |                  |   |   | 12.8 | % |
| California        |   |                     | 7      |   |                          |   | 202,474   |                  |   |   | 12.2 | % |
| New      Jersey   |   |                     | 3      |   |                          |   | 131,123   |                  |   |   | 7.9 | % |
| Maryland          |   |                     | 4      |   |                          |   | 128,019   |                  |   |   | 7.7 | % |
| Texas             |   |                     | 5      |   |                          |   | 110,133   |                  |   |   | 6.6 | % |
| Illinois          |   |                     | 2      |   |                          |   | 107,624   |                  |   |   | 6.5 | % |
| Virginia          |   |                     | 3      |   |                          |   | 90,049    |                  |   |   | 5.4 | % |
| Colorado          |   |                     | 2      |   |                          |   | 69,796    |                  |   |   | 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    |                  |   |   | 3.1 | % |
| Washington        |   |                     | 1      |   |                          |   | 39,612    |                  |   |   | 2.4 | % |
| Alabama           |   |                     | 2      |   |                          |   | 39,221    |                  |   |   | 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    |                  |   |   | 1.6 | % |
| Other             |   |                     | 6      |   |                          |   | 109,140   |                  |   |   | 6.6 | % |
| Total             |   |                     | 63     |   |                          | $      | 1,656,914 |                  |   |   | 100.0 | % |

| Year      of LeaseExpiration |   | Number      of ExpiringLeases      (1) |   |   | Square      FeetSubject      toExpiring      Lease |   |      | Investment(in      thousands) |   |   | Percentof      Investment (2) |   |
|------------------------------|--------|---------------------------------------------|--------|--------|----------------------------------------------------|--------|-----------|-------------------------------|--------|--------|-------------------------------|--------|
| 2009                         |   |                                        | 7      | (3)    |                                               |   | 479,060   |                          |   | $      | 107,489                       |   |   |   | 6.5 | % |
| 2010                         |   |                                        | 7      | (4)    |                                               |   | 464,365   |                          |   |   | 66,883                        |   |   |   | 4.1 | % |
| 2011                         |   |                                        | 1      |   |                                               |   | 130,000   |                          |   |   | 37,685                        |   |   |   | 2.3 | % |
| 2012                         |   |                                        | 5      |   |                                               |   | 2,593,451 |                          |   |   | 211,297                       |   |   |   | 12.8 | % |
| 2013                         |   |                                        | 14     |   |                                               |   | 320,491   |                          |   |   | 63,612                        |   |   |   | 3.9 | % |
| 2014                         |   |                                        | 1      |   |                                               |   | 88,420    |                          |   |   | 14,101                        |   |   |   | 0.9 | % |
| 2015                         |   |                                        | 5      |   |                                               |   | 598,039   |                          |   |   | 108,341                       |   |   |   | 6.6 | % |
| Thereafter                   |   |                                        | 40     |   |                                               |   | 5,903,727 |                          |   |   | 1,039,233                     |   |   |   | 63.0 | % |

----

|                                          |   |                                                                            |   |                     |   |       |       |   |               |   |    |                   |   |    | (in      thousands)                |
|-----------------------------------------------|--------|---------------------------------------------------------------------------------|--------|--------------------------|--------|------------|------------|--------|--------------------|--------|---------|------------------------|--------|---------|-----------------------------------------|
| Tenant      or Guarantor                      |   | Location                                                                        |   | Property      Type       |   | SquareFeet |       |   | Purchase Date |   |    | LeaseMaturity      (1) |   |    | 2009      EstimatedAnnual      Rent (2) |   |   | PurchasePrice |   |   | Investment      (3) |   |
| Abbott      Laboratories                      |   | 6480      Busch Blvd, Columbus, OH                                              |   | Office                   |   |       | 111,776    |   |               |   | 11/2004 |                   |   |    | 10/2016                                 |   |   | $ | 912 |   |   | $ | 12,025 |   |   | $ | 12,065 |   |
| Abbott      Laboratories                      |   | 1850      Norman Drive North, Waukegan, IL                                      |   | Office                   |   |       | 131,341    |   |               |   | 8/2005  |                   |   |    | 8/2017                                  |   |   |   | 1,539 |   |   |   | 20,325 |   |   |   | 20,362 |   |
| Aetna      Life Insurance Company             |   | 1333      - 1385 East Shaw Avenue, Fresno, CA                                   |   | Office                   |   |       | 122,605    |   |               |   | 10/2006 |                   |   |    | 11/2016                                 |   |   |   | 1,725 |   |   |   | 24,255 |   |   |   | 25,688 |   |
| Allstate      Insurance Company               |   | 401      McCullough Drive, Charlotte, NC                                        |   | Office                   |   |       | 191,681    |   |               |   | 12/2005 |                   |   |    | 12/2015                                 |   |   |   | 2,013 |   |   |   | 27,172 |   |   |   | 27,236 |   |
| Allstate      Insurance Company               |   | 1819      Electric Road (aka State Hwy. 419), Roanoke, VA                       |   | Office                   |   |       | 165,808    |   |               |   | 12/2005 |                   |   |    | 12/2015                                 |   |   |   | 2,143 |   |   |   | 28,928 |   |   |   | 28,935 |   |
| AmeriCredit      Corp.                        |   | 4001      Embarcadero Drive, Arlington, TX                                      |   | Office                   |   |       | 246,060    |   |               |   | 12/2006 |                   |   |    | 8/2017                                  |   |   |   | 3,085 |   |   |   | 43,000 |   |   |   | 43,374 |   |
| AMVESCAP      PLC                             |   | 4340,      4346 & 4350 South Monaco St., Denver, CO                         |   | Office                   |   |       | 263,770    |   |               |   | 3/2006  |                   |   |    | 10/2016                                 |   |   |   | 5,108 |   |   |   | 69,300 |   |   |   | 69,796 |   |
| Aon      Corporation (4)                      |   | 1000      Milwaukee Ave, Glenview, IL                                           |   | Office                   |   |       | 412,409    |   |               |   | 8/2004  |                   |   |    | 4/2017                                  |   |   |   | 6,916 |   |   |   | 85,750 |   |   |   | 87,262 |   |
| 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 Plc                    |   |  945      Route 10, Whippany, NJ                                           |   | Office                   |   |       | 149,475    |   |               |   | 1/2005  |                   |   |    | 3/2021                                  |   |   |   | 3,400 |   |   |   | 48,000 |   |   |   | 50,231 |   |
| Capital      One Financial Corporation        |   | 3905      N. Dallas Parkway, Plano, TX                                          |   | Office                   |   |       | 159,000    |   |               |   | 6/2005  |                   |   |    | 2/2015                                  |   |   |   | 2,128 |   |   |   | 27,900 |   |   |   | 31,175 |   |
| Choice      Hotels International, Inc. (5)    |   | 10720,      10750 & 10770 Columbia Pike, Silver Spring, MD                  |   | Office                   |   |       | 223,912    |   |               |   | 11/2004 |                   |   |    | 5/2013                                  |   |   |   | 5,227 |   |   |   | 43,500 |   |   |   | 46,250 |   |
| Cott      Corporation                         |   | 1090      and 1091 Spring Street, Reading, PA                                   |   | Mfg/Dist                 |   |       | 120,000    |   |               |   | 7/2006  |                   |   |    | 6/2017                                  |   |   |   | 362 |   |   |   | 5,350 |   |   |   | 5,531 |   |
| 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                                  |   |   |   | 424 |   |   |   | 4,477 |   |   |   | 5,879 |   |
| CVS      Corporation                          |   | 100      Mazzeo Drive, Randolph, MA                                             |   | Retail                   |   |       | 88,420     |   |               |   | 9/2004  |                   |   |    | 1/2014                                  |   |   |   | 771 |   |   |   | 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                                  |   |   |   | 2,921 |   |   |   | 41,812 |   |   |   | 41,879 |   |
| Farmers      New World Life Insurance Company |   | 3003      77th Avenue Southeast, Mercer Island, WA                              |   | Office                   |   |       | 155,200    |   |               |   | 12/2005 |                   |   |    | 12/2020                                 |   |   |   | 2,525 |   |   |   | 39,550 |   |   |   | 39,612 |   |
| ITT      Industries, Inc.                     |   | 12975      Worldgate Drive, Herndon, VA                                         |   | Office                   |   |       | 167,285    |   |               |   | 5/2005  |                   |   |    | 3/2019                                  |   |   |   | 5,131 |   |   |   | 46,081 |   |   |   | 56,747 |   |
| Johnson      Controls, Inc.                   |   | 6750      Bryan Dairy Road, Largo, FL                                           |   | Warehouse                |   |       | 307,275    |   |               |   | 12/2006 |                   |   |    | 8/2016                                  |   |   |   | 1,975 |   |   |   | 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                                  |   |   |   | 3,426 |   |   |   | 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                                  |   |   |   | 1,409 |   |   |   | 18,100 |   |   |   | 18,300 |   |
| Pearson      Plc.                             |   | 3833      Greenway and 2201 Noria Road, Lawrence, KS                            |   | Office                   |   |       | 194,665    |   |               |   | 4/2006  |                   |   |    | 4/2021                                  |   |   |   | 1,420 |   |   |   | 20,750 |   |   |   | 20,837 |   |
| Qwest      Corporation (10)                   |   | 1299      Farnam Street, Omaha, NE                                              |   | Office                   |   |       | 291,820    |   |               |   | 4/2007  |                   |   |    | 6/2010                                  |   |   |   | 4,608 |   |   |   | 30,097 |   |   |   | 36,969 |   |
| Qwest      Corporation (11)                   |   | 9394      West Dodge Road, Omaha, NE                                            |   | Office                   |   |       | 127,825    |   |               |   | 4/2007  |                   |   |    | 6/2010                                  |   |   |   | 340 |   |   |   | 10,785 |   |   |   | 15,102 |   |
| T-Mobile      USA, Inc.                       |   | 695      Grassmere Park, Nashville, TN                                          |   | Office                   |   |       | 69,287     |   |               |   | 11/2006 |                   |   |    | 1/2017                                  |   |   |   | 1,351 |   |   |   | 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                                  |   |   |   | 4,909 |   |   |   | 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, Milwaukee,      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                                  |   |   |   | 6,174 |   |   |   | 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 |   |   |   | 13,369 |   |   |   | 13,422 |   |
| United      States Government (EPA)           |   | 300      Minnesota Avenue, Kansas City, KS                                      |   | GSA      (US Government) |   |       | 71,979     |   |               |   | 8/2005  |                   |   |    | 3/2023                                  |   |   |   | 2,652 |   |   |   | 29,250 |   |   |   | 33,306 |   |
| United      States Government (FBI)           |   | 200      McCarty Avenue, Albany, NY                                             |   | GSA      (US Government) |   |       | 98,184     |   |               |   | 10/2006 |                   |   |    | 9/2018                                  |   |   |   | 1,312 |   |   |   | 16,350 |   |   |   | 17,082 |   |
| United      States Government (FBI)           |   | 1100      18th Street, North, Birmingham, AL                                    |   | GSA      (US Government) |   |       | 96,278     |   |               |   | 8/2005  |                   |   |    | 4/2020                                  |   |   |   | 2,715 |   |   |   | 21,850 |   |   |   | 25,799 |   |
| United      States Government (NIH)(13)       |   | 6116      Executive Bvd, N. Bethesda, MD                                        |   | GSA      (US Government) |   |       | 207,055    |   |               |   | 9/2005  |                   |   | Various |                                    |   |   | 5,751 |   |   |   | 81,500 |   |   |   | 81,769 |   |
| United      States Government (OSHA)          |   | 8660      South Sandy Parkway, Sandy, UT                                        |   | GSA      (US Government) |   |       | 75,000     |   |               |   | 8/2005  |                   |   |    | 1/2024                                  |   |   |   | 1,946 |   |   |   | 23,750 |   |   |   | 24,969 |   |
| United      States Government (SSA)           |   | 1029      Camino La Costa, Austin, TX                                           |   | GSA      (US Government) |   |       | 23,311     |   |               |   | 8/2005  |                   |   |    | 2/2016                                  |   |   |   | 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 |   |   |   | 13,218 |   |   |   | 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                                  |   |   |   | 354 |   |   |   | 4,167 |   |   |   | 4,370 |   |
|                                          |   |                                                                            |   |                     |   |       |       |   |               |   |    |                   |   |    |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                         |   |                                                                            |   |                     |   |       | 10,597,384 |   |               |   |    |                   |   |    |                                    |   |   | $ | 130,116 |   |   | $ | 1,540,852 |   |   | $ | 1,656,914 |   |

| (1) | Includes      lease maturity for our primarytenant. |
|-----|-----------------------------------------------------|

| (2) | Reflects      scheduled base rent due for 2009 under our lease with the tenant or      tenants.  Does not reflect straight-line rent adjustments      required under Statement of Financial Accounting Standards (“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, 2008, approximately 2% of the property was leased to one      other tenant. |
|-----|-----------------------------------------------------------------------------------------------------|

| (5) | As      of December 31, 2008, 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, 2008, 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, 2008, approximately 11% of the property was leased to five      other tenants. |
|------|--------------------------------------------------------------------------------------------------------|

----

|   | · | weighted      average remaining lease term on the underlying leases of approximately 18      years; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | 88%      investment grade or implied investment grade underlying      tenants; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | loan      investments on 65 properties in 25 states with 23 different underlying      tenant obligors; and |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | weighted      average underlying tenant credit rating ofBBB+. |
|--------|--------|---------------------------------------------------------------|

----

|                                         |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   | (in      thousands) |    |   |             |   |
|----------------------------------------------|--------|-------------------------------|--------|---------------------|--------|------------------|---------|--------|--------|--------|--------|-----------------|--------|--------|--------------|--------|--------|---------------------|---------|--------|------------------|--------|
|                                         |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   | Original            |    |   |             |   |   |   |   |   |   |   |
| Tenant or Guarantor                |   | Location                      |   | Property Type  |   | Square Feet |    |   | Coupon |   |   | LeaseExpiration |   |   | LoanMaturity |   |   | PrincipalBalance    |    |   | PrincipalBalance |   |   | Carry      Value |   |   | Loan      to RealtyValue      (1) |   |
| Long-Term      Mortgage Loans                |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   |                |    |   |             |   |   |   |   |   |   |   |
| Autozone,      Inc.                          |   | Douglas      and Valdosta, GA |   | Retail              |   |             | 13,383  |   |   |   | 6.50   | %               |   |   | 4/2024       |   |   |                | 11/2022 |   |             | $      | 2,108 |   |   | $ | 1,821 |   |   | $ | 1,821 |   |   |   | 67 | % |
| Bank      of America, N.A.                   |   | Glenview,      IL             |   | Bank      Branch    |   |             | 4,500   |   |   |   | 6.34   | %               |   |   | 12/2028      |   |   |                | 12/2028 |   |             |   | 4,317 |   |   |   | 4,298 |   |   |   | 4,298 |   |   |   | 76 | % |
| Bank      of America, N.A.                   |   | Mt.      Airy, MD             |   | Bank      Branch    |   |             | 4,500   |   |   |   | 6.42   | %               |   |   | 12/2026      |   |   |                | 12/2026 |   |             |   | 3,469 |   |   |   | 3,366 |   |   |   | 3,366 |   |   |   | 76 | % |
| Best      Buy Co., Inc.                      |   | Chicago,      IL              |   | Retail              |   |             | 45,720  |   |   |   | 6.40   | %               |   |   | 3/2025       |   |   |                | 3/2025  |   |             |   | 18,522 |   |   |   | 17,409 |   |   |   | 17,409 |   |   |   | 90 | % |
| City      of Jasper, Texas                   |   | Jasper,      TX               |   | Office              |   |             | 12,750  |   |   |   | 7.00   | %               |   |   | 12/2024      |   |   |                | 11/2024 |   |             |   | 1,736 |   |   |   | 1,595 |   |   |   | 1,553 |   |   |   | 80 | % |
| CVS      Corporation                         |   | Asheville,      NC            |   | Retail      Drug    |   |             | 10,880  |   |   |   | 6.53   | %               |   |   | 1/2026       |   |   |                | 1/2026  |   |             |   | 2,360 |   |   |   | 2,160 |   |   |   | 2,215 |   |   |   | 85 | % |
| CVS      Corporation                         |   | Athol,      MA                |   | Retail      Drug    |   |             | 13,013  |   |   |   | 6.46   | %               |   |   | 1/2025       |   |   |                | 1/2025  |   |             |   | 1,502 |   |   |   | 1,336 |   |   |   | 1,336 |   |   |   | 70 | % |
| CVS      Corporation                         |   | Bangor,      PA               |   | Retail      Drug    |   |             | 13,013  |   |   |   | 6.28   | %               |   |   | 1/2026       |   |   |                | 1/2026  |   |             |   | 2,521 |   |   |   | 2,218 |   |   |   | 2,183 |   |   |   | 79 | % |
| CVS      Corporation                         |   | Bluefield,      WV            |   | Retail      Drug    |   |             | 10,125  |   |   |   | 8.00   | %               |   |   | 1/2021       |   |   |                | 1/2021  |   |             |   | 1,439 |   |   |   | 1,194 |   |   |   | 1,290 |   |   |   | 70 | % |
| CVS      Corporation                         |   | Evansville,      IN           |   | Retail      Drug    |   |             | 12,900  |   |   |   | 6.22   | %               |   |   | 1/2033       |   |   |                | 1/2033  |   |             |   | 3,351 |   |   |   | 3,273 |   |   |   | 3,273 |   |   |   | 74 | % |
| CVS      Corporation                         |   | Greensboro,      GA           |   | Retail      Drug    |   |             | 11,970  |   |   |   | 6.52   | %               |   |   | 1/2030       |   |   |                | 1/2030  |   |             |   | 1,395 |   |   |   | 1,302 |   |   |   | 1,302 |   |   |   | 77 | % |
| CVS      Corporation                         |   | Oak      Ridge, NC            |   | Retail      Drug    |   |             | 10,880  |   |   |   | 6.99   | %               |   |   | 1/2025       |   |   |                | 8/2024  |   |             |   | 3,243 |   |   |   | 2,952 |   |   |   | 2,952 |   |   |   | 76 | % |
| CVS      Corporation                         |   | Shelby      Twp., MI          |   | Retail      Drug    |   |             | 11,970  |   |   |   | 5.98   | %               |   |   | 1/2031       |   |   |                | 1/2031  |   |             |   | 2,540 |   |   |   | 2,465 |   |   |   | 2,465 |   |   |   | 86 | % |
| CVS      Corporation                         |   | Southington,      CT          |   | Retail      Drug    |   |             | 10,125  |   |   |   | 8.26   | %               |   |   | 1/2020       |   |   |                | 1/2020  |   |             |   | 1,768 |   |   |   | 1,633 |   |   |   | 1,799 |   |   |   | 80 | % |
| CVS      Corporation                         |   | Stow,      OH                 |   | Retail      Drug    |   |             | 10,125  |   |   |   | 8.26   | %               |   |   | 1/2020       |   |   |                | 1/2020  |   |             |   | 2,407 |   |   |   | 2,188 |   |   |   | 2,409 |   |   |   | 77 | % |
| CVS      Corporation                         |   | Sunbury,      PA              |   | Retail      Drug    |   |             | 10,125  |   |   |   | 7.50   | %               |   |   | 1/2021       |   |   |                | 1/2021  |   |             |   | 1,829 |   |   |   | 1,483 |   |   |   | 1,451 |   |   |   | 71 | % |
| CVS      Corporation                         |   | Washington,      DC           |   | Retail      Drug    |   |             | 7,920   |   |   |   | 8.10   | %               |   |   | 1/2023       |   |   |                | 1/2023  |   |             |   | 2,781 |   |   |   | 2,276 |   |   |   | 2,415 |   |   |   | 69 | % |
| CVS      Corporation                         |   | Willimantic,      CT          |   | Retail      Drug    |   |             | 10,125  |   |   |   | 8.26   | %               |   |   | 1/2023       |   |   |                | 1/2023  |   |             |   | 2,028 |   |   |   | 1,889 |   |   |   | 2,095 |   |   |   | 77 | % |
| Harris      Bankcorp, Inc.                   |   | Chicago,      IL              |   | Bank      Branch    |   |             | 4,750   |   |   |   | 6.81   | %               |   |   | 8/2025       |   |   |                | 8/2025  |   |             |   | 4,467 |   |   |   | 4,181 |   |   |   | 4,181 |   |   |   | 69 | % |
| Home      Depot USA, Inc.                    |   | Chelsea,      MA              |   | Retail              |   |             | 117,034 |   |   |   | 5.36   | %               |   |   | 1/2036       |   |   |                | 1/2031  |   |             |   | 8,501 |   |   |   | 8,112 |   |   |   | 8,112 |   |   |   | 88 | % |
| Home      Depot USA, Inc.                    |   | Tullytown,      PA            |   | Retail              |   |             | 116,016 |   |   |   | 6.62   | %               |   |   | 1/2033       |   |   |                | 1/2033  |   |             |   | 8,447 |   |   |   | 8,367 |   |   |   | 8,367 |   |   |   | 97 | % |
| Kohls      Corporation                       |   | Chicago,      IL              |   | Retail              |   |             | 133,000 |   |   |   | 6.69   | %               |   |   | 5/2030       |   |   |                | 5/2030  |   |             |   | 48,270 |   |   |   | 46,454 |   |   |   | 46,454 |   |   |   | 90 | % |
| Koninklijke      Ahold, N.V.                 |   | Bensalem,      PA             |   | Retail              |   |             | 67,000  |   |   |   | 7.24   | %               |   |   | 5/2020       |   |   |                | 5/2020  |   |             |   | 3,153 |   |   |   | 2,798 |   |   |   | 2,846 |   |   |   | 80 | % |
| Koninklijke      Ahold, N.V.                 |   | Danvers,      MA              |   | Retail              |   |             | 65,811  |   |   |   | 7.90   | %               |   |   | 5/2026       |   |   |                | 5/2026  |   |             |   | 22,857 |   |   |   | 22,541 |   |   |   | 24,062 |   |   |   | 74 | % |
| Koninklijke      Ahold, N.V.                 |   | North      Kingstown, RI      |   | Retail              |   |             | 125,772 |   |   |   | 7.50   | %               |   |   | 11/2025      |   |   |                | 11/2025 |   |             |   | 6,794 |   |   |   | 6,331 |   |   |   | 6,313 |   |   |   | 70 | % |
| Koninklijke      Ahold, N.V.                 |   | Tewksbury,      MA            |   | Retail              |   |             | 58,450  |   |   |   | 7.50   | %               |   |   | 1/2027       |   |   |                | 1/2027  |   |             |   | 6,625 |   |   |   | 6,226 |   |   |   | 6,221 |   |   |   | 70 | % |
| Koninklijke      Ahold, N.V.                 |   | Upper      Darby Township, PA |   | Retail              |   |             | 54,800  |   |   |   | 7.29   | %               |   |   | 4/2024       |   |   |                | 4/2024  |   |             |   | 6,867 |   |   |   | 6,160 |   |   |   | 5,910 |   |   |   | 84 | % |
| Lowes      Companies, Inc.                   |   | Framingham,      MA           |   | Retail              |   |             | 156,543 |   |   |   | 5.87   | %               |   |   | 10/2031      |   |   |                | 9/2031  |   |             |   | 27,864 |   |   |   | 27,370 |   |   |   | 27,370 |   |   |   | 83 | % |
| Lowes      Companies, Inc.                   |   | Matamoras,      PA            |   | Retail              |   |             | 162,070 |   |   |   | 6.61   | %               |   |   | 5/2030       |   |   |                | 5/2030  |   |             |   | 7,208 |   |   |   | 7,032 |   |   |   | 7,032 |   |   |   | 94 | % |
| National      City Bank                      |   | Chicago,      IL              |   | Bank      Branch    |   |             | 5,274   |   |   |   | 5.89   | %               |   |   | 12/2024      |   |   |                | 12/2024 |   |             |   | 3,114 |   |   |   | 2,873 |   |   |   | 2,942 |   |   |   | 72 | % |
| Neiman      Marcus Group, Inc.               |   | Las      Vegas, NV            |   | Retail              |   |             | 167,000 |   |   |   | 6.06   | %               |   |   | 11/2022      |   |   |                | 11/2021 |   |             |   | 8,267 |   |   |   | 6,341 |   |   |   | 6,840 |   |   |   | 67 | % |
| United      States Postal Service            |   | Scammon      Bay, AK          |   | Post      Office    |   |             | 2,080   |   |   |   | 7.05   | %               |   |   | 10/2021      |   |   |                | 10/2021 |   |             |   | 1,015 |   |   |   | 846 |   |   |   | 861 |   |   |   | 65 | % |
| University      of Connecticut Health Center |   | Farmington,      CT           |   | Medical      Office |   |             | 100,000 |   |   |   | 6.34   | %               |   |   | 11/2029      |   |   |                | 11/2024 |   |             |   | 22,800 |   |   |   | 20,157 |   |   |   | 20,834 |   |   |   | 81 | % |
| Walgreen      Co.                            |   | Dallas,      TX               |   | Retail      Drug    |   |             | 14,550  |   |   |   | 6.46   | %               |   |   | 12/2029      |   |   |                | 12/2029 |   |             |   | 3,534 |   |   |   | 3,282 |   |   |   | 3,282 |   |   |   | 76 | % |
| Walgreen      Co.                            |   | Montebello,      CA           |   | Retail      Drug    |   |             | 14,414  |   |   |   | 6.10   | %               |   |   | 3/2030       |   |   |                | 2/2030  |   |             |   | 4,680 |   |   |   | 4,360 |   |   |   | 4,360 |   |   |   | 64 | % |
| Walgreen      Co.                            |   | Nacogdoches,      TX          |   | Retail      Drug    |   |             | 14,820  |   |   |   | 6.80   | %               |   |   | 9/2030       |   |   |                | 9/2030  |   |             |   | 3,649 |   |   |   | 3,499 |   |   |   | 3,499 |   |   |   | 69 | % |
| Walgreen      Co.                            |   | Rosemead,      CA             |   | Retail      Drug    |   |             | 12,004  |   |   |   | 6.26   | %               |   |   | 12/2029      |   |   |                | 12/2029 |   |             |   | 5,333 |   |   |   | 5,046 |   |   |   | 5,046 |   |   |   | 71 | % |
|                                         |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   |                |    |   |             |   | 262,761 |   |   |   | 246,834 |   |   |   | 250,164 |   |   |   |   |   |
|                                         |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   |                |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate      Credit Notes                  |   |                          |   |                |   |             |    |   |   |   |   |            |   |   |         |   |   |                |    |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Albertsons,      LLC                         |   | Los      Angeles, CA          |   | Retail      Drug    |   |             | 16,475  |   |   |   | 6.50   | %               |   |   | 7/2028       |   |   |                | 9/2013  |   |             |   | 437 |   |   |   | 246 |   |   |   | 230 |   |   |   | 78 | % |
| Albertsons,      LLC                         |   | Norwalk,      CA              |   | Retail      Drug    |   |             | 14,696  |   |   |   | 6.33   | %               |   |   | 11/2028      |   |   |                | 12/2013 |   |             |   | 470 |   |   |   | 273 |   |   |   | 270 |   |   |   | 70 | % |
| Best      Buy Co., Inc.                      |   | Olathe,      KS               |   | Retail              |   |             | 48,744  |   |   |   | 5.40   | %               |   |   | 1/2018       |   |   |                | 6/2013  |   |             |   | 1,779 |   |   |   | 987 |   |   |   | 959 |   |   |   | 73 | % |
| Best      Buy Co., Inc.                      |   | Wichita      Falls, TX        |   | Retail              |   |             | 30,038  |   |   |   | 6.15   | %               |   |   | 1/2017       |   |   |                | 11/2012 |   |             |   | 743 |   |   |   | 358 |   |   |   | 346 |   |   |   | 69 | % |
| CVS      Corporation                         |   | Clemmons,      NC             |   | Retail      Drug    |   |             | 10,880  |   |   |   | 5.54   | %               |   |   | 1/2022       |   |   |                | 1/2015  |   |             |   | 285 |   |   |   | 192 |   |   |   | 186 |   |   |   | 59 | % |
| CVS      Corporation                         |   | Commerce,      MI             |   | Retail      Drug    |   |             | 10,880  |   |   |   | 5.85   | %               |   |   | 4/2025       |   |   |                | 5/2013  |   |             |   | 501 |   |   |   | 283 |   |   |   | 276 |   |   |   | 79 | % |
| CVS      Corporation                         |   | Garwood,      NJ              |   | Retail      Drug    |   |             | 11,970  |   |   |   | 6.12   | %               |   |   | 6/2025       |   |   |                | 8/2013  |   |             |   | 879 |   |   |   | 478 |   |   |   | 469 |   |   |   | 77 | % |
| CVS      Corporation                         |   | Kennett      Square, PA       |   | Retail      Drug    |   |             | 12,150  |   |   |   | 6.40   | %               |   |   | 1/2025       |   |   |                | 10/2012 |   |             |   | 857 |   |   |   | 395 |   |   |   | 387 |   |   |   | 79 | % |
| CVS      Corporation                         |   | Knox,      IN                 |   | Retail      Drug    |   |             | 10,125  |   |   |   | 7.60   | %               |   |   | 1/2024       |   |   |                | 12/2011 |   |             |   | 322 |   |   |   | 124 |   |   |   | 124 |   |   |   | 65 | % |
| CVS      Corporation                         |   | Rockingham,      NC           |   | Retail      Drug    |   |             | 10,125  |   |   |   | 6.12   | %               |   |   | 1/2025       |   |   |                | 10/2013 |   |             |   | 435 |   |   |   | 244 |   |   |   | 240 |   |   |   | 71 | % |
| CVS      Corporation                         |   | Rutherford      College, NC   |   | Retail      Drug    |   |             | 10,125  |   |   |   | 6.12   | %               |   |   | 1/2025       |   |   |                | 10/2013 |   |             |   | 346 |   |   |   | 214 |   |   |   | 211 |   |   |   | 73 | % |
| Federal      Express Corporation             |   | Bellingham,      WA           |   | Warehouse           |   |             | 30,313  |   |   |   | 5.78   | %               |   |   | 10/2018      |   |   |                | 3/2015  |   |             |   | 362 |   |   |   | 260 |   |   |   | 256 |   |   |   | 67 | % |
| FedEx      Ground Package System, Inc.       |   | McCook,      IL               |   | Warehouse           |   |             | 159,699 |   |   |   | 5.89   | %               |   |   | 1/2019       |   |   |                | 2/2015  |   |             |   | 2,737 |   |   |   | 1,877 |   |   |   | 1,861 |   |   |   | 78 | % |

