| FORM      10-Q |
|----------------|

| x | QUARTERLY      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 |
|----------------|----------------------------------------------------------------------------------------------------|

| Massachusetts                                                       |   | 13-6972380                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) |   | (I.R.S.      Employer Identification No.) |
|                                                                |   |                                      |
| 625      Madison Avenue, New York, New York                         |   | 10022                                     |
| (Address      of principal executive offices)                       |   | (Zip      Code)                           |

| Large      accelerated filer [  ] |   | Accelerated      filer x                      |
|---------------------------------------------|--------|-----------------------------------------------|
| Non-      accelerated filer [  ]  |   | Smaller      reporting company [  ] |

----

|                                                  |                |                                                                                                  | Page     |
|-------------------------------------------------------|---------------------|-------------------------------------------------------------------------------------------------------|----------|
|  PART      I – FINANCIAL INFORMATION  |                |
|                                                  | Item      1.        | Financial      Statements (Unaudited)                                                                 |     |
|                                                  |                | Condensed      Consolidated Balance Sheets                                                            |  3  |
|                                                  |                | Condensed      Consolidated Statements of Operations                                                  |  4  |
|                                                  |                | Condensed      Consolidated Statements of Cash Flows                                                  |  5  |
|                                                  |  Item      2.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations |  20 |
|                                                  |  Item      3.  | Quantitative      and Qualitative Disclosures about Market Risk                                       |  32 |
|                                                  |  Item      4.  | Controls      and Procedures                                                                          |  33 |
|  PART      II – OTHER INFORMATION     |                |
|                                                  |  Item      1.  | Legal      Proceedings                                                                                |  34 |
|                                                  |  Item      1A. | Risk      Factors                                                                                     |  34 |
|                                                  |  Item      2.  | Unregistered      Sales of Equity Securities and Use of Proceeds                                      |  34 |
|                                                  |  Item      3.  | Defaults      Upon Senior Securities                                                                  |  34 |
|                                                  |  Item      4.  | Submission      of Matters to a Vote of Security Holders                                              |  34 |
|                                                  |  Item      5.  | Other      Information                                                                                |  34 |
|                                                  |  Item      6.  | Exhibits                                                                                              |  34 |
|  SIGNATURES                                      |                |  35                                                                                              |

----

|                                                                                                                                                                                      |   | June      30,2008 |     | December      31, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------|------------------------|--------|
|                                                                                                                                                                                      |   | (Unaudited)       |     |                   |   |
|  ASSETS                                                                                                                                                                              |
|  Cash      and cash equivalents                                                                                                                                                      |   | $                 | 20,703   |                   | $      | 15,844 |   |
| Restricted      cash                                                                                                                                                                      |   |              | 5,028    |                   |   | 8,783 |   |
| Investments:                                                                                                                                                                              |   |              |     |                   |   |   |   |
| Mortgage      loans receivable, net (Note 3)                                                                                                                                              |   |              | 464,822  |                   |   | 529,644 |   |
| Available-for-sale      investments, at fair value (Note 4):                                                                                                                              |   |              |     |                   |   |   |   |
| CMBS                                                                                                                                                                                      |   |              | 43,013   |                   |   | 69,269 |   |
| Mortgage      revenue bonds                                                                                                                                                               |   |              | 4,743    |                   |   | 4,879 |   |
| Accounts      receivable (Note 6)                                                                                                                                                         |   |              | 22,322   |                   |   | 31,066 |   |
| Deferred      charges and other assets, net (Note 7)                                                                                                                                      |   |              | 6,499    |                   |   | 6,914 |   |
|  Total      assets                                                                                                                                                                   |   | $                 | 567,130  |                   | $      | 666,399 |   |
|  LIABILITIES      AND SHAREHOLDERS’ (DEFICIT) EQUITY                                                                                                                           |
|  Liabilities:                                                                                                                                                                        |   |              |     |                   |   |   |   |
| CDO      notes payable                                                                                                                                                                    |   | $                 | 362,000  |                   | $      | 362,000 |   |
| Repurchase      facilities (Note 8)                                                                                                                                                       |   |              | 71,939   |                   |   | 136,385 |   |
| Line      of credit – related party (Note 9)                                                                                                                                        |   |              | 79,877   |                   |   | 77,685 |   |
| Preferred      shares of subsidiary (subject to mandatory repurchase)                                                                                                                     |   |              | 25,000   |                   |   | 25,000 |   |
| Interest      rate derivatives (Note 10)                                                                                                                                                  |   |              | 20,358   |                   |   | 26,631 |   |
| Accounts      payable and accrued expenses (Note 11)                                                                                                                                      |   |              | 16,373   |                   |   | 15,764 |   |
| Due      to Advisor and affiliates (Note 16)                                                                                                                                              |   |              | 3,455    |                   |   | 2,000 |   |
| Dividends      payable                                                                                                                                                                    |   |              | 308      |                   |   | 308 |   |
|  Total      liabilities                                                                                                                                                              |   |              | 579,310  |                   |   | 645,773 |   |
|                                                                                                                                                                                      |   |              |     |                   |   |   |   |
| Commitments      and contingencies (Note 17)                                                                                                                                              |   |              |     |                   |   |   |   |
|                                                                                                                                                                                      |   |              |     |                   |   |   |   |
| Shareholders’      (deficit) equity:                                                                                                                                                |   |              |     |                   |   |   |   |
| 7.25%      Series A Cumulative Convertible Preferred Shares, no par value;      680      shares issued and outstanding in 2008 and 2007                                                   |   |              | 15,905   |                   |   | 15,905 |   |
| Common      shares of beneficial interest; $0.10 par value; 25,000 shares authorized;      8,918 issued and 8,503 outstanding in 2008 and 8,848 issued and 8,433      outstanding in 2007 |   |              | 892      |                   |   | 885 |   |
| Treasury      shares of beneficial interest at par; 415 shares in 2008 and      2007                                                                                                      |   |              | (42      | )                      |   | (42 | ) |
| Additional      paid-in capital                                                                                                                                                           |   |              | 128,125  |                   |   | 128,087 |   |
| Accumulated      deficit                                                                                                                                                                  |   |              | (139,404 | )                      |   | (104,956 | ) |
| Accumulated      other comprehensive loss                                                                                                                                                 |   |              | (17,656  | )                      |   | (19,253 | ) |
|  Total      shareholders’ (deficit) equity                                                                                                                                     |   |              | (12,180  | )                      |   | 20,626 |   |
|  Total      liabilities and shareholders’ (deficit) equity                                                                                                                     |   | $                 | 567,130  |                   | $      | 666,399 |   |