| FedEx      Ground Package System, Inc.     |   | Reno,      NV           |   | Warehouse         |   |   | 106,396 |   |   |   | 5.90   | %      |   |   | 9/2018  |   |   |   | 10/2014 |   |   |   | 1,374   |   |   |   | 901     |   |   |   | 894     |   |   |   | 73     | %      |
|--------------------------------------------|--------|-------------------------|--------|-------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|
| Hercules      Incorporated                 |   | Wilmington,      DE     |   | Office            |   |   | 518,409 |   |   |   | 9.32   | %      |   |   | 5/2013  |   |   |   | 5/2013  |   |   |   | 20,000  |   |   |   | 19,835  |   |   |   | 19,835  |   |   |   | 80     | %      |
| Lowes      Companies, Inc.                 |   | N.      Windham, ME     |   | Retail            |   |   | 138,134 |   |   |   | 5.28   | %      |   |   | 1/2026  |   |   |   | 9/2015  |   |   |   | 1,140   |   |   |   | 868     |   |   |   | 854     |   |   |   | 81     | %      |
| PerkinElmer,      Inc.                     |   | Beltsville,      MD     |   | Office/Industrial |   |   | 65,862  |   |   |   | 7.35   | %      |   |   | 11/2021 |   |   |   | 12/2011 |   |   |   | 707     |   |   |   | 270     |   |   |   | 268     |   |   |   | 73     | %      |
| PerkinElmer,      Inc.                     |   | Daytona      Beach, FL  |   | Office/Industrial |   |   | 34,196  |   |   |   | 7.35   | %      |   |   | 11/2021 |   |   |   | 12/2011 |   |   |   | 321     |   |   |   | 122     |   |   |   | 122     |   |   |   | 70     | %      |
| PerkinElmer,      Inc.                     |   | Phelps,      NY         |   | Office/Industrial |   |   | 32,700  |   |   |   | 7.35   | %      |   |   | 11/2021 |   |   |   | 12/2011 |   |   |   | 299     |   |   |   | 114     |   |   |   | 113     |   |   |   | 75     | %      |
| PerkinElmer,      Inc.                     |   | Warwick,      RI        |   | Industrial        |   |   | 95,720  |   |   |   | 7.68   | %      |   |   | 12/2021 |   |   |   | 1/2012  |   |   |   | 939     |   |   |   | 370     |   |   |   | 365     |   |   |   | 74     | %      |
| Staples,      Inc.                         |   | Odessa,      TX         |   | Retail            |   |   | 23,942  |   |   |   | 6.41   | %      |   |   | 6/2015  |   |   |   | 9/2012  |   |   |   | 408     |   |   |   | 199     |   |   |   | 192     |   |   |   | 69     | %      |
| Walgreen      Co.                          |   | Delray      Beach, FL   |   | Retail      Drug  |   |   | 15,120  |   |   |   | 6.20   | %      |   |   | 1/2021  |   |   |   | 1/2013  |   |   |   | 595     |   |   |   | 289     |   |   |   | 288     |   |   |   | 69     | %      |
| Walgreen      Co.                          |   | Jefferson      City, TN |   | Retail      Drug  |   |   | 14,266  |   |   |   | 5.49   | %      |   |   | 3/2030  |   |   |   | 5/2015  |   |   |   | 786     |   |   |   | 553     |   |   |   | 553     |   |   |   | 85     | %      |
| Walgreen      Co.                          |   | Riverside,      CA      |   | Retail      Drug  |   |   | 12,804  |   |   |   | 6.10   | %      |   |   | 10/2028 |   |   |   | 12/2013 |   |   |   | 571     |   |   |   | 329     |   |   |   | 324     |   |   |   | 71     | %      |
| Walgreen      Co.                          |   | Waterford,      MI      |   | Retail      Drug  |   |   | 14,490  |   |   |   | 5.50   | %      |   |   | 1/2023  |   |   |   | 6/2013  |   |   |   | 953     |   |   |   | 493     |   |   |   | 472     |   |   |   | 75     | %      |
|                                       |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   | 38,246  |   |   |   | 30,274  |   |   |   | 30,095  |   |   |   |   |   |
|                                       |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Mezzanine      and Other Investments       |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Eden      Hylan Seaview LLC                |   | Staten      Island, NY  |   | Retail      Drug  |   |   | N/A     |   |   |   | 10.00  | %      |   |   | N/A     |   |   |   | 1/2009  |   |   |   | 650     |   |   |   | 650     |   |   |   | 650     |   |   |   | N/A    |   |
| West      End Mortgage Finance Fund I L.P. |   | Various                 |   | Other             |   |   | N/A     |   |   |   | 10.00  | %      |   |   | N/A     |   |   |   | 1/2009  |   |   |   | 7,154   |   |   |   | 6,154   |   |   |   | 6,154   |   |   |   | N/A    |   |
|                                       |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   | 7,804   |   |   |   | 6,804   |   |   |   | 6,804   |   |   |   |   |   |
|                                       |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Total                                      |   |                    |   |              |   |   |    |   |   |   |   |   |   |   |    |   |   |   |    |   |   | $      | 308,811 |   |   | $      | 283,912 |   |   | $      | 287,063 |   |   |   |   |   |

|   | (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, 2008 to the appraised value of      the real estate that secures the loan at the time the loan was      made.  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. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                         |   |           |   | (in thousands)       |    |   |             |   |    |
|--------------------------------------------------------------|--------|----------------|--------|----------------------|---------|--------|------------------|--------|---------|
| Security      Description                                    |   | CUSIP      No. |   | Face      Amount (1) |    |   | Carry      Value |   |    | Coupon |   | Maturity Date |
| Investments      in Commercial Mortgage Loan Securitizations |   |           |   |                 |    |   |             |   |    |   |
| BACM      2006-4, Class H                                    |   | 05950WAT5      |   | $                    | 8,000   |   |             | $      | 6,757   |   |   |   | 6.01 | % | Aug      2016 |
| BSCMS      1999 CLF1, Class E                                |   | 07383FCC0      |   |                 | 3,326   |   |             |   | 469     |   |   |   | 7.07 | % | Mar      2027 |
| BSCMS      1999 CLF1, Class F                                |   | 07383FCD8      |   |                 | 251     |   |             |   | – |   |   |   | 7.06 | % | Sep      2025 |
| CALFS      1997-CTL1, Class D                                |   | 140281AF3      |   |                 | 6,000   |   |             |   | 5,124   |   |   |   | 6.16 | % | Feb      2016 |
| CMLBC      2001-CMLB-1, Class E                              |   | 201736AJ4      |   |                 | 9,526   |   |             |   | 9,663   |   |   |   | 7.87 | % | Jul      2022 |
| CMLBC      2001-CMLB-1, Class G                              |   | 201736AL9      |   |                 | 9,526   |   |             |   | 4,746   |   |   |   | 7.87 | % | Feb      2023 |
| CMLBC      2001-CMLB-1, Class H                              |   | 201736AM7      |   |                 | 11,907  |   |             |   | 1,522   |   |   |   | 6.25 | % | Mar      2024 |
| CMLBC      2001-CMLB-1, Class J                              |   | 201736AN5      |   |                 | 6,383   |   |             |   | 786     |   |   |   | 6.25 | % | Oct      2025 |
| NLFC      1999-LTL-1, Class E                                |   | 63859CCL5      |   |                 | 11,081  |   |             |   | 6,081   |   |   |   | 5.00 | % | Jan      2022 |
| NLFC      1999-LTL-1, Class X (IO)                           |   | 63859CCG6      |   |                 | 5,662   |   |             |   | 3,525   |   |   |   | 0.51 | % | Jan      2024 |
| WBCMT      2004-C15 180D                                     |   | 929766YG2      |   |                 | 15,000  |   |             |   | 14,842  |   |   |   | 5.58 | % | Nov      2009 |
| WBCMT      2004-C15 180E                                     |   | 929766YH0      |   |                 | 8,000   |   |             |   | 6,214   |   |   |   | 5.58 | % | Nov      2009 |
| WBCMT      2006-C27, Class C                                 |   | 92977QAK4      |   |                 | 11,000  |   |             |   | 10,498  |   |   |   | 5.89 | % | Aug      2016 |
| BACMS      2002-2, Class V-1 (7-Eleven, Inc.)                |   | 05947UJE9      |   |                 | 508     |   |             |   | 388     |   |   |   | 8.72 | % | Sep      2019 |
| BACMS      2002-2, Class V-2 (Sterling Jewelers)             |   | 05947UJF6      |   |                 | 776     |   |             |   | 580     |   |   |   | 8.68 | % | Jan      2021 |
|                                                         |   |           |   |                 | 106,946 |   |             |   | 71,195  |   |   |   |   |   |   |
|                                                         |   |           |   |                 |    |   |             |   |    |   |   |   |   |   |   |
| Investments      in Certificated Loan Transactions           |   |           |   |                 |    |   |             |   |    |   |   |   |   |
| CVS      Corporation                                         |   | 126650BB5      |   |                 | 18,604  |   |             |   | 17,702  |   |   |   | 5.88 | % | Jan      2028 |
| Koninklijke      Ahold, N.V. 7.82% Jan 2020                  |   | 008686AA5      |   |                 | 8,585   |   |             |   | 9,063   |   |   |   | 7.82 | % | Jan      2020 |
| Lucent      6.70% due 9/1/2020                               |   | 72817#AA6      |   |                 | 36,616  |   |             |   | 35,729  |   |   |   | 6.70 | % | Sep      2020 |
| Yahoo,      Inc.                                             |   | 984332AC0      |   |                 | 31,631  |   |             |   | 28,153  |   |   |   | 6.65 | % | Aug      2026 |
|                                                         |   |           |   |                 | 95,436  |   |             |   | 90,647  |   |   |   |   |   |   |
|                                                         |   |           |   |                 |    |   |             |   |    |   |   |   |   |   |   |
| Total                                                        |   |           |   | $                    | 202,382 |   |             | $      | 161,842 |   |   |   |   |   |   |

----

|   | · | leverage      of approximately 79.1%, which includes secured and unsecured      debt; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | $972.3      million of non-recourse first mortgage debt at a weighted average coupon      of 5.61% and a weighted average effective financing rate of      5.63%; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $268.3      million of non-recourse CDO debt at a weighted average effective financing      rate of approximately 5.68%; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | $123.7      million of non-recourse other term debt at a coupon of 5.81% and an      effective financing rate of 6.02%;and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | $189.3      million of recourse debt to Wachovia Bank under the credit facility      described above at an effective financing rate of  3.48%. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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 theasset. |
|--------|--------|---------------------------------------------------------------|

----

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

|   | · | monitoring      lease expirations and tenant spacerequirements; |
|--------|--------|-----------------------------------------------------------------|

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

|   | · | performing      physical inspections of ourproperties; |
|--------|--------|--------------------------------------------------------|

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

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

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

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------|

----

----

|   | · | Wachovia      Bank and its affiliates provide us with debt financing through a credit      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 CDO      transaction and each of our follow-on public equity    offerings. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|   | · | 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 ofOperations. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 Wachovia Bank credit      facility, 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $217.0 million, or 10.3%, of our assets represent investments in      properties leased to the United States Government;  and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | approximately      $198.2 million, or 9.4%, of our assets represent investments in properties      leased to, or leases guaranteed by, Nestlé Holdings,  Inc. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $343.2 million, or 16.3%, 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 TravelersCorporation); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $264.3 million, or 12.6%, 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      $163.4 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      $144.3 million, or 6.9%, 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); |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $139.5 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);      and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $104.6 million, or 5.0%, of our assets represent investments in properties      leased to, or leases guaranteed by, companies in the retail home      improvements industry (e.g., Lowe’s Companies, Inc. and Home Depot USA,      Inc.). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $226.3 million, or 10.8%, of our assets represent investments in      properties located in the Philadelphia, Pennsylvania metropolitan      area; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $187.4 million, or 8.9%, of our assets represent investments in properties      located in the Washington, D.C. metropolitan  area; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $184.9 million, or 8.8%, of our assets represent investments in properties      located in the Chicago, Illinois metropolitan  area; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $150.0 million, or 7.1%, of our assets represent investments in properties      located in the New York City and Northern New Jersey  area; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $106.4 million, or 5.1%, of our assets represent investments in properties      located in the Dallas/Fort Worth, Texas metropolitan area;    and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | approximately      $105.0 million, or 5.0%, of our assets represent investments in properties      located in the Southern Californiaarea. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | 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 DisabilitiesAct; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|----------------------------------------------|

----

|   | · | During      2008, our borrower failed to make certain scheduled principal payments due      us under the loan agreement although it has remained current on      interest.  In addition, our borrower has advised us that it will      be required to refinance our position with a different lender, raise      additional equity capital or sell franchise loans to generate the proceeds      to meet its principal repayment obligations under our loan.  Our      borrower’s ability to do so has been and may continue to be adversely      impacted by current economicconditions. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 credit      facility with Wachovia Bank, our debt service requirements will increase      as short-term interest rates rise.  In addition, 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      credit facility with Wachovia Bank is a fully recourse lending      arrangement.  Therefore, if we default on this facility, our      lenders will have general recourse to our company’s assets, rather than      limited recourse to just the assetsfinanced. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | widening      of credit spreads as investors’ appetite for credit risk      diminishes; |
|--------|--------|-----------------------------------------------------------------------------------------------|

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

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

|   | · | market      dislocation events, such as those experienced in the credit markets since      the summer of 2007; |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

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

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

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

|   | · | 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.  We      are not currently able to obtain attractive long-term financing for our      assets due to market conditions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                      |   | Expected      Maturity Dates                                                                  |    |
|-------------------------------------------|--------|-----------------------------------------------------------------------------------------------|---------|
|                                      |   | 2009                                                                                          |    |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
|                                      |   | (in      thousands, notional amounts where appropriate, otherwise      carrying amounts) |    |
| Mortgages      on real estate investments |   | $                                                                                             | 13,371  |   |   | $ | 15,741 |   |   | $ | 36,433 |   |   | $ | 132,081 |   |   | $ | 70,139 |   |   | $ | 704,559 |   |
| Collateralized      debt obligations      |   |                                                                                          | (41     | ) |   |   | 25,417 |   |   |   | 11,683 |   |   |   | 12,409 |   |   |   | 12,549 |   |   |   | 206,248 |   |
| Credit      facility                      |   |                                                                                          | 15,130  |   |   |   | 174,132 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Secured      term loan                    |   |                                                                                          | 9,649   |   |   |   | 12,191 |   |   |   | 13,737 |   |   |   | 15,380 |   |   |   | 13,602 |   |   |   | 59,160 |   |
| Convertible      senior notes             |   |                                                                                          | – |   |   |   | – |   |   |   | – |   |   |   | 71,760 |   |   |   | – |   |   |   | – |   |
| Other      long-term debt                 |   |                                                                                          | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 30,930 |   |

|   | · | 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 creditspreads. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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, particularly during periods of market      dislocation.  As a result of market conditions, we are not      currently carrying an open interest rate hedge to manage our exposure to      interest rate fluctuations for assets for which we may obtain long-term      financing for in the future.  Our decision to do so leaves us      exposed to increases in long-term interest rates for those assets and,      therefore, may make it more difficult or more costly to obtain long-term      financing. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | 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      of 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | It      is priced at floating rates based on 30-day LIBOR, or the London Interbank      Offered Rate.  Therefore, increases in the 30-day LIBOR rate      will cause our borrowing costs to increase and our net income to      decrease. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      facility is recourse to all of our other assets.  In the event      we experience a default under the assets securing the facility, we will      remain obligated to satisfy our obligations to Wachovia out of other      assets of our company. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      are subject to margin call risk under the loan facility      documents.  Wachovia has the right in its sole discretion to      revalue our collateral, provided that Wachovia may not reduce the value of      any of our collateral other than CMBS securities due to general credit      spread or interest rate fluctuations.  In the event Wachovia      determines that the value of our collateral has decreased, it has the      right to make a margin call.  A margin call would require us to      make up any collateral shortfall with cash or additional portfolio      assets.  We may not have sufficient cash or portfolio assets to      do so.  A failure to meet a margin call could cause us to      default under the facility and otherwise have a material adverse effect on      our financial condition and operatingresults. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      have borrowed the full amount permitted under the loan documents based on      the lender’s current valuation of our collateral.  In order to      borrow any additional amounts under the facility, we will be required to      post additional collateral.  Further, Wachovia has the right to      reject any asset that we seek to finance on the  facility. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | · | a      dispute as to policy coverage with one or more of the      carriers. |
|--------|--------|-----------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

----

----

| Fiscal      Year    |   | Low    |   |   | High   |   |
|---------------------|--------|--------|--------|--------|--------|--------|
| 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 |   |
|                |   |   |   |   |   |   |   |   |
| 2008                |   |   |   |   |   |   |   |   |
| First      Quarter  |   | $      | 6.85   |   |   | $      | 9.00 |   |
| Second      Quarter |   |   | 7.34   |   |   |   | 8.65 |   |
| Third      Quarter  |   |   | 6.75   |   |   |   | 10.14 |   |
| Fourth      Quarter |   |   | 1.40   |   |   |   | 7.96 |   |

| Quarter Ended      |      | Dividend Payment Date |       | Dividend per Share |   |
|-------------------------|--------------------------|---------------------------------|--------------------------------|------------------------------|--------|
| 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   |   |
|                    |                     |                            |                           |                         |   |   |
| 2008                    |                     |                            |                           |                         |   |   |
| March      31, 2008     |                     | April      15, 2008             |                           | $                            | 0.20   |   |
| June      30, 2008      |                     | July      15, 2008              |                           |                         | 0.20   |   |
| September      30, 2008 |                     | October      15, 2008           |                           |                         | 0.20   |   |

| Total      common dividend per share (tax basis) |   | $      | 0.80   |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Capital      gain                                |   |   | 0.00   | %      |
| Ordinary      income                             |   |   | 0.00   | %      |
| Return      of capital                           |   |   | 100.00 | %      |
|                                             |   |   | 100.00 | %      |

----

|                      |   | Base    |   |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |
|---------------------------|--------|---------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|                      |   | Period  |   |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |
| Company / Index |   | 3/19/04 |   |   | 12/31/04 |   |   | 12/31/05 |   |   | 12/31/06 |   |   | 12/31/07 |   |   | 12/31/08 |   |
| CapLease,      Inc.       |   |    | 100    |   |     |   | 121.58 |     |   |   | 109.70   |   |   |     | 129.63 |   |     |   | 101.91 |   |   |   | 22.61 |   |
| S&P      500 Index    |   |    | 100    |   |     |   | 110.65 |     |   |   | 116.09   |   |   |     | 134.42 |   |     |   | 141.80 |   |   |   | 89.34 |   |
| S&P      REIT Index   |   |    | 100    |   |     |   | 118.30 |     |   |   | 133.16   |   |   |     | 188.76 |   |     |   | 156.48 |   |   |   | 92.03 |   |

----

| Item      6. | Selected      Financial Data. |
|--------------|-------------------------------|

|                                                                |   | Year ended December 31,                            |    |
|---------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|
|                                                                |   | 2008                                                              |    |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                                |   | (in thousands, except per share amounts) |    |
| Statement      of Operations data                                   |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                                           |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Rental      revenue                                                 |   | $                                                                 | 137,832 |   |   | $ | 125,384 |   |   | $ | 78,656 |   |   | $ | 37,956 |   |   | $ | 4,287 |   |
| Interest      income from loans and securities                      |   |                                                              | 35,054  |   |   |   | 35,400 |   |   |   | 32,470 |   |   |   | 27,898 |   |   |   | 13,589 |   |
| Property      expense recoveries                                    |   |                                                              | 11,457  |   |   |   | 11,215 |   |   |   | 8,828 |   |   |   | 6,272 |   |   |   | 1,608 |   |
| Gains      on sale of mortgage loans and securities                 |   |                                                              | — |   |   |   | — |   |   |   | 2,923 |   |   |   | 447 |   |   |   | 794 |   |
| Other      revenue                                                  |   |                                                              | 764     |   |   |   | 583 |   |   |   | 1,903 |   |   |   | 479 |   |   |   | 726 |   |
| Total      revenues                                                 |   |                                                              | 185,107 |   |   |   | 172,582 |   |   |   | 124,780 |   |   |   | 73,052 |   |   |   | 21,004 |   |
| Expenses:                                                           |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                               |   |                                                              | 97,922  |   |   |   | 97,036 |   |   |   | 63,212 |   |   |   | 31,398 |   |   |   | 2,768 |   |
| Property      expenses                                              |   |                                                              | 19,895  |   |   |   | 18,912 |   |   |   | 15,891 |   |   |   | 10,441 |   |   |   | 1,761 |   |
| (Gain)      loss on derivatives                                     |   |                                                              | 19,496  |   |   |   | (203 | ) |   |   | (413 | ) |   |   | (159 | ) |   |   | 724 |   |
| Loss      on investments                                            |   |                                                              | 3,663   |   |   |   | 372 |   |   |   | 907 |   |   |   | 2,372 |   |   |   | 247 |   |
| General      and administrative expenses                            |   |                                                              | 11,671  |   |   |   | 10,673 |   |   |   | 9,772 |   |   |   | 10,140 |   |   |   | 8,833 |   |
| General      and administrative expenses - stock based compensation |   |                                                              | 1,978   |   |   |   | 1,621 |   |   |   | 2,621 |   |   |   | 2,235 |   |   |   | 3,825 |   |
| Depreciation      and amortization expense on real property         |   |                                                              | 54,021  |   |   |   | 47,505 |   |   |   | 25,451 |   |   |   | 11,273 |   |   |   | 1,281 |   |
| Loan      processing expenses                                       |   |                                                              | 314     |   |   |   | 306 |   |   |   | 268 |   |   |   | 283 |   |   |   | 196 |   |
| Total      expenses                                                 |   |                                                              | 208,960 |   |   |   | 176,222 |   |   |   | 117,709 |   |   |   | 67,983 |   |   |   | 19,635 |   |
| Gain      on extinguishment of debt                                 |   |                                                              | 1,968   |   |   |   | 1,363 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Income      (loss) before minority interest and taxes               |   |                                                              | (21,885 | ) |   |   | (2,277 | ) |   |   | 7,071 |   |   |   | 5,069 |   |   |   | 1,369 |   |
| Minority      interest in consolidated entities                     |   |                                                              | 124     |   |   |   | 33 |   |   |   | (17 | ) |   |   | 55 |   |   |   | — |   |
| Provision      for income taxes                                     |   |                                                              | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 9 |   |
| Income      (loss) from continuing operations                       |   |                                                              | (21,761 | ) |   |   | (2,244 | ) |   |   | 7,054 |   |   |   | 5,124 |   |   |   | 1,360 |   |
| Income      from discontinued operations                            |   |                                                              | — |   |   |   | (17 | ) |   |   | 195 |   |   |   | 6 |   |   |   | — |   |
| Net      income (loss)                                              |   |                                                              | (21,671 | ) |   |   | (2,261 | ) |   |   | 7,249 |   |   |   | 5,130 |   |   |   | 1,360 |   |
| Dividends      allocable to preferred shares                        |   |                                                              | (2,844  | ) |   |   | (2,844 | ) |   |   | (2,844 | ) |   |   | (561 | ) |   |   | — |   |
| Net      income (loss) allocable to common stockholders             |   | $                                                                 | (24,605 | ) |   | $ | (5,105 | ) |   | $ | 4,405 |   |   | $ | 4,569 |   |   | $ | 1,360 |   |
|                                                                |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share:                                            |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share, basic and diluted          |   | $                                                                 | (0.54   | ) |   | $ | (0.13 | ) |   | $ | 0.14 |   |   | $ | 0.16 |   |   | $ | 0.06 |   |
| Weighted      average number of common shares outstanding, basic    |   |                                                              | 45,526  |   |   |   | 40,739 |   |   |   | 31,939 |   |   |   | 27,784 |   |   |   | 22,125 |   |
| Weighted      average number of common shares outstanding, diluted  |   |                                                              | 45,526  |   |   |   | 40,739 |   |   |   | 31,941 |   |   |   | 27,784 |   |   |   | 22,125 |   |
| Dividends      declared per common share                            |   | $                                                                 | 0.60    |   |   | $ | 0.80 |   |   | $ | 0.80 |   |   | $ | 0.74 |   |   | $ | 0.25 |   |
| Dividends      declared per preferred share                         |   | $                                                                 | 2.03125 |   |   | $ | 2.03125 |   |   | $ | 2.03125 |   |   | $ | 0.48524 |   |   | $ | — |   |
|                                                                |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      data                                                     |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from operating activities                           |   | $                                                                 | 64,359  |   |   | $ | 30,945 |   |   | $ | 27,443 |   |   | $ | (17,111 | ) |   | $ | 10,973 |   |
| Cash      flows from investing activities                           |   |                                                              | 9,547   |   |   |   | (309,062 | ) |   |   | (361,854 | ) |   |   | (675,408 | ) |   |   | (349,576 | ) |
| Cash      flows from financing activities                           |   |                                                              | (99,514 | ) |   |   | 307,739 |   |   |   | 319,520 |   |   |   | 681,114 |   |   |   | 362,802 |   |

----

|                                                        |   | As of December 31, |      |
|-------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                        |   | 2008                              |      |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                        |   | (in thousands)               |      |
| Balance      sheet data                                     |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate investments, net                           |   | $                                 | 1,510,413 |   |   | $ | 1,563,570 |   |   | $ | 1,115,001 |   |   | $ | 764,930 |   |   | $ | 194,541 |   |
| Real      estate investments consolidated under      FIN 46 |   |                              | —   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 48,000 |   |
| Loans      held for investment                              |   |                              | 285,779   |   |   |   | 269,293 |   |   |   | 273,170 |   |   |   | 297,551 |   |   |   | 207,347 |   |
| Commercial      mortgage-backed securities                  |   |                              | 161,842   |   |   |   | 198,187 |   |   |   | 183,066 |   |   |   | 137,409 |   |   |   | 87,756 |   |
| Cash      and cash equivalents                              |   |                              | 8,439     |   |   |   | 34,047 |   |   |   | 4,425 |   |   |   | 19,316 |   |   |   | 30,721 |   |
| Structuring      fees receivable                            |   |                              | 1,863     |   |   |   | 2,576 |   |   |   | 3,253 |   |   |   | 3,862 |   |   |   | 4,426 |   |
| Total      assets                                           |   |                              | 2,045,669 |   |   |   | 2,158,269 |   |   |   | 1,644,300 |   |   |   | 1,286,488 |   |   |   | 581,702 |   |
| Mortgages      on real estate investments                   |   |                              | 972,324   |   |   |   | 983,770 |   |   |   | 794,773 |   |   |   | 551,844 |   |   |   | 111,539 |   |
| Collateralized      debt obligations                        |   |                              | 268,265   |   |   |   | 268,227 |   |   |   | 268,190 |   |   |   | 268,156 |   |   |   | — |   |
| Repurchase      agreement obligations                       |   |                              | —   |   |   |   | 232,869 |   |   |   | 195,485 |   |   |   | 129,965 |   |   |   | 133,831 |   |
| Credit      facility                                        |   |                              | 189,262   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Secured      term loan                                      |   |                              | 123,719   |   |   |   | 129,521 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Convertible      senior notes                               |   |                              | 71,760    |   |   |   | 75,000 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Other      long-term debt                                   |   |                              | 30,930    |   |   |   | 30,930 |   |   |   | 30,930 |   |   |   | 30,930 |   |   |   | — |   |
| Stockholders’      equity                             |   |                              | 318,200   |   |   |   | 349,659 |   |   |   | 307,656 |   |   |   | 270,031 |   |   |   | 253,264 |   |

----

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

----

|   | · | 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      us to preserve our liquidity rather than make new investments due to the      lack of debt or equity capital on attractive  terms. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | causing      a delay in the long-term fixed rate financing of the mortgage assets      financed under our credit agreement with Wachovia Bank, which were      scheduled to be financed through a CDO.  This credit agreement      is priced at floating rates based on 30-day LIBOR, or the London Interbank      Offered Rate, is recourse to all of our other assets and enables the      lender to exercise margin calls primarily for credit events related to the      assets financed.  We may experience increases in our borrowing      costs as a result of increases in LIBOR.  We intend to pursue a      variety of strategies for the assets financed on the facility, including      obtaining long-term fixed rate financing when market conditions permit,      pursuing selected asset sales, and retiring the debt on selected assets      and holding the assets unlevered.  We expect credit market      conditions to impact our ability to refinance any of these assets and,      therefore, we cannot provide any assurance as to the timing or our ability      to do so. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | causing      us to close our open hedge position during November 2008, for a total loss      of $18.1 million, as a result of unprecedented credit market dislocations      and associated declines in the 10-Year Treasury and other benchmark market      interest rates. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | 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 /Unallocated |    |   | OperatingReal Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 777     |   |                      | $      | 149,992   |               |   | $      | 34,338  |   |   | $ | 185,107 |   |
| Total      expenses and minority interest     |   |                        | 22,185  |   |                      |   | 146,889   |               |   |   | 39,762  |   |   |   | 208,836 |   |
| Gain      on extinguishment of debt           |   |                        | 1,968   |   |                      |   | -         |               |   |   | -       |   |   |   | 1,968 |   |
| Income      (loss) from continuing operations |   |                        | (19,440 | )      |                      |   | 3,103     |               |   |   | (5,424  | )      |   |   | (21,761 | ) |
| Total      assets                             |   |                        | 26,763  |   |                      |   | 1,566,405 |               |   |   | 452,501 |   |   |   | 2,045,669 |   |

|                                          |   | Corporate /Unallocated |    |   | OperatingReal Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 602     |   |                      | $      | 137,341   |               |   | $      | 34,639  |   |   | $ | 172,582 |   |
| Total      expenses and minority interest     |   |                        | 16,111  |   |                      |   | 135,658   |               |   |   | 24,420  |   |   |   | 176,189 |   |
| Gain      on extinguishment of debt           |   |                        | -       |   |                      |   | 1,363     |               |   |   | -       |   |   |   | 1,363 |   |
| Income      (loss) from continuing operations |   |                        | (15,509 | )      |                      |   | 3,046     |               |   |   | 10,219  |   |   |   | (2,244 | ) |
| Total      assets                             |   |                        | 64,616  |   |                      |   | 1,620,419 |               |   |   | 473,234 |   |   |   | 2,158,269 |   |

|                                          |   | Corporate /Unallocated |    |   | OperatingReal Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 811     |   |                      | $      | 88,002    |               |   | $      | 35,967  |   |   | $ | 124,780 |   |
| Total      expenses and minority interest     |   |                        | 14,901  |   |                      |   | 82,754    |               |   |   | 20,071  |   |   |   | 117,726 |   |
| Income      (loss) from continuing operations |   |                        | (14,090 | )      |                      |   | 5,248     |               |   |   | 15,896  |   |   |   | 7,054 |   |
| Total      assets                             |   |                        | 30,219  |   |                      |   | 1,152,348 |               |   |   | 461,733 |   |   |   | 1,644,300 |   |

----

----

----

| Property Location |   | Building Size(square feet) |    |   | Original PrincipalBalance |   |       | Principal Balance asof February 9, 2009 |   |   | Current PrincipalBalance perSquare Foot |   |
|------------------------|--------|--------------------------------------|---------|--------|--------------------------------|--------|------------|------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|
|                   |   |                                 |    |   |                           |   |       |                                                             |   |   |                                                   |   |
| Killeen,      TX       |   |                                 | 28,554  |   |                           | $      | 3,548,660  |                                                             |   | $      | 2,123,727                                              |   |   | $ | 74.38 |   |
| Merced,      CA        |   |                                 | 18,716  |   |                           |   | 3,010,983  |                                                             |   |   | 1,801,948                                              |   |   |   | 96.28 |   |
| Portland,      OR      |   |                                 | 32,571  |   |                           |   | 5,269,220  |                                                             |   |   | 3,132,528                                              |   |   |   | 96.18 |   |
| Salisbury,      MD     |   |                                 | 23,342  |   |                           |   | 3,333,587  |                                                             |   |   | 1,981,801                                              |   |   |   | 84.90 |   |
| Winston-Salem,      NC |   |                                 | 42,600  |   |                           |   | 5,914,430  |                                                             |   |   | 3,539,536                                              |   |   |   | 83.09 |   |
|                   |   |                                 | 145,783 |   |                           | $      | 21,076,880 |                                                             |   | $      | 12,579,540                                             |   |   |   | 86.29 |   |

----

| Class  |   | Balance as ofJanuary 23, 2009 |       |   | Current      Fitch Rating |   |    | CapLease Basis |   |
|--------|--------|---------------------------------------------------|------------|--------|---------------------------|--------|---------|---------------------|--------|
|   |   |                                              |       |   |                      |   |    |                |   |
| A1     |   | $                                                 | —    |   |                      |   | — |                |   | $ | — |   |
| A2     |   |                                              | —    |   |                      |   | — |                |   |   | — |   |
| A3     |   |                                              | —    |   |                      |   | — |                |   |   | — |   |
| B      |   |                                              | 2,367,929  |   |                      | AAA    |    |                | N.A.   |   |
| C      |   |                                              | 15,528,585 |   |                      |   | A       |                |   | N.A. |   |
| D      |   |                                              | 6,146,731  |   |                      |   | B-      |                |   |   | 5,929,092 |   |
| E      |   |                                              | 6,793,756  |   |                      | CC     |    |                | N.A.   |   |
| F      |   |                                              | 1,941,073  |   |                      |   | C       |                |   | N.A. |   |
| G      |   |                                              | 1,294,052  |   |                      |   | C       |                |   | N.A. |   |
|   |   | $                                                 | 34,072,126 |   |                      |   |    |                |   |   |   |   |

----

| Property Location  |   | Building Size(square feet) |    |   | Original PrincipalBalance |   |       | Principal Balance asof February 9, 2009 |   |   | Current PrincipalBalance perSquare Foot |   |
|-------------------------|--------|--------------------------------------|---------|--------|--------------------------------|--------|------------|------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|
|                    |   |                                 |    |   |                           |   |       |                                                             |   |   |                                                   |   |
| South      Portland, ME |   |                                 | 27,665  |   |                           | $      | 2,598,709  |                                                             |   | $      | 1,396,664                                              |   |   | $ | 50.48 | 1  |
| Tampa,      FL2         |   |                                 | 77,337  |   |                           |   | 12,874,220 |                                                             |   |   | 8,837,268                                              |   |   |   | 114.27 |   |
|                    |   |                                 | 105,002 |   |                           | $      | 15,472,929 |                                                             |   | $      | 10,233,932                                             |   |   |   | 97.46 |   |

----

| Class  |   | Balance as ofJanuary 22, 2009 |        |   | Current S&P      Rating |   |    | CapLease Basis |   |
|--------|--------|---------------------------------------------------|-------------|--------|----------------------------------|--------|---------|---------------------|--------|
| A1     |   | $                                                 | —     |   |                             |   | — |                |   | $ | — |   |
| A2     |   |                                              | 6,728,188   |   |                             | AAA    |    |                | N.A.   |   |
| A3     |   |                                              | 127,347,816 |   |                             | AAA    |    |                | N.A.   |   |
| B      |   |                                              | 25,855,814  |   |                             | AAA    |    |                | N.A.   |   |
| C      |   |                                              | 20,930,897  |   |                             |   | A+      |                |   | N.A. |   |
| D      |   |                                              | 30,780,731  |   |                             | BBB    |    |                | N.A.   |   |
| E      |   |                                              | 11,081,063  |   |                             | BB     |    |                |   | 5,427,162 |   |
| F      |   |                                              | 3,693,687   |   |                             |   | B       |                |   | N.A. |   |
| G      |   |                                              | 3,648,245   |   |                             | NR     |    |                | N.A.   |   |
|   |   | $                                                 | 230,066,441 |   |                             |   |    |                |   |   |   |   |
|   |   |                                              |        |   |                             |   |    |                |   |   |   |   |
| X      |   | $                                                 | 230,043,436 |   |                             | AAA    |    |                | $      | 5,931,626 |   |

| Property Location |   | Building Size(square feet) |   |   | Original PrincipalBalance |   |      | Principal Balanceas of February 9,2009 |   |   | Current PrincipalBalance perSquare Foot |   |
|------------------------|--------|--------------------------------------|--------|--------|--------------------------------|--------|-----------|------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|
|                   |   |                                 |   |   |                           |   |      |                                                       |   |   |                                                   |   |
| Lake      Charles, LA  |   |                                 | 20,973 |   |                           | $      | 2,646,253 |                                                       |   | $      | 2,238,590                                              |   |   | $ | 106.74 |   |
| Fayetteville,      AR  |   |                                 | 20,827 |   |                           |   | 3,279,035 |                                                       |   |   | 2,805,723                                              |   |   |   | 134.72 |   |
| Anniston,      AL      |   |                                 | 15,280 |   |                           |   | 1,627,442 |                                                       |   |   | 1,385,600                                              |   |   |   | 90.68 |   |
|                   |   |                                 | 57,080 |   |                           | $      | 7,552,730 |                                                       |   | $      | 6,429,913                                              |   |   |   | 112.65 |   |

----

| Class  |   | Balance as ofJanuary 22, 2009 |        |   | CapLeaseNotional Amount |   |      | Current S&PRating |   |   | CapLeaseBasis |   |
|--------|--------|---------------------------------------------------|-------------|--------|------------------------------|--------|-----------|----------------------------|--------|--------|---------------|--------|
|   |   |                                              |        |   |                         |   |      |                       |   |   |          |   |
| A1     |   | $                                                 | —     |   |                         | $      | —   |                       |   |   | —       |   |   | $ | — |   |
| A2     |   |                                              | —     |   |                         |   | —   |                       |   |   | —       |   |   |   | — |   |
| A3     |   |                                              | 59,655,855  |   |                         |   | —   |                       |   | AAA    |          |   | N.A. |   |
| A4     |   |                                              | 135,086,846 |   |                         |   | —   |                       |   | AAA    |          |   | N.A. |   |
| B      |   |                                              | 16,292,000  |   |                         |   | —   |                       |   | AAA    |          |   | N.A. |   |
| C      |   |                                              | 15,334,000  |   |                         |   | —   |                       |   |   | A             | +      |   | N.A. |   |
| D      |   |                                              | 24,918,000  |   |                         |   | —   |                       |   |   | B             |   |   | N.A. |   |
| E      |   |                                              | 3,834,000   |   |                         |   | 3,326,000 |                       |   | CCC    |          |   |   | 559,730 | 1 |
| F      |   |                                              | 312,429     |   |                         |   | 250,749   |                       |   | NR     |          |   |   | 0 |   |
|   |   | $                                                 | 255,433,130 |   |                         | $      | 3,576,749 |                       |   |   |          |   |   |   |   |   |