----

|                                                                                                               |   | Three      Months EndedJune      30, |   | Six      Months EndedJune      30, |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                                               |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
| Revenues:                                                                                                          |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                           |   | $                                    | 9,808  |                               | $      | 15,159 |   | $ | 20,414 |   | $ | 26,885 |   |
| Other      revenues                                                                                                |   |                                 | 3      |                               |   | 153 |   |   | 81 |   |   | 928 |   |
| Total      revenues                                                                                                |   |                                 | 9,811  |                               |   | 15,312 |   |   | 20,495 |   |   | 27,813 |   |
|  Expenses:                                                                                                    |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                           |   |                                 | 8,808  |                               |   | 10,633 |   |   | 16,805 |   |   | 19,128 |   |
| Interest      – distributions to preferred shareholders of subsidiary (subject      to mandatory repurchase) |   |                                 | 547    |                               |   | 554 |   |   | 1,095 |   |   | 1,123 |   |
| General      and administrative                                                                                    |   |                                 | 593    |                               |   | 542 |   |   | 1,555 |   |   | 1,147 |   |
| Fees      to Advisor and affiliates (Note 16)                                                                      |   |                                 | 540    |                               |   | 918 |   |   | 1,274 |   |   | 1,886 |   |
| Impairment      of investments (Notes 3 and 4)                                                                     |   |                                 | 4,470  |                               |   | -- |   |   | 30,968 |   |   | -- |   |
| Amortization      and other                                                                                        |   |                                 | 204    |                               |   | 206 |   |   | 446 |   |   | 406 |   |
| Total      expenses                                                                                                |   |                                 | 15,162 |                               |   | 12,853 |   |   | 52,143 |   |   | 23,690 |   |
|  Other      income (loss):                                                                                    |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Gain      on sale of investments                                                                                   |   |                                 | 495    |                               |   | 337 |   |   | 456 |   |   | 337 |   |
| Change      in fair value and loss on termination of derivative instruments (Note      10)                         |   |                                 | --     |                               |   | 681 |   |   | (2,640 | ) |   | 650 |   |
|  Total      other income (loss)                                                                               |   |                                 | 495    |                               |   | 1,018 |   |   | (2,184 | ) |   | 987 |   |
|  (Loss)      income from continuing operations                                                                |   |                                 | (4,856 | )                                  |   | 3,477 |   |   | (33,832 | ) |   | 5,110 |   |
|  Income      from discontinued operations, including gain      on sale of real estate owned (Note 5)          |   |                                 | --     |                               |   |  -- |   |   | -- |   |   | 3,531 |   |
|  Net      (loss) income                                                                                       |   |                                 | (4,856 | )                                  |   | 3,477 |   |   | (33,832 | ) |   | 8,641 |   |
|  7.25%      Convertible Preferred dividend requirements                                                       |   |                                 | (308   | )                                  |   | -- |   |   | (616 | ) |   | -- |   |
|  Net      (loss) income available to common shareholders                                                      |   | $                                    | (5,164 | )                                  | $      | 3,477 |   | $ | (34,448 | ) | $ | 8,641 |   |
|  Earnings      per share (basic and diluted) (Note 15):                                                       |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
|  (Loss)      income from continuing operations                                                                |   | $                                    | (0.61  | )                                  | $      | 0.41 |   | $ | (4.08 | ) | $ | 0.61 |   |
| Income      from discontinued operations                                                                           |   |                                 | --     |                               |   | -- |   |   | -- |   |   | 0.42 |   |
|  Net      (loss) income                                                                                       |   | $                                    | (0.61  | )                                  | $      | 0.41 |   | $ | (4.08 | ) | $ | 1.03 |   |
|  Dividends      per share                                                                                     |   | $                                    | --     |                               | $      | 0.225 |   | $ | -- |   | $ | 0.450 |   |
|  Weighted      average shares outstanding:                                                                    |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Basic      and diluted                                                                                             |   |                                 | 8,445  |                               |   | 8,403 |   |   | 8,439 |   |   | 8,402 |   |

----

|                                                                             |   | Six      Months EndedJune      30, |     |
|----------------------------------------------------------------------------------|--------|------------------------------------|----------|
|                                                                             |   | 2008                               |     | 2007 |   |
| Cash      flows from operating activities:                                       |   |                               |     |   |   |   |   |
| Net      (loss) income                                                           |   | $                                  | (33,832  | ) | $ | 8,641 |   |
|  Reconciling      items:                                                    |   |                               |     |   |   |   |   |
| Impairment      of investments                                                   |   |                               | 30,968   |   |   | -- |   |
| Change      in fair value and loss on termination of derivative      instruments |   |                               | 2,640    |   |   | (650 | ) |
| Amortization      and accretion                                                  |   |                               | (64      | ) |   | 197 |   |
| Other      non-cash income, net                                                  |   |                               | (74      | ) |   | (512 | ) |
| Depreciation      expense                                                        |   |                               | --       |   |   | 336 |   |
| Gain      on sale of investments                                                 |   |                               | (456     | ) |   | (337 | ) |
| Gain      on sale of real estate owned                                           |   |                               | --       |   |   | (3,611 | ) |
| Changes      in operating assets and liabilities:                                |   |                               |     |   |   |   |   |
| Accounts      receivable                                                         |   |                               | 754      |   |   | (2,063 | ) |
| Other      assets                                                                |   |                               | (28      | ) |   | (3 | ) |
| Due      to Advisor and affiliates                                               |   |                               | 1,455    |   |   | (124 | ) |
| Accounts      payable and accrued expenses                                       |   |                               | 608      |   |   | 3,064 |   |
|  Net      cash provided by operating activities                             |   |                               | 1,971    |   |   | 4,938 |   |
|  Cash      flows from investing activities:                                 |   |                               |     |   |   |   |   |
| Principal      repayments or sale of mortgage loans                              |   |                               | 61,686   |   |   | 57,565 |   |
| Funding      and purchase of mortgage loans                                      |   |                               | (769     | ) |   | (238,873 | ) |
| Investment      in CMBS                                                          |   |                               | --       |   |   | (106,830 | ) |
| Investment      in CDO securities                                                |   |                               | --       |   |   | (10,062 | ) |
| Principal      repayments or sale of debt securities                             |   |                               | --       |   |   | 2,408 |   |
| Principal      payments on and proceeds from sale of real estate owned           |   |                               | --       |   |   | 12,022 |   |
| Proceeds      from the sale of ARCap investment                                  |   |                               | 495      |   |   | 337 |   |
| Decrease      in restricted cash and escrow receivables                          |   |                               | 11,746   |   |   | 12,728 |   |
| Principal      repayments of mortgage revenue bonds                              |   |                               | 91       |   |   | 95 |   |
|  Net      cash provided by (used in) investing activities                   |   |                               | 73,249   |   |   | (270,610 | ) |
|  Cash      flows from financing activities:                                 |   |                               |     |   |   |   |   |
| Proceeds      from repurchase facilities                                         |   |                               | 445,632  |   |   | 387,649 |   |
| Repayments      of repurchase facilities                                         |   |                               | (510,078 | ) |   | (148,101 | ) |
| Proceeds      from line of credit – related party                          |   |                               | 3,443    |   |   | 171,815 |   |
| Repayments      of line of credit – related party                          |   |                               | (1,250   | ) |   | (129,215 | ) |
| Proceed      from note payable – related party                             |   |                               | 4,000    |   |   | -- |   |
| Repayment      from note payable – related party                           |   |                               | (4,000   | ) |   | -- |   |
| Interest      rate derivative termination costs                                  |   |                               | (7,492   | ) |   | -- |   |
| Deferred      financing costs                                                    |   |                               | --       |   |   | (186 | ) |
| Dividends      paid or payable to shareholders                                   |   |                               | (616     | ) |   | (17,010 | ) |
|  Net      cash (used in) provided by financing activities                   |   |                               | (70,361  | ) |   | 264,952 |   |
|  Net      increase (decrease) in cash and cash equivalents                  |   |                               | 4,859    |   |   | (720 | ) |
|  Cash      and cash equivalents at the beginning of the year                |   |                               | 15,844   |   |   | 7,553 |   |
|  Cash      and cash equivalents at the end of the period                    |   | $                                  | 20,703   |   | $ | 6,833 |   |
|  Non-cash      investing and financing activities                           |   |                               |     |   |   |   |   |
| Capitalized      interest income                                                 |   | $                                  | 263      |   | $ | 257 |   |

----

----

| Period                              |   | Interest      rate range                                |
|-------------------------------------|--------|---------------------------------------------------------|
|                                |   |                                                    |
| January      1 – January 31   |   | 30-day      LIBOR plus 0.75% to 30-day LIBOR plus 1.40% |
| February      1 – February 29 |   | 30-day      LIBOR plus 0.95% to 30-day LIBOR plus 1.60% |
| March      1 – April 30       |   | 30-day      LIBOR plus 2.00%                            |
| Subsequent      to April 30         |   | 30-day      LIBOR plus 2.50%                            |