----

|   | 1 | Includes      $1,000,000 impairment loss recorded by the Company as of December 31,      2008. |
|--------|---|-----------------------------------------------------------------------------------------------------|

|                                                                                 |   | Year ended December 31, |    |
|--------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
| (in thousands, except per share amounts)                    |   | 2008                                   |    |   | 2007 |   |   | 2006 |   |
| Net      income (loss) allocable to common stockholders                              |   | $                                      | (24,605 | ) |   | $ | (5,105 | ) |   | $ | 4,405 |   |
| Adjustments:                                                                         |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Add:      Minority interest–OP units                                           |   |                                   | (124    | ) |   |   | (33 | ) |   |   | 17 |   |
| Add:      Depreciation and amortization expense on real property                     |   |                                   | 54,021  |   |   |   | 47,505 |   |   |   | 25,451 |   |
| Funds from operations                                                                |   | $                                      | 29,292  |   |   | $ | 42,367 |   |   | $ | 29,873 |   |
|                                                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Weighted      average number of common shares outstanding, diluted                   |   |                                   | 45,526  |   |   |   | 40,739 |   |   |   | 31,941 |   |
| Weighted      average number of OP units outstanding                                 |   |                                   | 230     |   |   |   | 263 |   |   |   | 145 |   |
| Weighted      average number of common shares and OP units outstanding,      diluted |   |                                   | 45,756  |   |   |   | 41,002 |   |   |   | 32,086 |   |
|                                                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share, basic and diluted                           |   | $                                      | (0.54   | ) |   | $ | (0.13 | ) |   | $ | 0.14 |   |
| Funds from operations per share                                                      |   | $                                      | 0.64    |   |   | $ | 1.03 |   |   | $ | 0.93 |   |
|                                                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Gain      on sale of mortgage loans and securities                                   |   | $                                      | – |   |   | $ | – |   |   | $ | 2,923 |   |

----

----

----

----

----

|                                      |   | Total  |      |   | Less than 1year |   |    | 2-3 years |   |   | 4-5 years |   |   | After 5 years |    |
|-------------------------------------------|--------|--------|-----------|--------|---------------------------|--------|---------|----------------|--------|--------|----------------|--------|--------|-------------------------|---------|
| Mortgages      on real estate investments |   | $      | 972,324   |   |                      | $      | 13,371  |           |   | $      | 52,174         |   |   | $                       | 202,220 |   |   | $ | 704,559 |   |
| Collateralized      debt obligations      |   |   | 268,265   |   |                      |   | (41     | )              |   |   | 37,100         |   |   |                    | 24,958  |   |   |   | 206,248 |   |
| Credit      facility                      |   |   | 189,262   |   |                      |   | 15,130  |           |   |   | 174,132        |   |   |                    |    |   |   |   |   |   |
| Secured      term loan                    |   |   | 123,719   |   |                      |   | 9,649   |           |   |   | 25,928         |   |   |                    | 28,981  |   |   |   | 59,161 |   |
| Convertible      senior notes             |   |   | 71,760    |   |                      |   | – |           |   |   | –        |   |   |                    | 71,760  |   |   |   |   |   |
| Other      long-term debt                 |   |   | 30,930    |   |                      |   | – |           |   |   | –        |   |   |                    | – |   |   |   | 30,930 |   |
| Operating      leases                     |   |   | 3,540     |   |                      |   | 737     |           |   |   | 1,485          |   |   |                    | 1,318   |   |   |   | – |   |
| Total                                     |   | $      | 1,659,800 |   |                      | $      | 38,846  |           |   | $      | 290,819        |   |   | $                       | 329,237 |   |   | $ | 1,000,898 |   |

----

|   | · | 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 financed with long-term fixed rate debt, 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 assetsincrease. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

----

|                                           |   | Carrying Amount |    |   | Notional Amount |   |    | WeightedAverage EffectiveInterest /Financing Rate |   |   | Maturity Date |   |   | Fair Value |    |
|------------------------------------------------|--------|----------------------|---------|--------|----------------------|--------|---------|------------------------------------------------------------------|--------|--------|--------------------|--------|--------|-----------------|---------|
|                                           |   | 12/31/2008           |    |   | 12/31/2007           |   |    | 12/31/2008                                                       |   |   | 12/31/2007         |   |   | 12/31/2008      |    |   | 12/31/2008 |   |   | 12/31/2008 |   |   | 12/31/2007 |   |
|                                           |   |                 |    |   |                 |   |    |                                                             |   |   |               |   |   |            |    |   |   |   |   |   |   |   |   |   |
| Assets:                                        |   |                 |    |   |                 |   |    |                                                             |   |   |               |   |   |            |    |   |   |   |   |   |   |   |   |   |
| Loans      held for investment (1)             |   | $                    | 286,563 |   |                 | $      | 270,143 |                                                             |   | $      | 283,912            |   |   | $               | 268,417 |   |   |   | 6.80% |   |   | Various |   |   | $ | 262,647 |   |   | $ | 267,735 |   |
| Commercial      mortgage-backed securities (2) |   |                 | 161,842 |   |                 |   | 198,187 |                                                             |   |   | 202,382            |   |   |            | 227,614 |   |   |   | 7.51% |   |   | 2009-2028 |   |   |   | 119,083 |   |   |   | 198,187 |   |
| Structuring      fees receivable               |   |                 | 1,863   |   |                 |   | 2,576   |                                                             |   |   | N/A                |   |   |            | N/A     |   |   |   | 8.07% |   |   | 2010-2020 |   |   |   | 1,863 |   |   |   | 2,576 |   |
|                                           |   |                 |    |   |                 |   |    |                                                             |   |   |               |   |   |            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                                    |   |                 |    |   |                 |   |    |                                                             |   |   |               |   |   |            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreement obligations (4)      |   | $                    | – |   |                 | $      | 232,869 |                                                             |   | $      | –            |   |   | $               | 232,869 |   |   |   | N/A |   |   | N/A |   |   | $ | – |   |   | $ | 232,869 |   |
| Mortgages      on real estate investments (5)  |   |                 | 972,324 |   |                 |   | 983,770 |                                                             |   |   | 966,091            |   |   |            | 976,237 |   |   |   | 5.63% |   |   | 2011-2024 |   |   |   | 936,668 |   |   |   | 923,611 |   |
| Collateralized      debt obligations (5)       |   |                 | 268,265 |   |                 |   | 268,227 |                                                             |   |   | 268,500            |   |   |            | 268,500 |   |   |   | 5.68% |   |   | 2015 |   |   |   | 116,592 |   |   |   | 261,366 |   |
| Credit      facility                           |   |                 | 189,262 |   |                 |   | – |                                                             |   |   | 189,262            |   |   |            | – |   |   |   | 3.48% |   |   | 2010 |   |   |   | 189,262 |   |   |   | – |   |
| Secured      term loan (5)                     |   |                 | 123,719 |   |                 |   | 129,521 |                                                             |   |   | 123,719            |   |   |            | 129,521 |   |   |   | 6.02% |   |   | 2018 |   |   |   | 62,010 |   |   |   | 131,365 |   |
| Convertible      senior notes (6)              |   |                 | 71,760  |   |                 |   | 75,000  |                                                             |   |   | 71,760             |   |   |            | 75,000  |   |   |   | 8.26% |   |   | 2012 |   |   |   | 28,329 |   |   |   | 63,322 |   |
| Other      long-term debt (7)                  |   |                 | 30,930  |   |                 |   | 30,930  |                                                             |   |   | 30,930             |   |   |            | 30,930  |   |   |   | 8.30% |   |   | 2016 |   |   |   | 11,152 |   |   |   | 27,761 |   |
| Derivative      liabilities (3)                |   |                 | – |   |                 |   | 4,559   |                                                             |   |   | –            |   |   |            | 177,442 |   |   |   | N/A |   |   | N/A |   |   |   | – |   |   |   | 4,559 |   |

| (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 2009 through 2033. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Commercial      mortgage-backed securities represent subordinate interests in      securitizations, as well as pass-through certificates representing our pro      rata investments in a pool of mortgage loans (collectively,      CMBS).  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.  The fair values of CMBS are      determined in most cases primarily by reference to index      pricing.  Management may also estimate fair value based on      credit characteristics and term of the security, market yields on      securities with similar credit ratings, and collateral      values.  Management has obtained broker quotes, but believes      that in most cases the broker quotes reflect expected pricing for      distressed trades in inactive and dislocated markets, rather than actual      prices in orderly transactions.  Management has ultimately      determined the fair values recorded in the financial statements based on a      variety of factors, and in most cases those fair values are significantly      above the broker quotes.  For the CMBS, 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.  We had none outstanding at December 31,      2008. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Our      credit facility bears 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                                                                                |    |
|--------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|---------|
|                                       |   | 2009                                                                                                             |    |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
|                                       |   | (in thousands, notional amounts where appropriate,otherwise carrying amounts) |    |
| Loans held for investment                  |   | $                                                                                                                | 16,471  |   |   | $ | 11,972 |   |   | $ | 13,219 |   |   | $ | 13,977 |   |   | $ | 11,168 |   |   | $ | 217,105 |   |
| Commercial      mortgage-backed securities |   |                                                                                                             | 25,379  |   |   |   | 2,784 |   |   |   | 3,424 |   |   |   | 3,933 |   |   |   | 4,504 |   |   |   | 162,358 |   |
| Structuring      fees receivable           |   |                                                                                                             | 771     |   |   |   | 767 |   |   |   | 72 |   |   |   | 79 |   |   |   | 86 |   |   |   | 88 |   |
| Mortgages      on real estate investments  |   |                                                                                                             | 13,371  |   |   |   | 15,741 |   |   |   | 36,433 |   |   |   | 132,081 |   |   |   | 70,139 |   |   |   | 704,559 |   |
| Collateralized      debt obligations       |   |                                                                                                             | (41     | ) |   |   | 25,417 |   |   |   | 11,683 |   |   |   | 12,409 |   |   |   | 12,549 |   |   |   | 206,248 |   |
| Credit      facility                       |   |                                                                                                             | 15,130  |   |   |   | 174,132 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Secured      term loan                     |   |                                                                                                             | 9,649   |   |   |   | 12,191 |   |   |   | 13,737 |   |   |   | 15,380 |   |   |   | 13,602 |   |   |   | 59,160 |   |
| Convertible      senior notes              |   |                                                                                                             | – |   |   |   | – |   |   |   | – |   |   |   | 71,760 |   |   |   |   |   |   |   |   |   |
| Other      long-term debt                  |   |                                                                                                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 30,930 |   |

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                     | Page      |
|----------------------------------------------------------------------------------------------------------|-----------|
|                                                                                                     | Reference |
|                                                                                                     |      |
| Report      of Independent Registered Public Accounting Firm                                             | 55        |
|                                                                                                     |      |
| Consolidated      Balance Sheets as of December 31, 2008 and 2007                                        | 56        |
|                                                                                                     |      |
| Consolidated      Statements of Operations for the years ended December 31, 2008, 2007 and      2006     | 57        |
|                                                                                                     |      |
| Consolidated      Statements of Changes in Stockholders’ Equity for theyears                       |      |
| ended      December 31, 2008, 2007 and 2006                                                              | 58        |
|                                                                                                     |      |
| Consolidated      Statements of Cash Flows for the years ended December 31, 2008, 2007 and      2006     | 59        |
|                                                                                                     |      |
| Notes      to Consolidated Financial Statements                                                          | 61        |
|                                                                                                     |      |
| Schedule      III – Schedule of Real Estate and Accumulated Depreciation at December 31,      2008 | 91        |
|                                                                                                     |      |
| Schedule      IV – Schedule of Loans Held for Investment at December 31,      2008                 | 94        |

----

----

|                                                                                                                                                                                                       |   | December 31, |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|
| (Amounts in thousands, except share and per share amounts)                                                                                                         |   | 2008              |      |   | 2007 |   |
| Assets                                                                                                                                                                                                     |   |              |      |   |   |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |
| Real      estate investments, net                                                                                                                                                                          |   | $                 | 1,510,413 |   |   | $ | 1,563,570 |   |
| Loans      held for investment, net                                                                                                                                                                        |   |              | 285,779   |   |   |   | 269,293 |   |
| Commercial      mortgage-backed securities                                                                                                                                                                 |   |              | 161,842   |   |   |   | 198,187 |   |
| Cash      and cash equivalents                                                                                                                                                                             |   |              | 8,439     |   |   |   | 34,047 |   |
| Asset      held for sale                                                                                                                                                                                   |   |              | –   |   |   |   | 5,413 |   |
| Structuring      fees receivable                                                                                                                                                                           |   |              | 1,863     |   |   |   | 2,576 |   |
| Other      assets                                                                                                                                                                                          |   |              | 77,333    |   |   |   | 85,183 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Total      Assets                                                                                                                                                                                          |   | $                 | 2,045,669 |   |   | $ | 2,158,269 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Liabilities      and Stockholders' Equity                                                                                                                                                                  |   |              |      |   |   |   |   |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Mortgages      on real estate investments                                                                                                                                                                  |   | $                 | 972,324   |   |   | $ | 983,770 |   |
| Collateralized      debt obligations                                                                                                                                                                       |   |              | 268,265   |   |   |   | 268,227 |   |
| Repurchase      agreement obligations                                                                                                                                                                      |   |              | –   |   |   |   | 232,869 |   |
| Credit      facility                                                                                                                                                                                       |   |              | 189,262   |   |   |   | – |   |
| Secured      term loan                                                                                                                                                                                     |   |              | 123,719   |   |   |   | 129,521 |   |
| Convertible      senior notes                                                                                                                                                                              |   |              | 71,760    |   |   |   | 75,000 |   |
| Other      long-term debt                                                                                                                                                                                  |   |              | 30,930    |   |   |   | 30,930 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Total      debt obligations                                                                                                                                                                                |   |              | 1,656,260 |   |   |   | 1,720,317 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Intangible      liabilities on real estate investments                                                                                                                                                     |   |              | 49,277    |   |   |   | 51,811 |   |
| Accounts      payable, accrued expenses and other liabilities                                                                                                                                              |   |              | 19,880    |   |   |   | 24,232 |   |
| Dividends      and distributions payable                                                                                                                                                                   |   |              | 711       |   |   |   | 9,634 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Total      Liabilities                                                                                                                                                                                     |   |              | 1,726,128 |   |   |   | 1,805,994 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Minority      interest                                                                                                                                                                                     |   |              | 1,341     |   |   |   | 2,616 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| 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, 47,391,790 and      44,350,330 shares issued and outstanding, respectively                                                              |   |              | 474       |   |   |   | 444 |   |
| Additional      paid in capital                                                                                                                                                                            |   |              | 312,187   |   |   |   | 341,578 |   |
| Accumulated      other comprehensive (loss)                                                                                                                                                                |   |              | (28,118   | ) |   |   | (26,020 | ) |
| Total      Stockholders' Equity                                                                                                                                                                            |   |              | 318,200   |   |   |   | 349,659 |   |
|                                                                                                                                                                                                       |   |              |      |   |   |   |   |   |
| Total      Liabilities and Stockholders' Equity                                                                                                                                                            |   | $                 | 2,045,669 |   |   | $ | 2,158,269 |   |

----

|                                                               |   | Year ended December 31, |    |
|--------------------------------------------------------------------|--------|-------------------------|---------|
| (Amounts      in thousands, except per share amounts)              |   | 2008                    |    |   | 2007 |   |   | 2006 |   |
| Revenues:                                                          |   |                    |    |   |   |   |   |   |   |
| Rental      revenue                                                |   | $                       | 137,832 |   |   | $ | 125,384 |   |   | $ | 78,656 |   |
| Interest      income from loans and securities                     |   |                    | 35,054  |   |   |   | 35,400 |   |   |   | 32,470 |   |
| Property      expense recoveries                                   |   |                    | 11,457  |   |   |   | 11,215 |   |   |   | 8,828 |   |
| Gains      on sale of mortgage loans and securities                |   |                    | – |   |   |   | – |   |   |   | 2,923 |   |
| Other      revenue                                                 |   |                    | 764     |   |   |   | 583 |   |   |   | 1,903 |   |
| Total      revenues                                                |   |                    | 185,107 |   |   |   | 172,582 |   |   |   | 124,780 |   |
| Expenses:                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |
| Interest      expense                                              |   |                    | 97,922  |   |   |   | 97,036 |   |   |   | 63,212 |   |
| Property      expenses                                             |   |                    | 19,895  |   |   |   | 18,912 |   |   |   | 15,891 |   |
| (Gain)      loss on derivatives                                    |   |                    | 19,496  |   |   |   | (203 | ) |   |   | (413 | ) |
| Loss      on investments                                           |   |                    | 3,663   |   |   |   | 372 |   |   |   | 907 |   |
| General      and administrative expenses                           |   |                    | 11,671  |   |   |   | 10,673 |   |   |   | 9,772 |   |
| General      and administrative expenses-stock based compensation  |   |                    | 1,978   |   |   |   | 1,621 |   |   |   | 2,621 |   |
| Depreciation      and amortization expense on real property        |   |                    | 54,021  |   |   |   | 47,505 |   |   |   | 25,451 |   |
| Loan      processing expenses                                      |   |                    | 314     |   |   |   | 306 |   |   |   | 268 |   |
| Total      expenses                                                |   |                    | 208,960 |   |   |   | 176,222 |   |   |   | 117,709 |   |
| Gain      on extinguishment of debt                                |   |                    | 1,968   |   |   |   | 1,363 |   |   |   | – |   |
| Income      (loss) before minority interest and taxes              |   |                    | (21,885 | ) |   |   | (2,277 | ) |   |   | 7,071 |   |
| Minority      interest in consolidated entities                    |   |                    | 124     |   |   |   | 33 |   |   |   | (17 | ) |
| Income      (loss) from continuing operations                      |   |                    | (21,761 | ) |   |   | (2,244 | ) |   |   | 7,054 |   |
| Income      (loss) from discontinued operations                    |   |                    | – |   |   |   | (17 | ) |   |   | 195 |   |
| Net      income (loss)                                             |   |                    | (21,761 | ) |   |   | (2,261 | ) |   |   | 7,249 |   |
| Dividends      allocable to preferred shares                       |   |                    | (2,844  | ) |   |   | (2,844 | ) |   |   | (2,844 | ) |
| Net      income (loss) allocable to common stockholders            |   | $                       | (24,605 | ) |   | $ | (5,105 | ) |   | $ | 4,405 |   |
|                                                               |   |                    |    |   |   |   |   |   |   |   |   |   |
| Earnings      per share:                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share, basic and diluted         |   | $                       | (0.54   | ) |   | $ | (0.13 | ) |   | $ | 0.14 |   |
| Weighted      average number of common shares outstanding, basic   |   |                    | 45,526  |   |   |   | 40,739 |   |   |   | 31,939 |   |
| Weighted      average number of common shares outstanding, diluted |   |                    | 45,526  |   |   |   | 40,739 |   |   |   | 31,941 |   |
| Dividends      declared per common share                           |   | $                       | 0.60    |   |   | $ | 0.80 |   |   | $ | 0.80 |   |
| Dividends      declared per preferred share                        |   | $                       | 2.03    |   |   | $ | 2.03 |   |   | $ | 2.03 |   |

----

| (Amounts in thousands)                                                                      |   | PreferredStock |    |   | CommonStockat Par |   |    | AdditionalPaid-InCapital |   |   | AccumulatedOtherComprehensiveIncome(Loss) |   |   | RetainedEarnings |    |   | Total  |   |
|-------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|------------------------|--------|---------|--------------------------|--------|--------|-------------------------------------------|--------|--------|------------------|---------|--------|--------|--------|
| Balance      at December 31, 2005                                                                     |   | $              | 33,657  |   |                   | $      | 279     |                     |   | $      | 237,843                                   |   |   | $                | (1,748  | )      |   | $      | – |   |   | $ | 270,031 |   |
| Incentive      stock plan compensation expense                                                        |   |           | – |   |                   |   | – |                     |   |   | 2,621                                     |   |   |             | – |   |   |   | – |   |   |   | 2,621 |   |
| Incentive      stock plan grants issued and forfeited                                                 |   |           | – |   |                   |   | 3       |                     |   |   | (3                                        | )      |   |             | – |   |   |   | – |   |   |   | – |   |
| Net      income (loss)                                                                                |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | – |   |   |   | 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 | ) |
| Increase      (decrease) in fair value of securities available for sale                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (2,956  | )      |   |   | – |   |   |   | (2,956 | ) |
| Increase      (decrease) in fair value of derivatives                                                 |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (737    | )      |   |   | – |   |   |   | (737 | ) |
| Reclassification      of derivative items into earnings                                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 760     |   |   |   | – |   |   |   | 760 |   |
| Realized      gain (loss) on derivatives                                                              |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 421     |   |   |   | – |   |   |   | 421 |   |
| Balance      at December 31, 2006                                                                     |   |           | 33,657  |   |                   |   | 341     |                     |   |   | 277,918                                   |   |   |             | (4,260  | )      |   |   | – |   |   |   | 307,656 |   |
| Incentive      stock plan compensation expense                                                        |   |           | – |   |                   |   | – |                     |   |   | 1,621                                     |   |   |             | – |   |   |   | – |   |   |   | 1,621 |   |
| Incentive      stock plan grants issued and forfeited                                                 |   |           | – |   |                   |   | 3       |                     |   |   | (3                                        | )      |   |             | – |   |   |   | – |   |   |   | – |   |
| Net      income (loss)                                                                                |   |           | – |   |                   |   | – |                     |   |   | (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 | ) |
| Increase      (decrease) in fair value of securities available for sale                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (20,412 | )      |   |   | – |   |   |   | (20,412 | ) |
| Increase      (decrease) in fair value of derivatives                                                 |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (4,570  | )      |   |   | – |   |   |   | (4,570 | ) |
| Reclassification      of derivative items into earnings                                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 788     |   |   |   | – |   |   |   | 788 |   |
| Realized      gain (loss) on derivatives                                                              |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 2,434   |   |   |   | – |   |   |   | 2,434 |   |
| Balance      at December 31, 2007                                                                     |   |           | 33,657  |   |                   |   | 444     |                     |   |   | 341,578                                   |   |   |             | (26,020 | )      |   |   | – |   |   |   | 349,659 |   |
| Incentive      stock plan compensation expense                                                        |   |           | – |   |                   |   | – |                     |   |   | 1,978                                     |   |   |             | – |   |   |   | – |   |   |   | 1,978 |   |
| Incentive      stock plan grants issued and forfeited                                                 |   |           | – |   |                   |   | 4       |                     |   |   | (4                                        | )      |   |             | – |   |   |   | – |   |   |   | – |   |
| Net      income (loss)                                                                                |   |           | – |   |                   |   | – |                     |   |   | (21,761                                   | )      |   |             | – |   |   |   | – |   |   |   | (21,761 | ) |
| Issuance      of common stock                                                                         |   |           | – |   |                   |   | 25      |                     |   |   | 19,624                                    |   |   |             | – |   |   |   | – |   |   |   | 19,649 |   |
| Operating      partnership units redeemed for common stock                                            |   |           | – |   |                   |   | 1       |                     |   |   | 1,013                                     |   |   |             | – |   |   |   | – |   |   |   | 1,014 |   |
| Dividends      declared-preferred                                                                     |   |           | – |   |                   |   | – |                     |   |   | (2,844                                    | )      |   |             | – |   |   |   | – |   |   |   | (2,844 | ) |
| Dividends      declared-common                                                                        |   |           | – |   |                   |   | – |                     |   |   | (27,397                                   | )      |   |             | – |   |   |   | – |   |   |   | (27,397 | ) |
| Amortization      of losses on securities previously classified as  available      for sale |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 505     |   |   |   | – |   |   |   | 505 |   |
| Increase      (decrease) in fair value of securities available for sale                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (9,398  | )      |   |   | – |   |   |   | (9,398 | ) |
| Increase      (decrease) in fair value of derivatives                                                 |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 4,522   |   |   |   | – |   |   |   | 4,522 |   |
| Reclassification      of derivative items into earnings                                               |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | 20,126  |   |   |   | – |   |   |   | 20,126 |   |
| Realized      gain (loss) on derivatives                                                              |   |           | – |   |                   |   | – |                     |   |   | –                                   |   |   |             | (17,853 | )      |   |   | – |   |   |   | (17,853 | ) |
| Balance      at December 31, 2008                                                                     |   | $              | 33,657  |   |                   | $      | 474     |                     |   | $      | 312,187                                   |   |   | $                | (28,118 | )      |   | $      | – |   |   | $ | 318,200 |   |

----

|                                                                                           |   | Year ended December 31, |     |
|------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|
| (Amounts in thousands)                                                               |   | 2008                                   |     |   | 2007 |   |   | 2006 |   |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |
| Operating      activities                                                                      |   |                                   |     |   |   |   |   |   |   |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |
| Net      income (loss)                                                                         |   | $                                      | (21,761  | ) |   | $ | (2,261 | ) |   | $ | 7,249 |   |
| Adjustments      to reconcile net income (loss) to cash provided by operating      activities: |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                             |   |                                   | 54,349   |   |   |   | 47,860 |   |   |   | 25,717 |   |
| Stock      based compensation                                                                  |   |                                   | 1,978    |   |   |   | 1,621 |   |   |   | 2,621 |   |
| Amortization      of above and below market leases                                             |   |                                   | 1,436    |   |   |   | 742 |   |   |   | (686 | ) |
| Minority      interest in consolidated entities                                                |   |                                   | (124     | ) |   |   | (33 | ) |   |   | 17 |   |
| Gain      on extinguishment of debt                                                            |   |                                   | (1,968   | ) |   |   | (1,363 | ) |   |   | – |   |
| Gain      on sale of loans and securities                                                      |   |                                   | –  |   |   |   | – |   |   |   | (2,923 | ) |
| Loss      on investments                                                                       |   |                                   | 3,663    |   |   |   | 372 |   |   |   | 907 |   |
| Loss      on sale of real estate properties                                                    |   |                                   | –  |   |   |   | 55 |   |   |   | – |   |
| (Gain)      loss on derivatives                                                                |   |                                   | 19,496   |   |   |   | (203 | ) |   |   | (413 | ) |
| Straight-lining      of rents                                                                  |   |                                   | (6,145   | ) |   |   | (13,756 | ) |   |   | (8,822 | ) |
| Amortization      of discounts/premiums, and origination fees/costs, net                       |   |                                   | (376     | ) |   |   | (399 | ) |   |   | (526 | ) |
| Amortization      of debt issuance costs and fair market value of debt    assumed              |   |                                   | 1,921    |   |   |   | 460 |   |   |   | 1,593 |   |
| Changes      in operating assets and liabilities:                                              |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Structuring      fees receivable                                                               |   |                                   | 712      |   |   |   | 677 |   |   |   | 609 |   |
| Other      assets                                                                              |   |                                   | 11,928   |   |   |   | (7,821 | ) |   |   | 1,510 |   |
| Accounts      payable, accrued expenses and other liabilities                                  |   |                                   | (257     | ) |   |   | 4,892 |   |   |   | 2,275 |   |
| Deposits      and escrows                                                                      |   |                                   | (492     | ) |   |   | 283 |   |   |   | (1,867 | ) |
| Amounts      due to servicer                                                                   |   |                                   | (1       | ) |   |   | (181 | ) |   |   | 182 |   |
| Net      cash provided by operating activities                                                 |   |                                   | 64,359   |   |   |   | 30,945 |   |   |   | 27,443 |   |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Investing      activities                                                                      |   |                                   |     |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Proceeds      from sale of loans                                                               |   |                                   | –  |   |   |   | – |   |   |   | 78,645 |   |
| Additions      to loans held for investment                                                    |   |                                   | –  |   |   |   | (9,107 | ) |   |   | (122,988 | ) |
| Principal      received from borrowers                                                         |   |                                   | 6,863    |   |   |   | 12,961 |   |   |   | 69,196 |   |
| Origination      costs on lending investments                                                  |   |                                   | –  |   |   |   | 22 |   |   |   | 201 |   |
| Purchase      of commercial mortgage-backed securities                                         |   |                                   | –  |   |   |   | (37,919 | ) |   |   | (56,201 | ) |
| Proceeds      from sale of securities available for sale                                       |   |                                   | –  |   |   |   | – |   |   |   | 7,939 |   |
| Principal      amortization on commercial mortgage-backed securities                           |   |                                   | 2,480    |   |   |   | 2,415 |   |   |   | 1,518 |   |
| Proceeds      from sale of real estate investments                                             |   |                                   | –  |   |   |   | 2,887 |   |   |   | – |   |
| Purchases      of real estate investments                                                      |   |                                   | –  |   |   |   | (276,457 | ) |   |   | (329,751 | ) |
| Real      estate improvements, additions, rebates and construction in      progress            |   |                                   | 224      |   |   |   | (3,658 | ) |   |   | (8,188 | ) |
| Deposits      on potential equity investments                                                  |   |                                   | –  |   |   |   | (20,800 | ) |   |   | (16,445 | ) |
| Return      of deposits on potential equity investments                                        |   |                                   | –  |   |   |   | 21,800 |   |   |   | 16,045 |   |
| Investments      in partially-owned entities                                                   |   |                                   | –  |   |   |   | (1,139 | ) |   |   | – |   |
| Purchases      of furniture, fixtures, equipment and leasehold    improvements                 |   |                                   | (20      | ) |   |   | (67 | ) |   |   | (1,825 | ) |
| Net      cash provided by (used in) investing activities                                       |   |                                   | 9,547    |   |   |   | (309,062 | ) |   |   | (361,854 | ) |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Financing      activities                                                                      |   |                                   |     |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                                   |     |   |   |   |   |   |   |   |   |   |
| Borrowings      under repurchase agreement obligations                                         |   |                                   | –  |   |   |   | 322,913 |   |   |   | 189,521 |   |
| Repayments      of repurchase agreement obligations                                            |   |                                   | (232,870 | ) |   |   | (285,528 | ) |   |   | (124,001 | ) |
| Borrowings      under bridge-financing facility                                                |   |                                   | –  |   |   |   | 210,273 |   |   |   | – |   |
| Repayments      under bridge-financing facility                                                |   |                                   | –  |   |   |   | (210,273 | ) |   |   | – |   |
| Borrowings      from mortgages on real estate investments                                      |   |                                   | 1,414    |   |   |   | 160,076 |   |   |   | 217,050 |   |
| Repayments      of mortgages on real estate investments                                        |   |                                   | (11,560  | ) |   |   | (158,258 | ) |   |   | (2,368 | ) |
| Borrowings      from secured term loan                                                         |   |                                   | –  |   |   |   | 129,521 |   |   |   | – |   |
| Repayments      on secured term loan                                                           |   |                                   | (5,801   | ) |   |   | – |   |   |   | – |   |
| Borrowings      from credit facility                                                           |   |                                   | 210,392  |   |   |   | – |   |   |   | – |   |
| Repayments      on credit facility                                                             |   |                                   | (21,131  | ) |   |   | – |   |   |   | – |   |
| Convertible      senior notes issued, net of offering costs                                    |   |                                   | –  |   |   |   | 75,000 |   |   |   | – |   |
| Convertible      senior notes repurchased                                                      |   |                                   | (1,272   | ) |   |   | – |   |   |   | – |   |
| Debt      issuance costs                                                                       |   |                                   | (1,783   | ) |   |   | (4,662 | ) |   |   | (1,327 | ) |
| Escrows      held with mortgage lender                                                         |   |                                   | 600      |   |   |   | – |   |   |   | 8,695 |   |
| Funds      provided by (used in) hedging and risk management    activities                     |   |                                   | (17,853  | ) |   |   | 2,434 |   |   |   | 421 |   |
| Common      stock issued, net of offering costs                                                |   |                                   | 19,649   |   |   |   | 116,219 |   |   |   | 59,133 |   |
| Common      stock repurchased                                                                  |   |                                   | –  |   |   |   | (15,000 | ) |   |   | – |   |
| Cash      distributions to minority limited partners                                           |   |                                   | (189     | ) |   |   | (211 | ) |   |   | (105 | ) |
| Dividends      paid on common and preferred stock                                              |   |                                   | (39,110  | ) |   |   | (34,765 | ) |   |   | (27,591 | ) |
| Changes      in amounts due from affiliates                                                    |   |                                   | –  |   |   |   | – |   |   |   | 92 |   |
| Net      cash provided by (used in) financing activities                                       |   |                                   | (99,514  | ) |   |   | 307,739 |   |   |   | 319,520 |   |
| Net      increase (decrease) in cash and cash equivalents                                      |   |                                   | (25,608  | ) |   |   | 29,622 |   |   |   | (14,891 | ) |
| Cash      and cash equivalents at beginning of period                                          |   |                                   | 34,047   |   |   |   | 4,425 |   |   |   | 19,316 |   |
| Cash      and cash equivalents at end of period                                                |   | $                                      | 8,439    |   |   | $ | 34,047 |   |   | $ | 4,425 |   |

----

|                                                                                        |   | Year ended December 31, |    |
|---------------------------------------------------------------------------------------------|--------|-------------------------|---------|
| (Amounts      in thousands)                                                                 |   | 2008                    |    |   | 2007 |   |   | 2006 |   |
| Supplemental      disclosure of cash flow information                                       |   |                    |    |   |   |   |   |   |   |
| Cash      paid during the year for interest expense (excluding capitalized      interest)   |   | $                       | 95,920  |   |   | $ | 93,103 |   |   | $ | 59,965 |   |
| Distributions      declared but not paid                                                    |   |                    | – |   |   |   | 53 |   |   |   | 53 |   |
| Dividends      declared but not paid                                                        |   |                    | 711     |   |   |   | 9,581 |   |   |   | 7,529 |   |
|                                                                                        |   |                    |    |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of noncash operating, investing and financing      information |   |                    |    |   |   |   |   |   |   |   |   |   |
| Value      of in-place leases and above-market leases acquired                              |   |                    | – |   |   |   | 64,086 |   |   |   | 39,619 |   |
| Value      of below-market leases acquired                                                  |   |                    | – |   |   |   | 34,326 |   |   |   | 6,465 |   |
| Securities      transferred to loans held for investment                                    |   |                    | 24,453  |   |   |   | – |   |   |   | – |   |
| Mortgage      notes payable assumed on properties acquired                                  |   |                    | – |   |   |   | 189,996 |   |   |   | 28,623 |   |
| Operating      partnership units issued in connection with an investment                    |   |                    | – |   |   |   | – |   |   |   | 3,000 |   |
| Operating      partnership units redeemed in exchange for common shares                     |   |                    | 1,014   |   |   |   | – |   |   |   | – |   |

----

----

|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | “Held      to maturity” are those securities that the Company has the positive intent      and ability to hold until maturity.  Under SFAS 115, securities      classified as held to maturity are presented at cost plus the amortization      of any premiums or discounts.  For a security transferred into      the held to maturity category, the security is recorded at estimated fair      value on the date of transfer, with any unrealized gain or loss amortized      against the related fair value adjustment recorded as a component of Other      Comprehensive Income (Loss) within Stockholders’ Equity over the expected      term of the security using the effective interest  method. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | “Available      for sale” are those securities that the Company does not hold for the      purpose of selling in the near-term, but may dispose of prior to      maturity.  They are presented on the Consolidated Balance Sheet      at fair value with the net unrealized gains or losses included in      Accumulated Other Comprehensive Income (Loss), a component of      Stockholders’ Equity on the Company’s Consolidated Balance      Sheet. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                        |   | December 31, |    |
|---------------------------------------------------------------------------------------------|--------|--------------|---------|
|                                                                                        |   | 2008         |    |   | 2007 |   |   | 2006 |   |
| Net      income (loss) allocable to common stockholders                                     |   | $            | (24,605 | ) |   | $ | (5,105 | ) |   | $ | 4,405 |   |
| Weighted      average number of common shares outstanding, basic                            |   |         | 45,526  |   |   |   | 40,739 |   |   |   | 31,939 |   |
| Weighted      average number of common shares outstanding, basic and    diluted             |   |         | 45,526  |   |   |   | 40,739 |   |   |   | 31,941 |   |
| Loss      per share, basic and diluted                                                      |   | $            | (0.54   | ) |   | $ | (0.13 | ) |   | $ | 0.14 |   |
| Non-vested      shares included in weighted average number of shares outstanding      above |   |         | 930     |   |   |   | 693 |   |   |   | 588 |   |

----

----

|                                                                        |   | December 31, |      |
|-----------------------------------------------------------------------------|--------|-------------------|-----------|
|                                                                        |   | 2008              |      |   | 2007 |   |
| Real      estate investments, at cost:                                      |   |              |      |   |   |   |
| Land                                                                        |   | $                 | 192,321   |   |   | $ | 190,771 |   |
| Building      and improvements                                              |   |              | 1,278,025 |   |   |   | 1,275,381 |   |
| Intangible      assets under SFAS 141                                       |   |              | 186,568   |   |   |   | 185,457 |   |
| Less:      Accumulated depreciation and amortization                        |   |              | (146,501  | ) |   |   | (88,039 | ) |
|         Real estate investments, net                              |   | $                 | 1,510,413 |   |   | $ | 1,563,570 |   |
| Intangible      liabilities on real estate investments:                     |   |              |      |   |   |   |   |   |
| Intangible      liabilities under SFAS 141                                  |   | $                 | 56,000    |   |   | $ | 55,999 |   |
| Less:      Accumulated amortization                                         |   |              | (6,723    | ) |   |   | (4,188 | ) |
|         Intangible liabilities on real estate investments,    net |   | $                 | 49,277    |   |   | $ | 51,811 |   |

|                              |   | December      31, |   |
|-----------------------------------|--------|-------------------|--------|
|                              |   | 2008              |   |   | 2007 |   |
|  Accrued      Rental Income  |   | $                 | 35,883 |   |   | $ | 28,782 |   |
|  Deferred      Rental Income |   |              | 1,072  |   |   |   | 116 |   |

----

|                                                                                          |   | December 31, |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                     |   | 2008              |   |   | 2007 |   |   | 2006 |   |
| Depreciation      on real estate (included in depreciation and amortization      expense)     |   | $                 | 33,371 |   |   | $ | 30,042 |   |   | $ | 17,482 |   |
|                                                                                          |   |              |   |   |   |   |   |   |   |   |   |   |
| Amortization      of in-place leases (included in depreciation and amortization      expense) |   |              | 20,650 |   |   |   | 17,462 |   |   |   | 7,969 |   |
|                                                                                          |   |              |   |   |   |   |   |   |   |   |   |   |
| Amortization      of above-market leases (included as a reduction of rental      revenue)     |   |              | 3,972  |   |   |   | 2,949 |   |   |   | 504 |   |
|                                                                                          |   |              |   |   |   |   |   |   |   |   |   |   |
| Amortization      of below-market leases (included as a component of rental      revenue)     |   |              | 2,535  |   |   |   | 2,207 |   |   |   | 1,190 |   |

|       |   | IntangibleAssets |    |   | IntangibleLiabilities |   |
|------------|--------|------------------|---------|--------|-----------------------|--------|
| 2009       |   | $                | 22,696  |   |                  | $      | 2,535 |   |
| 2010       |   |             | 20,149  |   |                  |   | 2,535 |   |
| 2011       |   |             | 19,437  |   |                  |   | 2,535 |   |
| 2012       |   |             | 15,019  |   |                  |   | 2,535 |   |
| 2013       |   |             | 9,347   |   |                  |   | 2,400 |   |
| Thereafter |   |             | 42,712  |   |                  |   | 36,737 |   |
|       |   | $                | 129,360 |   |                  | $      | 49,277 |   |

----

| Tenant or Guarantor         |   | Number ofProperties |   | Location                                                                       |   | Property Type                      |   | SquareFeet |   | LeaseMaturity |
|---------------------------------------|--------|--------------------------|--------|--------------------------------------------------------------------------------|--------|-----------------------------------------|--------|------------|--------|---------------|
|                                  |   |                     |   |                                                                           |   |                                    |   |       |   |          |
| 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       |

|                                      |   | December 31, |    |
|-------------------------------------------|--------|-------------------|---------|
|                                      |   | 2008              |    |   | 2007 |   |
|  Principal                           |   | $                 | 283,912 |   |   | $ | 268,417 |   |
|  Premium                             |   |              | 3,151   |   |   |   | 1,726 |   |
|  Cost      basis                     |   |              | 287,063 |   |   |   | 270,143 |   |
|  Allowance      for loan losses      |   |              | (500    | ) |   |   | – |   |
|  Carrying      amount of loans       |   |              | 286,563 |   |   |   | 270,143 |   |
|  Deferred      origination fees, net |   |              | (784    | ) |   |   | (850 | ) |
|  Total                               |   | $                 | 285,779 |   |   | $ | 269,293 |   |

----

|                                       |   | Carrying Amount |   |   | Average carrying amount |   |
|--------------------------------------------|--------|----------------------|--------|--------|-----------------------------------|--------|
| Borrower                                   |   | 12/31/2008           |   |   | 12/31/2007                        |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Eden      Hylan Seaview LLC                |   | $                    | 650    |   |                              | $      | 650 |   |   | $ | 650 |   |   | $ | 650 |   |   | $ | 649 |   |
| West      End Mortgage Finance Fund I L.P. |   |                 | 6,154  |   |                              |   | 6,654 |   |   |   | 6,499 |   |   |   | 6,377 |   |   |   | 4,885 |   |

|                                       |   | Interest Income Recognized                   |   |
|--------------------------------------------|--------|--------------------------------------------------------|--------|
|                                  |   | For the yearended December 31,2008 |   |
| Borrower                                   |   | Accrual                                                |   |   | Cash |   |
| Eden      Hylan Seaview LLC                |   | $                                                      | 16     |   |   | $ | 7 |   |
| West      End Mortgage Finance Fund I L.P. |   |                                                   | 317    |   |   |   | 317 |   |

----

| Description             |   | Number ofSecurities |   |   | FaceValue |   |    | CarryValue |   |   | AmortizedCost |   |   | FairValue |    |   | GrossUnrecognizedGain |   |    | GrossUnrecognizedLoss |   |
|-------------------------|--------|--------------------------|--------|--------|-----------|--------|---------|------------|--------|--------|---------------|--------|--------|-----------|---------|--------|-----------------------|--------|---------|-----------------------|--------|
| Held      to Maturity   |   |                     | 11     |   |      | $      | 150,742 |       |   | $      | 136,263       |   |   | $         | 145,480 |   |                  | $      | 93,504  |                  |   | $ | 245 |   |   | $ | (52,221 | ) |
| Available      For Sale |   |                     | 9      |   |      |   | 51,640  |       |   |   | 25,579        |   |   |      | 38,975  |   |                  |   | 25,579  |                  |   |   | 1 |   |   |   | (13,397 | ) |
| Total                   |   |                     | 20     |   |      | $      | 202,382 |       |   | $      | 161,842       |   |   | $         | 184,455 |   |                  | $      | 119,083 |                  |   | $ | 246 |   |   | $ | (65,618 | ) |

|                                                                        |   |                |   | Scheduled          |   | December 31, |    |
|-----------------------------------------------------------------------------|--------|--------------------------|--------|--------------------|--------|-------------------|---------|
| Description                                                                 |   | 2008 Classification |   | Maturity Date |   | 2008              |    |   | 2007 |   |
| BSCMS      1999 CLF1, Class E (rated CCC) Face Amount                       |   | Available      For Sale  |   | Mar      2027      |   | $                 | 3,326   |   |   | $ | 3,326 |   |
| BSCMS      1999 CLF1, Class F (not rated) Face Amount                       |   | Available      For Sale  |   | Sep      2025      |   |              | 251     |   |   |   | 251 |   |
| CMLBC      2001-CMLB-1, Class H (rated B-) Face Amount                      |   | Available      For Sale  |   | Mar      2024      |   |              | 11,907  |   |   |   | 11,907 |   |
| CMLBC      2001-CMLB-1, Class J (rated D) Face Amount                       |   | Available      For Sale  |   | Oct      2025      |   |              | 6,383   |   |   |   | 6,383 |   |
| NLFC      1999-LTL-1, Class X (IO) (rated AAA) Carry Value                  |   | Available      For Sale  |   | Jan      2024      |   |              | 5,662   |   |   |   | 6,265 |   |
| WBCMT      2004-C15 180E (rated B) Face Amount                              |   | Available      For Sale  |   | Nov      2009      |   |              | 8,000   |   |   |   | 8,000 |   |
| BACMS      2002-2, Class V-1 (7-Eleven, Inc.) (rated A) Face Amount         |   | Available      For Sale  |   | Sep      2019      |   |              | 508     |   |   |   | 466 |   |
| BACMS      2002-2, Class V-2 (Sterling Jewelers) (not rated) Face    Amount |   | Available      For Sale  |   | Jan      2021      |   |              | 776     |   |   |   | 713 |   |
| Yahoo,      Inc. (rated BBB-) Face Amount                                   |   | Available      For Sale  |   | Aug      2026      |   |              | 14,827  |   |   |   | 14,924 |   |
| BACM      2006-4, Class H (rated BBB+) Face Amount                          |   | Held      To Maturity    |   | Aug      2016      |   |              | 8,000   |   |   |   | 8,000 |   |
| CALFS      1997-CTL1, Class D (rated BBB-) Face Amount                      |   | Held      To Maturity    |   | Feb      2016      |   |              | 6,000   |   |   |   | 6,000 |   |
| CMLBC      2001-CMLB-1, Class E (rated BBB+) Face Amount                    |   | Held      To Maturity    |   | Jul      2022      |   |              | 9,526   |   |   |   | 9,526 |   |
| CMLBC      2001-CMLB-1, Class G (rated BB-) Face Amount                     |   | Held      To Maturity    |   | Feb      2023      |   |              | 9,526   |   |   |   | 9,526 |   |
| NLFC      1999-LTL-1, Class E (rated BB) Face Amount                        |   | Held      To Maturity    |   | Jan      2022      |   |              | 11,081  |   |   |   | 11,081 |   |
| WBCMT      2004-C15 180D (rated B+) Face Amount                             |   | Held      To Maturity    |   | Nov      2009      |   |              | 15,000  |   |   |   | 15,000 |   |
| WBCMT      2006-C27, Class C (rated AA-) Face Amount                        |   | Held      To Maturity    |   | Aug      2016      |   |              | 11,000  |   |   |   | 11,000 |   |
| CVS      Corporation (rated BBB+) Face Amount                               |   | Held      To Maturity    |   | Jan      2028      |   |              | 18,604  |   |   |   | 19,118 |   |
| Koninklijke      Ahold, N.V. 7.82% Jan 2020 (rated BBB-) Face Amount        |   | Held      To Maturity    |   | Jan      2020      |   |              | 8,586   |   |   |   | 8,932 |   |
| Lucent      6.70% due 9/1/2020 (rated BB-) Face Amount                      |   | Held      To Maturity    |   | Sep      2020      |   |              | 36,616  |   |   |   | 37,321 |   |
| Yahoo,      Inc. (rated BBB-) Face Amount                                   |   | Held      To Maturity    |   | Aug      2026      |   |              | 16,804  |   |   |   | 16,913 |   |
| Koninklijke      Ahold, N.V. 7.9% May 2026 (rated BBB-) Face Amount         |   | N/A                      |   | May      2026      |   |              | – |   |   |   | 22,962 |   |
| Unearned      Discount                                                      |   |                     |   |               |   |              | (17,928 | ) |   |   | (15,707 | ) |
| Cost      Basis                                                             |   |                     |   |               |   |              | 184,455 |   |   |   | 211,907 |   |
| Net      unrealized gain (loss) on securities                               |   |                     |   |               |   |              | (22,613 | ) |   |   | (13,720 | ) |
| Total                                                                       |   |                     |   |               |   | $                 | 161,842 |   |   | $ | 198,187 |   |