----

| (in      thousands)                        |   | Carrying      amount |    | Carrying      amount pledged as collateral |   | Amount      securing CDO debt(1) |   |  Amount      securing      repurchase facilities(2) |    | Associated      repurchasedebt(2)(3) |   |
|--------------------------------------------|--------|----------------------|---------|--------------------------------------------|--------|----------------------------------|--------|----------------------------------------------------------|---------|--------------------------------------|--------|
|                                       |   |                 |    |                                       |   |                             |   |                                                     |    |                                 |   |   |   |   |   |   |
| Mortgage      loans receivable:            |   |                 |    |                                       |   |                             |   |                                                     |    |                                 |   |   |   |   |   |   |
| First      mortgages                       |   | $                    | 352,068 |                                       | $      | 352,068                          |   | $                                                        | 352,068 |                                 | $      | -- |   | $ | -- |   |
| Variable-rate      bridge loans            |   |                 | 6,551   |                                       |   | --                               |   |                                                     | --      |                                 |   | -- |   |   | -- |   |
| Fixed-rate      mezzanine loans            |   |                 | 13,117  |                                       |   | 8,120                            |   |                                                     | 7,069   |                                 |   | 1,051 |   |   | 889 |   |
| Variable-rate      mezzanine loans         |   |                 | 50,655  |                                       |   | 50,655                           |   |                                                     | 12,901  |                                 |   | 37,754 |   |   | 30,203 |   |
| Subordinated      notes                    |   |                 | 42,431  |                                       |   | 41,931                           |   |                                                     | 24,814  |                                 |   | 17,117 |   |   | 12,453 |   |
|  Total      mortgage loans receivable |   |                 | 464,822 |                                       |   | 452,774                          |   |                                                     | 396,852 |                                 |   | 55,922 |   |   | 43,545 |   |
|  CMBS                                 |   |                 | 43,013  |                                       |   | 43,013                           |   |                                                     | --      |                                 |   | 43,013 |   |   | 28,394 |   |
|  Mortgage      revenue bonds          |   |                 | 4,743   |                                       |   | --                               |   |                                                     | --      |                                 |   | -- |   |   | -- |   |
|  Total                                |   | $                    | 512,578 |                                       | $      | 495,787                          |   | $                                                        | 396,852 |                                 | $      | 98,935 |   | $ | 71,939 |   |

| (1) | $396.9      million of our mortgage loans receivable secure $362.0 million of CDO      notes payable, of which, we have hedged $345.9 million (see Note      10). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Refers      to the Citigroup and Bear Stearns repurchase facilities (see Note      8). |
|-----|----------------------------------------------------------------------------------------|

| (3) | $17.3      million of cash is held in escrow at Citigroup, which will be used, in      part, to satisfy repurchase facility debt (see Notes 6 and    8). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (in      thousands)                     |   | June      30,2008 |    |   | December      31,2007 |   |
|-----------------------------------------|--------|-------------------|---------|--------|-----------------------|--------|
|                                    |   |              |    |   |                  |   |
| Mortgage      loans held for investment |   | $                 | 457,154 |   |                  | $      | 467,734 |   |
| Mortgage      loans held for sale       |   |              | 7,668   |   |                  |   | 61,910 |   |
|  Total                             |   | $                 | 464,822 |   |                  | $      | 529,644 |   |

| (in      thousands)                     |   | June      30,2008 |    |
|-----------------------------------------|--------|-------------------|---------|
|  Balance      at beginning of year |   | $                 | 529,644 |   |
| Advances      made                      |   |              | 769     |   |
| Loan      commitment fees               |   |              | 78      |   |
| Sales      or repayments                |   |              | (61,725 | ) |
| Amortization      of costs and fees     |   |              | 212     |   |
| Impairment      losses                  |   |              | (4,419  | ) |
| Capitalized      interest               |   |              | 263     |   |
|  Balance      at end of the period |   | $                 | 464,822 |   |

----

| (dollars      in thousands)                                                                                                                                                                                                                                                                                                                                                                                        |   | Faceamount |    | Purchaseprice |   | Fair      value(1) |   | Percentage      offair      value |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|---------|---------------|--------|--------------------|--------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |       |    |          |   |               |   |                              |   |   |   |   |   |
| Security      rating:                                                                                                                                                                                                                                                                                                                                                                                              |   |       |    |          |   |               |   |                              |   |   |   |   |   |
| BBB+                                                                                                                                                                                                                                                                                                                                                                                                               |   | $          | 4,750   |          | $      | 4,776              |   | $                                 | 2,380  |   |   | 5.5 | % |
| BBB                                                                                                                                                                                                                                                                                                                                                                                                                |   |       | 51,128  |          |   | 47,459             |   |                              | 20,331 |   |   | 47.3 |   |
| BBB-                                                                                                                                                                                                                                                                                                                                                                                                               |   |       | 40,994  |          |   | 34,948             |   |                              | 13,105 |   |   | 30.5 |   |
| BB(2)                                                                                                                                                                                                                                                                                                                                                                                                              |   |       | 9,997   |          |   | 9,997              |   |                              | 7,197  |   |   | 16.7 |   |
|  Total                                                                                                                                                                                                                                                                                                                                                                                                        |   | $          | 106,869 |          | $      | 97,180             |   | $                                 | 43,013 |   |   | 100.0 | % |
|  (1)          CMBS were written down to their estimated fair value in accordance      with FAS 115, Accounting      for Certain Investments in Debt Equity Securities at June 30,      2008.  The fair value is now considered the cost basis of these      investments.(2)           One security was downgraded from BBB- to BB in May of      2008. |   |

| (in      thousands)          |   | CMBS   |   |   | Mortgage      revenuebonds |   |   | Total  |   |
|------------------------------|--------|--------|--------|--------|----------------------------|--------|--------|--------|--------|
|  June 30,      2008     |   |   |   |   |                       |   |   |   |   |
|  Amortized      cost    |   | $      | 43,013 |   |                       | $      | 4,577  |   |   | $ | 47,590 |   |
| Unrealized      gain         |   |   | --     |   |                       |   | 166    |   |   |   | 166 |   |
|  Fair      value        |   | $      | 43,013 |   |                       | $      | 4,743  |   |   | $ | 47,756 |   |
|  December 31,      2007 |   |   |   |   |                       |   |   |   |   |   |   |   |
|  Amortized      cost    |   | $      | 69,269 |   |                       | $      | 4,668  |   |   | $ | 73,937 |   |
| Unrealized      gain         |   |   | --     |   |                       |   | 211    |   |   |   | 211 |   |
|  Fair      value        |   | $      | 69,269 |   |                       | $      | 4,879  |   |   | $ | 74,148 |   |

----

|                                   |   | Three      months endedJune      30, |   | Six      months endedJune      30, |   |
|----------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
| (in      thousands)                    |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
|  Revenues                         |   | $                                    | --     |                               | $      | -- |   | $ | -- |   | $ | 1,815 |   |
| Gain      on sale of real estate owned |   | $                                    | --     |                               | $      | -- |   | $ | -- |   | $ | 3,611 |   |
| Net      income                        |   | $                                    | --     |                               | $      | -- |   | $ | -- |   | $ | 3,531 |   |

| (in      thousands)                                                                                                                                                                           |   | June      30,2008 |   |   | December      31,2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|
|  Escrow      receivable (1)                                                                                                                                                              |   | $                 | 17,297 |   |                  | $      | 25,287 |   |
| Interest      receivable                                                                                                                                                                      |   |              | 4,997  |   |                  |   | 5,737 |   |
| Other                                                                                                                                                                                         |   |              | 28     |   |                  |   | 42 |   |
|  Total                                                                                                                                                                                   |   | $                 | 22,322 |   |                  | $      | 31,066 |   |
|  (1)Escrow      balances are being held by Citigroup as collateral, to be released when an      asset that collateralizes the facility is sold based on the proceeds of      such sales. |   |

| (in      thousands)                                                                                       |   | June      30,2008 |   |   | December      31, 2007 |   |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------------|--------|
|                                                                                                      |   |              |   |   |                   |   |
| Deferred      financing charges, net of accumulatedamortization      of $1,472 in 2008 and $1,030 in 2007 |   | $                 | 6,424  |   |                   | $      | 6,867 |   |
| Other      assets                                                                                         |   |              | 75     |   |                   |   | 47 |   |
|  Total                                                                                               |   | $                 | 6,499  |   |                   | $      | 6,914 |   |

----

| (in      thousands)                                                                                                                                                     |   | June      30,2008 |   |      | December      31,2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|-----------|-----------------------|--------|
|                                                                                                                                                                    |   |              |   |      |                  |   |
| Citigroup                                                                                                                                                               |   | $                 | 37,033 |  (1) |                  | $      | 81,345 |   |
| Bear      Stearns                                                                                                                                                       |   |              | 34,906 |      |                  |   | 55,040 |   |
|  Total                                                                                                                                                             |   | $                 | 71,939 |      |                  | $      | 136,385 |   |
|  (1)As      of June 30, 2008, $17.3 million of cash is held in escrow at Citigroup,      which will be used, in part, to satisfy this liability (see Note      6). |   |

----

| ·   | minimum      adjusted net worth; |
|--------------------|----------------------------------|

| ·   | liquidity; |
|--------------------|------------|

| ·   | debt      service coverage; |
|--------------------|-----------------------------|

| ·   | recourse      debt to adjusted net worth; and |
|--------------------|-----------------------------------------------|

| ·   | minimum      Adjusted Funds from Operations(“AFFO”). |
|--------------------|------------------------------------------------------------------|

----

| (in      thousands)                                                                                                                                                                                                                                                                                                                               |   | Three      Months EndedJune      30, |   | Six      Months EndedJune      30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                              |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
| Included      in interest expense:                                                                                                                                                                                                                                                                                                                |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Interest      receipts                                                                                                                                                                                                                                                                                                                            |   | $                                    | --     |                               | $      | 495 |   | $ | 3 |   | $ | 797 |   |
| Interest      payments                                                                                                                                                                                                                                                                                                                            |   |                                 | (2,528 | )                                  |   | (99 | ) |   | (3,760 | ) |   | (234 | ) |
| Ineffectiveness(1)                                                                                                                                                                                                                                                                                                                                |   |                                 | --     |                               |   | 182 |   |   | (131 | ) |   | 270 |   |
|  Subtotal                                                                                                                                                                                                                                                                                                                                    |   | $                                    | (2,528 | )                                  | $      | 578 |   | $ | (3,888 | ) | $ | 833 |   |
|  Included      in other income (losses):                                                                                                                                                                                                                                                                                                     |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Loss      on termination                                                                                                                                                                                                                                                                                                                          |   | $                                    | --     |                               | $      | -- |   | $ | (2,640 | ) | $ | -- |   |
| Change      in fair value                                                                                                                                                                                                                                                                                                                         |   |                                 | --     |                               |   | 681 |   |   | -- |   |   | 650 |   |
|  Subtotal                                                                                                                                                                                                                                                                                                                                    |   | $                                    | --     |                               | $      | 681 |   | $ | (2,640 | ) | $ | 650 |   |
|  Net      impact                                                                                                                                                                                                                                                                                                                             |   | $                                    | (2,528 | )                                  | $      | 1,259 |   | $ | (6,528 | ) | $ | 1,483 |   |
|  (1)            Relates to one swap, which includes an embedded financing component      that has caused and will continue to cause same ineffectiveness within the      limits allowed by SFAS No. 133, Accounting for Derivative      Instruments and Hedging Activities, to maintain hedge      accounting. |   |

| (in      thousands)                                                                                                                                                                       |   | June      30,2008 |   |   | December      31, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------------|--------|
|                                                                                                                                                                                      |   |              |   |   |                   |   |
| Accrued      interest payable                                                                                                                                                             |   | $                 | 14,830 |   |                   | $      | 13,917 |   |
| Other      (1)                                                                                                                                                                            |   |              | 1,543  |   |                   |   | 1,847 |   |
|  Total                                                                                                                                                                               |   | $                 | 16,373 |   |                   | $      | 15,764 |   |
|  (1)           Includes refundable deposits, collected during the due diligence      period of a loan transaction, which are payable to other      parties. |   |

----

| ·   | Level      1 inputs utilize quoted prices (unadjusted) in active markets for      identical assets or liabilities that we have the ability to      access. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 inputs utilize other-than-quoted prices that are observable for the      asset or liability, either directly or indirectly.  Level      2 inputs include quoted prices for similar assets and liabilities in      active markets, and inputs, such as interest rates and yield curves that      are observable at commonly quoted  intervals. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 inputs are unobservable and are typically based on our own assumptions,      including situations where there is little, if any, market      activity. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (dollars      in thousands)                                                                                                                                                                                                 |   | Level      1 |   | Level      2 |   | Level      3 |   | Balanceas      ofJune      30,2008 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|------------------------------------|--------|
|  Measured on a      recurring basis                                                                                                                                                                                    |   |         |   |         |   |         |   |                               |   |   |   |   |   |
|  Assets                                                                                                                                                                                                                |   |         |   |         |   |         |   |                               |   |   |   |   |   |
| Available-for-sale      investments:                                                                                                                                                                                        |   |         |   |         |   |         |   |                               |   |   |   |   |   |
| CMBS                                                                                                                                                                                                                        |   | $            | --     |         | $      | --           |   | $                                  | 43,013 |   | $ | 43,013 |   |
| Mortgage      revenue bonds                                                                                                                                                                                                 |   |         | --     |         |   | --           |   |                               | 4,743  |   |   | 4,743 |   |
| Total      assets                                                                                                                                                                                                           |   | $            | --     |         | $      | --           |   | $                                  | 47,756 |   | $ | 47,756 |   |
|                                                                                                                                                                                                                        |   |         |   |         |   |         |   |                               |   |   |   |   |   |
| Liabilities                                                                                                                                                                                                                 |   |         |   |         |   |         |   |                               |   |   |   |   |   |
| Interest      rate derivatives                                                                                                                                                                                              |   | $            | --     |         | $      | 20,358       |   | $                                  | --     |   | $ | 20,358 |   |
| Total      liabilities                                                                                                                                                                                                      |   | $            | --     |         | $      | 20,358       |   | $                                  | --     |   | $ | 20,358 |   |
|  Measured on a      non-recurring basis                                                                                                                                                                                |   |         |   |         |   |         |   |                               |   |   |   |   |   |
|  Assets                                                                                                                                                                                                                |   |         |   |         |   |         |   |                               |   |   |   |   |   |
| Mortgage      loans receivable – held-for-investment-impaired(1)                                                                                                                                                      |   | $            | --     |         | $      | 32,653       |   | $                                  | --     |   | $ | 32,653 |   |
| Mortgage      loans receivable – held-for-sale                                                                                                                                                                        |   |         | --     |         |   | 7,668        |   |                               | --     |   |   | 7,668 |   |
| Total      assets                                                                                                                                                                                                           |   | $            | --     |         | $      | 40,321       |   | $                                  | --     |   | $ | 40,321 |   |
|  (1)         We recorded impairment charges for four loans in this group during      the first half of 2008 as described in Note 3.  No other loans      had further impairments during 2008. |   |

----

| CMBS:                           | We      generally estimate fair value of CMBS and similar retained interests based      on market prices provided by certain dealers who make a market in these      financial instruments. Due      to limited market activity for CMBS, we perform additional analysis on      prices received based on broker quotes.  This process includes      analyzing the securities based on vintage year, rating and asset type and      converting the price received to a spread.  The calculated      spread is then compared to market information available for securities of      similar type, vintage year and rating (i.e. CMBX).  We use this      process to validate the prices received from brokers.                        |
|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Mortgage      loans receivable: | We      carry our mortgage loans receivable – held for sale at the lower of cost      or fair market value.  When a loan is classified as      held-for-sale or when a loan is deemed impaired, we write the loan down to      its fair value, which becomes its new cost basis.  We measure      the fair market value of a loan using the observable market price for      sales of similar assets or the market value of the loan’s collateral if      the loan is collateral-dependent.  Market prices are determined      by using a combination of updated appraised values and broker quotes or      services supplying market and sales data in various geographical locations      where the collateral is located.  |
| Mortgage      revenue bonds:    | We      estimate fair value for each bond by utilizing the present value of the      expected cash flows discounted at a rate for comparable tax-exempt      investments and then comparing against any similar market      transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Derivatives:                    | The      fair value of interest rate swaps are determined using the market standard      methodology of netting the discounted future fixed cash receipts (or      payments) and the discounted expected variable cash payments (or      receipts).  The variable cash payments (or receipts) are based      on an expectation of future interest rates (forward curve) derived from      observable market interest rate curves.  In adjusting the fair      value of our derivative contracts for the effect of nonperformance risk,      we have considered the impact of netting and any applicable credit      enhancements, such as thresholds andguarantees.                                                                                      |