----

|   | · | 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, |    |
|--------------------------------------------------------------------|--------|-------------------|---------|
|                                                          |   | 2008              |    |   | 2007 |   |
| Unrealized      gains on securities previously available for sale  |   | $                 | 900     |   |   | $ | – |   |
| Unrealized      losses on securities previously available for sale |   |              | (10,117 | ) |   |   | – |   |
| Unrealized      gains on securities available for sale             |   |              | 1       |   |   |   | 1,781 |   |
| Unrealized      losses on securities available for sale            |   |              | (13,397 | ) |   |   | (15,501 | ) |

|                                                 |   | AggregateFair Value |   |   | AggregateUnrealizedLoss |   |   | Number ofSecurities |   |
|------------------------------------------------------|--------|--------------------------|--------|--------|-------------------------|--------|--------|--------------------------|--------|
|                                                 |   |                     |   |   |                    |   |   |                     |   |   |   |   |
| In      unrealized loss position less than 12 months |   | $                        | 23,391 |   |                    | $      | 10,549 |                     |   |   | 4 |   |
| In      unrealized loss position 12 or more months   |   |                     | 85,745 |   |                    |   | 55,068 |                     |   |   | 11 |   |

|                    |   | 2006   |   |
|-------------------------|--------|--------|--------|
| Proceeds      from sale |   | $      | 7,939  |   |
| Gain      on sale       |   |   | 2,278  |   |

----

|                                  |   | Carrying Amount |    |   | Notional Amount |   |    | Estimated Fair Value |   |
|--------------------------------------------|--------|----------------------|---------|--------|----------------------|--------|---------|--------------------------------|--------|
|                                  |   | 12/31/2008           |    |   | 12/31/2007           |   |    | 12/31/2008                     |   |   | 12/31/2007 |   |   | 12/31/2008 |   |   | 12/31/2007 |   |
| Assets:                                    |   |                 |    |   |                 |   |    |                           |   |   |   |   |   |   |   |   |   |   |
| Loans      held for investment             |   | $                    | 286,563 |   |                 | $      | 270,143 |                           |   | $ | 283,912 |   |   | $ | 268,417 |   |   | $ | 262,647 |   |   | $ | 267,735 |   |
| Commercial      mortgage-backed securities |   |                 | 161,842 |   |                 |   | 198,187 |                           |   |   | 202,382 |   |   |   | 227,614 |   |   |   | 119,083 |   |   |   | 198,187 |   |
| Structuring      fees receivable           |   |                 | 1,863   |   |                 |   | 2,576   |                           |   |   | N/A |   |   |   | N/A |   |   |   | 1,863 |   |   |   | 2,576 |   |
| Liabilities:                               |   |                 |    |   |                 |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreement obligations      |   | $                    | – |   |                 | $      | 232,869 |                           |   | $ | – |   |   | $ | 232,869 |   |   | $ | – |   |   | $ | 232,869 |   |
| Mortgages      on real estate investments  |   |                 | 972,324 |   |                 |   | 983,770 |                           |   |   | 966,091 |   |   |   | 976,237 |   |   |   | 936,668 |   |   |   | 923,611 |   |
| Collateralized      debt obligations       |   |                 | 268,265 |   |                 |   | 268,227 |                           |   |   | 268,500 |   |   |   | 268,500 |   |   |   | 116,592 |   |   |   | 261,366 |   |
| Credit      facility                       |   |                 | 189,262 |   |                 |   | – |                           |   |   | 189,262 |   |   |   | – |   |   |   | 189,262 |   |   |   | – |   |
| Secured      term loan                     |   |                 | 123,719 |   |                 |   | 129,521 |                           |   |   | 123,719 |   |   |   | 129,521 |   |   |   | 62,010 |   |   |   | 131,365 |   |
| Convertible      senior notes              |   |                 | 71,760  |   |                 |   | 75,000  |                           |   |   | 71,760 |   |   |   | 75,000 |   |   |   | 28,329 |   |   |   | 63,322 |   |
| Other      long-term debt                  |   |                 | 30,930  |   |                 |   | 30,930  |                           |   |   | 30,930 |   |   |   | 30,930 |   |   |   | 11,152 |   |   |   | 27,761 |   |
| Derivative      liabilities                |   |                 | – |   |                 |   | 4,559   |                           |   |   | – |   |   |   | 177,442 |   |   |   | – |   |   |   | 4,559 |   |

----

|   | · | Level      1 – Quoted prices are available in active markets for identical assets or      liabilities at the reporting date.   As of December 31,      2008, the Company has classified none of its securities available for sale      as Level 1. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level      2 – Pricing inputs other than quoted prices included within Level 1 that      are observable for substantially the full term of the asset or      liability.  Level 2 assets include quoted prices for similar      assets or liabilities in active markets; quoted prices for identical or      similar assets or liabilities that are not active; and inputs other than      quoted prices that are observable, such as models or other valuation      methodologies.  As of December 31, 2008, the Company has      classified one of its securities available for sale as Level      2.  For that security which is backed by a single corporate      tenant, the Company has determined fair value based on a broker quotation      for a similar security. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level      3 – Instruments that have little to no pricing observability as of the      reported date.  These financial instruments do not have two-way      markets and are measured using management’s best estimate of fair value,      where the inputs into the determination of fair value require significant      management judgment or estimation. Instruments in this category generally      include assets and liabilities for which there is little, if any, current      market activity.  As of December 31, 2008, the Company has      classified all but one of its securities available for sale as Level 3,      due to the lack of current market activity.  The Company      believes that it may be appropriate to transfer the securities to Level 2      in subsequent periods if market activity returns to normalized levels and      observable inputs become available.  The fair values of the      securities are determined in most cases primarily by reference to index      pricing.  With respect to one security, management has estimated      fair value based on credit characteristics and term of the security,      market yields on securities with similar credit ratings, and collateral      values.  Management has obtained broker quotes, but believes      that in most cases the broker quotes reflect expected pricing for      distressed trades in inactive and dislocated markets, rather than actual      prices in orderly transactions.  Management has ultimately      determined the fair values recorded in the financial statements based on a      variety of factors, and in most cases those fair values are significantly      above the broker quotes. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Quoted Prices inActive Markets forIdentical Assetsand Liabilities(Level 1) |    |   | Significant OtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level 3) |   |   | Balance atDecember 31,2008 |   |
|------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|---------|--------|------------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------------------|--------|
| Assets                             |   |                                                                                                          |    |   |                                                 |   |   |                                        |   |   |                                 |   |
| Securities      available for sale |   | $                                                                                                             | – |   |                                                 | $      | 12,096 |                                        |   | $      | 13,483                               |   |   | $ | 25,579 |   |

----

|                                                       |   | Year endedDecember 31, 2008 |   |
|------------------------------------------------------------|--------|-----------------------------|--------|
| Securities available for    sale                           |   |                        |   |
| Beginning      balance                                     |   | $                           | -      |   |
| Gains      (losses) included in net income (loss)          |   |                        | (1,000 | ) |
| Gains      (losses) included in other comprehensive income |   |                        | (2,771 | ) |
| Amortization      included in interest income              |   |                        | 86     |   |
| Settlements      or repayments                             |   |                        | (130   | ) |
| Transfers      in (out) of Level 3                         |   |                        | 17,298 |   |
| Ending      balance                                        |   | $                           | 13,483 |   |

|                                                        |   | December 31, |   |
|------------------------------------------------------------------|--------|-------------------|--------|
|                                                        |   | 2008              |   |   | 2007 |   |
| Receivables      and accrued interest                            |   | $                 | 10,024 |   |   | $ | 9,524 |   |
| Prepaid      expenses and deposits                               |   |              | 1,198  |   |   |   | 1,712 |   |
| Reserve      accounts                                            |   |              | 12,889 |   |   |   | 14,348 |   |
| Escrow      held with mortgage lender                            |   |              | 212    |   |   |   | 812 |   |
| Funds      with CDO trustee pending distribution or reinvestment |   |              | 3,947  |   |   |   | 11,910 |   |
| Restricted      cash                                             |   |              | 44     |   |   |   | 15 |   |
| Amounts      held by servicer                                    |   |              | 356    |   |   |   | 3,048 |   |
| Accrued      rental income                                       |   |              | 35,883 |   |   |   | 28,782 |   |
| Debt      issuance costs, net                                    |   |              | 10,547 |   |   |   | 11,316 |   |
| Investment      in partially-owned entities                      |   |              | -      |   |   |   | 1,139 |   |
| Investment      in statutory trust                               |   |              | 930    |   |   |   | 930 |   |
| Other                                                            |   |              | 1,303  |   |   |   | 1,647 |   |
| Total                                                            |   | $                 | 77,333 |   |   | $ | 85,183 |   |

----

|                                                             |   | At December 31, 2008 |    |   | At December 31, 2007 |   |
|------------------------------------------------------------------|--------|-------------------------------------|---------|--------|-------------------------------------|--------|
|                                                        |   | Borrowings                          |    |   | CollateralCarry Value          |   |   | Borrowings |   |   | CollateralCarry Value |   |
| Credit Agreement                                            |   |                                |    |   |                                |   |   |   |   |   |   |   |
| Loans      held for investment                                   |   | $                                   | 55,434  |   |                                | $      | 78,071 |   |   | $ | – |   |   | $ | – |   |
| Intercompany      mortgage loans and investments in CapLease CDO |   |                                | 119,119 |   |                                |   | 145,816 |   |   |   | – |   |   |   | – |   |
| Commercial      mortgage-backed securities                       |   |                                | 14,709  |   |                                |   | 19,390 |   |   |   | – |   |   |   | – |   |
| Owned      property                                              |   |                                | – |   |                                |   | 44,398 |   |   |   | – |   |   |   | – |   |
| Repurchase      Agreement                                        |   |                                |    |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Loans      held for investment                                   |   |                                | – |   |                                |   | – |   |   |   | 56,888 |   |   |   | 67,255 |   |
| Intercompany      mortgage loans on CapLease properties          |   |                                | – |   |                                |   | – |   |   |   | 132,572 |   |   |   | 167,544 |   |
| Commercial      mortgage-backed securities                       |   |                                | – |   |                                |   | – |   |   |   | 43,409 |   |   |   | 59,464 |   |
| Total                                                            |   | $                                   | 189,262 |   |                                | $      | 287,675 |   |   | $ | 232,869 |   |   | $ | 294,263 |   |

|                                      |   | December 31, |   |
|------------------------------------------------|--------|-------------------|--------|
|                                      |   | 2008              |   |   | 2007 |   |   | 2006 |   |
| Weighted      average effecting financing rate |   |              | 5.44   | % |   |   | 6.29 | % |   |   | 5.96 | % |
| Average      30-Day LIBOR rate                 |   |              | 2.91   | % |   |   | 5.30 | % |   |   | 5.07 | % |

----

|                                                                                |   | Dec 31, 2008 |    |   | Dec 31, 2007 |   |    |   |   |   | EffectiveFinancing |   |    |
|-------------------------------------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|---------|--------|--------|--------|--------------------|--------|--------------|
| Property Level Debt - Fixed Rate                           |   | Face                   |    |   | Carry Value       |   |    | Face   |   |   | Carry Value   |   |         | Coupon |   |   | Rate (1) |   |  Maturity |
|                                                                           |   | (unaudited)            |    |   | (unaudited)            |   |    |   |   |   |               |   |         |   |   |   |   |   |   |
| The Travelers      Corporation, Hartford, CT                                        |   | $                      | 15,074  |   |                   | $      | 15,950  |   |   | $      | 19,406             |   |         | $ | 20,944 |   |   |   | 9.80 | % |   |   | 5.53 | % | Sep      2011 |
|  The      Travelers Corporation, Hartford, CT                                  |   |                   | 13,925  |   |                   |   | 15,159  |   |   |   | 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 |   |   |   | 117,000            |   |         |   | 117,000 |   |   |   | 6.32 | % |   |   | 5.65 | % | Aug      2012 |
| Choice      Hotels International, Inc., Silver Spring, MD                           |   |                   | 30,080  |   |                   |   | 30,080  |   |   |   | 30,937             |   |         |   | 30,937 |   |   |   | 5.30 | % |   |   | 5.34 | % | May      2013 |
| Omnicom      Group, Inc., Irving, TX                                                |   |                   | 13,361  |   |                   |   | 13,361  |   |   |   | 13,575             |   |         |   | 13,575 |   |   |   | 5.24 | % |   |   | 5.30 | % | May      2013 |
| Capital      One Financial Corporation, Plano, TX                                   |   |                   | 20,630  |   |                   |   | 20,630  |   |   |   | 20,866             |   |         |   | 20,866 |   |   |   | 5.24 | % |   |   | 5.29 | % | May      2013 |
| Aon      Corporation, Glenview, IL                                                  |   |                   | 63,613  |   |                   |   | 63,613  |   |   |   | 64,708             |   |         |   | 64,708 |   |   |   | 5.23 | % |   |   | 5.75 | % | Nov      2014 |
| Cadbury      Schweppes Plc, Whippany, NJ                                            |   |                   | 34,491  |   |                   |   | 34,491  |   |   |   | 35,065             |   |         |   | 35,065 |   |   |   | 5.26 | % |   |   | 5.34 | % | Mar      2015 |
| ITT      Industries, Inc., Herndon, VA                                              |   |                   | 41,301  |   |                   |   | 41,301  |   |   |   | 41,591             |   |         |   | 41,591 |   |   |   | 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                                              |   |                   | 15,120  |   |                   |   | 15,120  |   |   |   | 15,224             |   |         |   | 15,224 |   |   |   | 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                                |   |                   | 62,322  |   |                   |   | 62,322  |   |   |   | 63,632             |   |         |   | 63,632 |   |   |   | 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                                          |   |                   | 70,805  |   |                   |   | 70,805  |   |   |   | 71,273             |   |         |   | 71,273 |   |   |   | 5.57 | % |   |   | 5.59 | % | Mar      2016 |
| United      States Government (VA), Ponce, PR                                       |   |                   | 5,867   |   |                   |   | 6,078   |   |   |   | 6,386              |   |         |   | 6,642 |   |   |   | 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                                         |   |                   | 14,441  |   |                   |   | 14,441  |   |   |   | 14,621             |   |         |   | 14,621 |   |   |   | 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                                                   |   |                   | 1,636   |   |                   |   | 1,733   |   |   |   | 1,783              |   |         |   | 1,901 |   |   |   | 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  |   |   |   | 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  |   |   |   | 10,332             |   |         |   | 10,332 |   |   |   | 5.68 | % |   |   | 5.75 | % | Feb      2017 |
| Bunge      North America, Inc., Fort Worth, TX                                      |   |                   | 6,262   |   |                   |   | 6,262   |   |   |   | 6,262              |   |         |   | 6,262 |   |   |   | 5.45 | % |   |   | 5.55 | % | May      2017 |
| AmeriCredit      Corp., Arlington, TX                                               |   |                   | 28,148  |   |                   |   | 27,828  |   |   |   | 28,586             |   |         |   | 28,234 |   |   |   | 5.28 | % |   |   | 5.51 | % | Sep      2017 |
| Walgreen      Co., Portsmouth, VA                                                   |   |                   | 2,937   |   |                   |   | 3,098   |   |   |   | 3,068              |   |         |   | 3,249 |   |   |   | 7.20 | % |   |   | 6.18 | % | Jul      2018 |
| United      States Government (EPA), Kansas City, KS                                |   |                   | 20,245  |   |                   |   | 23,328  |   |   |   | 20,775             |   |         |   | 24,082 |   |   |   | 7.57 | % |   |   | 5.74 | % | Oct      2022 |
| United      States Government (OSHA), Sandy, UT                                     |   |                   | 14,470  |   |                   |   | 15,361  |   |   |   | 14,605             |   |         |   | 15,555 |   |   |   | 6.28 | % |   |   | 5.52 | % | Jan      2024 |
| Total                                                                               |   | $                      | 966,091 |   |                   | $      | 972,324 |   |   | $      | 976,237            |   |         | $ | 983,770 |   |   |   |   |   |   |   |   |   |   |

| (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 relatedborrowing. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                    |   | Carry Value |    |
|---------------------------------------------------------|--------|------------------|---------|
| Loans held for investment                               |   | $                | 158,456 |   |
| Intercompany      mortgage loans on CapLease properties |   |             | 47,115  |   |
| Commercial      mortgage-backed securities              |   |             | 81,837  |   |
| Total                                                   |   | $                | 287,408 |   |

|                                                    |   | Carry Value |    |
|---------------------------------------------------------|--------|------------------|---------|
| Loans held for investment                               |   | $                | 43,731  |   |
| Intercompany      mortgage loans on CapLease properties |   |             | 51,815  |   |
| Commercial      mortgage-backed securities              |   |             | 58,861  |   |
| Total                                                   |   | $                | 154,407 |   |

----

----

|       |   | ScheduledAmortization |    |   | BalloonPayments |   |      | Total  |   |
|------------|--------|-----------------------|---------|--------|-----------------|--------|-----------|--------|--------|
| 2009       |   | $                     | 38,109  |   |            | $      | –   |   |   | $ | 38,109 |   |
| 2010       |   |                  | 56,578  |   |            |   | 170,903   |   |   |   | 227,481 |   |
| 2011       |   |                  | 42,993  |   |            |   | 18,861    |   |   |   | 61,854 |   |
| 2012       |   |                  | 42,869  |   |            |   | 188,760   |   |   |   | 231,629 |   |
| 2013       |   |                  | 41,306  |   |            |   | 54,984    |   |   |   | 96,290 |   |
| Thereafter |   |                  | 127,123 |   |            |   | 873,774   |   |   |   | 1,000,897 |   |
|       |   | $                     | 348,978 |   |            | $      | 1,307,282 |   |   | $ | 1,656,260 |   |

|                                        |   | December 31, |   |
|---------------------------------------------|--------|-------------------|--------|
|                                        |   | 2008              |   |   | 2007 |   |
| Accounts      payable and other liabilities |   | $                 | 1,459  |   |   | $ | 1,245 |   |
| Accrued      interest                       |   |              | 8,571  |   |   |   | 9,220 |   |
| Accrued      expenses                       |   |              | 4,862  |   |   |   | 5,236 |   |
| Derivative      liabilities                 |   |              | -      |   |   |   | 4,559 |   |
| Deferred      rental income                 |   |              | 1,072  |   |   |   | 116 |   |
| Unearned      rental income                 |   |              | 3,916  |   |   |   | 3,856 |   |
| Total                                       |   | $                 | 19,880 |   |   | $ | 24,232 |   |

----

|                     |   | Dec 31, 2007 |    |
|-------------------------------|--------|------------------------|---------|
| Description                   |   | NotionalAmount         |    |   | Fair      value |   |
|  Interest      rate swap |   | $                      | 177,442 |   |   | $ | (4,559 | ) |

----

| 2009       |   | $      | 737     |   |
|------------|--------|--------|---------|--------|
| 2010       |   |   | 732     |   |
| 2011       |   |   | 753     |   |
| 2012       |   |   | 753     |   |
| 2013       |   |   | 565     |   |
| Thereafter |   |   | – |   |
|       |   | $      | 3,540   |   |

----

----

| Quarter Ended |   | RecordDate |   | PaymentDate |   | DividendPer Share |   |   | TotalAmount |   |
|---------------|--------|------------|--------|-------------|--------|-------------------|--------|--------|-------------|--------|
| 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 |   |
| 3/31/2008     |   | 3/31/2008  |   | 4/15/2008   |   |              | 0.20   |   |        |   | 8,949 |   |
| 6/30/2008     |   | 6/30/2008  |   | 7/15/2008   |   |              | 0.20   |   |        |   | 8,973 |   |
| 9/30/2008     |   | 9/30/2008  |   | 10/15/2008  |   |              | 0.20   |   |        |   | 9,475 |   |

| 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     |   | 6/29/2007  |   | 7/16/2007   |   |              | 0.5078125 |   |        |   | 711 |   |
| 9/30/2007     |   | 9/28/2007  |   | 10/15/2007  |   |              | 0.5078125 |   |        |   | 711 |   |
| 12/31/2007    |   | 12/31/2007 |   | 1/15/2008   |   |              | 0.5078125 |   |        |   | 711 |   |
| 3/31/2008     |   | 3/31/2008  |   | 4/15/2008   |   |              | 0.5078125 |   |        |   | 711 |   |
| 6/30/2008     |   | 6/30/2008  |   | 7/15/2008   |   |              | 0.5078125 |   |        |   | 711 |   |
| 9/30/2008     |   | 9/30/2008  |   | 10/15/2008  |   |              | 0.5078125 |   |        |   | 711 |   |
| 12/31/2008    |   | 12/31/2008 |   | 1/15/2009   |   |              | 0.5078125 |   |        |   | 711 |   |