----

|                                                                                                                                                                              |   | Fair      Value Measurements Using Significant Unobservable      Inputs (Level 3) |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|---------|
| (dollars      in thousands)                                                                                                                                                       |   | CMBS                                                                              |    |  MortgageRevenueBonds |   | Total |   |
|                                                                                                                                                                              |   |                                                                              |    |   |   |   |   |   |   |   |
| Balance      at January 1, 2008                                                                                                                                                   |   | $                                                                                 | 69,269  |   | $ | 4,879 |   | $ | 74,148 |   |
| Total      gains or losses (realized/unrealized):                                                                                                                                 |   |                                                                              |    |   |   |   |   |   |   |   |
| Included      in earnings                                                                                                                                                         |   |                                                                              | (25,454 | )(1) |   | -- |   |   | (25,454 | ) |
| Included      in other comprehensive income                                                                                                                                       |   |                                                                              | --      |   |   | (52 | ) |   | (52 | ) |
| Amortization      of costs and fees                                                                                                                                               |   |                                                                              | 152     |   |   | (44 | ) |   | 108 |   |
| Purchases,      issuances and settlements                                                                                                                                         |   |                                                                              | --      |   |   | -- |   |   | -- |   |
| Transfers      in and/of out of Level 3                                                                                                                                           |   |                                                                              | --      |   |   | -- |   |   | -- |   |
|  Balance      at March 31, 2008                                                                                                                                              |   |                                                                              | 43,967  |   |   | 4,783 |   |   | 48,750 |   |
|  Total      losses (realized/unrealized):                                                                                                                                    |   |                                                                              |    |   |   |   |   |   |   |   |
| Included      in earnings                                                                                                                                                         |   |                                                                              | (1,095  | )(1) |   | -- |   |   | (1,095 | ) |
| Included      in other comprehensive loss                                                                                                                                         |   |                                                                              | --      |   |   | 6 |   |   | 6 |   |
| Amortization      of costs and fees                                                                                                                                               |   |                                                                              | 141     |   |   | (46 | ) |   | 95 |   |
| Purchases,      issuances and settlements                                                                                                                                         |   |                                                                              | --      |   |   | -- |   |   | -- |   |
| Transfers      in and/of out of Level 3                                                                                                                                           |   |                                                                              | --      |   |   | -- |   |   | -- |   |
|  Balance      at June 30, 2008                                                                                                                                               |   | $                                                                                 | 43,013  |   | $ | 4,743 |   | $ | 47,756 |   |
|                                                                                                                                                                              |   |                                                                              |    |   |   |   |   |   |   |   |
| The      amount of total losses for the period included in earnings attributable to      the change in unrealized losses relating to assets still held at the      reporting date |   | $                                                                                 | (26,549 | )(1) | $ | -- |   | $ | (26,549 | ) |
|  (1)         Recorded as impairment charges in the condensed consolidated      statement of operations.                                                       |   |

----

|                                                                |   | Six      Months EndedJune      30, |    |
|---------------------------------------------------------------------|--------|------------------------------------|---------|
| (in      thousands)                                                 |   | 2008                               |    |   | 2007 |   |
|  Net      (loss) income                                        |   | $                                  | (33,832 | ) |   | $ | 8,641 |   |
| Net      unrealized gain on derivative instruments                  |   |                               | 1,421   |   |   |   | 12,217 |   |
| Amortization      related to termination of derivative instruments  |   |                               | 222     |   |   |   | -- |   |
| Net      unrealized holding loss on investments                     |   |                               | (26,595 | ) |   |   | (5,294 | ) |
| Reclassification      adjustment for impairment loss on investments |   |                               | 26,549  |   |   |   | -- |   |
|  Comprehensive      (loss) income                              |   | $                                  | (32,235 | ) |   | $ | 15,564 |   |

|                                                         |   | Three      Months EndedJune      30, |   | Six      Months EndedJune      30, |   |
|--------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
| (in      thousands, except per share amounts)                |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
|                                                         |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Numerator:                                                   |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| (Loss)      income from continuing operations                |   | $                                    | (4,856 | )                                  | $      | 3,477 |   | $ | (33,832 | ) | $ | 5,110 |   |
| Preferred      dividends                                     |   |                                 | (308   | )                                  |   | -- |   |   | (616 | ) |   | -- |   |
| Net      (loss) income for EPS calculations                  |   | $                                    | (5,164 | )                                  | $      | 3,477 |   | $ | (34,448 | ) | $ | 5,110 |   |
|  Denominator:                                           |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding (basic and diluted) |   |                                 | 8,445  |                               |   | 8,403 |   |   | 8,439 |   |   | 8,402 |   |
|  Calculation      of EPS (basic and diluted):           |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| (Loss)      income as computed above                         |   | $                                    | (5,164 | )                                  | $      | 3,477 |   | $ | (34,448 | ) | $ | 5,110 |   |
| Weighted      average shares outstanding                     |   |                                 | 8,445  |                               |   | 8,403 |   |   | 8,439 |   |   | 8,402 |   |
| (Loss)      income per share                                 |   | $                                    | (0.61  | )                                  | $      | 0.41 |   | $ | (4.08 | ) | $ | 0.61 |   |

----

|                                            |   | Three      Months EndedJune      30, |   | Six      Months EndedJune      30, |   |
|-------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
| (in      thousands)                             |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
|  Fees      to Advisor and affiliates:      |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Shared      services expenses                   |   | $                                    | 248    |                               | $      | 338 |   | $ | 662 |   | $ | 793 |   |
| Asset      management fees                      |   |                                 | 199    |                               |   | 435 |   |   | 429 |   |   | 819 |   |
| Servicing      fees                             |   |                                 | 93     |                               |   | 145 |   |   | 183 |   |   | 274 |   |
|  Total      fees to Advisor and affiliates |   | $                                    | 540    |                               | $      | 918 |   | $ | 1,274 |   | $ | 1,886 |   |
|  Other      costs:                         |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Interest      on related party line of credit   |   | $                                    | 2,747  |                               | $      | 805 |   | $ | 3,987 |   | $ | 902 |   |

| ·   | For      the purposes of calculating the asset management fee, the definition of      Company Equity was modified to exclude unrealized losses recognized in      earnings that result from changes in market values of securities      classified as available-for-sale;and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Expense      reimbursements are to be payable to the Advisor in the form of a quarterly      flat-fee of $0.4 million based on the projected costs of the Advisor for      providing services to us.  Prior to the amendment, these fees      were paid based on a complex allocation provided by the      Advisor. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                           |   | Three      months endedJune      30, 2008 (1) |   | Three      months endedJune      30, 2007           |   |
|--------------------------------|--------|-----------------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars      in thousands)    |   | Amount                                        |   |  Weighted      Average      Interest      Rate |   | Amount |   | Weighted      Average      Interest      Rate |   |
|                           |   |                                          |   |                                                |   |   |   |   |   |
| Mortgage      loans receivable |   | $                                             | --     |                                                |   | -- | % | $ | 141,711 |   |   | 8.15 | % |
| CMBS                           |   |                                          | --     |                                                |   | -- |   |   | 115,301 |   |   | 5.93 |   |
|  Total                    |   | $                                             | --     |                                                |   | -- | % | $ | 257,012 |   |   | 7.15 | % |

|                                                                                                                |   | Six      months endedJune      30, 2008 (1) |   | Six      months endedJune      30, 2007             |   |
|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars      in thousands)                                                                                         |   | Amount                                      |   |  Weighted      Average      Interest      Rate |   | Amount |   | Weighted      Average      Interest      Rate |   |
|                                                                                                                |   |                                        |   |                                                |   |   |   |   |   |
| Mortgage      loans receivable                                                                                      |   | $                                           | --     |                                                |   | -- | % | $ | 244,874 |   |   | 7.98 | % |
| CMBS                                                                                                                |   |                                        | --     |                                                |   | -- |   |   | 115,301 |   |   | 5.93 |   |
| CDO      securities                                                                                                 |   |                                        | --     |                                                |   | -- |   |   | 10,083 |   |   | 9.00 |   |
|  Total                                                                                                         |   | $                                           | --     |                                                |   | -- | % | $ | 370,258 |   |   | 7.36 | % |
|  (1)        During the three and six months ended June 30, 2008 we had no      origination activity. |   |

----

|                                     |   | Three      Months Ended June 30, |   | Six      Months Ended June 30, |   |
|------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
| (dollars      in thousands)              |   | 2008                             |   | 2007                           |   | Change |   | 2008 |   | 2007 |   | Change |   |
|  Total      revenues                |   | $                                | 9,811  |                           | $      | 15,312 |   |   | (35.9 | )% | $ | 20,495 |   | $ | 27,813 |   |   | (26.3 | )% |
| Total      expenses                      |   |                             | 15,162 |                           |   | 12,853 |   |   | 18.0 |   |   | 52,143 |   |   | 23,690 |   |   | 120.1 |   |
| Total      other income (losses)         |   |                             | 495    |                           |   | 1,018 |   |   | (51.4 | ) |   | (2,184 | ) |   | 987 |   |   | (321.3 | ) |
| Income      from discontinued operations |   |                             | --     |                           |   | -- |   |   | -- |   |   | -- |   |   | 3,531 |   |   | (100.0 | ) |
|  Net      (loss) income             |   | $                                | (4,856 | )                              | $      | 3,477 |   |   | (239.7 | )% | $ | (33,832 | ) | $ | 8,641 |   |   | (491.5 | )% |

----

|                        |   | Three      Months EndedJune      30, |   | Change      from Prior      Period |   | %      of 2008 TotalRevenues |   | %      of 2007 TotalRevenues |   |
|-----------------------------|--------|--------------------------------------|--------|------------------------------------|--------|------------------------------|--------|------------------------------|--------|
| (dollars inthousands)       |   | 2008                                 |   | 2007                               |   |                         |   |                         |
|  Interest      income: |   |                                 |   |                               |   |                         |   |                         |   |   |   |   |   |
| Mortgage      loans         |   | $                                    | 7,806  |                               | $      | 12,712                       |   | (38.6                        | )%     | 79.6 | % | 83.0 | % |
| CMBS                        |   |                                 | 1,686  |                               |   | 862                          |   | 95.6                         |   | 17.2 |   | 5.6 |   |
| Mortgage      revenue bonds |   |                                 | 101    |                               |   | 105                          |   | (3.8                         | )      | 1.0 |   | 0.7 |   |
| Temporary      investments  |   |                                 | 215    |                               |   | 89                           |   | 141.6                        |   | 2.2 |   | 0.6 |   |
| Debt      securities        |   |                                 | --     |                               |   | 1,208                        |   | (100.0                       | )      | -- |   | 7.9 |   |
| CDO      securities         |   |                                 | --     |                               |   | 183                          |   | (100.0                       | )      | -- |   | 1.2 |   |
| Subtotal                    |   |                                 | 9,808  |                               |   | 15,159                       |   | 35.3                         |   | 100.0 |   | 99.0 |   |
|  Other      revenues   |   |                                 | 3      |                               |   | 153                          |   | (98.0                        | )      | -- |   | 1.0 |   |
|  Total      revenues   |   | $                                    | 9,811  |                               | $      | 15,312                       |   | (35.9                        | )%     | 100.0 | % | 100.0 | % |

|                        |   | Six      Months EndedJune      30, |   | Change      from Prior      Period |   | %      of 2008 TotalRevenues |   | %      of 2007 TotalRevenues |   |
|-----------------------------|--------|------------------------------------|--------|------------------------------------|--------|------------------------------|--------|------------------------------|--------|
| (dollars inthousands)       |   | 2008                               |   | 2007                               |   |                         |   |                         |
|  Interest      income: |   |                               |   |                               |   |                         |   |                         |   |   |   |   |   |
| Mortgage      loans         |   | $                                  | 16,360 |                               | $      | 22,928                       |   | (28.6                        | )%     | 79.8 | % | 82.4 | % |
| CMBS                        |   |                               | 3,391  |                               |   | 862                          |   | 293.4                        |   | 16.6 |   | 3.1 |   |
| Mortgage      revenue bonds |   |                               | 203    |                               |   | 211                          |   | (3.8                         | )      | 1.0 |   | 0.8 |   |
| Temporary      investments  |   |                               | 460    |                               |   | 259                          |   | 77.6                         |   | 2.2 |   | 0.9 |   |
| Debt      securities        |   |                               | --     |                               |   | 2,435                        |   | (100.0                       | )      | -- |   | 8.8 |   |
| CDO      securities         |   |                               | --     |                               |   | 190                          |   | (100.0                       | )      | -- |   | 0.7 |   |
| Subtotal                    |   |                               | 20,414 |                               |   | 26,885                       |   | (24.1                        | )      | 99.6 |   | 96.7 |   |
|  Other      revenues:  |   |                               |   |                               |   |                         |   |                         |   |   |   |   |   |
| Participation      income   |   |                               | --     |                               |   | 699                          |   | (100.0                       | )      | -- |   | 2.5 |   |
| Other                       |   |                               | 81     |                               |   | 229                          |   | (64.6                        | )      | 0.4 |   | 0.8 |   |
| Subtotal                    |   |                               | 81     |                               |   | 928                          |   | (91.3                        | )      | 0.4 |   | 3.3 |   |
|  Total      revenues   |   | $                                  | 20,495 |                               | $      | 27,813                       |   | (26.3                        | )%     | 100.0 | % | 100.0 | % |

|                                 | 2008                 |    | 2007            |   |
|--------------------------------------|----------------------|---------|-----------------|--------|
| (dollars      in thousands)     | Carrying      Amount |    | %      of Total |   | Weighted      AverageInterest      Rate |   | Carrying      Amount |   | %      of Total |   | Weighted      AverageInterest      Rate |   |
|  Mortgage      loans receivable | $                    | 464,822 |            | 90.7   | % | 6.89 | % | $ | 727,675 |   | 78.7 | % | 6.28 | % |
| CMBS                                 |                 | 43,013  |            | 8.4    |   | 5.23 |   |   | 103,559 |   | 11.2 |   | 5.93 |   |
| Mortgage      revenue bonds          |                 | 4,743   |            | 0.9    |   | 8.70 |   |   | 4,888 |   | 0.5 |   | 8.70 |   |
| Debt      securities                 |                 | --      |            | --     |   | -- |   |   | 78,347 |   | 8.5 |   | 6.49 |   |
| CDO      securities                  |                 | --      |            | --     |   | -- |   |   | 9,822 |   | 1.1 |   | 9.00 |   |
|  Total                          | $                    | 512,578 |            | 100.0  | % | 6.76 | % | $ | 924,291 |   | 100.0 | % | 6.30 | % |