----

|                                                   |   | Number ofShares |      |
|--------------------------------------------------------|--------|----------------------|-----------|
| Stock      Awards at January 1, 2007                   |   |                 | 1,081,995 |   |
| Granted      During the Year Ended December 31, 2007   |   |                 | 315,250   | (1) |
| Stock      Awards at January 1, 2008                   |   |                 | 1,397,245 |   |
| Granted      During the Period Ended December 31, 2008 |   |                 | 393,950   | (2) |
| Stock      Awards at December 31, 2008                 |   |                 | 1,791,195 |   |

|   |  (1) | 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. |
|--------|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Shares      are scheduled to vest between March 2009 and March 2013, 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 196,725 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, 2007   |   |                                     | 588,113  |   |                                                                |   | 436,891  |                                       |   | $ | 10.99 |   |
| Current      period awards          |   |                                     | 315,250  |   |                                                                |   | 189,850  |                                       |   |   | 10.91 |   |
| Prior      period awards            |   |                                     | N/A      |   |                                                                |   | 30,770   |                                       |   |   | 10.91 |   |
| Vested                              |   |                                     | (210,781 | )      |                                                                |   | (210,781 | )                                          |   |   | 10.97 |   |
| Nonvested      at January 1, 2008   |   |                                     | 692,582  |   |                                                                |   | 446,731  |                                       |   |   | 10.99 |   |
| Current      period awards          |   |                                     | 393,950  |   |                                                                |   | 236,570  |                                       |   |   | 8.43 |   |
| Prior      period awards            |   |                                     | N/A      |   |                                                                |   | 79,799   |                                       |   |   | 8.43 |   |
| Vested                              |   |                                     | (156,300 | )      |                                                                |   | (156,300 | )                                          |   |   | 11.00 |   |
| Nonvested      at December 31, 2008 |   |                                     | 930,232  |   |                                                                |   | 606,800  |                                       |   |   | 9.66 |   |

----

|                                                                                                                 |   | 2008   |    |   | 2007   |   |    | 2006   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Net      income (loss)                                                                                               |   | $      | (21,761 | )      |   | $      | (2,261  | )      |   | $ | 7,249 |   |
| Increase      (decrease) in fair value of derivatives of securities available for      sale                          |   |   | (9,398  | )      |   |   | (20,412 | )      |   |   | (2,956 | ) |
| Increase      (decrease) in fair value of derivatives                                                                |   |   | 4,522   |   |   |   | (4,570  | )      |   |   | (737 | ) |
| Amortization      of unrealized loss on securities previously   classified      as available for sale |   |   | 505     |   |   |   | – |   |   |   | – |   |
| Reclassification      of derivative items into earnings                                                              |   |   | 20,126  |   |   |   | 788     |   |   |   | 760 |   |
| Realized      income (loss) on derivatives                                                                           |   |   | (17,853 | )      |   |   | 2,434   |   |   |   | 421 |   |
| Comprehensive      income (loss)                                                                                     |   | $      | (23,859 | )      |   | $      | (24,021 | )      |   | $ | 4,737 |   |

|                                                                                           |   | December 31, |    |
|------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                           |   | 2008              |    |   | 2007 |   |
| Net      unrealized losses on securities available for sale                                    |   | $                 | (13,396 | ) |   | $ | (13,720 | ) |
| Net      unrealized losses on securities previously classified as available      for sale |   |              | (9,217  | ) |   |   | – |   |
| Net      unrealized losses on derivatives                                                      |   |              | -       |   |   |   | (4,522 | ) |
| Net      realized losses on derivatives                                                        |   |              | (5,505  | ) |   |   | (7,778 | ) |
| Accumulated      other comprehensive loss                                                      |   | $                 | (28,118 | ) |   | $ | (26,020 | ) |

| 2009       |   | $      | 130,116   |   |
|------------|--------|--------|-----------|--------|
| 2010       |   |   | 115,155   |   |
| 2011       |   |   | 114,967   |   |
| 2012       |   |   | 116,979   |   |
| 2013       |   |   | 92,926    |   |
| Thereafter |   |   | 538,542   |   |
|       |   | $      | 1,108,685 |   |

----

|                                                                         |   | For the twelve monthsended December 31, |    |
|------------------------------------------------------------------------------|--------|------------------------------------------------------------------|---------|
|                                                                         |   | 2008                                                             |    |   | 2007 |   |
| Total      revenues                                                          |   | $                                                                | 185,107 |   |   | $ | 184,653 |   |
| Income      from continuing operations                                       |   |                                                             | (21,761 | ) |   |   | 378 |   |
| Income      per basic and diluted common share from continuing    operations |   |                                                             | (0.48   | ) |   |   | 0.01 |   |
| Net      income (loss) allocable to common stockholders                      |   |                                                             | (24,605 | ) |   |   | (2,483 | ) |
| Net      income (loss) per basic and diluted common share                    |   |                                                             | (0.54   | ) |   |   | (0.06 | ) |

|                                          |   | Corporate /Unallocated |    |   | OperatingReal Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 777     |   |                      | $      | 149,992   |               |   | $      | 34,338  |   |   | $ | 185,107 |   |
| Total      expenses and minority interest     |   |                        | 22,185  |   |                      |   | 146,889   |               |   |   | 39,762  |   |   |   | 208,836 |   |
| Gain      on extinguishment of debt           |   |                        | 1,968   |   |                      |   | -         |               |   |   | -       |   |   |   | 1,968 |   |
| Income      (loss) from continuing operations |   |                        | (19,440 | )      |                      |   | 3,103     |               |   |   | (5,424  | )      |   |   | (21,761 | ) |
| Total      assets                             |   |                        | 26,763  |   |                      |   | 1,566,405 |               |   |   | 452,501 |   |   |   | 2,045,669 |   |

----

|                                          |   | Corporate /Unallocated |    |   | OperatingReal Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 602     |   |                      | $      | 137,341   |               |   | $      | 34,639  |   |   | $ | 172,582 |   |
| Total      expenses and minority interest     |   |                        | 16,111  |   |                      |   | 135,658   |               |   |   | 24,420  |   |   |   | 176,189 |   |
| Gain      on extinguishment of debt           |   |                        | -       |   |                      |   | 1,363     |               |   |   | -       |   |   |   | 1,363 |   |
| Income      (loss) from continuing operations |   |                        | (15,509 | )      |                      |   | 3,046     |               |   |   | 10,219  |   |   |   | (2,244 | ) |
| Total      assets                             |   |                        | 64,616  |   |                      |   | 1,620,419 |               |   |   | 473,234 |   |   |   | 2,158,269 |   |

|                                          |   | Corporate      /Unallocated |    |   | OperatingReal      Estate |   |      | LendingInvestments |   |   | Total   |   |
|-----------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|-----------|--------------------|--------|--------|---------|--------|
| Total      revenues                           |   | $                           | 811     |   |                      | $      | 88,002    |               |   | $      | 35,967  |   |   | $ | 124,780 |   |
| Total      expenses and minority interest     |   |                        | 14,901  |   |                      |   | 82,754    |               |   |   | 20,071  |   |   |   | 117,726 |   |
| Income      (loss) from continuing operations |   |                        | (14,090 | )      |                      |   | 5,248     |               |   |   | 15,896  |   |   |   | 7,054 |   |
| Total      assets                             |   |                        | 30,219  |   |                      |   | 1,152,348 |               |   |   | 461,733 |   |   |   | 1,644,300 |   |

|     |   | Revenue |   |   | Net income (loss) applicable to common shares |   |    | Basic and diluted income (loss) percommon share |   |
|--------------------|--------|---------|--------|--------|-----------------------------------------------------------------------------|--------|---------|-------------------------------------------------------------------------------|--------|
| 2008               |   |    |   |   |                                                                        |   |    |                                                                          |   |
| December      31   |   | $       | 46,167 |   |                                                                        | $      | (19,453 | )                                                                             |   | $ | (0.41 | ) |
| September      30  |   |    | 46,130 |   |                                                                        |   | (1,914  | )                                                                             |   |   | (0.04 | ) |
| June      30       |   |    | 46,226 |   |                                                                        |   | (956    | )                                                                             |   |   | (0.02 | ) |
| March      31      |   |    | 46,584 |   |                                                                        |   | (2,281  | )                                                                             |   |   | (0.05 | ) |
| 2007               |   |    |   |   |                                                                        |   |    |                                                                          |   |   |   |   |
| December      31   |   |    | 46,880 |   |                                                                        |   | (904    | )                                                                             |   |   | (0.02 | ) |
| September      30  |   |    | 46,709 |   |                                                                        |   | (105    | )                                                                             |   |   | (0.00 | ) |
| June      30       |   |    | 43,725 |   |                                                                        |   | (4,003  | )                                                                             |   |   | (0.10 | ) |
| March      31      |   |    | 35,269 |   |                                                                        |   | (93     | )                                                                             |   |   | (0.00 | ) |

|   | · | 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 toAcquisition |   |   | Gross Amount at WhichCarried at Close of Period |   |   |                          |   |   |   |   |   |                          |
|------------------------------------------------------------------|--------|--------------|--------|--------|-------------------|--------|--------|----------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|--------|-------------------------------|
| Description                                                      |   | Encumbrances |   |   | Land              |   |   | Building andImprovements                            |   |   | Land                                                                               |   |   | Building andImprovements |   |   | Land   |   |   | Building andImprovements |   |   | Total |   |   | AccumulatedDepreciation |   | Date of Construction |   | Date Acquired |   | Life on WhichDepreciationis Computed |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Abbott      Laboratories, Columbus, OH                           |   | $            | 6,881  |   |              | $      | 1,025  |                                                     |   | $      | 10,066                                                                             |   |   | $                             | -      |   |   | $      | -      |                          |   | $ | 1,025 |   |   | $ | 10,066 |   |   | $ | 11,091 |   |   | $ | 1,046 |   | 1980,      renovated in 2003-2004 |   | 11/5/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Abbott      Laboratories, Waukegan, IL                           |   |         | 17,084 |   |              |   | 2,500  |                                                     |   |   | 15,430                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 2,500 |   |   |   | 15,430 |   |   |   | 17,930 |   |   |   | 1,310 |   | 2000 |   | 8/9/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aetna      Life Insurance Company, Fresno, CA                    |   |         | 19,993 |   |              |   | 3,000  |                                                     |   |   | 19,462                                                                             |   |   |                          | -      |   |   |   | 849    |                          |   |   | 3,000 |   |   |   | 20,311 |   |   |   | 23,311 |   |   |   | 1,688 |   | 1      story office 1969, 2 story office 1984, 2 story parking 1997, interior      renovated in 2000 & 2008, parking lot reconstructed in      2008 |   | 10/19/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allstate      Insurance Company, Charlotte, NC                   |   |         | 23,688 |   |              |   | 7,100  |                                                     |   |   | 14,594                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 7,100 |   |   |   | 14,594 |   |   |   | 21,694 |   |   |   | 1,105 |   | 1973,      renovated in the 1990s |   | 12/21/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allstate      Insurance Company, Roanoke, VA                     |   |         | 25,220 |   |              |   | 3,200  |                                                     |   |   | 20,930                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 3,200 |   |   |   | 20,930 |   |   |   | 24,130 |   |   |   | 1,585 |   | 1969/70,      with an addition in 1981 |   | 12/21/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AmeriCredit      Corp., Arlington, TX                            |   |         | 27,828 |   |              |   | 5,820  |                                                     |   |   | 32,219                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 5,820 |   |   |   | 32,219 |   |   |   | 38,039 |   |   |   | 1,620 |   | 1999 |   | 12/28/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| AMVESCAP      PLC, Denver, CO                                    |   |         | 56,770 |   |              |   | 7,200  |                                                     |   |   | 55,395                                                                             |   |   |                          | -      |   |   |   | 383    |                          |   |   | 7,200 |   |   |   | 55,778 |   |   |   | 62,978 |   |   |   | 3,854 |   | 2001,      first floor renovated in 2008 |   | 3/23/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aon      Corporation, Glenview, IL                               |   |         | 69,773 |   |              |   | 11,000 |                                                     |   |   | 68,639                                                                             |   |   |                          | -      |   |   |   | 441    |                          |   |   | 11,000 |   |   |   | 69,080 |   |   |   | 80,080 |   |   |   | 7,495 |   | 1976,      renovated in 1999-2001 |   | 8/19/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Baxter      International, Inc., Bloomington, IN                 |   |         | 5,840  |   |              |   | 1,200  |                                                     |   |   | 9,181                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 1,200 |   |   |   | 9,181 |   |   |   | 10,381 |   |   |   | 968 |   | 1996,      renovation and warehouse addition in 2004 |   | 10/13/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bunge      North America, Inc., Fort Worth, TX                   |   |         | 8,639  |   |              |   | 650    |                                                     |   |   | 8,880                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 650 |   |   |   | 8,880 |   |   |   | 9,530 |   |   |   | 377 |   | 2005 |   | 4/19/2007 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cadbury      Schweppes Holdings (US), Whippany, NJ               |   |         | 37,386 |   |              |   | 6,300  |                                                     |   |   | 38,994                                                                             |   |   |                          | -      |   |   |   | 1,232  |                          |   |   | 6,300 |   |   |   | 40,226 |   |   |   | 46,526 |   |   |   | 3,518 |   | 2005 |   | 1/6/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      One Financial Corporation, Plano, TX                |   |         | 22,526 |   |              |   | 6,670  |                                                     |   |   | 18,816                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 6,670 |   |   |   | 18,816 |   |   |   | 25,486 |   |   |   | 1,659 |   | 1999,      renovated in 2005 |   | 6/23/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Choice      Hotels International, Inc., Silver Spring, MD        |   |         | 30,080 |   |              |   | 5,500  |                                                     |   |   | 37,188                                                                             |   |   |                          | -      |   |   |   | 256    |                          |   |   | 5,500 |   |   |   | 37,444 |   |   |   | 42,944 |   |   |   | 3,793 |   | Building      10720 - 1981, 10750 - 1971, 10770 - 1986 |   | 11/23/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cott      Corporation, Reading, PA                               |   |         | -      |   |              |   | 1,550  |                                                     |   |   | 2,870                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 1,550 |   |   |   | 2,870 |   |   |   | 4,420 |   |   |   | 174 |   | 1969,      renovated in 1975, 1987 & 1997 |   | 7/28/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| County      of Yolo, California, Woodland, CA                    |   |         | 12,985 |   |              |   | 2,300  |                                                     |   |   | 12,850                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 2,300 |   |   |   | 12,850 |   |   |   | 15,150 |   |   |   | 617 |   | 2001 |   | 1/30/2007 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crozer-Keystone      Health System, Ridley, PA                   |   |         | 3,716  |   |              |   | -      |                                                     |   |   | 5,015                                                                              |   |   |                          | -      |   |   |   | 864    |                          |   |   | - |   |   |   | 5,879 |   |   |   | 5,879 |   |   |   | 620 |   | 1977,      renovated in 2004 |   | 8/9/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CVS      Corporation, Randolph, MA                               |   |         | 8,481  |   |              |   | 6,300  |                                                     |   |   | 7,801                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 6,300 |   |   |   | 7,801 |   |   |   | 14,101 |   |   |   | 830 |   | 1965,      renovated in the 1980's and 1993 |   | 9/29/2004 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Factory      Mutual Insurance Company, Johnston, RI              |   |         | -      |   |              |   | -      |                                                     |   |   | 44,909                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 44,909 |   |   |   | 44,909 |   |   |   | 3,059 |   | 1973 |   | 4/18/2007 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Farmers      Group, Inc., Simi Valley, CA                        |   |         | 34,586 |   |              |   | 10,620 |                                                     |   |   | 28,127                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 10,620 |   |   |   | 28,127 |   |   |   | 38,747 |   |   |   | 1,348 |   | 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 |   |         | 32,550 |   |              |   | 24,000 |                                                     |   |   | 10,035                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 24,000 |   |   |   | 10,035 |   |   |   | 34,035 |   |   |   | 759 |   | 1982 |   | 12/22/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ITT      Industries, Inc., Herndon, VA                           |   |         | 46,194 |   |              |   | 5,300  |                                                     |   |   | 40,221                                                                             |   |   |                          | -      |   |   |   | 9,528  |                          |   |   | 5,300 |   |   |   | 49,749 |   |   |   | 55,049 |   |   |   | 4,169 |   | 1999,      interior renovated in 2005-2006 |   | 5/23/2005 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Johnson      Controls, Inc., Largo, FL                           |   |         | 22,333 |   |              |   | 4,600  |                                                     |   |   | 18,168                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 4,600 |   |   |   | 18,168 |   |   |   | 22,768 |   |   |   | 1,481 |   | 1963      & 2001 |   | 12/12/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Koninklijke      Ahold, N.V., Levittown, PA                      |   |         | 15,855 |   |              |   | 4,000  |                                                     |   |   | 15,789                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 4,000 |   |   |   | 15,789 |   |   |   | 19,789 |   |   |   | 1,007 |   | 2006 |   | 6/13/2006 |   | Various |
|                                                             |   |         |   |   |              |   |   |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lowes      Companies, Inc., Aliso Viejo, CA                      |   |         | 44,498 |   |              |   | 26,600 |                                                     |   |   | 20,831                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 26,600 |   |   |   | 20,831 |   |   |   | 47,431 |   |   |   | 1,880 |   | 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 |

----

|                                                                              |   |         |      |   | Initial Cost |   |    | Cost Capitalized Subsequent toAcquisition |   |   | Gross Amount at WhichCarried at Close of Period |   |   |                          |   |   |   |   |   |                          |
|-----------------------------------------------------------------------------------|--------|--------------|-----------|--------|-------------------|--------|---------|----------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|--------|-------------------------------|
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |
| Description                                                                       |   | Encumbrances |      |   | Land              |   |    | Building andImprovements                            |   |   | Land                                                                               |   |   | Building andImprovements |   |   | Land   |   |   | Building andImprovements |   |   | Total |   |   | AccumulatedDepreciation |   | Date of Construction |   | Date Acquired |   | Life on WhichDepreciationis Computed |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle      Holdings, Inc., Breinigsville, PA                                     |   |         | 10,379    |   |              |   | -       |                                                     |   |   | 77,439                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 77,439 |   |   |   | 77,439 |   |   |   | 3,297 |   | 1994 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle      Holdings, Inc., Fort Wayne, IN                                        |   |         | 5,783     |   |              |   | -       |                                                     |   |   | 37,313                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 37,313 |   |   |   | 37,313 |   |   |   | 1,588 |   | 1994 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nestle      Holdings, Inc., Lathrop, CA                                           |   |         | 7,299     |   |              |   | -       |                                                     |   |   | 57,483                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 57,483 |   |   |   | 57,483 |   |   |   | 2,447 |   | 1994 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Omnicom      Group, Inc., Irving, TX                                              |   |         | 14,204    |   |              |   | 2,620   |                                                     |   |   | 11,800                                                                             |   |   |                          | -      |   |   |   | 151    |                          |   |   | 2,620 |   |   |   | 11,951 |   |   |   | 14,571 |   |   |   | 1,041 |   | 1997 |   | 6/23/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pearson      Plc., Lawrence, KS                                                   |   |         | 17,315    |   |              |   | 1,140   |                                                     |   |   | 16,557                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 1,140 |   |   |   | 16,557 |   |   |   | 17,697 |   |   |   | 1,126 |   | 1997 |   | 4/12/2006 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Qwest      Corporation, Omaha, NE                                                 |   |         | 19,298    |   |              |   | -       |                                                     |   |   | 36,969                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 36,969 |   |   |   | 36,969 |   |   |   | 1,574 |   | 1991 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Qwest      Corporation, Omaha, NE                                                 |   |         | 3,953     |   |              |   | -       |                                                     |   |   | 15,102                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 15,102 |   |   |   | 15,102 |   |   |   | 735 |   | 1985 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| T-Mobile      USA, Inc., Nashville, TN                                            |   |         | 10,885    |   |              |   | 2,450   |                                                     |   |   | 11,774                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 2,450 |   |   |   | 11,774 |   |   |   | 14,224 |   |   |   | 627 |   | 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 |   |   |   | 3,606 |   | Various,      1995-1996 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      Travelers Corporation, Hartford, CT                                      |   |         | 15,950    |   |              |   | -       |                                                     |   |   | 18,317                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | - |   |   |   | 18,317 |   |   |   | 18,317 |   |   |   | 891 |   | 1986 |   | 4/18/2007 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tiffany      & Co., Parsippany, NJ                                            |   |         | 61,526    |   |              |   | 7,400   |                                                     |   |   | 62,150                                                                             |   |   |                          | -      |   |   |   | 47     |                          |   |   | 7,400 |   |   |   | 62,197 |   |   |   | 69,597 |   |   |   | 5,066 |   | Office      & Warehouse - 1996-1997, Warehouse Mezzanine - 2000, Garage - 2001,      East Wing Office - 2002, solar rooftop panels installed in      2006 |   | 9/28/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time      Warner Entertainment Company, L.P., Milwaukee, WI                       |   |         | 23,852    |   |              |   | 2,300   |                                                     |   |   | 22,299                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 2,300 |   |   |   | 22,299 |   |   |   | 24,599 |   |   |   | 1,166 |   | 1903,      renovated in 2001 |   | 11/28/2006 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TJX      Companies, Inc., Philadelphia, PA                                        |   |         | 78,369    |   |              |   | 6,100   |                                                     |   |   | 79,734                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 6,100 |   |   |   | 79,734 |   |   |   | 85,834 |   |   |   | 5,600 |   | 2001 |   | 3/10/2006 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (DEA), Birmingham, AL                               |   |         | 12,219    |   |              |   | 1,000   |                                                     |   |   | 11,643                                                                             |   |   |                          | -      |   |   |   | (474   | )                             |   |   | 1,000 |   |   |   | 11,169 |   |   |   | 12,169 |   |   |   | 894 |   | 2005 |   | 8/11/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (EPA), Kansas City, KS                              |   |         | 25,177    |   |              |   | 250     |                                                     |   |   | 29,476                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 250 |   |   |   | 29,476 |   |   |   | 29,726 |   |   |   | 2,492 |   | 2003 |   | 8/11/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (FBI), Albany, NY                                   |   |         | 13,866    |   |              |   | 3,000   |                                                     |   |   | 12,834                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 3,000 |   |   |   | 12,834 |   |   |   | 15,834 |   |   |   | 699 |   | 1998,      building expanded by 3M SF in 2008. |   | 10/25/2006 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (FBI), Birmingham, AL                               |   |         | 20,280    |   |              |   | 2,200   |                                                     |   |   | 20,171                                                                             |   |   |                          | -      |   |   |   | 1,603  |                          |   |   | 2,200 |   |   |   | 21,773 |   |   |   | 23,973 |   |   |   | 1,772 |   | 2005,      building expanded by 10M SF in 2007 |   | 8/11/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (NIH), N. Bethesda, MD                              |   |         | 62,322    |   |              |   | 10,350  |                                                     |   |   | 61,537                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 10,350 |   |   |   | 61,537 |   |   |   | 71,887 |   |   |   | 5,092 |   | 1989 |   | 9/9/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (OSHA), Sandy, UT                                   |   |         | 18,924    |   |              |   | 1,750   |                                                     |   |   | 18,484                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 1,750 |   |   |   | 18,484 |   |   |   | 20,234 |   |   |   | 1,566 |   | 2004 |   | 8/11/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (SSA), Austin, TX                                   |   |         | 5,948     |   |              |   | 1,100   |                                                     |   |   | 4,373                                                                              |   |   |                          | -      |   |   |   | 138    |                          |   |   | 1,100 |   |   |   | 4,511 |   |   |   | 5,611 |   |   |   | 342 |   | 2005 |   | 8/11/2005 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| United      States Government (VA), Ponce, PR                                     |   |         | 6,078     |   |              |   | 2,120   |                                                     |   |   | 10,252                                                                             |   |   |                          | -      |   |   |   | -      |                          |   |   | 2,120 |   |   |   | 10,252 |   |   |   | 12,372 |   |   |   | 1,068 |   | 2000,      HVAC system replaced in 2008 |   | 11/1/2004 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Walgreen      Co., Pennsauken, NJ                                                 |   |         | 1,733     |   |              |   | 463     |                                                     |   |   | 2,629                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 463 |   |   |   | 2,629 |   |   |   | 3,092 |   |   |   | 274 |   | 1996 |   | 11/1/2004 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Walgreen      Co., Portsmouth, VA                                                 |   |         | 3,099     |   |              |   | 618     |                                                     |   |   | 3,560                                                                              |   |   |                          | -      |   |   |   | -      |                          |   |   | 618 |   |   |   | 3,561 |   |   |   | 4,179 |   |   |   | 369 |   | 1998 |   | 11/1/2004 |   | Various |
|                                                                              |   |         |      |   |              |   |    |                                                     |   |   |                                                                               |   |   |                          |   |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                              |   | $            | 1,070,135 |   |              | $      | 192,321 |                                                     |   | $      | 1,263,008                                                                          |   |   | $                             | -      |   |   | $      | 15,018 |                          |   | $ | 192,321 |   |   | $ | 1,278,026 |   |   | $ | 1,470,347 |   |   | $ | 89,294 |   |   |   |   |   |   |