----

| (dollars      in thousands)                                   |   | Three      Months EndedJune      30, |   | %      Changefrom      PriorPeriod |   | %      of Total2008Revenues |   | %      of Total2007Revenues |   |
|---------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|-----------------------------|--------|-----------------------------|--------|
| 2008                                                          |   | 2007                                 |
|  Interest                                                |   | $                                    | 8,808  |                               | $      | 10,633                      |   | (17.2                       | )%     | 89.8 | % | 69.4 | % |
| Interest      – distributions to preferred shareholders |   |                                 | 547    |                               |   | 554                         |   | (1.3                        | )      | 5.6 |   | 3.6 |   |
| General      and administrative                               |   |                                 | 593    |                               |   | 542                         |   | 9.4                         |   | 6.0 |   | 3.5 |   |
| Fees      to Advisor and affiliates                           |   |                                 | 540    |                               |   | 918                         |   | (41.2                       | )      | 5.5 |   | 6.0 |   |
| Impairment      of investments                                |   |                                 | 4,470  |                               |   | --                          |   | 100.0                       |   | 45.6 |   | -- |   |
| Amortization      and other                                   |   |                                 | 204    |                               |   | 206                         |   | (1.0                        | )      | 2.1 |   | 1.3 |   |
|  Total      expenses                                     |   | $                                    | 15,162 |                               | $      | 12,853                      |   | 18.0                        | %      | 154.6 | % | 83.8 | % |

| (dollars      in thousands)                                   |   | Six      Months EndedJune      30, |   | %      Changefrom      PriorPeriod |   | %      of Total2008Revenues |   | %      of Total2007Revenues |   |
|---------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-----------------------------|--------|-----------------------------|--------|
| 2008                                                          |   | 2007                               |
|  Interest                                                |   | $                                  | 16,805 |                               | $      | 19,128                      |   | (12.1                       | )%     | 82.0 | % | 68.8 | % |
| Interest      – distributions to preferred shareholders |   |                               | 1,095  |                               |   | 1,123                       |   | (2.5                        | )      | 5.3 |   | 4.0 |   |
| General      and administrative                               |   |                               | 1,555  |                               |   | 1,147                       |   | 35.6                        |   | 7.6 |   | 4.1 |   |
| Fees      to Advisor and affiliates                           |   |                               | 1,274  |                               |   | 1,886                       |   | (32.4                       | )      | 6.2 |   | 6.8 |   |
| Impairment      of investments                                |   |                               | 30,968 |                               |   | --                          |   | 100.0                       |   | 151.1 |   | -- |   |
| Amortization      and other                                   |   |                               | 446    |                               |   | 406                         |   | 9.9                         |   | 2.2 |   | 1.5 |   |
|  Total      expenses                                     |   | $                                  | 52,143 |                               | $      | 23,690                      |   | 120.1                       | %      | 254.4 | % | 85.2 | % |

----

|                                                                                                   |   | Three      Months EndedJune      30, |    | Six      Months EndedJune      30, |   |
|--------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|------------------------------------|--------|
|                                                                                                   |   | 2008                                 |    | 2007                               |   | 2008 |   | 2007 |   |
|  Average      outstanding                                                                         |   | $                                    | 540,182 |                               | $      | 814,735 |   | $ | 550,070 |   | $ | 726,950 |   |
| Weighted      average interest rate (including      effect of interest rate swaps)                     |   |                                 | 6.84    | %(1)                               |   | 5.49 | % |   | 6.43 | %(1) |   | 5.57 | % |
| Average      notional amount of interest rate swaps                                                    |   | $                                    | 371,189 |                               | $      | 607,572 |   | $ | 371,251 |   | $ | 582,723 |   |
| Weighted      average fixed rate of interest rate swaps                                                |   |                                 | 5.38    | %                                  |   | 5.18 | % |   | 5.38 | % |   | 5.18 | % |
|  (1)        Includes default interest charged on our related party line of      credit. |

| (dollars      in thousands)                                                      |   | Three      Months EndedJune      30, |   | %      Change from      Prior Period |   | %      of Total 2008Revenues |   | %      of Total 2007Revenues |   |
|----------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|------------------------------|--------|------------------------------|--------|
| 2008                                                                             |   | 2007                                 |
|  Gain      on sale of investments                                           |   | $                                    | 495    |                                 | $      | 337                          |   | 46.9                         | %      | 5.1 | % | 2.2 | % |
| Change      in fair value and loss on termination of derivative      instruments |   |                                 | --     |                                 |   | 681                          |   | (100.0                       | )      | -- |   | 4.4 |   |
|  Total      other income                                                    |   | $                                    | 495    |                                 | $      | 1,018                        |   | (51.4                        | )%     | 5.1 | % | 6.6 | % |

| (dollars      in thousands)                                                      |   | Six      Months EndedJune      30, |   | %      Change from      Prior Period |   | %      of Total 2008Revenues |   | %      of Total 2007Revenues |   |
|----------------------------------------------------------------------------------|--------|------------------------------------|--------|--------------------------------------|--------|------------------------------|--------|------------------------------|--------|
| 2008                                                                             |   | 2007                               |
|  Gain      on sale of investments                                           |   | $                                  | 456    |                                 | $      | 337                          |   | 35.3                         | %      | 2.2 | % | 1.2 | % |
| Change      in fair value and loss on termination of derivative      instruments |   |                               | (2,640 | )                                    |   | 650                          |   | (506.2                       | )      | (12.9 | ) | 2.3 |   |
|  Total      other (losses) income                                           |   | $                                  | (2,184 | )                                    | $      | 987                          |   | (321.3                       | )%     | (10.7 | )% | 3.5 | % |

----

|                                             |   | Three      Months EndedJune      30, |   | Six      Months EndedJune      30, |   |
|--------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|--------|
| (dollars      in thousands)                      |   | 2008                                 |   | 2007                               |   | 2008 |   | 2007 |   |
|  Net      (loss) income                     |   | $                                    | (4,856 | )                                  | $      | 3,477 |   | $ | (33,832 | ) | $ | 8,641 |   |
| Add      back: depreciation of real property (1) |   |                                 | --     |                               |   | -- |   |   | -- |   |   | 336 |   |
| Less:      gain on sale of real property (1)     |   |                                 | --     |                               |   | -- |   |   | -- |   |   | (3,611 | ) |
|  FFO                                        |   | $                                    | (4,856 | )                                  | $      | 3,477 |   | $ | (33,832 | ) | $ | 5,366 |   |
|  Cash      flows from:                      |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Operating      activities                        |   | $                                    | 1,598  |                               | $      | 3,309 |   | $ | 1,971 |   | $ | 4,938 |   |
| Investing      activities                        |   | $                                    | 8,748  |                               | $      | (186,282 | ) | $ | 73,249 |   | $ | (270,610 | ) |
| Financing      activities                        |   | $                                    | (6,884 | )                                  | $      | 175,298 |   | $ | (70,361 | ) | $ | 264,952 |   |
|  Weighted      average shares outstanding:  |   |                                 |   |                               |   |   |   |   |   |   |   |   |   |
| Basic      and diluted                           |   |                                 | 8,445  |                               |   | 8,403 |   |   | 8,439 |   |   | 8,402 |   |

| (1)          Related to properties sold during 2007 and included in discontinued      operations in our condensed consolidated statements of      operations. |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

----

| ·   | Citigroup      Facility |
|--------------------|-------------------------|

| ·   | Bear      Stearns Facility |
|--------------------|----------------------------|

----

| ·   | Banc      of America Facility |
|--------------------|-------------------------------|

----

|                                                      |   | Six      Months Ended June 30, |    |
|-----------------------------------------------------------|--------|--------------------------------|---------|
| (in      thousands)                                       |   | 2008                           |    | 2007 |   | Dollar      Change |   | Percent      Change |   |
|   Cash      flows provided by (used in):        |   |                           |    |   |   |   |   |   |   |   |   |   |
| Operating      activities                                 |   | $                              | 1,971   |   | $ | 4,938 |   | $ | (2,967 | ) | (60.1 | )% |
| Investing      activities                                 |   |                           | 73,249  |   |   | (270,610 | ) |   | 343,859 |   | (127.1 | ) |
| Financing      activities                                 |   |                           | (70,361 | ) |   | 264,952 |   |   | (335,313 | ) | (126.6 | ) |
| Net      increase (decrease) in cash and cash equivalents |   | $                              | 4,859   |   | $ | (720 | ) | $ | 5,579 |   | (774.9 | )% |

----

| (in      thousands)                                                  |   | June      30,2008 |   |   | December      31,2007 |   |
|----------------------------------------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|
|  Level      3 assets held for our own account (Note 12):        |   |              |   |   |                  |   |
| Available-for-sale      investments:                                 |   |              |   |   |                  |   |
| CMBS                                                                 |   | $                 | 43,013 |   |                  | $      | 69,269 |   |
| Mortgage      revenue bonds                                          |   |              | 4,743  |   |                  |   | 4,879 |   |
|  Total      Level 3 assets                                      |   | $                 | 47,756 |   |                  | $      | 74,148 |   |
|  Level      3 assets as a percentage of total fair value assets |   |              | 73.4   | %      |                  |   | 50.0 | % |

| (in      thousands)                                                                                        |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|  Total      preferred dividends(1)                                                                    |   | $      | 616    |   |   | $      | -- |   |
| Total      common dividends                                                                                |   | $      | --     |   |   | $      | 3,782 |   |
|  Return      of capital:                                                                              |   |   |   |   |   |   |   |   |
| Amount                                                                                                     |   | $      | 616    |   |   | $      | -- |   |
| Per      preferred share                                                                                   |   | $      | 0.91   |   |   | $      | -- |   |
| Percent      of total dividends                                                                            |   |   | 100.0  | %      |   |   | -- | % |
|  (1)        Includes accrual of second quarter 2008 dividends that have been      deferred. |   |

----

|                                                                         |   | Payments      Due by Period |    |
|------------------------------------------------------------------------------|--------|-----------------------------|---------|
| (in      thousands)                                                          |   | Total                       |    |   | Less      than1      Year |   |   | 1 –      3 Years |   |   | 3 –      5 Years |   |   | More      than5      Years |   |
|  Debt:                                                                  |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CDO      notes payable (1)(2)                                                |   | $                           | 362,000 |   |   | $ | -- |   |   | $ | -- |   |   | $ | -- |   |   | $ | 362,000 |   |
| Repurchase      facilities (1)(2)(3)                                         |   |                        | 71,939  |   |   |   | 71,939 |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Line      of credit – related party (1)(2)                             |   |                        | 79,877  |   |   |   | 79,877 |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Preferred      shares of subsidiary (subject to mandatory repurchase) (1)(2) |   |                        | 25,000  |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 25,000 |   |
|                                                                         |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Funding      Commitments:                                                    |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Future      funding loan commitments                                         |   |                        | 18      |   |   |   | 18 |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
|  Total                                                                  |   | $                           | 538,834 |   |   | $ | 151,834 |   |   | $ | -- |   |   | $ | -- |   |   | $ | 387,000 |   |
|                                                                         |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1)          The amounts included in each category reflect the current      expiration, reset or renewal date of each facility or security      certificate. Management believes we have the ability and the intent, to      renew, refinance or remarket the borrowings beyond their current due      dates.(2)           Includes principal amounts only.  At June 30, 2008, the      weighted average interest rate on our debt was 4.35%.(3)           $37.0 million of this debt is related to a repurchase facility that      was due to expire in 2007, but was extended in 2008.  See      discussion in Sources of      Funds -Repurchase Facilities      above. |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| Forward-Looking      Statements |
|---------------------------------|

| ·   | Risks      related to current liquidity which include, but are not limited      to: |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | Market      volatility for mortgage products; |
|--------------------|-----------------------------------------------|

| ·   | The      availability of financing for ourinvestments; |
|--------------------|--------------------------------------------------------|

| ·   | Risks      associated with the repurchase agreements we utilize to finance our      investments and the ability to raisecapital; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | Risks      related to repayment of our debt facilities if we fail to comply with      certain covenants; |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | Risks      associated with CDO securitization transactions, which include, but are      not limited to: |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | The      inability to acquire eligible investments for a CDO    issuance; |
|--------------------|---------------------------------------------------------------------------|

| ·   | Interest      rate fluctuations on variable-rate swaps entered into to hedge fixed-rate      loans; |
|--------------------|-----------------------------------------------------------------------------------------------------|

----

| ·   | The      inability to find suitable replacement investments within reinvestment      periods; and |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | The      negative impact on our cash flow that may result from the use of CDO      financings with over-collateralization and interest coverage      requirements; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Risks      associated with investments in real estate generally and the properties      which secure many of ourinvestments; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | Risks      of investing in non-investment grade commercial real estate      investments; |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | General      economic conditions and economic conditions in the real estate markets      specifically, particularly as they affect the value of our assets and the      credit status of our borrowers; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Dependence      on our Advisor for all services necessary for our    operations; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | Conflicts      which may arise among us and other entities affiliated with our Advisor      that have similar investment policies to ours;  and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Risks      associated with the failure to qualify as a  REIT. |
|--------------------|---------------------------------------------------------------|

----

----

| (a) | Evaluation of Disclosure      Controls andProcedures  |
|-----|------------------------------------------------------------|

| (b) | Internal Control over      Financial Reporting |
|-----|------------------------------------------------|

----

| Item      1.       | Legal      Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                               |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | We      are not party to any pending material legalproceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
| Item      1A.      | Risk      Factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                               |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | There      have been no material changes to the risk factors as disclosed in our      annual report on Form 10-K for the year ended December 31,      2007.                                                                                                                                                                                                                                                                                                                                                            |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
| Item      2.       | Unregistered Sales of Equity      Securities and Use of Proceeds.  None                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
| Item      3.       | Defaults upon Senior      Securities.  None                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
| Item      4.       | Submission      of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|               |  The      company held its annual meeting of shareholders on June 11,      2008.  The common shareholders elected Jeff T. Blau, James L.      Duggins, George P. Jahn, Harry Levine, Scott M. Mannes, Stanley R. Perla      and Marc D. Schnitzer as trustees for one-year terms which will expire in      2009.  Common shares of beneficial interest were voted as      follows:                                                                                                       |
|               | Trustee      nominee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               | For |   | Abstain/withheld |   |
|               |  Jeff      T. Blau                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                               | 6,480,639 |   | 657,103 |   |
|               | James      L. Duggins                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                               | 6,454,129 |   | 683,613 |   |
|               | George      P. Jahn                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                               | 6,515,218 |   | 622,524 |   |
|               | Harry      Levine                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                               | 6,516,868 |   | 620,874 |   |
|               | Scott      M. Mannes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               | 6,505,944 |   | 631,798 |   |
|               | Stanley      R. Perla                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                               | 6,520,532 |   | 617,210 |   |
|               | Marc      D. Schnitzer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                               | 6,440,191 |   | 697,551 |   |
|          |  There      were no votes “against” any of the nominees. The      common shareholders were also asked to ratify the appointment of Deloitte      & Touche LLP, as the independent registered public accountants of      American Mortgage Acceptance Company. The ratification was identified as      proposal 2 in the proxy statement for the annual meeting and approved by      the common shareholders.  Common Shares of beneficial interests      were voted on as follows: |
|               |  For                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 6,873,759                                                                                                                                          |   |   |
| Against            | 218,851                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                               |   |
| Abstain            | 45,132                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                               |   |
|  Item      5. |  Other      Information.  None                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
| Item      6.       | Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | 31.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Certification      of the Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.*                                 |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | 31.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Certification      of the Chief Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.*                                 |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | 32.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Certification      of the Chief Executive Officer and the Chief Financial Officer pursuant to      Section 906 of the Sarbanes-Oxley Act of 2002.* |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |
|               | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Filed      herewith.                                                                                                                               |

----

| Date:             |   | August      7, 2008 |   | By:    |   | /s/ Donald J. Meyer                                                                                                 |
|-------------------|--------|---------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------|
|              |   |                |   |   |   | Donald      J. MeyerChief      Executive Officer(Principal      Executive Officer)                                  |
|   Date: |   | August      7, 2008 |   | By:    |   | /s/ Robert L. Levy                                                                                                  |
|              |   |                |   |   |   | Robert      L. LevyChief      Financial Officer(Principal      Financial Officer and Principal Accounting  Officer) |

----