----

| CapLease,      Inc. and Subsidiaries          |
|-----------------------------------------------|
| Real      Estate and Accumulated Depreciation |
| December      31, 2008                        |
| (amounts      in thousands)                   |
| Schedule      III—(Continued)           |

| Reconciliation      of real estate owned:              |   |   |        |   |   |    |
|--------------------------------------------------------|--------|--------|-------------|--------|--------|---------|
| 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 |   |
| Property      acquisitions                        |   |   |  -     |   |   |    |   |   |
| Costs      capitalized subsequent to acquisition  |   |   |  4,195 |   |   |    |   |   |
| Balance-December      31, 2008                         |   |   |        |   |   | $       | 1,470,347 |   |
|                                                   |   |   |        |   |   |    |   |   |
| Reconciliation      of accumulated depreciation:       |   |   |        |   |   |    |   |   |
| 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 |   |
| Additions      during the year:                        |   |   |        |   |   |    |   |   |
| Depreciation      on property                          |   |   | 33,419      |   |   |    |   |   |
| Balance-December      31, 2008                         |   |   |        |   |   | $       | 89,294 |   |

----

| Description                   |   | Location                      |   | Interest Rate |   | FinalMaturityDate |          | Periodic Payment Terms |                                                                                                | Prior Liens |   |   | Face Amount ofMortgages |   |   | CarryingAmount ofMortgages (1) |   | Principal Amount ofLoans Subject toDelinquent Principal orInterest |
|-------------------------------|--------|-------------------------------|--------|--------------------|--------|-------------------|---------------|----------------------------------|-----------------------------------------------------------------------------------------------------|------------------|--------|--------|-----------------------------------|--------|--------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------|
| 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    |                              |   | $      | 1,821                                    |   |                                                                                             | $ | 1,821 |   |   |
| 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    |                              |   |   | 3,366                                    |   |                                                                                             |   | 3,366 |   |   |
| 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    |                              |   |   | 4,298                                    |   |                                                                                             |   | 4,298 |   |   |
| 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    |                              |   |   | 17,409                                   |   |                                                                                             |   | 17,409 |   |   |
| 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    |                              |   |   | 1,595                                    |   |                                                                                             |   | 1,553 |   |   |
| 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    |                              |   |   | 2,160                                    |   |                                                                                             |   | 2,215 |   |   |
| 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    |                              |   |   | 2,952                                    |   |                                                                                             |   | 2,952 |   |   |
| 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    |                              |   |   | 2,218                                    |   |                                                                                             |   | 2,183 |   |   |
| 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    |                              |   |   | 1,336                                    |   |                                                                                             |   | 1,336 |   |   |
| 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    |                              |   |   | 2,276                                    |   |                                                                                             |   | 2,415 |   |   |
| 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    |                              |   |   | 1,194                                    |   |                                                                                             |   | 1,290 |   |   |
| 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    |                              |   |   | 1,483                                    |   |                                                                                             |   | 1,451 |   |   |
| 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    |                              |   |   | 1,633                                    |   |                                                                                             |   | 1,799 |   |   |
| 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    |                              |   |   | 1,889                                    |   |                                                                                             |   | 2,095 |   |   |
| 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    |                              |   |   | 2,188                                    |   |                                                                                             |   | 2,409 |   |   |
| 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    |                              |   |   | 1,302                                    |   |                                                                                             |   | 1,302 |   |   |
| 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    |                              |   |   | 2,465                                    |   |                                                                                             |   | 2,465 |   |   |
| 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    |                              |   |   | 3,273                                    |   |                                                                                             |   | 3,273 |   |   |
| 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    |                              |   |   | 4,181                                    |   |                                                                                             |   | 4,181 |   |   |
| 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    |                              |   |   | 8,112                                    |   |                                                                                             |   | 8,112 |   |   |
| 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    |                              |   |   | 8,367                                    |   |                                                                                             |   | 8,367 |   |   |
| 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    |                              |   |   | 46,454                                   |   |                                                                                             |   | 46,454 |   |   |
| 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    |                              |   |   | 2,798                                    |   |                                                                                             |   | 2,846 |   |   |
| 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    |                              |   |   | 6,331                                    |   |                                                                                             |   | 6,313 |   |   |
| 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    |                              |   |   | 6,226                                    |   |                                                                                             |   | 6,221 |   |   |

----

| Description                                  |   | Location                      |   | Interest Rate |   | FinalMaturityDate |          | Periodic Payment Terms |                                                                                                | Prior Liens |   |   | Face Amount ofMortgages |   |   | CarryingAmount ofMortgages (1) |   | Principal Amount ofLoans Subject toDelinquent Principal orInterest |
|----------------------------------------------|--------|-------------------------------|--------|--------------------|--------|-------------------|---------------|----------------------------------|-----------------------------------------------------------------------------------------------------|------------------|--------|--------|-----------------------------------|--------|--------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------|
| 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    |                              |   |   | 6,160                                    |   |                                                                                             |   | 5,910 |   |   |
| Koninklijke      Ahold, N.V.                 |   | Danvers,      MA              |   |               | 7.90   | %                 | May      2026 |                             | Principal      and Interest are payable monthly at a varying amount, over the life to      maturity |             |   | N/A    |                              |   |   | 22,541                                   |   |                                                                                             |   | 24,062 |   |   |
| 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    |                              |   |   | 27,370                                   |   |                                                                                             |   | 27,370 |   |   |
| 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    |                              |   |   | 7,032                                    |   |                                                                                             |   | 7,032 |   |   |
| 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    |                              |   |   | 2,873                                    |   |                                                                                             |   | 2,942 |   |   |
| 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    |                              |   |   | 6,341                                    |   |                                                                                             |   | 6,840 |   |   |
| 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    |                              |   |   | 846                                      |   |                                                                                             |   | 861 |   |   |
| 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    |                              |   |   | 20,157                                   |   |                                                                                             |   | 20,834 |   |   |
| 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    |                              |   |   | 3,499                                    |   |                                                                                             |   | 3,499 |   |   |
| 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    |                              |   |   | 5,045                                    |   |                                                                                             |   | 5,045 |   |   |
| 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    |                              |   |   | 4,360                                    |   |                                                                                             |   | 4,360 |   |   |
| 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    |                              |   |   | 3,283                                    |   |                                                                                             |   | 3,283 |   |    |
|                                         |   |                          |   |               |   |              |          |                             |                                                                                                |             |   |   |                              |   |   | 246,834                                  |   |                                                                                             |   | 250,164 |   |   |
|                                         |   |                          |   |               |   |              |          |                             |                                                                                                |             |   |   |                              |   |   |                                     |   |                                                                                             |   |   |   |   |
| 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    |                              |   |   | 246                                      |   |                                                                                             |   | 230 |   |   |
| 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    |                              |   |   | 273                                      |   |                                                                                             |   | 270 |   |   |
| 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    |                              |   |   | 987                                      |   |                                                                                             |   | 959 |   |   |
| 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    |                              |   |   | 358                                      |   |                                                                                             |   | 346 |   |   |
| 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    |                              |   |   | 478                                      |   |                                                                                             |   | 469 |   |   |
| 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    |                              |   |   | 395                                      |   |                                                                                             |   | 387 |   |   |
| 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    |                              |   |   | 283                                      |   |                                                                                             |   | 276 |   |   |
| 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    |                              |   |   | 214                                      |   |                                                                                             |   | 211 |   |   |
| 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    |                              |   |   | 192                                      |   |                                                                                             |   | 186 |   |   |
| 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    |                              |   |   | 244                                      |   |                                                                                             |   | 240 |   |   |
| 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    |                              |   |   | 124                                      |   |                                                                                             |   | 124 |   |   |
| 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    |                              |   |   | 260                                      |   |                                                                                             |   | 256 |   |   |
| 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    |                              |   |   | 901                                      |   |                                                                                             |   | 894 |   |   |

----

| Description                                |   | Location                |   | Interest Rate |   | FinalMaturityDate |          | Periodic Payment Terms |                                                                                                | Prior Liens |   |              | Face Amount ofMortgages |   |   | CarryingAmount ofMortgages (1) |   | Principal Amount ofLoans Subject toDelinquent Principal orInterest |
|--------------------------------------------|--------|-------------------------|--------|--------------------|--------|-------------------|---------------|----------------------------------|-----------------------------------------------------------------------------------------------------|------------------|--------|-------------------|-----------------------------------|--------|--------|------------------------------------------|--------|--------------------------------------------------------------------------------------------------|
| 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               |                              |   |   | 1,877                                    |   |                                                                                             |   | 1,861 |   |   |
| 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               |                              |   |   | 19,835                                   |   |                                                                                             |   | 19,835 |   |   |
| 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               |                              |   |   | 868                                      |   |                                                                                             |   | 854 |   |   |
| 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               |                              |   |   | 370                                      |   |                                                                                             |   | 365 |   |   |
| 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               |                              |   |   | 270                                      |   |                                                                                             |   | 268 |   |   |
| 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               |                              |   |   | 122                                      |   |                                                                                             |   | 122 |   |   |
| 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               |                              |   |   | 114                                      |   |                                                                                             |   | 113 |   |   |
| 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               |                              |   |   | 199                                      |   |                                                                                             |   | 192 |   |   |
| 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               |                              |   |   | 289                                      |   |                                                                                             |   | 288 |   |   |
| 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               |                              |   |   | 495                                      |   |                                                                                             |   | 474 |   |   |
| 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               |                              |   |   | 329                                      |   |                                                                                             |   | 324 |   |   |
| 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               |                              |   |   | 551                                      |   |                                                                                             |   | 551 |   |    |
|                                       |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |              |                              |   |   | 30,274                                   |   |                                                                                             |   | 30,095 |   |   |
|                                       |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |              |                              |   |   |                                     |   |                                                                                             |   |   |   |   |
| Mezzanine      and Other Investments       |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |              |                              |   |   |                                     |   |                                                                                             |   |   |   |   |
| Eden      Hylan Seaview LLC                |   | Staten      Island, NY  |   |               | 10.00  | %                 | Jan      2009 |                             | Principal      and Interest are payable monthly at a varying amount, over the life to      maturity |             |   | 3,642             |                              |   |   | 650                                      |   |                                                                                             |   | 650 |   |   |
| West      End Mortgage Finance Fund I L.P. |   | Various                 |   |               | 10.00  | %                 | Jan      2009 |                             | Principal      and Interest are payable monthly at a varying amount, over the life to      maturity |             |   | N/A               |                              |   |   | 6,154                                    |   |                                                                                             |   | 6,154 |   |    |
|                                       |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |  3,642       |                              |   |   | 6,804                                    |   |                                                                                             |   | 6,804 |   |   |
|                                       |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |              |                              |   |   |                                     |   |                                                                                             |   |   |   |   |
| Allowance      for loan losses             |   |                    |   |               |   |              |          |                             |                                                                                                |             |   |              |                              |   |   | -                                        |   |                                                                                             |   | (500 | ) |   |
| Total                                      |   |                    |   |               |   |              |          |                             |                                                                                                |             | $      |   3,642 |                              |   | $      | 283,912                                  |   |                                                                                             | $ | 286,563 |   |    |

----

CapLease, Inc. and Subsidiaries

| 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 |   |
| Additions      during the year:                      |   |   |       |    |   |    |    |   |
| New      loan investments                            |   |   |            |    |   |    |    |   |
| Deductions      during the year:                     |   |   |       |    |   |    |    |   |
| Securities      reclassified to loan investments     |   |   | 24,453     |    |   |    |    |   |
| Principal      received                              |   |   | (6,863     | )       |   |    |    |   |
| Principal      written-off as uncollectible          |   |   | (498       | )       |   |    |    |   |
| Allowance      for loan losses                       |   |   |  (500 | )  |   |    |    |   |
| Amortization      of unearned discounts and premiums |   |   |  (172 | )       |   |    |    |   |
| Balance-December      31, 2008                       |   |   |       |    |   | $       | 286,563 |   |

----

----

----

----

| ExhibitNo. |   | 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 form 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)    |   | Promissory      Note (Note A), dated October 28, 2004, of CLF 1000 Milwaukee Avenue LLC in      favor of Wachovia Bank, National Association                                                                                                                                           |
| 10.2(8)    |   | Promissory      Note, dated December 9, 2004, of the registrant in favor of Wachovia Bank,      National Association                                                                                                                                                                   |
| 10.3(11)   |   | Promissory      Note, dated February 25, 2005, of CLF Parsippany LLC in favor of Wachovia      Bank, National Association                                                                                                                                                              |
| 10.4(13)   |   | 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                                                                                     |
| 10.5(14)   |   | Sales      Agreement, dated as of August 15, 2005, between Cantor Fitzgerald &      Co. and the registrant                                                                                                                                                                         |
| 10.6(14)   |   | Sales      Agreement, dated as of August 15, 2005, between Brinson Patrick Securities      Corporation and the registrant                                                                                                                                                              |
| 10.7(15)   |   | Promissory      Note, dated August 16, 2005, of CLF FBI Birmingham LLC in favor of      Wachovia Bank, National Association                                                                                                                                                            |
| 10.8(15)   |   | Promissory      Note, dated August 16, 2005, of CLF DEA Birmingham LLC in favor of      Wachovia Bank, National Association                                                                                                                                                            |
| 10.9(15)   |   | Promissory      Note, dated August 16, 2005, of CLF SSA Austin, LP in favor of Wachovia      Bank, National Association                                                                                                                                                                |
| 10.10(15)  |   | 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                                                                                               |
| 10.11(15)  |   | Lease      dated as of February 1, 2001 between Unified Government of Wyandotte      County, Kansas City, Kansas and Kansas EPA Laboratory,  LLC                                                                                                                                       |
| 10.12(15)  |   | Trust      Indenture dated as of December 1, 2002 between Utah Tech Center, LLC, as      issuer, and Security Bank of Kansas City, as trustee                                                                                                                                          |
| 10.13(15)  |   | Promissory      Note, dated as of September 9, 2005, of Caplease Credit LLC in favor of      Wachovia Bank, National Association                                                                                                                                                       |
| 10.14(15)  |   | Promissory      Note, dated as of September 28, 2005, of CLF Sylvan Way LLC in favor of      Wachovia Bank, National Association                                                                                                                                                       |
| 10.15(4)   |   | Parent      Guarantee Agreement between the registrant and JPMorgan Chase Bank,      National Association, as guarantee trustee, dated December 13,      2005                                                                                                                          |

----

| ExhibitNo. |   | Description                                                                                                                                                                                                                                                                                                                                                             |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                    |
| 10.16(16)  |   | 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                                                                                                                                                                                    |
| 10.17(18)  |   | Membership      Interests Purchase Agreement dated as of March 14, 2007 between EntreCap      Financial LLC and Caplease, LP                                                                                                                                                                                                                                            |
| 10.18(5)   |   | 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                                                                                                                                       |
| 10.19(19)  |   | Loan      Agreement, dated as of December 17, 2007, between CapLease 2007-STL      LLC, as borrower, and KBC Bank, N.V., acting through its New York Branch,      as lender and administrative agent                                                                                                                                                               |
| 10.20(20)  |   | Credit      Agreement, dated as of April 29, 2008, among Caplease Debt Funding,      LP, as the borrower, PREFCO II Limited Partnership, as a guarantor, the      registrant, as a guarantor, Caplease, LP, as a guarantor, Caplease      Services Corp., as a guarantor, and Wachovia Bank, National Association,      as administrative agent and initial lender |
| *10.21(9)  |   | Amended      and Restated 2004 Stock Incentive Plan of the registrant (Effective June      14, 2006)                                                                                                                                                                                                                                                                    |
| *10.22(10) |   | Form      of Non-Employee Director Restricted Stock Award  Agreement                                                                                                                                                                                                                                                                                                    |
| *10.23(17) |   | Form      of Executive Officer Restricted Stock Agreement                                                                                                                                                                                                                                                                                                               |
| *10.24(12) |   | Form      of Employment Agreement between each of Paul H. McDowell, William R.      Pollert, Shawn P. Seale and Robert C. Blanz, and the      registrant                                                                                                                                                                                                                |
| *10.25(21) |   | Amendment      No. 1 to the Employment Agreement dated as of March 24, 2004 between      Robert C. Blanz and the registrant, dated February 13,  2007                                                                                                                                                                                                                   |
| *10.26(17) |   | Employment      Agreement, dated as of February 13, 2007, between Paul Hughes and the      registrant                                                                                                                                                                                                                                                                   |
| *10.27     |   | Summary      of Independent Director Compensation 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                                                                                                                                                                                                                |

----

|  | *  | 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 November 3,  2004. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | (8) | Incorporated      by reference from the registrant’s Current Report on Form 8-K/A filed with      the Securities and Exchange Commission on December 15,    2004. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (9)  | Incorporated      by reference from the registrant’s Definitive Proxy Statement filed with      the Securities and Exchange Commission on April 17,  2006. |
|--|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (10) | Incorporated      by reference from the registrant’s Current Report on Form 8-K filed with      the Securities and Exchange Commission on June 19,  2006. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (11) | 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. |
|--|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (12) | Incorporated      by reference from the registrant’s Annual Report on Form 10-K filed with      the Securities and Exchange Commission on March 30,  2005. |
|--|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (13) | Incorporated      by reference from the registrant’s Quarterly Report on Form 10-Q filed      with the Securities and Exchange Commission on May 16,    2005. |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (14) | Incorporated      by reference from the registrant’s Current Report on Form 8-K filed with      the Securities and Exchange Commission on August 17,  2005. |
|--|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (15) | Incorporated      by reference from the registrant’s Quarterly Report on Form 10-Q filed      with the Securities and Exchange Commission on November 14,      2005. |
|--|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (16) | Incorporated      by reference from the registrant’s Annual Report on Form 10-K filed with      the Securities and Exchange Commission on March 16,  2006. |
|--|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (17) | Incorporated      by reference from the registrant’s Current Report on Form 8-K filed with      the Securities and Exchange Commission on February 20,    2007. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (18) | Incorporated      by reference from the registrant’s Quarterly Report on Form 10-Q filed      with the Securities and Exchange Commission on May 10,    2007. |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (19) | Incorporated      by reference from the registrant’s Current Report on Form 8-K filed with      the Securities and Exchange Commission on December 20,    2007. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (20) | Incorporated      by reference from the registrant’s Current Report on Form 8-K filed with      the Securities and Exchange Commission on May 1,  2008. |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (21) | Incorporated      by reference from the registrant’s Annual Report on Form 10-K filed with      the Securities and Exchange Commission on March 4,  2008. |
|--|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                |   | CAPLEASE,      INC.                                                        |
|-------------------------------------|--------|----------------------------------------------------------------------------|
|                                |   | Registrant                                                                 |
|                                |   |                                                                       |
| Date:  March      6, 2009 |   | /s/  Paul      H. McDowell                                       |
|                                |   | Paul      H. McDowellChairman      of the Board and Chief ExecutiveOfficer |

| Signature                                | Title                                                                                               | Date               |
|------------------------------------------|-----------------------------------------------------------------------------------------------------|--------------------|
|                                     |                                                                                                |               |
| /s/  Paul      H. McDowell     | Chairman      of the Board and Chief Executive Officer(Principal      Executive Officer)            | March      6, 2009 |
| Paul      H. McDowell                    |                                                                                                |
|                                     |                                                                                                |               |
| /s/  William      R. Pollert   | President      and Director                                                                         | March      6, 2009 |
| William      R. Pollert                  |                                                                                                |
|                                     |                                                                                                |               |
| /s/  Shawn      P. Seale       | Senior      Vice President, Chief Financial Officer and Treasurer(Principal      Financial Officer) | March      6, 2009 |
| Shawn      P. Seale                      |                                                                                                |
|                                     |                                                                                                |               |
| /s/  John      E. Warch        | Senior      Vice President and Chief Accounting Officer(Principal      Accounting Officer)          | March      6, 2009 |
| John      E. Warch                       |                                                                                                |
|                                     |                                                                                                |               |
| /s/  Michael      E. Gagliardi | Director                                                                                            | March      6, 2009 |
| Michael      E. Gagliardi                |                                                                                                |
|                                     |                                                                                                |               |
| /s/  Stanley      Kreitman     | Director                                                                                            | March      6, 2009 |
| Stanley      Kreitman                    |                                                                                                |
|                                     |                                                                                                |               |
| /s/  Jeffrey      F. Rogatz    | Director                                                                                            | March      6, 2009 |
| Jeffrey      F. Rogatz                   |                                                                                                |
|                                     |                                                                                                |               |
| /s/  Howard      A. Silver     | Director                                                                                            | March      6, 2009 |
| Howard      A. Silver                    |                                                                                                |

----